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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……………………………………………………………...…
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.
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
Provides protection: insurance cannot check the happening of risk but can provide for losses of risk. Collective bearing of risk: insurance is a device to share the financial losses of few among many others. Assessment of risk: insurance determines the probable volume of risk by evaluating various factors which give rise to risk. Provide certainty: insurance is a device which helps to change from uncertainty to certainty.
Prevention of losses: insurance cautions businessman and individuals to adopt suitable device to prevent unfortunate consequences of risk by observing safety instructions.
Small capital to cover large risk: insurance relieves the businessman from security investment, by paying small amount of insurance against large risk and uncertainty.
Contribute towards development of large industries.
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
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.
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.
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)
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.
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 likeminded 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
FOREIGN ENTITY AIG Allianz AMP Aviva Life Cardiff ING Life Max New York Life MetLife Old Mutual Prudential Standard Life Sun Life
LOCAL COMPANY/VENTURE Tata Bajaj Sanmar Dabur State Bank of India Life Vysya Vysya J & K Bank, Pallonji Group & others Kotak Mahindra ICICI HDFC 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".
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.
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:
To know the interest of the customers in buying the insurance policy. To know the perception of the customers for knowing that which factor affects their policy purchase decision.
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.
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.
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. B. C. Risk Coverage Savings Tax Benefit
CHART 5: PURPOSE 46%
RISKCOVERAGE SAVINGS TAX BANEFIT
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.
How much of your annual income would you like to invest in life
insurance? A. B. C. D. Up to 2, 500 2,500 – 5,000 5,000 – 20000 20000-above
CHART 6: INVESTMENT 26% 4%
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
13% 5% 39%
Benefits of the plan Your salary Future needs
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. B. YES NO
CHART 8: COVERAGE
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.
Who is your insurer?
A. LIC B. Private Company
If private company, mention name________________________
CHART 9: INSURER
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
COLLEAGUES FRIENDS FAMILY
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.
Who would more likely buy life insurance?
A. Childless single person B. Parents
CHART 11: CATEGORY OF PROSPECTS
childless single person 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.
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.
Do you perceive that government life insurance policies are much more
secured than their private counter parts? A. B. YES NO
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. B. YES NO
CHART 13: DETAILS
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 B. Children Policy C. Money Back Policy D. Term Assurance Policy E. Pension Plan F. Single Premium Plans
CHART 14: PLANS
17% ENDOWMENT 12% CHILDREN MONEY BACK TERM ASSURANCE
PENSION SINGLE PREMIUM
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. A. B.
Do you know about ICICI Prudential Life Insurance Co. Ltd.? Yes No
CHART 15: ICICI Awareness
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. A. B. C. D.
If yes, what are the sources? Electronic Media Agents Print Media Others
CHART 16: Sources
60 50 40 30 20 10 0 24 37
Electronic Agents Print Others
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.
Life insurance policy should be made compulsory for every earning
CHART 17: COMPULSION
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.
After analyzing the findings from my survey I am giving some recommendation to Insurance companies , 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 by applying these suggestion company can get
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.
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 p3941
Thampy, A & Sitharamu, S. (2004, July-Dec.) Life Insurance Potential in India: An Economic Approach Vision 6(2) pp 11-18
1. Would you like to get insured? Yes 2. No
What according to you is the most important reason for getting insured? Risk Coverage Tax Benefit Savings
How much of your annual income would you like to invest in life insurance? Up to 2, 500 5,000 – 20000 2,500 – 5,000 20000-above
What factors should you consider when thinking about the amount of life insurance? Benefits of the plan Future needs Your Salary Others
Do you have existing insurance cover? Yes No
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 Family 8. Who would more likely buy life insurance? Childless single person 9. Parents Friends Others
Do you perceive that Government Life Insurance policies are much more secured than their Private counterparts? Yes No
Do you go through all the details of the Policy that you choose? Yes No
Are you aware of the following Insurance Plans? Endowment Policy Money Back Policy Pension Plan Children Policy Term Assurance Policy Single Premium Plans
Do you know about HDFC Standard Life Insurance Co. Ltd.? Yes No
If yes, what are the sources? Electronic Media Print Media Agents Others
Life insurance should be made compulsory for every earning individual... Agree Disagree
NAME: ________________________________________________ ADDRESS: _____________________________________________ PHONE NUMBER: _______________________________________ AGE/ DATE OF BIRTH: ___________________________________ EDUCATION: ___________________________________________ OCCUPATION: __________________________________________
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