Insurance Company


It is due to globalization, deregulation and also terrorist attacks; that the insurance industry is undergoing a massive change and the metamorphosis has been noteworthy in the last few decades.

Clearing basics

Before we begin the analysis of Indian insurance industry, let us clear some basics on insurance.

  • In the words of a layman, insurance means managing risk. For instance, in life insurance segment, the insurance company tries to manage mortality (death) rates among the wide array of clients.
  • The insurance company works in a manner by collecting premiums from policy holders, investing the money (usually in low risk investments), and then reimbursing this same money once the person passes away or the policy matures. The greater the probability for a person to have a shorter life span than the average mark, the higher premium that person has to pay. The case is the same for all other types of insurance, including automobile, health and property.
  • Ownership of insurance companies is of two types:
  • Shareholder ownership
  • Policyholder ownership

Types of Insurance

  1. Life Insurance - Insurance guaranteeing a specific sum of money to a designated beneficiary upon the death of the insured, or to the insured if he or she lives beyond a certain age.
  2. Health Insurance - Insurance against expenses incurred through illness of the insured.
  3. Liability Insurance - This insures property such as automobiles, property and professional/business mishaps.

Challenges facing Insurance Industry

  • Threat of New Entrants: The insurance industry has been budding with new entrants every other day. Therefore the companies should carve out niche areas such that the threat of new entrants might not be a hindrance. There is also a chance that the big players might squeeze the small new entrants.
  • Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if someone as a very talented insurance underwriter is presently working for a small insurance company, there exists a chance that any big player willing to enter the insurance industry might entice that person off.
  • Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses have a lot more negotiating capability with the insurance companies. Big corporate clients like airlines and pharmaceutical companies pay millions of dollars every year in premiums.
  • Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the large insurance companies provide similar kinds of services – be it auto, home, commercial, health or life insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.
  • The consumers as well as the investors should only focus on the insurer's financial strength and capability to meet ongoing responsibilities to its policyholders.
  • The fundamentals of the insurance company should be strong and should not indicate a poor investment opportunity as this might also deter growth.