Professional Documents
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Life Insurance in India
Life Insurance in India
Introduction of Insurance
WHAT IS INSURANCE?
Insurance is defined as a co-operative device to spread the loss caused by
a particular risk over a number of persons who are exposed to it and who
agree to ensure themselves against that risk. Risk is uncertainty of a
financial loss.
Insurance is a policy from large financial institutions that offers a person,
company, or other entity reimbursement or financial protection against
possible future losses or damages.
MEANING OF INSURANCE:The meaning of insurance is important to understand for anybody that is
considering buying an insurance policy simply understanding the basics
of finance. Insurance is a hedging instrument used as a precautionary
measure against future contingent losses. This instrument is used for
managing the possible risks of the future.
Insurance is bought in order to hedge the possible risks of the future
which may or may not take place. This is a mode of financially insuring
that if such a incident happens then the loss does not affect the present
well-being of the person or the property insured. Thus, through insurance,
a person buys security and protection.
A simple example will make the meaning of insurance easy to understand.
A biker is always subjected to the risk of head injury. But it is not certain
that the accident causing him the head injury would definitely occur. Still,
people riding bikes cover their heads with helmets. This helmet in such
cases acts as insurance by protecting him/her from any possible danger.
The price paid was the possible inconvenience or act of wearing the
helmet; this is equivalent to the insurance premiums paid.Though loss of
life or injuries incurred cannot be measured in financial terms, insurance
attempts to quantify such losses financially. Insurance can be defined as
the process of reimbursing or protecting a person from contingent risk of
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TYPES OF INSURANCE:-
Insurance
Non-Life
Insurance
General
Insurance
Life
Insurance
Miscellaneo
us
Insurance
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MEANING OF LIFE INSURANCE:According to sec (2) (11) of the Insurance Act, Life insurance business
means the business effecting contracts upon human life. It includes:a. Any contracts whereby the payment of money is assured upon
death (except death by accident only) or the happening of any
contingency dependent on human life.
b. Any contract which is subject to the payment of premium for a
term dependent on human life.
c. Any contract which include the granting of disability and double or
triple indemnity, accident benefits, the granting of annuities upon
human life, and the granting of super-annuation allowances.
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CHAPTER 2
COMPANY PROFILE
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g) Death amount =
1. If death occurs after the
premium paying term an
additional amount equal to sum
assured is payable & no bonus
is payable
2. If death occurs before the
premium paying term sum
assured plus accumulated bonus
is payable.
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Tax Benefits
INCOME
SECTION
ANNUAL
Sec. 80C
Sec. 80 CCC
Across
slabs.
income
Sec. 80 D
TOTAL SAVINGS
POSSIBLE
TAX
GROSS
SALARY
all
Rs37,389
Rs. 33,990 under Sec. 80C and under Sec. 80 CCC ,
Rs.3,399 under Sec. 80 D, calculated for a male with gross
annual
income
exceeding Rs. 10,00,000.
Sec. 10 (10)D
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CHAPTER 4
Code of conduct for Agents & Actruty
1. Agents
Insurance Regulatory and Development Authority
(Licensing of Insurance Agents) Regulations, 2000 Code of
Conduct
(1) Every person holding a licence, shall adhere to the code of conduct
specified below:A. Every insurance agent shall,
(a) identify himself and the insurance company of whom he is an
insurance agent;
(b) disclose his licence to the prospect on demand;
(c) disseminate the requisite information in respect of insurance
products offered for sale by his insurer and take into account the
needs of the prospect while recommending a specific insurance
plan;
(d) disclose the scales of commission in respect of the insurance
product offered for sale, if asked by the prospect;
(e) indicate the premium to be charged by the insurer for the
insurance product offered for sale;
(f) explain to the prospect the nature of information required in the
proposal form by the insurer,and also the importance of disclosure
of material information in the purchase of an insurance contract;
(g) bring to the notice of the insurer any adverse habits or income
inconsistency of the prospect, in the form of a report (called
Insurance Agents Confidential Report) along with every
proposal submitted to the insurer, and any material fact that may
adversely affect the underwriting decision of the insurer as regards
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2. Acturies
Legislation or Authority:
1. The Insurance Act 1938 (hereinafter referred to as the Act) and
amendments thereto including the Insurance Regulatory and Development
Authority Act, 1999.
2. The Insurance Rules 1939 (hereinafter referred to as the Rules).
3. Insurance Regulatory and Development Authority (Appointed Actuary)
Regulations 2000 - (hereinafter referred to as AA Regulations).
Application :
This APS is applicable to an Appointed Actuary, appointed in accordance
with provisions contained under AA Regulations, who is appointed by an
Insurer carrying on the business of Life Insurance as defined under
Section 2(11) of the Insurance Act 1938, and shall constitute Professional
Standard within the meaning of Regulation 2(e) of the AA Regulations.
This is also applicable to all other actuaries who as a matter of course get
associated with a life insurer and have to relate directly or indirectly to the
Appointed Actuary of such life insurer.
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1. Legal Framework
1.1. The following regulations and amendments thereto formed under the
Insurance Regulatory and Development Authority Act, 1999 define the
role of the Appointed Actuary in the management of life insurance
companies:
1.1.1. Appointed Actuary,
1.1.2. Registration of Indian Insurance Companies,
1.1.3. Actuarial Report and Abstract,
1.1.4. Assets, Liabilities and Solvency Margin of Insurers,
1.1.5. Investment,
1.1.6. Preparation of Financial Statements and Auditors Report of
Insurance Companies, and
1.1.7. Life Insurance - Re-insurance.
1.2. Section 13(1) of the Act requires the Appointed Actuary to perform
an annual investigation into the financial condition of the life insurance
business
2. Nature of Responsibility
2.1. The responsibilities of an actuary who is appointed under the
AA Regulations, are central to the financial soundness of the life
insurance company to which he is so appointed.
2.2. An Appointed Actuary should ensure, so far as is within his/her
authority, that the life insurance business of the company is
conducted on sound financial lines and that he/she has regard to
Policyholders Reasonable Expectations (PRE).
2.3. The essence of a profession lies in upholding its standards,
technical and ethical, in the public interest. As Actuary, who
becomes doubtful as to the proper course to adopt in relation to a
potentially significant matter, is strongly advised to seek help and
advice from IAI.
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CHAPTER 5
MARKETING STRATEGIES IN LIFE INSURANCE BUSINESS
Concept of Marketing
There are many definitions of marketing. The better definitions are
focused upon customer orientation and satisfaction of customer needs: According to Philip Kotler - Marketing is the social process by
which individuals and groups obtain what they need and want
through creating and exchanging products and value with others.
According to P.F Drucker - Marketing is not only much broader
than selling, it is not a specialized activity at all It encompasses the
entire business. It is the whole business seen from the point of view
of the final result, that is, from the customer's point of view.
Concern and responsibility for marketing must therefore permeate
all areas of the enterprise.
The Sales Concept of Marketing
By the early 1930's however, mass production had become commonplace,
competition had increased, and there was little unfulfilled demand.
Around this time, firms began to practice the sales concept (or selling
concept), under which companies not only would produce the products,
but also would try to convince customers to buy them through advertising
and personal selling. Before producing a product, the key questions
were.3
The sales concept paid little attention to whether the product actually was
needed; the goal simply was to beat the competition to the sale with little
regard to customer satisfaction. Marketing was a function that was
performed after the product was developed and produced, and many
people came to associate marketing with hard selling. Even today, many
people use the word "marketing" when they really mean sales.
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Product /service
Sales
Product/Service
Sale
Profit maximization through
sales
Customer welfare
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4Ps Of Marketing
Product
planning
Physical
distributio
n
Custom
er
Pricing
policies
Promotion
policies
Figure1. Represents 4 Ps
4 Ps:
Product planning.
Pricing policies.
Physical distribution.
Promotion policies
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rural prospects but the process is at infant stage and requires more
professional excellence. The policy makers are required to activate
the efforts. It would be prudent that the LIC is allowed to pursue a
policy of direct investment for rural development. Investment in
Government securities should be stopped and the investment
should be channelized in private sector for maximizing profits. In
short, the formulation of product-mix should be in the face of
innovative product strategy. While initiating the innovative process
it is necessary to take into consideration the strategies adopted by
private and foreign insurance companies.
2. PRICING
In the insurance business the pricing decisions are concerned with:
The premium charged against the policies,
Interest charged for defaulting the payment of premium and credit
facility, and
Commission charged for underwriting and consultancy activities.
With a view of influencing the target market or prospects the formulation
of pricing strategy becomes significant. In a developing country like India
where the disposable income in the hands of prospects is low, the pricing
decision also governs the transformation of potential policyholders into
actual policyholders. The strategies may be high or low pricing keeping in
view the level or standard of customers or the policyholders. The pricing
in insurance is in the form of premium rates. The three main factors used
for determining the premium rates under a life insurance plan are
mortality, expense and interest. The premium rates are revised if there are
any significant changes in any of these factors.
Mortality(deaths in a particular area):
When deciding upon the pricing strategy the average rate of mortality
is one of the main considerations. In a country like South Africa the
threat to life is very important as it is played by host of diseases.
Expenses:
The cost of processing, commission to agents, reinsurance companies
as well as registration are all incorporated into the cost of instalments
and premium sum and forms the integral part of the pricing strategy.
Interest:
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3. PROMOTION
The insurance services depend on effective promotional measures.
In a country like India, the rate of illiteracy is very high and the
rural economy has dominance in the national economy. It is
essential to have both personal and impersonal promotion
strategies. In promoting insurance business, the agents and the rural
career agents play an important role. Due attention should be given
in selecting the promotional tools for agents and rural career agents
and even for the branch managers and front line staff. They also
have to be given proper training in order to create impulse buying.
Advertising and Publicity, organization of conferences and
seminars,
incentive
to
policyholders
are
impersonal
communication. Arranging Kittens, exhibitions, participation in
fairs and festivals, rural wall paintings and publicity drive through
the mobile publicity van units would be effective in creating the
impulse buying and the rural prospects would be easily transformed
into actual policyholders
4. PHYSICAL DISTRIBUTION
Distribution is a key determinant of success for all insurance
companies. Today, the nationalized insurers have a large reach and
presence in India. Building a distribution network is very expensive
and time consuming. If the insurers are willing to take advantage of
Indias large population and reach a profitable mass of customers,
then new distribution avenues and alliances will be necessary.
Initially insurance was looked upon as a complex product with a
high advice and service component. Buyers prefer a face-to-face
interaction and they place a high premium on brand names and
reliability. As the awareness increases, the product becomes simpler
and they become off-the-shelf commodity products. Today, various
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CHAPTER 6
FDI in Insurance & Market share
Life Insurance is the fastest growing sector in India since 2000 as
Government allowed Private players and FDI up to 26% and recently
Cabinet approved a proposal to increase it to 49%. Life Insurance in India
was nationalized by incorporating Life Insurance Corporation (LIC) in
1956. All private life insurance companies at that time were taken over by
LIC.
In 1993, the Government of India appointed RN Malhotra Committee to
lay down a road map for privatization of the life insurance sector.
While the committee submitted its report in 1994, it took another six
years before the enabling legislation was passed in the year 2000,
legislation amending the Insurance Act of 1938 and legislating
the Insurance Regulatory and Development Authority Act of 2000. The
same year the newly appointed insurance regulator - Insurance Regulatory
and Development Authority IRDAstarted issuing licenses to private life
insurers.
Foreign Direct Investment (FDI) Policy in Insurance Sector
s per the current (March 2006) FDI norms, foreign participation in an
Indian insurance company is restricted to 26.0% of its equity / ordinary
share capital. The Insurance Regulator has stipulated that foreign
investment in Indian Insurance companies be limited to 26% of total
equity issued (FDI limit) with the balance being funded by Indian
promoter entities. The limit to foreign investment includes both direct and
indirect investment and has been a cause of significant lobbying by
foreign insurance companies for a change in regulations to increase the
FDI limit to 49% of equity issued.The Indian government has supported
an increase in the FDI limit, which requires a change in the Insurance Act.
The Union Budget for fiscal 2005 had recommended that the ceiling on
foreign holding be increased to 49.0%.
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A change in the Insurance Act requires a passage of the bill in both houses
of Parliament. The Indian government has tabled the bill in the Upper
House of Parliament in August 2010.
Initial Public Offer (IPO) rules for Indian Life Insurance Companies
A key piece of legislation impacting on the Life Insurance industries
capital raising abilities is the lock-n period of 10 years for investment to
be limited to promoter group equity investments. Under the Insurance
Guidelines, Indian Life Insurance companies can opt for a public issue of
equity through an Initial Public Offer (IPO) after 10 years of operations.
In October 2010, the securities market regulator, Securities and Exchange
Board of India (SEBI), issued disclosure norms for Indian Life Insurance
Companies seeking to make an initial public offer for sale of equity shares
to the public
Birla Sun Life Insurance Company: Birla Sun Life Insurance Company is a 74:26 joint venture
between Birla group and Sun Life Financial. It is a private
sector company. The company was registered on 31/1/2001.
The market share for FY 2012-13 was 1.72%.
HDFC Standard: HDFC standard is a 74:26 joint venture between HDFC and
Standard Life. It is a private sector company. The company
was registered on 23/10/2000. The market share for FY
2012-13 was 1.66%.
ICICI Prudential Life Insurance: ICICI Prudential Life is a 74:26 joint venture between ICICI
and Prudential. It is a private sector company. The company
was registered on 24/11/2000. The market share for FY
2012-13 was 6.91%.
Life Insurance Corporation of India (LIC): Life Insurance Corporation of India is a 100% government
held Public Sector Company. Being the first to be established
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Market share(%)
76.07 %
6.91 %
4.75%
2.98%
1.72 %
1.66 %
1.46 %
1.28 %
1.08 %
0.71 %
0.54 %
0.37 %
0.46%
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SAHARA LIFE
0.03%
*Source: - www. Life insurance .com
Market Share
ICICI Prudential Life Insurance Co
SAHARA LIFE
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CHAPTER 7
Data Analysis & Interpretation
1) DATA GIVES INFORMATION OF THE INSURED
RESPONDENTS OF INSURER COMPANY
SECTOR
NO. OF
RESPONDENTS
SHARE
PUBLIC SECTOR
LIFE INSURER
14
70
PRIVATE SECTOR
LIFE INSURER
30
(%)
Sector
Public sector
Private sector
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Interpretation:In this study 70% of respondents like take insurance from public
life insurer & only 30% of respondents take insurer from private life
insurer. This shows respondents are more prone to take life insurance
from public life insurer. It indicates that public life insurer has better
goodwill than private life insurer.
2) DATA GIVES INFORMATION OF THE INSURED
RESPONDENTS ABOUT PREFRENCE OF INSURER
PREFRENCE
NO. OF
RESPONDENTS
SHARE
REPUTATION
40
PRICE OF PREMIUM
20
BENEFIT
15
FLEXIBLE PREMIUM
PAYMENT
25
(%)
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Preference
Reputation
Price of Premium
Benefits
Flexible Premium Payment
NO. OF
RESPONDENTS
SHARE
YES
11
55
NO
45
(%)
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Premium
Yes
No
Interpretation:This study shows that respondents are more concern with premium
of policy. 55% of respondents are satisfied with the payment of insurance
premium & 45% of respondents are not satisfied with the payment of
insurance premium.
NO. OF
RESPONDENTS
SHARE
0-10 YEARS
15
10-15 YEARS
20
15-20 YEARS
25
20 YEARS OR MORE
40
(%)
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0-10 Years
10-15 Years
15-20 Years
20 Years Or More
Interpretation:This study shows that respondents while taking life insurance take
into consideration payment premium period. Respondents prefer 20 years
or more for taking life insurance & 0-10 years are less preferred. 20 years
or more,15-20 years,10-15 years & 0-10 years has 40%,25%,20% & 15%
respectively.
NO. OF
RESPONDENTS
SHARE
SINGLE PREMIUM
15
REGULAR
PREMIUM
17
85
(%)
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Mode Of Premium
Single Premium
Regular Premium
Interpretation:This study shows that respondents think more about the mode of
premium. Respondents are majorly pays the premium on regular basis
that can be monthly ,quarterly ,half-yearly ,yearly basis.85% of
respondents pays premium on regular basis on the other hand only 15%
respondents pays single premium on their life insurance.
6) DATA GIVES INFORMATION OF THE INSURED
RESPONDENTS
ABOUT
BEST
OPTION
FOR
INVESTMENT
INVESTMENT
OPTION
NO. OF
RESPONDENTS
SHARE
POST OFFICE
15
LIFE INSURANCE
20
MUTUAL FUND
15
SHARE MARKET
20
BANK DEPOSITS
30
(%)
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Investment Option
Post Office
Life Insurance
Mutual Fund
Share Market
Bank Deposits
NO. OF
RESPONDENTS
6
2
3
SHARE
(%)
30
10
15
1
8
5
40
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Promotional Media
TV Advertisement
Hoardings
Paper Advertisement
Banners
Agents
Interpretation:This study shows that respondent while taking insurance consider the
promotional strategies of companies. Respondents prefer the olden ways
like agents for taking insurance because it gives better details of insurance
product & helps in further investment related education. Agents has 40%
share in this study. TV advertisement has 30% share because easy access
to TVs. Nowadays all the families have TV sets so it easy to attract
potential customers. Hoardings , Banners ,Paper advertisement has little
share 10% ,5% , 15% respectively.it shows customer are not so much rely
on those type of marketing strategies.
8) DATA GIVES INFORMATION OF THE INSURED
RESPONDENTS ABOUT SUGGETION
SUGGETION
NO. OF
RESPONDENTS
SHARE
YES
45
NO
11
55
(%)
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Suggetion
Yes
No
Interpretation:This study shows that respondents suggests about insurance product and
the best company which gives you better services.45% of respondents
suggests about product & service offered by insurer, they suggests details
to their friends , families .55% of respondents do not suggest to take
insurance from any specific company
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RECOMMENDATIONS
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FACTS/FINDINGS
1.As the people think that insurance is a tool to protect their family & a
tax saving device. They are aware of the fact & realizing its, importance.
The companies should try to expand & build up its infrastructure because
there is a large potential for insurance in India.
2.Company should come up with more branches in with the objective and
goals to meet the demands & expectations of the public. Because the
entrance of private players will increase the competition and it would be a
tough task to secure a good position in market.
3.Since , LIC of India & Reliance Life Insurance is leading with several
companies policies it should be easy for them to penetrate into the market
and secure a good position if they pay greater attention to the service part
provided to their customer and thereby forming a long and trusted
relationship.
4.As seen from the survey that at present 70% of the customer are having
insurance policy out of which 87.5% of the customer are planning for new
investments. So it can be a good potential for the company and they
should make an attempt to trap these customers.
5. 43% of the customer is even ready to go for insurance if a service
provider away from their home is providing it. But intend they should
provide good products and services. The company should try to convince
these customers and get them in its favor.
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CONCLUSIONS
From the project analysis and interpretation the conclusions are:
1)
Most untapped insurance market in India contains mostly middle
class and lower class people.
2)
The customers give preference more to Brand name and flexible
payment. Premium of policy and benefits of the policy options are
given less importance.
3)
Even though the premium price is not within the customer budget,
if the benefits offered by policy are good customers is ready to take
the policy.
4)
The customers want the premium price to be within the budget,
with good benefits.
5)
The private insurance companies are unable to tap the untapped
insurance market certain strategies should be formulated to grab the
market.
Most customers feel that setting up of stalls at appropriate locations and
providing information regarding various policies and benefits offered by
the insurance company and create awareness about the insurance
company.
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CHAPTER 9
QUESTIONNAIRE
A study of Life Insurance plan as a part of financial planning
Please fill the following details.
Name:
Age:
Gender:
Qualification:
Designation:
Phone No.:
Email ID:
1. In which company you have Life Insurance Policy?
a) Public Life Insurance
2. Among various insurance companies why did you chose the above
mentioned company?
a) Due to reputation of the company
b) No
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b) 10-15 years [
c) 15-20 years [
d) 20 or more [
5. Mode of premium?
a) Single premium [
b) Regular premium [
]
]
b) Life Insurance
c) Mutual Fund
d) Share Market
b) Hoardings
c) Paper advertisement
d) Banners
e) Agents
b) No
]
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CHAPTER 10
BIBLIOGRAPHY
1.
BOOKS/MAGAZINES REFFERED:
STUDY GUIDE- PRINCILES & PRACTICES OF LIFE /
GENERALINSURANCE, by AIMA.
Books published by INSURANCE INSTITUTE OF INDIA
LIFE-INSURANCE, by Mc GILL
INSURANCEWATCH.
MONEYOUTLOOK.
2.
WEBSITES REFFERED:
WWW.RELIANCELIFE.COM
WWW.CIFAINSURANCE.COM
WWW.MONEYOUTLOOK.COM
WWW.INSURANCE.IND.COM
www.licindia.in
3.
REPORTS/ARTICLES REFFERED:
REPORT: ISSUES & CHALLENGES
INSURANCE INDUSTRY. Dec2009.
FACING
THE
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