Satish ( Final Projet)

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    CUSTOMERS PERCEPTION TOWARD

    INSURANCE POLICIES

    Submitted to Punjab Technical University in partial fulfillment of the requirements For

    the degree of

    MASTER OF BUSINESS ADMINISTRATION

    By

    KAMAL DEV

    80906317024

    SWAMI VIVEKANAND INSTITUTE OF ENGINEERING AND TECHNOLOGY

    RAM NAGAR,BANUR, PATIALA

    2008-10

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    CONTENTS

    1.CONTENTS

    2.ACKNOWLEDGEMENT.

    3.EXECUTIVE SUMMARY

    4.INTRODUCTION..

    A. FUNCTION OF INSURANCE.....

    B. INDUSTRY PROFILE....

    C. ENERGENCE IN INDIA

    D. INSURANCE SECTOR REFORMS IN INDIA...

    E. REGULATION.

    F. PRIVATIZATION OF INDIAN INSURANCE INDUSTRY....

    G. PERFORMANCE AFTER PRIVATIZATION..

    H. BENEFITS OF LIFE INSURANCE.I. FUTURE PERSPECTIVE.

    6. REVIEW OF LITERATURE....

    A. OBJECTIVE...

    B. BENEFITS..

    7. RESEARCHMETHODOLOGY...

    A. LIMITATION..

    B. DATA ANALYSIS...

    8. FINDING AND CONCLUSIONS

    9. RECOMMENDATION.10. BIBLIOGRAPHY..

    11. ANNEXURE...

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    ACKNOWLEDGEMENT

    The project has been undertaken at Shimla (H.P) and it has given me an invaluable

    insight in the study of the insurance sector. This project has helped me to know

    about the Analysis of the insurance solution provided by the various players.

    At this very outset, I sincerely acknowledge with gratitude the guidance and

    support rendered to me by different people without which this project would not

    eve materialized.

    I am thankful to and owe a deep debt of gratitude to all those who

    helped me in preparing this report. I am grateful to Ms. Amandeep kaur (Project

    guide) a host of other officials for their active help and cooperation at each stage of

    the study.

    I would like to thank my parents, family members, colleagues and everyone

    concerned who has been instrumental in successful completion of the project.

    Satish Kumar

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    INTRODUCTION

    Insurance may be described as a social device to reduce or eliminate the risk of

    loss of life and property. Under the plan of insurance a large number of people

    associate themselves by sharing risk attached to individuals. The risks, which can

    be insured against, include fire, perils of sea, death, accidents and burglary. Any

    risk contingent upon these may be insured against at a premium commensurate

    with the risk involved. Thus we can say collective bearing of risk is insurance.

    Insurance is a plan by themselves which large number of people associate and

    transfer to the shoulders of all, risk that attach to individuals.

    ..John Magee

    Insurance is a contract in which a sum of money is paid to the assured as

    consideration of insurers incurring the risk of paying a large sum upon a given

    contingency.

    .....Justice Tindall

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    The insurance sector in India has come a full circle from being an open

    competitive market to nationalization and back to liberalized market again. Tracing

    the developments in the Indian insurance sector reveals the 360- degree turn

    witnessed over a period of almost two centuries.

    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 invest able 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.

    This characteristic of their business makes insurance companies the biggest

    investors in long-gestation infrastructure development projects in all developed and

    aspiring nations. This is the most compelling reason why private sector (and

    foreign) companies, which will spread the insurance habit in the societal and

    consumer interest, are urgently required in this vital sector of the economy.

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    FUNCTIONS OF INSURANCE

    Primary functions

    1 Provides protection: insurance cannot check the happening of risk but can

    provide for losses of risk.

    2 Collective bearing of risk: insurance is a device to share the financial losses

    of few among many others.

    3 Assessment of risk: insurance determines the probable volume of risk by

    evaluating various factors which give rise to risk.

    4 Provide certainty: insurance is a device which helps to change from

    uncertainty to certainty.

    Secondary functions

    1 Prevention of losses: insurance cautions businessman and individuals to

    adopt suitable device to prevent unfortunate consequences of risk by

    observing safety instructions.

    2 Small capital to cover large risk: insurance relieves the businessman from

    security investment, by paying small amount of insurance against large risk

    and uncertainty.3 Contribute towards development of large industries.

    INDUSTRIAL PROFILE

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    HISTORY OF INSURANCE

    The roots of insurance might be traced to Babylonia, which traders were

    encouraged to assume the risk of the caravan trade through loans repaid (with

    interest) only after the goods arrive safety. The Phoenicians and Greeks applied a

    similar system to their seaborne trade. The Romans used burial clubs as a form of

    life insurance, providing funeral expenses for members and later payments to the

    survivors.

    Milestones

    1 By the middle of the 14th century marine insurance was practically universal

    among maritime nation of Europe.

    2 In London, Lloyds Coffee House (1688) was a place where merchants, ship

    owners, and underwriters met to transact business.

    3 By the end of the 18th century Lloyds had progressed in to one of the first

    modern insurance companies.

    4 In 1693 the astronomer Edmond Halley constructed the first mortality table,

    based on the statistical laws of mortality and compound interest.

    5 The table corrected (1756) by Joseph Dodson, made it possible to scale the

    premium rate to age; previously the rate has been same for all ages.

    6 The first stock company to engage in insurance were chartered in 1720, and

    in 1735, the first insurance company in the American colonies was founded

    at Charleston, S.C.

    7 Fire insurance corporations were formed in New York and Philadelphia.

    8 The Presbyterian Synod of Philadelphia sponsored (1759) the first life

    insurance corporation in America, for the benefit of Presbyterian ministers

    and their dependents.

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    9 The New York called for the attention to the need for adequate reserves to

    meet unexpectedly large losses. Massachusetts was the first state to require

    company by law to maintain such reserves.

    10 The great Chicago fire (1871) emphasized the costly nature of fires in

    structurally dense modern cities. Reinsurance, whereby losses are distributed

    among many companies, was devised to such situations and is now common

    in other lines of insurance.

    11 The workmens compensation act of 1897 required employer to insure their

    employees against industrial accidents.

    12 Public liability insurance, fostered by legislation made its appearance in the

    1880s, it attained major importance with the advent of automobile.

    Insurance developed rapidly with the growth of British commerce in the 17 th and

    18th century. Prior to the formation of corporations devoted solely to the business

    of writing insurance, policies were signed by number of individuals each of them

    write his name and amount of risk he was assuming underneath the insurance

    proposal, hence the term underwriter.

    Insurance in modern form originated in Mediterranean during 13 th & 14th century.

    The oldest and earliest records of insurance comes in form of marine insurance

    where ships and cargo were insured against the perils such as pirates, storms,

    mutiny and wars.

    EMERGENCE IN INDIA

    The insurance sector in India has come a full circle from being an open

    competitive market to nationalization and back to a liberalized market again.

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    Tracing the developments in the Indian insurance sector reveals the 360 degree

    turn witnessed over a period of almost two centuries.

    Life Insurance in its existing form came to India from United Kingdom (UK) with

    the establishment of British Firm Oriental Life Insurance Company in Calcutta in

    1818, the Madras Equitable Life Insurance Society in 1829. Prior to 1871, Indian

    lives were treated as sub-standard and charged an extra premium of 15% to 20%.

    Bombay Mutual Life Assurance Society, an Indian insurer that came into existence

    in 1871, was the first to cover Indian lives at normal rates.

    Post 1947 India had a great challenge to come out of dark into an era where many

    countries were happily progressing on the way of advancement. Besides the

    infrastructure is required to develop the nation industrially, the young nation also

    had to build security at all levels among the citizens of the nation, who had

    witnessed the painful partition.

    The socialist pattern of government was adopted thus government nationalized a

    number of operations that were important for the development of the economy and

    the social health of the economy and social health of the nation. Insurance was one

    such industry that saw industrialization in year1956. Prior to this insurance sector

    had some 256 companies in the insurance sector. The life insurance corporation

    was formed and all other insurance companies gave their business to the

    corporation. The basic intention was to take the concept of insurance to the grass

    root level of Indian society.

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    INSURANCE SECTOR REFORMS IN INDIA

    In 1993, Malhotra Committee, headed by former Finance Secretary and RBI

    Governor

    R. N. Malhotra was formed to evaluate the Indian insurance industry and

    recommend its future direction. The Malhotra committee was set up with the

    objective of complementing the reforms initiated in the financial sector.

    The reforms were aimed at creating a more efficient and competitive financial

    system suitable for the requirements of the economy keeping in mind the structuralchanges currently underway and recognizing that insurance is an important part of

    the overall financial system where it was necessary to address the need for similar

    reforms

    In 1994, the committee submitted the report and some of the key recommendations

    included:

    Structure

    1 Government stake in the insurance Companies to be brought down to 50%.

    2 Government should take over the holdings of GIC and its subsidiaries so that

    these subsidiaries can act as independent corporations.

    3 All the insurance companies should be given greater freedom to operate.

    Competition

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    1 Private Companies with a minimum paid up capital of Rs.1bn should be

    allowed to enter the industry.

    2 No Company should deal in both Life and General Insurance through a

    single entity Foreign companies may be allowed to enter the industry in

    collaboration with the domestic companies.

    3 Postal Life Insurance should be allowed to operate in the rural market.

    4 Only one State Level Life Insurance Company should be allowed to operate

    in each state.

    Regulatory Body

    1 The Insurance Act should be changed.

    2 An Insurance Regulatory body should be set up

    3 Controller of Insurance (Currently a part from the Finance Ministry) should

    be made independent.

    Investments

    1 Mandatory Investments of LIC Life Fund in government securities to be

    reduced from 75% to 50%

    2 GIC and its subsidiaries are not to hold more than 5% in any company

    (There current holdings to be brought down to this level over a period of

    time)

    Customer Service

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    1 LIC should pay interest on delays in payments beyond 30 days

    2 Insurance companies must be encouraged to set up unit linked pension plans

    3 Computerization of operations and updating of technology to be carried out

    in the insurance industry

    The committee emphasized that in order to improve the customer services and

    increase the coverage of the insurance industry should be opened up to

    competition. But at the same time, the committee felt the need to exercise caution

    as any failure on the part of new players could ruin the public confidence in the

    industry.

    Hence, it was decided to allow competition in a limited way by stipulating the

    minimum capital requirement of Rs.100 crore. The committee felt the need to

    provide greater autonomy to insurance companies in order to improve their

    performance and enable them to act as independent companies with economic

    motives. For this purpose, it had proposed setting up an independent regulatory

    body.

    INSURANCE ON THRESHOLD

    The decades that followed saw the world economy changing and going through a

    major shift. There was rapid technological development onus shifted to

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    computerization and in Indian context the change that the world was witnessing

    was not occurring. The country still ran on the socialist pattern and the license

    raj ruled the economy. In India insurance was being sold on the basis of tax

    benefits that the government allowed. The consumer, who was heavily taxed,

    sought insurance as an eligible tool to cover his tax liabilities.

    In 1993, post liberalization it was realized that the insurance plays a very vital role

    in the development of the new economy. It is also very important social security

    tool and the money collected through insurance was instrumental in developing the

    nation.

    The Malhotra committee was formed to this and it suggested that insurance sector

    should be allowed to enter the market with foreign participation.

    The liberalization of Indian insurance sector has been the subject of much heated

    debate for some years. The policy makers were in catch 22 situation where they

    wanted competition, development and growth of insurance sector which is

    extremely important for channeling the investments in infrastructure. At the other

    end the policy makers had the fear that the insurance premium which are

    substantial will seep out of the country and thus wanted to have the cautious

    approach of opening for foreign participation in the sector.

    In 1999 insurance development act was formed and from July1, 2000 private

    players entered the market. Despite innumerable delays the insurance sector was

    finally opened for private competition. The number of potential buyers of

    insurance is certainly attractive but much of this population might not be

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    accessible. New insurers must segment the market carefully so as to provide

    appropriate products at appropriate prices and through proper distribution channel.

    India has an enormous middle class that can afford to buy life, health and pension

    plan products. The low level of penetration of life insurance in India compared to

    other developed nations can be judged by a comparison of per capita life premium.

    This has made insurance the hottest sector after IT. With social security and

    security of the public at large being the agenda for opening the sector, the role of

    the regulator becomes all the more serious and one that would be carefully watched

    at every step.

    INVESTMENT CRITERIA

    It was decided that life insurance would have to invest 25% in the government and

    other 25% in another approved securities, 15% investment will have to be invested

    in infrastructure sector and in social sector. The balance 35% will be available to

    the companies to invest in capital markets where the return on investment is

    significantly higher.

    Rural sector

    The criteria for investment in rural sector for life insurance companies is the

    following % of the total policies written in the corresponding financial year, 5% in

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    the first financial year, 7% in the second financial year, 10% in the third financial

    year, 12% in the third financial year, 15% in the fifth financial year.

    UNTAPPED OPPERTUNITIES IN INSURANCE SECTOR IN INDIA

    There is no doubt that market for insurance products in India is significant and

    offers a great scope for growth.

    First, while estimating the potential of Indian insurance market we often attempt to

    look at it from the perspective of macro economic variables such as ratio of

    premium to GDP, which is indeed comparatively low in India. For example Indias

    life insurance premium as a percentage of GDP is 1.3$% against 5.2% of US, 6.5%

    of UK or 8% in South Korea. But the fact is that the number of potential buyers of

    insurance is certainly attractive. However, there are also difficulties in approaching

    this population because of poor distribution, large distances or high costs relative

    to returns.

    Secondly, most new entrants have the tendency to target the business of existing

    companies rather than expanding the market, this is myopic. This not only leads to

    intense competition for new players and much of their time is spent to capture

    existing customers by offering better services or advantages. Yet, the benefit of the

    strategy is limited. A better approach could be to examine the niches where

    demand can be met or stimulated.

    REGULATION

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    Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in

    Parliament in December 1999. The IRDA since its incorporation as a statutory

    body in April 2000 has fastidiously stuck to its schedule of framing regulations and

    registering the private sector insurance companies.

    The other decision taken simultaneously to provide the supporting systems to the

    insurance sector and in particular the life insurance companies was the launch of

    the IRDAs online service for issue and renewal of licenses to agents. The approval

    of institutions for imparting training to agents has also ensured that the insurance

    companies would have a trained workforce of insurance agents in place to sell their

    products.

    Since being set up as an independent statutory body the IRDA has put in a

    framework of globally compatible regulations. In the private sector 12 life

    insurance and 6 general insurance companies have been registered. To regulate,

    promote and insured orderly growth of the insurance business and re-insurance

    business, a regulatory authority - Insurance Regulatory and Development

    Authority (IRDA), was set up under IRDA Act, 1999.

    EFFECTS OF REFORMS ON INSURANCE SECTOR

    A number of concerns are being expressed regarding the opening up of insurance

    sector. But most of them seem to be unfounded. The national interest lies in

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    increasing the penetration of insurance products, increasing the retention of

    premium in India and mobilizing resources for infrastructure needs. Competition

    means the players aggressively target potential customers and this will increase the

    penetration of insurance.

    The retention of premium in India has become a critical issue with some people

    who demand that the present outgo of 10 billion by the way of reinsurance be

    stopped. These people in the name of safeguarding the national interest are in fact

    compromising the interest of the nation. If no reinsurance is applied it means that

    insurance company is under writing the entire risk itself. Thus the single

    earthquake or storm can wipe out the entire company.

    The insurance sector is a service industry and international companies will help

    build local professionals with world class expertise by introducing the best global

    expertise. Competition will also develop a better understanding of consumer

    requirements leading to more customized products apt for market place. Besides it

    would also improve the tertiary sector tremendously. Development of tertiary

    sector would include new avenues for actuaries, accountants, stockbrokers and

    others. Thus we can say that opening up of insurance sector would bring about

    sweeping changes not only for consumers but also for economy as a whole.

    PRIVATIZATION OF INDIAN INSURANCE INDUSTRY

    So far, India's insurance market has been shaped almost entirely by the state owned

    insurers, led by the old life Insurance Corporation of India in the life segment and

    General Insurance Corporation in the non-life one. It is only recently that beam

    market opened to competition from insurance, almost all of them 74 : 26 joint

    ventures between Indian and foreign firms, under the watchful eye of the IRDA of

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    India.

    Though a doubtful starter, insurance industry was ultimately opened up this year

    for private players like reliance, Tata and Bajaj to provide consumers more choice

    while generating the mart in need long term funds for moving over to a higher

    growth path.

    To catalyze the process, the government notified IRDA Act, allowing 26% foreign

    holding in the Indian venture and also allowed foreign direct investment in the

    sector through the automatic route. But leaving apart the few manufacturing

    monoliths, most of the new and entrants, ICICI Prudential life Insurance company,

    HDFC Standard life Insurance, Max New York life, OM Kotak Mahindra, Royal

    Sundram, Tata AIG., Birla Sunlife and ING Vysya are from the financial sector

    itself.

    Insurance industry, as on 1.4.2000, comprised mainly two players: the stateinsurers:

    Life Insurers:

    1 Life Insurance Corporation of India

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    General Insurers:

    2 General Insurance Corporation of India

    IRDA PAVED THE ROAD FOR GROWTH

    Our own state-owned banks were all the more confused after the RBI decided to

    grant permission selectively for banks to hold more than 50% stake in their

    proposed venture. Some banks initially drew up strategies to tie-up with other like-

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    minded banks, but could not decide who would hold the spectra. So the proposed

    tie-up between Punjab National Bank, Bank of Baroda, Allahabad Bank and Vijaya

    Bank died a premature death with PNB chose to be a "strategic investor" with

    15% stake in the venture with Hero Group and Zurich Financial Services. Even

    private sector Vysya Bank preferred a Damani group and ING, while Jammu and

    Kashmir Bank was happy with her 25% stake with a real-estate company and a

    leading US based insurance company with a 25% stake in their life insurance

    venture rather than tying up with an Indian Bank meanwhile IRDA framed all the

    necessary norms within a span of 3-4 months. The regulator also allowed

    company's to invest about 25% of their funds in equities and debentures. But at the

    same time IRDA chief made it clear that the company's would have top abide by

    strict financial norms, including an absolute solvency margin of 150%.This was to

    prevent companies going bust in the initial years and thereby shattering consumers

    faith in private companies and the regulator. IRDA would also go through the

    books of the companies frequently, if required every fortnight, to eliminate any

    risk element. IRDA also granted licenses to over 26 companies for setting up

    insurance training institute to ensure that only trained professionals carry out the

    marketing. Indian consumers will witness new advertisements and new initiatives

    by both old and new players to market their products. The economy may also get a

    new look as a significant portion of untapped savings are going to flow into the

    capital market and infrastructure sector.

    PERFORMANCE AFTER PRIVATIZATION

    Indian life insurance industry has suddenly witnessed a major boom. Hailed as a

    successful case of privatization, the sector holds many more hopes and surprises

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    for both insurers and consumers. Asia Insurance Post takes stock of new

    development. Smashing doubts over the decision to liberalize the industry, the

    overwhelming first-year performance of the Indian insurance sector is test case of a

    massive success story of private players entering into the erstwhile state monopoly.

    It beats the privatization of The Telecom Sector and the Banking Industry.

    The top three private insurance companies

    ICICI Prudential Life Insurance Company

    Max New York Life Insurance Company

    HDFC Standard Life Insurance Company

    Combined they managed to sell over 2 lakh policies in a single year.

    ICICI Prudential Life Insurance Company, noted as the number one private life

    insurer, scored on all three fronts with the maximum number of policies sold

    (1,00,000), highest amount of premium collected (Rs. 122 Crore) and greatest

    amount of business written (Rs. 2700 Crore).

    Max New York Life Insurance Company scored second place with Rs.43 crore

    premium income received on 64,000 whole-life policies sold. It has built a

    business to the tune of Rs. 2,100 Crore in its first year of operations. It invests only

    in debt instruments and meets both Indian and international disclosure norms. The

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    Company's paid up capital is Rs.387 crore, which makes it among the highest

    capitalised life insurer in India. New York Life has grown to be a Fortune 100

    company. . It was the first insurance company to offer cash dividends to policy

    owners. And has over 30,000 agents and employees worldwide.

    HDFC Standard Life Insurance Company, even as it belongs to the December 2001

    vintage when it and ICICI Prudential were the first to commence operations, is

    placed at number three position. HDFC Standard Life has sold 32,000 policies

    against 44,311 lives. On the business portfolio of Rs.1,266 crore, it has received a

    premium income of Rs.36 crore. HDFC are the main shareholders in HDFC

    Standard Life, with 81.4%, while Standard Life owns 18.6%. 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.

    SBI Life Insurance Company Ltd. is a joint venture between India's largest bank,

    State bank of India and Cardiff a leading Life Insurance company in France The

    Company's authorized capital is Rs.250 crore, and the paid-up capital at present is

    Rs.125 crore. SBI owns 74% of the total equity, and Cardiff the balance 26%.

    The Life Insurance Corporation (LIC) was established about 44 years ago. Its main

    asset is its staff strength of 1.24 lakh employees and 2,048 branches and over six

    lakh agency force. LIC sold 2.32 crore policies in the fiscal 2002. The fiscal was

    marked by a phenomenal growth rates for LIC as the number of policies sold shot

    up by over 16%. The state player mopped up first premium income from new

    policies sold to the extent of Rs.14,844 crore, a growth of 137% over its

    performance last fiscal. This is over and above the regular yearly premium of

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    Rs.35,000 crore. At the same time, LIC has managed to grow its book by

    underwriting an additional Rs.1,92,575.36 crore of fresh business. . It pays off

    about Rs 6,000 crore annually to 5.6 million policyholders.

    The industry estimates that private players have sold around 3 lakh policies in the

    first year. Performance varies, as all the new players did not start out together. ING

    Vysya Life for instance started just six months back. SBI Life on other hand had to

    change its business plan as late as in the last quarter, since it could not leverage on

    9000 strong network of State Bank of India. While its model is expected to revolve

    around banc assurance, SBI Life today sells it's products through it's team of 1000

    direct agent. Tata AIG Life and Non-like combined had sold over 5 lakh policies in

    the first year. Birla Sun Life Insurance has written a business size of Rs.1,600

    crore. OM Kotak Mahindra Life Insurance received 13,000 proposals in fiscal

    2002 and mopped up Rs.13 crore on the proposals. The sum assured is more than

    what meets its the expectations at Rs.350 crore.

    It is not a number's game that the private insurance companies are after. Emphasis

    is on good quality portfolio and building the blocks for a future growth. The first

    year for the new players has been a learning curve, with the focus being on setting

    up Capacities and Base. Here the tie-up with the international financial

    conglomerate has come handy in setting up a sophisticated, hi-tech, professional

    organization for starting the business

    INTERNATIONAL COLLABORATION OF INDIAN

    COMPANIES:

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    FOREIGN ENTITY LOCAL COMPANY/VENTURE

    AIG Tata

    Allianz Bajaj

    AMP Sanmar

    Aviva Life Dabur Cardiff State Bank of India Life

    ING Life Vysya

    Max New York Life Vysya

    MetLife J & K Bank, Pallonji Group & others

    Old Mutual Kotak Mahindra

    Prudential ICICI

    Standard Life HDFC

    Sun Life Birla

    Post liberalization, the distribution of insurance products has undergone a big

    change from the days when LIC's tied agency force alone hawked products. In

    days to come, new entrants will implement multi-channel strategies, the most

    significant being bancassurance, corporate agency cross selling of insurance

    products in financial conglomerates. HDFC, ICICI Bank, Kotak Mahindra, State

    Bank of India with multiple financial units are gearing up for a cross selling the

    insurance products within the company.

    While things are going gung-ho for the industry as a whole, there are quite a few

    challenges ahead before new players can hope to compete with the state

    incumbent. The first task is for the new players to build up reach and expanded

    their geographical spread. Only a small portion of the country has been tapped so

    far. Unlike LIC, the new companies are taking reinsurance cover from the global

    leaders including Swiss Re, Munich Re, and Cologne Re etc.

    The new basic driving force of the Indian life insurance sector has been positive

    factors like increasing literacy rates, falling birth and death rates, rising gross

    domestic product, people's greater orientation towards investment in financial

    instruments, growing competition to mop up savings, higher disposable income,

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    shift to nucleus and small family norm, more females joining work force in the

    organized sector, growing rural market, growth in the service sector, increasing

    proportion of higher age group citizens, maintenance of living standards during the

    post retirement period.

    So far 90 million out of over 300 million middle class have come under Life

    Insurance net. Going by the first year performance, the excitement for the life

    insurers is just a small beginning.

    BENEFITS OF LIFE 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, itwas realized what a useful tool it was for a number of situations, including

    Temporary needs / threats

    The original purpose of life insurance remains an important element, namely

    providing for replacement of on death etc.

    Regular savings

    Providing for ones family and one self, 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.

    Investment

    Put simply, the building up of savings while safeguarding it from ravages of

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    inflation. Unlike regular saving products, investment products are traditionally

    regular investments, where the individual makes a one off payment.

    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 ones old age.

    ISSUES AND CHALLENGES

    The liberalization followed by growth of the Indian Insurance industry has opened

    wide opportunities for Service and Infrastructure sectors. This growth has to be

    properly canalized. Some of the major challenges which have to be addressed for

    canalizing the growth of insurance sector are Product Innovation, Distribution

    Network, Customer Service and Education, Investment Management.

    Product Innovation

    Customers are now looking at Insurance as complete financial solution offeringstable returns coupled with total protection. There is a need to constantly innovate

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

    Understanding the customer better will enable an Insurance company to design

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

    context Management Guru Peter Drucker has rightly said "Markets are changing

    from Cost lead Pricing to Price lead Costing".

    Distribution Network

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    While companies have been successful in product innovation, most of them are

    still grappling with right mix of Distribution Channels for:

    a. Capturing maximum market share to build brand equity.

    b. Building strong and Effective Customer relationships.

    c. Cost effective customer service.

    This calls for Selection of right type of Distribution channel mix along with

    prudent and efficient FOS (Fleet On Street) Management.

    REVIEW OF LITERATURE

    Bansal (2005) in an article, Insurance Sector : in Privatization on the Right

    Track discussed the recommendations for changes in the structure of the industry

    and policy framework. The suggestions to improve the functioning of LIC and to

    examine the role of intermediaries. Since 1991 Indian economy has been going

    through European financial reforms. Consequent to the important landmark

    reforms in the financial sector, the insurance sector in India is going to witness sea

    change. Liberalization entails on modernizing industrial system by removing

    unproductive controls, encouraging private and foreign investment and integrating

    Indian economy with the global economy.

    Xharbrahimi (2006) (knowledgementdigest.com) in his research paper,

    Technology and Life Insurance Distribution discussed the effect of

    technology on Life Insurance Distribution, whether life insurers and insured are

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    aggressively seeking to make use of internet or not. Technology in the insurance

    industry has evolved from providing enhanced operation processing to facilitating

    corporate strategy. More recently, technology is becoming an important part of

    Corporate Life Insurance Competitive Strategy and is increasingly employed in

    achieving a competition edge. This article examines some of the opportunities that

    technology solutions offer to life insurance. Thus, it may be safely assumed that

    the most significant innovations in product distribution by far will be the direct

    result of the extent to which technology is embraced. Insurers with well conceived

    technology solutions will get competitive advantage. In a few years time, it might

    be possible that those who try to resist the flow of internet technologies will be no

    more successful.

    Gupta (1977) in his research work on Investment Policy of Life Insurance

    Corporation of India has worked on how LIC is working with its policies, can it

    provide quality and variety of products to its customers and lastly, is there any

    scope for private participation in coming few years.

    It was concluded that presently, the only captain of ship insurance is Life Insurance

    Corporation of India but soon the doors may be opened for private sector. No

    doubt, LIC is working well with its policies but still it will have to be ready for

    entry of private sector.

    Chaudhary (2000) in her research paper, Indian Insurance Industry and

    Privatization, made an attempt on the roles which private companies can play.

    The objectives of the paper were to find out whether private insurance companies

    can serve as one stop shop covering all insurance needs, to know whether private

    companies can offer value added like beyond premium collection and claim

    settlement or not. It was concluded that for the first time in the history of Indian

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    Insurance, the concept of intermediary is being upgraded on a full scale. The reach

    of intermediaries will become deeper and their impact on the conduct of insurance

    business will be wider than before. The insurance companies can become one stop

    shop for providing all insurance products and services to the customers.

    Mishra (1986) in his Ph.D. thesis on Life Insurance Corporation of India has

    worked on objective to study the effect of working of LIC, how this effects the

    financial level, and study the impact of LICs working on the internal organisation.

    It was concluded that being the only company providing best services to the

    customers by satisfying their needs, is running successfully by earning through

    revenues and through providing remarkable services to the customers.

    Market Research Report, (2000) Distribution of life and pension in Europe.

    This report contains a detailed examination of the key trends and issues

    surrounding distribution of life insurance and pension products in Europe, France,

    Germany, Italy, Spain and UK. The report not only looked at channels but also at

    reasons behind growth of each channel. Distribution of life and pension in Europe

    (2002) is intended to appeal bancassurers, agents, direct sales force and all life and

    pension product advisors. In addition, it will appeal to dependent financial advisors

    and wealth managers.

    Aggarwal (2002) in his paper on Distribution of Life Insurance Products in

    India worked on the change in the existing distribution channels and to study

    whether they are technology oriented or not. To study whether there is a potential

    for new companies or not, it was concluded that new players are exploring fresh

    techniques of distribution. The companies are giving opportunity to DSAs to

    market their polices while many are following bancassurance channel for

    distribution. The other channel which is already established is agency.

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    Bancassurance is able to penetrate the market more successfully because banking

    and insurance industry share a common target of providing financial services to the

    customers. Thanks to the technology advancement, which is resulting in more

    awareness and sophistication. On the other hand, web is exclusively used for

    getting information and offline mode is followed while taking the policy.

    *DSA Direct Selling Agents

    Hollway and Basu (2002) in their research report on Developments in Indian

    Life Insurance markets worked on the background of new entrants, on their

    business strategies, on various developments that are likely to influence the market.

    After the opening of insurance sector in India, many insurance companies have

    entered the market with new business and distribution strategies. These companies

    are offering different saving plans, term benefits, riders and we can say a wider

    range of products are being offered. Foreign equity capital is expected to increase

    from 26% to 49% in 2001 to coming 4 to 5 years.

    Analyst Report (2004): Insurance and technology researchgives an

    overview of distribution technology trends in European Insurance. As the

    pendulum swings back towards business growth, distribution channel investments

    are returning to the strategic forefront for Europes insurers. This is the latest

    research finding to determine the main areas of investment focus for 2004. This is

    based upon 100 unique interviews with European Life and non-life insurers

    covering seven major western European markets.

    Aggarwal (2005) on Distributing Insurance in India has explained his

    research experience about location and channels used to supply services to target

    customers. Place and environment in which service is delivered also plays an

    important role. Traditionally, insurance service providers have been going to the

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    customer through their direct selling agents. In India and in world, the selling

    model is basically dependent upon Agency Sales Force. Even in U.S, most of the

    insurance policies are sold through direct contact, as it is a complicated product

    and it needs personal guidance, suggestions and options.

    Baskar and Lakshmikutty (2005) in their discussion on Insurance distribution in

    India-a perspective emphasis on distribution as a key element of

    insurance industry or not, to study the changing scenario

    demanding the role transformation of intermediaries and lastly

    the focus on multiple distribution channels. The current state of

    insurance distribution in India is flux. On one hand, insurers are

    awaiting regulations to be approved for brokerage and

    bancassurance to be truly launched. On the other hand, there

    are corporate model of intermediaries in place of traditional

    model. There is no right or wrong in all this, the success of

    distribution depends upon understanding the social and cultural

    needs of target population.

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    OBJECTIVES

    The main objective of the project was to check the preference of the customers

    regarding the insurance policies of the life insurance sector

    The objectives of the project were:

    1 To know the interest of the customers in buying the insurance policy.

    2 To know the perception of the customers for knowing that which factor

    affects their policy purchase decision.

    3 To know Government Life Insurance policies are much more secured than

    their Private Life insurance policies.

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    NEED OF THE STUDY

    1 It will help in getting the knowledge that which is the most important factor

    in affecting the policy purchase decision, and company can emphasis on it

    (like the agents training and CRM).

    2 It will help in getting the knowledge that what new features and benefits

    should be in a life insurance policy.

    3 It will help in getting the knowledge that advertising is affecting the policypurchase decision or not.

    4 Is less premium affects policy purchase decision? This can be known by this

    project.

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    RESEARCH METHODOLOGY

    RESEARCH METHODOLOGY

    1. Sampling design:

    Samples size of 100 customers

    In this study life insurance companies are selected from both public and private

    sectors .In this project 100 customer are surveyed which are deals with insurancepolicies.

    The Sampling method used convenience sampling.

    2. Research design

    The design of this study is descriptive3. Sampling unit.

    Customer of the above mentioned insurance companies are the sampling units.

    4. Data collection:

    a) Primary data: The instrument which is used for data collection isquestionnaire .the questionnaire is open ended as well as close ended.

    b) Secondary data: Information are collected from following tools:

    Secondary sources used are:

    1 Text books

    2 Journals like insurance post, business world, market research journal and

    journal of marketing

    3 Internet sites on Insurance.

    4 Newspapers articles.

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    .

    5. Data analysis:

    The appropriate tools and techniques of statistical analysis are used.a) pi chart

    b) bar chart

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    LIMITATIONS

    Paucity of time could not allow a detailed study and thus the vast

    information could not be included in the project report.

    Study is limited to Shimla region only.

    People were reluctant to provide the information.

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    DATA ANALYSIS

    1. Would you like to get insured?

    A. Yes B. No

    Chart4: Like to get insured

    36%

    64%

    yes

    no

    Sample size: 100

    1 64% of the respondents are not interested in getting insured reason being

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    some of them was already insured and yet others do not want any insurance

    cover.

    2 36% of the respondents say that they are interested in investing ininsurance.

    2. What according to you is the most important reason for getting insured?

    A. Risk Coverage

    B. Savings

    C. Tax Benefit

    CHART 5: PURPOSE

    31%

    46%

    23%

    RISKCOVERAGE

    SAVINGS

    TAX BANEFIT

    Sample size 100

    1 Majority of the respondent i.e. 46% says that the most important reason

    while taking the life insurance policy is tax benefit as there life insurance

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    policy is exempted from tax.

    2 31% respondents invest in life insurance policy for the purpose of savings.

    3 The remaining respondents i.e. only 23% invest in life insurance policy for

    the purpose of risk coverage.

    3. How much of your annual income would you like to invest in life

    insurance?

    A. Up to 2, 500

    B. 2,500 5,000

    C. 5,000 20000

    D. 20000-above

    CHART 6: INVESTMENT

    32%

    38%

    4%26%

    UPTO 2500

    2500-5000

    5000-20000

    20000-ABOVE

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    Sample size 100

    1 38% respondents say that they invest between Rs. 2500 to Rs. 5000 in the

    life insurance premium.

    2 26% respondents say that they invest between Rs. 5000 to 20000 in the life

    insurance premium.

    3 32% respondents say that they invest up to Rs. 2500 in the life insurance

    premium.

    4 Only 4% respondents says that they invest up Rs. 20000 or above

    4. What factors should you consider when thinking about the amount of

    life insurance?

    A. Benefits of the plan.

    B. Your Salary

    C. Future needs.

    D Others

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    CHART 7: FACTORS

    5%

    39%

    13%

    43%

    Benefits of

    the planYour salary

    Future needs

    Others

    Sample size- 100

    1 43% respondents consider their salary while planning the amount to be

    invested in insurance

    2 while 39% of them think that benefits of the plan must be the main priority

    while deciding about the insurance amount.

    3 And yet other i.e. the remaining 18% considers future needs or some other

    factors as the basis for amount of insurance.

    5. Do you have existing Insurance cover?

    A. YES

    B. NO

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    CHART 8: COVERAGE

    66%

    34%yes

    No

    Sample Size 100

    1 66% of the respondents say that they are covered under life insurance

    schemes (out of them 80% belongs to LIC and rest of them are covered

    under private sector) and 34% are not covered under any life insurance

    scheme. So these 34% persons provides the opportunity to the insurance

    companies.

    2 Majority of people who are covered under life insurance are the one living in

    urban areas and are the educated lots of society.

    3 34% people who are not covered one probably investing their money in PF

    and other long term & short-term schemes.

    4 The reason for preferring LIC is peoples trust in government where as they

    are of the view that private companies may vanish after a few years.

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    6. Who is your insurer?

    A. LIC

    B. Private Company

    If private company, mention name________________________

    CHART 9: INSURER

    89%

    11%

    0% 20% 40% 60% 80% 100%

    LIC

    Pvt. Co.

    Sample Size - 100

    1 LIC holds major market share i.e. 89% as they have built customers trust.

    2 Private players together cornered 11% of the market share in which ICICI

    Prudential, Birla Sunlife, HDFC Standard Life, Tata AIG, Max New York Life

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    are the main players.

    7. Whom do you consult while taking financial decisions?

    A. Colleagues

    B. Friends

    C. Family

    D. Others

    CHART 10: CONSULTANT

    20%

    35%24%

    21%COLLEAGUES

    FRIENDSFAMILY

    OTHERS

    Sample size - 100

    1 35% of the respondent influenced by friends to go for the policy.

    2 24% of the respondent influenced by the family. So we can say family members

    play an important role to influence for purchasing of the life insurance policies.

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    3 20% of the respondent influenced by their colleagues.

    4 21% of the respondent influenced by the advertisements and others such as

    agents, professionals etc.

    8. Who would more likely buy life insurance?

    A. Childless single person

    B. Parents

    CHART 11: CATEGORY OF PROSPECTS

    20%

    80%

    childless single

    person

    parents

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    Sample Size - 100

    1 80% of the respondents are of the view that parents are more likely to buy the

    insurance policies, as they consider insurance as a risk-covering device to

    protect their dependents.

    2 Where as 20% of them are of the view that even singles are more likely

    to buy insurance as their main motive is to save tax and save a lump sum.

    9. Do you perceive that government life insurance policies are much more

    secured than their private counter parts?

    A. YES

    B. NO

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    CHART 12:SECURITY

    69%

    31% Yes

    No

    Sample Size 100

    1 69% Respondent feel that Govt. life insurance policies are more secured than

    their private counterparts. Because the life insurance policies have with in the

    market for a long time and a wider reach.

    2 25% respondents feel that private counter parts are also secured. Among

    other Govt. life insurance the premium rates are comparatively low. Theservices are better as compare to govt. life insurance.

    10. Do you go through all the details of the policy (Comparative and the

    chosen) that you choose?

    A. YES

    B. NO

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    CHART 13: DETAILS

    90%

    10%

    Yes

    No

    Sample size 100

    1 90% respondent says that they go through the details of the policy before

    choosing the one. Because they are going to invest their money in that policy.

    2 10% respondents says that they dont go through the details of the policy

    and that is because they are just buying the policy to evade the tax and that

    people are rich and the premium hardly make any difference to them.

    11. Are you aware about insurance policies terminology?

    A. Endowment Policy D. Term Assurance Policy

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    B. Children Policy E. Pension Plan

    C. Money Back Policy F. Single Premium Plans

    CHART 14: PLANS

    17%

    12%

    33%

    8%

    22%

    8%

    ENDOWMENT

    CHILDREN

    MONEY BACK

    TERM ASSURANCE

    PENSION

    SINGLE PREMIUM

    Sample size 100

    1 Majority of the respondent are aware about the money back plan.

    2 22% of the respondent is aware about the pension plan.

    3 17% of the respondent is aware about the Endowment policy.

    4 12% of the respondent is aware about the children policy.

    5 8% of the respondent is aware about the term assurance policy and single

    premium plans.

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    12. Do you know about ICICI Prudential Life Insurance Co. Ltd.?

    A. Yes

    B. No

    CHART 15: ICICI Awareness

    62%

    38%

    yes

    no

    Sample size 100

    1 62% respondents are aware of the ICICI Prudential Life Insurance Company

    although some of them know it by ICICI Bank, others have partial

    knowledge and yet others have full knowledge about the company.

    2 38% of the respondents are not at all aware of the brand ICICI Prudential .

    13. If yes, what are the sources?

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    A. Electronic Media

    B. Agents

    C. Print Media

    D. Others

    CHART 16: Sources

    37

    52

    11

    24

    0

    10

    20

    30

    40

    50

    60

    Electronic

    Agents

    Print

    Others

    ample size 100

    1 52% people surveyed said that they are able to recall the advertisements of

    the company in newspaper , magazines and other such print medias.

    2 37% of the population surveyed knew HDFC through their agents.

    3 Only 24% people said that they knew about HDFC Standard Life through

    Electronic media .The company seldom show any advertisements on the

    electronic media but still people were aware of its campaign.

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    14. Life insurance policy should be made compulsory for every earning

    individual.

    A. Agree

    B. Disagree

    CHART 17: COMPULSION

    98%

    2%

    AGREE

    DISAGREE

    Sample Size 100

    1 98% respondent says that life insurance policy should be made compulsory

    as they can relate it to the benefits they set to the policy.

    2 2% respondent disagrees to the statement.

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    FINDING AND CONCLUSION

    Life Insurance sector after privatization is maturing from mere security as single

    purpose behind owning a policy to one of better investment options as well as

    policies is available with multiple options and riders. Now at present around 13

    private cos are operating in life insurance sector. LIC is going to have tough time

    ahead but due to its multiple policies and huge network of agents and strong client

    base gives its competitive advantage. But real competition is coming from HDFC

    AND ICICI which are utilizing competitively their old database in attracting

    customers through cross-selling of financial products at one roof.

    In the era of IT and telecom revolution through mobile commerce, net

    services, bank assurance and easy availability of credit has given cut throat

    competition in this sector. As a credence service it is very difficult for customers to

    evaluate even after purchase and use of policies. Here, personal relations

    maintained by insurance agents give you competitive edge. Relationship marketing

    is advanced concept which is transformation of transaction marketing.

    The distribution of whole life insurance sector seems to suggest relationship

    marketing. It usually is sold by agent who is primary contact person and on whose

    advice buyers rely in finding a suitable policy. After the sale agents provide

    follow-up service, helping customers make policy changes in response to changing

    needs.

    After analyzing the data, there are many things which I found. The main findings

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    of my research are:

    1 The main objective of my project was to check the awareness of people

    regarding the private companies of Life Insurance.

    2 In the comparison of other private Life Insurance companies the awareness

    of ICICI Pru. and HDFCL is much more. After ICICI Pru. The next Life

    Insurance Company which is known by people in HDFCSL. These two

    companies are known by people due to their other previous operations in

    India.

    3 If we ask the question to the people that from which company he/she is

    willing to buy LIP, then most of the people answered that they will purchase

    LIP from LIC, due to its strong brand image and wide network. I reached a

    conclusion that after some time and with the better performance and better

    features products private Life Insurance Companies will be able to increase

    their database.

    4 In the comparison of other private life insurance companies, more people

    give their preference to buy LIP from ICICI prudential and HDFCSL

    Insurance Company, due to successful operation of ICICI Prudential and

    HDFC in India.

    5 If we see the reasons that why more people are willing to buy LIP from LIC.

    I reached a conclusion that people give preference to LIC because its strong

    brand image and wide network. The other reasons are that the people think

    that their money is safe in the hand of LIC, and after completion the policy

    the returns will be guaranteed.

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    RECOMMENDATION

    After analyzing the findings from my survey I am giving some recommendation

    to Insurance companies , by applying these suggestion company can get

    some benefit.

    1 Relationship marketing in life insurance sector play very important role in

    attracting customer and getting repeat business in terms of new policy for

    himself/herself or for other members of family. Insurance agents were only

    involved in maintaining relationships with known customers. So Companys

    agent should be more educated with strong command on companys

    products & competitors products.

    2 Maintain customer database and send them birthday wishes on clientsbirthday and providing customized policy with conversion option in terms of

    payment schedule, premium terms, bonus declaration, money back clause

    etc.

    3 In India personal relationship and good reputation of agent play important

    role in selling insurance policy. Agents advice makes customer to opt for

    particular policy, so company should increase the no. of its agents with

    better knowledge about the project and good communication skill.

    4 Due to pressure on markings and LICS strong customer and agent base in

    all over India, requires ICICI Pru. to come up with new innovative products.

    5 Improve customer Sensitivity

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    6 Enhance Focus on Rural Sector

    7 Professionalization

    8 Publicity & Public relations

    9 Mgt by Objectives

    10 Classification of customer as profitable and least profitable and aligning all

    business processes and strategies along customer links

    11 Improved service quality and individualized attention to customer

    12 Emphasis on Agents training. The agents should be provided

    comprehensive training so that they can go in the market and fetch business

    for company. Partial and incomplete knowledge will bring bad name to the

    company and brings brand dilution for the company.

    13 Classify their customers on basis of profitability and revenue generation.

    14 Complaints by clients should be tried to remove as soon as possible.

    15 More commission and other benefit should be given to the more profitable

    agent.

    16 Classifies its most profitable staff on basis of no of complaints handled.

    17 Provide club membership programs for policyholders, and arrange seminars

    time to time.

    18 Under social benefits company should initiate positive phone calls and

    should provide service suggestions with getting to problems.

    19 Maintain database of existing customers for future contact.

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    BIBLIOGRAPHY

    INFORMATION BROCHURE

    1. Information Brochure of ICICI PRU.2. Information Brochure of OM KOTAK MAHINDRA.3. Information Brochure of ING VYASA LIFE INSURANCE

    About Vysya life (node) Retrieved on (2004,Oct 25) From

    http//www.ing.com/ing/contentm.nsf/homeabout

    About Snmar (n.d) Retrieved on (2004, Oct 25) From

    httap://www.sanmargroup.com

    Dasgupta, S. (2003, June 29) ICICI Prudential leads the New Life Pack. The

    Economic Times-New Delhi

    Gupta, N.D. (2003, June) Insurance A Booming Professional Opportunity The

    Chartered Accountant 15(12) p-1195-1200

    Goswami,N. (2004,May 7) Pvt. Insurers Notch up Close to 1k cr. Premia. The

    Economic Times-New Delhi.p-1

    ICICI Prudential Life Insurance Ltd. (n.d.) Retrieved on (2004, Oct 25) From

    http://.http://www.iciciprulife.com/creative/home.jsp(faq)

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    Introduction (n.d) Retrieved on (2004, Oct 25) From

    http://www.bajajallianz.co.in/aboutus.htm

    Kumar, A. (2003, March 5) Private Sectors Players eat into LIC Business.The

    Hindustan Times-Chandigarh

    Rangachary, N. (2003) Vision for the Future. Survey of Indian Industry 2003 p39-

    41

    Thampy, A & Sitharamu, S. (2004, July-Dec.) Life Insurance Potential in India:

    An Economic Approach Vision 6(2) pp 11-18

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    ANNEXURE

    1. Wouldyou like to get insured?

    Yes No

    2. What according to you is the most important reason for getting insured?

    Risk Coverage Savings

    Tax Benefit

    3. How much of your annual income would you like to invest in life insurance?

    Up to 2, 500 2,500 5,000

    5,000 20000 20000-above

    4. What factors should you consider when thinking about the amount of life

    insurance?

    Benefits of the plan Your Salary

    Future needs Others

    5. Do you have existing insurance cover?

    Yes No

    6. If yes (Q4. above) who is your insurer?

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    LIC Private Company

    If private company, mention name________________________

    7. Whom do you consult while taking financial decisions?

    Colleagues Friends

    Family Others

    8. Who would more likely buy life insurance?

    Childless single person Parents

    9. Do you perceive that Government Life Insurance policies are much more

    secured than their Private counterparts?

    Yes No

    10. Do you go through all the details of the Policy that you choose?

    Yes No

    11. Are you aware of the following Insurance Plans?

    Endowment Policy Children Policy

    Money Back Policy Term Assurance Policy

    Pension Plan Single Premium Plans

    12. Do you know about HDFC Standard Life Insurance Co. Ltd.?

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    Yes No

    13. If yes, what are the sources?

    Electronic Media Agents

    Print Media Others

    14. Life insurance should be made compulsory for every earning individual...

    Agree Disagree

    NAME: ________________________________________________

    ADDRESS: _____________________________________________

    PHONE NUMBER: _______________________________________

    AGE/ DATE OF BIRTH: ___________________________________

    EDUCATION: ___________________________________________

    OCCUPATION: __________________________________________

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