HDFC - Marketing - Insurance Sector

PROJECT REPORT

ON

MARKETING RESEARCH ABOUT COMPETITION IN

INSURANCE INDUSTRY & APPOINTMENT OF FC’S

[EMPHASIS ON LIFE INSURANCE]

Respect Yourself

Submitted for the partial fulfillment towards the award of the degree in MASTER OF BUSINESS ADMINISTRATION

of U.P. Technical University, Lucknow(Session : 2006-2008)

UNDER THE SUPERVISION OFMR. FAIZ KHAN

(Sales Development Manager, HDFC SLIC)

SUBMITTED TO SUBMITTED BY

DR. K.N. SINGHFaculty (MBA)

ANSHUL CHAURASIAMBA (IIIrd Sem)Roll No.: 0614970010

CENTER FOR MANAGEMENT TECHNOLOGY25, 27, 28, KNOWLEDGE PARK, PHASE-I, GREATER NOIDA

Marketing Research about Competition in Insurance Industry & Appointment of FC’s

STUDENT DECLARATION

I, hereby certify that the Survey data collection and analysis work

related to research project report on ‘Marketing Research about

Competition in Insurance Industry & Appointment of FC’s’ has

been carried out exclusively on my own effort under the supervision

of Mr. FAIZ KHAN (Sales Development Manager, HDFC, SLIC)

is my research guide and Dr. K.N. Singh, Faculty Guide.

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ACKNOWLEDGEMENT

First of all I would like expressing my gratitude to my Mentor, who guided me with his

knowledge and skill and helped me in successful completion of the work.

I gratefully acknowledge my project guide Dr. K.N. Singh, Faculty Guide, and

Supervision of Mr. Faiz Khan (Sales Development Manager, HDFC, SLIC). They

have been fully support and guide that was provided to me by various individuals that

led to the successful completion of this project. Their vision of the problem gave me

enough direction to bring out a meaningful result.

I am grateful to their great support and help all throughout the project. I am thankful

to them for taking out time and pointing out the multitudinous aspects of customer

service and helping me increase my learning out of the project.

I would heartily thank all the respondents of the survey without whose support &

valuable inputs this project would not have been completed.

ANSHUL CHAURASIA

MBA (IIIrd Sem)

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TABLE OF CONTENTS

COMPANY PROFILE

INTRODUCTION

IMPORTANCE OF STUDY

SCOPE OF STUDY

LITERATURE REVIEW

RESEARCH DESIGN

RESEACH ANALYSIS

RESERCH OBJECTIVE

DATA COLLECTION

DATA ANALSYIS/INTERPRETATION

CONCLUSION

RECOMMENDATION

FURTHER SCOPE OF STUDY

APENDIX

QUESTIONNAIRE

BIBLIOGRAPHY

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COMPANY PROFILE

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ABOUT HDFC

• Incorporated in 1977 as a public limited company

• To specialize in provision of housing finance to

individuals, co-operative societies & the corporate sector

• First private sector retail housing finance company

• HDFC is listed on both BSE and NSE

• Market capitalisation (June 2002) - Rs. 79 billion (US $ 1.6

bn)

Strengths of HDFC

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• Strong Brand

• Customer base of over 2 million

• Stable and experienced management

• High service standards

• High quality loan portfolio

• Provision for contingencies

• Constant technological upgradation of systems

• One of the best capital adequacy ratio

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BACKGROUND

HDFC was incorporated in 1977 with the primary objective of meeting a social need – that of promoting home ownership by providing long-term finance to households for their housing needs. HDFC was promoted with an initial share capital of Rs. 100 million.

Business Objectives

The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets...

Organizational Goals

HDFC’s main goals are to a) develop close relationships with individual households, b) maintain its position as the premier housing finance institution in the country, c) transform ideas into viable and creative solutions, d) provide consistently high returns to shareholders, and e) to grow through diversification by leveraging off the existing client base.

HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance, taxation, construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to deliver increasing value to shareholders.

Board of Directors

Mr. D S Parekh - Chairman Mr. Keshub Mahindra - Vice Chairman Ms. Renu S. Karnad - Executive Director Mr. K M Mistry - Managing Director Mr. D M Sukthankar Mr. D N Ghosh Mr. S Venkitaramanan

Dr. Ram S Tarneja Mr. N M Munjee Mr. D M Satwalekar Mr. Shirish B Patel Mr. Bansi S Mehta Dr. S A Dave

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http://www.hdfc.com/we_directors_dave.asp

http://www.hdfc.com/we_directors_mehta.asp

http://www.hdfc.com/we_directors_patel.asp

http://www.hdfc.com/we_directors_satwalekar.asp

http://www.hdfc.com/we_directors_munjee.asp

http://www.hdfc.com/we_directors_tarneja.asp

http://www.hdfc.com/we_directors_venkitaramanan.asp

http://www.hdfc.com/we_directors_ghosh.asp

http://www.hdfc.com/we_directors_sukthankar.asp

http://www.hdfc.com/we_directors_mistry.asp

http://www.hdfc.com/we_directors_karnad.asp

http://www.hdfc.com/we_directors_mahindra.asp

http://www.hdfc.com/we_directors_parekh.asp


HDFC has a staff strength of 1029, which includes professionals from the fields of finance, law, accountancy, engineering and marketing.

Consultancy Services

HDFC is a unique example of a housing finance company which has demonstrated the viability of market-oriented housing finance in a developing country. It is viewed as an innovative institution and a market leader in the housing finance sector in India. The World Bank considers HDFC a model private sector housing finance company in developing countries and a provider of technical assistance for new and existing institutions, in India and abroad. HDFC’s executives have undertaken consultancy assignments related to housing finance and urban development on behalf of multilateral agencies all over the world.

HDFC has also served as consultant to international agencies such as World Bank, United States’ Agency for International Development (USAID), Asian Development Bank, United Nations’ Center for Human Settlements, Commonwealth Development Corporation (CDC) and United Nations’ Development Programme (UNDP). HDFC has also undertaken assignments for the United Nations’ Capital Development Fund in Ethiopia, for the UNCHS in Nairobi, for USAID in Russia and Bulgaria, and projects of the World Bank in Indonesia and Ghana.

At the national level, HDFC executives have played a key role in formulating national housing policies and strategies. Recognizing HDFC’s expertise, the Government of India has invited HDFC’s executives to join a number of committees and task forces related to housing finance, urban development and capital markets.

Consultancy assignments undertaken:

Project Title Project Country

Agency

State Mortgage Investment Bank Russia USAID

Review of Operations of Bank Tabunga Negara

Indonesia World Bank

Detailed Analysis of Housing Situation Bhutan Govt. of Bhutan

Study of Housing Finance Sector Ghana Govt. of Ghana

Management and Operations Audit Thailand C D C

Technical Assistance for Alliance Housing Oman Direct

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Bank

Feasibility of Establishing New Mortgage Finance Comp

Mauritius C D C

Feasibility Study for a Second Building Society

Malawi Direct

Workshop on ‘Housing Finance & Managerial Effectiveness’ for Housing Professionals

Ghana World Bank

Review of Nepal Housing Development Finance Company Limited (NHDFC)

Nepal USAID & UNDP

Evaluation of an investment proposal of Commonwealth Development Corporation in Turks & Caicos Islands

Turks & Caicos Islands

C D C

Evaluation of Caribbean Housing Finance Corporation Limited, Jamaica

Jamaica C D C

Review of Mortgage Underwriting and Servicing Manuals developed for Bulgaria

Bulgaria The Urban Institute

Workshop on Credit Appraisal & Loan Recovery

Philippines Asian Coalition

Development of Mortgage Servicing Manual Russia Abt. Associates

Over the past two decades, HDFC has been making inroads into varied spheres of development, while retaining a focus on low-income housing and related issues. During this year, HDFC further consolidated its operations as a wholesaler in micro-finance and weaker section housing, while advancing the reconstruction activities at Gujarat into an intensive phase. In addition, HDFC has been engaged in some specific micro-finance initiatives involving for e.g. policy frameworks and developing case studies; these have been captured in a separate section below.

Lending Operations in Weaker-Section Housing

HDFC continued to utilize the Kreditanstalt für Wiederaufbau (KfW) lines (HDFC II and HDFC III) by making loans to Non Governmental Organisation (NGO) intermediaries and state government agencies towards low-cost rural and urban EWS housing projects. Under the second line comprising DM 30 million as grant (HDFC II), HDFC has drawn the full amount from KfW (INR equivalent Rs. 67.98 crore) and all sub-projects have now reached completion. This includes loan disbursements in the amount of Rs. 56.91 crore and the balance has been released as grant funds towards rehabilitation housing projects in response to natural calamities.

The third line, also a grant of DM 30 million is split into two components – the smaller component of Euro 6 million is

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towards the micro-enterprise Finance Facility (MFF), whereas Euro 9.34 million have been earmarked towards the EWS housing component. The cumulative loan approvals, disbursements and related information for the housing projects under HDFC II and III are furnished in Table I.

The KfW has recently reviewed the progress under HDFC II and III and they have gathered that the borrowers were generally in control of their housing process, leading to optimal use of available resources, and good construction quality. The cost ceiling for housing construction has been increased to Rs. 60,000 per housing unit, as a consequence of which the end-borrower loan size has increased from the current level of Rs. 45,000 to Rs. 54,000 (upto 90% of cost).

MFF Lending and KfW Lines for Micro-Finance

During the year, HDFC has approved 11 income-generation projects under the Micro-enterprise Finance Facility i.e. MFF component of HDFC III. On a cumulative basis, HDFC has approved 51 livelihood projects with a disbursement of Rs. 12.16 crore. The borrowing agencies, which act as social and financial intermediaries, range from professional micro-finance institutions (MFIs) to development NGOs to self-help group (SHG) federations. Until March 31, 2003, HDFC has covered over 35,000 EWS households, so far, and HDFC has experienced near 100% recoveries under the scheme.

Under the National Renewal Fund — Self Employed Women's Association (NRF — SEWA) component comprising a special grant of DM 2.4 million from KfW towards micro-enterprise development (Sanjivani Project), HDFC has disbursed as at March 31, 2003, a cumulative amount of Rs. 4.37 crore to SEWA Bank, Ahmedabad. The SEWA Bank has utilized the funds in disbursing 2470 loans to their women members, covering a variety of livelihood activities. The bank's cumulative disbursements under this project stood at Rs. 4.15 crore, with an average loan size of Rs. 17,000.

During the year KfW conducted an appraisal of the proposed Microfinance Refinance Facility (HDFC V, fifth line). As an outcome of which, bilateral funding of Euro 10 million has been committed, which includes a loan of Euro 9 million and the balance as a grant towards technical assistance (TA) and capacity building measures. In the first round of MFI selection,

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out of the eight detailed appraisals carried out, four prominent Indian MFIs have been identified viz. Bharatiya Samruddhi Finance Ltd., Friends of

A woman’s World Banking, DHAN Foundation and the Indian Association for Savings and Credit (IASC). HDFC may include more MFIs in the program at a later stage. The Ministry of Economic Cooperation (BMZ), Federal Republic of Germany has also approved HDFC V; and the TA and capacity building measures are expected to commence shortly.

FUTURE

HDFC has always been market-oriented and dynamic with respect to resource mobilization as well as its lending Programme. This renders it more than capable to meet the new challenges that have emerged. Over the years, HDFC has developed a vast client base of borrowers, depositors, shareholders and agents, and it hopes to capitalize on this loyal and satisfied client base for future growth. Internal systems have been developed to be robust and agile, to take into account changes in the volatile external environment.

HDFC has developed a network of institutions through partnerships with some of the best institutions in the world, for providing specialized financial services. Each institution is being fine-tuned for a specific market, while offering the entire HDFC customer base the highest standards of quality in product design, facilities and service.

AWARDS HDFC Ranked as ‘India’s Third Best Managed Company’

by Finance Asia – 2005 Mr. Deepak Parekh awarded the 'Hall of Fame' award by

Outlook Money magazine. HDFC receives the 'Dream Home' award for the best

Housing Finance company for 2004 from Outlook Money magazine

Awards galore by HDFC at the 44th ABCI Awards!!! 5th Best Company to work for in India, ranked by

Business Today in November 2004 Economic Times Corporate Citizen of the Year Award,

November 2004 Rated by Deutsche Bank as one of the top 5

banks/Financial Institutions in Asia in October 2004

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Ranked among the Top 20 companies to deliver healthiest returns to shareholders, Outlook Money Magazine - September 2004

1st Prize at the New York Festival's Gold Midas Awards for Environmental Communication Ad in August 2004

Features in the Forbes list of Top 20 Leading Indian Companies in May 2004.

One of the Top 10 Investor Friendly Companies, ranked by Business Today in March 2004.

HDFC Ranked No. 3 - 'India's Best Managed Companies' by Finance Asia

Clean Sweep by HDFC at the 43rd ABCI Awards!!! National Award for Excellence In Corporate Governance

by The Institute of Company Secretaries of India 2nd Best Company for Corporate Governance in India by

The Asset magazine. The Economic Times Lifetime Achievement Award -

2003. (For Mr. Deepak Parekh - Chairman, HDFC Ltd.) One of the Top Ten - Most Admired Companies in India '

- 2003 by Business Barons One of the Top Ten - Most Admired CEOs in India ' -

2003 by Business Barons ( for Mr. Deepak Parekh ) India's Second Best Managed Company - 2003 by

Finance Asia. India's Biggest Wealth Creator in the banking and

financial series by the fourth Business Today - Stern Steward Survey.

One of the Top Ten - Most Respected Companies in India' by Business world.

Highest rating for ' Governance and Value Creation ' by CRISIL.

One among the top ten ' Company Leaders in India' by the Far Eastern Economic Review Survey.

Best Managed Financial Institution in India' by fox Pitt Survey.

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HDFC GROUP

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The Standard Life Insurance Assurance Company

• Founded in 1825• Mutual Life Insurance Company since 1925• Largest mutual life insurance company in Europe• Assets under management over Rs 707836 crores (£ 89.2

bn) Total assets under management : Rs. 707836 Crores• New premium income 2003 :Rs. 76277 Crores• AA2 rated by Standard & Poor’s and Moody’s

Financial Strengths of the company

• Total assets under management: Rs. 5, 81,000 Crores

• New premium income 2001:Rs. 58,000 Crores

• AA2 rated by Standard & Poor’s and Moody’s

About Standard Life

Standard Life has been looking after its customers for over 180 years, and currently over 7 million people rely on them for their financial needs. We have assets under management which are worth more than the combined market value of Shell, Reuters, Tesco, Cadbury Schweppes and Marks & Spencer.

Financial Security

Standard Life has the financial strength to remain secure and competitive. We aim to offer products that provide competitive returns to their customers while maintaining an adequate level of financial strength to ensure their security. Like most people, you want to know that your financial future is in good hands. Standard Life places a great deal of importance on getting your money to work hard for you; that's why we believe you can have confidence in us.

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Standard Life has been awarded the "Raising Standards" quality mark. This shows that we:

use clear language to describe their products on key documents,

have appropriate products and Provide a quality service for our customers.

The quality mark covers products bought by individuals including pensions, long-term savings and protection. We were independently tested against a number of rigorous standards. And we have to continue to pass these tests every year to keep using the quality mark.

Standard Life won the Money Marketing 'Company of the Year' award in March 2005 for the seventh year running. Other awards the Standard Life group has received include:

Money Marketing Awards Company of the Year every year from 1999 to 2005 Best Pension Provider 2004 and 2005 Best Group Pension Provider every year from 1998 to 2003 Best Personal Pension Provider every year since 1998 to

2003 Best Life Investment Product Provider 2003 and 2004 Gold Award in the Poster Campaign Category (Advertising)

2004

Money facts Investment, Life & Pensions Awards Best Pension Product 2003, 2004 and 2005 Best Pension Service 2003, 2004 and 2005

Bank hall Achievement Awards Pension Provider of the Year 2003 and 2004

Financial Adviser Provider Awards Overall Winner in 1999, 2000, 2001 and 2002 Pensions Provider of the Year 1999, 2000, 2001, 2002 and

2003 Pensions Company of the Year 2004 Individual Pensions Company of the Year 2004 Group Pensions Provider of the Year 2004 Health Insurance Company of the Year 2004

Financial Adviser Service Awards Company of the Year every year from 1997 to 2001

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5 Star Life and Pensions Provider every year from 1996 to 2004

5 Star Investment Provider every year from 1996 to 2002 and 2004

Pensions Management Administration and Service Awards

Overall Winner - Personal Pensions 2003 Overall Winner - Stakeholder Pensions 2002 and 2003 Overall Winner - Group Personal Pensions 2002 and 2004 Member Communications - Personal Pensions, Group

Personal Pensions & Stakeholder Pensions 2003 Backup (branch office) - Personal Pensions 2003 Backup (head office technical support) - Personal Pensions

& Stakeholder Pensions 2003

Pensions Management Technology Awards Best extranet accessibility 2004

Guardian & Observer Consumer Finance Awards Overall Winner in Personal & Stakeholder Pension

Provider 2003

Professional Adviser Awards Best Product Provider Website (adviser zone) 2005

Online Finance Awards Best online Product Provider (ifazone) 2003 Best online Financial Adviser (ifazone) 2002

Head Office - Edinburgh, Scotland (UK)

Presence

United Kingdom: 31 branches

Canada 11 "

Ireland 7 "

Germany 1 "

Austria 1 sales office

Spain 31 branches

Hong Kong 1 representative office

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China 2 representative office

Year Award

• 2003 Company of the Year• 2002 Company of the Year• 2001 Best Personal Pension Provider• 2000 Company of the Year• 1999 Company of the Decade• 1996-99 Company of the year• 1995 4 star service award• 1992-94 Overall best company• 1991 3 star service award• 1990 Best mortgage services

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History of Joint Venture

• Discussions commenced - January 1995

• Joint venture agreement signed - October 1995• Joint venture agreement renewed - October 1998• Life Insurance project team established - January 2000

(Mumbai)• Company officially incorporated - 14th August 2000• First private sector Life Insurance company to be granted

a certificate of registration - 23 October 2000• Shareholding - HDFC 81.4 %

Standard Life 18.6 %

The Partnership:

HDFC and Standard Life first came together for a possible joint venture, to enter the Life Insurance market, in January 1995. It was clear from the outset that both companies shared similar values and beliefs and a strong relationship quickly formed. In October 1995 the companies signed a 3 year

Joint venture agreement

Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the

Relations

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The next three years were filled with uncertainty, due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passed in parliament. Despite this both companies remained firmly committed to the venture.

In October 1998, the joint venture agreement was renewed and additional resource made available. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC). Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India.

Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. Therefore, in January 2000 an expert team from the UK joined a hand picked team from HDFC to form the core project team, based in Mumbai.

Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank.

In a further development Standard Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was launched on 20th July 2000.

Incorporation of HDFC Standard Life Insurance Company Limited:

The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited.

Their ambition from as far back as October 1995 was to be the first private company to re-enter the life insurance market in India. On the 23rd of October 2000, this ambition was realized when HDFC Standard Life was the only life company to be granted a certificate of registration.

HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while Standard Life owns 18.6%. Given Standard Life's existing investment in the HDFC Group, this is the maximum investment allowed under current regulations.

HDFC and Standard Life have a long and close relationship built upon shared values and trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance company's in India are measured.

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Their Mission:

They aim to be the top new life insurance company in the market.

This does not just mean being the largest or the most productive company in the market, rather it is a combination of several things like-

Customer service of the highest order Value for money for customers Professionalism in carrying out business Innovative products to cater to different needs of different

customers Use of technology to improve service standards Increasing market share

Their Values:

SECURITY: Providing long term financial security to policy holders will be their constant Endeavour. We will be doing this by offering life insurance and pension products.

TRUST: We appreciate the trust placed by their policy holders in us. Hence, we will aim to manage their investments very carefully and live up to this trust.

INNOVATION: Recognizing the different needs of their customers, we will be offering a range of innovative products to meet these needs.

Their mission is to be the best new life insurance company in India and these are the values that will guide us in this.

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METHODOLOGY

Part- 1 Visiting Different Mutual Funds Companies, for the complete knowledge of Mutual Funds and all of their provisions

Part - 2 Visiting insurance companies and to compare their Unit linked plans as per HDFC plans and to make a final comparison with the Mutual Funds.

Part – 3 Conducting a Survey of various people

APPROACH

Study is divided into 3 parts:

Data collection

Survey

Comparative Study

DATA COLLECTION

PRIMARY DATA SOURCES

A visit was made to Mutual Funds companies and knowing their

investment plans. Visited the company as a customer and asked

for their good schemes and about their ROI.

The companies covered were:

HDFC Mutual Funds ICICI Mutual Funds India Bulls Franklin Templeton

Collected the Brochures from Four Insurance companies and

compared their Unit Linked endowment plans

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The Companies covered are

o HDFC Standard Life

o ICICI prudential

o Birla Sun Life

o Max New York Life

A Survey was conducted in NCR region from 100 people and we asked about their interest in investment in mutual funds or unit linked plansThe survey said

o 62 percent people said that they want to invest in Unit Linked Policies

o 27 percent people said that they want to invest in Mutual Funds

o 8 percent people said they don’t want to invest in private companies they just want to go with LIC traditional Plans as they don’t want to bear risk.

o 3 percent people said they want to invest in both the companies as they want to invest small amounts in all companies.

SECONDARY DATA SOURCES:

Websites was the Secondary data source

1. www.investopedia.com 2. www.hdfcinsurance.com 3. www.valueresearchonline.com 4. www.mutualfundsindia.com 5. www.amfiindia.com 6. www.hdfcmutualfunds.com

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http://www.hdfcmutualfunds.com/

http://www.amfiindia.com/

http://www.mutualfundsindia.com/

http://www.valueresearchonline.com/

http://www.hdfcinsurance.com/

http://www.investopedia.com/


CONCEPT OF INSURANCEInsurance is aimed at compensating the financial loss suffered on the happening of an insured event. Insurance cannot prevent the happening of the event; however it can protect a person from the financial losses he may suffer after the happening of the event.

The above can be understood with the help of a simple example.

Example 1:In case a person has a car worth Rs 5, 00,000 and he insures the car for Rs 5, 00,000. In the event of a loss of Rs 1, 00,000 during the term of the insurance, he would be compensated the amount lost of Rs 1, 00,000. Although the insurance is for Rs 5, 00,000 the person cannot be paid more than Rs 1, 00,000 as this is the loss he has suffered. In case the insurance company pays more than the financial loss suffered by the policyholder then there is an incentive to the policyholder to make claims and make profits. This will increase in the premium amounts and in case all the policyholders claim losses then the insurance would be un-viable. Thus to protect the interests of all the group of policyholders the insurance offered is only to the extent of the financial loss suffered by the policyholder. Insurance is therefore only a compensation of a financial loss.

Example 2:In case a person has a car worth Rs 5, 00,000 and he insures the car for Rs 10, 00,000 (over insurance). In the event of a loss of Rs 1,00,000 during the term of the insurance the person cannot be compensated more than the amount of loss i.e. Rs 1,00,000 in this case.

In case the policyholder is paid double the amount lost because he has insured for double the value, then he would make a profit. Profit would act as an inducement for the person to go for over-insurance to a large extent. This would mean that the whole group of policyholders pays for the profits made by one policyholder. More the number of policyholders who make such profits the more un-viable the insurance would become. Hence in insurance it is an established principle that even in case of over-insurance the policyholder would not be paid more than the loss suffered by him.

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Example 3In case a person has a car worth Rs 5, 00,000 and he insures the car for Rs 2, 50,000 (under-insurance). In the event of a loss of Rs 1, 00,000 during the term of the insurance, the person would be compensated an amount of Rs 50,000 only.Whenever a person buys a car he is on risk. Any event like a theft, fire, riot, and earthquake can happen and destroy the car or cause a financial loss to him. In case he is not insured then he has to bear the loss himself. The maximum amount of such loss that can occur to him is the value of the car, which in this case happens to be Rs 5, 00,000.When a person buys the insurance, he actually transfers the risk, which he possesses, to the insurance company. Once insurance is granted to him the insurance company would pay in the event of the loss. As seen above the maximum amount of risk the person possesses is the value of the car. In case he insures for less than the value, what the person actually does is that he transfers a portion of the risk to the insurance company. In the given example the person has chosen to transfer half the risk to the insurance company. Thus in the event of the loss the person would be compensated only half the amount of loss. The reason being he chose to insure only half of the risk to the insurance company.

Subject matter of insurance:When a person insurance his car the subject of the insurance is the car. What the insurance company guarantees is that in the event of a financial loss due arising due to an insured event then the company would compensate to the extent of the loss subject to the condition that the person has adequately insured the car.

In Life insurance what is the subject matter? Or what is covered in life insurance.

Surely it cannot be death because death cannot be compensated. It cannot be life either, as life too cannot be compensated.Life insurance aims to compensate the ‘Income Earning Capacity’ of the person. In this session we are only talking of pure insurance or Term Assurance and not of any savings, investment or retirement plan.

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Events covered in life insuranceIn Life Insurance we cover the Income Earning Capacity. The loss of the Income Earning Capacity can be lost on the happening of the following events.

1. Death of the life assured2. Sickness of the life assured (critical illness)3. Accident of the life assured (death or permanent disability

due to accident)4. Retirement of the life assured

Death of the life assured can destroy the income earning capacity of the individual. When a person takes a life insurance (pure insurance) with the sum assured payable on death he protects his family from the loss of income earning capacity due to death. A Life Insurance company does not pay money to the family because the life assured has died, but because the family has lost the income earning capacity. Death itself is not covered. The loss of income earning capacity due to death is covered in life insurance.

It is often felt that life insurance means only death insurance. This is not true. Life insurance is insurance against the loss of the income earning capacity of the person. Sickness (critical illness only) can affect an income earning capacity of an individual. Life insurance offers protection for the loss of income earning capacity due to a sickness. Since minor ailments do not permanently destroy the income earning capacity of an individual the minor ailments are not covered in life insurance. Insurance against critical illnesses pay not because the person has contracted a critical illness, but because the person has lost his income earning capacity due to the critical illness.

Similar is the case with accident cover. All accidents are not covered only those accidents, which result in death or permanent disability of the life assured, are covered in life insurance. The payment is not made because the person has met with an accident, but the payment is made because a person has lost the income earning capacity due to an accident.

Retirement on the other hand is a certain event. A certain event cannot be insured at all. The only alternative left for the person is to save for retirement. All the lives assured would definitely retire hence insurance cannot be offered for retirement. Income earning capacity is affected on retirement. The retirement plans are therefore savings plans, which help a person, save for the retirement.

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It is important that we understand some of the terms frequently used in Insurance. The following gives a brief description of what we mean by risk, peril and a hazard.

Risk It is a possibility of a loss. The loss may occur or may not occur if there is a possibility of a financial loss we can say that a risk exists. When a person has an income there is a risk of the loss of the income. Similarly in case a person owns a car there is a risk that the car may be destroyed or damaged by fire, riots, strike, lightening etc.

PerilIt is the cause of the loss. The income earning capacity may be destroyed by death. Death in this case is the peril. Similarly fire, theft, earthquake are perils in car insurance.

HazardThis is the condition that creates or increases the chance of the loss. An existing sickness is a condition that may cause death of the life assured at a future date. The existing sickness would be a hazard in life insurance.

Risk is not avoidable. In case a person has income then there is a risk of loss of that income. The person has the choice to deal with the risk in the following manner:1. Avoidance2. Reduction3. Retention4. Transfer5. Sharing

Insurance is a means of sharing of the risk. All the policyholders agree to share the losses suffered by a few of the unfortunate policyholders. Since who is going to suffer the loss is not known all the policyholders are protected in case they are the victims of the insured event.

All the risks cannot be insured. Only the risks, which satisfy the following criteria, can be insured. There has to be a large numbers of exposure units for the

risk to be insured The loss occurred due to the risk should be definite and

measurable The loss must be fortuitous The loss must not be catastrophic

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The losses due to the risk should be on suffered by the group of policyholders on random

The risk cover should be economically viable

The following are the limitation of insurance All risks cannot be insured There must be insurable interest Insurance is limited to the financial value There must be large number of similar risks It must be possible to calculate the risk of loss Losses should not be catastrophic Losses must not be too small Losses must be reasonably unexpected Losses must be accidental It must be consistent with public policy

The following are the differences between life insurance and non-life insurance

Risk (possibility of a loss) is certain in life insurance. Every person who is insured is likely to die, and death would completely destroy the income earning capacity. In non-life insurance the risk is uncertain and the insured event may or may not result in the loss to the policyholder.

Life insurance is a long term contract while non-life insurance contracts are one year contracts.

Difficulty in determining value of human life in life insurance. In non-life insurance the value can be determined with much ease.

Life insurance is not a strict contract of indemnity. Non-Life insurance contracts are strict indemnity contracts.

28


WHY INSURANCE

Life Insurance has come a long way from the earlier days when it was originally conceived as a risk covering medium for short periods of time, covering temporary risk situations, such as sea voyages. As life insurance became more established, it was realized what a useful tool it was for a number of situations, including -

a) Temporary needs / threats:

The original purpose of life insurance remains an important element, namely providing for replacement of income on death etc.

b) Regular Savings:

Providing for one's family and oneself, as a medium to long term exercise (through a series of regular payment of premiums). This has become more relevant in recent times as people seek financial independence for their family.

c) Investment:

Put simply, the building up of savings while safeguarding it from the ravages of inflation. Unlike regular saving products, investment products are traditionally lump sum investments, where the individual makes a one off payment.

d) Retirement:

Provision for later years becomes increasingly necessary, especially in a changing cultural and social environment. One can buy a suitable insurance policy, which will provide periodical payments in one's old age.

An example to understand the need for insurance:

Mr. Atul is 45 and self-employed. His wife Nandini, who is a housewife, looks after their two children aged 3 and 7 years. They stay in a rented accommodation, where the rent is 15,000 rupees per month. Mr. Atul has taken up a loan of Rs. 2 lakh. His monthly earnings on average are 40,000 rupees. Mr. Atul passes away in an unfortunate road accident. What are some of the financial implications of his death on his family?

29


There may be several financial implications on his family. Some of these are:

a) The monthly income, previously provided by Mr. Atul would stop.

b) His wife and children may have to seek financial assistance from other relatives.

c) His wife may not have enough money to pay back the loan of Rs. 2 lakhs.

d) The family may have to move into a cheaper accommodation.

e) His widow may have to take up work to earn money.

f) The education of his children may suffer.

This simple example illustrates the impact premature death can have on a family, where the main earner has no life cover.

Had Mr. Atul taken life cover, his family would not have faced such hardships in the event of his unfortunate death. A simple life insurance policy could have provided Mr. Atul's family with a lump sum that could have been invested to provide an income equal to all or part of his income.

In simple words, insurance protects against untimely losses. Insurance has been found useful in the lives of persons both in the short term and long term. Short term needs like sudden medical costs and long term needs like marriage expenses etc can be met with using life insurance.

Life Insurance ProductsTo understand the difference between life insurance products and insurance the analogy of medical science works well. The following points can be made while explaining the concepts of products and insurance.

The difference between an agent and a consultant can be brought about by an analogy of a chemist and a doctor. A chemist is interested in selling medicines but not qualified to advise. He knows the medicines but is not good at diagnosis and prescription.

A doctor on the other hand is a person qualified to advise and prescribe medicines. The doctor is not interested in selling medicines but is more interested in curing the client.

There is a difference in the training of the chemist and the doctor. A chemist studies chemistry and then studies the

30


composition of the medicines and knows the manufactures of the medicines. He has to ensure that he gives the right medicines, which is prescribed by the doctor.

On the other hand the doctor studies the human body and also studies the diseases. He has to understand the symptoms and then studies the effect of the medicines on the symptoms. He also knows the medicine and the compositions and is qualified to advice.

When you are sick you need to take medicines. However taking any medicine would not work. What is important is that you consume the medicine designed to cure the ailment you are suffering from. The medicines are also to be consumed taking into account the body constitutions. Hence different people have to take different medicines as per their body constitution.

There are certain limitations in medicines. One cannot consume medicines for the rest of one’s life. One medicine cannot cure all the diseases. Medicines can be administered in more then one methods. Medicines can be made attractive by sugar coatings but the sugar coatings do not improve the medicine but only increase the price of the medicine.

Products of life insurance are like medicine. Taking one policy is just not enough. It is important that the policy satisfies a need of the client. Life Insurance products are designed to satisfy a particular need of the client. When the product is sold as per the need of the client the product will be effective to satisfy the need of the client.

There is no one product that satisfies all the need of the client. What a consultant needs to do is to make a combination of products so that he can satisfy the need of the client. Besides the financial circumstances of the client may dictate the insurance plans that the client needs to take. A consultant should note the financial condition of the client and suggest a plan as per the need of the client.

The insurance needs of the clients keep on changing over a period of time and the consultant should help the client review his insurance needs periodically. Insurance is not a one-time affair. The consultant should build a relationship with the client and periodically help him review his insurance and suggest policies best suited to the needs of the client.

One insurance policy cannot satisfy all the insurance needs of the client. A combination of the insurance policies can offer the insurance that a client needs. Consultants should suggest the best combination for the clients after analyzing the needs of the client. Simply suggesting a combination of the plans without analyzing the needs of the client is not correct and not in the interest of the client or the consultant.

31


Additional features in an insurance product make the insurance product look attractive; however the features may be immaterial to the satisfaction of the clients needs. The client also has to pay a price for the additional feature as no feature in any insurance comes free. The consultant should bring this to the notice of the client in case the client is insisting on some additional feature.The role of a consultant should be distinguished from the role of an agent. An agent is like the chemist. He is more interested in selling the Companies products than providing insurance solutions to the clients. Since he does not have a good understanding of the clients needs he does not analyze the needs of the client but simply offers the insurance products. On the other hand the consultant is more interested in providing an insurance solution to the client. He analyses the clients’ needs and then offers a solution to the client. A consultant has a wider role to play than an agent.An agent is more trained in the products and its features. He is also aware of the procedures of the Insurance Company he represents. On the other hand the consultant can understand a clients needs and also understands the consequences a client may face in case he does not plan for the future. He can make solutions for the client and can help the client to plan for the future. A consultant is more professional than an agent.Life Insurance products are not solutions in it. In fact life insurance products are a means to an insurance solution. When a person buys life insurance products as per his needs he insures his future. Insurance should be purchased as per individual needs and the insurance solutions of two or more individuals may not be the same. Today there are many insurance products available in the market. Each company has its set of products that it offers to the customers. This makes it difficult to keep track of all the products all the time. A better way to understand them is by way of classification. All insurance products can be classified in 4 basic categories.

32

Protection Investment

Pension Savings


This classification is based on the needs of the customers. Accordingly each of these categories has an end need to be satisfied and all the products coming under that category aim to fulfil that need e.g. Products coming under Investment category aim to provide long term real growth over the period. Thus understanding these categories will not only help us to understand various products but also help us to position our products strongly in a competitive market. Let us take a look at the distinctive features of each category:

Protection type of products: A typical protection type of product aims at protecting income-earning capacity of the customers on happening of uncertain events mentioned above during the term of product. These are the pure risk products having no savings element. Naturally, these products don’t have any maturity benefits. High-risk cover at low costs is the unique feature of this type that makes this category most attractive for the prospects who want high insurance cover without spending much for it. Usually offered for a definite term, mainly the Term Assurances come under this type. Various riders offered by different companies are also a part of protection category. The claim is paid only if the stipulated event happens otherwise there are no maturity values at the end of the term. There are some variations in protection products with refund of premiums, where some part of the premium has a savings component.

6. Investment type of products: In investment type of products, the focus is on maximizing returns for the customer over a period time. In a way, it is opposite to Protection type where the focus is maximizing the risk cover. Here the risk cover is very low. The objective is to put maximum in investments. The underlying principle is to commit money for a certain period of time and get the benefits of real long-term growth. The products are usually single premium policies where the entire premium is collected in advance. Surrenders are discouraged and there is a commitment for certain minimum no of years. In death during the term, value of the investments is returned.

7. Pension products: Along with the risk of an untimely death or disability, we also have a risk of living too long – outliving our source of income. In other words, one needs to ensure that he gets a decent income even after his

33


retirement and continues to get it as long as he lives! This is where we have pension products addressing the need for a comfortable retirement. One can opt for an immediate pension or for pension at a future date (also called as deferred pension). There is a range of options that one can have when selecting a pension plan. There is a great amount of flexibility when it comes to selecting a pension product. The important point to be noted is that Pensions is a part of one’s present income that he reserves for future consumption. Every year that income is accumulated and invested. The lump sum accumulation then is used for purchasing pension on the vesting date.

8. Savings type products: People in India like to save. Our savings rate has been well above 20% of our GDP for last few years. We save for events like children’s’ marriage, education etc. Savings types of products aim to strike a good balance between risk cover as well as returns. It acts as a protection on savings. Sum assured is usually the targeted savings that one looks for. He gets that amount at the end of the term along with bonuses if it is a participating policy. On the protection side if any unfortunate event happens during the term, the sum assured (in other words the targeted savings) is still paid. So it encourages a person to save for an event at the same time ensures that his savings are protected. This is the unique advantage of savings through life insurance that no other savings product offers. We find very popular products like Endowment Assurance; Money Back plans in this category.

As stated earlier all the products come under these 4 broad categories. To understand a product, it is essential to find out the category of that product based on its features. Needless to say that it will not be possible to compare one category product to another. Each category is unique and caters to particular needs of the customer. The best approach is to find out what customer needs and then suggest a solution accordingly.

The products launched by HDFC Standard Life can be classified as follows

34

Term Assurance and Loan Cover Term Assurance

Single Premium Whole of Life

Insurance

Personal Pension Plan

Endowment Assurance

Money back PlansChildren’s Plan


Protection Products – Term Assurance and Loan Cover Term Assurance PlanInvestment Product – Single Premium Whole of Life Insurance PlanPension Product – Personal Pension PlanSavings Product – Endowment Assurance, Money Back Plan and Children’s Plan

1. ROI ROI is more in Mutual funds, if customer deals properly with the equity, and invest in good funds

ROI is not fixed but equivalent in all plans and this is approx figures, no one can assure for returns.

Comparasion of Mutual Funds and ULIP on 10% Return Basis

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

0 1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930

Years

Rs HDFC SL

Mutual Funds

AS per the survey Conducted for the People who are interested in Mutual Funds or Unit Linked Insurance Plans. Most of the Customer said that they will prefer for the Unit Linked insurance Plans as they are provided with Risk Cover also and even they are having the same facilities as per the mutual funds, and in long runs they are successful. As ULIP are the plans by the insurance companies and they invest the funds in AAA rated companies only, And they provide some riders also which are very beneficial to the customers.

Now the Survey was conducted for 100 people where the Results Are

35


o 62 percent people said that they want to invest in Unit Linked Policies

o 27 percent people said that they want to invest in Mutual Funds

o 8 percent people said they don’t want to invest in private companies they just want to go with LIC traditional Plans as they don’t want to bear risk.

o 3 percent people said they want to invest in both the companies as they want to invest small amounts in all companies.

Start early, save moreEven if you invest less every month !

Rs3,00,000

Rs.12,23,459

Rs.3,75,000

Rs.7,33,107

When you invest Rs.10,000 annuallyfor 30 year period(from age 31 to 60)

When you invest Rs.25,000 annuallyfor 15 year period(from age 41 to 60)

If you invest early ! If you invest late !

Investment Retirement Savings

Market Factoid

1. The growth options of ULIP have recorded annualized returns of over 20 per cent.

2. Various charges amounting to approximately 25 per cent in the initial years in all the schemes.

3. Most companies normally allow customers to switch, a fixed number of times annually from one fund to other fund. Later, they charge approximately Rs.100 per switch.

36


4. Private insurance companies 50 per cent sales up because of ULIPs today.

5. Individuals availing tax exemption under section 88 of Income Tax Act.

6. New Schemes coming into the market, which covers life insurance and accident insurance.

37


SURVEY REPORT FOR THE CUSTOMER’S PERCEPTION FOR THEIR AWARENESS OF INSURANCE PRODUCTS (ULIP) AND MUTUAL FUNDS AND THE BUYING PREFERENCE.

As per the Questionnaire, I conducted a survey of 100 People and asked about their awareness of private insurance companies and the companies they know. So the form consisted of 6 companies’ option and each customer gave different views, now as per the survey reports…..

o ICICI Prudential 20%o Birla Sun Life 15%o HDFC Standard Life 15%o Bajaj Allianz Life 13%o Tata Aig Life 10%o Aviva Life 7%o Max New York Life 6%

HDFC SL

ICICI PRU

METLIFE

MNYL

TATA AIG

SBI LIFE

ROYAL SUNDARAM

AVIVA

ING VYSYA

BAJAJ ALLIANZ

BIRLA SUN LIFE

AMP SANMAR

OM KOTAK

SAHARA LIFE

People Aware about the Private Insurance Companies as per the conducted Survey

38

o ING Vysya 4%o SBI Life 4%o Metlife 2%o Om Kotak 2%o Royal Sundaram 1%o AMP Sanmar 1%o SAHARA Life 0%


Out of Hundred People the Profession of the people are as Follows

12

15

1927

5

7

15

Doctors

Engineers

Business Man

Service Class People

House Wife

Chartered Accountant

Misslenous

Income of People According to the Survey

0

5

10

15

20

25

30

35

40

Less Then 1,00,000 1,00,000 - 2,00,000 2,00,000 - 5,00,000 Above 5,00,000

INCOME

Status of insurance Cover for the Persons according to the Survey

39

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

US $

199419951996199719981999 2000200120022003

Years

World Life and Non Life Insurance Premiums

Nonlife

Life

Total


19%

10%

65%

6%

Only LIC Only Private Insurance Company

Both Insurance Companies No Policy

GLOBAL SCENARIO

WORLD LIFE AND NON LIFE INSURANCE PREMIUMS

Year Nonlife Life Total

1994 846,600 1,121,186 1,967,786

1995 906,781 1,236,627 2,143,408

1996 909,100 1,196,736 2,105,836

1997 896,873 1,231,798 2,128,671

1998 891,352 1,275,053 2,166,405

1999 912,749 1,424,203 2,336,952

2000 926,503 1,518,401 2,444,904

2001 969,945 1,445,776 2,415,721

2002 1,098,412 1,534,061 2,632,473

2003 1,268,157 1,672,514 2,940,671

40


41


The basic human trait is to be averse to the idea of taking risks. There is always an

urge to minimise the risks and take protection against possible failure. The risk

includes fire, death, accidents, etc. Any risk may be insured against at a premium

commensurate with the risk involved. Thus collective bearing of risk is insurance.

Insurance, whether life or non-life, provides people with a reasonable degree of

security and assurance that they will be protected in the event of a calamity or failure

of any sort.

Indian insurance sector is witnessing exciting challenges, forcing companies to

continuously innovate. Companies are under taking initiatives aimed at business

process re-engineering, enterprise resource planning, customer relationship,

breakdown of traditional organisational hierarchies besides introducing innovative,

customer oriented insurance products. Service is becoming the source of gaining and

retaining corporate leadership in the insurance business. Times have changed a lot

since Triton insurance company has, was the first general insurance company to be

established in India in 1850.

The liberalised business environment led to competition in insurance sector also,

which has helped ensure quality service to the customers besides spreading the

market share.

42


INSURANCE MARKET IN INDIA

By any yardstick, India, with about 300 million middle class households, presents a

huge untapped potential for players in the insurance industry. Saturation of markets

in many developed economies has made the Indian market even more attractive for

global insurance majors. (Table 1 in appendix reflects the low percentage and per

capita penetration of insurance in India compared to other developed and developing

countries.)

7

With the per capita income in India expected to grow at over 6% for the next 10 years

and with improvement in awareness levels, the demand for insurance is expected to

grow at an attractive rate in India. An independent consulting company, The Monitor

Group has estimated that the life insurance market will grow from Rs.218 billion in

1998 to Rs.1003 billion by 2008 (a compounded annual growth of 16.5%).

Winds of Change

Reforms have marked the entry of many of the global insurance majors into the

Indian market in the form of joint ventures with Indian companies. Some of the key

names are AIG, New York Life, Allianz, Prudential, Standard Life, Sun Life Canada

and Old Mutual. The entry of new players has rejuvenated the erstwhile monopoly

player LIC, which has responded to the competition in an admirable fashion by

launching new products and improving service standards.

The following are the key winds of change brought about by privatisation.

Market Expansion: There has been an overall expansion in the market. This has

been possible due to improved awareness levels thanks to the large number of

advertising campaigns launched by all the players. The scope for expansion is still

unlimited as virtually all the players are concentrating on large cities and towns -

except by LIC to an extent there was no significant attempt to tap the rural markets.

New Product Offerings: There has been a plethora of new and innovative products

offered by the new players, mainly from the stable of their international partners.

Customers have tremendous choice from a large variety of products from pure term

43


(risk) insurance to unit-linked investment products. Customers are offered unbundled

products with a variety of benefits as riders from which they can choose. More

customers are buying products and services based on their true needs and not just

traditional money-back policies, which is not considered very appropriate for long-

term protection and savings.

Customer Service: Not unexpectedly, this was one area that witnessed the most

significant change with the entry of new players. There is an attempt to bring in

international best practices in service and operational efficiency through use of latest

Technologies. Advice and need based selling is emerging through much better

trained sales force and advisors. There is improvement in response and turnaround

times in specific areas such as delivery of first policy receipt, policy document,

premium notice, final maturity payment, settlement of claims etc. However, there is a

long way to go and various customer surveys indicate that the standards are still

below customer expectation levels.

Channels of Distribution: Till three years back, the only mode of distribution of life

insurance products was through Agents. While agents continue to be the

predominant distribution channel, today a number of innovative alternative channels

are being offered to consumers. Some of them are banc assurance, brokers, the

internet and direct marketing. Though it is too early to predict, the wide spread of

bank branch network in India could lead to banc assurance emerging as a significant

distribution mechanism.

Though the market expansion has taken place, channel of distribution has increased

and customer service is becoming the priority but still much has to be done as

services are intangible, produced and consumed simultaneously and often less

standardized than goods. These unique characteristics present special challenges

and strategic marketing opportunities to the service marketers. The real competition

between the service marketers was set after globalisation of the Indian economy the

service marketing organisation has to adopt professional Management and its

marketers have to imbibe the qualities of professionalism in order to meet the

expectations of the customers.

44


Customers are now looking at insurance as complete financial solutions offering

stable returns coupled with total protection. Companies will need to constantly

innovate in terms of product development to meet ever changing consumer needs.

Understanding the customer better will enable insurance companies to design

appropriate products, determine price correctly and increase profitability. In the

present scenario, a key differentiated would be professional customer service in

terms of quality of advice on enhancing customer convenience.

According to one of the survey published in Indian Journal of marketing, 44 percent

Respondents buy insurance to avoid tax; their major source of awareness is from

friends. From the study it is observed that majority of the respondents are willing to

take new policies in new companies. This suggests that most respondents are not

happy with their existing company. Hence in this project study, an attempt has been

made to understand the marketing strategies that are prevalent now and suggestions

have been made to improve those strategies. Various factors that affect the

marketing of insurance services have also been touched.

45


EMERGENCE OF INSURANCE

Life insurance started in India about 200 years ago. The growth of the managing

agencies system has been ascribed to the life insurance companies set up by the

free merchants and the agency houses. Like insurance companies started in Calcutta

and catered largely to the civil and military officers and European merchants.

The Bombay Mutual Insurance society was started on immediate basis in the 1870s.

The Oriental government security life Insurance company grew into the largest in Life

Insurance Company. It was headed for many years by Sir Purshottam Das Thakur

Das, who held director shit in over 60 companies, and was the President of the East

India Cotton Exchange for many decades. Bharat Insurance was started in Lahore

and was controlled by Lala Harkishan Lal before it was taken over by the Dalmias in

1933. Lakshmi insurance company was all so Lahore - based and was started by

Lala Lajpat Rai. The Hindustan co-operative was pioneered by Sir NR Sircar in

Calcutta. Another large Calcutta - based company was the National Insurance

Company which was eventually taken over by a JK Singhania. The Birlas started new

Asiatic and Ruby. Till 1939, there was no restriction on life Insurance company

investments and the large business house is utilised their funds for the expansion

and diversification of their trading and industrial interest. The Tatas had founded the

New India Assurance Company in 1919.

The garment of India decided to nationalise life insurance and the life Insurance

Corporation (LIC) was set up in 1956. The second five - EA a plan had just started

and the nationalisation of the Imperial Bank of India and life Insurance Corporation

provided reforms for the large capital investment for the second plan investments.

About 75 percent of the life Insurance Corporation (LIC) funds are invested in the

public sector. A sizeable amount is also invested in foreign countries, in government

securities, debentures and share has and loans to public bodies. Since 1955, with a

marked fall in mortality, there has been a persistent demand for a reduction in the

46


premium rates. The Morarka committee's recommendations resulted in a slight

Reduction in the premium rates for without profit policies and some increase in

bonus; the expense ratio remains very high and the rates for policies with profits are

largely unchanged. The service has deteriorated; now there was a move to spread

the corporation into a number of zonal companies. The Insurance regulatory Act

provided for 26 percent foreign participation in life and general insurance area has

now. A number of leading foreign insurance companies, both life and general or

setting up joint ventures with some of the leading Indian houses to enter the

insurance field which holds good growth potential. The life Insurance Corporation is

the biggest investor in the country. Its total investment in 1978 - 79 amounted to

Rs.7, 386.2 million and has grown several fold in the 1980 s and 1990 s.

The General Insurance Corporation (GIC) was formed after the nationalisation or

General Insurance in 1971. The activities other than allegiance Corporation and its

subsidiaries cover all kinds of insurance (except of human life). It has integrated

Annan's seven private companies into just four subsidiaries, viz., National Insurance

company, Calcutta's; New India Assurance, Mumbai; Oriental fire and General

Insurance, New Delhi; and United India Insurance, Chennai. In January 1979, the

Corporation announced a premium relief of over rupees 280 million, which resulted

from a reduction of 20 percent in the premium rates for fire insurance.

OPENING OF INSURANCE SECTOR

In line with the economic reforms that were ushered in India in early nineties, the

Government set up a Committee on Reforms (popularly called the Malhotra

Committee) in April 1993 to suggest reforms in the insurance sector. The Committee

recommended throwing open the sector to private players to usher in competition

and bring more choice to the consumer. The objective was to improve the

penetration of insurance as a percentage of GDP, which remains low in India even

compared to some developing countries in Asia.

47


Reforms were initiated with the passage of Insurance Regulatory and Development

Authority (IRDA) Bill in 1999. IRDA was set up as an independent regulatory

authority, which has put in place regulations in line with global norms. So far in the

private sector, 12 life insurance companies and 9 general insurance companies have

been registered.

Rationale for opening of insurance sector

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.

Malhotra Committee appointed by the government of India for conducting a study on

insurance is bullish on insurance sector potential. The poor reach of insurance in the

country and the sheer numbers make India a market with tremendous potential.

Some important recommendations of this committee were:

The private sector to be allowed to enter insurance business

An Insurance regulatory Authority to be set up to regulate, promote and

ensure orderly growth of the insurance industry in India.

Foreign insurance companies to be permitted on a selective basis, they may

should be required to float an Indian company for the purpose preferably in a

joint venture with a Indian partners.

the quality of agents recruited needs to be improve, the minimum level of

business to be written by them to be reviewed, institutional channels like

cooperative societies, NGOs need to be harnessed as distribution channel

48


Entry of private sector in insurance has been the hall mark of the emerging scenario.

Consequent to establishing IRDA were a good number of companies being given

licences to start insurance business in India.

SWOT Analysis of Insurance Sector in India

The aim of liberalisation of this sector was to provide better Services to the

customers, to provide innovativeness and need based products at reasonable

premium rates and provide satisfactory returns.

The figures of the basic parameters of the Industry's performance viz. insurance

density and insurance penetration also are evident of the hither to existing low yield

Indian market conditions.

The figure of premium vis-à-vis the GDP of 2000 today at 0.54 percent for non-life

insurance business and 1.39 percent for the life insurance business.

The term "insurance density" reflects the insurance purchasing power. The premium

per capita in India amounted to US $2.40 for non-life Insurance and US $ 6.10 for life

insurance in 2000.

According to 2000 - 01 figures, the per capita insurance premium in India was only

$8 as compared to $4,800 in Japan, $1,000 in South Korea, $887 in Singapore, $823

in Hong Kong and $144 in Malaysia. India's share in total insurance premium

worldwide was only 0.3 percent, though it was second most populous country in the

world while Japan's share was 31 percent, EU 25 percent, South Africa 2.3 percent

and Canada 1.7 percent.

The total insurance premium in India is two percent of our GDP, which is far below

the world average of 7.8 percent. India's Share in the world insurance market is only

0.39 percent as against 34.17 percent of US, 21.02 percent of and 8.4 percent of

UK .

49


STRENGTHS

high growth rate of insurance sector;

government's dependence on this sector for long range low cost funds

for infrastructure development;

huge contribution towards foreign exchange reserves by Re insurance ;

high level of employment generation;

Very big middle class (consuming class).

WEAKNESSES

low per capita insurance premium;

low penetration /reach;

society's perception for saving ends at gold or house;

Low faith of people in foreign companies for depositing hard earned

savings;

huge paper work/ time lag in settling claims;

Rampant corruption in nationalised insurers;

Low literacy rate.

OPPORTUNITIES

huge potential to be tapped ;

with coming of foreign insurance companies, their innovative insurance

products and marketing expertise will also flow ;

use of IT as service provider .

50


THREATS

Insurance (life) is a long term business and it is not feasible to predict the

interest rates over long tenures;

insurance is susceptible to vagaries of nature i.e. floods, earthquakes,

etc which can make insurance companies bankrupt ;

Wrong commitments / communication by insurance agents (on behalf of

company) to the gullible consumers.

51


MARKETING MIX IN THE INSURANCE SERVICES

PRODUCT

‘life insurance’ is a contract for payment of a sum of money to the person assured (or

failing him/ her, to the person entitled to receive the same) on the happening of the

event insured against.' usually the insurance contract provides for the payment of an

amount of on the date of maturity or at specified rates at periodic intervals or at

unfortunate death if it occurs earlier. Obviously, there is a price to be paid for this

benefit. Among other things, the contract also provides for the payment of premiums

by the assured.

‘life Insurance’ is universally acknowledged as a tool to eliminate risk, substitute

certainly for uncertainty and ensure timely aid for the family in the unfortunate event

of the death of the breadwinner. In other words, it is the civilised world's partial

solution to the problems caused by death. In a nutshell, life Insurance helps in two

ways: dealing with the premature death, which leads to dependent families to fend for

themselves and old age without visible means of support.

Product benefits

Superior to any other savings plan:

Unlike any other savings plan, a life insurance policy affords full protection

against risk of death of the policy holder; the insurance company makes

available the full sum assured to the policyholders' near and dear ones. In

comparison, any other savings plan would amount to only the total savings

accumulated till date. If the death occurs prematurely, such savings can be

much less than the sum assured which means that the potential financial loss

to the family is sizeable.

52


Encourages and forces thrift:

A savings deposit can easily be with drawn. The payment of life insurance

premiums, however, is conceded sacrosanct and is viewed with the same

seriousness as the payment of interest on a mortgage. Thus, a life insurance

policy in effect brings about compulsory savings.

Easy settlement and protection against creditors:

A life insurance policy is the only financial instrument the proceeds of which

can be protected against the claims of the creditor of the assured by effecting

a valid assignment of the policy.

Administering the legacy for beneficiaries:

Speculative or unwise expenses can quickly cause the proceeds to be

squandered. Several policies have foreseen this possibility and provide for

payments over period of years or in a combination of instalments and lump

sum amounts.

Ready marketability and suitability for quick borrowing:

A life insurance policy can, after a certain time period be surrendered for a

cash value. The policy is also acceptable as a security for a commercial loan,

for example, a student loan. It is particularly advisable for housing loans when

an acceptable LIC policy may also cause the lending institution to give loan at

lower interest rates.

Disability benefits:

Death is not the only hazard that is insured; many policies also include

disability benefits. Typically, these provide for waiver of future premiums and

payment of monthly instalments spread over a certain time period.

Accidental death benefits:

Many policies can also provide for an extra sum to be paid, if death occurs as

a result of accidents.

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PRICING

The three main factors used for determining the premium rates under a life insurance

plan or mortality, expense and interest. Significant changes in any of these factors

normally entail revision of premium rates.

Mortality: the average rate of mortality is one of the main considerations

than deciding upon the pricing strategy. In a country like South Africa which is

unfortunately the plagued by a host of diseases especially like AIDS, the

threat to life is very important. The price of the instalments, its frequency and

its premium charges are decided accordingly.

Expenses: the cost of processing, the kind of infrastructure costs involved

and the payment made to the agents, re insurance companies as well as the

registration etc are all incorporated into the costs of the installments and

premium sum and forms the integral part of the pricing strategy.

Interest: the interest rate is one of the major factors, which determines

people's willingness to invest in the insurance issues. If the interest rate

provided by the banks or other financial instruments has is much greater than

the perceived returns from the insurance premiums then the people would not

be willing to put their funds in this sector. The financial climate in South Africa

how ever, is such that it is favourable to the insurance sector. The interest rate

in South Africa is not very high. In fact for the past few years it has fluctuated

in the early teen and this, compared to the interest rate in the other countries

is certainly relatively low. Hence, we can safely say that the market is

conducive to the perusal of Insurance Services in our chosen destination.

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DISTRIBUTION

Distribution is a key determinant of success for all insurance companies and the

nationalised insurers currently have a large reach and presence. New entrant's

cannot and do not expect to supplant or duplicate such a network. Building the

distribution network is expensive and time-consuming. Yet, if insures are to take

advantage of India's large population and reach a profitable mass of customers, new

distribution avenues and alliances will be imperative. This is also true for the

nationalised corporations, which must find fresh avenues to reach existing and new

customers.

Initially, insurance was seen as a complex product with a high advice and service

component. Buyers prefer a face to face interaction and place a High premium on

brand names and reliability.

As products become simpler and awareness increases, they become off- the- shelf

commodity products. Various intermediaries, not necessarily insurance companies,

are selling insurance. In the UK, for example, retailer Marks and Spencer now sells

insurance products. At this point, buyers look for low price. Brand loyalty could shift

from insurer to seller.

The financial services industries, worldwide, has successfully used remote

distribution channels such as the telephone or the Internet to reach more customers,

cut out intermediaries, bring down overheads and increase profitability. A well known

example is the UK insurer Direct Line. Established in 1985, it relied on telephone

sales and low pricing to become the UK's largest motor insurance operator within a

decade.

The traditional distribution model comprises

55


Captive/Tied Agents: These are agents who sell policies of only one Insurance

company which employs them.

Independent Agents: Individual agents who represent several companies and

place Insurance policies for their clients with the company that offers the best

rate and coverage.

Corporate agents: Firms selling policies of several Insurance companies.

An amendment in October 2002, to the Act of Corporate Agents, recognized banks,

brokers and other entities like cooperatives, NGOs and panchayats as intermediaries

who can sell Insurance for a commission. While under the old laws the only corporate

agent that was recognized was a firm where all directors were Insurance agents, the

new law allows virtually any entity to sell Insurance. The measure will give a big

boost to the private insurers in the country, who have been facing a distribution

conundrum. The various channels that can be used under the purview of the

amendments are

Banks: Bancassurance in its simplest form is the distribution of Insurance

products through a bank's distribution channel. Banks can straightaway

leverage their existing capabilities in terms of database and face to face

contacts to market Insurance products.

Rural areas and small towns offer a huge potential to the Insurance

companies. This potential was largely untapped due to inadequate distribution.

The key to market access in these areas can be:

a. Co-operative societies

b. Village Panchayats

c. Post Offices

The Co-operative societies and village panchayats can act as ‘Corporate Agents’ to

sell Insurance products most specific to the community’s needs.

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For example, MetLife have signed an agreement with Apna Bazar Co-operative for

selling life insurance policies. One of the oldest and amongst the largest consumer

co-operative society, Apna Bazar's outlets are spread across Mumbai, Navi Mumbai,

Ratnagiri & Goa, with a customer base of over 1.5 million.

Based on the agreement, Apna Bazar Co-operative shall become corporate agents

for Metlife India and offer Metlife India products to its huge customer base. mer base

of over 1.5 million.

NGO-This channel could be used to increase awareness about the Insurance

products. As many NGOs have strong presence and a positive reputation in

rural areas they can prove to be an effective channel.

Group Channels

Worksite Groups: Worksite marketing is the selling of voluntary

(employee-paid) Insurance and financial products at the worksite. The

products may be on either an individual or group platform and are

usually paid through periodic payroll deductions.

Affinity groups: Affinity groups are homogenous groups. The major

advantage of selling Insurance to affinity groups is that there is a

greater likelihood of lasting.

Personal advisors such as accountants, lawyers, doctors and tax planners

Mutual Funds: Mutual Funds could capitalize on their existing customer bases

to sell policies.

Hospitals: A tie up with hospital chains for selling health Insurance can be an

effective channel to reach a wide base of customers.

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Some potential Indian players hope that their anticipated technology advantage will

allow them to increase their reach, partly by using remote channels. However,

financial Services companies, globally and in India, find that customers are making

the shift to such channels slowly and only for lakhs complex transactions. In India,

insurance, especially life Insurance, is still a service product. Indeed, even the

successful international that insurers focus on standard covers such as motor

insurance. Therefore, in India technology will not replace a distribution network,

though it will offer advantages like better customer service.

Banks and finance companies can emerge as an attractive distribution channel for

insurance. This trend will be led by two factors, which already apply in other world

markets. First banking, insurance, fund management and other financial services will

all form a set of services rather than disparate ones. Second, banks and finance

companies are being driven to increase their profitability and provide maximum value

to their customers. Therefore, they are themselves looking for a range of products to

distribute.

In other markets, notably Europe, this has resulted in bank assurance: banks

entering the insurance business. The Netherlands lead with financial services firms

providing an entire range of products including Bank accounts, motor, home and life

Insurance and pensions. In France, over half of all life insurance sales are made

through banks. In the UK a KPMG survey found that 96 percent of banks and

building societies surveyed dealt with insurers as providers of products, as early as

1995.

In India too, Banks hope to maximise expensive existing networks by selling a range

of products. In the US, Banks lease space to insurers with in their bank branches or

retail products for multiple insures.

Another innovative distribution channel that could be used are the non-financial

organisations. For example, insurance for consumer items such as refrigerators can

be offered at the point of sale. This piggybacks on an existing distribution channel

and increases the likelihood of insurance sales. Alliances with the manufacturers and

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retailers of consumer goods will be possible. With increasing competition they are

wooing customers with various incentives, of which insurance can be one.

Another potential channel that reduces the need for an owned distribution network is

Worksite marketing. Insurers will be able to market pensions, health insurance and

even other general covers through employers to their employees. These products

may be purchased by the employer or simply marketed at the workplace with the

employer's cooperation.

Companies will have to ensure a strong brand identity. Distribution through third

parties means that it is those companies is rather than the insurers who often reap

the benefits of customer loyalty. This accelerates the shift of insurance to a

commodity product. Since many new companies already offer other financial services

products they will be tempted to sell only their own products. They must balance this

against the advantages of offering customers the wide range of products. This is a

especially important because it is anticipated that their will be the rise of pure

financial service retailers who do not have any owned products and offer a broad

range of products from different providers to consumers.

PROCESS

The process involved in the insurance industry should be customer friendly. The

speed and accuracy of payment is of vital importance. The processing methodology

should be such that it provides total ease and convenience to the customers.

Instalment schemes should be streamlined to cater to growing demands of the

customers and keep pace with the competition in the market. The new

developments,

which will smoothen the process flow, are IT and data warehousing. Firstly,

information technology will help in servicing large number of customer’s efficiency

and bring down overheads. Technology can complement or supplement distribution

channels cost effectively. It can also help improve customer service levels

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considerably. Secondly, the use of data warehousing, management and mining will

help to gauge the profitability and potential of various customer and product

segments. Understanding the customer better will allow insurance companies to

design appropriate products, determine pricing correctly and increase profitability.

PEOPLE

Being a service industry involving a high level of people interaction, it is important to

use this resource and efficiently in order to satisfy customers as also to have a

competitive edge in the market. The two key areas which needs to be kept under

consideration are training and development and strong relationships with

intermediaries.

Training the employees to introduce them to new products, use of information

technology for efficiency, both at the Staff and the agents level or the distribution

organisations is one of the key areas to look into. Also building strong relationships

with intermediaries, such as agents, will help in meeting customer's needs and serve

them effectively.

MARKETING MIX POLICIES

Different companies can choose to position themselves differently and hence the

marketing mix would be different. However, there are certain common characteristics

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that one can cull out from the possible strategies that companies can adopt.

Product: The development of flexible products to suit individual requirements is what

will differentiate the winners from the also-rans. The key to success is in providing

insurance solutions, not standardised insurance products. The concept of

riders/optional benefits has already been a huge innovation brought about by the new

players, which has led to customisation of products for individual needs. However,

companies may differentiate themselves on the basis of product segments that they

choose to focus on and excel in.

Distribution: Different companies may however choose different channels and

different geographies to focus on. The channel options are - tied agency force,

corporate agents and brokers and this is an area where different companies will

make different choices. Many companies like HDFC Standard Life are focussing on

all channels whereas companies like Max New York Life are focussing on the tied

agency force only. Customer interface will be a key challenge for life insurance

companies and includes every that interaction that the customer has with the

company, such as sales, new business underwriting, policy servicing, premium

payments, claim processing and so on. Technology can play a crucial role in

delivering the highest standards of service set by the company and it will be

imperative for any serious player to excel in all of these.

Price: Price is a relevant differentiator only in two segments - pure term insurance

and in pure annuities. Here too, service delivery and financial strength will need to be

present at a minimum acceptable level for price to be a relevant differentiator. In case

of savings oriented products, long term returns generated will be more relevant than

just the price of the product. A focus on generating good investment performance

and

Keeping a tight control on costs will help in generating good long-term maturity value

for customers. Norms have been laid down on all of these by IRDA and adhering to

these while delivering good returns will be a challenge.

Advertising and promotion: The level of demand is latent and will have to be

activated considerably. The market needs to be developed. Greater awareness of

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insurance and the need to have it as a protection tool rather than as a tax planning

measure needs to be appreciated by the Indian people. Various communication tools

including advertising, direct marketing and road shows will contribute to all this and

different companies will take different approaches on these.

SCOPE OF SCTUDY

SELLING INSURANCE PRODUCTS

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(CHALLENGES INVOLVED)

Indian consumers till recently had been dealing with only one life insurance player -

the life Insurance Corporation in the public sector. The entry of private players in the

market has now exposed them to a slew of innovative products customised to their

needs.

However, despite the launch of innovative products, the Indian market is still in a

nascent stage. While consumers scepticism comes in the way of selling insurance

products, there is also a huge potential that has not yet been explored penetration of

life Insurance in India is as low as 2.15 percent of the GDP. Currently out of an

insurable population of around 300 million people only 78 million are insured. Given

the sheer geographical spread of the country there is a vast market that remains

untapped and there is plenty of room for growth.

Most of the Asian countries with the exception of Japan, South Korea and Taiwan

have low insurance penetration as compared to the developed countries. Countries

with low penetration levels such as India and China present a huge opportunity.

Some of the issues in successfully selling insurance products in India are:

Only A Tax-Saving Instrument

The Indian consumer has traditionally looked at life insurance investment as

an instrument for tax saving a rather than as a prudent investment decision or

even as a protection device. The joint family system prevalent earlier also

meant that life insurance was not seen as a necessity the way it is in some

other countries as the family was there to help an individual in case of any

difficulty. Tax savings has been the route taken by agents earlier in selling life

Insurance to customers. The market has therefore been characterised by

seasonality during the year end closing.

This is not the ideal way for selling an insurance product. There has been no

endeavour to correlate it with the needs of the customer. Here in lies the

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opportunity for any company that can provide advice based selling. Looking at

this opportunity, the Aviva has created a special “financial health checks" - a

need based analysis of customer’s long-term savings and insurance needs.

This is a free service administered by the company’s expert financial planning

advisers. Depending on the life stage and earnings, the financial health check

assesses and recommends the right insurance product for the customer.

The private insurance players have also been trying to change the perception

of insurance products merely as a tax-saving product by marketing policies as

comparable to other savings instruments available in the market. Flexibility of

the insurance products offered by the players is enabling the customer to

decide on the premium to be invested as well as the life cover.

Consumer Awareness And Credibility

An enlightened consumer is always a boon for the insurer as he would look at

insurance as being beyond a mystical product that can be bought only as a tax

saving tool. Policy owners face difficulties in understanding the insurance

products due to the complex feature as of products and Services offered, as

well as the technical jargon used in the literature of insurance contracts and

sales illustrations. Making a right choice in the purchase of an insurance policy

is not an easy task. To this end educating consumers is crucial to enable them

to make well informed decisions in order to find the insurance products that

best suit their needs.

Traditionally the consumer has been used to guaranteed products offered to

him. However, keeping in mind the fluctuating interest rates and the capital

intensive nature of the business, this is not sustainable in the long run. In fact

LIC itself has now moved away from guaranteed products. Nevertheless there

is still a mindset among customers where they find it difficult to accept a non-

guaranteed product. This presents a major challenge for the private players.

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Apart from offering non-guaranteed products some of the private players have

even started offering unit linked insurance products to their customers. This

includes the policy offering a life cover as well as investment returns. Unit

linked products offer a flexibility for the customer where constituent parts of

the product are unbundled and clearly identifiable to him

Though the IRDA does not allow rebating by insurance agents, this is not the

reality in the market. The Indian consumer has been used to his agent passing

on a percentage of his commission to him.

Manpower Problem

Like any other service industry, in insurance too people are critical for the

growth of the industry. As insurance was a nationalised industry, experienced

people are only found in LIC. Professionals from other industries like banks,

Mutual funds, FMCGs and other service companies have to be approached.

Moreover, recruiting as well as retaining the right quality of people, whether in

sales or other functions, is a major challenge for the insurers.

BRAND-BUILDING AND ADVERTISING

Financial service brands are based on ensuring long-term financial security through a

broad range of inherently risky services and investment options. In the insurance

sector, branding has typically involved the concepts of stability, trust and protection. If

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there was one industry in India which least considered branding as essentiality, it

would be the insurance industry. However, with liberalisation of the industry, players

have to realise the need for branding in a competitive environment. Insurance

companies need to strive to build a brand in order to attract both the end customer

and intermediaries.

Branding in the Insurance Sector

Need For Branding

In an industry characterised by commodity pricing, unprofitable policies and a

saturated market, insurance companies are under an increasing pressure of

maintaining clientele and grasping a major chunk of their investments. The

industry, in general, faces the challenge of building the credibility of being a

financial service provider while meeting customer's expectations of what it

means to be financial services company.

Financial service brands are based on ensuring long-term financial security

through a broad range of inherently risky services and investment options. In the

insurance sector, branding has typically involved the concept of stability, trust

and protection from risks to be there in time of crisis or even protecting from

crisis through a standard set of products. This positioning helps to give

credibility to sell “risk free" products designed to help customers ensure that

their family and assets are protected

Brand strategy is one of the most critical parts of the underlying business

strategy of any organisation. It will help to establish what insurers stand for and

promise and will eventually help to give the industry a new in the image.

If there was one industry in India which least considered branding as an

essentiality, it would be the insurance industry. This was primarily because life

insurance in India was the monopoly held by life Insurance Corporation of India.

It was always felt as an abstract service or a fallback, more like a safety net. But

66


with the liberalisation of the industry, players have to realise the need for

branding in a competitive environment. Insurance companies need to strive to

build a brand in order to attract both the end customer and intermediaries. Not

only this, brand-building is also important for companies to be able to attract

quality professionals and good employees, which, as of now, are a scarce

commodity. This is one sector where trust and reliability are the most important

factors that effect the choice of a customer. Focus and strategy are essential to

the development of brand in any sector but it becomes more important in the

case of life Insurance because it is and intangible service and service that

requires expert advice.

With the Internet redefining the way business is done, the brand position needs

to be convincing in a new dimension. In cyberspace, clear corporate branding is

even more vital in absence of physical presence and issues of trust and

reliability are more imperative. Adequate time, investment and longer term

management of the brand are essential, not only for success but also for the

survival. All brands need to be built around well differentiated and credible

positioning that springs from the organisation's history. The brand must not only

be believed but also looked by management and employees.

Advertising and Communication in the Insurance Industry

For an intangible and homogeneous word of financial Services, the role of

advertising is expected to deliver three results

1. Build awareness

2. Building brand immediately

3. Generate leads

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According to Tony Meegham, brand image derives from the various

components of identity with advertising being central to the process by informing

consumers the inherent product benefits and positioning the brand in the minds

of the consumer. But consumers are not passive recipients of image - laden

advertising.

Advertising Tactics for Insurance

Albers-Miller and conducted a comparative study of service industry

advertisements across 11 countries and found that financial service

advertisements rely more on the rational over emotional appeals.

In one of the studies on Financial Services advertising across eight non-English

speaking countries, 13 appeals have been identified which are considered

relevant for Financial Services. The appeals are:

1. Cheap: when the advertisement describes the poor as "cheap, economical,

inexpensive, bargain, discounted, under valued or good value" for instance the

cost of Financial Services.

2. convenient : when the product is described as " convenient, handy, time

saving, quick, easy, suitable, accessible and/ or versatile" example value of

fast service, shot to wait time , easy to use, convenient products and locations,

etc.

3. Effective: describing a product that is an effective work able, useful, pragmatic,

consistent, strength, and having longevity of effect ". This factor was of

concern to the business and professional consumer for a pawn by financial

effectiveness of the service was a crucial factor.

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4. Family: importance of this appeal was unclear in the context of Financial

Services. Hence, it has been omitted in this study.

5. Modern: described as "modern, contemporary, new, improved, progressive

and/ or advanced". It appeals for new, modern, innovative and progressive

products.

6. Neat: orderly, neat, clean, tidy, precise, etc. indicating that cleanliness of the

organisation was indications of service quality.

7. Ornamental: described as beautiful, decorative, embellished or detailed. The

description of ornamental environments and aesthetics and its effect on

decision making of consumer.

8. Popular: advertisements described the product as “popular, commonplace,

well known, typical, universal and/ or everyday". The idea was to understand

the popularity and repeat patronage.

9. Productivity: “ambition, accomplishment, success and/ or proficient “describing

the products to be functional and productive”.

10. Relaxation: “rest, contentment, at ease, laid-back" where advertisements

stressed on relaxation and comfort appeals to the customer.

11. Safety: appeals of “safety, security, stability and caution" Were the appeals

used in the financial advertisements.

12. Technological: “technological advancement, research, science and

discovery" were the appeals to describe availability of new and useful technology

for the benefit of the customers.

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13. Wisdom: describing “wisdom, sagacity, expertise, awareness, experience” of

the knowledgeable Staff of the organisation leading to better customer service.

Study of the advertisements

A study was conducted to find out the approaches of the various insurance

companies in Indian life insurance industry towards communicating itself and

its products to the consumers.

The study was intended to content analyze the advertisements and to know

through a set of framework and model how closely the present day

advertisements fall in line with what has been proposed in previous

researches. To understand what are the features that come up in the

insurance product advertisement in the Indian industry and how closely the

advertisements are in line with what has been a theoretically prescribed as

ideal way of communication for the insurance products.

For elucidating the required information in a number of advertisements, print

media were studied.

Observations about the advertisements of the insurance companies

For each of the players studied, the advertisements the list in the magazines

and pamphlets octane from the company offices were studied for various

traits. The content analysis was also done against the 13 appeals identified in

the previous study. A percentage recurrence for each of these traits in all the

observed advertisements for both the print ads as well as the pamphlets was

then tabulated to know the focal points of the communication strategy. These

observations were then grouped under three basic categories:

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Visual:

slice of life

inspired from life

attractive Visuals/ shots

consistent colour schemes

logo of one company only of the JV

logo of both companies of the JV

Branding:

single product branding

multiple product branding

corporate branding

Message:

use of humour

use of serious tone

fantasy

storyline

only information

symbolism

benefits clearly mentioned

use of Hindi

Recurrence of words like trust, security, relax, care, needs, etc.

optimism in the message

undercurrent of fear, insecurity of the future in messages

A summary of the advertising activities of some of the players

Players Ad. Positioning Ad-line

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Agency

ICICI

Prudential

Lowe Protection of

Human Life and

Lifestyles

We cover you.

At every step in

life

Max New

York Life

Equus Flexible Policies

provider

Your Partner for

life

HDFC

standard Life

Canco Mass market

Value for Money

Making life easy

for you

LIC LIC Provider of Life

insurance policies

for the entire

country

We know India

Better

LITERATURE REVIEW

LIFE INSURANCE CORPORATION OF INDIA

The logo depicts a lighted lamp protected by two hands with the three colours of the

national flag as the backdrop. The logo signifies LIC protecting the happiness of life

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and the tri colour gives a nationalist face to LIC. The words "Yogkshemam

Vahamyam" printed beneath in Sanskrit stand for “your welfare is my responsibility".

These words are actually a part of Bhagwad Geeta shlokas spoken to Arjuna by Lord

Krishna.

Advertisements

The LIC advertisements use catch lines like, " life is beautiful make it secure." "

unlock your dreams, LIC provides the key." one of the advertisements shows a man

in the state of meditation with the words," for peace of mind, call your agent.”

For print ads:

Visual: unlike some private insurance companies, advertisements of LIC were

non-glossy, non-designer shots and very close to the life of the masses.

Branding: LIC advertisements appeared distributed uniformly for multiple

product, single product and corporate branding.

Message: there is more of a rational appeal in the advertisements than

emotional appeal. There was no storyline involved. However, traces of fantasy

and humour could be seen. The text had also used words like trust, love,

relax, security, etc. to lend the emotional appeal to the advertisements

HDFC STANDARD LIFE INSURANCE

HDFC Standard life has a simple logo, which has the letter "Li", and the name of the

company.

Advertisements

For print ads:

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Visual: the visual are attractive and inspired from life. Colour and layout is

consistent in all advertisements. Symbolism was also used to express the

message.

Branding: most of the ads focus on corporate branding rather than single

product branding.

Message: most advertisements used rational appealed to attract customers.

This however was done in a light, humorous manner. There was less

emphasis on giving product attributes and benefits in detail. In most, the

information centred on the organisation and why the customer should choose

HDFC for insurance products.

ICICI PRUDENTIAL LIFE INSURANCE

Media Campaigns: the company has brought out media campaigns using

newspapers, hoardings and even television the vehicle to target the young and

the old alike. Through their advertisements, they effectively convey the

message of being with an individual at every phase of life. For every campaign

the subhead used is, ”we cover you." the base line is joy hope freedom life

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For print ads:

Visual:

The visuals or slice of life showing happiness and joy. The advertisements

showed people of all age groups - children, family, and old couples enjoying

life as it comes. The headlines and sub-heads are set in bold and attractive

enough to catch attention.

Branding: most advertisements were based on corporate branding and a few

on single product branding. There was hardly any advertisement on multiple

products branding.

Message:

“A genuine plan that works while you are working and keeps working even

when you are not" and “we cover you" are the constant reminders in each

advertisement.

The base line of JOY HOPE FREEDOM LIFE gives a very optimistic colour to

whole advertisement. Some advertisements are very informative and have

tried to render information in as systematic and tabular form as possible.

Some speak simply of life and ICICI prudential. There is no storyline or fantasy

involved in any message. Some advertisements mention benefits explicitly.

A DETAILED ANALYSIS :

Many of the organisations are using co-branding as their strategy wherein the names of

both companies figure in the brand name, either in form of initials or completely.

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All players are using the logo of the parent domestic partner. The companies are trying to

leverage the image of the domestic partner and hence the name. This is probably because

masses have low awareness of the foreign partner as compared to domestic.

The private players yet in the nascent stage of the introduction to the Indian market have

invested largely on corporate branding to present their organisation as a worthy insurance

company. This worth has been exhibited through the JV partners and leveraging the

corporate brands of the partners, thus telling the consumer the organisations together can

make life better for him.

The new organisations use a lot of gloss and decorative appeal to attract the customers.

(advertisements of ICICI prudential appear to have these features ) it is assumed from the

quality, language and lifestyles depicted that the target customers are the sophisticated and

educated upper middle and upper class segments of the society. The common man may

not be able to identify himself with the depictions and the attraction of the advertisement

may be Limited to the beauty of the visual rather than its actual purpose.

The monolithic LIC is away from this style. Although a few of their advertisement do

target the young earners, most of the advertisements have men earthy appeal. The target

customers been the hot masses, there is always the average middle class Indian, who is

part of their campaign.

Very few players do use of Hindi for the leaflets. Probably this is according to the

suggested target audience.

Colour and design consistency was also observed in the campaigns. The repetition of the

colour schemes typical to an organisation is expected to help the customer to associate the

scheme with the organisation, enhance recall and build identity.

When matched for the various appeals identified in the study on the financial service

advertising in eight non-English speaking countries by Albers-Miller, the following

observation was made:

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Convenience: the convenience appeal here mainly relates to convenience of payment

mode and convenience through types of insurance packages offered to suit varied

needs.

Effective: the effective appeal describing usefulness, functionally, strength of the

insurance products was strongly etched across all advertisements. The effectiveness

was made part of both the emotional and rational appeal in order to integrate its

importance in one's life.

Family: this was also an integral part in maximum advertisements. The advertisements

have linked the benefits of the insured with the protection, health, education, security

and development of the family. Both emotional and rational modes of conviction are

used to convey the importance of insurance.

Modern: the modern appeal of progressive, innovative products specifically has not

been stressed upon in any advertisement. However, some organisations such as LIC

and ICICI prudential have a big range of products in life insurance.

Neat: this appeal explained in terms of ``clean, spotless, precise, tidy ``surroundings

did not form a part in any advertisement.

Ornamental: the use of the `òrnamental `àppeal in the study was unclear.

Popularity: popularity has been talked about by insurers like Alliance Bajaj ``60

million satisfied customers across the world `ànd ICICI prudential also. Popular did

not seem to be the main appeal in the advertisements.

Safety: this was the prime and recurrent appeal in all campaigns. As the industry itself

thrives on the concept of financial security and safety for life, this was directly or

indirectly incorporated in advertisements.

Relaxation: the relaxation appeal has been shown as an outcome of having insured

oneself against life's insecurities with the help of insurance policies.

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Technological: most players being new and having collaborations with foreign

players, the reputation of being technically advanced seems to already exist and hence

Re enforcement of the same may not be required.

Wisdom: Wisdom of the service providers did not appear as a prominent appeal to

attract customers.

BUILDING A BRAND

- The ICICI Prudential Experience

When the insurance industry was first opened up and private player entered the field in 2000,

there was a host of challenges that lay before them. Consumer attitudes towards insurance

were largely indifferent, and insurance was regarded as an inflexible, tax-saving product that

offered low returns. Rarely was it recognised for the multi-dimensional protection instrument

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that it is. Service levels were low, products were not transparent and were typically sold as the

‘one-size-fits-all’ kind, with very little relevance to a consumers’ actual need.

The most broad-based challenge for all companies was to spread awareness about life

insurance – how it works, its benefits and most of all, its absolute necessity for anyone who

has dependents. At a more company specific level, the task for ICICI Prudential was to build

a relevant brand that customers could trust.

Being a frontrunner in the life insurance industry, ICICI Prudential has always performed

both the category task, as well as the brand task, with the help of advertising and public

relations (PR). The company’s initial campaigns addressed various myths and misconceptions

about life insurance, seeking to change customer attitudes.

For instance, life insurance had long been regarded as expensive, rigid, difficult to understand

and good only for tax saving. As a result of ICICI Prudential’s advertising, life insurance is

now increasingly seen as a complete solution to meet one’s myriad needs - health, wealth,

life, child protection and retirement. It’s a financial product that provides a stable return on

investment, protects life at affordable cost, secures a child’s future, does retirement planning

in the most effective way and provides additional health protection. It is now an integral part

of the consumer’s wealth management basket.

The other major communications task at the time of launching operations was to present the

visiting card of the company to the public at large and build credibility and stature, so as to

give the consumer the confidence that ‘here was a company that could be trusted to invest

funds with’. This required a corporate campaign, which started with advertising to establish

the brand, build awareness and give the brand a larger than life image. The aim was to

position ICICI Prudential as the new and modern face of the life insurance provider in India

and change the perceptions of the target audience to view insurance not as a compulsory tax

saving instrument, but as a means to lead a worry free and secured life.

Amongst ICICI Prudential’s innovative steps was the introduction of lifestage and need based

solutions selling, thereby unshackling the category and meeting specific customer needs. The

brand proposition for all the ad campaigns was reflected in the line “We cover you. At every

step in life”, i.e. that ICICI Prudential Life is the only private life insurance company that

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provides consumer insurance solutions which are relevant to the unique needs at every stage

of life. The campaign also provided several lines of support serving to inculcate trust and

belief in the company, such as the competitive advantage or product performance, a showcase

of products available for different segments, the flexibility and value addition in products and

the sound financial backing and credentials of ICICI and Prudential.

The advertising idea was encapsulated in an endearing, lasting and universally recognised

symbol of protection – the ‘sindoor’. The company launched a mass media campaign

including print, outdoor, Internet and radio and finally culminating in the corporate film. With

the geographical expansion of the company, TV became a viable medium and the corporate

campaign was run on TV, because the medium lends itself well to an emotional type of film

that strikes a chord with the audience.

This campaign contributed extensively to raising brand awareness of the company and was

short-listed as one of the 12 most effective campaigns for the year2001 in the Effie awards.

Once the corporate image and brand identity were established, the next step is to give the

customer a rational and tangible reason to buy – first of all insurance, and secondly, from

ICICI Prudential. This brought ICICI Prudential to the next phase of communication- to

inform the consumer about the comprehensive product range and present the benefits of the

same.

This was tackled through product advertising, which gave the customer information that

would help him make a decision. ICICI Prudential launched product-specific advertising

campaigns for most of its products -largely through print and outdoor advertising - once more

performing a category task, particularly in the retirement solutions and child solutions

category. The retirement solutions campaign attempted to drive home the benefits of early

retirement planning, while the Smart Kid campaign educated customers about a life insurance

product that would leave nothing to chance in providing for their child’s future.

In fact, the retirement solutions campaign launched in September 2003 marked the first time

that a private life insurer ventured into TV advertising for a specific product category and was

one of ICICI Prudential’s most effective campaigns, highly successful due to the integrated

efforts of product development, advertising and direct marketing. Recognising the dire need

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for systematic retirement planning amongst the Indian public early on, ICICI Prudential

invested the necessary resources in building awareness and introducing products. The

challenge in this slow growth, low awareness, category was to reposition the traditional

concept of retirement planning and create relevance for it among the 30 to 40years age group

that traditionally had many emotional barriers against retirement planning.

The word ‘retirement’ itself brought to mind all the negatives associated with old age –

mainly the loss of social, financial and physical independence - causing ‘avoidance’ or

deferment of any decision relating to planning for retirement. ICICI Prudential launched a

campaign specifically to address this psychological barrier by offering afresh perspective: be

forever young and lead an unchanged life– an aspirational appeal for the target group.

The advertising campaign was complemented by other activities like seminars to spread

awareness about the need for retirement planning and direct marketing innovations. The

efforts paid off, and ICICI Prudential increased its market share of pensions market to 23

percent of the total pensions market and 73 per cent amongst the private players in the market

within six months of launching its retirement campaign.

Moreover, according to ORG MARG studies, the ICICI Prudential brand name and

advertising had the highest recall amongst all private players, and was only marginally behind

LIC.

Four years since the liberalisation of the life insurance industry, consumers are becoming

increasingly aware of and actively managing their financial affairs. They are looking to

insurance companies to offer them a complete solution and one of the biggest challenges

facing insurers is to continuously re-evaluate customer needs and develop products to fulfil

this need.

ICICI Prudential’s strategy is to remain customer-centric in all that it does, thereby constantly

evaluating and meeting customer needs. Regular focus groups, individual meetings with

customers, listening to the Voice of the Customer, etc, are all methods that the company

implements to ensure that the customer remains central to the ICICI Prudential’s being.

Building a Distinct Brand Identity

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It is imperative that the companies build a distinct brand identity in order to compete in a

market steaming with competitors. In order to do so, a company could strengthen its approach

into following facets of brand identity:

Personality: could be that of the friend or end adviser. Companies are trying to create

that by using slogans like, ``friends for life `` etc. but the approach is so similar in all

the companies that none of the brands has been able to develop a distinct personality.

Culture: by using communication to bring it to the fore. Examples could be Indian

culture or even a conservative culture (could indicate prudent and safe investment) of

the parent companies.

Customers reflection: could be built to create a reflection of target customer example,

independent, smart or savvy.

Relationship: to connote relationships like family bond of love that creates the need to

protect loved once by buying insurance product of the particular brand.

Physique: could be built around the salient feature of the company's service's like life

Insurance which could be further narrowed down to reflect salient objectives like

customisation, innovativeness, flexibility,etc.

In order to be successful as a brand, a company would have to move from being a ``functional

brand`` to an ``experimental brand ``.

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CRM IN INSURANCE SECTOR

While the insurance sector is seeking to maintain a balance between acquiring customers and

developing existing ones, customer acquisition is vital, as no retention strategy will entirely

stem customer defection. That said, insurance companies are experiencing unacceptable levels

of customer churn, thanks to which they are focusing on keeping the customers they already

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have in a bid to ensure a net growth in their customer base. Today, the focus is on selling

more products to existing customers to improve profitability.

Customer-focused strategies require CRM (customer relationship management) to help

acquire customers thorough various touch points and translate operational data into actionable

insights for proactively serving customers. CRM with BI (Business Intelligence) tools can

help insurance firms monitor the ebb and flow of customer behaviour, giving them a holistic

360-degree view of their customers.

While the CRM market in India is still nascent, bigger players such as ICICI Prudential Life

Insurance Company are adopting it in a big way. The company was earlier using GoldMines

(a sales and marketing tool) and HEAT (an operational CRM solution) from FrontRange

Solutions. Last year it took a decision to invest in CM3 from Teradata and SAS’s statistical

tool for BI. CRM helps in obtaining granular details about the customers, which help in

designing better products, improve service levels and reduce operational costs. CRM has

helped ICICI Prudential Life capture five lakh customers through effective event-based

marketing and lead tracking to cross- and up-sell products.

CRM helps Aviva Life Insurance Company to categorise and segment customers and align

products that best suit them. Aviva says that CRM is helping them expand into rural areas.

Aviva caters to close to 100,000 customers with its CRM solution.

That’s not all. Players such as Birla Sun Life, Aviva, HDFC Life and MetLife are expected to

adopt CRM tools as well in the near term.

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CURRENT MARKET SCENARIO

Insurance firms are tactically rolling out an application here and there rather than strategically

implementing a complete CRM suite. In this, they are on the right track. They (insurance

firms) are taking baby steps, starting with operational CRM to increase sales force

automation. Once they have a sufficiently large customer database, they use BI tools to mine

data from various sources (such as contact centres and from banks with which they align)

pushing the need for analytical CRM solutions.

CRM technologies such as sales force automation, contact centre segmentation and campaign

management tools are maturing and finding wider adoption with large insurance companies.

The banking, financial services and insurance (BFSI) sector and telecom will continue to

drive the CRM market, but the uptake of CRM in the insurance vertical will climb steeply in

2004 and growth will be rapid and higher. The need to integrate customer data from multiple

channels and to increase sales force productivity (including that of agents) and running

productive marketing campaigns will continue to drive demand for CRM software.

Spending on CRM is up

Insurance firms spend close to 12 percent of their IT budgets on CRM software and services.

The cost includes operational CRM and spending on BI tools. Industry pundits believe that

insurance firms are looking for CRM initiatives with budgets ranging from Rs 50 lakh going

right up to Rs 3 crore. The sector is busy compiling data on individuals, including their

purchasing patterns and buying preferences of policies, pension plans and the like. In many

cases, policy renewal marketing to existing customers remains an unsophisticated exercise,

often amounting to little more than a request to renew, with no attempt at putting a value

proposition before the customer. With a little help from CRM software, insurance firms can

sell multiple insurance policies and pension plans to the same customer.

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The Opportunity Is Huge

Within the financial services sector, IT investment in insurance is expected to grow the fastest

with a CAGR of 35 percent in the five-year forecast period (2001-02 to 2004-05). [Source:

IDC India] Other sub-verticals of the financial services sector are expected to grow at a

CAGR ranging from 21 to 25 percent. Much of this spending will be on CRM applications

and integrating multiple delivery channels. IDC says that new delivery channels are evolving

as the insurance market expands.

According to a report from Indian Infoline, India has the highest number of life insurance

policies in force in the world. The industry is pegged at Rs 400 billion in India. Gross

premium collections stand at 2 percent of the GDP and this has been growing by 15 to 20

percent per year from the Life Insurance Corporation of India (LIC) and other government-

owned insurers. Privatisation has led to new players entering this market and it is expected to

grow at a rapid pace. A substantial part of the insurance market—the portion dealing in

pension plans and insurance as an investment option—is protected by a tariff and

administered price regime. Competition in pricing is yet to emerge. Once that happens, as

with all dynamic customer-oriented service industries such as banking and telecom, the race

to gain and retain customer mind share will be on.

Business drivers for CRM

Margins are under pressure: A couple of years ago, LIC dominated the insurance market with

the help of its sales force and channels and margins were reasonably high. Today, there are

close to 20 companies offering both life and general insurance products. All of them have

equally strong international and local partners; all are focusing upon similar geographies and

target audiences. The new firms selling life insurance and non-life insurance [pensions,

insurance as saving, etc] have failed to emulate the LIC model because margins are getting

squeezed. There are several pain reas that new insurance firms face—acquiring new

customers, retaining them, cross-selling products and controlling rising costs while providing

comprehensive support.

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Insurers have added a plethora of products and services to their kitty. These range from

insurance as an investment option to pension plans. They target the younger generation in the

20 to 30 years age group. The convergence of four factors—protection, saving (investment

option), loans and pension—have compelled insurance companies to align with banks in

reaching out to a larger audience. This trend has led to another—insurance companies are

joining hands with banks by becoming channel partners for insurance. Tata AIG has a

marketing alliance with HSBC, Birla Sun Life has one with Citibank and IDBI and LIC ally

with Corporation Bank, while Kotak Life Insurance has an arrangement with Kotak Bank.

This strategy helps insurance firms increase their footprint to cover a larger part of the

customer base in the 20-30 years demographic. CRM helps connect a bank’s high net worth

customers with insurance firms.

Customer expectations are rising: Customers, faced with a dizzying array of insurance

products expect customised offerings, value, ease of access, and personalisation from insurers.

Today, customers are expecting individual attention, responsiveness, customisation and

access. At the same time, they don’t want to pay a premium for these services. High customer

expectations and lower exit barriers could lead to increased customer attrition.

Where to begin—operational CRM or analytical CRM?

The choice between operational and analytical CRM as a starting point depends upon the

insurer’s needs. Gartner says that insurance companies with multiple financial products and a

big customer base, such as integrated insurance solution providers, will leverage their

customer base to cross- and up-sell different financial products, including insurance. Such

providers will benefit from adopting analytical CRM.

Market segmentation, campaign management and data mining applications will benefit them

in many ways.

Call centre text mining: This tool can help improve the customer experience by

resolving complaints rapidly. Insurers are using these tools to mine text from call

centre transcripts to identify issues faced by customers. Text mining tools also help

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detect and capture other useful pieces of information around a customer’s life stage,

financial needs and product interests. These can be used to generate leads and trigger

cross-selling. However, to be fully effective, customer service representatives must be

trained to probe for information that will help in cross-selling during the text mining

phase. Text mining tools are leading-edge today, but are predicted to take off quickly.

Event-triggering and profiling: Insurers can use event triggers to generate leads that

can be acted upon quickly, usually within 24 hours. Event-triggering tools monitor

incoming transaction and contact data in near-real-time to recognise changes in a

customer’s behaviour or profile to trigger actions or alerts.

Lead management gets sophisticated: Often the ability of an insurer to generate leads

by means of event-triggering, re-engineered touch points and cross line-of-business

referral can outstrip their ability to manage said leads. In such a situation, though the

number of leads generated rises, the conversion rate does not. It may even drop. CRM

can help provide sales representatives with a mechanism to prioritise and manage

leads.

Pure insurance providers who do not have a large customer base will derive the maximum

value from operational improvements, especially in integrating customer information from

multiple channels and sales force automation.

Most insurers will look to empower their agents by deploying partner-facing applications.

Apart from making agents more productive, it will let insurers keep in touch with customers,

otherwise difficult in a primarily channel-driven business.

Vendors and analysts agree that the need to acquire, retain and support customers will

stimulate greater investment in CRM, covering customer life cycle management. Insurers who

are in an IT catch-up mode have been relatively prosperous during the last 18 to 24 months.

Now they are investing in CRM to lock in their gains.

Using analytical CRM insurance companies can enhance:

Cross- and up-selling capability to provide market opportunities within an existing

customer database.

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Predictive capability to determine customer behaviour.

Information regarding customer retention or attrition helps determine the likelihood of

policy lapses and helps identify customers worth targeting for retention campaigns.

Customer segmentation that leverages data to create accurate categories for use in

marketing strategies.

Market automation that combines analytics with campaign management functionality

to help drive a more effective and efficient marketing campaign.

Tips for insurance firms:

Take baby steps in implementing CRM.

Invest in bespoke CRM (customised CRM) and not an entire CRM suite in one go.

Broad CRM perspective

Areas where it can be applied:

Applying collaborative interfaces (such as e-mail, conferencing, chat, real-time) to facilitate

interaction between customers and organisations, as well as between organisational entities

dealing with customer information (customers to sales representatives, sales to marketing,

agent to provider).

Automating horizontal integrated business processes involving front-office customer touch

points-sales, marketing, and customer service-via multiple, interconnected delivery channels

and integration between front-office and back-office.

Analysing data created on the operational side of the CRM equation for the purpose of

business performance management. Analytical CRM is tied to a data warehouse architecture;

it is most often evident in analytical applications that leverage data marts.

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THE POTENTIAL OF RURAL LIFE INSURANCE

The on going liberalisation of the insurance sector in India has brought in its wake new

customised products and Services to the market with a greater focus on customers. But, very

few attempts have been made to explore newer market segments since most players want a

slice of the same pie. Particularly, no concerted effort has been made in the direction of

fulfilling the promises of liberalisation in terms of increasing the width of insurance

distribution, and it reaching out to consumers in rural areas. As a result, the penetration of

insurance in rural India is low with vast untapped markets waiting to be serviced.

With the growing awareness of insurance coupled with the felt need for protection against

natural and man made calamities, disease and death, the rural sector is a very potential market

waiting to be tapped.

Potential of rural life Insurance:

the findings of one of the Studies on a rural insurance conducted by the marketing and

research team (MART) for the foundation of research, training and education in insurance

(FORTE) in October 2002 reveal that the rural India have, with almost three-fourth of its

population, offers a huge business opportunity for life insurance (Details of FORTE study is

in the Appendix). The study further shows that the considerable awareness about life

Insurance in rural areas in as much as 51 percent of respondents have expressed their intention

to by insurance products. The research has also come up with valuable data about the

extensive network of delivery channels built by the rural development agencies, like the

banks, the cooperative institutions, the NGOs, and self help groups, in most villages.

Furthermore, the data reveals that with the on going IT and telecom revolution in India, the

rural folks are the reason the bleat technology Literate and are not averse to its use in their

day-to-day activities.

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Besides, the economic profile of the rural population has been changing for the better with a

steady decline in the population below the poverty line. The rural market is looking up with a

phenomenal increase in plan outlay for rural development programmes from Rs.1 40 billion in

the 7th plan to Rs.300 billion and Rs.600 billion in the eighth and ninth plans respectively to a

mind boggling Rs.900 billion in the 10th plan. During 1981 - 1991, the rural GDP had grown

from Rs.65,000 crore to around Rs.2,60,000 crore, registering a fourfold increase.

Furthermore, there was a 250 percent increase in the flow of institutional credit for agriculture

between 1995 and 2000. The income generated from agriculture, according to government

estimates, is about Rs.25, 000 crore. Economic growth in India's agricultural sector in 2001

was seven percent compared to three percent in the industrial sector. By some estimates the

rural market is growing at five times the rate of the urban market. The impressive growth in

the rural economy has led to rapid increase in the rural incomes. The consuming class

households in rural areas art now 16 million, which is almost equivalent to the number in

urban areas. These statistics definitely be one if feel of the life Insurance potential are held out

by rural India.

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PROBLEMS

Despite a few efforts to popularise the various rural insurance policies, rural India continues

to have great apprehensions about the prospects of life insurance business. The sheer size of

the country coupled be the spread of its myriad villages and compounded by poor

connectivity infrastructure makes rural marketing a nightmarish experience. Given its

vastness and complexity, the other in terms of the number of villages to be covered or

inhabitants to be targeted, there is a certain sense of scepticism in the minds of insurance

marketers. A major mindset issue in rural marketing arises from the tendency to lump rural

India under a single canvas. The dichotomous definition of the rural and the urban fails to

capture the diverse market segments in the rural India. What is more, there is a feeling of

unfathomable difficulties, a great cultural divide that is difficult to bridge and the cause and

efforts too daunting to pursue the opportunity to its logical conclusion. Several major factors

account for the slow growth of life Insurance in rural India.

Heterogeneity of Rural Population:

The real India lives in the villages which consist of diverse religious, castes, and creeds,

apart from different income levels giving rise to plenty of problems. The rural

population is a heterogeneous group ranging from landlords to poor landless,

agricultural labourers, artisans and craftsmen. On top of that, the concept of rural is fast

changing due to rural urban migration and transformation of the rural culture under the

impact of modernisation and information revolution.

The heterogeneity of the rural population poses a big challenge. As rural India is widely

dispersed over 600,000 odd villages, the customer base is so heterogeneous regarding

employment, income and family size that is a sound understanding of savings is not

easily available. This lack of understanding will pricing and frequency of premium

payment. Besides, rural customers are so different from their urban counterparts in

terms of their habits, customs, values and aspirations that an altogether different

approach is required to cater their insurance needs. Further more, the rural geographies

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display considerable heterogeneity calling for rural specific and region specific strategy.

For example, a farmer in rural Haryana is much more progressive than his counterpart in

Orissa. Similarly, an agricultural labourer in Tamilnadu is far more educated than his

counterpart in Rajasthan. Thus, servicing the rural market is not an easy proposition,

given the lack of geographical concentration of the potential consumers.

Disparities in Rural Savings and Investments:

Second, the disparities in rural savings and investments hinder the rapid growth of life

Insurance. Though the savings are significant, the investments are made more in physical

assets and in other forms of financial assets than in life insurance. The National Council

of Applied Economic Research (NCAER) data on rural household income distribution

suggest that the top four percent of the households earn about 15 percent of the household

income and the bottom 50 percent of the population saves about three per cent of overall

domestic savings. But, the rural saving habits are oriented towards fulfilling specific

objectives such as celebrating weddings, purchase of land, cattle, or other farm assets and

building a general corpus. The typical rural informal sector deploys about 68 percent of

its savings in physical assets, farm, business, housing and gold. as a result, the rural folk

art not Left with sufficient savings to invest in life insurance.

Dearth of Effective Intermediary Personnel:

Third, the dearth of effective intermediary personnel in rural areas precludes the progress

of life Insurance. In most cases, an insurance against from the nearby urban or semi-

urban market visits the rural areas periodically to sell insurance products. Over the years

the insurance agent has remained a well - grounded generalist, even when the trend in

many professions has been toward the narrowly trained specialist. He normally lacks the

understanding of the beneficiary, his income generation, savings surplus, and investment

behaviour. Moreover, the selection of these agents and their training leave much to be

desired. Almost anyone who is perceived as a source of procuring few proposals within

his circle of influence is sponsored by the development officer for appointment. The

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existing systems of training, testing and confirmation of agents or so loosely administered

that a high proportion of insurance agents continues as mere spotters without adequate

knowledge and professional competence.

Lack of Efficient Distribution Channels:

Fourth, the lack of efficient and reliable distribution channels in rural areas is yet another

factor that affects the growth of life Insurance. While individual agents have been the

most effective medium in selling life products says, there are practical difficulties in

finding the right type and a good number of candidates to courage the insurance training

and certification. Besides, the insurers in the rural regions need to ensure that there are

effective systems to keep a watch his on the performance of agents and particularly on

customer service aspect such as premium collection and prompt remittances have.

Another area of challenge in dealing with distribution and operational channels is the

need to provide sale literature, publicity materials and proposal forms in local language to

attract rural customers. An early difficulty in completing proposal documentation in rural

areas is the possibility of lack of age proof for which practical solutions are to be found.

Insufficient Infrastructure:

Fifth, the insufficient infrastructure in rural areas in terms of both man power and

materials proves itself a stumbling block to the steady progress of life insurance, coming

as it does in the way of effective policy servicing. The challenge that stems basically

from the week infrastructure base of the rural areas is the communication gap between

the insured and the insurers. A direct fallout of this problem is the irregular collection of

the premium as it is very difficult to reach out far - flung rural areas. The insurers are

expected to introduce and maintain measures of mobility as is in delivery systems so that

the insurance problems can be attended to without much delay. This would entail

provision of necessary vehicles and other communication mechanisms at the disposal of

company representatives who are afoot in charge of insurance claims, surveys, and after

sales service.

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Problem of Illiteracy

Sixth, the problem of illiteracy of the rural masses in rural areas is another critical

problem that precludes the growth of insurance in the rural sector. Communicating with

the rural audiences is complex because of low-level of literacy, multiple regional

languages and low reach of mass media. All these act as a stumbling block to the

development of rural insurance programmes. So, there is a desperate need to make the

rural masses litrate at least up to a certain reasonable level before launching any rural

insurance information dissemination programme. And it will be a Herculean task to

conduct adult education classes in rural areas to enlighten the illiterate masses on the

importance of life Insurance.

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SOLUTIONS

These ticklish problems relating to rural life Insurance may appear daunting, but innovative

solutions can be found since the insurance prospects are too alluring to overcome such

challenges. The rural markets are still unexplored Territories to a great extent and offer

exciting opportunities for insurance companies the surest path to success is to design

innovative products with features of flexible premium payment options suiting the markets at

prices that people can afford and the develop an efficient delivery system.

Identification of Potent Rural Needs:

The first step to harness the full potential of the vibrant and dynamic rural markets is

identification of the potent needs of the rural population. There is a need to study their

daily lives, their unique needs, at the their occupational structure in order to understand

their aspirations, their financial capacities, as well as their limitations and constraints and

then come up with the insurance products that can appeal to them and satisfy their needs.

There is also an urgent need to conduct elaborate surveys and extensive research projects

in various districts of the rural areas to assess the actual potential possessed by these

regions and to examine the risk exposures of the inhabitants. A typical villager is exposed

to a great deal of uncertainty in his profession .For instance, monsoon is one variable,

which is known to create havoc demand villages dependent primarily on agriculture.

Likewise a cattle rearer faces the risk of an epidemic or death or theft of animals. In all

these cases, insurance has a great role to play.

Spread of Insurance Culture:

The chief concern on the part of all those who are concerned with rural life

Insurance is to give a much-needed boost to the awareness of life Insurance in

rural areas. For, spreading insurance awareness and consumer education are essential for

propagating the concept and benefits of life Insurance in rural India. No doubt, there is

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some general awareness about life Insurance among the rural masses, but the perceived

need is generally low. The marketing efforts should, therefore, focus on increasing the

awareness and knowledge level about life Insurance and creating the need for a life

insurance. This could be done through group meetings, radio features and cultural events

like a folk dances, songs, playlets and puppet shows. The need for insurance can also be

communicated effectively by using traditional and popular entertainment methods such as

audio-visual aids and publicity material in local languages for easier comprehension by

large section of rural population. This massive awareness programme for spreading

insurance education needs to be launched on an on ongoing basis. Also, the spread of

insurance culture in the rural areas and will have other beneficial spin offs like

employment and income generation, better health and hygiene awareness and less

dropouts from schools which would have go a long way in giving an impetus to the

growth and development of life Insurance.

Appropriate Products:

To accelerate the penetration of life Insurance in the rural market, simple, easy to

understand and flexible products need to be offered, taking into account the uneven

income patterns in rural areas. The insurers have to design innovative policies provided

on efficient mechanisms which have explicit benefits for the rural population to observe,

understand and measure. This would go a long way in helping persistence of policies.

Single premium products could be useful to take advantage of higher income in bumper

years. As there is a strong bias in favour of the long term savings products into rural

market, the term insurance schemes can be popularised through a network of institutions

that are active in providing rural credit. The insurance companies can design a simple

plan offering life cover to customers who have taken any form of loan facility from the

banking is system. The term insurance cover could be offered as part of the loan so as to

guarantee repayment of the outstanding loan amount to the lender in the event of death of

the borrower. The lender can be persuaded to finance the premium amount as part of the

loan arrangement.

To sustain a financially viable distribution system, it is absolutely necessary to develop

products for the rural market taking into consideration the factors specific to rural India.

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The product design needs to provide flexibility to rural policyholders in the matter of

periodicity and quantum of premium payment. The premium payment dates should

generally be linked to the period when the farm produce is sold and the cash flow is

generated. Again, in designing savings schemes for rural households, there is every need

to build flexibility for premium interruptions when the policy holders fail to pay the

premium amount on account of crop failure and other general and reasons. On top of that,

the life insurance companies would do well to combine life insurance policies with health

care benefits in view of the rising awareness in the rural households of the need to save

money to meet unforeseen medical costs. Group insurance will also be an effective means

of providing significant insurance to members of institutions at an affordable cost.

Lending institutions in rural areas could be the agencies for providing group credit life

insurance to the borrowers.

Effective Distribution Channels:

Despite the tremendous changes spurred on by Internet and e-commerce, the insurance

industry in India is still traditional and conservative in terms of adopting new

technologies in their distribution channels. Since successful insurance marketing depends

largely on the effectiveness of the distribution channels such as banks and micro finance

institutions, panchayats, Internet and e-commerce, and promote non-traditional

intermediary for better penetration. This will eventually lead to substantial improvement

in the pricing structure, flexibility in the frequency of payments of premium, and more

importantly are rarely went customer service at pre- sale and post-sale levels. However,

all of these have to be supported by appropriate policy measures at the ground level.

Selecting the right mix of distribution channels will be critical for becoming successful in

the rural initiative. Besides, identifying the right people to harness the full potential of the

vibrant and dynamic rural markets will be imperative. In this regard, it is important to note

that the agency channel will as still be a force to reckon with in rural areas. The individual

agent system could be most potential instrument for distribution of insurance products. If

the rural insurance business is to be given a real push, we require is a large number of

adequately trained agents with the necessary skills and knowledge for a proper

distribution, and to ``provide protection, improve persistency, and educate policyowners ".

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In recruiting and training insurance agents, it is essential to make use of the services of

Women who can target the female segment of rural population more effectively than men.

Since the opinion-makers drive the masses the word of mouth is the most powerful

communication channel. Therefore, appointing one man offices in rural areas could be a

solution to the rural distribution puzzle. However, the most potential agencies could be

extra departmental post masters as life insurance agents. Agents can also be recruited from

among the youth club members, postmen and gram sevaks. The other untapped agencies

could be the fertiliser dealers, seed dealers, and other suppliers of agricultural needs in the

rural area who have a live contact with farmers. And, in the context of the emergence of

multi channel distribution environment, the regulatory authority can consider the rural

cooperative societies and the panchayats to at as service-cum-collection agents since these

institutions have great influence on rural population and could be very effective. Besides,

associations, self help groups and registered NGOs are ideally suited to act as nodal

agencies. Using of these channels provides the insurance companies the benefit of

operating at a lower cost that can be passed on to the consumers who need it most.

Containing the cost of delivery and service is essential to make life Insurance affordable

for the multitude of rural population. As a further measure to bolster Trust and confidence

in the perception of customer, supervision for the intermediaries behaviour should be built

into the system.

Max New York Life recognises the rural market and social sectors as being

distinct, requiring different marketing and product strategies. Therefore, it has

designed specific products and appointed gram sahayaks in various districts across India.

These gram sahayaks help increase awareness of life insurance.

Use of Latest Technology:

Above all, the use of latest technology in supporting life Insurance marketing operations

in rural areas can make a significant impact in developing and nurturing the rural market.

Hence, the insurance organisations have to develop the necessary managerial culture and

behavioural processes to make the e-business transformation a success. Modern

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technology can be used to understand and manage the market place and meet the

customer expectations. Information technology solutions have come to shape future

strategies for insurance industry by integrating the Internet into businesses processes to

help insurers and agents to be more efficient in their functioning. The Internet based

interactions will provide customers enhanced access to rural insurance. Customer policy

fulfilment process may also be enhanced through product re-configuration, process

redesign and improved integration with agents, brokers and suppliers. In short the

framework of IT can change life insurers basis of competition from product distribution,

pricing and investment performance to attractive, low-cost product and high temporal

efficiencies.

Wide Publicity:

To eliminate the communication gap between the insured and the insurers which results

in contact hurdles, publicity of life Insurance has to be undertaken on a war footing

through measures of quick mobility in a delivery systems by making effort to build

lifelong customer relationships. The rural communication strategy to woo rural customers

should include all elements of communication. Since television and radio have

reasonably good reach, they can be best used for creating an awareness and interest

among the rural illiterate masses about the

insurance products. Outdoor publicity in the form of wall paintings, hoardings and mobile

advertising on transport vehicles can supplement as a reminder media. If the awareness of

life insurance products is to lead to a desire for purchasing them there is a need to build

assurance and trust about the insurance company concerned and its services. This can be

done through the face-to-face below the line touch and feel and talk mode at different

periodic markets, fares and agricultural market yards - the good old systems of selling

and communicating that have served the rural people well for centuries. Besides, video

vans can be used to attract rural audiences and also to sell products and build brand

equity through video shows and rural cultural programmes.

Looking Beyond Regulatory Requirement

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The IRDA is expected to keep a close and constant watch to ensure that the mandate

given to it by the government of India is strictly adhered to by all insurers. Nevertheless,

the insurance companies should look upon the rural sector not merely as a mandatory

obligation only to meet IRDA norms, but as an opportunity and a challenge, and what is

more, work with a deep sense of commitment to promote the cause of rural insurance.

Merely servicing the product is only a minor part of the insurance cycle and the major

challenge is to efficiently service the customer. The insurers should, therefore, take the

responsibility of evolving relevant distribution channels and promote non-traditional

intermediary for promotion of rural life Insurance. An intensive focus on suitable product

offerings and appropriate marketing strategies would enable the life insurers to look

beyond meeting the regulatory requirement of rural business and for facilitate their

serving the social cause. The insurance industry has to attract a higher proportion of rural

household savings in financial assets and also get a part of household expenditure

diverted from purchase of gold and jewellery to life Insurance all these measures will

eventually lead to substantial improvement in the sale of products, pricing structure,

flexibility in the frequency of premium payments and relevant customer service at all

levels. However,

keeping in mind the axiom of the life insurance industry that “Insurance must be sold"

since “it is seldom brought", premium collections must be aggressively pursued to keep

many policies in force.

Development of Professionalism and Excellence:

The IRDA has to develop, through its regulations, proper atmosphere conducive to the

fast growth of rural insurance in such a way that insurers undertake rural Insurance not

out of compulsion, but as a sound business proposition. Furthermore, it can meet the

growth of rural insurance industry more and more vibrant by facilitating the development

of world-class professionalism among insurers, agents, sales personnel, underwriters and

actuaries through research, training and education. The focus, however, could be on

specific, application oriented research, consumer awareness programmes and especially

on creation of excellence in people engaged in sale and service of insurance products, and

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making the consumer aware of the intricacies of rural insurance and enable them to take

maximum advantage of the insurance services.

Birla Sun Life Bima Kavach Yojana:

(A Policy for rural underprivileged)

The Birla Sun Life Bima Kavach Yojana is a single premium insurance policy specially

designed for the rural underprivileged.

As per IRDA regulations, a rural village must not have a population exceeding 5000; have a

population density of not more than 400 per sq. km. and at least 75% of the male population

should be dependant on agriculture for the livelihood. Given these specifications, the villages

adopted by the Aditya Birla Group around Renukoot became the right place to launch Birla

Sun Life Bima Kavach Yojana.

Marketing strategy for Birla Sun Life Bima Kavach Yojana

IRDA stipulates that at least 7.5% of life policies in the second year should be from rural

population. Gradually the percentage reaches 15% by the fifth year of operation. Birla

Sun Life Insurance is actively pursuing its rural marketing strategy, because within three

years, the company wants to convert this operation into a viable business.

Birla Sun Life Bima Kavach Yojana will be marketed through village level contacts. To

create awareness about its insurance product, the company has appointed Village

Extension Workers (VEWs). Typically, VEWs are people from the local Aditya Birla

Group Companies that are involved in social improvement projects.

The VEWs act as liaison points between villagers and Insurance Advisors. Each VEW

will be in charge of a cluster of 10-15 villages and will act as a introducer of Bima

Kavach Yojana.

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Max New York Life Rural Product:

Max New York Life has Easy Term product that provides term insurance for

Rs 10,000 for a sum of Rs 100.

The annual premium on the products of Max New york life sells in the rural areas ranges

between as low as Rs.50 and Rs.20, 000.

The company has appointed more than 150 gram sahayaks, to serve the rural market. Gram

sahayaks are local residents who belong to those villages and understand the People's psyche,

their buying capacity and are are local influencers. The gram sahayaks game Max New York

life leads on prospects who are then contacted by the company's trained agent advisers.

Aviva's Approach:

Aviva's approach focuses on the special needs of the customer. It includes introduction of

products that are easy to understand, do not require medical tests and have simple of

documentation. It has introduced three low premium products which has premium as low as

Rs.500.

Aviva is using its bank assurance distribution network to reach the rural sector. Through its

association with the Lakshmi Vilas Bank, Aviva the state tubes its Jena's Suraksha product.

Bright Prospects

An analysis of the potential of life insurance in the rural areas and the remedial measures to

plug the loopholes in the system reveals that the prospects for life insurance in rural India are

bright. The rural life insurance industry has significant opportunities from the perspective of

both social commitment and business the allotment to make the rural community see life

Insurance as a product that could be an answer for their adversities. By some estimates the

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rural market is growing at five times the rate of the urban market for fast moving consumer

goods (FMCG) and the day is not far when the rural insurance market will also be affected by

similar wave. The income dispersal projection shows that the number of poor households will

shrink by half to 28 million households by the year 2006-07 from the 61 million in 1997-98

and that the middle income households will double and the rich households will treble over

the decade. This upward push, taking rural people from poverty to prosperity will lead to

greatly increased purchasing power. Today's non-consumers of life Insurance among the rural

folk will enter the market as first time buyers in large numbers tomorrow. And to get a larger

share of the growing rural pie a radical shift in management thinking is called for.

Despite the existing dissimilarities between urban and rural segments, and the bottlenecks in

the development of rural insurance business, well planned and organised efforts on the part of

both IRDA and rural insurance functionaries can yield rich dividends. Already, a large

number of rural districts have witnessed significant growth and prosperity in the recent past

with a continuously decreasing poverty line. Several studies, especially that of the National

Council of Applied Economic Research (NCAER), have shown that the need for goods and

services in a poor rural India match that of URBAN India. Contrary to the expectations, there

are specific functionaries and agencies in the rural areas that can help explore and exploit

insurance business in the untapped rural market. There are also sufficient resources as well as

willingness to spend among the rural population for quality services. While competition in the

urban areas is turning to be more and more cutthroat, it tends to be rather gentler and kinder in

rural areas. Although the policies in the rural areas would

be of relatively smaller amounts, it could be compensated suitably by the higher volumes of

potential in contrast with urban areas. This apart, with the communication explosion, the

interface with the urban environment would be more extensive.

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INTERPRETATION

Over the past three years, around forty companies have expressed interest in entering

the sector and many foreign and Indian companies have arranged alliances. The threats

of new players taking over the market have been overplayed. As is witnessed in other

countries where liberalisation took place in recent years, it can be safely concluded

that nationalised players will continue to hold strong market share positions, but there

will be enough business for new entrants to be profitable. In the life insurance market

being the first mover affords significant advantage in terms of building trust.

Opening up the sector means new products, improve customer service, etc. Both New

and existing players have to explore new distribution and marketing channels.

Potential buyers for most of insurance lie in the middle class. Newer insurers must

segment the market carefully to arrive at appropriate products and pricing.

Recognising the potential, the players have already begun to target niches like

pensions, women or children.

Competition will result in the market to grow beyond current rates and offer additional

consumer choice through the introduction of new products services and price options.

India as a country is under-insured in the urban as well as the rural areas. Only 35

percent of the 250 million insurable population is insured. With 80 percent of the

insurance business coming from endowment assurance and money back schemes, and

with 71 percent of the population living in the rural areas, one can only conclude that

the awareness of the need for insurance is very low.

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Rural India is a very potential market for life insurance and ignoring it will be suicidal

for any life Insurance company. A pattern of socio economic forces is emerging in to

an overall environment that appears to be highly favourable for the growth of life

insurance in the rural India. Apart from the legislative compulsions, the economic

development of the rural sector coupled with the unfulfilled need for life insurance has

tremendous potential to offer business development opportunities to life insurers.

The present availability of life insurance in rural India is estimated to be Rs.3 trillion,

compared to the need of Rs.21 trillion. If the need grows even at a steady rate of six

percent a year, then life insurance business in rural areas has to grow at an estimated

17 percent a year for the next two decades to catch up with the projected need. Rural

insurance should be looked upon as an opportunity, and not an obligation.

As the competition will increase, players have to aggressively target potential

customers and this well increase the penetration of insurance. Competition will also

develop a better understanding of consumer requirements leading to more customised

products appropriate for the market place.

So far as branding and advertising is concern most of the companies are focusing on

corporate branding rather than product branding. The two companies that focus on

product branding are LIC and HDFC Standard life. These two have a more product

oriented communication in its advertisements rather than company oriented.

One of the hurdles in the growth of any insurance company is agent’s attitude. Most

agents are interested only in producing new business and not in servicing existing

customers satisfactorily. This was also evident in the survey published in Indian

Journal of marketing.

In Insurance sector, one can’t differentiate on the basis of innovative products. The

reason being, if the product is an excellent product it will not take too much time to be

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copied by other players. The thing which they can’t copy is company’s services and, I

think, that would be the differentiating factor in the insurance arena.

There would be substantial shifts in the distribution of insurance in India. Many of

these changes will be according to international trends. Worldwide, insurance products

move along a continuum from pure service products to pure commodity products then

they could be sold through the medical shops, groceries, novelty stores etc. Once

commodization, popularity and awareness of the products is attained then the products

can move to remote channels such as the telephone or direct mail. In the UK for

example, retailer Marks & Spencer now sells insurance products. At this point, buyers

look for low price. Brand loyalty could shift from the insurer to the seller.

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CONCLUSION

The insurance sector was opened up for private participation four years ago. The reasons that

prompted the government to bring in reform in the insurance sector are well known. While the

Public Sector insurance companies made enormous contribution in the spread of awareness

about insurance, and expanded the market, it was recognized that their reach was still limited,

the range of products offered restricted and the service to the consumer inadequate. It was

also felt that the rapid economic growth witnessed in the 90s cannot be sustained without a

thriving insurance sector.

It was also recognized that India has a vast potential that is waiting to be tapped and this could

be achieved when sufficient competition is generated and it is exposed to the developments in

the rest of the world. The insurance sector was, therefore, opened up for private sector

participation with provision for limited foreign equity exposure. We have now four years

experience of the public and private sector together operation in the market.

The gains after opening up the sector are obvious. The total premium collected by the insurers

both life and non-life in the year 2003-2004 is Rs.82, 415 crores (Rs.66, 288 crores in life and

Rs. 16,127 crores in non-life) compared to Rs. 44, 985 crores (Rs.34,898 crores in life and Rs.

10,087 crores in non-life) during the year 2000-2001. This represents an 83% increase in the

last three years over the base year 2000-01. This is what we have witnessed after the opening

up of the sector. If we take the three year block prior to the opening of the sector, we find that

the total premium collected in 1997-98 was Rs.27,089 crores (life: Rs.19354 crores; non-life

Rs.7735 crores) which has grown to Rs.44,985 by 2000-2001 representing an increase of

66%. Insurance sector has obviously started growing at a rapid pace after the sector was

opened up. The private sector accounts for nearly 13% of the first year premium market. The

market share of the private players has to be seen in the context of this enlarged market. There

is also evidence to show that the rate of growth of public sector undertakings had not shown

any decline after the entry of the private sector companies. All of them are obviously having

a share of a larger market. The Credit for enlarging the market should however, go to the

private sector as they came up with an aggressive marketing strategy to establish their

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presence. The Public Sector has, in its turn, redrawn its priorities, revamped their marketing

strategy, and together the public and private sectors have enlarged the market.

Indian insurance business, which remained under developed with low levels of insurance

penetration and insurance density has shown signs of improvement. The insurance penetration

i.e. premium as percentage of GDP has increased from 2.32% in 2000 to 2.88% in 2003. The

insurance density i.e. premium per capita has increased from USD 9.90 in 2000 to USD 16.40

in 2003. The overall world rankings in terms of total premium volumes have improved from

23rd in 2000 to 19th in 2003 and our share in the world market has increased from 0.41% to

0.59% during the same period. The world ranking in terms of life insurance premium volumes

has improved from 20th in 2000 to 18th in 2003 and the share in world market has increased

from 0.50% to 0.81%. Similarly in non life insurance rankings in term of premium volumes

has improved from 29th in 2000 to 28th in 2003 and he share of world market has increased

from 0.25% to 0.29%. While the improvements are not dramatic, but the insurance industry is

moving in the right direction.

As indicated by me earlier the insurance market has grown due to public sector continuing its

presence by holding on to its market prompting the private companies to market new

products. This they have been able to do as they have geared themselves to face the

competition. The LIC, for instance, has concentrated on retaining its market in traditional

products like endowment and money back and has not slackened its hold in the rural areas. It

has simultaneously started experimenting with new products like Unit Linked where there is

private sector domination. With its considerable presence in the whole country the LIC would

continue to play a major role in the life insurance market. This would, in turn, prompt the

private companies to innovate, find niche markets and expand into the rural areas. As a result

the insurance penetration would increase and the customer would stand to gain.

We are already witness to the beneficial effects of this type of competition between the public

and private sector. The pension market has been developing in a big way which would benefit

the large section of the people in the organized and unorganized sector. There is a thriving

Unit Linked insurance market that has been generated exclusively by the private sector. There

is a plethora of new and innovative products offered by the new players. Customers are

offered unbundled products with a variety of benefits as riders from which they can choose.

They can buy products and services that they need while hitherto they were purchasing

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products as they alone are available in the market. This choice has empowered the customers

and this is a positive signal.

In addition to the growth of insurance market the other area where there is significant

beneficial change with the entry of the private insurance companies is in the area of insurance

intermediation. Till three years ago, the only mode of distribution or life insurance products

was through agents. We have today alternate channels like bancassurance, brokers, corporate

agents and direct marketing through internet. Though it is too early to predict, bancassurance

has the potential to emerge as a significant distribution mechanism. Banks have not only data

from which they can identify potential clients, but have also extensive reach and provide a

point of contact for the insured. The Bank branch unlike an agent cannot be elusive after the

sale of the product and has to respond to the needs of the insured. If there is proper disclosure

at the time of sale of policy and efficient post sale service, there will be significant increase in

the use of this model by the insurers to enlarge their business.

The insurance broker offers the most efficient distribution system through which clients

purchase commercial insurance. As the non-life insurance market open gradually, the value of

the insurance broker's role will be better understood. There will be increasing opportunities to

serve the needs of midsize companies arid small enterprises by delivering the specific services

these clients need and in the way they want them delivered.

These are perhaps the reasons for various agencies evincing interest in broking companies.

This implies that there is enough business for a large number of brokers for the present and an

early start would give them adequate time and opportunity to equip themselves with necessary

skills to provide professional services.

Corporate Agency is another area, which has been expanding rapidly. While this model has

the potential to reach a large section of the population in a short time, there are concerns about

the mode of sale of the policies. Insurance products are becoming complicated and unless the

agent is conversant with the benefits and conditions attached to the policy, there is a distinct

possibility of the sale being affected without full disclosure. While this may not be intentional

the repercussions could have far-reaching consequences. The insurers will have to be

extremely careful in dealing with corporate agents and keep a vigilant eye on the way the

sales are effected.

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In spite of the proliferation of the intermediary channels, the traditional agent continues to

play a dominant role in the sale of insurance policies.

A significant feature in the post reforms era is the ability of the agency force to assess the

requirements of risk cover for their prospect and suggest the policies that suit their individual

requirements. It may be recalled that one of the criticisms against the public sector insurers is

that they concentrated on sale of policies without looking into the needs of the customers. As

a result many of the individuals remained underinsured. The average size of the life insurance

policy before the opening up of the sector was around Rs.50,000/-. This has now risen to

about Rs.80,000/-. The policies sold by the private insurers are in the range of Rs.1.1 lakhs to

Rs.1.2 lakhs, way above the industry average.

The limited coverage in the rural areas and the vulnerable sections of the society continues to

be a source of concern. While the private insurers are adhering to the targets stipulated in the

Regulations, there is need for a greater involvement of the management at various levels so

that the product that is finally delivered serves the needs of those targeted group.

As we look back at these four years, one can reasonably be proud of the strides made by the

industry. We are witnessing a demographic change in the country and the younger generation

which is exposed to the outside world demands products and services which are at par with

what is available in the advanced countries. This is the biggest challenge. The Indian

insurance companies would face this challenge and provide services on par with services

provided in the advanced countries.

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LIMITATIONS

Data is collected from secondary sources, therefore, control over data collection is not there.

Most of the information and data are not current.

Data may or may not be accurate.

Methodology used in data collection is not known.

So far as Internet Search is concerned, it is based on finding certain key words, there is a possibility that some important information will be missed.

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APPENDIX

1).Insurance percentage and per capita penetration in India as compared to other developed and developing countries:

Countries Insurance penetration(Premiums as a % of GDP)

Insurance Density(Per capita premiums in $US)

UK 12.71 3028.5

Japan 8.70 3165.1

US 4.48 1611.4

South Africa 14.04 392.9

Australia 6.04 1193.5

South Korea 9.89 935.6

India 1.77 7.6

China 1.12 9.5

Malaysia 2.13 86.4

Indonesia 0.54 4.0

Brazil 0.36 12.9

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2) Life Insurance Industry in India FY 2006-07 Company Premium u/w

(Rs. Million)% of Total Policies

(in Million)% of Total Policies

LIC 59187 88.8 9.9 94.2

ICICI Prudential

2464 3.7 0.14 1.3

Birla sunlife 988 1.5 0.05 0.5

Tata AIG 792 1.2 0.08 0.8

HDFC Standard Life

760 1.1 0.08 0.8

Allianz Bajaj 582 0.9 0.08 0.8

Max New York Life

526 0.8 0.05 0.5

Others 1384 2.0 0.22 2.0

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3) RURAL SECTOR STATISTICS (LIFE INSURERS)

Name of the Life Insurer Policies Issued in Rural Areas

Private Sector

HDFC Standard Life

ICICI Prudential

Max New York Life

OM Kotak Mahindra

Birla Sunlife

TATA-AIG

SBI Life

ING Vysya

Metlife India

Allianz Bajaj

AMP Sanmar

Aviva Life Insurance

2006-07 2005-06

15,352 1,365

29,376 6,940

9,345 5,551

5,169 770

10,422 2,005

9,137 3,894

2,700 148

3,883 658

2,916 84

19,368 3,881

1,510 72

96 --

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ANNEXURE

QUESTIONNAIRE:

Name: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Age: _ _ _ _ _ _ _ _

Phone No: __ __ __ __ __ __ __ __ __ __

Total Income from All Sources: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Occupation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Are You Aware of Private Sector Life Insurance Companies _ _ _ _ _ _ If Yes Name Some Companies

A.)__________________ B.) __________________

C.) __________________ D.) __________________

E.__________________ F.)__________________

Do you know about Life Insurance Products _ _ _ _ _ _ _ _

Do you have any insurance protection _ _ _ _ _ _ _

Which Company: LIC Private Insurance Company

Have You Heard about the Concept of Mutual Funds ___________ ?

Do You Know about the Unit Linked Insurance Plans ___________

Which Plan Will You Prefer to Invest your Money?o UNIT LINKED INSURANCE PLANSo MUTUAL FUNDSo BOTH

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BIBLIOGRAPHY

Books:

Ravishankar, Marketing of insurance services

Survey of Indian Industry 2007 (Hindu Publication)

P N Agarwala, A Comprehensive History of Business in India

Journals and Magazines:

Journal Of Insurance & Risk Management , June 2007

Journal Of Insurance & Risk Management, June 2007

The chartered Accountant , May 2007

Business India , December 22,2006 – January 4, 2007

Strategic marketing, January- February 2007

Indian journal of marketing , June 2007

Indian journal of marketing, January 2007

IRDA Journal, March 2007

Websites:

www.birlasunlife.com

www.domain-b.com

www.etstrategicmarketing.com

www.ficci.com

www.retailyatra.com

www.indiainfoline.com

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http://www.etstrategicmarketing.com/

http://www.domain-b.com/

http://www.birlasunlife.com/

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