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Project Report

On

LIC

Submitted by
Yasmeen khan
Roll no. 03

Under the guidance of

Prof. Ansari Naseem Ahmad

Designation: Faculty

Department: Bachelors of management studies

Oriental college

Submitted in partial fulfillment of

MUMBAI UNIVERSITY

ORIENTAL COLLEGE OF COMMERCE

BACHELORS OF MANAGEMENT STUDIES, ANDHERI (WEST)


MUMBAI
2014 - 2015
DECLARATION

I, Ms. Yasmeenkhan , of Oriental College Of Commerce & Management of TYBMS


[Semester V] hereby declare that I have completed my project, titled LICin the Academic
Year 2014-2015. The information submitted herein is true and original to the best of my
knowledge.

_________________
Signature of Student
[yasmeen khan]
CERTIFICATE

This is to certify that i YasmeenKhan , Student of ORIENTAL COLLEGE OF COMMERCE


AND MANAGEMENT has completed this project. The tittle LIC as a part of T.Y.B.M.S
course 2014-15 has collected the required information to reliable sources . This project is
complete and fit for submission.

___________________ _______________________
Signature Of the Principal Signature of Project Guide &
Internal Examiner

_______________ _______________________
(External Examiner) ( BMS Co- Ordinator)
ACKNOWLEDGEMENT

I would like to thank the University of Mumbai, for introducing the BMS course, there by
giving its students a platform to keep abreast with the changing business scenario, with the help
of theory as a base and practical as a solution.

This project would have been incomplete without the endless support and guidance of
ProfessorNASEEM ANSARI , my project guide.

I would also like to express my sincere gratitude towards our respected director MR.
NASEEM ANSARI

My friends who have been a great source of inspiration throughout the making of this
project, their support is deeply acknowledged.

Yasmeenkhan
EXCEUTIVE SUMMARY

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 investible 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.

Insurance has become even more important due to the disintegration of the prevalent joint
family system, a system in which a number of generations co-existed in harmony, in which a
sense of financial security was always there as there were more earning members. Times
have changed and the nuclear family has emerged. Apart from other pitfalls of a nuclear
family, a high sense of insecurity is observed in it today besides, the family has shrunk.
Needs are increasing with time and fulfillment of these needs is a big question mark.

Insurance provides a sense of security to the income earner as also to the family. Buying
insurance frees the individual from unnecessary financial burden that can otherwise make the
person spend sleepless nights. The individual has a sense of consolation that the individual
has something to fall back on. Insurance has become a necessity today.

Insurance today has opened up new vistas for every section of society. Even for the village
farmer insurance holds a lot of potential. Considering how dependent our agricultural system
is on the monsoon, the farmer sees a dim future. The uncertainty of the monsoon too can be
taken care of by insurance. Looking at the advantages of an insurance policy a number of
farmers have gone in for insurance.

Life insurance today plays a major role in ones life at various stages. Considering the
benefits it offers one cannot but give a thought to buying an insurance policy at the earliest.
Besides buying insurance early in life is one of the wise decisions one could take. Because
the premium you would be paying would be comparatively lower.

As the age increases, premium to be paid for the policy also increases. It may not be an
attractive investment option. But weighing the pros and cons and consider how much more it
offers.

Most important of all it provides you with that unique sense of security that no other form of
investment provides. It gives you a sense of financial support especially during that time of
crisis irrespective of the fluctuations in the stock market (mutual funds).

INDEX
NO. Particulars Page. No.

1 Declaration

2 Certificate

3 Acknowledgement

4 Executive summary

5 Introduction

6 Research methodology

7 Analysis and findings

8 Obejectives

9 Limitations

10 Types of plans

11 Bibliography
INTRODUCTION
What is insurance

"Insurance is a contract between two parties whereby one party called insurer undertakes in
exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount
of money on the happening of a certain event."

Insurance is a protection against financial loss arising on the happening of an unexpected event.
Insurance companies collect premiums to provide for this protection. A loss is paid out of the
premiums collected from the insuring public and the Insurance Companies act as trustees to the
amount collected.

For Example, in a Life Policy, by paying a premium to the Insurer, the family of the insured
person receives a fixed compensation on the death of the insured. It is a system by which the
losses suffered by a few are spread over many, exposed to similar risks.

What is a contract of insurance?

A contract of insurance of utmost good faith technically called as uberrima fides. Under this, as
the policyholder is having all the knowledge about his health, habits etc. which are not
accessible to the corporation. Therefore, the policyholder is bound to tell the insurer everything
affecting the judgment of the insurer; no matter howsoever unimportant it may seem to him.
If any misrepresentation, non-disclosure or fraud in any document leading to the acceptance of
the risk is found, than corporation is automatically discharged from all liability under the
contract.

Although section 45 of Insurance Act, 1938 that no policy can be called in question after the
period of two years from the date of its issue on the ground that any statement in proposal form
etc. was false or inaccurate, this provision is not applicable if the corporation can prove that
misrepresentation or non-disclosure as material fact and was fraudulently made and that the
policyholder knew at the time that the statement he made was false. It is therefore, in the interest
of policyholder to disclose all the material facts to the corporation to avoid any complication
when claim arises.
WHAT DOES LIFE INSURANCE HAVE TO OFFER?

Life insurance is many different things to many different people. For some, it is a premium to be
paid on time. For others it offers liquidity since cash can be borrowed when needed. For the
investment-minded, it denotes a constantly growing capital.

Life insurance is nothing but the creation of capital funds on an installment basis Only here, the
results are guaranteed. Life insurance is basically a property that is bought under a contract,
accompanied by contractual guarantees that ensure large sums of money at the death of the
insured (endowment plan). The contractual guarantee is the promise to pay, backed by one of
the oldest and most stably regulated financial industry operating in the(LIC).

Insurance Buys Time and Money

People like to refer to life insurance as time insurance, the reason being that life insurance
proceeds are paid to the insured's beneficiaries in case of death. The money proffered by life
insurance helps buy time to adjust to the change of circumstances. Insurance provides large
amounts of cash that will keep the lifestyle for the survivors the way it was before the insured's
death.

Insurance Offers Peace of Mind

For the person who buys an insurance policy, it offers absolute and complete peace of mind. He
or she knows that the decision made by him/her will provide sound benefits in the future,
whether or not the individual may live to see it. The life insurance policy will subsequently
prove this in the future if and when funds are needed. This is the guarantee of the insurance
contract.

Multiple Applications

The future is uncertain for each and every one. No one knows how long he or she will live. The
investment benefit is paid to the insured's beneficiaries after his death or it can be used during
the life as well. Life insurance policy owners can turn to the cash value of the policy in case of a
financial emergency when all avenues are either blocked or denied. They know that they can
avail of loans based on their insurance policies.

Insurance policy owners can use the cash value of their policies to meet their long-term financial
needs as well. They may have purposefully invested in insurance to use the cash in the policy for
their children's future marriage expenses or higher education fees.

Enduring Elasticity

Since life insurance is flexible enough to serve several needs, the insured can keep several long-
term goals in mind once he or she invests in the insurance plan. The cash value of the policy can
be allocated towards augmenting the monthly income during the retirement years. Leisure years
should be turned into pleasure years. Permanent life insurance is designed on the concepts of
long-term flexibility.

Financial Security

The insurance policy offers contractual guarantees to people looking for peace of mind when
they buy life insurance. Life insurance offers complete financial security. The purchase of life
insurance demonstrates concern for a family's future financial well being.

Regard for Family

The purchase of life insurance clearly displays care and concern for the people the policy owner
loves.

Insurance is Safer

No financial institution can do what life insurance does. No industry can back its products with
reserves and surplus as sound as those of the insurance industry.

The proof of strength and safety that insurance companies have ensured even under the most
adverse of conditions is a matter of pride for the entire insurance industry. For generation after
generation, life insurance has been acclaimed as the very benchmark of security against which
the other industries are measured.
Young Family Needs

So what does Life Insurance offer young families?

Protection

Families with young, dependent children need adequate protection against losing their primary
wage earner's income if and when premature and unexpected death occurs.

Emergency Fund.

Life insurance provides an additional consideration by providing an emergency fund to provide


money for survivors. It buys the time so essential and necessary that is needed to adjust to the
death of a parent or spouse.

The insurance proceeds provide a temporary buffer that gives the survivor the time and the
inclination to adjust to the new and unprecedented situation. The surviving beneficiary has the
option to consider career alternatives as well as make rationally based and thoroughly informed
decisions.

OBJECTIVES OF LIC
Spread Life Insurance widely and in particular to the rural areas and to the socially and
economically backward classes with a view to reaching all insurable persons in the country and
providing them adequate financial cover against death at a reasonable cost.

Maximize mobilization of people's savings by making insurance-linked savings adequately


attractive.

Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose
money it holds in trust, without losing sight of the interest of the community as a whole; the
funds to be deployed to the best advantage of the investors as well as the community as a whole,
keeping in view national priorities and obligations of attractive return

Conduct business with utmost economy and with the full realization that the moneys belong
to the policyholders.

Act as trustees of the insured public in their individual and collective capacities.

Meet the various life insurance needs of the community that would arise in the changing
social and economic environment.

Involve all people working inthe corporation to the' best of their capability in furthering the
interests of the insured public by providing efficient service with courtesy.

Promote amongst all agents and employees of the Corporation a sense of participation,
pride and job satisfaction through discharge of their duties with dedication towards achievement
of Corporate
RESEARCH METHODOLOGY

To conduct the market research first of all it is necessary to create a research design. A
research design is basically a blue print of how a research is to be conducted, it may include;

choosing the approach

1. determines types of data needed


2. locating the source of data
3. choosing the method of data.
Analysis and findings

1. insurance encourages savings habit.

2. it is an protection against financial loss.

3. it has many products according to needs.

Children education
Health insurance
Vehicle insurance
Business insurance

4. It gives you a sense of financial support especially during that time of crisis irrespective of
the fluctuations in the stock market (mutual funds).
MISSION AND VISSION
Bancassurance in India - A SPOT Analysis

bancassurance as a means of distribution of insurance products through Banks,they are selling


Personal Accident and Baggage Insurance directly to their Credit Card members as a value
addition to their products. Banks also participate in the distribution of mortgage linked insurance
products like fire, motor or cattle insurance to their customers. Banks can straightaway leverage
their existing capabilities in terms of database and face to face contact to market insurance
products to generate some income for themselves which hitherto was not thought of.

Once bancassurance is embraced in India with full force, a lot will be at stake. Huge capital
investment will be required to create infrastructure particularly in IT and telecommunications,
top professionals of both industries will have to be hired, an R & D cell will need to be created
to generate new ideas and products. It is therefore essential to have a SPOT analysis done in the
context of bancassurance experiment in India.

Strengths

In a country of 1 Billion people, sky is the limit for personal lines insurance products. There is a
vast untapped potential waiting to be mined particularly for life insurance products. There are
more than 900 Million lives waiting to be given a life cover. There are about 200 Million
households waiting to be approached for a householder's insurance policy. Millions of people
travelling in and out of India can be tapped for Overseas Mediclaim and Travel Insurance
policies. After discounting the population below poverty line the middle market segment is the
second largest in the world after China. The insurance companies worldwide are eyeing on this,
why not we preempt this move by doing it ourselves?

Our other strength lies in a huge pool of skilled professionals whether it is banks or insurance
companies who may be easily relocated for any bancassurance venture. LIC and GIC both have
a good range of personal line products already lined up, therefore R & D efforts to create new
products will be minimal in the beginning. Even the private companies have a good range of
products.
Weaknesses .

The middle class population that can be looked at are today overburdened, first by inflationary
pressures on their pockets and then by the tax net. Where is the money left to think of insurance
? Fortunately, LIC & other private companies schemes get IT exemptions but personal line
products from GIC (mediclaim already has this benefit) like householder, travel, etc. also need
to be given tax exemption to further the cause of insurance and to increase domestic revenue for
the country.

Another drawback is the inflexibility of the products i.e. it can not be tailor made to the
requirements of the customer. For a bancassurance venture to succeed it is extremely essential to
have in-built flexibility so as to make the product attractive to the customer.

Opportunities

Banks' database is enormous even though the goodwill may not be the same as in case of their
European counterparts. This database has to be dissected variously and various homogeneous
groups are to be churned out in order to position the bancassurance products. With a good IT
infrastructure, this can really do wonders.

Other developing economies like Malaysia, Thailand and Singapore have already taken a leap in
this direction and they are not doing badly. There is already an atmosphere created in the
country for liberalisation and there appears to be a political consensus also on the subject.
Therefore, RBI or IRA should have no hesitation in allowing the marriage of the two to take
place. This can take the form of merger or acquisition or setting up a joint venture or creating a
subsidiary by either party or just the working collaboration between banks and insurance
companies.

Threats
Success of a bancassurance venture requires change in approach, thinking and work culture
onthe part of everybody involved. Our work force at every level are so well entrenched in their
classical way of working that there is a definite threat of resistance to any change that
bancassurance may set in. Any relocation to a new company or subsidiary or change from one
work to a different kind of work will be resented with vehemence.

Another possible threat may come from non-response from the target customers. This happened
in USA in 1980s after the enactment of Garn - St Germaine Act. A rush of joint ventures took
place between banks and insurance companies and all these failed due to the non-response from
the target customers.

The investors in the capital may turn their face off in case the rate of return on capital falls short
of the existing rate of return on capital. Since banks and insurance companies have major
portion of their income coming from the investments, the return from bancassurance must at
least match those returns. Also if the unholy alliances are allowed to take place there will be
fierce competition in the market resulting in lower prices and the bancassurance venture may
never break-even.

Looking Around

Hardly 20% of all US banks were selling insurance in 1998 against almost 70% to 90% in many
W. European countries. Market penetration of bancassurance in new life businesses in Europe
ranges between 30% in U.K. to nearly 70% in France. Almost 100% banks in France are selling
insurance products. In 1991 NationaleNederlanden of Netherlands merged with Post Bank, the
banking subsidiary of the post office to create the ING Group - a new dimension to the
bancassurance i.e. harnessing the databank of the post office as well. CNP, the largest
independent insurance company in France has developed its product distribution through post
offices. The merger of Winterthur, the largest Swiss insurance company with Credit Suisse and
Citibank with Travellers Group have resulted in some of the largest financial conglomerates in
the world.
Despite the phenomenal success of bancassurance in Europe, property and casualty products
have not made much inroads in Spain, Belgium, Germany and France where more than 50% of
all new life premium is generated by bancassurance.

A study byBoston Consulting Group and Bank Administration Institute in USA claims that if
banks made a major commitment to insurance and a more narrowly targeted commitment to
investors, within 5 years they could increase retail revenues by nearly 50%.

It further states that: Banks could capture 10% to 15% of the total U.S. insurance and investment
market by selling products to 20% of their existing customers.

Banks' existing infrastructure enables them to operate at expense levels that are 30% to 50%
lower than those of traditional insurers.

Bancassurance's bank-branch based sales system sells 3 to 5 times as many insurance policies as
a conventional as a conventional insurance sales and distribution force.

By simplifying bancassurance products each back office bank employee can quintuple managing
policies compared to traditional insurers.

LessonsWe should take a leaf from the experienced players and develop bancassurance only
gradually. As happened in France, Italy, Germany and Canada - banks were allowed first only to
distribute the insurance products for a fee. This itself amounted to substantial income for banks
since they were not carrying the risks and product development was also left to insurance
companies. This seems fair since each player should contribute towards something in which he
excels; banks in mass distribution and insurance companies in risk management. After
stabilization, the roles may be expanded in opposite directions.

We need to develop innovative products and services .example is provided by Banco Bilbao
Vizcaya of Spain who offers a term life policy with simple premium payments and a clear
contract that is designed to be sold, issued and signed at the point of sale within 15 minutes.

Banks and insurance companies in India wishing to pursue high aspiration insurance strategies
would do well to learn from European bancassurers, who have decades of experience managing
insurance subsidiaries. Some of them - Lloyds TSB in the UK, Credit Agricole in France and
Spain's Banco Bilbao Vizcaya - are delivering outstanding results. These bank have profitably
sold insurance products to more than a fourth of their customers while generating more than
20% on sales. Credit Agricole, the second largest life insurer in France, with $11 billion of
premium in force, employs only 170 people in its insurance subsidiary. It is able to limit
overhead by harnessing the bank's existing resources and capabilities.
Obstacles and success factors

Even insurers and banks that seem ideally suited for a bancassurance partnership can run into
problems during implementation. The most common obstacles to success are poor manpower
management, lack of a sales culture within the bank, no involvement by the branch manager,
insufficient product promotions, failure to integrate marketing plans, marginal database
expertise, poor sales channel linkages, inadequate incentives, resistance to change, negative
attitudes toward insurance and unwieldy marketing strategy.

Conversely, bancassurance ventures that succeed tend to have certain things in common. Factors
that appear to be critical to success include strategies consistent with the bank's vision,
knowledge of target customers' needs, defined sales process for introducing insurance services,
simple yet complete product offerings, strong service delivery mechanism, quality
administration, synchronized planning across all business lines and subsidiaries, complete
integration of insurance with other bank products and services, extensive and high-quality
training, sales management tracking system for reporting on agents' time and results of bank
referrals and relevant and flexible database systems.

Finally

The creation of bancassurance operations has a material impact on the financial services
industry at large. Banks, insurance companies and traditional fund management houses are
converging towards a model of global retail financial institution offering a wide array of
products. It leads to the creation of 'one-stop shop' where a customer can apply for mortgages,
pensions, savings and insurance products.

Discovery comes from looking at the same thing as everyone else but seeing something
different. Banks' desire to increase fee income has them looking at insurance. Insurance carriers
and banks can become part of the vision through strategic partnerships. Now is the time to
position your company for the new millennium of insurance product distribution.

Informed Customers

The insurance industry is no exception to this trend.


Distribution has been the keyword, particularly for life insurance, for products to penetrate the
market andreach customers in the most effective manner. In India, deregulation has meant that
new private players are entering the market. These new entrants have significantly changed the
atmosphere of the industry.
Customers are becoming more knowledgeable as they are continually being educated in various
ways.
Insurance is more talked about now. The importance of insurance as a cover as against a tax
saving and investment product is being highlighted. Even though
the financial performance of the private players is negligible as compared to LIC t the current
behemoth in the Indian insurance industrythe change in the environment they have brought
about is significant.The private players are coming out with innovative adcampaigns, more
sophisticated and intelligent
workforce and properly trained agents.

The Indian Market


The successful marketing of insurance products depends on an efficient distribution system. But,
it takes time to establish an efficient distribution network. Issues like delay in formulating
regulations for brokers and
capping of commission of corporate agents could prove to be an obstacle for an efficient
distribution system. Traditionally, LIC has been distributing life insurance products solely
through the network of its own agents. At
present, the number of agents is around 9,00,000 for LIC. This was the primary channel for
distribution of life insurance products in India till the entry of private players. In the deregulated
scenario, the private players are coming out with different types of distribution channels to get
hold of customers in variety
of ways.

Bancassurance in India

Life insurance licenses Non-life licenses

LIC Corporation Bank (27% equity stake)/Oriental


Bank of Commerce (9% equity stake)

Birla-Sun Life Citibank

HDFC-Standard Life Union Bank/Indian Bank

Dabur-CGU Canara Bank/Lakshmi Vilas


Bank/ABN Amro

ING-Vysya Life Vysya Bank (Joint venture)

MetLife J&K Bank (Joint venture)

Allianz-Bajaj Life Insurance Standard Chartered Grindlays


Tata-AIG Life Insurance Citibank

ICICI-Prudential ICICI Bank (Joint venture)

Non-Life Insurance Company


Tata-AIG General Insurance HSBC

Royal Sundaram Alliance Citibank/American Express/


Standard Chartered Grindlays

ICICI-Lombard ICICI Bank (Joint venture)

There exists an immense opportunity for the insurers as there is a huge market available, which
can be tapped by virtue of robust marketing and distribution strategies. As per statistics, Indias
premiums in percentage of GDP is around 2.61%, whereas the
figure stands quite high for other countries such as15.78% for UK, 10.92% for Japan and 8.76%
for US.

Present Scenario With the combined forces of increasing technological expertise, transformation
in the industry and innovative techniques working in the Indian market, the distribution system
seems to be widening. The new players are exploring fresh techniques of distribution. Many
newcomers are appointing Direct Sales Associates (DSA) to market their policies, while many
are following the bancassurance route for
distribution. The other models are company-owned agents and tied agents. While every type of
distribution model has its pros and cons, the bancassurance

model is cost-effective and is also quite efficient for market penetration. This is for the simple
reason that since the banking and insurance industry share a
common target of financial services customers, the existing customer base of banks can be
targeted rather than building a new one. Private players are currently following various
permutations and combinations of the
above mentioned distribution strategies and trying to grab the market share in the country.

Future Strategies
According to a recent report by Deloitte Consulting on Technology and Insurance Distribution,
future customers will be multi channel. The insurers will have to offer all types of channels to
the customer and it is
the customer who will have the right to choose the channel suiting him/her. Dual income
families, families with young children, singles with long working days and flexi-timers, all
demand high level of sophistication and ease when it comes to service. Hence the companies
have to bevery careful and cautious in catering to the needs of these customers who provide a
good amount of business to the insurers.
Thanks to the technological advancement and increased deregulation and sophistication, the
carriers and producers can now reach the customers in different ways. As has been proved in the
US market and other developed nations, the Web is extensively used for the access of
information but when it comes to the purchase of policy, the offline mode is preferred. The
private players in India seem to have identified this and have put substantial information on their
websites regarding policies, quotes, contact information
among other routine stuff.

Three More Ps of Marketing


In the coming years, we can expect the insurers to concentrate on the additional three Ps of
marketing for the distribution of their products. In addition to Product, Price, Place and
Promotion,

insurers will have to focus on Process, People and Physical appearance for the sale of insurance
products.

People: The most important factor that materializes sales and maintains customer relationships
on a long-term basis.
Process: Customers are becoming more Net savvy and technology oriented, and hence expect
fast processing and delivery of the policy after paying the price for it. Even after the first sales,
customers will continue to expect fast claims processing, payment of future premiums, changes
in the policy terms and other mundane things to be carried out on a convenient and fast basis.
Physical appearance: This can play a significant role for marketing in the Indian scenario.
Since Internet users are comparatively lesser than

What is Whole Life Policy?

A typical whole life policy runs as long as the policyholder is alive. In other words, the risk is
covered for the entire life of the policyholder, which is why they are know as whole life policies.
The policy monies and the bonus are payable only to the nominee of the beneficiary upon the
death of the policyholder. The policyholder is not entitled to any money during his or her own
lifetime, i.e. there is no survival benefit.

This represents a serious drawback in the case of whole life policies. Suppose, for instance, you
buy a whole life policy at the age of thirty when your children are young and the family needs
protection. Conceivable, by the time you are 55 or 60 or so the children may be well settled, no
longer truly needing the protection the whole life policy provides. On the other hand, you would
probably require the money for yourself and your wife in your retired life but this would not be
possible since the sum assured is payable only when the policy holder dies.

In this sense whole life policies are fairly rigid and inflexible and are suitable only in a few, very
specific cases.

On the whole, whole life policies may be best considered after the age of 45 either for the
purpose of leaving behind an estate for ones heirs or for covering the possibility of premature
stoppage of pension income in the case of relatively early death after retirement.

How is it beneficial ?

Whole Life Policy can be a good initial policy to buy since its cost is very low. That is an
important consideration when one is just starting a career.

Who Should buy this Plan?

This is particularly beneficial for those who are eligible for a sizable pension during their retired
life, a whole life policy can be very useful in covering the risk of death taking place - and,
therefore the pension coming to an end - soon after retirement. In such a case a whole life policy
serves as financial compensation to the family for the early loss of pension.

A whole life policy will also come in handy for those who wish to create an estate either for
their heirs or for donating to charity after their death. The ideal age to consider a whole life
policy for such a purpose is around your 50th year. By then one would have provided for the
maintenance of ones family, education and marriage of ones children, etc., as also for ones
own old age. This is the time for one to consider leaving something behind for ones heirs.

What Is Endowment Policy?


Endowment policies cover the risk for a specified period at the end of which the sum assured is
paid back to the policyholder along with all the bonus accumulated during the term of the
policy. It is this feature - the payment of the endowment to the policyholder upon the completion
of the policys term - which rightly accounts for the popularity of endowment policies.

Typically, ones responsibility for the financial protection of the family reduces significantly
once the children are grown up and independently settled. The focus then shifts to managing a
smaller family - perhaps only oneself and ones spouse - after retirement. This is where the
endowment - the original sum assured and the accumulated bonus - received back comes handy.
You can either use the endowment amount for buying an annuity policy to generate a monthly
pension for the whole life, or put it in any other suitable investment of your choice.

How is it beneficial ?

As compared to whole life policies, the premium rates for endowment policies are higher and
the bonus rates lower.

The cost of an endowment policy is, typically, double that of a whole life one. On the plus side,
these polices offer you an endowment - representing a return on your premium payments
payable to you in your own lifetime when the policy comes to an end.

Premium payment term

Premium on endowment policies are usually payable for the full term of the endowment policy
(no of years) unless, of course, death were to take place earlier.

Premium payment term

Premium on endowment policies are usually payable for the full term of the endowment policy
(no of years) unless, of course, death were to take place earlier.

Who Should buy this Plan?


Overall, endowment policies are the most suitable of all insurance plans for covering the risks to
a family breadwinners life. Not only do these policies provide financial risk cover for the
family, were the policy holder to die prematurely but the insurance amount is also repaid once
this risk is over. The endowment amount can then be used for meeting major expenditures such
as childrens education and marriage, etc.

Alternately, the endowment sum is available for a suitable investment geared to providing an
income for the remainder of ones own life. These type of plans are particularly suitable to those
who other than having a risk cover are also interested in a savings component simultaneously.

What is Term Policy?

Term policies, cover only the risk during the selected term period. If the policyholder survives
the term, the risk cover comes to an end.

A Term plan is designed to meet the needs of people who are initially unable to pay the larger
premium required for a whole life or an endowment assurance policy, but they hope to be able to
pay for such a policy in the near future. Hence, it may be desirable to leave the final decision
regarding the plan to a later date when a better choice could be made.

No surrender, loan or paid-up values are granted under these policies because reserves are not
accumulated. If the premium is not paid with the days of grace, the policy will lapse without
acquiring a paid-up value.

However, a lapsed policy may be revived during the lifetime of the life assured but before the
expiry of the period of three years from the due date of the first unpaid premium on the usual
terms. Accident and / or Disability benefits are not granted on policies under the Term plan.

How is it beneficial?

Term policies are an ideal option if the policyholders are unable to pay the larger premium
required for a Whole Life or Endowment policy, but hope to be able to pay for such a policy in
the near future.
The sum assured is payable only in the event of death of the Life Assured before the expiry of
the specified original term.

Who should buy this plan?

A Term plan is particularly beneficial for people who are initially unable to pay the larger
premium required for a whole life or an endowment assurance policy.

During the duration of the Term, the policy cannot avail of surrender or loan or paid-up
facilities.

What is Money Back Policy?


Unlike ordinary endowment insurance plans where the survival benefits are payable only at the
end of the endowment period, money back policies provide for periodic payments of partial
survival benefits during the term of the policy, of course so long as the policy holder is alive.

An important feature of this type of policies is that in the event of death at any time within the
policy term, the death claim comprises full sum assured without deducting any of the survival
benefit amounts, which may have already been paid as money-back components. Similarly, the
bonus is also calculated on the full sum assured.

How is it beneficial?

Under money back policies premiums can be paid as per the insurance companys policy. These
could be quarterly, half yearly or annually. The premiums for these policies are payable for the
selected term of years, or till death if it occurs earlier.

By buying such policies one can receive income at regular intervals other than the risk cover it
provides. Also a good amount of bonus on the full sum assured is quite a good bargain.

Who should buy this plan?

Such plans are particular popular with individuals for whom income at regular intervals is a
necessity in addition to an insurance cover. The minimum age is 12 years to be eligible for a
Money-Back Policy.

What is Joint Life Policy?

Joint life policies are similar to endowment policies in as much as these policies also offer
maturity benefits to the policyholders, apart from covering the risks as all life insurance policies.
But these are categorized separately as these cover two lives together thus offering a unique
advantage in some cases; notable, for a married couple or for partners in a business firm.

How is it beneficial?

Under a joint life policy the sum assured is payable on the first death and again on the death of
the survivor during the term of the policy. Vested bonuses would also be paid besides the sum
assured after the death of the survivor.

If one or both the lives survive to the maturity date, the sum assured as well as the vested
bonuses are payable on the maturity date.

The premiums payable cease on the first death or on the expiry of the selected term, whichever
is earlier.

Accident benefits equivalent to the sum assured are available under this plan on the first death.
However, if both lives are covered under Double Accident Benefit (DAB), the surviving life is
covered under DAB until the end of the policy year, in which the first life dies under the cover
of the policy.

These benefits are available with respect to both lives if

Both lives perish simultaneously owing to an accident. To avoid such an eventuality, nomination
is allowed under the policy OR

Both die within the specified period as a result of the same accident OR

The second life also dies in the same policy year as result of another accident. To avoid such an
eventuality, nomination is allowed under the policy

Who should buy this plan?

Particularly for couples - Joint life policies provide dual-purpose income and risk protection for
both belonging to every income group and class of society.

Under a joint life plan though the premium payment stops after the first life's death, bonuses
continue to accrue on the basic Sum Assured till Maturity Date or till the death of the second
life, if earlier.
A good plan for middle-aged married couples, working couples or professionals offering
financial security for both the lives.

What is a Children's Policy?

Children's insurance includes policies through which parents or legal guardians can
provide for life insurance for their child from birth. The risk cover commences from
the child attaining the age of 12 / 17 / 18 / 21 (known as the Date of Risk), and will
vest itself on the child upon his or her attaining majority on completion of age 21, if
the case demands so.

Until the child attains majority, the parents are the owners of the policy and have to pay the
premium periodically. It is important that these policies are considered only after the insurance
portfolios of the parents have been completed. The familys insurance budget should primarily
buy as much life insurance as possible on the lives of the breadwinner and should not be
frittered away on the childrens lives as their insurance is useless in the event of any premature
death of the breadwinner. In fact, those lives should be insured that have maximum economic
emphasis. Quite often, these policies lapse if and when the premium paying breadwinner of the
family die before the vesting age. After all, the child may not be in a position to continue paying
the premiums.

How is it beneficial?

Childrens policies are designed to enable a parent or a legal guardian of the child to provide
insurance cover for the child. With such policies, you as a parent will need to pay the premium
for your childs policy depending on the plan and the term till your child attains majority. The
risk cover on your child could start from 7 yrs, 12, 18 or 21 years of age depending on the plan
taken.

Who should buy this plan?

Those, who plan to provide their child with life insurance cover for a future date when he turns a
major, can take childrens policies. The policy envisages two stages, one covering the period
from the date of commencement of policy to the deferred date that is the commencement of the
risk. No loans are granted against this policy during the deferment period and no risk of death is
covered until the child attains the prescribed age as per the policy document.

If the child were to die during the deferment period, the policy will stand cancelled and a sum of
money equal to all the premiums paid without any deduction becomes payable to the proposer.
What is Women's Policy?

Womens policy provides funds in times of need like education, marriage or sickness with
Guaranteed And Loyalty Additions during the policy term period and after maturity. Presently
the sole women's policy are also available in the market.

How is it beneficial?

The benefits available for women under the Women's policy plan are

Encashment of survival benefit as and when needed.

Free cover for three years after two years' premiums are paid.

Accident benefits.

Guaranteed additions @ Rs.70 per annum.

Flexibility in premium payment - including facilitation of advance payments.

Option for retaining the policy moneys with LIC.Who should buy this plan?

Ladies, working or unemployed, single or married are subject to just as many risks as their male
counterparts. They are required to fulfill their responsibilities at the workplace as well as
manage their households too.

Since the lack of their presence cannot be easily compensated by their dependents, it is advisable
that ladies, from every socio-economic environment invest a part of their resources in the
women's policy available in the market, especially the one specifically designed and aimed at
women in general.

This policy has been designed to encourage women to save for their safety and security. All
major female lives until the age of 50 are eligible. The policy is issued for a fixed term of 20
years.

What Are Group Insurance Plans?

Group Insurance offers life insurance protection under group policies to various groups such as
employer-employee, professionals, co-operatives, weaker sections of society etc. It also provides
insurance coverage to people under certain approved occupations at the lowest possible
premium cost. Besides providing insurance coverage, it also offers group schemes to employers,
which provide funding of gratuity and pension liabilities of the employers.
How are they beneficial?

Group insurance plans have low premiums. Such plans are particularly beneficial to those for
whom other regular policies are a costlier proposition. Group insurance plans extend cover to
large segments of the population including those who cannot afford individual insurance. As
such the premium you need to pay is comparatively lower and at the same time you can avail of
insurance benefits.

The main features of the schemes are low premium and simple insurability conditions.
Premiums are based upon age combination of members, occupation and working conditions of
the group.

Who Should buy these Plans?

A number of group insurance schemes have been designed for various groups. These include
employer-employee groups, associations of professionals (such as doctors, lawyers, chartered
accountants etc.), members of cooperative banks, welfare funds, credit societies and weaker
sections of society. Creditor-Debtor groups are also offered group insurance schemes.

Group insurance schemes providing uniform cover can be granted to outstanding loans. These
groups are Members of primary housing societies where housing loans are granted by State
Apex housing societies, borrowers granted loans by Institutional agencies in Public/Joint Sectors
for housing purposes and borrower members of cooperative societies/banks formed by
employees of the same employers.

What is Annuity?

An annuity is an investment that one makes, either in a single lump sum or through installments
paid over a certain number of years, in return for which the person receives back a specific sum
every year, every half-year or every month, either for life or for a fixed number of years.

After the death of the annuitant, or after the fixed annuity period expires for annuity payments,
the invested annuity fund is refunded, perhaps along with a small addition, calculated at that
time.

Annuities differ from all the other forms of life insurance discussed so far in one fundamental
way - an annuity does not provide any life insurance cover but, instead, offers a guaranteed
income either for life or a certain period.
Typically annuities are bought to generate income during ones retired life, which is why they
are also called pension plans. Annuity premiums and payments are fixed with reference to the
duration of human life. Annuities are an investment, which can offer an income you cannot
outlive and provide a solution to one of the biggest financial insecurities of old age; namely, of
outliving ones income.

How is it beneficial ?

By buying an annuity or a pension plan the annuitant receives guaranteed income throughout his
life. He also receives lump sum benefits for the annuitants estate in addition to the payments
during the annuitants life time. Also tax benefits are available.

Who should buy this plan?

Annuity income is assured throughout life, but ceases on the death of the annuitant.

An individual who after retiring from service has received a large sum from his Provident
Funds, should invest the proceeds in a pension plan or annuity fund available in the market since
it is the most satisfactory method of providing a safe and secured income for the rest of his life.

How does one pay for an annuity?

Annuities are paid for:

Either through a single premium OR

Through installment payments that are annual in most cases

How can one receive payments from an annuity?

There are several options that are used when the proceeds of an annuity are distributed.

Life annuity
The first is a life annuity, which guarantees you a specified amount of income for your life. On
death, the annuity payments cease but your investment is refunded to your estate.

Guaranteed Period annuity (Certain and Life)

A guaranteed minimum annuity, on the other hand, not only provides the person with a specified
income for his/her lifetime but, in addition guarantees that the person estate will receive
payments for a certain minimum number of years, say ten years, even if you should die earlier.
On the other hand, one should live longer than ten years, he/she are entitled to receive annuity
payments for lifetime.

Obviously, any annuity that firmly guarantees benefits to the persons estate as it can be
purchased by paying higher annuity premiums.

Annuity 'Certain'

Under Annuity 'Certain", the stipulated annuity is paid for a fixed number of years. The annuity
payments come to an end at the end of that period, irrespective of how much longer you may
live.

However, the selected period remaining annuity installments are paid to the nominees.

Deferred annuities

The premiums paid into such annuities may be deducted from ones taxable income at the time
of payment. In addition, the interest earned on the annuities is not taxed immediately. This can
be quite advantageous, especially to tax payers in higher tax brackets.

Nonetheless, the proceeds of the annuity (which will include accumulated interest) will be
taxable when they are paid to you or to your estate as annuity payments.

Deferred annuities eventually result in present tax savings.

When does one receive annuity payments?

Broadly, there are two types of annuities vis-a-vis when you receive annuity payments: an
immediate annuity, and the deferred annuity.

In the first case you start receiving annuity payments as soon as you pay the premium, which is
usually in a lump sum.
In the case of a deferred annuity, the payments to the annuitant start after a certain deferment
period. Typically, the annuitant pays annuity premiums in instalments during the deferment
period.

Generally, one will have to pay less premium for an annuity that provides future payments
because the deferment period allows the insurance company to invest ones premiums at a
profit, thereby reducing the cost of the annuity .

How can one evaluate an annuity?

Since annuities are not life insurance policies, we cannot evaluate them as we evaluate other
policies. Unlike life insurance policies which cover the risk of the premature death of a familys
breadwinner, annuities should be evaluated just like any other investment option, i.e. on the
four-fold criteria of safety, profitability, liquidity and ready availability of your invested capital
in case of need, and capital appreciation.

capital may be locked up for life. Consider this, firstly, during old age there are times when one
needs money in a lump sum, whether for hospitalisation, a major surgery, or even for investment
in housing, etc. Once locked in these annuity plans, the capital is not available to the person for
any such requirement.

Secondly, these plans also foreclose option of shifting ones investment into newer, more
profitable areas, which may emerge from time to time. Even today, alternate investment options
yielding higher than 12 percent guaranteed returns are available in mutual funds, company
deposits and debentures, etc which also afford the flexibility of retrieving ones capital in case of
need.

Claim Settlements

The settlement of a claim arises due to Death of the Policyholder or due to Maturity of the
Policy.

Death Claim

In respect of a death claim an intimation regarding death of a policyholder from a relative


/ nominee / or assignee is to be received.
The facts required to be submitted are:

1.Date of death,

2.Reason and Place of Death,

3.Full details of policies held by the Life assured should also be submitted.
Death claims are categorized as Non-Early Death claims and Early Claims. The procedure for
processing these claims is different.

Non-early Death Claim:

Non-early Death Claims refer to death of the Life assured occurring after 3 years from the date
of commencement of policy or Date of last revival / reinstatement

If the policy is in force till death by regular payment of premiums, full sum assured is payable
along with bonus (if it is a with profit policy).

The following are the requirements for the settlement of the death claim:

1.Policy Document

2.Death Certificate from the appropriate authority

3.Legal evidence of Title, if the claimant is not an assignee / nominee

4.Abridged claim Form (3783/A)

5.Discharge Form in 3801, duly signed

6.Assignment / Reassignment deed, if any

7.Age proof, if age is not already admitted

Once these documents are received and if they are found in order, claim is settled and payment
is made to the person entitled to.

Early Claims:

1.Early Claims refer to the death of Life assured occurring within 3 years from commencement
of policy.

2.The following forms are to be submitted duly completed:

3.Claim Form B: Statement from the medical attendants who last treated the deceased Life
assured.

4.Claim form B1: certificate of treatment issued by the hospital authorities where the deceased
was treated last.
5.Claim form E - certificate by the employer if the deceased was an employee.

6.Claim form C - certificate of burial/cremation signed by a person who attended the funeral of
the deceased.

7.Where death takes place due to accident, the death has to be reported to the police and a FIR
(First Information Report), police inquest report, and postmortem report (if conducted only) are
to be submitted.

8.Wherever death takes place within 2 years from Date of commencement an enquiry is
conducted to determine the genuineness of claim.

On the basis of these, the decisions to settle accidental benefits are taken.

Maturity:

If the life insured survives to the full term, then basic sum assured is payable. This payment by
the insurer to the insured on the date of maturity is called maturity payment.

In majority of the plans, full sum assured becomes payable along with Bonus as a maturity
payment, unless survivals benefits are paid earlier as in a money back policy.

At least 2 months before maturity date, information is sent to the life assured with a blank
discharge form for signature & completion by him. It is to be returned to the office along with:

Original Policy document


Age proof if age not already submitted
Assignment /reassignment, if any.

Postdated cheques are submitted to the Life Insured on receipt of the above mentioned
requirements.

Certain Relaxations in Settlements of the claims:

Legally no claim is acceptable in respect of a lapsed policy or death of the Life assured
occurring within 3 years from the date of commencement of the policy. However, some
concessions are available and payment of claims are made -

If the Life assured had paid at least 3 years' premiums and thereafter if premiums have
not been paid, the nominees get proportionate paid up value.
In the event of the death of the Life assured within 3 years and the policy is under the
lapsed position, nothing is payable.

Loan on policy ?

Policy holders are eligible to take loans on their policies subject to certain rules. The
policyholder has to apply for a loan in a prescribed form and submit the Policy Bond with the
form duly completed. The loan amount is calculated depending on the Surrender Value (SV)
that the policy would have acquired, and approximately 85% of the Surrender Value is given as
loan.

Rate of interest charged varies from company to company and time to time. A policy holder can
repay the loan amount either in part or in full any time during the term of the Policy. If the loan
amount is not repaid during the term of the Policy or early claim, the amount of loan plus
interest, if any, will be deducted from the claim money and the balance amount will be paid to
the claimant.

LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. For LIC, the
minimum repayment should be Rs. 50 and thereafter in multiples of Rs. 10. If the interest is not
paid regularly every half year, then the interest is calculated on compound interest basis.

How can one revive a policy?

A policy gets lapsed if the premiums are not paid within the due date or the period of grace
permitted by the insurance company. However, a lapsed policy can be revived and procedure
varies from company to company.

In case of LIC a lapsed policy can be revived within 5 years from the date of first unpaid
premium. There are five different schemes under which a policy can be revived.

1.Ordinary Revival Scheme : Under this scheme, all the arrears of unpaid premiums with
interest have to be paid. Along with this, 'Declaration of Good Health' in Form No. 680 and
medical certificate, if necessary, are required.
2.Special Revival Scheme : If a person is not in a position to pay all the arrears, then, he can
choose this scheme. Under this scheme, the date of commencement will be shifted so that the
policy is not lapsed just prior to the date of revival, i.e, the date of commencement is advanced
approximately by the period of lapse. Other requirements like 'Declaration of Good Health' and
Medical certificate wherever necessary are required as in Ordinary Revival.

Special Revival is allowed under the following conditions :

The policy should not have acquired any surrender value.

Revival should be within 3 years of lapse.

Special Revival is allowed only once during policy term.

3.Revival by Instalment method: If a policy holder cannot pay arrears in one lumpsum and if the
policy cannot be revived under Special Revival Scheme, he can make use of Instalment Revival
Scheme. In this scheme, on the date of revival he has to pay immediately:

6 months premiums, if mode is Monthly


7 2 quarterly premiums, if mode is Quarterly
8 1 Half year premium, if mode is Halfyearly
9 Half of the yearly premium, if mode is Yearly

The balance of revival amount is paid in instalments spread over two years along with normal
premium instalments. Other requirements regarding health are, as required in Ordinary Revival
Scheme.

1.Loan-cum-Revival Scheme : If a policy acquires surrender value on the date of revival, the
policy can be revived taking a policy loan. Loan amount will be calculated treating the
premiums as paid upto the date of revival. Short fall, if any, in revival amount is called for. If
loan amount is more than required for revival, the excess will be paid to the policy holder.

2.Survival Benefit-cum-Revival Scheme : The Survival Benefit which falls due in a money-back
type of policy can be used for revival of the policy, if date of revival is later than the Survival
Benefit due date. Here, if the SB amount is less than the revival amount, the short fall will be
called for. If the SB is more than the revival amount, the excess is paid back to the policy holder.
The other requirements for normal SB settlement and revival requirement are to be fulfilled.

3. Deregulation in India has resulted in increased number of players in the


market and hence thecompetition. This competition has brought about a change in the existing
distribution channels.

The new types of distribution channels are wider and are expected to be more technology
oriented for the urban population in future. There also exists a vast potential for new types
ofcompanies coming into the market that support the existing structure of the industry such as
agency management systems and the brokerage firms.

Insurance Brokers - A new breed

The opening of the insurance sector has led to a total revamping of the erstwhile insurance
industry. Now intermediaries such as insurance brokers which never existed before, have come
into the picture.

This new breed of Insurance brokers is appointed by clients and represents a number of
insurance companies. The Insurance Regulatory Development Authority (IRDA) specifies that
the broker should have dealings with a minimum of three insurance companies.

However, like an agent, the broker receives his remuneration from the insurance company.
Brokers receive much higher remuneration than agents do because of their much larger function.
In order to attract good and profitable business, insurers are known to provide incentives to
brokers both for the quality and quantity of business, in the form of both profit commissions as
well as target commissions.

The insurance broker is expected to play a more professional role than an agent. The IRDA-
specified professional educational qualifications and experience required of brokers are
definitely more stringent than that set out for the agent.

Besides, the broker has minimum capital norms. The IRDA has also made it compulsory for
brokers to obtain professional indemnity cover. Finally, IRDA regulations specify a detailed
code of conduct for the brokers.

Of the risks that are to be insured, the broker will highlight the insurance companies that have
the capacity to insure, differences in cover and exclusions amongst the different insurance
companies as also indicative price differences.

The broker has to highlight the soundness, solvency and expertise of the company. He will also
highlight the levels of service that can be expected of the company.

On the basis of the report, the insurance broker receives instructions from the client to obtain
quotes from the different companies. On receiving the quotes, the broker will tabulate them
before presenting them to the client.

Though insurance companies have standard terms, conditions and prices for different lines of
business it would sometimes be difficult for the broker to obtain the correct cover for their
clients. The broker has to ensure that the documentation received from the insurance company is
correct and reflects the correct intent. It is when the claims arise that the broker has to play a
crucial role.

As a professional intermediary it is in the interest of the broker to get himself involved in the
claim and ensure that the insured is paid off. Here the broker has to remember that he being an
intermediary needs to please the insurance company as also the customer.

In a matured insurance market the broker plays a dual role. He needs to have every information
relating to his area of business since he represents the client besides he needs to please the
customer too-his ultimate goal.

What are Insurance Brokerage houses?

Worldover insurance brokerage houses are large, sometimes even larger than the insurance
companies themselves. They provide reinsurance to insurance companies. In many markets,
brokers provide non-life insurance as well as group life and group mortgage insurance.

In countries like Japan, the broker is not empowered to conclude contracts, accept
representations, and to receive insurance premiums. In such cases minimum capital
requirements and solvency margins are not needed.

In general an insurance broker would provide the following services:

Pre sales and after sales service to the customers.

Provisions of relevant information to the underwriters to assess the risk and decide the premium.

Design covers that meet the client requirements.

Recommend risk improvement and loss minimisation measures

Provide risk management and insurance education

Collection of Premiums

Bancassurance

The insurance industry has finally woken up from its long slumber to an altogether new
awakening. It is the rise of a new dawn that has brought with it opportunities galore. From
innumerable insurers, to affordable and quality covers for the consumer, from increase in
distribution channels to incorporating information technology measures, from net selling to
bringing about increased transparency .
The ubiquitous agent is no more the only distribution channel today for insurance products.
Increase in distribution channels has among others also seen the concept of Bancassurance
taking roots in India, and it is emerging to be a viable solution to mass selling of insurance
products. A popular concept in the west, Bancassurance put in simple terms means selling
insurance products through banks.

Bancassurancesymbolises the convergence of banking and insurance. The term has its origins in
France and involves distribution of insurance products through a bank's branch network.

While bancassurance has developed into a tremendous success story in Europe, it is a relatively
new concept in Australia and Asia IRDA, IBA & RBI are in discussions to iron out the various
issues, as public sector banks will play a key role in the distribution of products.

Wide network of branches: Banks can prove to be a vital distribution channel due to their
existing wide network of branches all over. The Insurance Regulatory Development Authority
(IRDA) has permitted banks to venture into marketing insurance products on a risk participation
basis. The regulator, to ensure that only the serious ones with the financial muscle enter into
selling of insurance products has laid down certain prerequisites. Banks need to possess at least
500 crores of net worth and capital adequacy of a minimum of 10 per cent to make an entry.

Corporate clients: Banks can utilise their existing clientele, which includes corporate as also
retail clients to market insurance products. Depending on the relationship with its clients it
would become easier to influence the insurance purchase decisions of its clients. Customers too,
having banked with a particular bank for a long period repose a sense of trust and faith in the
bank.

Customer database: Customer database - raw information on the customers spending habits,
investment purchase can prove to be a goldmine. Such information channelised in the right
manner can help work out marketing strategies and arrive at result-oriented decisions targeting
prospects.

Personalised Service: Since banks have direct contacts with customers, the service area can be
tackled easily. Customers, other than their day-to-day financial requirements can also get
assistance for premium payment, surrender, transfer of policies and many more.

Rural penetration: The existing wide network of banks in rural areas can be utilised for selling
insurance products. Penetration into the rural areas too becomes easier for banks. Having been
accustomed to the customers choices banks are in a better position to understand the needs of the
customers and sell tailor made policies. Customers too, considering their long-standing
relationship with banks, find them more trustworthy. Servicing of policies would also become
easier.

Cross selling products: Banks in their normal course of functions lend finance in the form of
loans for cars, or for buying a house to clients. They can combine insurance products and sell as
a package. In the current scenario banks can cross sell their products along with the insurance
products.

Fee based service: Insurance products can be sold as a fee based service. In an age where banks
are trying to venture into selling mutual funds and other financial products besides stock broking
etc, selling insurance products could also give an additional boost to the banks bottomline.

Cheaper than agents: Bancassurance, may work out to be cheaper compared to companies
appointing agents for selling insurance products. This is particularly considering the banks wide
network and the reach they have compared to the agents.

. Why should banks enter insurance?

There are several reasons why banks should seriously consider Bancassurance, the most
important of which is increased return on assets (ROA). One of the best ways to increase ROA,
assuming a constant asset base, is through fee income. Banks that build fee income can cover
more of their operating expenses, and one way to build fee income is through the sale of
insurance products. Banks that effectively cross-sell financial products can leverage their
distribution and processing capabilities for profitable operating expense ratios.

By leveraging their strengths and finding ways to overcome their weaknesses, banks could
change the face of insurance distribution. Sale of personal line insurance products through banks
meets an important set of consumer needs. Most large retail banks engender a great deal of trust
in broad segments of consumers, which they can leverage in selling them personal line insurance
products. In addition, a banks branch network allows the face to face contact that is so
important in the sale of personal insurance.

Another advantage banks have over traditional insurance distributors is the lower cost per sales
lead made possible by their sizable ,loyal customer base. Banks also enjoy significant brand
awareness within their geographic regions, again providing for a lower per-lead cost when
advertising through print, radio and/or television. Banks that make the most of these advantages
are able to penetrate their customer base and markets for above-average market share.
Other bank strengths are their marketing and processing capabilities. Banks have extensive
experience in marketing to both existing customers (for retention and cross selling) and non-
customers (for acquisition and awareness). They also have access to multiple communications
channels, such as statement inserts, direct mail, ATMs, telemarketing, etc. Banks' proficiency in
using technology has resulted inimprovements in transaction processing and customer service.

By successfully mining their customer databases, leveraging their reputation and 'distribution
systems (branch, phone, and mail) to make appointments, and utilizing 'sales techniques and
products tailored to the middle market, European banks have more than doubled the conversion
rates of insurance leads into sales and have increased sales productivity to a ratio which is more
than enough to make bancassurance a highly profitable proposit.

Benefits to insurers

Insurers have much to gain from marketing through banks. Personal-lines carriers have found it
difficult to grow using traditional agency systems because price competition has driven down
margins and increased the compensation demands of successful agents. Over the last decade, life
agents have sold fewer and larger policies to a more upscale client base. Middle-income
consumers, who comprise the bulk of bank customers, get little attention from most life agents.
By capitalizing on bank relationships, insurers will recapture much of this under served market.

Most insurers that have triedto penetrate middle-income markets through alternative channels
such as direct mail have not done well. Clearly, a change in approach is necessary. As with any
initiative, success requires a clear understanding of what must be done, how it will be done and
by whom. The place to begin is to segment the strengths that the bank and insurer bring to the
business opportunity.

Bancassurance in India - A SWOT Analysis


bancassurance as a means of distribution of insurance products through Banks,they are selling
Personal Accident and Baggage Insurance directly to their Credit Card members as a value
addition to their products. Banks also participate in the distribution of mortgage linked insurance
products like fire, motor or cattle insurance to their customers. Banks can straightaway leverage
their existing capabilities in terms of database and face to face contact to market insurance
products to generate some income for themselves which hitherto was not thought of.

Once bancassurance is embraced in India with full force, a lot will be at stake. Huge capital
investment will be required to create infrastructure particularly in IT and telecommunications,
top professionals of both industries will have to be hired, an R & D cell will need to be created
to generate new ideas and products. It is therefore essential to have a SPOT analysis done in the
context of bancassurance experiment in India.

Strengths

In a country of 1 Billion people, sky is the limit for personal lines insurance products. There is a
vast untapped potential waiting to be mined particularly for life insurance products. There are
more than 900 Million lives waiting to be given a life cover. There are about 200 Million
households waiting to be approached for a householder's insurance policy. Millions of people
travelling in and out of India can be tapped for Overseas Mediclaim and Travel Insurance
policies. After discounting the population below poverty line the middle market segment is the
second largest in the world after China. The insurance companies worldwide are eyeing on this,
why not we preempt this move by doing it ourselves?

Our other strength lies in a huge pool of skilled professionals whether it is banks or insurance
companies who may be easily relocated for any bancassurance venture. LIC and GIC both have
a good range of personal line products already lined up, therefore R & D efforts to create new
products will be minimal in the beginning. Even the private companies have a good range of
products.

Weaknesses .

The middle class population that can be looked at are today overburdened, first by inflationary
pressures on their pockets and then by the tax net. Where is the money left to think of insurance
? Fortunately, LIC & other private companies schemes get IT exemptions but personal line
products from GIC (mediclaim already has this benefit) like householder, travel, etc. also need
to be given tax exemption to further the cause of insurance and to increase domestic revenue for
the country.

Another drawback is the inflexibility of the products i.e. it can not be tailor made to the
requirements of the customer. For a bancassurance venture to succeed it is extremely essential to
have in-built flexibility so as to make the product attractive to the customer.

Opportunities

Banks' database is enormous even though the goodwill may not be the same as in case of their
European counterparts. This database has to be dissected variously and various homogeneous
groups are to be churned out in order to position the bancassurance products. With a good IT
infrastructure, this can really do wonders.

Other developing economies like Malaysia, Thailand and Singapore have already taken a leap in
this direction and they are not doing badly. There is already an atmosphere created in the
country for liberalisation and there appears to be a political consensus also on the subject.
Therefore, RBI or IRA should have no hesitation in allowing the marriage of the two to take
place. This can take the form of merger or acquisition or setting up a joint venture or creating a
subsidiary by either party or just the working collaboration between banks and insurance
companies.

Threats

Success of a bancassurance venture requires change in approach, thinking and work culture
onthe part of everybody involved. Our work force at every level are so well entrenched in their
classical way of working that there is a definite threat of resistance to any change that
bancassurance may set in. Any relocation to a new company or subsidiary or change from one
work to a different kind of work will be resented with vehemence.

Another possible threat may come from non-response from the target customers. This happened
in USA in 1980s after the enactment of Garn - St Germaine Act. A rush of joint ventures took
place between banks and insurance companies and all these failed due to the non-response from
the target customers.

The investors in the capital may turn their face off in case the rate of return on capital falls short
of the existing rate of return on capital. Since banks and insurance companies have major
portion of their income coming from the investments, the return from bancassurance must at
least match those returns. Also if the unholy alliances are allowed to take place there will be
fierce competition in the market resulting in lower prices and the bancassurance venture may
never break-even.

Looking Around

Hardly 20% of all US banks were selling insurance in 1998 against almost 70% to 90% in many
W. European countries. Market penetration of bancassurance in new life businesses in Europe
ranges between 30% in U.K. to nearly 70% in France. Almost 100% banks in France are selling
insurance products. In 1991 NationaleNederlanden of Netherlands merged with Post Bank, the
banking subsidiary of the post office to create the ING Group - a new dimension to the
bancassurance i.e. harnessing the databank of the post office as well. CNP, the largest
independent insurance company in France has developed its product distribution through post
offices. The merger of Winterthur, the largest Swiss insurance company with Credit Suisse and
Citibank with Travellers Group have resulted in some of the largest financial conglomerates in
the world.

Despite the phenomenal success of bancassurance in Europe, property and casualty products
have not made much inroads in Spain, Belgium, Germany and France where more than 50% of
all new life premium is generated by bancassurance.
A study byBoston Consulting Group and Bank Administration Institute in USA claims that if
banks made a major commitment to insurance and a more narrowly targeted commitment to
investors, within 5 years they could increase retail revenues by nearly 50%.

It further states that: Banks could capture 10% to 15% of the total U.S. insurance and investment
market by selling products to 20% of their existing customers.

Banks' existing infrastructure enables them to operate at expense levels that are 30% to 50%
lower than those of traditional insurers.

Bancassurance's bank-branch based sales system sells 3 to 5 times as many insurance policies as
a conventional as a conventional insurance sales and distribution force.

By simplifying bancassurance products each back office bank employee can quintuple managing
policies compared to traditional insurers.

LessonsWe should take a leaf from the experienced players and develop bancassurance only
gradually. As happened in France, Italy, Germany and Canada - banks were allowed first only to
distribute the insurance products for a fee. This itself amounted to substantial income for banks
since they were not carrying the risks and product development was also left to insurance
companies. This seems fair since each player should contribute towards something in which he
excels; banks in mass distribution and insurance companies in risk management. After
stabilization, the roles may be expanded in opposite directions.

We need to develop innovative products and services .example is provided by Banco Bilbao
Vizcaya of Spain who offers a term life policy with simple premium payments and a clear
contract that is designed to be sold, issued and signed at the point of sale within 15 minutes.

Banks and insurance companies in India wishing to pursue high aspiration insurance strategies
would do well to learn from European bancassurers, who have decades of experience managing
insurance subsidiaries. Some of them - Lloyds TSB in the UK, Credit Agricole in France and
Spain's Banco Bilbao Vizcaya - are delivering outstanding results. These bank have profitably
sold insurance products to more than a fourth of their customers while generating more than
20% on sales. Credit Agricole, the second largest life insurer in France, with $11 billion of
premium in force, employs only 170 people in its insurance subsidiary. It is able to limit
overhead by harnessing the bank's existing resources and capabilities.

Obstacles and success factors


Even insurers and banks that seem ideally suited for a bancassurance partnership can run into
problems during implementation. The most common obstacles to success are poor manpower
management, lack of a sales culture within the bank, no involvement by the branch manager,
insufficient product promotions, failure to integrate marketing plans, marginal database
expertise, poor sales channel linkages, inadequate incentives, resistance to change, negative
attitudes toward insurance and unwieldy marketing strategy.

Conversely, bancassurance ventures that succeed tend to have certain things in common. Factors
that appear to be critical to success include strategies consistent with the bank's vision,
knowledge of target customers' needs, defined sales process for introducing insurance services,
simple yet complete product offerings, strong service delivery mechanism, quality
administration, synchronized planning across all business lines and subsidiaries, complete
integration of insurance with other bank products and services, extensive and high-quality
training, sales management tracking system for reporting on agents' time and results of bank
referrals and relevant and flexible database systems.

Finally

The creation of bancassurance operations has a material impact on the financial services
industry at large. Banks, insurance companies and traditional fund management houses are
converging towards a model of global retail financial institution offering a wide array of
products. It leads to the creation of 'one-stop shop' where a customer can apply for mortgages,
pensions, savings and insurance products.

Discovery comes from looking at the same thing as everyone else but seeing something
different. Banks' desire to increase fee income has them looking at insurance. Insurance carriers
and banks can become part of the vision through strategic partnerships. Now is the time to
position your company for the new millennium of insurance product distribution.

Informed Customers

The insurance industry is no exception to this trend.


Distribution has been the keyword, particularly for life insurance, for products to penetrate the
market andreach customers in the most effective manner. In India, deregulation has meant that
new private players are entering the market. These new entrants have significantly changed the
atmosphere of the industry.
Customers are becoming more knowledgeable as they are continually being educated in various
ways.
Insurance is more talked about now. The importance of insurance as a cover as against a tax
saving and investment product is being highlighted. Even though
the financial performance of the private players is negligible as compared to LIC t the current
behemoth in the Indian insurance industrythe change in the environment they have brought
about is significant.The private players are coming out with innovative adcampaigns, more
sophisticated and intelligent
workforce and properly trained agents.

The Indian Market


The successful marketing of insurance products depends on an efficient distribution system. But,
it takes time to establish an efficient distribution network. Issues like delay in formulating
regulations for brokers and
capping of commission of corporate agents could prove to be an obstacle for an efficient
distribution system. Traditionally, LIC has been distributing life insurance products solely
through the network of its own agents. At
present, the number of agents is around 9,00,000 for LIC. This was the primary channel for
distribution of life insurance products in India till the entry of private players. In the deregulated
scenario, the private players are coming out with different types of distribution channels to get
hold of customers in variety
of ways.

Bancassurance in India

Life insurance licenses Non-life licenses

LIC Corporation Bank (27% equity stake)/Oriental


Bank of Commerce (9% equity stake)

Birla-Sun Life Citibank

HDFC-Standard Life Union Bank/Indian Bank

Dabur-CGU Canara Bank/Lakshmi Vilas


Bank/ABN Amro

ING-Vysya Life Vysya Bank (Joint venture)

MetLife J&K Bank (Joint venture)

Allianz-Bajaj Life Insurance Standard Chartered Grindlays

Tata-AIG Life Insurance Citibank

ICICI-Prudential ICICI Bank (Joint venture)


Non-Life Insurance Company
Tata-AIG General Insurance HSBC

Royal Sundaram Alliance Citibank/American Express/


Standard Chartered Grindlays

ICICI-Lombard ICICI Bank (Joint venture)

There exists an immense opportunity for the insurers as there is a huge market available, which
can be tapped by virtue of robust marketing and distribution strategies. As per statistics, Indias
premiums in percentage of GDP is around 2.61%, whereas the
figure stands quite high for other countries such as15.78% for UK, 10.92% for Japan and 8.76%
for US.

Present Scenario With the combined forces of increasing technological expertise, transformation
in the industry and innovative techniques working in the Indian market, the distribution system
seems to be widening. The new players are exploring fresh techniques of distribution. Many
newcomers are appointing Direct Sales Associates (DSA) to market their policies, while many
are following the bancassurance route for
distribution. The other models are company-owned agents and tied agents. While every type of
distribution model has its pros and cons, the bancassurance

model is cost-effective and is also quite efficient for market penetration. This is for the simple
reason that since the banking and insurance industry share a
common target of financial services customers, the existing customer base of banks can be
targeted rather than building a new one. Private players are currently following various
permutations and combinations of the
above mentioned distribution strategies and trying to grab the market share in the country.

Future Strategies
According to a recent report by Deloitte Consulting on Technology and Insurance Distribution,
future customers will be multi channel. The insurers will have to offer all types of channels to
the customer and it is
the customer who will have the right to choose the channel suiting him/her. Dual income
families, families with young children, singles with long working days and flexi-timers, all
demand high level of sophistication and ease when it comes to service. Hence the companies
have to bevery careful and cautious in catering to the needs of these customers who provide a
good amount of business to the insurers.
Thanks to the technological advancement and increased deregulation and sophistication, the
carriers and producers can now reach the customers in different ways. As has been proved in the
US market and other developed nations, the Web is extensively used for the access of
information but when it comes to the purchase of policy, the offline mode is preferred. The
private players in India seem to have identified this and have put substantial information on their
websites regarding policies, quotes, contact information
among other routine stuff.

Three More Ps of Marketing


In the coming years, we can expect the insurers to concentrate on the additional three Ps of
marketing for the distribution of their products. In addition to Product, Price, Place and
Promotion,

insurers will have to focus on Process, People and Physical appearance for the sale of insurance
products.

People: The most important factor that materializes sales and maintains customer relationships
on a long-term basis.
Process: Customers are becoming more Net savvy and technology oriented, and hence expect
fast processing and delivery of the policy after paying the price for it. Even after the first sales,
customers will continue to expect fast claims processing, payment of future premiums, changes
in the policy terms and other mundane things to be carried out on a convenient and fast basis.
Physical appearance: This can play a significant role for marketing in the Indian scenario.
Since Internet users are comparatively lesser than

Collaboration is the key

In theirnatural and traditional roles and with their current skills, neither banks nor insurance
companies could effectively mount a bancassurance start-up alone. Collaboration is the key to
making this new channel work .

Banks bring a variety of capabilities tothe table. Most obviously, theyown proprietary databases
that can be tapped for middle-market warm leads. In addition, they can leverage their name
recognition and reputation at both local and regional levels. Strong players also excel at
managing multiple distribution channels, cross-selling banking products, and using direct mail.
However, most banks lack experience in several areas critical to successful bancassurance
strategies: in particular, developing insurance products, selling through face-to-face "push"
channels underwriting, and managing long-tail insurance products.
Where banks usually fall short, a strong insurer will excel. Most have substantial product and
underwriting experience, strong" push - "channel capabilities, and investment management
expertise. On the other hand, they tend to lack experience or ability in the areas where banks
prevail. They have little or no background in managing low-cost distribution channels; they
often lack local and regional name recognition and reputation; and they seldom possess access to
or experience with the middle market.

Limitations

Age is restricted.
Minimum sum should be 50,000 to be assured.
It takes long times.
Cannot takes the reports regarding their policies as and when they require.
This system is developed considering only one insurance company, which means that the
agent can maintain the details of customer of only one company.

Recommendations and suggestions

To come up with new and innovative plans


To allow assurance of money between 25000 to 30000 Rs.
conclusion

1) there is a very tough competition among the private insurance companies on the level
new trend of advertising
2) LIC is not left behind in the present race of advertisement.
3) The entry of the pvt. players in the insurance sector has explained the product segment
to meet the different level of the requirement of the customer ,it has brought about
greater choice to the customer
4) Private insurance have restricted to reach the interest of the customer.
5) LIC has assurance that allows life insurers to leverage on the risk products through
bank network , was adopted by private players.
BIBLIOGRAPHY

BROCHURES / INFORMATION BOOKLETS

Product List L.I.C.


L.I.C. Annual Report, 2006
ICICI Annual Report, 2006
Malhotra Committee Report
NEWSPAPERS / MAGAZINES
The Economic Times
The Insurance Times
Insurance Post
BOOKS
w.w.w.liclndia.com
www.indiainfoline.com
www.icici.com
www.hdfc.com72