financial downturn on insurance Dr D D Bedia

financial downturn on insurance Dr D D Bedia Director Pt. Jawaharlal Nehru Institute of Business Management Vikram University, Ujjain (M. P. ) 1

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Introduction In macroeconomics, recession is defined as a distinct decline in any particular country's GDP (Gross Domestic Product). In some other cases, when a country faces negative real economic expansion, for two or more successive quarters of a year, that’s also termed as state of recession. In general, recession affects a country’s overall economic activities, including, investment, employment rate, profits data of companies etc. Recession is almost always accompanied by sharp increase in prices of commodities. When recession continues for a long duration and with severe implications, it’s termed as economic depression whereas complete breakdown of economy is referred as economic fall down. 3

Introduction This is true, Insurance Carriers in India are also struggling to balance their funds. Top 100 companies have applied cost cutting majors, giving a reason of economy slowdown, financial crisis & Recession, giving pink slips to employees. The slowdown in economic activities in India has lead to a sharp reduction in asset creation in the Indian industries. This along with rigorous cost cutting measures in all businesses has directly impacted the insurance industry in the country. The most important reason for the go down in this business was that many small and medium businesses either did not buy insurance covers, or went for lower cover to save on premium expenditure. Also the sharp drop in sales of commercial vehicles, tractors and near stagnation in car sales led to a big drop in insurance premium underwritten. Interestingly, despite the slowdown, the 4 insurance industry attracted many new players last year.

Objective of the study The main objectives of study are: *To provide the overview of financial downturn. *To measure the impact of financial downturn on insurance sector. *To study the impact of recession on premium deposits in insurance sector. 5

Research Methodology This study is an attempt to find out the functions of insurance company which are highly influenced by the recession or financial crisis. We have taken all the data from report, journal and website. Premium is the important factor in various insurance companies in this research paper, we are using secondary data for the analysis of insurance sectors various private and public insurance companies’ premium. we have selected 4 insurance companies from the public sector and 3 private life and general insurance companies from private sector and duration from 2006 to 2009. The statistical tool which is appropriate to analyze the data to measure the impact of financial crisis on insurance sector is paired ‘T ‘test. With 6 the use of this technique, the inferences are drawn.

Analysis & Findings Table-1 Net premium of three years of selected Insurance companies: Rs. In Crorese Insurance Sector 2006 -07 2007 -08 2008 -09 LIC + NIC+OIC+UIC Life-127782. 26 Life-149705. 59 Life-157186. 55 Gen-293358. 59 Gen-293935. 63 Gen-330674. 04 ICICI Life- 79129879 Life-135, 610, 612 Life-153582208 Gen-10, 666, 460 Gen-15, 671, 848 Gen-19736522 Life- 28558656 Life-48585616 Life-55646937 Gen-1331126 Gen-1675823 Gen-1947673 Life-53099971 Life-97253110 Life-106245213 Gen-8385 Gen-14154427 Gen-18912709 HDFC Bajaj Allianz 7

Analysis & Findings Hypothesis: H 0: There is significant difference before, during and after the financial crises in general insurance and life insurance companies. H 1: During and after financial crises general and life insurance companies have not affected. Table- 2 Paired Samples Statistics for general Insurance sector (both public and private) 2007 -2009 Pair 1 Before crisis – Mean N Std. Deviation Std. Error Mean 3208101. 0000 4 5002022. 22661 2501011. 11330 7949008. 4075 4 8085016. 29900 4042508. 14950 10231894. 5150 4 10525476. 65365 5262738. 32683 during crisis Pair 2 During crisis – after crisis 8

Analysis & Findings Table -3 Paired Samples Test for general Insurance sector (both public and private) 2007 -2009 Paired Differences Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference Lower Pair 1 ir 2 t df Sig. (2 -tailed) Upper Before crisis – during 6724630. 61 3362315. 305 5959480. 5 crisis 4740907. 407 15441295. 32 3 145 72 1440 1. 410 50 940 Pa During crisis – after crisis 2476004. 74 1238002. 373 1656989. 9 2282886. 107 6222762. 188 3 779 90 7324 1. 844 50 24 . 253 . 162 9

Analysis & Findings Hypothesis: H 0: There is significant difference before, during and after the financial crises in Life insurance of both the sectors. H 1: During and after financial crises life insurance in both the sectors has not affected. Table -4 Paired Samples Statistics for life Insurance (both public and private sector) 2007 -2009 Pair 1 Mean N Std. Deviation Std. Error Mean 40229072. 0650 4 33779899. 71736 16889949. 85868 70399760. 8975 4 58834470. 19067 29417235. 09533 78907886. 1375 4 65995778. 21323 32997889. 10661 Before crisis during crisis Pair 2 During crisis after crisis 10

Analysis & Findings Table -5 Paired Samples Test for Life Insurance (both public and private sector) 2007 -2009 df Sig. (2 tailed) 25163271. 0693 1258163 9869690. 7021106 -2. 398 30170688. 83250 9 5. 53469 68931 8. 35431 3 . 096 During crisis – 3698487. 3262112. 2027836 -8508125. 24000 7396974. 80915 -2. 300 after crisis 40457 33582 2. 81582 3 . 105 11 Paired Differences Mean Std. Deviation t 95% Confidence Std. Error Interval of the Mean Difference Lower Pair 1 Pair 2 P Pair 2 Before crisis during crisis Upper

Analysis & Findings Hypothesis: H 0: There is significant difference before, during and after the financial crises in overall banking both sectors. H 1: During and after financial crises in overall banking both sectors have not affected. Table -6 Lives and general Insurance 2007 -2009 Paired Samples Statistics Mean Pair 1 N Std. Deviation Std. Error Mean 24820043. 8943 7 30824081. 59230 11650407. 75503 42748664. 3171 7 54260718. 57226 20508623. 90027 48235201. 9443 7 60661817. 11550 22928011. 73784 Before crisis -during crisis Pair 2 During crisis -after crisis 12

Analysis & Findings Table -7 Insurance sector (public and private both) 2007 -2009 Paired Samples Test Paired Differences Mean Std. Deviation t Std. Error Mean 95% Confidence Interval of the Difference Lower Pair 1 Before crisis – during crisis df Sig. (2 tailed) Upper 23509078. 8885596. 3813651. 2890 17928620. 39670892. 1 -2. 018 6 94792 63548 0 42286 3472 . 090 Pair 2 During crisis – 6577495. 0 2486059. 5486537. 6 11569705. 9 596630. 74551 -2. 207 6 after crisis 9441 46708 2714 9979 . 069 13

Conclusion When we see in comparative analysis of public and private insurance sector, even both have face the crises but in public sector there was not the condition of jobless situation, cost cutting situation and people had faith on LIC on that time also, but because of financial meltdown people might be not able to invest the money even in LIC, but in private sector there was worst situation in inside of the companies, very much pressure on employees to sale the products, cost cutting situation have faced by many private insurance sector, there old products were not in running position and new one were almost failed. 14

Conclusion In conclusion, the impact of financial crisis on insurance sector in India is not substantial. Statistically there is no impact of financial crisis in insurance sector and an average before crisis premium deposits and during crisis premium deposits are same. There is no difference between average premium deposits during the crisis and after the financial crisis. Thus it is clear that there is no effect of financial crisis in insurance sector both in life insurance and general insurance. 15

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