Analysis of Life Insurance Sector(Life Insurance Corporation)

Presented by

Ashish Chandra (29041)

C. Sudhir (29044)

Parvati Singh (29055)

Sharat Jha (29065)

Institute of Rural Management, Anand

Demographic environment India has, according to 2001 census, 65.38%

literacy rate. The literacy rate varies across rural (59.4%) and urban (80.3%) India. These contrasts in literacy levels are significant and have important implications for insurers.

Literacy and education increases employability of the person in higher earning jobs and also brings about a change in perception about need for insurance.

The median age in country was 23.8 years in 2005.

Increase in double income families.

Education level

Year Number of graduates

1991 20.5 million

2001 37.6 million

2004 48.7 million

.

Political and legal environmentIRDA Act 1999 The Bill allowed for up to 26% foreign equity

participation in the insurance sector. The minimum paid up equity capital, excluding

required deposits with the RBI and any preliminary expenses in the formation of the country, requirement of an insurer would be Rs 100 crore to carry on life insurance business

Insurance business in Rural Sector: -

After the commencement of the IRDA Act, 1999, (Malhotra committee) every insurer would have to undertake such percentage of life insurance business in the rural sector as may be specified by the IRDA in this behalf. It is mandatory for the new companies to meet the obligations relating to the rural and unorganized sector as per section 32-B.

Economic environmentInflation rate: -Inflation can also be one of the causes to change

the scenario of the insurance sector. High inflation for instance, would tend to reduce the insurance business, particularly life, because the real value of the money paid back to the policyholder on maturity of the policy would go down and would, therefore, lose its attraction for the investor.

Impact of income on insurance: Income level significantly affects the demand for life insurance. Life insurance becomes more affordable when income increases((Rubayah and Zaidi (2000)).

Socio-Cultural and technological environment

Decline of joint family structure has added to need for insurance.

New channels like Bancassurance, corporate agents and websites selling life insurance products are ubiquitous testaments to how the channels have grown in terms of not only selling, but also increasing awareness about life insurance.

More innovative channels like a supermarket, a bank, a post office, an ATM, an internet kiosk or a departmental store could be introduced in the future. . For example MetLife India, a subsidiary of global insurance giant, entered into a strategic tie up with Viswas, a Hyderabad based retail chain, to offer life insurance and other financial products in the rural areas.

Company- LICLife Insurance Corporation was formed as a

government regulated monopoly in September 1956 by an Act of Parliament, (LIC Act 1956) with a capital contribution of Rs. 50 million.

The total life insurance market can be judged on two parameters – premium collected and number of new policies underwritten. It can be seen that LIC has a market share of 53% which roughly amounts to Rs. 20000000 crores out of a total market of 4.3 crore crores.

The number of players in this segment have increased to 30 (15 in private sector), with Life Insurance Corporation (LIC) being the dominant player (market share of over 53%)

Objectives

• When The Life Insurance Corporation of India was set up in 1956, its primary objective was to propagate the idea and practice of life insurance in rural areas among financially backward people so that their risks were covered in the event of death.

• The Life Insurance Corporation of India intends to increase the mobility of individual savings to the maximum extent possible.

• The Life Insurance Corporation of India seeks to employ the investments of its customers in the best possible manner while at the same time prioritizing matters of national importance.

• The company aims at meeting the dynamic expectations of its investors by adding innovative schemes and products to its portfolio.

Culture • LIC has had many problems relating to the

efficient use of its human resources since the time it was set up.

• Many of these problems related to the fact that it was a public sector organization. The corporation's managers were too bureaucratic.

• The work culture in the organization was sloppy.

• Strong trade unions made it difficult for managers to get the work done.

• The corporation's development officers focused on their own earnings and incentives, rather than on customer satisfaction.

Product line• Schemes: money back plans, whole life plans, and

term assurance plans, several special insurance plans for children, women, physically challenged dependants, and high net-worth individuals. 

• Pension plans - Jeevan Nidhi, Jeevan Akshay, Jeevan Dhara, and Jeevan Suraksha.

• The company has 3 Unit plans - Market Plus, Profit Plus, and Fortune Plus.

• Group schemes - Gratuity Plus, Group gratuity Scheme, and Group Leave Encashment Scheme. 

• New plans- ULIP, health insurance• In 2005-06 , LIC added as many as 100,00,000

policies to its already impressive portfolio and grew by almost 17% during the given period.

Competitors of LICPrivate players allowed in the

market in 2000Currently, close to 30 public and

private firms in India dealing in life insurance

Competitors of LIC

53%

3%5%

39%

Market Share (Premium wise)2007-2008 (Rs. 1.5 lakh crores)

LICBajaj AllianzICICI PrudentialOthers

Source: IRDA annual report 2008

An overview of the competitive life insurance market in India

INDUSTRY COMPETITORSLIC, BAJAJ ALLIANZ, SBI

LIFE, RELIANCE LIFE, HDFC STANDARD LIFE, BIRLA

SUN LIFE, MAX NEW YORK LIFE, KOTAK MAHINDRA

SUBSTITUTESUNIT PLUS (SBI LIFE),NEW CAPITAL GAIN (BAJAJ ALLIANZ) etc.

POTENTIAL ENTRANTSDLF PRAMERICA LIFE, STAR UNION DAI-CHI

LIFE, FUTURE GENERALI LIFE, SRIRAM SUNLAM

LIFE

BUYERSSWITCHING TO DIFFERENT INVESTMENT SECTORS FOR

BETTER RETURNS, UNDIFFERENTIATED

PRODUCT

SUPPLIERS GROWING POWERS

BANKS, CA ARE IMPORTANT CHANNELS TO REACH THE CLIENT. HIGH BARGAINING

POWER

Comparisons between the trioDistribution Network

LIC8 zonal offices, 100 divisional offices, 2048 branch offices. Agents over 10 lakhs and 26 bancassurance partners

ICICI Prudential2100 branch offices, agents over 2.9 lakhs, 18 bancassurance partners

Bajaj Allianz1200 branches, agents over 2.5 lakhs, tie-ups with 5 co-operative banks

Comparisons between the trio (contd)

Grievances◦Grievance settlement ratio was 90%

for ICICI Prudential, 81% for Bajaj Allianz and 12% for LIC

• Promotion expenditure LIC - Rs. 116 crore in 2008 Bajaj Allianz – Rs. 17.7 crore in 2008 ICICI Prudential – Rs. 15.4 crore in 2008

Financial comparisons with competitors

Parameter

Company LIC ICICI Pru Bajaj Allianz

Year/Ratios 04-05 07-08 04-05 07-08 04-05 07-08

Operating Efficiency

Operating exp % of premium earned 0.086 0.088 0.729 0.195 3.517 0.214Commission exp as % of premium earned 0.091 0.087 0.124 0.033 0.329 0.146

Profitability Measure Return on assets 0.003 0.002 0.318 0.048 0.103 -0.35

Return on equity - - 0.553 0.229 0.105 0.245Marketing Efficiency

Premium earned per agent 11.25 20.04 1.06 7.9 0.16 3.07

Bajaj Allianz – S.W.O.T.Strengths Strong promoters, all-India

network, products across all lines, strong IT infrastructure

Weaknesses Little product differentiation (premium wise and offering wise), vulnerable to risk associated with investment in the money market, high expenditure on advertising (Rs. 17.7 crores approx: ICICI Prudential – Rs. 11.1 crores)

Opportunities Geographical expansion, differential pricing

Threats Product differentiation is difficult in current market, competition getting keener

ICICI Prudential – S.W.O.T.Strengths Money power, larger

network branches, large portfolio (in built fund hedge), price competitive products and low upfront charge

Weaknesses Little product differentiation, most of the plans too complicated to understand, more centred in urban areas

Opportunities Insurance coverage both to the parents and children, leverage the customer base of bancassurance partner, strong distribution network

Threats Players like Bajaj Allianz with low premium for same plan, LIC offering huge surplus in life fund, product differentiation is difficult

LIC – S.W.O.T.

Strengths Brand Image, Govt. Guarantee, Claim settlement ratio, Large product portfolio

Weaknesses Ultra-slow decision making process, typical government organizational problems

Opportunities Pension market, health insurance, large real estate portfolio

Threats Internal discord, new players, red-tapism

Comparison of similar policy of competition

Company

Policy Min/Max entry age

Minimum Premium

Min sum assured

Liquidity years

Maturity benefits

LIC Moneyback with Profit

13/50 Rs. 3186 yearly

Rs. 50000

5,10,15,20

40% of sum assured + bonuses

ICICI Prudential

CashBak 16/55 Rs. 6000 yearly

Rs. 75000

4,8,12,16,20

50% of sum assured + bonuses

Bajaj Allianz

CashGain 14/50 Rs. 5000 yearly

Rs. 50000

4,8,12,16,20

125% of sum assured + bonuses

Market Size and Growth205.9 million households61.4 million urban householdsRs 1.5 lakh crore premium

collected (industry) in 2006-07 (19.9% growth vs 2.9% growth in world market)

Life Insurance penetration ≈ 3 %

Consumer Behaviour Cultural Factors

◦ Unnatural events◦ Sub culture (Urban-Rural divide)

Awareness, Per Capita Income Middle class – for protection & savings Upper class – for investment, tax benefit & savings

Social Factors◦ Reference group, family, status◦ In joint families less stress on buying insurance◦ Women factor

Personal Factors◦ Buyer’s age◦ Stage in Life cycle◦ Occupation◦ Economic Circumstances◦ Personality◦ Life style

1. <150,00010%

2. 150,000 - 300,000

20%

3. 300,000 - 500,000

35%

4. 500,000 and above

35%

Income Level of Respondents

Less than 15 years5%

15 - 30 years35%

30 - 45 years40%

45 and above20%

Age Profile

1. Service

2. Business

3. Student

4. Self employed

(for e.g CA,Lawyer)

16

10

8

6

Occupation of the re-spondents

Consumer Behaviour

Benefit that consumer is seeking

1. Security50%

2. Investment17%

3. Tax saving25%

4. Asset Pro-tection

8%

What needs must be satis-fied?

Consumer Behaviour

Where are the present investments?

1. Real estate

2. Gold 3. Mu-tual

funds\equity

4. Insur-ance

6. Other

Series1

0.05 0.25 0.15 0.3 0.45

Where have you invested in?

Perc

en

tag

e o

f re

sp

on

den

ts

Factors Influencing final choice of life insurance company

1. Reliability

2. Policy scheme

3. Brand Name

4. Customer service

5. Promotion

6. Ease of availability

72.5%

15.0%

80.0%

57.5%

45.0%

75.0%

Type of Insurance preferred by consumers

Term

Pla

ns

Endo

wmen

tULI

P

Not sur

e0%

10%

20%

30%

40%

50%

60%

70% 60%

25%

10% 5%

Major factors influencing decision to purchase insurance

12%

55%

12%

7%

10%4%

advertisement

agent

friends and nieghbours

family

co workers

others

1. Agent/Broker55%

2. Direct from

company33%

3. Ban-cassur-ance7%

4. Other5%

Where do they go or look to buy life insurance

preference for mode of payment of premium

8%

60%

28%

2%

2%

single premium

annual

half yearly

monthly

Quaterly

Major decision maker in buying the policy

67%

15%

17%1%

policy holder

spouse

parents

children

Short term objectivesTo invest an additional Rs. 4000

crore in the stock marketIt would employ 11 lakh more

agents to double its field workforce

Long term objectivesSpread life insurance to the rural

areas and socio-economically backward classes

Maximize mobilization of people’s savings by making insurance-linked savings more attractive

Involve all people working the Corporation to the best of their capability in furthering the interests of the insured public

References www.irdaindia.org http://www.mouthshut.com/review/Life_Insurance_Corporation-1291

19-1.html http://www.financialexpress.com/news/lic-to-hike-advertising-spend-

to-target-youth/131089/ www.licindia.com The Marketing Whitebook 2009-2010 Marketing Management – 13th Edition, Kotler, Keller, Koshy & Jha http://www.business-standard.com/india/news/insurers-miss-outrura

l-social-obligations/351625/ Life Insurance in India : Emerging Issues (Indira Gandhi Institute of

Development Research) http://www.financialexpress.com/news/pvt-players-snuffing-life-out-

of-market-leader-lic/171530/0 http://www.icmrindia.org/casestudies/catalogue/business%20strate

gy5/CLBS016.htm http://www.rediff.com/money/2005/dec/19guest1.htm http://en.wikipedia.org/wiki/Tertiary_education_in_India http://www.topnews.in/lic-invest-rs-4000-cr-stock-markets-march-20

09-2115764 http://www.licindia.com/objectives.htm

THANKYOU!!