CUSTOMERS

PERCEPTION
TOWARD
INSURANCE
POLICIES
CONTENTS

1.CONTENTS…………………………………………………………………
2.ACKNOWLEDGEMENT……………………………………………….…
3.INTRODUCTION…………………………………………………………..
A. FUNCTION OF INSURANCE………………………………...…..
B. INDUSTRY PROFILE………………………………………..…..
C. ENERGENCE IN INDIA…………………………………………
D. INSURANCE SECTOR REFORMS IN INDIA………………...
E. REGULATION…………………………………………………….
F. PRIVATIZATION OF INDIAN INSURANCE INDUSTRY…....
G. PERFORMANCE AFTER PRIVATIZATION…………………..
H. BENEFITS OF LIFE INSURANCE…………………………….…
I. FUTURE PERSPECTIVE………………………………………….
4. REVIEW OF LITERATURE…………………………………………....
A. OBJECTIVE…………………………………………………….…..
B. BENEFITS………………………………………………………..…
5. RESEARCHMETHODOLOGY……………………………………..…….
A. LIMITATION………………………………………………….…….
B. DATA ANALYSIS……………………………………………..…….
6. FINDING AND CONCLUSIONS…………………………………………
7. RECOMMENDATION…………………………………………………….
8. BIBLIOGRAPHY…………………………………………………………..
9. ANNEXURE……………………………………………………………...…
ACKNOWLEDGEMENT

The project has been undertaken at Rajpura and it has given me an invaluable
insight in the study of the insurance sector. This project has helped me to know
about the “Analysis of the insurance solution provided by the various players”.
At this very outset, I sincerely acknowledge with gratitude the guidance and
support rendered to me by different people without which this project would not
eve materialized.

I am thankful to and owe a deep debt of gratitude to all those who

helped me in preparing this report. I am grateful to Ms. Swati singla (Project
guide) a host of other officials for their active help and cooperation at each stage of
the study.

I would like to thank my parents, family members, colleagues and everyone

concerned who has been instrumental in successful completion of the project.
INTRODUCTION

Insurance may be described as a social device to reduce or eliminate the risk of

loss of life and property. Under the plan of insurance a large number of people
associate themselves by sharing risk attached to individuals. The risks, which can
be insured against, include fire, perils of sea, death, accidents and burglary. Any
risk contingent upon these may be insured against at a premium commensurate
with the risk involved. Thus we can say “collective bearing of risk is insurance”.

Insurance is a plan by themselves which large number of people associate and

transfer to the shoulders of all, risk that attach to individuals.
………..John Magee

Insurance is a contract in which a sum of money is paid to the assured as

consideration of insurer’s incurring the risk of paying a large sum upon a given
contingency.
..……...Justice Tindall
The insurance sector in India has come a full circle from being an open
competitive market to nationalization and back to liberalized market again. Tracing
the developments in the Indian insurance sector reveals the 360- degree turn
witnessed over a period of almost two centuries.

A thriving insurance sector is of vital importance to every modern economy. First

because it encourages the savings habit, second because it provides a safety net to
rural and urban enterprises and productive individuals. And perhaps most
importantly it generates long-term invest able funds for infrastructure building. The
nature of the insurance business is such that the cash inflow of insurance
companies is constant while the payout is deferred and contingency related.

This characteristic of their business makes insurance companies the biggest

investors in long-gestation infrastructure development projects in all developed and
aspiring nations. This is the most compelling reason why private sector (and
foreign) companies, which will spread the insurance habit in the societal and
consumer interest, are urgently required in this vital sector of the economy.
FUNCTIONS OF INSURANCE

Primary functions

1 Provides protection: insurance cannot check the happening of risk but can
provide for losses of risk.
2 Collective bearing of risk: insurance is a device to share the financial losses
of few among many others.
3 Assessment of risk: insurance determines the probable volume of risk by
evaluating various factors which give rise to risk.
4 Provide certainty: insurance is a device which helps to change from
uncertainty to certainty.

Secondary functions

1 Prevention of losses: insurance cautions businessman and individuals to

adopt suitable device to prevent unfortunate consequences of risk by
observing safety instructions.
2 Small capital to cover large risk: insurance relieves the businessman from
security investment, by paying small amount of insurance against large risk
and uncertainty.
3 Contribute towards development of large industries.

INDUSTRIAL PROFILE
HISTORY OF INSURANCE

The roots of insurance might be traced to Babylonia, which traders were

encouraged to assume the risk of the caravan trade through loans repaid (with
interest) only after the goods arrive safety. The Phoenicians and Greeks applied a
similar system to their seaborne trade. The Romans used burial clubs as a form of
life insurance, providing funeral expenses for members and later payments to the
survivors.

Milestones
1 By the middle of the 14th century marine insurance was practically universal
among maritime nation of Europe.
2 In London, Lloyd’s Coffee House (1688) was a place where merchants, ship
owners, and underwriters met to transact business.
3 By the end of the 18th century Lloyd’s had progressed in to one of the first
modern insurance companies.
4 In 1693 the astronomer Edmond Halley constructed the first mortality table,
based on the statistical laws of mortality and compound interest.
5 The table corrected (1756) by Joseph Dodson, made it possible to scale the
premium rate to age; previously the rate has been same for all ages.
6 The first stock company to engage in insurance were chartered in 1720, and
in 1735, the first insurance company in the American colonies was founded
at Charleston, S.C.
7 Fire insurance corporations were formed in New York and Philadelphia.
8 The Presbyterian Synod of Philadelphia sponsored (1759) the first life
insurance corporation in America, for the benefit of Presbyterian ministers
and their dependents.
 9 The New York called for the attention to the need for adequate reserves to
meet unexpectedly large losses. Massachusetts was the first state to require
company by law to maintain such reserves.
10 The great Chicago fire (1871) emphasized the costly nature of fires in
structurally dense modern cities. Reinsurance, whereby losses are distributed
among many companies, was devised to such situations and is now common
in other lines of insurance.
11 The workmen’s compensation act of 1897 required employer to insure their
employees against industrial accidents.
12 Public liability insurance, fostered by legislation made its appearance in the
1880’s, it attained major importance with the advent of automobile.

Insurance developed rapidly with the growth of British commerce in the 17th and
18th century. Prior to the formation of corporations devoted solely to the business
of writing insurance, policies were signed by number of individuals each of them
write his name and amount of risk he was assuming underneath the insurance
proposal, hence the term underwriter.

Insurance in modern form originated in Mediterranean during 13th & 14th century.
The oldest and earliest records of insurance comes in form of marine insurance
where ships and cargo were insured against the perils such as pirates, storms,
mutiny and wars.

EMERGENCE IN INDIA
The insurance sector in India has come a full circle from being an open
competitive market to nationalization and back to a liberalized market again.
Tracing the developments in the Indian insurance sector reveals the 360 degree
turn witnessed over a period of almost two centuries.

Life Insurance in it’s existing form came to India from United Kingdom (UK) with
the establishment of British Firm – Oriental Life Insurance Company in Calcutta in
1818, the Madras Equitable Life Insurance Society in 1829. Prior to 1871, Indian
lives were treated as sub-standard and charged an extra premium of 15% to 20%.
Bombay Mutual Life Assurance Society, an Indian insurer that came into existence
in 1871, was the first to cover Indian lives at normal rates.

Post 1947 India had a great challenge to come out of dark into an era where many
countries were happily progressing on the way of advancement. Besides the
infrastructure is required to develop the nation industrially, the young nation also
had to build security at all levels among the citizens of the nation, who had
witnessed the painful partition.
The socialist pattern of government was adopted thus government nationalized a
number of operations that were important for the development of the economy and
the social health of the economy and social health of the nation. Insurance was one
such industry that saw industrialization in year1956. Prior to this insurance sector
had some 256 companies in the insurance sector. The life insurance corporation
was formed and all other insurance companies gave their business to the
corporation. The basic intention was to take the concept of insurance to the grass
root level of Indian society.
INSURANCE SECTOR REFORMS IN INDIA

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI

Governor
R. N. Malhotra was formed to evaluate the Indian insurance industry and
recommend its future direction. The Malhotra committee was set up with the
objective of complementing the reforms initiated in the financial sector.

The reforms were aimed at “creating a more efficient and competitive financial
system suitable for the requirements of the economy keeping in mind the structural
changes currently underway and recognizing that insurance is an important part of
the overall financial system where it was necessary to address the need for similar
reforms…”

In 1994, the committee submitted the report and some of the key recommendations
included:

Structure

1 Government stake in the insurance Companies to be brought down to 50%.

2 Government should take over the holdings of GIC and its subsidiaries so that
these subsidiaries can act as independent corporations.
3 All the insurance companies should be given greater freedom to operate.

Competition
 1 Private Companies with a minimum paid up capital of Rs.1bn should be
allowed to enter the industry.
2 No Company should deal in both Life and General Insurance through a
single entity Foreign companies may be allowed to enter the industry in
collaboration with the domestic companies.
3 Postal Life Insurance should be allowed to operate in the rural market.
4 Only one State Level Life Insurance Company should be allowed to operate
in each state.

Regulatory Body

1 The Insurance Act should be changed.

2 An Insurance Regulatory body should be set up
3 Controller of Insurance (Currently a part from the Finance Ministry) should
be made independent.
Investments

1 Mandatory Investments of LIC Life Fund in government securities to be

reduced from 75% to 50%
2 GIC and its subsidiaries are not to hold more than 5% in any company
(There current holdings to be brought down to this level over a period of
time)

Customer Service
 1 LIC should pay interest on delays in payments beyond 30 days
2 Insurance companies must be encouraged to set up unit linked pension plans
3 Computerization of operations and updating of technology to be carried out
in the insurance industry

The committee emphasized that in order to improve the customer services and
increase the coverage of the insurance industry should be opened up to
competition. But at the same time, the committee felt the need to exercise caution
as any failure on the part of new players could ruin the public confidence in the
industry.
Hence, it was decided to allow competition in a limited way by stipulating the
minimum capital requirement of Rs.100 crore. The committee felt the need to
provide greater autonomy to insurance companies in order to improve their
performance and enable them to act as independent companies with economic
motives. For this purpose, it had proposed setting up an independent regulatory
body.

INSURANCE ON THRESHOLD

The decades that followed saw the world economy changing and going through a
major shift. There was rapid technological development onus shifted to
computerization and in Indian context the change that the world was witnessing
was not occurring. The country still ran on the socialist pattern and the “license
raj” ruled the economy. In India insurance was being sold on the basis of tax
benefits that the government allowed. The consumer, who was heavily taxed,
sought insurance as an eligible tool to cover his tax liabilities.

In 1993, post liberalization it was realized that the insurance plays a very vital role
in the development of the new economy. It is also very important social security
tool and the money collected through insurance was instrumental in developing the
nation.

The Malhotra committee was formed to this and it suggested that insurance sector
should be allowed to enter the market with foreign participation.

The liberalization of Indian insurance sector has been the subject of much heated
debate for some years. The policy makers were in catch 22 situation where they
wanted competition, development and growth of insurance sector which is
extremely important for channeling the investments in infrastructure. At the other
end the policy makers had the fear that the insurance premium which are
substantial will seep out of the country and thus wanted to have the cautious
approach of opening for foreign participation in the sector.

In 1999 insurance development act was formed and from July1, 2000 private
players entered the market. Despite innumerable delays the insurance sector was
finally opened for private competition. The number of potential buyers of
insurance is certainly attractive but much of this population might not be
accessible. New insurers must segment the market carefully so as to provide
appropriate products at appropriate prices and through proper distribution channel.

India has an enormous middle class that can afford to buy life, health and pension
plan products. The low level of penetration of life insurance in India compared to
other developed nations can be judged by a comparison of per capita life premium.
This has made insurance the hottest sector after IT. With social security and
security of the public at large being the agenda for opening the sector, the role of
the regulator becomes all the more serious and one that would be carefully watched
at every step.

INVESTMENT CRITERIA

It was decided that life insurance would have to invest 25% in the government and
other 25% in another approved securities, 15% investment will have to be invested
in infrastructure sector and in social sector. The balance 35% will be available to
the companies to invest in capital markets where the return on investment is
significantly higher.

Rural sector

The criteria for investment in rural sector for life insurance companies is the
following % of the total policies written in the corresponding financial year, 5% in
the first financial year, 7% in the second financial year, 10% in the third financial
year, 12% in the third financial year, 15% in the fifth financial year.

UNTAPPED OPPERTUNITIES IN INSURANCE SECTOR IN INDIA

There is no doubt that market for insurance products in India is significant and
offers a great scope for growth.

First, while estimating the potential of Indian insurance market we often attempt to
look at it from the perspective of macro economic variables such as ratio of
premium to GDP, which is indeed comparatively low in India. For example India’s
life insurance premium as a percentage of GDP is 1.3$% against 5.2% of US, 6.5%
of UK or 8% in South Korea. But the fact is that the number of potential buyers of
insurance is certainly attractive. However, there are also difficulties in approaching
this population because of poor distribution, large distances or high costs relative
to returns.

Secondly, most new entrants have the tendency to target the business of existing
companies rather than expanding the market, this is myopic. This not only leads to
intense competition for new players and much of their time is spent to capture
existing customers by offering better services or advantages. Yet, the benefit of the
strategy is limited. A better approach could be to examine the niches where
demand can be met or stimulated.

REGULATION
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory
body in April 2000 has fastidiously stuck to its schedule of framing regulations and
registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to the
insurance sector and in particular the life insurance companies was the launch of
the IRDA’s online service for issue and renewal of licenses to agents. The approval
of institutions for imparting training to agents has also ensured that the insurance
companies would have a trained workforce of insurance agents in place to sell their
products.

Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 12 life
insurance and 6 general insurance companies have been registered. To regulate,
promote and insured orderly growth of the insurance business and re-insurance
business, a regulatory authority - Insurance Regulatory and Development
Authority (IRDA), was set up under IRDA Act, 1999.

EFFECTS OF REFORMS ON INSURANCE SECTOR

A number of concerns are being expressed regarding the opening up of insurance

sector. But most of them seem to be unfounded. The national interest lies in
increasing the penetration of insurance products, increasing the retention of
premium in India and mobilizing resources for infrastructure needs. Competition
means the players aggressively target potential customers and this will increase the
penetration of insurance.

The retention of premium in India has become a critical issue with some people
who demand that the present outgo of 10 billion by the way of reinsurance be
stopped. These people in the name of safeguarding the national interest are in fact
compromising the interest of the nation. If no reinsurance is applied it means that
insurance company is under writing the entire risk itself. Thus the single
earthquake or storm can wipe out the entire company.

The insurance sector is a service industry and international companies will help
build local professionals with world class expertise by introducing the best global
expertise. Competition will also develop a better understanding of consumer
requirements leading to more customized products apt for market place. Besides it
would also improve the tertiary sector tremendously. Development of tertiary
sector would include new avenues for actuaries, accountants, stockbrokers and
others. Thus we can say that opening up of insurance sector would bring about
sweeping changes not only for consumers but also for economy as a whole.

PRIVATIZATION OF INDIAN INSURANCE INDUSTRY

So far, India's insurance market has been shaped almost entirely by the state owned
insurers, led by the old life Insurance Corporation of India in the life segment and
General Insurance Corporation in the non-life one. It is only recently that beam
market opened to competition from insurance, almost all of them 74 : 26 joint
ventures between Indian and foreign firms, under the watchful eye of the IRDA of
India.

Though a doubtful starter, insurance industry was ultimately opened up this year
for private players like reliance, Tata and Bajaj to provide consumers more choice
while generating the mart in need long term funds for moving over to a higher
growth path.

To catalyze the process, the government notified IRDA Act, allowing 26% foreign
holding in the Indian venture and also allowed foreign direct investment in the
sector through the automatic route. But leaving apart the few manufacturing
monoliths, most of the new and entrants, ICICI Prudential life Insurance company,
HDFC Standard life Insurance, Max New York life, OM Kotak Mahindra, Royal
Sundram, Tata AIG., Birla Sunlife and ING Vysya are from the financial sector
itself.

Insurance industry, as on 1.4.2000, comprised mainly two players: the state

insurers:

Life Insurers:

1 Life Insurance Corporation of India

General Insurers:

2 General Insurance Corporation of India

IRDA PAVED THE ROAD FOR GROWTH

Our own state-owned banks were all the more confused after the RBI decided to
grant permission selectively for banks to hold more than 50% stake in their
proposed venture. Some banks initially drew up strategies to tie-up with other like-
minded banks, but could not decide who would hold the spectra. So the proposed
tie-up between Punjab National Bank, Bank of Baroda, Allahabad Bank and Vijaya
Bank died a premature death with PNB chose to be a "strategic investor" with
15% stake in the venture with Hero Group and Zurich Financial Services. Even
private sector Vysya Bank preferred a Damani group and ING, while Jammu and
Kashmir Bank was happy with her 25% stake with a real-estate company and a
leading US based insurance company with a 25% stake in their life insurance
venture rather than tying up with an Indian Bank meanwhile IRDA framed all the
necessary norms within a span of 3-4 months. The regulator also allowed
company's to invest about 25% of their funds in equities and debentures. But at the
same time IRDA chief made it clear that the company's would have top abide by
strict financial norms, including an absolute solvency margin of 150%.This was to
prevent companies going bust in the initial years and thereby shattering consumer’s
faith in private companies and the regulator. IRDA would also go through the
books of the companies frequently, if required every fortnight, to eliminate any
risk element. IRDA also granted licenses to over 26 companies for setting up
insurance training institute to ensure that only trained professionals carry out the
marketing. Indian consumers will witness new advertisements and new initiatives
by both old and new players to market their products. The economy may also get a
new look as a significant portion of untapped savings are going to flow into the
capital market and infrastructure sector.

PERFORMANCE AFTER PRIVATIZATION

Indian life insurance industry has suddenly witnessed a major boom. Hailed as a
successful case of privatization, the sector holds many more hopes and surprises
for both insurers and consumers. Asia Insurance Post takes stock of new
development. Smashing doubts over the decision to liberalize the industry, the
overwhelming first-year performance of the Indian insurance sector is test case of a
massive success story of private players entering into the erstwhile state monopoly.
It beats the privatization of The Telecom Sector and the Banking Industry.

The top three private insurance companies –

ICICI Prudential Life Insurance Company

Max New York Life Insurance Company
HDFC Standard Life Insurance Company

Combined they managed to sell over 2 lakh policies in a single year.

ICICI Prudential Life Insurance Company, noted as the number one private life
insurer, scored on all three fronts with the maximum number of policies sold
(1,00,000), highest amount of premium collected (Rs. 122 Crore) and greatest
amount of business written (Rs. 2700 Crore).

Max New York Life Insurance Company scored second place with Rs.43 crore
premium income received on 64,000 whole-life policies sold. It has built a
business to the tune of Rs. 2,100 Crore in its first year of operations. It invests only
in debt instruments and meets both Indian and international disclosure norms. The
Company's paid up capital is Rs.387 crore, which makes it among the highest
capitalised life insurer in India. New York Life has grown to be a Fortune 100
company. . It was the first insurance company to offer cash dividends to policy
owners. And has over 30,000 agents and employees worldwide.

HDFC Standard Life Insurance Company, even as it belongs to the December 2001
vintage when it and ICICI Prudential were the first to commence operations, is
placed at number three position. HDFC Standard Life has sold 32,000 policies
against 44,311 lives. On the business portfolio of Rs.1,266 crore, it has received a
premium income of Rs.36 crore. HDFC are the main shareholders in HDFC
Standard Life, with 81.4%, while Standard Life owns 18.6%. The ambition of
HDFC Standard Life is to mirror the success of the parent companies and be the
yardstick by which all other insurance company's in India are measured.

SBI Life Insurance Company Ltd. is a joint venture between India's largest bank,
State bank of India and Cardiff a leading Life Insurance company in France The
Company's authorized capital is Rs.250 crore, and the paid-up capital at present is
Rs.125 crore. SBI owns 74% of the total equity, and Cardiff the balance 26%.

The Life Insurance Corporation (LIC) was established about 44 years ago. Its main
asset is its staff strength of 1.24 lakh employees and 2,048 branches and over six
lakh agency force. LIC sold 2.32 crore policies in the fiscal 2002. The fiscal was
marked by a phenomenal growth rates for LIC as the number of policies sold shot
up by over 16%. The state player mopped up first premium income from new
policies sold to the extent of Rs.14,844 crore, a growth of 137% over its
performance last fiscal. This is over and above the regular yearly premium of
Rs.35,000 crore. At the same time, LIC has managed to grow its book by
underwriting an additional Rs.1,92,575.36 crore of fresh business. . It pays off
about Rs 6,000 crore annually to 5.6 million policyholders.
The industry estimates that private players have sold around 3 lakh policies in the
first year. Performance varies, as all the new players did not start out together. ING
Vysya Life for instance started just six months back. SBI Life on other hand had to
change its business plan as late as in the last quarter, since it could not leverage on
9000 strong network of State Bank of India. While its model is expected to revolve
around banc assurance, SBI Life today sells it's products through it's team of 1000
direct agent. Tata AIG Life and Non-like combined had sold over 5 lakh policies in
the first year. Birla Sun Life Insurance has written a business size of Rs.1,600
crore. OM Kotak Mahindra Life Insurance received 13,000 proposals in fiscal
2002 and mopped up Rs.13 crore on the proposals. The sum assured is more than
what meets its the expectations at Rs.350 crore.
It is not a number's game that the private insurance companies are after. Emphasis
is on good quality portfolio and building the blocks for a future growth. The first
year for the new players has been a learning curve, with the focus being on setting
up Capacities and Base. Here the tie-up with the international financial
conglomerate has come handy in setting up a sophisticated, hi-tech, professional
organization for starting the business
INTERNATIONAL COLLABORATION OF INDIAN
COMPANIES:
FOREIGN ENTITY LOCAL COMPANY/VENTURE
AIG Tata
Allianz Bajaj
AMP Sanmar
Aviva Life Dabur
Cardiff State Bank of India Life
ING Life Vysya
Max New York Life Vysya
MetLife J & K Bank, Pallonji Group & others
Old Mutual Kotak Mahindra
Prudential ICICI
Standard Life HDFC
Sun Life Birla

Post liberalization, the distribution of insurance products has undergone a big

change from the days when LIC's tied agency force alone hawked products. In
days to come, new entrants will implement multi-channel strategies, the most
significant being bancassurance, corporate agency cross selling of insurance
products in financial conglomerates. HDFC, ICICI Bank, Kotak Mahindra, State
Bank of India with multiple financial units are gearing up for a cross selling the
insurance products within the company.
While things are going gung-ho for the industry as a whole, there are quite a few
challenges ahead before new players can hope to compete with the state
incumbent. The first task is for the new players to build up reach and expanded
their geographical spread. Only a small portion of the country has been tapped so
far. Unlike LIC, the new companies are taking reinsurance cover from the global
leaders including Swiss Re, Munich Re, and Cologne Re etc.
The new basic driving force of the Indian life insurance sector has been positive
factors like increasing literacy rates, falling birth and death rates, rising gross
domestic product, people's greater orientation towards investment in financial
instruments, growing competition to mop up savings, higher disposable income,
shift to nucleus and small family norm, more females joining work force in the
organized sector, growing rural market, growth in the service sector, increasing
proportion of higher age group citizens, maintenance of living standards during the
post retirement period.
So far 90 million out of over 300 million middle class have come under Life
Insurance net. Going by the first year performance, the excitement for the life
insurers is just a small beginning.

BENEFITS OF LIFE INSURANCE

Life insurance has come a long way from the earlier days when it was originally
conceived as a risk covering medium for short periods of time, covering temporary
risk situations, such as sea voyages. As life insurance became more established, it
was realized what a useful tool it was for a number of situations, including
Temporary needs / threats
The original purpose of life insurance remains an important element, namely
providing for replacement of on death etc.
Regular savings
Providing for one’s family and one self, as a medium to long term exercise
(through a series of regular payment of premiums) this has become more relevant
in recent times as people seek financial independence for their family.
Investment
Put simply, the building up of savings while safeguarding it from ravages of
inflation. Unlike regular saving products, investment products are traditionally
regular investments, where the individual makes a one off payment.
Retirement
Provision for later years becomes increasingly necessary, especially in a changing
cultural and social environment. One can buy a suitable insurance policy, which
will provide periodical payments in one’s old age.

ISSUES AND CHALLENGES

The liberalization followed by growth of the Indian Insurance industry has opened
wide opportunities for Service and Infrastructure sectors. This growth has to be
properly canalized. Some of the major challenges which have to be addressed for
canalizing the growth of insurance sector are Product Innovation, Distribution
Network, Customer Service and Education, Investment Management.

Product Innovation
Customers are now looking at Insurance as complete financial solution offering
stable returns coupled with total protection. There is a need to constantly innovate
in terms of product development to meet ever changing consumer needs.
Understanding the customer better will enable an Insurance company to design
appropriate products, determine price correctly and increase profitability. In this
context Management Guru Peter Drucker has rightly said "Markets are changing
from Cost lead Pricing to Price lead Costing".
Distribution Network

While companies have been successful in product innovation, most of them are
still grappling with right mix of Distribution Channels for:

a. Capturing maximum market share to build brand equity.

b. Building strong and Effective Customer relationships.

c. Cost effective customer service.

This calls for Selection of right type of Distribution channel mix along with
prudent and efficient FOS (Fleet On Street) Management.

REVIEW OF LITERATURE

Bansal (2005) in an article, “Insurance Sector : in Privatization on the Right

Track” discussed the recommendations for changes in the structure of the industry
and policy framework. The suggestions to improve the functioning of LIC and to
examine the role of intermediaries. Since 1991 Indian economy has been going
through European financial reforms. Consequent to the important landmark
reforms in the financial sector, the insurance sector in India is going to witness sea
change. Liberalization entails on modernizing industrial system by removing
unproductive controls, encouraging private and foreign investment and integrating
Indian economy with the global economy.

Xharbrahimi (2006) (knowledgementdigest.com) in his research paper,

“Technology and Life Insurance Distribution” discussed the effect of
technology on Life Insurance Distribution, whether life insurers and insured are
aggressively seeking to make use of internet or not. Technology in the insurance
industry has evolved from providing enhanced operation processing to facilitating
corporate strategy. More recently, technology is becoming an important part of
Corporate Life Insurance Competitive Strategy and is increasingly employed in
achieving a competition edge. This article examines some of the opportunities that
technology solutions offer to life insurance. Thus, it may be safely assumed that
the most significant innovations in product distribution by far will be the direct
result of the extent to which technology is embraced. Insurers with well conceived
technology solutions will get competitive advantage. In a few years time, it might
be possible that those who try to resist the flow of internet technologies will be no
more successful.

Gupta (1977) in his research work on “Investment Policy of Life Insurance

Corporation of India” has worked on how LIC is working with its policies, can it
provide quality and variety of products to its customers and lastly, is there any
scope for private participation in coming few years.
It was concluded that presently, the only captain of ship insurance is Life Insurance
Corporation of India but soon the doors may be opened for private sector. No
doubt, LIC is working well with its policies but still it will have to be ready for
entry of private sector.

Chaudhary (2000) in her research paper, “Indian Insurance Industry and

Privatization”, made an attempt on the roles which private companies can play.
The objectives of the paper were to find out whether private insurance companies
can serve as one stop shop covering all insurance needs, to know whether private
companies can offer value added like beyond premium collection and claim
settlement or not. It was concluded that for the first time in the history of Indian
Insurance, the concept of intermediary is being upgraded on a full scale. The reach
of intermediaries will become deeper and their impact on the conduct of insurance
business will be wider than before. The insurance companies can become one stop
shop for providing all insurance products and services to the customers.

Mishra (1986) in his Ph.D. thesis on “Life Insurance Corporation of India” has
worked on objective to study the effect of working of LIC, how this effects the
financial level, and study the impact of LIC’s working on the internal organisation.
It was concluded that being the only company providing best services to the
customers by satisfying their needs, is running successfully by earning through
revenues and through providing remarkable services to the customers.

Market Research Report, (2000) “Distribution of life and pension in Europe”.

This report contains a detailed examination of the key trends and issues
surrounding distribution of life insurance and pension products in Europe, France,
Germany, Italy, Spain and UK. The report not only looked at channels but also at
reasons behind growth of each channel. Distribution of life and pension in Europe
(2002) is intended to appeal bancassurers, agents, direct sales force and all life and
pension product advisors. In addition, it will appeal to dependent financial advisors
and wealth managers.

Aggarwal (2002) in his paper on “Distribution of Life Insurance Products in

India” worked on the change in the existing distribution channels and to study
whether they are technology oriented or not. To study whether there is a potential
for new companies or not, it was concluded that new players are exploring fresh
techniques of distribution. The companies are giving opportunity to DSA’s to
market their polices while many are following bancassurance channel for
distribution. The other channel which is already established is agency.
Bancassurance is able to penetrate the market more successfully because banking
and insurance industry share a common target of providing financial services to the
customers. Thanks to the technology advancement, which is resulting in more
awareness and sophistication. On the other hand, web is exclusively used for
getting information and offline mode is followed while taking the policy.
*DSA – Direct Selling Agents

Hollway and Basu (2002) in their research report on “Developments in Indian

Life Insurance markets” worked on the background of new entrants, on their
business strategies, on various developments that are likely to influence the market.

After the opening of insurance sector in India, many insurance companies have
entered the market with new business and distribution strategies. These companies
are offering different saving plans, term benefits, riders and we can say a wider
range of products are being offered. Foreign equity capital is expected to increase
from 26% to 49% in 2001 to coming 4 to 5 years.

Analyst Report (2004): “Insurance and technology research” gives an

overview of distribution technology trends in European Insurance. As the
pendulum swings back towards business growth, distribution channel investments
are returning to the strategic forefront for Europe’s insurers. This is the latest
research finding to determine the main areas of investment focus for 2004. This is
based upon 100 unique interviews with European Life and non-life insurers
covering seven major western European markets.

Aggarwal (2005) on “Distributing Insurance in India” has explained his

research experience about location and channels used to supply services to target
customers. Place and environment in which service is delivered also plays an
important role. Traditionally, insurance service providers have been going to the
customer through their direct selling agents. In India and in world, the selling
model is basically dependent upon Agency Sales Force. Even in U.S, most of the
insurance policies are sold through direct contact, as it is a complicated product
and it needs personal guidance, suggestions and options.
Baskar and Lakshmikutty (2005) in their discussion on “Insurance distribution in
India-a perspective” emphasis on distribution as a key element of
insurance industry or not, to study the changing scenario
demanding the role transformation of intermediaries and lastly
the focus on multiple distribution channels. The current state of
insurance distribution in India is flux.
On one hand, insurers are awaiting regulations to be approved for brokerage
and bancassurance to be truly launched. On the other hand,
there are corporate model of intermediaries in place of
traditional model. There is no right or wrong in all this, the
success of distribution depends upon understanding the social
and cultural needs of target population.
OBJECTIVES

The main objective of the project was to check the preference of the customers
regarding the insurance policies of the life insurance sector
The objectives of the project were:

1 To know the interest of the customers in buying the insurance policy.

2 To know the perception of the customers for knowing that which factor
affects their policy purchase decision.

3 To know Government Life Insurance policies are much more secured than
their Private Life insurance policies.
NEED OF THE STUDY

1 It will help in getting the knowledge that which is the most important factor
in affecting the policy purchase decision, and company can emphasis on it
(like the agent’s training and CRM).

2 It will help in getting the knowledge that what new features and benefits
should be in a life insurance policy.

3 It will help in getting the knowledge that advertising is affecting the policy
purchase decision or not.

4 Is less premium affects policy purchase decision? This can be known by this
project.
RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

1. Sampling design:

Samples size of 100 customers

In this study life insurance companies are selected from both public and private
sectors .In this project 100 customer are surveyed which are deals with insurance
policies.

The Sampling method used convenience sampling.

2. Research design

The design of this study is descriptive

3. Sampling unit.
Customer of the above mentioned insurance companies are the sampling units.

4. Data collection:

a) Primary data: The instrument which is used for data collection is

questionnaire .the questionnaire is open ended as well as close ended.

b) Secondary data: Information are collected from following tools:

Secondary sources used are:

1 Text books
2 Journals like insurance post, business world, market research journal and
journal of marketing
3 Internet sites on Insurance.
4 Newspapers articles.
.

5. Data analysis:

The appropriate tools and techniques of statistical analysis are used.

a) pi chart
b) bar chart

LIMITATIONS

 Paucity of time could not allow a detailed study and thus the vast
information could not be included in the project report.
 Study is limited to Rajpura region only.

 People were reluctant to provide the information.

 DATA ANALYSIS

1. Would you like to get insured?

A. Yes B. No

Chart4: Like to get insured

36%
yes
no
64%

Sample size: 100

1 64% of the respondents are not interested in getting insured reason being
some of them was already insured and yet others do not want any insurance
cover.

2 36% of the respondents’ say that they are interested in investing in

insurance.
2. What according to you is the most important reason for getting insured?

A. Risk Coverage

B. Savings

C. Tax Benefit

CHART 5: PURPOSE
23%

46%

RISKCOVERAGE

SAVINGS

TAX BANEFIT

31%

Sample size – 100

1 Majority of the respondent i.e. 46% says that the most important reason
while taking the life insurance policy is tax benefit as there life insurance
policy is exempted from tax.

2 31% respondents invest in life insurance policy for the purpose of savings.

3 The remaining respondents i.e. only 23% invest in life insurance policy for
the purpose of risk coverage.
3. How much of your annual income would you like to invest in life
insurance?

A. Up to 2, 500

B. 2,500 – 5,000

C. 5,000 – 20000

D. 20000-above

CHART 6: INVESTMENT

26% 4%
32%

UPTO 2500

38% 2500-5000
5000-20000
20000-ABOVE

Sample size – 100

1 38% respondents say that they invest between Rs. 2500 to Rs. 5000 in the
life insurance premium.
 2 26% respondents say that they invest between Rs. 5000 to 20000 in the life
insurance premium.

3 32% respondents say that they invest up to Rs. 2500 in the life insurance
premium.

4 Only 4% respondents says that they invest up Rs. 20000 or above

4. What factors should you consider when thinking about the amount of
life insurance?

A. Benefits of the plan.

B. Your Salary

C. Future needs.

D Others

CHART 7: FACTORS

5%
13%

39%
Benefits of
the plan
Your salary

Future needs
43%
Others

Sample size- 100

 1 43% respondents consider their salary while planning the amount to be
invested in insurance

2 while 39% of them think that benefits of the plan must be the main priority
while deciding about the insurance amount.

3 And yet other i.e. the remaining 18% considers future needs or some other
factors as the basis for amount of insurance.

5. Do you have existing Insurance cover?

A. YES

B. NO

CHART 8: COVERAGE

34%
yes
No
66%

Sample Size – 100

1 66% of the respondents say that they are covered under life insurance
 schemes (out of them 80% belongs to LIC and rest of them are covered
under private sector) and 34% are not covered under any life insurance
scheme. So these 34% persons provides the opportunity to the insurance
companies.

2 Majority of people who are covered under life insurance are the one living in
urban areas and are the educated lots of society.

3 34% people who are not covered one probably investing their money in PF
and other long term & short-term schemes.

4 The reason for preferring LIC is people’s trust in government where as they
are of the view that private companies may vanish after a few years.

6. Who is your insurer?

A. LIC

B. Private Company

If private company, mention name________________________

 CHART 9: INSURER

Pvt. Co. 11%

LIC 89%

0% 20% 40% 60% 80% 100%

Sample Size - 100

1 LIC holds major market share i.e. 89% as they have built customer’s trust.

2 Private players together cornered 11% of the market share in which ICICI
Prudential, Birla Sunlife, HDFC Standard Life, Tata AIG, Max New York Life
are the main players.

7. Whom do you consult while taking financial decisions?

A. Colleagues

B. Friends
C. Family

D. Others

CHART 10: CONSULTANT

21% 20%
COLLEAGUES
FRIENDS
FAMILY
24%
35% OTHERS

Sample size - 100

1 35% of the respondent influenced by friends to go for the policy.

2 24% of the respondent influenced by the family. So we can say family members
play an important role to influence for purchasing of the life insurance policies.

3 20% of the respondent influenced by their colleagues.

4 21% of the respondent influenced by the advertisements and others such as

agents, professionals etc.
8. Who would more likely buy life insurance?

A. Childless single person

B. Parents

CHART 11: CATEGORY OF PROSPECTS

20%

childless single
person
80% parents

Sample Size - 100

1 80% of the respondents are of the view that parents are more likely to buy the
insurance policies, as they consider insurance as a risk-covering device to
protect their dependents.
2 Where as 20% of them are of the view that even singles are more likely
to buy insurance as their main motive is to save tax and save a lump sum.

9. Do you perceive that government life insurance policies are much more
secured than their private counter parts?

A. YES

B. NO

CHART 12:SECURITY

31% Yes

No
69%

Sample Size – 100

1 69% Respondent feel that Govt. life insurance policies are more secured than
their private counterparts. Because the life insurance policies have with in the
market for a long time and a wider reach.
 2 25% respondents feel that private counter parts are also secured. Among
other Govt. life insurance the premium rates are comparatively low. The
services are better as compare to govt. life insurance.

10. Do you go through all the details of the policy (Comparative and the
chosen) that you choose?

A. YES

B. NO

CHART 13: DETAILS

10%
Yes

No

90%

Sample size – 100

1 90% respondent says that they go through the details of the policy before
choosing the one. Because they are going to invest their money in that policy.
 2 10% respondents says that they don’t go through the details of the policy
and that is because they are just buying the policy to evade the tax and that
people are rich and the premium hardly make any difference to them.

11. Are you aware about insurance policies terminology?

A. Endowment Policy D. Term Assurance Policy

B. Children Policy E. Pension Plan

C. Money Back Policy F. Single Premium Plans

CHART 14: PLANS

8%
17%

22% ENDOWMENT
12% CHILDREN
MONEY BACK
TERM ASSURANCE
8% PENSION
SINGLE PREMIUM
33%

Sample size – 100

 1 Majority of the respondent are aware about the money back plan.

2 22% of the respondent is aware about the pension plan.

3 17% of the respondent is aware about the Endowment policy.

4 12% of the respondent is aware about the children policy.

5 8% of the respondent is aware about the term assurance policy and single
premium plans.

12. Do you know about ICICI Prudential Life Insurance Co. Ltd.?

A. Yes

B. No

CHART 15: ICICI Awareness

38%
yes
no

62%
Sample size – 100

1 62% respondents are aware of the ICICI Prudential Life Insurance Company
although some of them know it by ICICI Bank, others have partial
knowledge and yet others have full knowledge about the company.

2 38% of the respondents are not at all aware of the brand ICICI Prudential .

13. If yes, what are the sources?

A. Electronic Media

B. Agents

C. Print Media

D. Others
 CHART 16: Sources

60
52
50
40 37
Electronic
30 24 Agents
Print
20 Others
11
10
0

ample size – 100

1 52% people surveyed said that they are able to recall the advertisements of
the company in newspaper , magazines and other such print medias.

2 37% of the population surveyed knew HDFC through their agents.

3 Only 24% people said that they knew about HDFC Standard Life through
Electronic media .The company seldom show any advertisements on the
electronic media but still people were aware of its campaign.

14. Life insurance policy should be made compulsory for every earning
individual.
A. Agree

B. Disagree

CHART 17: COMPULSION

2%

AGREE
DISAGREE

98%

Sample Size – 100

1 98% respondent says that life insurance policy should be made compulsory
as they can relate it to the benefits they set to the policy.

2 2% respondent disagrees to the statement.

FINDING AND CONCLUSION

Life Insurance sector after privatization is maturing from mere security as single
purpose behind owning a policy to one of better investment options as well as
policies is available with multiple options and riders. Now at present around 13
private co’s are operating in life insurance sector. LIC is going to have tough time
ahead but due to its multiple policies and huge network of agents and strong client
base gives its competitive advantage. But real competition is coming from HDFC
AND ICICI which are utilizing competitively their old database in attracting
customers through cross-selling of financial products at one roof.
In the era of IT and telecom revolution through mobile commerce, net
services, bank assurance and easy availability of credit has given cut throat
competition in this sector. As a credence service it is very difficult for customers to
evaluate even after purchase and use of policies. Here, personal relations
maintained by insurance agents give you competitive edge. Relationship marketing
is advanced concept which is transformation of transaction marketing.
The distribution of whole life insurance sector seems to suggest relationship
marketing. It usually is sold by agent who is primary contact person and on whose
advice buyers rely in finding a suitable policy. After the sale agents provide
follow-up service, helping customers make policy changes in response to changing
needs.
After analyzing the data, there are many things which I found. The main findings
of my research are:
1 The main objective of my project was to check the awareness of people
regarding the private companies of Life Insurance.
2 In the comparison of other private Life Insurance companies the awareness
of ICICI Pru. and HDFCL is much more. After ICICI Pru. The next Life
Insurance Company which is known by people in HDFCSL. These two
companies are known by people due to their other previous operations in
India.
3 If we ask the question to the people that from which company he/she is
willing to buy LIP, then most of the people answered that they will purchase
LIP from LIC, due to its strong brand image and wide network. I reached a
conclusion that after some time and with the better performance and better
features products private Life Insurance Companies will be able to increase
their database.
4 In the comparison of other private life insurance companies, more people
give their preference to buy LIP from ICICI prudential and HDFCSL
Insurance Company, due to successful operation of ICICI Prudential and
HDFC in India.
5 If we see the reasons that why more people are willing to buy LIP from LIC.
I reached a conclusion that people give preference to LIC because it’s strong
brand image and wide network. The other reasons are that the people think
that their money is safe in the hand of LIC, and after completion the policy
the returns will be guaranteed.
RECOMMENDATION

After analyzing the findings from my survey I am giving some recommendation

to Insurance companies , by applying these suggestion company can get
some benefit.

1 Relationship marketing in life insurance sector play very important role in

attracting customer and getting repeat business in terms of new policy for
himself/herself or for other members of family. Insurance agents were only
involved in maintaining relationships with known customers. So Company’s
agent should be more educated with strong command on company’s
products & competitors products.
2 Maintain customer database and send them birthday wishes on client’s
birthday and providing customized policy with conversion option in terms of
payment schedule, premium terms, bonus declaration, money back clause
etc.
3 In India personal relationship and good reputation of agent play important
role in selling insurance policy. Agent’s advice makes customer to opt for
particular policy, so company should increase the no. of its agents with
better knowledge about the project and good communication skill.
4 Due to pressure on markings and LIC’S strong customer and agent base in
all over India, requires ICICI Pru. to come up with new innovative products.
5 Improve customer Sensitivity
6 Enhance Focus on Rural Sector
7 Professionalization
8 Publicity & Public relations
9 Mgt by Objectives
10 Classification of customer as profitable and least profitable and aligning all
business processes and strategies along customer links
11 Improved service quality and individualized attention to customer
12 Emphasis on Agent’s training. The agents should be provided
comprehensive training so that they can go in the market and fetch business
for company. Partial and incomplete knowledge will bring bad name to the
company and brings brand dilution for the company.
13 Classify their customers on basis of profitability and revenue generation.
14 Complaints by clients should be tried to remove as soon as possible.
15 More commission and other benefit should be given to the more profitable
agent.
16 Classifies its most profitable staff on basis of no of complaints handled.
17 Provide club membership programs for policyholders, and arrange seminars
time to time.
18 Under social benefits company should initiate positive phone calls and
should provide service suggestions with getting to problems.
19 Maintain database of existing customers for future contact.
BIBLIOGRAPHY

INFORMATION BROCHURE

1. Information Brochure of ICICI PRU.

2. Information Brochure of OM KOTAK MAHINDRA.
3. Information Brochure of ING VYASA LIFE INSURANCE

About Vysya life (node) Retrieved on (2004,Oct 25) From

http//www.ing.com/ing/contentm.nsf/homeabout

About Snmar (n.d) Retrieved on (2004, Oct 25) From

httap://www.sanmargroup.com

Dasgupta, S. (2003, June 29) ICICI Prudential leads the New Life Pack. The

Economic Times-New Delhi

Gupta, N.D. (2003, June) Insurance – A Booming Professional Opportunity The

Chartered Accountant 15(12) p-1195-1200

Goswami,N. (2004,May 7) Pvt. Insurers Notch up Close to 1k cr. Premia. The

Economic Times-New Delhi.p-1

ICICI Prudential Life Insurance Ltd. (n.d.) Retrieved on (2004, Oct 25) From

http://.http://www.iciciprulife.com/creative/home.jsp(faq)

Introduction (n.d) Retrieved on (2004, Oct 25) From

http://www.bajajallianz.co.in/aboutus.htm
Kumar, A. (2003, March 5) Private Sectors Players eat into LIC Business.The

Hindustan Times-Chandigarh

Rangachary, N. (2003) Vision for the Future. Survey of Indian Industry 2003 p39-

41

Thampy, A & Sitharamu, S. (2004, July-Dec.) Life Insurance Potential in India:

An Economic Approach Vision 6(2) pp 11-18

ANNEXURE
1. Would you like to get insured?

Yes No

2. What according to you is the most important reason for getting insured?

Risk Coverage Savings

Tax Benefit

3. How much of your annual income would you like to invest in life insurance?

Up to 2, 500 2,500 – 5,000

5,000 – 20000 20000-above

4. What factors should you consider when thinking about the amount of life
insurance?

Benefits of the plan Your Salary

Future needs Others

5. Do you have existing insurance cover?

Yes No

6. If yes (Q4. above) who is your insurer?

LIC Private Company

If private company, mention name________________________

7. Whom do you consult while taking financial decisions?

Colleagues Friends
Family Others

8. Who would more likely buy life insurance?

Childless single person Parents

9. Do you perceive that Government Life Insurance policies are much more
secured than their Private counterparts?

Yes No

10. Do you go through all the details of the Policy that you choose?

Yes No

11. Are you aware of the following Insurance Plans?

Endowment Policy Children Policy

Money Back Policy Term Assurance Policy

Pension Plan Single Premium Plans

12. Do you know about HDFC Standard Life Insurance Co. Ltd.?

Yes No
13. If yes, what are the sources?

Electronic Media Agents

Print Media Others

14. Life insurance should be made compulsory for every earning individual...

Agree Disagree

NAME: ________________________________________________

ADDRESS: _____________________________________________

PHONE NUMBER: _______________________________________

AGE/ DATE OF BIRTH: ___________________________________

EDUCATION: ___________________________________________

OCCUPATION: __________________________________________