Life insurance in India

Life Insurance is the fastest growing sector in India since 2000 as Government allowed Private players and FDI up to 26%. Life Insurance in India was nationalised by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC.

In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a road map for privatisation of the life insurance sector.

While the committee submitted its report in 1994, it took another six years before the enabling legislation was passed in the year 2000, legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000. The same year that the newly appointed insurance regulator - Insurance Regulatory and Development Authority IRDA --started issuing licenses to private life insurers.

List of Life Insurers (as of November, 2011)

Apart from Life Insurance Corporation, the public sector life insurer, there are 23 other private sector life insurers, most of them joint ventures between Indian groups and global insurance giants.

Life Insurer in Public Sector

1. Life Insurance Corporation of India

Life Insurers in Private Sector

1. SBI Life Insurance
2. Metlife India Life Insurance
3. ICICI Prudential Life Insurance
4. Bajaj Allianz Life
5. Max New York Life Insurance
6. Sahara Life Insurance
7. Tata AIG Life
8. HDFC Standard Life
9. Birla Sunlife
10. Kotak Life Insurance
11. Aviva Life Insurance
12. Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar LIC
13. ING Vysya Life Insurance
14. Shriram Life Insurance
15. Bharti AXA Life Insurance Co Ltd
16. Future Generali Life Insurance Co Ltd
17. IDBI Fortis Life Insurance
18. AEGON Religare Life Insurance
19. DLF Pramerica Life Insurance
20. CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE
21. India First Life insurance company limited
22. Star Union Dia-ichi Life Insurance Co. Ltd
23. Edelweiss Tokio Life Insurance Company Ltd

Foreign Direct Investment (FDI) Policy in Insurance Sector

As per the current (Mar 06) FDI norms, foreign participation in an Indian insurance company is restricted to 26.0% of its equity / ordinary share capital. The Insurance Regulator has stipulated that foreign investment in Indian Insurance companies be limited to 26% of total equity issued (FDI limit) with the balance being funded by Indian promoter entities. The limit to foreign investment includes both direct and indirect investment and has been a cause of significant lobbying by foreign insurance companies for a change in regulations to increase the FDI limit to 49% of equity issued.

The Indian government has supported an increase in the FDI limit, which requires a change in the Insurance Act. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be increased to 49.0%.

A change in the Insurance Act requires a passage of the bill in both houses of Parliament. The Indian government has tabled the bill in the Upper House of Parliament in August 2010.

Initial Public Offer (IPO) rules for Indian Life Insurance Companies

A key piece of legislation impacting on the Life Insurance industries capital raising abilities is the lock-in period of 10 years for investment to be limited to promoter group equity investments. Under the Insurance Guidelines, Indian Life Insurance companies can opt for a public issue of equity through an Initial Public Offer (IPO) after 10 years of operations.

In October 2010, the securities market regulator, Securities and Exchange Board of India (SEBI), issued disclosure norms for Indian Life Insurance Companies seeking to make an initial public offer for sale of equity shares to the public.

Recent Revisions to Life Insurance Guidelines =

- February 2010 - >>%20Life%20>>%20Guidelines Norms for public disclosures by Life Insurance Companies - June 2010 - >>%20Life%20>>%20Guidelines Change in guidelines for Unit Linked Insurance Products, which has resulted in an increase in the benefits and lowering of cost of ULIP products

Indian life insurance industry overview

All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA).

Life Insurance Corporation of India (LIC), the state owned behemoth, remains by far the largest player in the market. The private companies have come out with products called ULIPs (Unit Linked Investment Plans) which offer both life cover as well as scope for savings or investment options as the customer desires. These type of plans are subject to a minimum lock-in period of three years to prevent misuse of the significant tax benefits offered to such plans under the Income Tax Act. Comparison of such products with mutual funds would be erroneous.

Commission / intermediation fees

• The maximum commission limits as per statutory provisions are:

Agency commission for retail life insurance business:

• • • 7- 90% for 1st year premium if the premium paying term is more than 20 years
    • 7- 10% for 1st year premium if the premium paying term is more than 15 years
    • 7- 10% for 1st year premium if the premium paying term is less than 10 years
    • 7% - yr 2 and 3rd year and 3.5% - thereafter for all premium paying terms.

In case of Mutual fund related - Unit linked policies it varies between 1.5% to6% on the premium paid.

• • Agency commission for retail pension policies
    • 7.5% for 1st year premium and 2.5% thereafter

• Maximum broker commission - 30%

• Referral fees to banks – Max 55% for regular premium and 10% for single premium. However in any case this fee cannot be more than the agency commission as filed under the product.

• However, the above commission may be further subject to the product wise limits specified by IRDA while approving the product.