Management Dynamics Management

The Life Insurance sector was privatized in India with an objective of bolstering the social security system and enhancing Insurance Inclusion' amongst the vast population of the country. But the private companies are commercial organization. The policies related with these life insurance companies, have always been an imperative issue for concerned stakeholders considering the corpus of fund and the underlying objective of the fund. After a decade of privatization of the insurance sector it becomes imperative to study the performance of private companies and their contribution to the economy. There is a need to study the investment pattern of private life insurance companies and the trends in their performance individually, as well as against the industry. The given research is an empirical effort to analyze the performance of life insurance companies in India in the post insurance liberalization era.


INTRODUCTION
Continuing with the policy of control led liberalization of the Indian economy, the insurance sector was opened for private investment which was till date the monopoly and privilege of the Life Insurance Corporation of India and some government controlled general insurance companies. Since LIC is state owned and controlled, the concern for the policymakers was the private life insurance business. Till 1999, the insurance business in India was under the purview of the Insurance Act, 1938. It was only in 1999 when another act, the Insurance Regulatory and Development Authority Act was passed to control, regulate and develop the insurance market in India.
The modem concept of insurance practices in India started during the British rule in 1818 when Oriental Life Insurance Company was established in Calcutta. India became independent from British rule in 1946, and by 1956 the insurance sector was nationalized, with the Life Insurance Corporation of India created by combining almost 245 private life insurance companies; 107 private non-life companies combined in 1973 to form the General Insurance Corporation. But since the very purpose of nationalizing the insurance sector got sidelined due to the monopolistic power it enjoyed, coupled with the bureaucratic mindset of LIC and QIC, insurance again was opened to private players in 1999. During 2000During -2006 life and 13 non-life private insurance players (mostly joint ventures between Indian and foreign players) started operations in India, indicating the willingness of foreign investors to enter the Indian insurance sector. But through all these major changes the actual impact was felt only in major urban areas, while the vast majority of the rural population was excluded from the insurance sector.
One major and significant change in the economic policy was allowing Foreign Direct Investment (FDI) in the life insurance business in the form of a joint venture with 74:26 ratio in favor of domestic investment. This meant that a maximum of 26% stake in the equity capital was allowed for investment by the foreign investors. The first company to get registered was HDFC in collaboration with Standard Life as a foreign partner. As on May,2012, there are 23 private LIC, amongst which there are two 100% domestic financed private life insurance companies (Reliance LIC and Sahara LIC).
The following Table 1 compares Life Insurance Penetration in 2009 amongst other countries. It is evident that India is ahead of the world average and other BRIC countries which signify that India is doing well in terms of Life Insurance inclusion, but the question of sustainability and sufficiency needs to be studied. Life insurance is a very critical business. It existence is as important as its survival. Also it involves huge money invested over a long term. Perhaps this is the reason that a robust surveillance and control is required over the insurance market. Investment into the company is important as the promoters/owners are the decision makers who would be the determinants of the company's future. Likewise the fund collected from the policy holders has its own criticality.
The Mission statement of IRDA (Source: Annual report, 2007-08) is: To protect the interest of and secure fair treatment to policyholders.
To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy.
To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance handling machinery.
To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players.
To take action where such standards are inadequate or ineffectively enforced.
To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation. LITERATURE REVIEW Shrinivas (2008) analyzes the causes behind lapses in Insurance Policies of Lie after privatization on the basis of the experiences of the functionaries like branch managers, development officers and insurance agents who are the core marketing staff for Lie of India. Subhash and Bhat (2007) highlight the role of innovation for growth in Insurance Sector. They are of the opinion that the success of the insurance industry will primarily depend upon meeting the rising expectations of the consumers. Also a concentrated effort from LIC as well as various private players towards tapping the rural market is needed to boost the insurance sector in the years to come. There exists huge potential for the wealth maximization of private institutional investors, private wealthy families, individuals, and public sector enterprises. Ahmad (2010) discusses the importance and effectiveness of privatization of General Insurance sector in India. Gupta (2000) discusses the state of the insurance industry in India from 1990 to 1999 and issues such as establishment of statutory reinsurance policies to increase the risk retention capacity of the domestic insurance market. Kallinath (2003) conducts a study which evaluated the products and performance of the Life Insurance Corp. of India in the Gulbarga District, India. Tone (2005) applies a new variant of data envelopment analysis model to examine the performance of Life Insurance Corporation (LIC) of India. The findings show a significant heterogeneity in the cost efficiency scores over the course of 19 years. A decline in performance after 1994-1995 can be taken as evidence of increasing inefficiencies arising from the huge initial fixed cost undertaken by LIC in modernizing its operations. A significant increase in cost efficiency in 2000-2001 is, however, cause for optimism that LIC may now be realizing a benefit from such modernization. Krishnamurthy et al (2005) discussed and concluded that some of the challenges faced by the insurance sector pertain to the demand conditions, competition in the sector, product innovations, delivery and distribution systems, use of technology, and regulation. To understand the growth and development and the future prospects of this sector, he addressed issues such as demand for insurance, types of innovative strategies of insurance education and awareness, bank participation in insurance, nature of competition and implications for profitability, margins, and efficiency. Ramana (2008) discusses the rapid growth of the insurance industry in India. Raman (2004) emphasized on regulatory dissonance which not only poses serious challenges to insurance companies seeking global expansion, but also reiterates the fact that business models cannot be exported in their entirety from one country to another. The paper presented the regulatory dissonance that exists between the nonlife insurance industry in the U.S. and India. It attempts to highlight the regulatory dissonance that exists in the business line definition area, accounting treatment of acquisition expenses, treatment of unearned premiums, creation of a catastrophe reserve, reinsurance cession, investment regulation, obligations to the rural and social sector, rate and form regulation and solvency margin computation.

RESEARCH METHODOLOGY
To fulfill the regulatory norms, effective December, 2007, all insurers have been advised to file the quarterly financial statements with the IRDA. These statements include the Balance Sheet, Revenue A/c (Policyholders' A/c) and the Profit & Loss A/c (Shareholders' A/c). Also the insurance companies have to follow the provision set out in Section 27 of the insurance Act, 193 8 should be read with rule 3 of the IRDA (Investment Regulations,2000). The Policy holders' account and Shareholders' account are two important financial statements of life insurance companies and have been used in the given study also.
The given research is an empirical effort to understand and study the growth of life insurance sector in India especially after the liberalization of the insurance sector.
Alamelu (2011) did a similar study to evaluate the financial soundness of Life insurance companies in India. Garg (2008) did a similar study using DBA analysis on post liberalization General Insurance Sector in India. Data was collected from secondary sources. The significant sources include IRDA databases, Insurance regulations and notifications, electronic research database EBSCO and other related links and published matter on life insurance. All the life insurance companies operating in India as on March 31, 2009 have been taken for the study. It can be said that it is a 'census study'. The data from 2000 till 2009 has been taken for the study.
Initially the absolute data on different parameters has been taken for analysis and then it is worked upon to apply the concept of Data Envelopment Analysis (DEA) and other statistical tools for further analysis.
To implement the DEA techniques, several input and output factors are derived based on their utility in line with the objective of the research and then analyzed. The following three prominent ratios were calculated.

Ratio 1 = Shareholders investment / (Share Capital +Reserve and Surplus)
Ratio 2= Fixed Assets / (Share Capital + Reserve and Surplus) Ratio 3=Application of Policyholders fund / Source of Policyholders fund.
In the first ratio, the shareholders account's input and output have been used to understand the efficiency of this account. The second ratio compares and explains the investment in fixed assets. Fixed assets can be used as a proxy for organization's long term business strategy. In third ratio the numerator includes policyholder's fund, assets and any loan given whereas the denominator includes policy liabilities, insurance reserves and provision for linked liabilities. The ratios are then used to calculate the efficiency scores of PLICs by considering the highest value as 100% and calculating relative scores for other PLICs. Also the efficiency scores in terms of solvency ratio have been used to analyze the solvency position of PLICs.  The YoY percentage increase is highest for 2007 but a rising trend was observed throughout the time period. Considering the industry in totaHty, the growth went negative in 2005 which can be traced to the government owned LIC. Also in the same year, private sector grew by 35% indicating the first dent in the market share of the state owned LIC. In terms of total premium collected (Table 3) also, private sector shows a growing trend as well as the industry also. Probably this is because theses figures are total but definitely they indicate a growing industry. An imperative observation is about the market share of PLIC of the industry which has grown from 0.54% in 2002 to 29 % in eight years. Also the pace of growth needs to be studied as YoY growth which was an average of 132% for PLIC and an average of 24% for Industry for the whole time period. The YoY growth rates in premiums for PLIC, every year, were higher than industry.  This means, ICICI has constantly been the number one company in terms of premium collected but Sahara and Reliance have been the last for two and three years respectively which raises apprehensions about their performance. Also the share of ICICI amongst the private players is coming down indicating increased competition. Given in the table is the efficiency score of each PLIC with respect to share capital raised and used. The figures are year wise and the most efficient company has the efficiency score of 100% and these scores are comparative scores. 'All LlC is the industry average parameter which signifies the companies which have over performed or under performed. It has been indicated in bold and all companies above this score are efficient companies and below this score are inefficient companies based on this score only. For 2001, Birla Sunlife was most efficient out of the four companies operating at that time. The score has been calculated using the data for all private companies individually and in total (All LIC). The data and score for LICI has been also listed but not used for calculating the efficiency scores.  On the basis of second ratio, for the year 2001 the private industry parameter was the most efficient and for major part of the time period was dominated by 'All Lie.  For this ratio, in 2001 the most efficient company was HDFC and amongst the other two who scored, Birla Sunlife and the industry parameter (All LIC).Surprisingly in the later years the new insurers have been more efficient than the existing one while managing the policy holder's account. The most efficient company in terms of solvency has been changing ever year but Aviva has managed to stay in top three every year, once top of the list also. Surprisingly, ICICI has been amongst the companies with lowest scores.
The solvency ratio in insurance business indicates the ability of the company to meet out the liabilities of its Policyholders and Shareholders. The scores have been derived based on the solvency ratio as provided by Handbook of Insurance, 2008-2009, IRDA.

CONCLUSION
One of the major findings of the research is that competition has been increasing amongst the private players and also between private sector and LICI. Thus there is a need for strict implementation of competition laws to avoid any malpractice in the business. Also increased market share of the private players brings with itself its share of uncertainty in the management of a huge corpus of fiind which calls for increased surveillance and supervision. Recent conflict between the IRDA and SEBI is a result of such a concern.
Based on the findings of the study, it can be concluded that liberalization of insurance sector was a beneficial step, considering the parameter of insurance inclusion.
LlCI's market share has been declining. It needs to revamp itself to compete with the private sector. The insurance market is set to grow in the coming years as insurance literacy grows in India which would bring funds from middle class and lower middle class segment of the population. A greater accountability and responsibility is needed to manage such funds. Thus an enhanced role of the regulator is required in future.
It can be concluded that privatization of life insurance in India has been a successful decision considering the growth pattern of financials of PLICs. Also it has been a success from customer's perspective by increasing the life insurance penetration in India.