final proj

TY B.B.I Jai Hind College

LIFE INSURANCE –DEFINITION & MEANING:

Life insurance or life assurance is a contract between the policy owner and

the insurer, where the insurer agrees to pay a designated beneficiary a sum of

money upon the occurrence of the insured individual's or individuals' death

or other event, such as terminal illness or critical illness. In return, the policy

owner agrees to pay a stipulated amount at regular intervals or in lump sums.

There may be designs in some countries where bills and death expenses plus

catering for after funeral expenses should be included in Policy Premium. In

the United States, the predominant form simply specifies a lump sum to be

paid on the insured's demise.

Meaning:

Life insurance is a contract between the assurer and assured, whereby the

assurer agrees to compensate to the assured a certain agreed sum on the

expiry of a certain period, or on death, whichever is earlier, for a

consideration that is premium. Life insurance is a very popular form of

insurance. The two main principles of life insurance are utmost good faith

and insurable interest. It not only gives protection but also is a method of

compulsory saving. In India, the business of life insurance has been

nationalized since 1956. The benefits of life insurance are:

It gives monetary protection to the policyholder and its family

members in case of premature death.

It reduces tension and provides peaceful life to the policyholders.

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Acts as a social security measure.

It serves as a provision for old age.

It is an ideal method of compulsory saving for old age.

It offers benefits of profitable investment.

Protection and safety to policyholders.

Raises the rate of capital formation and economic development.

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ORIGIN OF INSURANCE

We live in exciting times with changes and upheavals all around. New

technologies, new inventions and changes in the economic and financial

scenario, all have thrown up new insurance needs; needs never felt or heard

before. This type of evolutionary process, in the last few decades, has given

hope to new types of need-based insurance covers; public liability insurance,

product liability insurance, indemnity for medical practitioners for

negligence, indemnity for chartered accountants and auditors for professional

lapses, etc. Further, covers are engineering insurance, erection insurance,

loss of profit, cover against atomic radiation and space travel and contracting

AIDS.

Around 6000 years ago, Babylonians, whose home in the Tigris – Euphrates

valley lay at the crossroads of early world traffic, had developed business

practices to a high degree. Babylon had become the clearinghouse of trade as

all the important land trade routes converged in that territory. From Armenia

in the north, China and India in the east, Egypt in the west, caravans came

laden with merchandise. Though Babylon built up a great commercial

system, and her people were the first to enjoy the fruits of political economy,

their territory was surrounded by huge tracts of desert.

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The travelers by land were exposed to the risk of robbery, which then was

considered not so abominable a means of livelihood and the same view held

good for the piracy on the high seas. Besides, during those days, the ships

were entirely at the mercy of the winds. Under such conditions, till the goods

reached their destination, the consignor was constantly worried about its

safety.

In fact, many traders could not meet the obligations of the principals and, as

per their contracts, were forced to become slaves along with their families.

Human ingenuity was set to work and, in course of time, a practice

developed that debt of the trader, both principal and interest, should be

absolved if certain specified contingencies occur.

Research scholars claim that insurance was known and practiced in India

even during the ancient Vedic times. Manu the ancient scholar and lawgiver

enjoined that a special change be made on goods carried from one place to

another to ensure their safe carriage, until it was finally handed over to the

consignee at the destination.

Recorded evidences testify that ancient India was a prominent maritime

power. There were busy seaports on the west coast at Broach, at

Kaveripumpatnam in the south and Banga in the east. Traders expressed

difficulties in realizing money for the goods sent abroad. Loans were

advanced to traders at specified rates of interest depending on the risk run

and the duration of time for which money was required. Men skilled in sea

voyages worked out risk premium rates.

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On successful conclusion of the voyage, the borrower returned the loan

along with interest, when the eventuality insured against did not materialize

but it often happened that he was unable to deliver the goods in sound

condition at the time and place specified or if he was robbed, he was

absolved of his liability.

If the cargo was lost due to the negligence of the crew, the loss was to be

borne by all the crewmembers, but when loss was caused by God, the

members of the crew were not held responsible. A carrier who failed to reach

the destination, could not claim freight, but was exempted from

responsibility if loss was occasioned by an act of God. If the loss was due to

Piracy, the cashier was not protected.

We have had bizarre insurance covers. Lizza Minnelli the singing sensation

had insured her voice and so have Boy George and Michael Jackson. Marine

Dietrich and Betty Grable, Hollywood‘s leading ladies have insured their

legs. A well-known comedian in the USA had a policy insuring those in his

audience, against anyone dying of laughter after hearing his Jokes!

The business of insurance started with marine business traders, who

used to gather in the Lloyds coffee house in London agreed to share the

losses to their goods while being carried by ships. The losses occurred

due to pirates robbing the goods or perils of the sea. The first insurance

policy was issued in 1583 in England. In India, insurance began with

life insurance being transacted by an English company- the European

and the Albert. The first Indian insurance company was the Bombay

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Mutual Assurance Society ltd., formed in 1870. This was followed by

the Oriental life Assurance in 1874, the Bharat in 1896 and the Empire

of India in 1897.

Later the Hindustan Cooperative was formed in Calcutta, the United

India in Madras, The Bombay Life in Bombay, The National in

Calcutta, The New India in Bombay, The Jupiter in Bombay and the

Lakshmi in New Delhi. These were all Indian companies started as a

result of the swadeshi movement in the early 1900‘s. By the year 1956,

when the Life insurance business was nationalized and the Life

Insurance Corporation of India (LIC) was formed on 1st September

1956, there were 170 companies and 75 provident fund societies

transacting life insurance business in India. After the amendment to the

relevant laws in 1999, the LIC did not have the exclusive privilege of

doing life insurance business in India. By 31st march 2002, eleven new

insurance companies had been registered and began to transact life

insurance business in India.

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IMPORTANCE OF LIFE INSURANCE:

Life insurance protects and safeguards the interests of individual . It gives

them safety and creates confidence in their minds. Indirectly it enables an

individual to live his or her life with a sense of security.

It promotes rate of savings and investments and lead to capital

formation in the economy.

It provides a sense of safety to individuals.

It creates a sense of security and confidence among all the

sections of the society.

Insurance companies act as underwriters, guarantors,

subscribers and financiers of industrial concerns. They help and

support their clients in different ways and in different areas.

It gives proper investment security and create proper investment

climate in the country.

It accelerates the process of industrialization by rendering

various services. This suggests the role of insurance in society as

well as in development of national economy.

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PRINCIPLES APPLICABLE TO LIFE INSURANCE

1. Utmost good faith:

Both the parties -insured and the insurer must have utmost good

faith towards each other, in respect of insurance contract. The insured must

provide to the insurer complete correct and clear information of the subject

matter of insurance. The insurer can avoid his liability to pay compensation,

if certain material facts were not disclosed by the insured at the time of

taking the policy. Similarly the insurer must provide complete correct and

clear information regarding the terms and conditions of contract. Failure to

provide complete and correct material facts regarding the mode and amount

of premium and other details, makes the contract of insurance void at the

discretion of the insured. This principle is applicable to all contracts of

insurance- life, fire and marine.

2. Insurable interest:

The insured must have an insurable interest in the subject matter of

insurance. Insurable interest means some pecuniary or financial interest in

the subject matter. When insurable interest must be present?

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In life insurance, the insurable interest refers to the life insured.

The insurable interest must exist at the time of taking a life

insurance policy.

In marine insurance, it is enough if insurable interest exists only

at the time of occurrence of the loss.

In case of fire and general insurance, the insurable interest must

be present at the time of taking the policy and also at time of

occurrence of the loss.

The principle of insurable interest is applicable to all contracts of

insurance.

3. Principle of contribution:

This principle is a ‘corollary’ of the principle of

indemnity. It is applicable to all contracts of indemnity, where the insured

has taken out more than one policy on the matter. Thus, if the insured

claims the full amount of compensation from one insurer, then he cannot

claim from other insurer and make a profit. Again, if one insurance

company pays the full compensation, then it can recover the proportionate

contribution from the other insurance company. This principle is, however,

not applicable to life insurance contract.

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NEED FOR LIFE INSURANCE

The business of insurance is related to protection of the economic values of

the assets. Every asset is of some value and is expected to last for a certain

period of time during which it will deliver that value. In case the asset is

destroyed it ceases to provide the value to the owner thus leading to an

unpleasant situation. Insurance is a mechanism to reduce the affect of such

unpleasant situation. Human life is considered to be a value generating

asset and is also subject to risks.

Assets are insured because there if a possibility that perhaps they might get

destroyed, through accidental occurrences. Such possible occurrences are

called perils. If such perils can cause damage to the asset we say that the

asset is exposed to risk. To be more précised Perils are the events and risks

are the consequential losses or damages. The risk only means that there is a

possibility of a loss or damage, the loss may or may not happen. Insurance is

done against the contingency that it might happen. Insurance is relevant only

if there are uncertainties. If there is no uncertainty about the occurrence of an

event, it cannot be insured against. In case of human beings death is certain;

however the time of death is uncertain.

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Insurance doesn‘t protect the asset. It doesn‘t prevent the loss due to its peril.

The perils can sometime be avoided by ensuring better safety and damage

control management. Insurance only tries to reduce the impact of the risk on

the owner of the asset and those who depend on that asset. Only economic

consequences can be insured. If the loss is not financial, insurance may not

be possible.

Moreover insurance is backed up with many economic benefits which can be

enlisted as follows:

Life insurance provides financial security to the family in case of

untimely or premature death.

Life insurance is also a potent instrument for saving.

Life insurance provides financial independence in old age.

Organizations or individuals, who are in credit business, can ensure

for themselves recovery of loan in case their debtor dies.

A partnership firm can insure partners to the extent of capital invested

by each in the business.

Under ‘key man’ insurance, an organization can insure the lives of

their executives, whose expertise greatly contributes to their profits.

Organizations can purchase group insurance policies as a part of their

employee- welfare program.

Life insurance also provides tax benefits to the holder.

Life insurance policies create an estate.

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WORKING OF LIFE-INSURANCE BUSINESS

There are thee primary methods to avoid risk viz.

A) AVOID

B) REDUCE

C) TRANSFER

Insurance deals with transfer of risk from the consumer to the provider.

Insurance works on a fundamental principle of pooling of risk. People who

are exposed to the same risk come together and agree that, if any one of them

suffers a loss, the others will share the loss and make good the person who

has suffered the loss. The manner in which the loss is to be shared can be

determined before hand. It may be proportional to the risk that each person is

exposed to. This would be indicative of the benefit he would receive if the

peril befell him.

Insurance companies collect the share in the form of premiums and create a

fund from which losses are paid; this fund is known as the life fund. The

insurance company pays the losses to the members of that group. The

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insurance company also invests the funds in governmental ant private

organizations.

Ex. LIC has lent a capital of Rs.215million to NABARD for its rural

financing activities.

INSURER’S BUSINESS MODEL

Insurers make money in two ways:

Through underwriting, the process by which insurers select the risks

to insure and decide how much in premiums to charge for

accepting those risks.

By investing the premiums they collect from insured’s.

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. Of course, from the insurer's perspective,

some policies are winners (i.e., the insurer pays out less in claims and

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expenses than it receives in premiums and investment income) and some are

losers (i.e., the insurer pays out more in claims and expenses than it receives

in premiums and investment income). 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.

Property and casualty insurers currently make the most money from their

auto insurance line of business. Generally better statistics are available on

auto losses and underwriting on this line of business has benefited greatly

from advances in computing.

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. As part of this balancing act, fraudulent

insurance practices are a major business risk that must be managed and

overcome.

The business model can be reduced to a simple equation:

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Profit = earned premium + investment income - incurred loss -


LIFE INSURANCE MIX

The identification of the seven P‘s of marketing mix helps a firm to form

better marketing strategies and also to serve the customers in a more efficient

manner.

1. Product Mix

The best way to get and keep customers is to constantly figure out how

to give them more for less.

A product mix is the set of all products and items that a particular seller

offers for sale. In case of insurance sector, the product mix comprises of Life

and Non – life insurance policies that are offered to the customer by the

company. A company‘s product mix has certain width, length, depth and

consistency.

The length of a product mix refers to the total number of items in the mix.

In case of insurance sector, the following is the length of product mix:

Whole Life Policy

Limited Payment Life

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Convertible Whole Life Policy

Joint Life Endowment Policy

Double Endowment Policy

Jeevan Saathi

Money Back Policy

Annuity Plans

Group Insurance Policy

Bima Sandesh

With or Without Profit Policy

A. Product Differentiation

Product differentiation may be referred to as the points or the qualities that a

firm has in its product, which makes the product different from its

competitors‘ product.

The product differentiation as far as the insurance sector and LIC in

particular is concerned are as follows----

Bonus- insurance companies issue bonus to their policyholders when

they make a substantial amount of profit. If a company issues a high

amount of bonus, it delights the customer and creates a good image in

the eyes of the customer.

Past records- the differentiation can be done on the basis of past

records. Customers choose to take policy from that company which

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has well past records in terms of claim settling periods, premium

collection intervals etc.

Market reputation- a company with a good market reputation and

goodwill is perceived to deliver the best of the service quality and

customer satisfaction

Technology- technology plays an important part in product

differentiation. For e.g.: - LIC was the first company in the insurance

sector to introduce use of I.T and Computers. This makes customers

feel that the company is not lagging behind the world and is capable of

making the full use of technology to satisfy the customers.

Feedback- feedback from customers also is an important tool with

which product of the company can be differentiated. If effective steps

are been taken on the feedback of the customers, it leaves a long

lasting impression on the minds of the customers.

2. Price Mix.

Price is one element in the marketing mix that produces revenue; all the

other elements produce costs. Prices are easiest marketing mix elements to

adjust; product features, channels and even promotion take more time. Price

also communicates to the market the company‘s intended value positioning

of its product or brand.

The price in case of insurance sector refers to the premium charged on the

policy. The Tariff advisory committee fixes the price for each policy. The

price for the same policy is different for different companies.

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The company must set its price in relation to the value delivered and

perceived by the customer. If, the price is higher than the value received, the

customer will not be willing to pay so high and the company will loose

potential profits. If the price is less than the value received then, the

company will fail to receive the profit that it deserves for providing a good

service.

In case of life insurance, the premium amount tends to be different for

different customers. This differentiation is on the basis of age, medical

history of a person.

3. Place Mix

“Today you have to run faster to stay in the same place”

Place mix can be defined as the ―Physical distribution i.e. the delivery of

goods/ services at the right time at the right place to the customers.‖ Place

decisions involve building relationships with the wholesalers, retailers and

through these intermediaries building relationships with the customers.

Products and services must be at the right place, at the right time in order to

be consumed. Probably the best way to perceive place is to think of the flow

of products from manufacturer through intermediaries to the consumer or

user. This flow can be thought of as a channel used to move goods and

services.

Channels: According to Philip Kotler,

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“Channels are sets of interdependent organizations involved in the

process of making the product or service available for use or

consumption.”

Marketing channel decisions are among the most critical decisions facing

the management. The channels chosen intimately affect all the other

marketing decisions.

In case of insurance sector, the following channel of distribution is followed

according to the target market.

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CHANNELS

Direct selling Agents

Financial advisors

Call centers

Electronic channels Banc assurance

Postal department

Selling through corporate

LIC on internet

Information kiosks

SMS


4. Promotion Mix.

“The best advertising is done by an augmented customer.”

Promotion is a descriptive term for the mix of communication activities,

which a service organization carries out in order to influence the public on

whom their sales depend. It is an element in an organization‘s marketing mix

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that serves to inform, persuade, or/ and remind people about an organization

or individual goods, service, image, ideas, community involvement or impact

on the society. It is used in hopes of influencing the recipients feeling, belief

or behavior through any form of communication.

Steps to create a favorable awareness amongst the target audience:

STEP 1: Identification of Target Market

STEP 2: Determination and Setting Objectives

STEP 3: Message development for right communication effect

STEP 4: Selection of communication mix

5. People Mix.

“It is no longer enough to satisfy the customers, you must delight them.”

A. Employees

The various employees involved in providing service to the customer in

insurance sector are:

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Customer service representatives They, process insurance policy

applications, changes, and cancellations. They review applications for

completeness, compile data on policy changes, and verify the accuracy

of insurance company records.

Marketing and sales managers These employees sell insurance

products, work with clients, and supervise staff. Other managers who

work in their companies' home offices are in charge of functions such

as actuarial calculations, policy issuance, accounting, and investments.

Claims adjusters, appraisers, examiners, and investigators decide

whether claims are covered by the customer‘s policy, confirm

payment, and, when necessary, investigate the circumstances

surrounding a claim. Claims adjusters work for property and liability

insurance carriers or for independent adjusting firms. They inspect

property damage, estimate how much it will cost to repair, and

determine the extent of the insurance company‘s liability; in some

cases, they may help the claimant receive assistance quickly in order

to prevent further damage and begin repairs. Adjusters plan and

schedule the work required to process claims, which may include

interviewing the claimant and witnesses and consulting police and

hospital records. In some property-casualty companies, claims

adjusters are called claims examiners, but in other companies, a claims

examiner‘s primary job is to review claims to ensure that proper

guidelines have been followed. Only occasionally—especially when

disasters suddenly increase the volume of claims—do these examiners

aid adjusters with complicated claims.

Underwriters Underwriting is another important management and

business and financial occupation in insurance. Underwriters evaluate

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insurance applications to determine the risk involved in issuing a

policy. They decide whether to accept or reject an application, and

they determine the appropriate premium for each policy.

Insurance sales agents About 15 percent of wage and salary

employees in the industry are sales workers, selling policies to

individuals and businesses. Through regular contact with clients,

agents are able to update coverage, assist with claims, ensure customer

satisfaction, and obtain referrals.

B. Customers

People mix not only includes employees but also customers. The customers

are to be treated with respect and courtesy.

LIC (India) ltd. provides following facilities to keep the customers happy

and satisfied.

The birth dates of the policyholders are recorded and on the day of the

birthday, the policyholder is given a ―happy birthday‖ call by the

company.

The customers are reminded to pay their premium on time through

sms.

6. Physical Evidence.

Companies try to demonstrate their service quality through physical evidence

and presentation. However, in case of insurance sector, the customer rarely

visits the insurance company. The customer comes mostly only in contact

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with the service provider hence the service provider (insurance agent)

should.

Look presentable.

Have a pleasant personality.

Have good communication skills.

The physical evidence factor is directly proportional to the level of faith of

customers as well as the employees in the organization. Physical evidence

goes way beyond an individual. It includes the company‘s advertisements,

public relation, employees, and branches.

7. Process Mix.

“It is more important to do what is strategically right than what is

immediately profitable - Philip Kotler”

In case of insurance sector, the process mix includes the various interactions

that take place between the insurance agent and the customer in the process

of selling the policy to the customer till the settlement of claims.

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The following process mix is followed by insurance companies in case of

life insurance:

1) The insurance agent calls up the customer and informs him about the

different policies offered by the company and the price mix of all the

policies. If, the customer seems interested in taking the policy then,

he fixes an appointment with the customer.

2) The insurance agent meets the customer and gives him some

information about the insurance company and also about the benefits

of the policy.

3) The customer is then asked to fill a financial review form (FRF) and

the agent is asked to find out the standard of living of the customer so

that the insurance company gets a clear picture about the financial

condition of the customer and what kind of policy he can afford

4) The insurance company offers various policies but they might not be

suitable for the customer hence, on the basis of his requirements and

financial status, the insurance agent suggests two or three policies to

the customer, which will be suitable for him.

5) The insurance agent explains the different policy plans in detail to the

customer i.e. the amount of premium to be paid, the time interval at

which the premium is to be paid, the benefits of each of the policy

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etc. A brochure is also provided to the customer wherein the entire

description of all the policies is given.

6) Then, the insurance agent provides a feedback form to the customer

and asks him to give his feedback regarding the policies that he has

been informed about. This feedback is taken in order to find out

whether the customer is satisfied with the plans of the policy or

whether the company needs to make the policy plans more attractive

so that it may appeal to its future customers.

7) Then, the next appointment is fixed by the insurance agent with the

customer and in this meeting; the customer selects the policy plan,

which appeals to him. The customer is then asked to fill up the

proposal form which contains various details of the payment and he is

asked to make the first premium payment.

8) Then, the insurance agent submits the duly filled and signed form in

the insurance office along with the other necessary documents. E.g.:

Medical Reports in case of Life Insurance. Submission of Age Proof

is essential as the rate of premium payable on a life insurance policy

generally varies with age, and therefore age is one of the most

important factors in determining the rate of premium payable in an

individual case.

9) The customer must get himself examined from the approved doctor of

LIC. The medical examination is necessary to determine the physical

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fitness of the customer. If the medical report is favorable, then only

LIC will issue the policy.

10) An average twelve days time is taken by the company to verify the

submitted documents. After the twelve days period, the insurance

agent meets the customer to provide him a policy document, which

consists of the terms and conditions of the policy. This is because

terms and conditions of the policy differ for different customers due

to differences in medical conditions of customers in case of life

insurance and due to differences in nature of goods and mode of

transportation in case of marine and fire insurance.

11) Then, a reconfirmation is taken by the agent from the customer that

he agrees with the terms and conditions of the policy.

12) The insurance agent then regularly collects the premium from the

customer whenever the premium becomes due.

CLAIM SETTLING PROCESS OF LIFE INSURANCE

1)Claim by maturity/ Installment Payment: The Company strives to

settle maturity claims and make periodic payments, as in case of

Money Back Policies, on date itself. The office which services the

policy sends out an intimation regarding the payment along with the

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necessary discharge voucher for the execution by the assured

approximately two months before the due date of such payment.

2) Death Claim:

Intimation of Death: In the event of the death of the policy holder, the

claimant or the nominee should immediately intimate the branch

office where the policy is serviced, the fact of such death, along with

the following particulars: (a) Policy number, (b) name of the life

assured, (c) Date of death and (d) claimant‘s relationship with the

assured.

Claim Forms: Soon after the receipt of the intimation of death, the

branch office will send the necessary claim forms for completion

along with instructions regarding the procedure to be followed by the

claimant.

Evidence of Title: The claim is usually payable to the nominee as the

case may be. However, if the deceased policy holder has not

nominated or hasn‘t made a suitable provision regarding the policy

money by the way of will, the claim is payable to the holder of a

succession certificate or some such evidence of title from a court of

law.

Payment of Claim: The Company then makes payment to the rightful

recipient.

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LIFE INSURANCE MARKETING TRIANGLE.

The concept of services marketing triangle is as follows:-

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The above diagram explains the services triangle with its three constituents,

namely, the company, the provider and the consumer. Each of them have

been explained as follows:-

The Company :

The company makes various promises to its customers through external

marketing. The way and means of marketing will be covered it the

marketing mix.

The Provider:

The agents and the development officers act as the front-line staff and

they are in direct contact with the potential or existing customers. They

are the ones who keep or satisfy the promises made by the company.

The marketing of insurance basically comes under concept selling. The

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agents are thus given various incentives, rewards, commissions and all

the necessary training required.

As regards incentive, they receive PLI (Productivity Linked Incentive),

which is based on the increase in premium amount and the sums assured

by the agent. They are also given extra commissions in case of policies,

which are of high value. There are normal promotions for any good

work done on a regular basis. The agents generally work under the

training and guidance of their respective development officers.

The Consumers :

The consumers are the policyholders. Apart from the routine life insurance

policies other services like housing finance, mutual funds, pension and group

insurance. Thus the range of consumers is far and wide.

LIFE INSURANCE FLOWER OF SERVICES

Flower of services refer to a well-formed package of total services with

all the supplementary services being well formulated along with the core

services. The various petals of the flower are:

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Information:

A marketer needs to provide adequate information to his employees and

his customers. This information is general information provided through

various communication channels.

In the insurance industry information is provided to the customers with

the help of:

Agents

Seminars

Web sites

Print media

Radio

Television, etc.

Consultancy:

This is additional customized information provided to the potential

customers by the service provider. In the insurance industry it is

provided by company‘s staff and agents.

Order taking:

Order taking should be done without mistakes. In LIC order taking is

generally done by:

By Agents

On Web site

By Assistant sales manager directly in the office.

Hospitality:

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Hospitality is a very pretty petal, reflecting pleasure at meeting new

customers and greeting old ones when they return. Hospitality finds its

full expression in face-to-face encounters.

Safe keeping:

It is in the process and procedures used by marketers to safe guard and

to maintain secrecy. In LIC the data of the customers is very

important. They feed the data of the customers in their Front and

Application Program Software which is connected with all the

branches of LIC. The data is only available with the sales people and

not shown to any person

Exceptional:

Exceptional service means service over and above customer‘s

expectations. LIC has the fastest claim settlement in the world thereby

providing exceptional service. LIC also solves complains of the

customers within 7days.

Payment:

The payment of premium is normally through cheques. Customer can

make payment in LIC through:

Agents

Loans

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Web sites

4 I’S FOR LIFE INSURANCE

Life insurance has four major characteristics that greatly affect the marketing

programs.

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Intangibility

Inconsistency

Inseparability

Inventory

Details :

1. Intangibility:

Unlike products, services cannot be held, touched, or seen before the

purchase decision thus, they should be made tangible to a certain extent.

Marketers should ―tangibilize the intangible to communicate service nature

and quality. This can be done through:

Environment

Uniforms

Paperwork

Brochures

Insurance is a guarantee against risk and neither the risk nor the guarantee is

tangible. Hence, insurance rightly come under services, which are intangible.

Efforts have been made by the insurance companies to make insurance

tangible to some extent by including letters and forms.

35


2. Inconsistency:

Service quality is often inconsistent. This is because service personnel have

different capabilities, which vary in performance from day to day. This

problem of inconsistency in service quality can be reduced through

standardization, training and mechanization. In insurance sector, all agents

should be trained to bring about consistency in providing service or, the

insurance process should be mechanized to a certain extent. E.g.: the

customers can be reminded about the payment of premium through e-mails

and sms instead of agents.

3. Inseparability:

Services are produced and consumed simultaneously. Consumers cannot and

do not separate the deliverer of the service from the service itself. Interaction

between consumer and the service provider varies based on whether

consumer must be physically present to receive the service. In insurance

sector too, the service is produced when the agent convinces the consumer to

buy the policy and it is said to be consumed when the claim is settled and the

policyholder gets the money. In both the above cases, it is essential for the

service provider (agent) and the consumer (policy holder) to be present.

4. Inventory:

No inventory can be maintained for services. Inventory carrying costs are

more subjective and lead to idle production capacity. When the service is

available but there is no demand, cost rises as, cost of paying the people and

overhead remains constant even though the people are not required to

36


provide services due to lack of demand. In the insurance sector however,

commission is paid to the agents on each policy that they sell.

COMPLAINT HANDLING.

In a vast Organization like LIC, catering to the various needs and aspirations

of millions of policyholders, grievances of customers do arise occasionally.

37


In order to redress these grievances LIC has established elaborate Grievance

Rederessal Machinery and the details are as under.

1) Grievance Redressal Officers:

Grievance Redressal Officers have been designated at all levels of the

Organization: At the Branch level: The Sr/Branch Manager At the

Divisional level: The Marketing Manager At the Zonal level: The

Regional Manager (Marketing) in case of Ordinary policies. The

Regional Manager (Pension and Group Schemes) in case of P&GS.

At the Central level:

The Addl. Executive Director/Chief (Marketing/Customer Services) in case

of Ordinary policies. Chief (Pension and Group Schemes) in case of P &

GS policies. Policyholders can personally contact these designated Officials

and seek redressal of their grievances. The respective Grievance Redressal

Officers are available at their Offices for personal interviews with the

customers on all Mondays between 2.30 p.m. to 4.30 p.m. without prior

appointment.

Customers can meet the Grievance Redressal Officers on other days also

with prior appointment. The names of the Grievance Redressal Officers are

displayed in the respective Offices and are periodically published in the

local.

2) Complaint Cells:

For those customers who are not in a position to meet the Grievance

Redressal Officers in person, a Complaint Cell is functioning at the

Central, Zonal and Divisional Offices. They can send their written

38


complaints to these Offices. Such complaints are registered and

monitored with the respective servicing units for proper redressal.

3) Claims Review Committee:

In a few cases of death claims, LIC is put to the necessity of

repudiating them to safeguard the interest of the genuine

policyholders. Claimants who are dissatisfied with the decision of

repudiation of claim can approach the Claims Review Committees set

up at all the seven Zonal Offices and at the Central Office. These

Committees comprise of senior Officials of the Corporation and also

retired High Court/District Judges and they review the claims

objectively and dispassionately to rule out any miscarriage of justice

to the claimant.

4) Complaints received through the Government:

Some of the aggrieved policyholders write directly to the Government

of India seeking redressal of their grievances. Such grievances are

attended to on a top priority basis. For this purpose, a special cell has

been set up at the Central Office level for monitoring and for

satisfactory redresses.

5) Policyholder Councils and Zonal Advisory Boards:

In all the 100 Divisional Centers, Policyholders' Councils have been

established. Three policyholders of the area represent the interest of the

policyholders and interact with the Divisional Management on consumer

39


concerns. Similarly, at all the seven Zonal Centers, Zonal Advisory Boards

are functioning. Many consumer-activists are inducted as Members to these

Forums to protect the rights of the consumers.

6) Consumer Affairs Committee:

This Committee looks into various areas of consumer interests and

advises the Corporation.

LIFE INSURERS IN INDIA.

As an answer to globalization of economy and the increasing pressure of the

WTO regulations, the govt. appointed the Malhotra Committee. After

considering all aspects, the government ultimately enacted Insurance

40


Regulatory and development authority and vested the authority to formulate

regulations for insurance industry. IRDA and the LIC allowed the entry of

foreign investors on a condition that they enter in collaboration with a local

company.

PUBLIC SECTOR PRIVATE SECTOR

Life Insurance Corporation of

India(LIC)

1) Birla sun life insurance Co Ltd

2) HDFC Standard Life Insurace

Co Ltd

3) ICICI prudential Life Insurance

Co Ltd

4) Reliance Life Insurance Co Ltd

5) ING Vysya Life Insurance

6) Max New York Life Insurance

Co Ltd

7) Met Life Insurance Co Ltd

8) OM Kotak Mahindra Life

Insurance Co Ltd.

PERFORMANCE OF THE INDUSTRY

Post-Privatization, the life insurance industry grows by leaps and bounds.

The attitude of people towards life insurance itself is changing. People are

becoming more and more aware of the advantages of the Life insurance

41


policies. Generally performance in life is measured in terms of first year

premium collection and no. of lives covered.

In 2003-04 Life Industry grew by 10.5% in terms of first year premium. It is

showing steady growth rate in the current financial year as well. The sector

witnessed a growth of over 50% for the month of April 2004, vis-à-vis April

2003. The premium In comparison, LIC underwrote premium of

Rs.72,304.62 lakh i.e., a market share of 82.33%. In terms of policies

Underwritten, the market share of the private players was 17.88% as against

82.17% of LIC. The premium underwritten by the private players for

individual policies stood at Rs.12,107.63 lakh, towards 89,918 policies with

group premium accounting for Rs.3,411.30 lakh towards 84 schemes.

The number of lives covered under group schemes was 1,01,392. ICICI

Prudential continued to lead amongst the private players with premium at

6.15% and policies at 4.85%. In terms of number of lives covered, OM

Kotak led with 21,325 lives viz., 5.83% of the total lives covered. Premium

underwritten by LIC under Varishtha Bima Yojana during the month of

April, 2004 was Rs.26, 734.25 lakh towards 13899 policies of which

29.60%, in terms of both premium and policies, was underwritten in the rural

sector.

The number of policies issued by the LIC of India since 1995-96 is a clear

indication of the popularity gained by life insurance.

YEARNO.OF POLICIES

(TOTAL)

NO.OF POLICIES

(RURAL)

42


1995-96

1996-97

1997-98

1998-99

1999-2000

2002-2003

1.10 crore

1.23 crore

1.33 crore

1.48 crore

1.70 crore

2.42 crore

52.57 lacs

60.33 lacs

68.40 lacs

81.23 lacs

97.04 lacs

45.23 lacs

(Source: 46th annual report of LIC of India for the year 2002-03)

Form the above table it is eminent that the importance of life insurance has

grown

gradually over a period of time not only in metro areas but also in rural

areas.

As there has been a dramatic increase in the importance of life insurance, the

number of policies issued per annum has also increased, thus leading to a

great change in the total premium amount collected. The total amount

mobilized by LIC during the past few years‘ stands witness to the growing

importance of insurance.

Total amount utilized 1998-99 2002-03

Total premium income

Income from investments

Rs. 2280.50

Rs. 13183.82

54602.37

25030.50

(Rs. In Crores) (Source: 46th annual report of LIC of India for the year 2002-03.)

43


Trough life insurance, people could save more than Rs. 50,000 crore in just

two years. By investing people‘s savings, LIC could generate investment

income of nearly Rs. 30,000 crore in the last two years. Life insurance thus

proved to be very potent instrument of public savings, so much necessary for

developing a country like India.

Over the past 48 years, LIC of India provided financial security to millions

of families as the following figures for past five years indicate.

YEAR NO.OF CLAIMS PAID

1995-96

1996-97

1997-98

1998-99

1999-2000

2002-03

41.67

49.49

56.52

59.83

66.42

96.53

(Source: 46th annual report of LIC of India for the year 2002-03)

PRESENT MARKET STRUCTURE

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

competitive market to nationalization and now back to a liberalized market

again.

44


After privatization LIC is no longer a monopoly. Insurance sector was

converted into Oligopoly.

The market share of private players is as under.

Total market share of LIC as compared to other private

players.

45


From the above figure it is eminent that LIC has the largest market share in the

life insurance industry till date

TRAITS OF LIFE INSURANCE SECTOR AS OLIGOPOLY

ARE AS FOLLOWS:

Presence of few sellers:

46


After liberalization the no. of sellers increased from 1 to 13 as on date, like

LIC, ICICI Prudential, HDFC Standard, Birla Sun life, Om Kotak, SBI

Life, ING Vysya, and MAX New York Life etc.

1. Regulator

IRDA (Insurance Regulatory Development Authority) regulates the

Insurance industry. License to the new comer is granted by it only. All

products, premiums, Tariffs require its approval.

2. Price Giver:

Price of the policy i.e. premium is calculated by the actuaries of the

respective companies depending upon the nature of risks covered, coverage

of the policy and many other probability calculations. But premium as well

as the product needs to be approved by IRDA.

3. Entry or Exit Barrier:

There is no free entry into this sector as already outlined New entrants has to

satisfy certain condition before entering into this industry. Exit is even

tougher since all the contracts are long term so there are very strict

regulations for exit from the industry by IRDA.

4. Product Differentiation:

There are no homogenous products. There are wide varieties of products

available in the market. Each seller can introduce

any new policy depending on the efficiency of its product development team

within the broad guidelines of IRDA.

47


5. Advertisement:

Sellers spend huge amount of their yearly budget on advertisement to

educate the consumers about their products and their company. IRDA

ensures that advertisement does not mislead people. The IRDA has made it

mandatory that every advertisement carries the line, ―Insurance is matter of

solicitation‖ so that people know that they are reading an advertisement.

6. Investment Policy:

Investment of life fund upto 75% in government securities is mandatory as

per IRDA. 89% of the total surplus to be distributed to policyholder as bonus

every year.

Case study

1. Life Insurance Corporation of India (LIC):

48


A. Introduction

The Life Insurance Corporation of India (LIC) is the largest life insurance

company in India and also the country's largest investor. It is fully owned by

the Government of India. The company began operations with 5 zonal

offices, 33 divisional offices and 212 branch offices. It also funds close to

24.6% of the Indian Government's expenses. It was founded in 1956.

Headquartered in Mumbai, which is considered the financial capital of India,

the Life Insurance Corporation of India currently has 8 zonal Offices and

101 divisional offices located in different parts of India, at least 2048

branches located in different cities and towns of India along with satellite

Offices attached to about some 50 Branches, and has a network of around

one million and 200 thousand agents for soliciting life insurance business

from the public.

B. Products of LIC:

1. Childrens plan:

Jeevan Anurag

CDA Endowment Vesting At 21

49

http://en.wikipedia.org/wiki/Mumbai

http://en.wikipedia.org/wiki/Government_of_India

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Life_insurance

http://www.samanvay.iitm.ac.in/Images/LIC_Logo.jpg


2. Plans for handicapped dependents:

Jeevan Aadhar

Jeevan Vishwas

3. Money back plan:

The Money Back Policy-20 Years

The Money Back Policy-25 Years

4. Whole life plan:

The Whole Life Policy

Jeevan Anand

Jeevan Tarang

5. Pension plans:

Jeevan Nidhi

New Jeevan Dhara-I

New Jeevan Suraksha-I

6. Social security scheme:

JanaShree Bima Yojana (JBY)

Shiksha Sahayog Yojana

50


C. Current status:

Over its existence of around 50 years, Life Insurance Corporation of India,

which commanded a monopoly of soliciting and selling life insurance in

India, created huge surpluses, and contributed around 7 % of India's GDP in

2006.

The Corporation, which started its business with around 300 offices, 5.6

million policies and a corpus of INR 459 million, has grown to 25000

servicing around 180 million policies and a corpus of over INR 3.4 trillion.

The recent Economic Times Brand Equity Survey rated LIC as the No. 1

Service Brand of the Country.

D. SWOT analysis of LIC:

(a) Strength:

Brand Image

Govt Guarantee

Claims settlement

Large product portfolio

(b) Weakness:

Lethargic staff

Large scale Corruption in Main Office

Ultra-Slow decision making process

51

http://en.wikipedia.org/wiki/Gross_Domestic_Product

http://en.wikipedia.org/wiki/Monopoly


Internal problems between Top Management and lower

cadre Employees

(c ) Opportunities :

Pension Market

Health Insurance

Large Real Estate portfolio

(d) Threats:

Internal discord

New players

Red-tapism

52


ICICI Lombard Life Insurance:

(A) Introduction:

ICICI Lombard is a 74:26 joint venture between ICICI Bank

Limited, India's second largest bank with $79 billion in assets and Fairfax

Financial Holdings Limited, a Canada based $26 billion diversified financial

services company engaged in general insurance, reinsurance, insurance

claims management and investment management. ICICI Lombard is now the

largest private sector general insurance company in India with a Gross

Written Premium (GWP) of Rs 17,266 million for the half year ended

September 30, 2007 with a market share of 12% and compounded annual

growth rate of over 45% in the last two years. ICICI Lombard was awarded

the 'General Insurance Company of the Year' at the 11th Asia Insurance

Industry Awards. More to its credit, it has the Gold Shield for "Excellence in

Financial Reporting" by the ICAI (Institute of Chartered Accountants of

India) for the year ended March 31, 2006. The company has been assigned a

domestic rating of iAAA by ICRA (an associate of Moody's Investors

Service) for highest claim paying ability and a fundamentally strong

position. The prospect of meeting policyholders' obligation is the best.

The company presently has 5,150 employees in 245 offices spread across

190 locations. In the financial year ended March 31, 2007, the company

53


issued over 3.14 million policies across India and serviced over 642,000

claims. The company has a claim disposal ratio of 96% (percentage of claims

settled against claims reported) as on March 31, 2007.

(B) Products:

Health insurances

Home insurances

Motor insurances

Travel insurance.

Parents' Overseas Travel Insurance policy

Workmens Compensation Policy

Educational Institution Package Policy

Group Health Insurance

Group Personal Accident Policy

Petrol Station Package Policy

Shop Insurance

(C) SWOT Analysis of ICICI Lombard:

(a) Strength:

Pioneer in introducing innovative concepts in the Indian

health Insurance sector

Robust online system in place for buying and renewing

policies.

Offers various plans

54


(b)Weekness:

Charge a high premium amount compared to other players

in the market

Poor customer care service

No proper service

(c )Opportunities:

Target youth

Provide NRI Services

Use a multi channel approach

(d) Threats:

Insecure system of buying insurance online

Major competition from LIC

Excessive use of telesales.

55


The interview

Methodology

Topic : Life insurance

Design of research: Qualitative analysis

Source of sample: Mr. Nikhil Kapadia

Discussion:

Keeping the topic of life insurance in mind, & considering the future of the

latter, I interviewed Mr. Nikhil Kapadia for getting a more clear perception

of the same.

56


Future of the life Insurance Sector - A hypothesis based on the study.

Considering various facts regarding the concept of life insurance and its

relative attributes, my perception regarding the future of life insurance

industry in India became clearer. There were certain aspects which I tried to

cover with the help of this interview namely-

How could it contribute more to the social infrastructure, apart from

providing financial security?

What changes are anticipated with advancement of technological

infrastructure in upcoming future?

How would the future insurance industry be beneficial for the

economy as a whole?

To this , my source Mr. Nikhil Kapadia answered by throwing light on

certain facts, such as -

Wage and salary employment in the insurance industry is projected to

increase 8 percent between 2002 and 2012, more slowly than the 16 percent

average for all industries combined. While demand for insurance is expected

to rise, downsizing, productivity increases due to new technology, and a

trend toward direct mail, telephone, and Internet sales will limit job growth.

However, some job growth will result from the industry‘s expansion into the

broader financial services field, and employment in the medical service and

health insurance areas is anticipated to grow.

57


But due to advancement in technology

many successful insurance companies will recognize the Internet‘s potential

as a powerful marketing tool. Not only might this reduce costs for insurance

companies, but it also could enable many clients to turn to the Internet first

to get information on their policies, obtain quotes, or submit claims. As

insurance companies begin to offer more information and services on the

Internet, some occupations, such as insurance sales agent, could experience

slower employment growth.

And as far as economic viability is concerned

There could be a huge inflow of funds into the country. Given the industry's

huge requirement of start-up capital, the initial years after opening up are

bound to see a strong inflow of foreign capital. Moreover, given that the

break-even, typically, comes much later than in the case of other sectors,

odds is that the first remittance of dividend will not happen before a good

10-15 years.

Conclusion:

So, by scrutinizing various facts extracted from the immensely knowledge

full interview of Mr. Nilkhil Kapadia I hereby conclude my hypothesis by

58


saying that: on an overall basis, life insurance sector would contribute

effectively to the economy in the future through increased employment and

financial security but advancement in technology could provide a better

substitute of sales agents and promoters with the help of internet, which

could hamper employment opportunities in life insurance marketing

organizations.

Concluding summary.

Life Insurance in India has a long way to go in terms of percentage of

population covered by life insurance companies if we compare ourselves to

most of the developed and developing nations and in terms of customer

service.

Some of the statistics that further gives evidence of the immense scope of

Life Insurance industry in India

The global life insurance market stands at $1,521.2 billion while the

non-life insurance market is placed at $922.4 billion.

The United States itself accounts for about one-third of the $2443.6

billion global insurance market and Japan stands next with a 20.62%

share.

India takes 23rd position with US $9.933 billion annual premium

collections and a meager 0.41% share.

Out of one billion people in India, only 35 million people are covered

by life insurance.

India's life insurance premium as a percentage of GDP is just 1.77 %.

59


Indian insurance market is set to touch $25 billion by 2010, on the

assumption of a 7 % real annual growth in GDP.

Planning of various reforms in this industry are in the process like

privatization of pension funds, increase in the FDI in this sector,

increasing automation and better customer service.

But the biggest barriers in the growth of Life Insurance Industry is in

terms of the attitude of people towards life insurance and certain bad

practices existing in the market as a result of prolonged monopoly of

public sector. Some People still think that it is an investment product

where we get low return or a simple tax saving device u/s 88 or

Sec10CCC.Awareness regarding the insurance is not merely an

investment but it covers your life risk as well; is required and new

private players have already started the job of enlightening people.

The problem of lack of knowledge of the product among the

distributors has already been solved by IRDA by making the 100 hrs

training compulsory for all the distributors. More and more stress

should be given on customer service and prompt payment of claim.

60


Bibliography

Reference Books:

Innovations in Banking and insurance- Romeo S. Mascarenhas

Insurance Fundamentals, Environment & Procedures, - B.S Bodla,

M.C Garg, K.P Singh.

Insurance Management-Anand Gangly-New Age International Pvt

Ltd.

Life insurance IC-33.

Magazines/Journals:

IRDA Journal, March 2007 Volume V No. 4

IRDA Journal, April 2007 Volume V No. 5

Websites:

http://www.insurancejournal.com

http://www.insuremagic.com/Content/general_home.asp

http://www.policydeal.in/category/ulip

www.icfai.com

61

http://www.icfai.com/

http://www.policydeal.in/category/ulip

http://www.insuremagic.com/Content/general_home.asp

http://www.insurancejournal.com/


62

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