EXECUTIVE SUMMARY

In today’s corporate and competitive world, I find that insurance sector has the maximum growth and potential as compared to the other sectors. Insurance has the maximum growth rate of 70-80% while as FMCG sector has maximum 12-15% of growth rate. This growth potential attracts me to enter in this sector and KOTAK LIFE INSURANCE has given me the opportunity to work and get experience in highly competitive and enhancing sector.

Companies now are tapping a lot of ways to capture the market and hence adopting different ways to hold the large portion of the market.

My summer training learning helped me a lot to complete my project in order to learn a lot of things of the corporate. As a project trainee the first task given to me was to understand the basic behaviour of the consumer in order to manipulate the market according to our target competition. For this I developed a questionnaire and I did my survey in Jaipur city.

This job training also helped me a lot in understanding the process of building effective marketing channels for life insurance products by establishing network of life insurance advisors.

The success story of good market share of different market organizations depends upon the availability of the product and services near to the customer, which can be distributed through a distribution channel. In Insurance sector, distribution channel includes only agents/advisors or agency holders of the company. If a company like KOTAK LIFE INSURANCE, ICICI PRUDENTIAL, RELIANCE LIFE INSURANCE, TATA AIG, MAX etc has adequate agents in the market, they can capture big market as compared to the other companies.

INTRODUCTION

The story of insurance is probably as old as the story of mankind. Tendency of a human being to secure themselves against loss and disaster has been from the starting of world. They sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era – past few centuries – yet its beginnings date back almost 6000 years as per records.

Functions of insurance:

• Provide Protection: The primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happening of risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others.

• Collective bearing of risk: Insurance is an instrument to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is paid.

• Assessment of risk: Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also.

• Provide certainty: Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain.

• Small capital to cover larger risk: Insurance relieves the businessmen from security investments, by paying small amount of premium against larger risks and uncertainty.

• Contributes towards the development of industries: Insurance provides development opportunity to those larger industries having

more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.

• Means of savings and investment: Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insured's For the purpose of availing income-tax exemptions also, people invest in insurance.

• Source of earning foreign exchange: Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways.

• Risk free trade: Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.

Insurance is divided into two basic zones:

• General Insurance

• Life insurance

GENERAL INSURANCE

Insurance of the non life assets are called general insurance, this includes loss of asset against water, fire, earthquake etc. With the opening up of the Indian Market in Insurance sector for private players, in General Insurance the monopoly of the general Insurance public sector’s companies has been broken. With the entrance of the new private player market innovative technique has been introduced to capture the market. In general Insurance around 17% of the market has been captured by the private players.

General Insurance is a sector which alone has many type of insurance coverage in it like Fire Insurance, Marine Insurance, motor Insurance, Liability Insurance, Engineering Insurance etc.

The Non Life Insurers:

• National Insurance Co. Ltd

• New Indian Assurance Co. Ltd

• Oriental Insurance Co. Ltd

• United India Insurance Co. Ltd

• Tata AIG General Insurance Co. Ltd

• Bajaj Allianz General Insurance Co. Ltd

• IFFCO Tokio General Insurance Co. Ltd

• ICICI Lombard General Insurance Co. Ltd

• Reliance General Insurance Co. Ltd

• Royal Sundaram Alliance Insurance Co. Ltd

• Bharti Axa General Insurance

• HDFC Chub

LIFE INSURANCE

Life insurance is a contract under which the insurer (Insurance Company) in Consideration of a premium paid undertakes to pay a fixed sum of money on the death of the insured or on the expiry of a specified period of time, whichever is earlier. In case of life insurance, the payment for life insurance policy is certain. The Event insured against is sure to happen only the time of its happening is not known. So life insurance is known as ‘Life Assurance’. The subject matter of insurance is life of human being. Life insurance provides risk coverage to the life of a person. On death of the person insurance offers protection against loss of income and compensate the titleholders of the policy.

Roles of Life Insurance

• Life insurance as an investment: Insurance products yield more than any other investment instruments and it also provides added incentives or bonus offered by insurance companies.

• Life insurance as risk cover: Insurance is all about risk cover and protection of life. Insurance provides a unique sense of security that no other form of invest can provide.

• Life insurance as tax planning: Insurance serves as an excellent tax saving mechanism too.

Importance of Life Insurance

• Protection against untimely death: Life insurance provides protection to the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.

• Saving for old age: After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age.

• Promotion of savings: Life insurance encourages people to save money compulsorily. When life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him. In case of surrender of policy, the policyholder gets the surrendered value only after the expiry of duration of the policy.

• Initiates investments: Life Insurance Corporation encourages and mobilizes the public savings and channelizes the same in various investments for the economic development of the country. Life insurance is an important tool for the mobilization and investment of small savings.

• Credit worthiness: Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business.

• Social Security: Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.

• Tax Benefit: Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.

RESEARCH METHODOLOGY

TITLE

To determine customer buying behavior with a focus on market segmentation for Kotak Life Insurance.

OBJECTIVES

The objectives of the present study are as following:

• Proper understanding and analysis of life insurance industry.

• To know about brand awareness of Kotak Life Insurance and customer’s preference about Kotak Life Insurance.

• Conduct market survey on a sample selected from the entire population and derive opinion on that research.

• To help company in establishing a network of Life Insurance Advisors and to promote the benefits those are provided by Kotak Life Insurance to its Life Insurance Advisors.

• To offer suggestions based upon findings.

RESEARCH METHODOLOGY

All the findings and conclusions are based on the survey done in the working area within time limit. I tried to select a sample representative of the whole group during my job training. I have collected data from 100 respondents for studying Customer Buying Behaviour and Market Segmentation, selected randomly from different areas in Jaipur such as:

• Public places like shopping centers, malls, restaurants etc.

• Employees of Government Departments

• Employees of Private Firms

• Business / Self Employed

For recruitment of Life insurance Advisors, I have collected data from 200 respondents from following groups:

Chartered Accountants

Tax Consultants

Businessmen

Share Brokers

Lawyers

Working Professionals

House Wives

Retired Persons

RESEARCH DESIGN

Research was initiated by examining the secondary data to gain insight into the problem. The primary data is evaluated on the basis of the analysis of the secondary data.

DEVELOPING THE RESEARCH PLAN

The data for this research project has been collected through self administration. Due to time limitation and other constraints direct personal interview method is used. A structured questionnaire was framed as it is less time consuming, generates specific and to the point information, easier to tabulate and interpret. Moreover respondents prefer to give direct answers. In questionnaires open ended and closed ended, both the types of questions has been used.

COLLECTION OF DATA

Secondary Data: It was collected from internal sources. The secondary data was collected on the basis of organizational file, official records, news papers, magazines, management books, preserved information in the company’s database and website of the company.

Primary data: Individual respondents, Chartered Accountants, Tax Consultants, Insurance Agents, Auto loan providers were personally visited and interviewed. They were the main source of Primary data. The method of collection of primary data was direct personal interview through a structured questionnaire.

SAMPLING PLAN

Since it is not possible to study whole population, it is necessary to obtain representative samples from the population to understand its characteristics.

Sampling Units: Individual respondents for studying Customer Buying Behaviour and Market Segmentation, selected randomly from different areas in Jaipur, like various shopping malls and markets, Government Offices. Chartered Accountants, Tax Consultants, Lawyers, Business Men, Professionals and House Wives of Jaipur for recruitment of Life Insurance Advisors

Sample Technique: Random Sampling

Research Instrument: Structured Questionnaire

Contact Method: Personal Interview

SAMPLE SIZE

Study of Customer Buying Behaviour and Market Segmentation: 100 respondents

Recruitment of Life Insurance Advisors for Kotak Life Insurance: 200 respondents

DATA COLLECTION INSTRUMENT DEVELOPMENT

The mode of collection of data is based on Survey Method and Field Activity. Primary data collection is based on personal interview. I have prepared the questionnaire according to the necessity of the data to be collected.

RESEARCH LIMITATIONS

• The research is confined to certain parts of Jaipur and does not necessarily show a pattern applicable to all of country.

• Some respondents were reluctant to divulge personal information which can affect the validity of all responses.

• In a rapidly changing industry, analysis on one day or in one segment can change very quickly. The environmental changes are vital to be considered in order to assimilate the findings.

INDIAN INSURANCE INDUSTRY

HISTORY:

Life insurance came to India from England in 1818 when oriental life insurance company started in Calcutta by Europeans. After this many insurance companies had been started in India. But these companies were looking after only the needs of European community established in India. Indian people were not being insured by these companies. First Indian life insurance company came as Bombay mutual life insurance assurance. Second company was Bharat insurance company came in 1896. After this the united India in Madras, national Indian and national insurance in Calcutta and the co-operative assurance in Lahore were established in 1906.

To regulate Indian insurance business first insurance act came in 1912 as life insurance company act and provident fund act. These acts consist of premium rates tables and periodical valuations of companies. In the first two decade of 20th century many life insurance companies were started. So the insurance act came in 1938 to governing life and non life insurance

companies and to provide strict state control. In 1956 the life insurance business in India was nationalized. In 1956 life insurance corporation of India (LIC) was created to spreading life insurance much more widely particularly in rural areas. In that year LIC had 5 zonal offices, 33 divisional offices and 212 branch offices. In 1957 the business of LIC of sum assured of 200crores, 1000crores in 1970, and 7000crores in 1986.

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY:

In 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests.

Role of IRDA:

• Protecting the interests of policyholders.

• Establishing guidelines for the operations of insurers and brokers.

• Specifying the code of conduct, qualifications and training for insurance intermediaries and agents.

• Promoting efficiency in the conduct of insurance business.

• Regulating the investment of funds by insurance companies.

• Specifying the percentage of business to be written by insurers in rural sectors.

• Handling disputes between insurers and insurance intermediaries.

Changing perception of Indian customers:

Indian Insurance consumers are like Indian Voters, they are soft but when time is right and ripe, they demand and seek necessary changes. De-tariff of

many Insurance Products are the reflection of changing aspirations and growing demand of Indian consumers.

For historical years, Indian consumers were at receiving end. Insurance Product was underwritten and was practically forced onto consumers on a “Take-it-As-it-basis”. All that got changed with passage of IRDA act in 1999. New insurance companies have come into existence leading to open competition and hence better products for customers.

Indian customers have become very sensitive to Coverage / Premium as well as the Products (read Risk Solution), that is given to them. There are not ready to accept any product, no matter even if that is coming from the market leader, should that product is not serving the purpose. A case in point is ULIP Product / Group Life and Credit Life in Life Insurance segment and Travel / Family Floater Health and Liability Insurance in the Non-life segment are new age Avatar. The new products are constantly being demanded by Indian consumers, which is putting huge pressures on Insurance companies (Read Risk Under-writers) and Brokers to respond.

Customers are looking at Insurance for covering Pure Risk now which I have covered in my next section. Another good reason why we are seeing quick changes in the buying behavior of Insurance from mere Investment to risk mitigation is the cost of Replacement of Goods (ROG) or Cost of Services (COS).

Now Indian customers are aware of insurance industry and insurance products provided by companies. They have become more sensitive. They would not accept any type of insurance product unless it fulfills their requirements and needs. In historic day’s customers looking at insurance products as a life cover which can provide security against any unacceptable events, but now customers look at insurance products as an investment as well as life cover. So today’s customers wants good return from the insurance companies. The Indian customer’s forms the pivot of each company’s strategy.

Investment of Indian household savings (as a % in different sector)

BANK DEPOSITS 39

CORP. BANKS 2

SHARES AND DEBENTURES 1

MUTUAL FUNDS 2

NBFC’S 3

GOVT. BONDS 13

INSURANCE 13

PF/ RETIRE FUNDS 21

CURRENCY 6

Source: www.avivaindia.com

Changing face of Indian insurance industry:

After the Insurance Regulatory and Development Authority Act have been passed there has been establishment of many private insurance companies in India. Previously there was a monopoly business for Life Insurance Corporation of India (L.I.C.) who was the only life-insurance company for the people till 2000. L.I.C. still holds 71.4% of the market share in 2006. But after the introduction of private life insurance companies there is a great competition in Indian market now. Everyone is trying to capture the fresh market here and penetrate it with aggressive marketing strategies. Today life-insurance is not only limited up to just life risk cover and maturity period bonuses but changed to greater return from the investments. With the introduction of the unit linked insurance policies these companies are investing the money in different investment instruments like shares, bonds, debentures, government and other securities. People are demanding for higher returns with the life risk cover and private companies are giving 30-40% average growth per annum. These life-insurance companies have every kind of policies suiting every need right from financial needs of, marriage, giving birth and rearing up a child, his education, meeting daily financial needs of life, pension solutions after retirement. These companies have every aspects and needs of our life covered along with the death-benefit.

In India only 25% of the population has life insurance. So Indian life-insurance market is the target market of all the companies who either want to extend or diversify their business. To tap the Indian market there has been tie-ups between the major Indian companies with other International insurance companies to start up their business. The government of India has set up rules that no foreign insurance company can set up their business individually here and they have to tie up with an Indian company and this

foreign insurance company can have an investment of only 24% of the total start-up investment.

Indian insurance industry can be featured by:

• Low market penetration.

• Ever growing middle class component in population.

• Growth of customer’s interest with an increasing demand for better insurance products.

• Application of information technology for business.

• Rebate from government in the form of tax incentives to be insured.

Today, the Indian life insurance industry has more than a dozen private players, each of which are making strides in raising awareness levels, introducing innovative products and increasing the penetration of life insurance in the vastly underinsured country. Several of private insurers have introduced attractive products to meet the needs of their target customers and in line with their business objectives. The success of their effort is that they have captured over 28% of premium income in five years.

The biggest beneficiary of the competition among life insurers has been the customer. A wide range of products, customer focused service and professional advice has become the mainstay of the industry, and the Indian customer’s forms the pivot of each company’s strategy. Penetration of life insurance is beginning to cut across socio-economic classes and attract people who have never purchased insurance before.

Life insurance is also now being regarded as a versatile financial planning tool. Apart from the traditional term and saving insurance policies, industry has seen the entry and growth of unit linked products. This provides market linked returns and is among the most flexible policies available today for investment. Now products are priced, flexible, and realistic and sustain so people in better position to understand the risk and benefits of the product and they are accepting these innovative products.

So it is clear that the face of life insurance in India is changing, but with the changes come a host of challenges and it is only the credible players with a long term vision and a robust business strategy that will survive. Whatever the developments, the future and the opportunities in this industry will surely be exciting.

The number of companies in Insurance particularly in Life Insurance has changed drastically now the number is in 17. List of them are mentioned as below:-

1. Bajaj Allianz Life Insurance2. ICICI Prudential Life Insurance3. TATA AIG Life Insurance4. Max New York Life Insurance5. AVIVA Life Insurance6. Bharti AXA Life Insurance7. Kotak Mahindra Life Insurance8. Reliance Life Insurance9. SBI Life Insurance10.HDFC Standard Life Insurance11.Birla Sun Life Insurance12.Sahara Life Insurance13.ING Vysya Life Insurance

And so on…

Increasing growth since liberalization:

YEAR LIC (in billion Rs.) PRIVATE PLAYERFY 03 110 10FY 04 120 20FY 05 130 40FY 06 140 60FY 07 240 160

Source: Insurance Industry (ICFAI Publication book)

Possibilities for insurance companies in India:

• Further deregulation of the market.

• Greater concern for the customers.

• Newer products and services.

• Competition and quality consciousness.

• Cost effective operations.

• Restructuring of the public sector.

• Consolidation of domestic insurance markets.

• Technology driven shift in product design.

• Actual operations and distribution.

• Convergence of financial services.

GLOBAL INSURANCE INDUSTRY

Globally, insurers increasingly are pressured by the demands of their clients. The development of global insurance industry over the past few years was influenced by booming stock markets which enabled considerable capital gains to be made in non life business. Increase in insurers equity capital increased underwriting capacity, while demand did not develop at the same pace, resulting in decrease in insurance policies prices. The stock market boom of the past few years led to demand for unit linked insurance products.

The global insurance industry is growing at rapid pace. Most of the markets are undergoing globalization. Lot of mergers and acquisition are taking place in the insurance world. The rapidity in the industry, technological improvement has resulted in pressures on a few economic parameters. The world insurance industry is at peak of its globalization process.

Global insurance market is increasing by an average of six percent per year since 1990. Insurance companies have collected $2443.7 billion premium worldwide according to the global development of premium volume in 144 countries in 2005. $1521.3 has been generated as life insurance premium and $922.7 as non life insurance premium. The US accounted for 35% of global life and non life premium, Japan had global share of 21%, and UK was having 10% of global share.

Influence on Indian Insurance Industry:

In this era of globalization, insurance companies face a dynamic global environment. Dramatic changes are taking place owing to the internationalization of activities, appearance of new risk, new types of covers to match with new risk situations, and unconventional and innovative ideas on customer services. Low growth rates in developed markets, changing customers needs, and the uncertain economic conditions in the developing world are exerting pressure on insurer’s resources and testing their ability to survive. Now the existing insurers are facing difficulties from non-traditional

competitors those are entering the retail market with new approaches and through new channels.

India has a rapidly growing middle class and this section can afford to buy insurance products. This shows the attraction that the Indian market holds for foreign insurers who have been putting pressure on developing countries as well as on India to open up its market.

Life Insurance Penetration as a % of GDP

United Kingdom 8.9

Japan 8.3

Korea 7.3

United States 4.1

Malaysia 3.6

India 3.0

China 1.8

Brazil 1.3

Source: www.indianinsuranceresearch.com

INSURANCE AND ECONOMY

• Indian economy is growing in reference to global market. Business of insurance with its unique features has a special place in Indian economy.

• It is a highly specialized technical business and customer is the most concern people in this business, therefore this business is able to spur the growth of infrastructure and act as a catalyst in the overall development of Indian economy.

• The high volumes in the insurance business help spread risk wider, allowing a lowering of the rates of the premium to be charged and in turn, raising profits. When there is a bigger base, the probabilities become more predictable, and with system wide risks balanced out, profits improve. This explains the current scenario of mergers, acquisitions, and globalization of insurance.

• Insurance is a type of savings. Insurance is not only important for tax benefits, but also for savings and for providing security. It can be serving as an essential service which a welfare state must make available to its people.

• Insurance play a crucial role in the commercial lives of nations and act as the lubricants of economic activities. Insurance firms help to spread the potentially financial consequences of risk among the large number of entities, to mobilize and distribute savings for productive use, facilitate investment, support and encourage external trade, and protect economic entities against external risk.

Insurance and economic growth mutually influences each other. As the economy grows, the living standards of people increase. As a consequence, the demand for life insurance increases. As the assets of people and of business enterprises increase in the growth process, the demand for general insurance also increases. In fact, as the economy widens the demand for new types of insurance products emerges. Insurance is no longer confined to product markets; they also cover service industries. It is equally true that growth itself is facilitated by insurance. A well-developed insurance sector promotes economic growth by encouraging risk-taking. Risk is inherent in all economic activities. Without some kind of cover against risk, some of these activities will not be carried out at all. Also insurance and more particularly life insurance is a mobilizer of long term savings and life insurance

companies are thus able to support infrastructure projects which require long term funds. There is thus a mutually beneficial interaction between insurance and economic growth. The low income levels of the vast majority of population have been one of the factors inhibiting a faster growth of insurance in India. To some extent this is also compounded by certain attitudes to life. The economy has moved on to a higher growth path. The average rate of growth of the economy in the last three years was 8.1 per cent. This strong growth will bring about significant changes in the insurance industry.At this point, it is important to note that not all activities can be insured. If that were possible, it would completely negate entrepreneurship. Professor Frank Knight in his celebrated book “Risk Uncertainty and Profit” emphasized that profit is a consequence of uncertainty. He made a distinction between quantifiable risk and non-quantifiable risk. According to him, it is non-quantifiable risk that leads to profit. He wrote “It is a world of change in which we live, and a world of uncertainty. We live only by knowing something about the future; while the problems of life or of conduct at least, arise from the fact that we know so little. This is as true of business as of other spheres of activity”. The real management challenges are uninsurable risks. In the case of insurable risks, risk is avoided at a cost.

FUNCTIONING OF INSURANCE INDUSTRY

Insurer’s Business Model:

Profit = Earned Premium + Investment Income – Incurred Loss – Underwriting expenses

Insurers make money in two ways:

1. Through Underwriting, the processes by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks, and

2. By investing the premiums they collect from insured.

The most difficult aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy.

An insurer's underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss.

Insurance companies also earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out.

Naturally, the “float” method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the "underwriting" or insurance cycle.

Finally, claims and loss handling is the materialized utility of insurance. In managing the claims-handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages.

Investment Management:

Investment operations are often considered incidental to the business of insurance, and have traditionally viewed as secondary to underwriting. In the past risk management was the most important part of business, whereas today the focus has shifted to fund management. Investment income is a large component of insurance revenues, skilful and careful management of funds. Insurance is a business of large numbers and generates huge amount of funds over time. These funds arise out of policyholder funds in the case of life insurance, and technical and free reserves in the non-life segments. Time lag between the procurement of premium and the payment of claim provides an interval during which the funds can be deployed to generate income. Insurance companies are among the largest institutional investors in the world. Assets managed by insurance companies are estimated to account for over 40% of the world’s top ten asset managers.

Returns on investments influence the premium rates and bonuses and hence investment income will continue to be an important component of insurance company profits. In life insurance, benefits from insurance profits accrue directly to policy holders when it is passed on to him in the form of a bonus. In non life insurance the benefits are indirect and mostly by the creation of an investment portfolio. Investment income has to compensate for underwriting results which are increasingly under pressure. In the case of insurance, the difference between revenue and the expenses is known as operating surplus.

• Revenue = Premium

• Expenses = (Sum of Claims + Commission payable on procurement of business + Operating expenses)

• Operating Surplus = (Revenue – Expenses)

Net investment income includes income from trading in and holding stock market securities including government securities, special deposits with the central government, loans to several public utilities and service providers in state government.

Insurance premium collected is converted in a pool of fund then divided in to four expenses.

• To pay the expenses of the management

• To pay agency commission

• To pay for the claims

• Surplus money will be invested in govt. securities

Requirements of an insurance risk

Insurance normally insure only pure risks .However, not all pure risk is insurable .certain requirements usually must be fulfilled before a pure risk can be privately insured .From the view point of the insurer, there are ideally six requirement of an insurable risk:

• There must be a large number of exposure units

• The loss must be accidental and unintentional

• The loss must be determinable and measurable

• The loss should not be catastrophic

• The chance of loss must be calculable

• The premium must be economically feasible

Comparison of Insurance with other Similar Factors

1. Insurance and Gambling compared

Insurance is often erroneously confused with gambling .There are two important differences between them .First , gambling creates a new speculative risk ,while insurance is a technique for handling an already existing pure risk .thus ,if you bet Rs 300 on a horse ,a new speculativetechnique is created ,but if you pay Rs 300 to an insurer for fire insurance ,the risk of fire is already present and is transferred to the insurer by a contract. No new risk is created by the transaction.

The second difference between insurance and gambling is that gambling is socially unproductive, because the winner’s gain comes at the expense of the loser .In contract; insurance is always socially productive, because neither the insurer nor the insured is placed in a position where the gain of the winner comes at the expense of the loser. The insurer and the insured have a common interest in the prevention of a loss. Both parties win if the loss does occur .Moreover, consistent gambling transaction generally never restore the losers to their former financial position .In contract ,insurance contracts restore the insured’s financially in whole or in part if a loss occurs.

2. Insurance and Hedging comparedThe concept of hedging is to transferring the risk to the speculator through purchase of future contracts .An insurance contract, however, is not the same thing as hedging .Although both technique are similar in that risk is transferred by a contract, and no new risk is created, there are some important difference between them. First, an insurance transaction involves the transfer of insurable risks, because the requirement of an insurable risk generally can be met .However, hedging is a technique for handling risks that are typically uninsurable ,such as protection against a decline in the price agriculture products and raw materials.

A second difference between insurance and hedging is that insurance and hedging is that insurance can reduce the objective risk of an insurer by application of the law of large numbers. As the number of exposure units increases, the insurer’s prediction of future losses improves, because the relative variation of actual loss from expected loss will decline .thus, many insurance transactions reduce objective risk. In contract, hedging typically involves only risk transfer , not risk reduction .The risk of adverse price fluctuation is transferred because of superior knowledge of market conditions .The risk is transferred, not reduced, and prediction of loss generally is not based on the law of large numbers.

Various types of life insurance policies:

• Endowment policies: This type of policy covers risk for a specified period, and at the end of the maturity sum assured is paid back to policyholder with the bonuses during the term of the policy.

• Money back policies: This type of policy is for periodic payments of partial survival benefits during the term of the policy as long as the policy holder is alive.

• Group insurance: This type of insurance offers life insurance protection under group policies to various groups such as employers employees, professionals, co-operatives etc it also provides insurance coverage for people in certain approved occupations at the lowest possible premium cost.

• Term life insurance policies: This type of insurance covers risk only during the selected term period. If the policy holder survives the term, risk cover comes to an end. These types of policies are for those people who are unable to pay larger premium required for endowment and whole life policies. No surrender, loan or paid up values are in such policies.

• Whole life insurance policies: This type of policy runs as long as the policyholder is alive and is covered for the entire life of the policyholder. In this policy the insured amount and the bonus is payable only to nominee on the death of policy holder.

• Joint life insurance policies: These policies are similar to endowment policies in maturity benefits and risk cover, but joint life policies cover two lives simultaneously such as married couples. Sum assured is payable on the first death and again on the death of survival during the term of the policy.

• Pension plan: a pension plan or annuity is an investment over a certain number of years but does not provide any life insurance cover. It offers a guaranteed income either for a life or certain period.

• Unit linked insurance plan: ULIP is a kind of insurance plan which provides life cover as well as return on premium paid over a certain period of time. The investment is denoted as units and represented by the value called as net asset value (NAV).

DISTRIBUTION OF INSURANCE PRODUCTS

Insurance has to be sold the world over. The Touch point with the ultimate customer is the distributor or the producer and the role played by them in insurance markets is critical. It is the distributor who makes the difference in terms of the quality of advice for choice of product, servicing of policy post sale and settlement of claims. In the Indian market, with their distinct cultural and social ethics, these conditions will play a major role in shaping the distribution channels and their effectiveness. In today's scenario,

insurance companies must move from selling insurance to marketing an essential financial product. The distributors have to become trusted financial advisors for the clients and trusted business associates for the insurance Companies.

Challenges for insurance companies and intermediaries in India-

• Building faith about company in the mind of clients.

• Building personal credibility with the clients.

Different distribution channels in India:

A multi-channel strategy is better suited for the Indian market. Indian insurance market is a combination of multiple markets. Each of the markets requires a different approach. Apart from geographical spread the socio-cultural and economic segmentation of the market is very wide, exhibiting different traits and needs. Different multi-distribution channels in India are as follows:

• Agents: Agents are the primary channel for distribution of insurance. The public and private sector insurance companies have their branches in almost all parts of the country and have attracted local people to become their agents. Today's insurance agent has to know which product will appeal to the customer, and also know his competitor's products to be an effective salesman who can sell his company, the product, and himself to the customer. To the average customer, every new company is the same. Perceptions about the public sector companies are also cemented in his mind. So an insurance agent can play an important role to create a good image of company.

• Banks: Banks in India are all pervasive, especially the public sector banks. Many insurance companies are selling their products through banks. Companies which are bank owned, they are selling their products through their parent bank. The public sector banks, with their vast branch networks, are helpful to insurance companies. This channel of selling insurance is known as Bank assurance.

INSURANCE COMPANY ASSOCIATE BANKS

ICICI Prudential ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, Punjab and Maharashtra

Cooperative Bank

SBI Life State Bank of India

Birla Sun Life Deutsche Bank, Citibank, Bank of Rajasthan, Andhra Bank

ING Vysya Bank Vysya Bank

Aviva Life Insurance ABN Amro Bank, Canara Bank

HDFC Standard Life HDFC Bank, Union Bank, Indian Bank

Met Life Karnataka Bank, J&K Bank

Source: Hindu Business Line, January 08, 2007

• Brokers: Now a day’s different financial institution are selling insurance. These financial institutions are known as brokers. They are taking some underwriting charges from the insurance companies to sell their insurance products.

• Corporate agents: Corporate agency is a cross selling type of channel. Insurance companies’ tie-up with business houses in other industries to sell insurance either to their employees or their customers. Insurance industry, during the past 2 years has witnessed a number of such strategic tie-ups and alliances. Corporate agents have become a major force to reckon with in distributing insurance products. Such as- Bajaj Allianz tied up with Maruti Udyog and Ford for auto insurance and Tata AIG life has tied up with Tata tea, Khaitan’s Williamson major and bridge foundation for selling rural policies.

• Internet: In this technological world internet is also a channel of selling insurance. This can be as direct marketing.

EFFECTIVE MARKETING STRATEGIES FOR INSURANCE PRODUCTS

Now the Indian consumer is knowledgeable and sensitive. Consumers are increasingly more aware and are actively managing their financial affairs. People are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total protection. In view of this, the insurance managers need to understand more about the details that go into the introduction of insurance products to make it attractive in this competitive market. So now days an insurance manager requires leadership, commitment, creativity, and flexibility. "Every family in every village in the country should feel safe and secure". This vision alone will help to bring the new ideas to the insurance manager.

Financial, marketing and human resource polices of the corporations influence the unit mangers to make decisions. Performance of insurance company depends on the effectiveness of such policies. Insurance corporations formulate and revise these policies from time to time to ensure that the performance of the managers is best for the organization.

In the competitive market, insurance companies are being forced to adopt a strictly professional approach in marketing. The insurance companies face the challenge of changing the uninspiring public image of the industry.

Some of the important marketing elements are-

• Marketing mix.

• The importance of relationship.

• Positioning.

• Value addition.

• Segmentation.

• Branding.

• Insuring service quality.

• Effective pricing.

• Customer satisfaction research.

The growth of insurance sector is governed largely by factors external to it. The following factors influence the market and demand of product-

• Government policies.

• Growth in population.

• Changing age profile.

• Income wise distribution of the population.

• Level of insurance awareness.

• The pricing of the policies.

• The economic climate of the country.

• The aversion to risk.

• Social and political features of the country.

• Growth scenario in the world.

Different companies adopt different approaches in their marketing strategies. One approach is focus upon product quality which can give confidence in the mind of customers that they are offered by best featured products. And other approach is focusing on customer’s needs, which involve a heavy investment in developing relationships with policyholders. Under this approach customer can expect a range of products and service offered to him. Third approach is market segmentation under which the population can be divided into several homogeneous products and groups, the effort should be tie clients to the company by customized combination of coverage, easy payment plans, risk management advice, and convenient and quick claim handling.

An insurance product can be classified into three phases:

Core product: In insurance industry the core product is the policy that provides protection to the customers.

Expected product: Because of competition customers start to expect more from an insurance product. Then insurance companies provide some tangible attributes in their product to differentiate from competitors, such as-

• Brand• Some additional features in existing product• By providing instruction manual with the policy

Augmented product: An insurance company can provide different types of services to differentiate their products-

• Post sales services.• Branches in different places for customers.• Customer complaint management.• Payment option convenient to customers.

The entry of private players and their foreign partners has given domestic players a tough time, because the opening up of the sector has not brought in only foreign players, but also professional techniques and technologies. The present scene in India is such that everyone is trying to put in the best efforts. There are marketing strategies more for survival than growth. But the most important gift of privatization is the introduction of customer-oriented services. Utmost care is being taken to maximize customer satisfaction.

Success of an insurance company depends on four important functions:

• Identification of markets: Identification of markets means need to understand the trends in culture and businesses constantly, through conducting research and analysis. Insurance companies can take this job on their own or assign it to an external agency. Relying on an external agency can be risky due to the questionable loyalty of the agents.

• Assessment of risks (of the insured and the insurance corporation) and estimation of losses: Efficiency of actuaries and assessors of the insurance policies in fixing premiums and settling claims is foremost an important area for achieving overall efficiency in operations. The quality of assessing the risk and estimation of losses has the largest claim on the performance of an insurance company. Well trained, experienced and expert hands are needed for the operations.

• Penetration into and exploitation of markets: Market penetration or exploitation of a company can be identified with the growth in number of policies in each type of insurance, growth rate in earnings or turnover, company’s market share, increase in number of branches and divisions etc. Efforts of the company as a whole and that of the divisions and branches are assessed to measure the effectiveness.

• Control over investment and operating costs: Control over resources such as men, machines, and materials at each level of the

organization provides measures of efficiency of a unit as well as the organization. Investment control and expense control are dealt separately and the effectiveness of management’s’ decisions at various levels is to be assessed separately.

To find best prospects:

• Allocating marketing strategies against market potential.

• Estimating potential for specific products within local markets.

• Identifying high opportunity areas.

• Measuring agency performance relative to market potential.

• Optimizing your agency network against market potential.

Attributes to develop marketing strategies:

• Channel data: - Useful to know future buying preferences, learning about products and purchase channels.

• Consumer attitudes.

• Consumption data: - Useful to evaluate annual premiums, number of annuities owned, value of annuities, and with which company the current policy is held.

Effective Strategies for Insurance Agents:

• Learn how to construct a mental image for success.

• Learn how to find a proper perspective and how to turn off all the signals that cause people not to buy from you.

• Learn how to get and set more appointments.

• Learn how to convert a new lead into sales.

• Learn how to act when you meet a client for the first time.

• Learn how the order in which you explain the types of policies can double your income.

• Take Easy steps to avoid delays in issuing policies.

COMPANY PROFILE

(About Kotak Mahindra Old Mutual Life Insurance)

Kotak Mahindra is in business since 1985 as a partnership between Uday Kotak and Mr. Mahindra, and insurance part of their business came into existence in the year 2001.

Evolution of Insurance business in Kotak Mahindra business is like this:-

YEAR SIGNIFICANT CHANGES BUSINESS DEVELOPMENT

1985 Trade Finance

1986 Corporate Finance

1990 Car Finance

1991 Investment Banking

1992 Goldman Sachs Brokerage and Distribution

1995 Ford Credit Commercial Vehicle

1997 Consumer Finance

1998 Mutual Fund

2001 Old Mutual Plc Life Insurance

2003 Bank

KMOM- The Partnership and Lineage

A 26% - 74% Joint Venture Between

As stated above Kotak Mahindra Life Insurance has Joint venture with Old Mutual plc.

Old Mutual Plc is the 12th largest Insurance Company in the world. It has its base of over 4 million life assurance policyholders. It has one of the best “Payouts” among insurers in the world. It has one of the best “Solvency Ratios” among insurers in the world. A FTSE 100 financial services group and ranks as a Fortune Global 500 company.The Old Mutual group manages in excess of 239 billion pounds in funds (Dec’06). The company is 160 years old and has prominent presence in the United States and the United Kingdom.

Now the question arises that why for the business in India of life insurance Kotak Mahindra chose Old Mutual plc and vice versa.

Features of Kotak Mahindra and Old Mutual plc at a glance:

KOTAK MAHINDRA OLD MUTUAL plc

Brand Equity Domain Knowledge

Branch Network Technology

Entrepreneur Employees Product Innovation

Knowledge of Indian Market Training Expertise

Access to customer base Global Perspectives

Distribution Associates System and Process

Multi Channel Working System

PRODUCTS

Term Plans

• Kotak Term Assurance Plan

• Kotak Preferred Term Plan

Endowment Plans

• Kotak Endowment Plan

• Kotak Money Back Plan

• Kotak Child Advantage Plan

• Kotak Capital Multiplier Plan

• Kotak Retirement Income Plan

• Kotak Premium Return Plan

Unit Linked Plans

• Kotak Retirement Income Plan (Unit Linked)

• Kotak Safe Investment Plan II

• Kotak Flexi Plan

• Kotak Easy Growth Plan

• Kotak Privilege Assurance Plan

Group

• Employee Benefits

• Kotak Term Group Plan

• Kotak Credit-Term Group Plan

• Kotak Complete Cover Group Plan

• Kotak Gratuity Group Plan

• Kotak Superannuation Group Plan

Rural

• Kotak Gramin Bima Yojna

If we look at the status of Kotak Life Insurance’s market share in comparison of other private company in comparison of premium earned:-

No. INSURER Market Share (%)

1 Bajaj Allianz 7.56

2 ICICI Prudential 7.35

3 HDFC Standard Life 2.87

4 SBI Life 2.31

5 Birla Sun Life 1.89

6 Tata AIG 1.29

7 Max New York 1.23

8 Aviva 1.14

9 Kotak Mahindra Old Mutual 1.11

10 ING Vysya 0.79

11 Reliance Life 0.54

12 Met Life 0.40

13 Sahara Life 0.06

14 Shriram Life 0.03

If we talk the growth of Insurance industry’s private players in recent years, the data will reflect:-

Structure of Kotak Life Insurance

• Managing Director: GAURANG SHAH

• CFO: G.MURALIDHAR

• Vice President (Training and Management Development): ARUN PATIL

• Vice President (HR): SUGATTA DUTTA

• Vice President (Distribution Development and Planning) : KAMLESH VORA

• Appointed Actuary : JOHN BRYCE

Its hierarchy in Kotak Life Insurance is like this:

HIERARCHY OF KMOM LIFE INSURANCE LIMITED

(JAIPUR BRANCH)

MANAGING

DIRECTO

SALES

HEAD

MARKETING

HEAD

HR &

ADMIN.

APPOINTED

ACTUAR

CIOTRAININ

G

HEAD

CFO

DATA VALIDATION

CUSTOMER BUYING BEHAVIOUR & MARKET SEGMENTATION

FOR

LIFE INSURANCE PRODUCTS

REGIONAL MANAGER

AREA MANAGERBRANCH OPERATIONS

INCHARGE

SALES MANAGER

ASST. SALES MANAGER

LIFE ADVISOR

OPERATION EXECUTIVE

OPERATIONS

1.

2.

3. No. of Respondents Holding Kotak Life Insurance Policy: 2

4.

5.

6.

7.

8.

9.

DATA VALIDATION

RECRUITMENT OF LIFE INSURANCE ADVISORS

FOR

KOTAK LIFE INSURANCE, JAIPUR

1.

2.

3.

4.

5.

6.

7.

8.

9.

RECOMMENDATIONS

• Networking is needed to be made broad as the number of branches

with Kotak Life Insurance is only 75 and only 7 states are touched by

the company so, there is a huge untapped market available for Kotak

Life.

• Marketing in terms of the media via advertisements on Television to

small commercials on FM, hoardings and signage etc. has to be made

because there were respondents who haven’t even heard about Kotak

Life Insurance.

• Awareness camp for sub-urban area should be focused.

• State and Central Government employees should be targeted because

of reasons like:

They don’t have Life Insurance cover other than that provided by

their respective employers and LIC.

Most of them are underinsured.

They have a stable source of income and social security.

• Kotak Life Insurance recruits its advisors mainly through personal

reference, through advertisement and through walk-in interviews. They

must also recruit them though placement agencies on trial basis.

• Kotak Life Insurance must build its reputation by focusing on service

quality. Better service quality. Better service quality may be in the

form:

Issuing policy in time.

Providing claims in time.

Making customers aware about their status of policy.

CONCLUSIONS

During the data collected, it has been found that people have great

awareness about various companies but a lot more has to be done,

especially by smaller companies like Kotak Life Insurance to establish their

market presence.

People are beginning to look beyond LIC for their insurance needs and are

willing to trust private players with their hard earned money.

People in general have been influenced by the marketing activities of

insurance companies. A high penetration of print, radio and TV ad campaigns

over the years is beginning to have its impact now.

Another important trend was in terms of people viewing insurance as a tax

saving and investment instrument as much as protective one.

The general satisfaction levels among public with regards to policy and

agents still requires improvement. Here lies the opportunity for a relatively

new comer like Kotak Life Insurance. LIC has never been known for prompt

service or customer oriented methods but Kotak Life Insurance can build its

reputation based on these factors.

REFERENCES

BOOKS

• Insurance Distribution (ICFAI publications)

• Insurance Industry (ICFAI publications)

• Study Guide- Principles and Practices of Life/ General Insurance by AIMA

WEBSITES

• www.kotaklife.com

• www.google.co.in

• www.insurance.ind.com

• www.irda.org

• www.insuranceworld.com

• www.findarticles.com

ANNEXURE

CUSTOMER BUYING BEHAVIOUR – QUESTIONNAIRE

Dear Sir/Madam,

I am a MBA student of Christ University Institute of Management, Bangalore, and presently doing a market survey on ‘Customer Buying Behaviour with a focus on Market Segmentation for Life Insurance Products’. I request you to kindly furnish information on the questionnaire below.

I assure you that your identity shall not be disclosed and the data shall be used only for academic purpose.

QUESTIONNAIRE

Q 1) Do you have any life insurance policy?

a) YES b) NO

Q 2) Are you aware about the Life Insurance products or will prefer to purchase the Life Insurance products of (mark √):

• LIC

• ICICI Prudential Life Insurance

• HDFC Standard Life Insurance

• SBI Life Insurance

• Kotak Life Insurance

• TATA AIG Life Insurance

• Reliance Life Insurance

Q3) Which company’s insurance policy do you have?

___________________________________________________________________

Q4) Term of your insurance policy?

a) < 5 years b) 5 – 10 years

c) 10 – 20 years d) any other_______________

Q5) What do you think are the benefits of Life Insurance?

a) Covers future uncertainty

b) Tax Savings

c) Investments

d) Comprehensive investment and risk coverage instrument

Q6) Which feature of Life Insurance policy will you consider while buying?

a) Money Back Guarantee

b) Larger Risk Coverage

c) Low Premium

d) Company’s Credibility

e) Easy Access to Agents

Q7) How have you bought / would buy a Life Insurance policy?

a) Customer approaching insurance company / agent

b) Insurance company / agent approaching the customer

Q8) Are you satisfied with your Life Insurance policy?

a) Highly Satisfied b) Satisfied

c) Not So Satisfied d) Not Responding

Q9) According to you, what is the right age to buy insurance?

a) < 25 years b) 25 – 35 years

c) 35- 45 years d) > 45 years

e) Anytime

THANK YOU

Respondent’s Profile (Optional):

• NAME:

• AGE:

• GENDER:

• EDUCATIONAL QUALIFICATION:

• PROFESSION: (Business, Professional, Service, Any Other)

• ANNUAL HOUSEHOLD INCOME

(<2 lakhs, 2-5 lakhs, 5-10 lakhs, >10 lakhs)

LIFE INSURANCE ADVISORS – QUESTIONNAIRE

Dear Sir/Madam,

I am a MBA student of Christ University Institute of Management, Bangalore, and presently doing Market Research on LIFE INSURANCE ADVISORS for KOTAK LIFE INSURANCE, Jaipur. It is requested to kindly furnish the following information:

Name: _____________________________________ Age: _______________

Address (For correspondence): ______________________________________

______________________________________________________________

Contact Nos. : ___________________________________________________

E mail: _________________________________________________________

QUESTIONNAIRE

Q1) Educational Qualification

• Undergraduate

• Graduate

• Post Graduate

Q2) Number of years are you in Jaipur

• Less than 5 years

• More than 5 years

Q3) Occupation

• Business

• Profession

• Service

• Any Other _____________________________________________________

(Please mention below the type of business/ profession you are in, in case of service please mention your organisation name and designation)

_________________________________________________________________

Q4) Your annual household income

• < 2 lakhs

• 2 – 5 lakhs

• 5 – 10 lakhs

• > 10 lakhs

Q5) What is your perception about insurance sector?

• Laborious & Lucrative

• Laborious but not Rewarding

• Easy & Rewarding

• Easy but not Rewarding

• No Idea

Q6) Are you aware of KOTAK LIFE INSURANCE?

• Yes

• No

Q7) Are you associated with any insurance company as Life Insurance Advisor?

• Yes

• No

If yes please specify which company____________________________________

Are you satisfied with the company, if so, reasons thereof: __________________

_______________________________________________________________

Q8) Would you like to avail a business opportunity with KOTAK LIFE INSURANCE?

• Yes

• No

Q9) How much time can you spare for this business opportunity?

a) Few hours daily b) Weekends and holidays

c) Cannot commit specific time schedule

THANK YOU