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LIFE INSURANCE INDUSTRY OF INDIA

PROJECT REPORT ON
LIFE INSURANCE INDUSTRY OF INDIA
A COMPARATIVE ANALYSIS OF MUTUAL FUNDS
AND UNIT LINKED INSURANCE PLANS.ANALYSE
INSURANCE AS AN
INVESTMENTOPTION/AVENUE.
&
RISK RETURN PROFILE OF UNIT LINKED
INSURANCE PLANS (ULIP) AND MUTUAL FUNDS.
Submitted to, Submitted by,
Prof .B V RAMANA Sarthak Mohanty
Faculty, Project Trainee,
IBS --HYDERABAD ICICI Prudential
Acknowledgements:-
The Summer Internship Program (SIP) undertaken by me at Priority Circle branch of ICICI
Prudential Life Insurance Company Ltd at, Hyderabad was an extremely rewarding experience for
me in terms of learning and industry exposure.
I would like to extend my deep gratitude towards the Head of the organisation Mr. T.S.V.N Rajesh,
Branch manager, ICICI Prudential –Priority Circle -Hyderabad who always motivated me and
helped me during the internship.
I would like to extend my deepest gratitude to my company guide Mr. Dilip Raj Jain, manager
Sales–priority circle who gave his valuable time & guidance in every step of my project. He was
like a mentor for me during these 14 weeks Internship program giving me valuable inputs & much
need sales exposure.
I would like to thank my faculty guide Prof. B V Ramana who gave his valuable inputs in
preparation of the questionnaire for market research survey and preparation of the report .He
gave valuable time from this busy schedule to help me in the analysis & interpretation of my
findings.
I would like to thank the associates of the operations department with ICICI Prudential Life
Insurance Company Ltd, who constantly gave there suggestions & shared valuable insights in
making my report effectively.
I would also like to thank my colleagues who were working with me during the internship in ICICI
Prudential Life Insurance Company Ltd for there corporation & support during the entire period.
Sarthak Mohanty date-16/05/2007
Place-Hyderabad

Certificate
This is to certify that the project titled “A comparative analysis of mutual funds and unit linked
insurance plans .Analyse insurance as an investment option/avenue. Calculate risk and return
profile of unit linked insurance plans (ULIP) and mutual funds” at ICICI Prudential Life Insurance
Company Ltd, is a bonafide work done by Mr. SARTHAK MOHANTY (enrollment no-06bs3138)
for the Summer Internship Project.
Mr. Dilip Raj Jain Prof. B V Ramana
Company Guide Faculty Guide
Declaration
I here by declare the project work titled “A comparative analysis of mutual funds and unit linked
insurance plans .Analyse insurance as an investment option/avenue. Calculate risk and return
profile of unit linked insurance plans (ULIP) and mutual funds” at ICICI Prudential has been
developed by me, under the guidance & supervision of Mr. Dilip Raj Jain , Manager Sales ,ICICI
Prudential Life Insurance Company ,priority circle branch, Hyderabad.
The work done here is original & has not been previously submitted, in part or full, by any other
person.
Date-
Sarthak Mohanty Place -

CONTENTS Page
1).Abstract……………………………………………⊀?………………………………….7

2).Objectives of the Project……………………………………………………… ………8


3). Methodology Adopted ……………………………………………………………
⊀?...9 4).Limitations of the study……………………………………………………… ?
….…10 5).Introduction ……………………………………………………………⊀?…
…...…...11

6) Global insurance scenario…………………………………………………… ?….….20

7) Ten reasons why people buy insurance…………………………………………


…....24
8). Analysis of marketing strategy of insurance sector in India…………………….…26
9).Company profile……………………………………………………… …………….…
32
10) Unit Linked Insurance Plans…………………………………………………….…. .40
11) Comparison between various insurance products across industry…………….
…..43
12) Mutual funds……………………………………………………… ?…………….…53
13). Comparative Analysis…………………….………………………………⊀?………
57
14) Risk and Return analysis of ULIP & Mutual funds……………………………….67
15) Descriptive analysis of questionnaire on Brand Value survey…………………….86
16). Statistical analysis of data collected through primary survey……………………90
17). Conclusion…...……………………………………………… ……………………
….101 18) Recommendations………………………………………… ………………
…………102 19) Reference……………………………………………… ……………
………………..103
1).Abstract-
The project aims at comparative analysis of mutual funds & unit linked
investment plans. Analyse insurance as an investment option/avenue. To
calculate the risk and return profile of ULIP & Mutual Funds.
The project has a detailed study of various insurance plans offered by the major
players in the insurance sector. Made a comparative analysis of the of ICICI
Prudential life insurance plans with that of other major players. Carried out an in-
depth study of all the major mutual funds available in the market & analyse their
performance since their inception. To make a comparison between the
performances of mutual funds with that of unit linked investment plans
(ULIP).The report include case studies in order to illustrate the comparison
between different ULIP schemes with Mutual fund schemes. The project aims to
help understand the consumer behavior towards various financial services like
insurance and mutual funds. The report enhances the knowledge on how various
marketing concepts learned in the classroom are implemented in a real life
environment.
The project entitled me to recommend Financial Advisor (FA) who will be a
channel for bringing business to the ICICI Prudential Life Insurance Company. I
was given to choose prospective clients who were inclined for a career in
insurance sector. The prospective candidate after dully scrutinised by , on
fulfilling the entire criterion will be made Financial Advisor with ICICI Prudential,
priority circle Hyderabad.
This project also involved Brand image survey of ICICI Prudential Life Insurance
and come up with few recommendations for improvement. The project required
me design a questionnaire and to do a primary survey on investor perception
towards ULIP & mutual Funds available in the market. The target respondents of
the primary survey were managers, executives and consultant working for life
insurance companies. The data gathered from the primary survey was coded in a
statistical tool called as Statistical Package for Social Science (SPSS) for
analysis and to find various factors that affect an investor decisions while
choosing an ULIP or Mutual Fund plan in the market.
The individual project assigned to me entitles me to calculate the risk & return
profile of the ULIP plans & mutual funds available in the market. The
mathematical techniques I have used for calculating the risk and return profile
are beta values, variance, Sharpe ratio & standard deviations followed by
graphically plotting the calculated values and make a comparative analysis of the
data which I have gathered by visiting various asset management companies &
insurance companies.

2).Objectives of the Project


o To map the marketing & distribution strategy of ICICI Prudential Life
insurance Company limited and to compare various strategies used by
various players in Life insurance sector.
o To do detailed analysis of the entire range of products/schemes offered
by ICICI Prudential life insurance company Ltd. -It will help in making a
detailed analysis of the spectrum of insurance products available in the
market across the industry.
o To analyse the performance of ICICI Prudential Life Insurance Funds
and compare it with benchmark BSE 500, by calculating the Beta value,
Sharpe ratio, standard deviation of the investments.
o To collect the data through primary survey about the fund performance of
ICICI Prudential ULIP plans & compares it with the various funds of major
insurance companies & Asset management companies operating in the in
the market.
o To collect data through primary survey, using a comprehensively
designed questionnaire and analysing the same for mapping the brand
image of ICICI Prudential Life insurance company and investor perception
about the ULIP and mutual funds available in the market, and to identify
the major factor that influence investor for choosing an insurance plan.
3). Methodology Adopted
Study the concept of insurance, industry and its regulations from books, Internet
and literature survey. This will give us in-depth knowledge about the insurance
sector as a whole.
To perform Pest analysis of & Porters 5 forces modeling of insurance sector to
come up with the ideal marketing strategies to followed for increasing the market
share of the company.
Data collection regarding the market share, products & services offered by
different life insurance company by visiting there corporate offices. This will help
in identifying the Unique Selling Proposition (USP) of different players in the
market.
Collection of brochures and pamphlets of different products offered by different
players and study them in order to compare and contrast the different insurance
products across industry. It will to find out the best product available in the
market, in its category.
Sample selection (Random Sampling Technique) and designing of a
questionnaire to collect primary data so as to map the investor perception
regarding ULIP and Mutual funds available in the market .Code the data
collected to run the statistical software called Statistical Package for Social
Science (SPSS) identity the important factor that affect customer decision in
choosing an insurance plan
Sample selection (Random Sampling Technique) and designing of a
questionnaire to collect primary data to do a brand image survey of ICICI
Prudential Life Insurance Company. The data collected is used to do descriptive
analyses (Pie charts and histogram) for mapping the brand image assessment of
ICICI Prudential.
4).Limitations of the study
• The scope of the project is limited to conceptual and marketing
aspects of Life Insurance Companies and doesn’t include Claim
Settlement and the underwriting part of the operations which are
equally important aspect of learning.
• Project is limited to ICICI Prudential Life Insurance Co. Ltd., Priority
Circle branch, Hyderabad, which is branch dedicated to High Net-worth
Individual .It excludes the analysis of low premium paying segment of
the people.
• The major limitation was in terms of collecting the right information
from the various insurance players, as the insurance players resist in
revealing their marketing strategies, etc.
• Lack of knowledge of Telugu language is a barrier during
conversation with customers of the local market.
5).Introduction – 5.1) History of Insurance industry
In some sense we can say that insurance appeared simultaneously with
appearance of human society. In earlier economies, we can see insurance in the
form of people helping each other. For example, if a house is burnt, the members
of the community help build a new one. Should the same thing happen to one’s
neighbour, the other neighbors must come to help? Otherwise, neighbors will not
receive help in the future.
Insurance in the modern sense, started as a methods of transferring or
distributing risk were practiced by Chinese and Babylonian traders as long ago
as the 3rd and 2nd millennia BC, respectively. Chinese merchants traveling
treacherous river rapids would redistribute their cargo across many vessels to
limit the loss due to any single vessel’s capsizing. The Babylonians developed a
system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and
practiced by early Mediterranean sailing merchants. If a merchant received a
loan to fund his shipment, he would pay the lender an additional sum in
exchange for the lender’s guarantee to cancel the loan should the shipment be
stolen.
Greek monarchs were the first to insure their people and made it official by
registering the insuring process in governmental notary offices. They invented the
concept of the ‘general average’. Merchants whose goods were being shipped
together would pay a proportionally divided premium which would be used to
reimburse any merchant whose goods were jettisoned during storm or sinking of
the vessel in the sea.
The Greeks and Romans introduced the origins of health and life insurance c.
600 AD when they organized guilds called “benevolent societies” which cared for
the families and paid funeral expenses of members upon death. Guilds in the
middle Ages served a similar purpose. Before insurance was established in the
late 17th century, “friendly societies” existed in England, in which people donated
amounts of money to a general sum that could be used for emergencies.
Separate insurance contracts (i.e., insurance policies not bundled with loans or
other kinds of contracts) were invented in Greeks rulers in the 14th century, as
were insurance pools backed by pledges of landed estates. These new
insurance contracts allowed insurance to be separated from investment, a
separation of roles that first proved useful in marine insurance. Insurance
became far more sophisticated in post-Renaissance Europe, and specialized
varieties developed. Insurance as we know it today can be traced to the Great
Fire of London, which in 1666 A.D devoured 13,200 houses. In the aftermath of
this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he
established England’s first fire insurance company, “The Fire Office,” to insure
brick and frame homes.
The first insurance company in the United States underwrote fire insurance and
was formed in Charles Town (modern-day Charleston), South Carolina, in 1732.
* Source-www.Welipedia.com/insurancehistory

5.2) Introduction to insurance industry in India


In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The
writings talk in terms of pooling of resources that could be re-distributed in times
of calamities such as fire, floods, epidemics and famine. This was probably a pre-
cursor to modern day insurance. Ancient Indian history has preserved the earliest
traces of insurance in the form of marine trade loans and carriers’ contracts.
Insurance in India has evolved over time heavily drawing from other countries,
England in particular.
Year
Event
1818
The advent of life insurance business in India with the establishment of the Oriental Life
Insurance Company in Calcutta.
1834
Oriental Life Insurance Failure
1850
The advent of General Insurance in India with the establishment of Triton Insurance
Company Ltd in Calcutta
1870
The enactment of the British Insurance Act
1907
In 1907, the Indian Mercantile Insurance Ltd was set up
1912
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life business.
1928
The Indian Insurance Companies Act was enacted.
1956
Nationalization of Life Insurance Sector and Life Insurance Corporation came into
existence in 1956.The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies.
1971
The General Insurance Corporation of India was incorporated as a company
1973
General insurance business was nationalized with effect from 1st January 1973.
107 insurers were amalgamated and grouped into four companies namely
1)National Insurance Company Ltd.,
2).The New India Assurance Company Ltd.,
3). The Oriental Insurance Company Ltd
4).The United India Insurance Company Ltd.
1993
The Government set up a committee under the chairmanship of RN Malhotra former
Governor of RBI to propose recommendations for reforms in the insurance sector.
2000
The IRDA was incorporated as a statutory body in April 2000.
Foreign companies were allowed ownership of up to 26%.
2000-
Insurance Industry had 16 new entrants, 10 in Life and 6 in General Insurance
2001-
Insurance Industry had 5 new entrants, 2 in Life and 3 in General.
2003-
Insurance Industry had 1new entrant, Sahara India Insurance Company Ltd. In Life
Insurance category
2004-2005
Insurance Industry had 1new entrant, Shri Ram Insurance company Ltd. In Life Insurance
category
2005-
Bharti Axa Life insurance company was granted Certification of Registration in July,
2006
2006-
Bharti Axa Life insurance company commenced its operations the newest player in the
insurance sector.
Exhibit 1-INDIAN INSURANCE SECTOR ORIGIN AND DEVELOPMENTS
Till date there are 16 Life Insurance companies, 15 General Insurance players