Know your sector - Written on 5th July

Know Your Sector:-

Most of us have seen the growth phase in insurance sector , as written last time Insurance industry has grown at 24% CAGR over last 10 years, we also know that LIC has managed to stay as big daddy of insurance for all this years , have you wondered why  ?

Is it because they have first mover advantage or having more offices ?

Do they have more reach than private company combined?

Let’s look at First year premium of Life insurers:-

Market Share for LIC had dropped in 2008-09 but again picked up in subsequent years, Pls note LIC does not have any strong BA partner

As per IRDA report, LIC has ~3500 offices where as the private industry has more than double of that no combined (7712)

Insurer	2007	2008	2009	2010	2011	2012	%
Private	3072	6391	8785	8786	8175	7712	69%
LIC	2301	2522	3030	3250	3371	3455	31%
Industry	5373	8913	11815	12036	11546	11167

*source IRDA report

Which geography are they :-

	Metro	Urban	semi-urban	Others	Total
Private	741	1392	3822	1756	7712
LIC	365	563	970	1557	3455
Industry	1106	1955	4792	3313	11167

·         Private insurer are competing with LIC in Metro urban and Semi urban areas.

·         Others (Tier 3-4 towns) are left untapped by private insurers.

Everything comes down to two factors then

1)      Productivity

2)      Activity

These parameters drive profitability, for industry this no are at 10.34, though it has come down but still is very  high no to run your business  

Operating expenses ratio
Insurer	2010-11	2011-12
LIC	8.35	7.35
Private sector	18.1	17.53
total	11.3	10.34

Private insurers are running their business at twice the cost.