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MARKETING IN LIFE INSURANCE

1

INTRODUCTION TO INSURANCE

WHAT IS INSURANCE?

The business of insurance is r elated to

the protection of the economic values of the

assets. Every asset has a value. The asset

would have been cr eated through the efforts

of the owner. The asset is valuable to the

owner, because he ex pects to get some

benefits from it. The benefit may be an

income or some thing else. It is a benefit

because it meets some of his needs. In the

case of a factory or a cow, the product

generated by is sold and income generated. In

the case of a motor car, it provides comfort

and convenience in transportation. Ther e is no

dir ect income.

Every asset is ex pected to last for acertain period of time during which it will

perform. After that, the benefit may not be

available. Ther e is a lif e-time for a machine in

a factory or a cow or a motor car. None of

them will last for ever. The owner is awar e of this and he can so manage

his affairs that by the end of that period or lif e-time, a substitute is made

available. Thus, he mak es sur e that the value or income is not lost.

However, the asset may get lost ear lier. An accident or some other

unfortunate event may destroy it or mak e it non -functional. In that case,the owner and those deriving benefits ther e from, would not have been

r eady. Ther e is an adverse or pleasant situation. Insuran ce is a mechanism

that hel ps to r educe the eff ect of such adverse situations.

Definition of

Insurance:

Insurance in its basic form is defined as ´A contract between

two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of

money on the happening of a certain event."

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HISTORY OF INSURANCE

The business of lif e insurance in India in its existing form started inIndia in the year 1818 with the establishment of the Oriental Lif e

Insurance Company in Calcutta.

Some of the important milestones in the lif e insurance business in India

ar e:

1912: The Indian Lif e Assurance Companies Act enacted as the

first statute to r egulate the lif e insurance business.

1928: The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both lif e and

non-lif e insurance businesses.

1938: Ear lier legislation consolidated and amended to by the

Insurance Act with the objective of protecting the inter ests of the

insuring public.

1956: 245 Indian and for eign insur ers and provident societies tak en

over by the central government and nationalised. LIC formed by an

Act of Par liament, viz. LIC Act, 1956, with a capital contribution

of Rs. 5 cror e from the Government of India.

The General insurance business in India, on the other hand, can trace

its roots to the Triton Insurance Company Ltd., the first general insurance

company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the genera l insurance business in

India ar e:

1907: The Indian Mercantile Insurance Ltd. set up, the first

company to transact all classes of general insurance business. 1957: General Insurance Council, a wing of the Insurance

Association of India, frames a code of conduct for ensuring fair

conduct and sound business practices.

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1968: The Insurance Act amended to r egulate investments and set

minimum solvency margins and the Tariff Advisory Committee set

up.

1972: The General Insurance Business (Nationalisation) Act, 1972

nationalised the general insurance business in India with eff ect

from 1st January 1973.

107 insur ers amalgamated and grouped into four companies viz.

the National Insurance Company Ltd., the New India Assurance

Company Ltd., the Oriental Insurance Company Ltd. and the

United India Insurance Company Ltd. GIC incorporated as a

company.

In 1993, Malhotra Committee headed by former Finance Secr etary

and RBI Governor R.N. Malhotra was formed to evaluate the Indian

insurance industry and r ecommend its futur e dir ection.The Malhotra

committee was set up with the objective of complemen ting the r eforms

initiated in the financial sector. The r eforms wer e aimed at "cr eating a

mor e efficient and competitive financial system suitable for the

r equir ements of the economy k ee ping in mind the structural changes

curr ently underway and r ecognizing that insurance is an important part of

the overall financial system wher e it was necessary to addr ess the need

for similar r eforms.

Ther eafter many changes have tak en place in the insurance sector.

Insurance sector in India was liberalized in March 2000 with the passage

of the Insurance R egulatory and Development Authority (IRDA) Bill,

lifting all entry r estrictions for private players and allowing for eign

players to enter the mark et with some limits on dir ect for eign ownership.

Ther e is a 26% equity cap for for eign partners in an insurance company.

Ther e is a proposal to incr ease this limit to 49%. The opening up of the

insurance sector has led to rapid growth of the sector. Pr esently, ther e ar e

16 lif e insurance companies and 15 non -lif e insurance companies in the

mark et. The potential for growth of insurance industry in India is

immense as near ly 80% of Indian population is without lif e insurance

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cover while health insurance and non-lif e insurance continues to be well

below international standar ds.

Furthermor e, over the medium and long term, India¶s insurance

mark et will continue to ex perience major changes as its operating

environment incr easingly der egulates. On the one hand, a mix of new

products, new delivery systems and a gr eater awar eness of risk will

generate growth. On the other hand, competition will r emain intense as

private sector insur ers and those about to enter India seek to win mark et

shar e from the mor e established public sector entities.

PUR POSE & NEED OF INSURANCE

Assets ar e insur ed, because they ar e lik ely to be destroyed, through

accidental occurr ences. Such possible occurr ences ar e called perils. Fir e,

f lood, br eak downs, lightning, earthquak es, etc, ar e perils. If such perils

can cause damage to the asset, we say that the asset is ex posed to that

risk. Perils ar e the events. Risks ar e the consequential loses or damages.

The risk to an owner of a building, because of the peril of an earthquak e,

may be a f ew lak hs or a f ew cror es of rupees, de pending on the cost of

the building and the contents in it. The risk only means that ther e is a possibility of loss or damage. The damage may or may not happen.

Insurance is done against the contingency that it may happen. Ther e has

to be an uncertainty about the risk. Insurance is r elevant only if ther e ar e

uncertainties. If ther e is no uncertainty about the occurr ence of an event,

it cannot be insur ed against. In the case of a human being, death is

certain, but the time of death is uncertain. In the case of a person who is

terminally ill, the time of death is not uncertain, through not exactly

known. He cannot be insur ed.

Insurance does not protect the asset. It does pr event its loss due to

the peril. The peril cannot be avoided through insurance. The peril can

sometimes be avoided, through better saf ety and damage control

management. Insurance only tries to r educe the impact of the risk on the

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owner of the asset and those who de pend on that asset. It only

compensates the losses- and that too, not fully.

Only economic consequences can be insur ed. If the loss is not

financial, insurance may not be possible. Examples of non -economiclosses ar e love aff ection of par ents, leadership of managers, sentimental

attachments to family heir looms, innovative and cr eative abilities, etc.

HOW INSURANCE WORKS

The mechanism of insurance is very simple. People who ar e

ex posed to the same risks come together and agr ee that, if anyone of them

suff ers a loss, the others will shar e the loss and mak e good to the person

who lost. All people who send goods by ship ar e ex posed to the same

risks, which ar e r elated to water damage, ship sinking, piracy, etc. those

owning factories ar e not ex posed to these risks, but they ar e ex posed to

diff er ent kinds of risks lik e, fir e, hailstorms, earthquak es, lightning,

burglary, etc. lik e this, diff er ent kinds of risks can be identified and

se parate groups made, including those ex posed to such risks. By this

method, the heavy loss that anyone of them may suff er (all of them may

not suff er such losses at the same time) is divided into bearable small

losses by all. In other wor ds, the risk is spr ead among the community and

the lik ely big impact on one is r educed to smaller manageable impacts on

all.

If a Jumbo Jet with mor e that 350 passengers crashes, the loss

would run into several cror es of rupees. No air line would be able to bear

such loss. It is unlik ely that many Jumbo Jets will crash at the same time.

If 100 air line companies f lying Jumbo Jets, come together into an

insurance pool, whenever one of the Jumbo Jets in the pool crashes, the

loss to be borne by each air lines would come down to a f ew lak hs of

rupees. Thus, insurance is a business of µsharing¶.

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Ther e ar e certain principles, which mak e it possible for insurance

to r emain a fair arrangement. The first is that it is difficult for any one

individual to bear the consequences of the risks that he is ex posed to. It

will become bearable when the community shar es the bur den. The second

is that the peril should occur in an accidental manner. Nobody should be in a position to mak e the risk happen. In pother wor ds, none in the group

should set fir e to his assets and ask others to shar e the costs of the

damage. This would be taking unfair advantage of an arrangement put

into place to protect people from the risks they ar e ex posed to. The

occurr ence has to be random, accidental, and not the deliberate cr eation

of the insur ed person.

The manner in which the loss is to be shar ed can be determined

befor e-hand. It may be proportional to the risk that each person isex posed to. This would be indicative of the benefits he would r eceive if

the peril bef ell him. The shar e could be collected from the members after

the loss has occurr ed or the lik ely shar es may be collected in advance, at

the time of admission to the group. Insurance companies collect in

advance and cr eate a fund from which the losses ar e paid.

The collection to be made from each person in advance is

determined on assumptions. While it may not be possible to tell

befor ehand, which person will suff er, it may be possible to tell, on the basis of past ex periences, how many persons, on an average, may suff er

losses. The following two examples ex plain the above conce pt of

insurance.

Example-1

In a village, ther e ar e 400 houses, each valued at Rs. 20,000. Every

year, on the average, 4 houses get burnt, r esulting into a total loss

of Rs. 80,000. If all the 400 owners come together and contribute

Rs. 200 each, the common fund would be Rs. 80,000. This would

be enough to pay Rs. 20,000 to each of the 4 owners whose houses

got burnt. Thus, the risk of 4 owners is spr ead over 400 house -

owners in the village.

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Example-2

Ther e ar e 1000 persons who ar e all aged 50 and ar e healthy. It is

ex pected that of these, 10 persons may die during the year. If the

economic value of the loss suff er ed by the family of each dying person is tak en to be Rs. 20,000, the total loss would work out to

Rs. 2,00,000. If each person in the group contributed Rs. 200 a

year, the common fund would be Rs.

2,00,000. This would be enough to

pay Rs. 20,000 to the family of each

of the ten persons who die. Thus the

risks in the case of 10 persons ar e

shar ed by 1000 persons.

Introduction To Life Insurance

Human lif e is subject to risks of death

and disability due to natural and accidental

causes. When human lif e is lost or a person

is disabled permanently or temporarily,

ther e is a loss of income to the household.

The family is put to har dship. Sometimes,

survival itself is at stak e for the de pendants.Risks ar e unpr edictable. Death/disability

may occur when one least ex pects it.

Though Human lif e cannot be valued, a

monetary sum could be determined which is based on loss of income in

futur e years. Hence in lif e insurance, the Sum Assur ed (or the amount

guaranteed to be paid in the event of a loss) is by way of a µbenefit¶ in the

case of lif e insurance.

It is the uncertainty that is risk, which gives rise to the necessity for

some form of protection against the financial loss arising from death.

Insurance substitutes this uncertainty by certainty. The primary purpose

of lif e insurance is the protection of the family. Insurance in its various

forms protects against such misfortunes by having the losses of the

unfortunate f ew paid by the contribution of the many that ar e ex posed to

Definition of lif e Insurance:

Life insurance is

a contract between two parties whereby one party agrees to pay to the other party, a certain amount of money as premium to make good the loss of life arising out of an uncertain event of

death in which the insured has interest.

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the same risk. This is the essence of insurance ±the sharing of losses and

substitution of certainty for uncertainty.

Ther e ar e a variety of lif e insurance products to suit to the needs of

various categories of people² childr en, youth, women, middle-aged

persons, old people; and also rural people,etc. Lif e insurance productscould be purchased from r egister ed lif e insur ers notified by the IRDA.

Insur ers appoint insurance agents to sell their products.Public who ar e

inter ested to buy lif e insurance products s hould r eceive proper advice

from insurance agents/insur er so that a right product could be chosen to

suit particular financial needs.

NEED OF LIFE INSURANCE

The business of insurance is r elated to protection of the

economic values of the assets. Every asset is of some value and is

ex pected 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 r educe the aff ect of such unpleasant situation.

Human life is consider ed to be a value generating asset and is

also subject to risks. Assets ar e insur ed because ther e if a possibility that

per haps they might get destroyed, through accidental occurr ences. Such

possible occurr ences ar e called perils. If such perils can cause damage to

the asset we say that the asset is ex posed to risk. To be mor e précised

Perils ar e the events and risks ar e the consequential losses or damages.

The risk only means that ther e 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 r elevant only if ther e ar e uncertainties.

If ther e is no uncertainty about the occurr ence of an event, it cannot be

insur ed against. In case of human beings death is certain; however the

time of death is uncertain.

Insurance doesnµt protect the asset. It doesnµt pr event the loss

due to its peril. The perils can sometime be avoided by ensuring better

saf ety and damage control management. Insurance only tries to r educe

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the impact of the risk on the owner of the asset and those who de pend on

that asset. Only economic consequences can be insur ed. If the loss is not

financial, insurance may not be possible. Mor eover insurance is back ed

up with many economic benefits which can be enlisted as follows.

Lif e insurance provides financial security to the family in case of

untimely or pr ematur e death.

Lif e insurance is also a potent instrument for saving.

Lif e insurance provides financial inde pendence in old age.

Organizations or individuals, who ar e in cr edit business, can ensur e for themselves r ecovery of loan in case their de btor dies.

A partnership firm can insur e partners to the extent of capital

invested by each in the business.

Under µk ey man¶ insurance, an organization can insur e the lives of

their executives, whose ex pertise gr eatly contributes to their

profits.

Organizations can purchase group insurance policies as a part of

their employee- welfar e program.

Lif e insurance also provides tax benefits to the holder.

Lif e insurance policies cr eate an estate.

Lif e insurance policies also cr eate thrift. I.e. a compulsory savin g.

A policy of lif e insurance can b used as a collateral security for

procuring loans from the mark et.

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ADVANTAGES OF LIFE INSURANCE

Many people perceive about lif e insurance as an investment or a

means of saving, which is not entir ely corr ect. When a person saves, the

amount of funds at any time is equal to the amount set aside in the past,

plus inter est. This happens in a fixed de posit of a bank, in national

savings certificates, in mutual funds, etc. even if ther e no loss, the

available fund at any time is the amount invested plus appr eciation. In lif e

insurance, however the funds available is not the total of the savings

alr eady made i.e. the pr emium paid, but the amount one wishes to have at

the end of the savings period say 20 or 30 years. Thus, one is paying from

his savings, for the later, only as long as he/she lives or for a lesser period

if so chosen. Thus ther e is no substitute to lif e insurance which provides

this kind of benefits.

F ollowing are few more of the benefits which no other

saving instrument can provide the investor with:

y In the event of death, the settlement is easy. The heirs can collect

the moneys quick er, because of the facility of nomination and assignment. The facility of nomination is now available for some

bank accounts.

y Ther e is a certain amount of compulsion to go through the plan of

savings. In other forms, if one changes the original plan of savings,

ther e is no loss. In insurance, ther e is a loss.

y Cr editors cannot claim the lif e insurance moneys. They can be

protected against attachments by courts.

y Ther e ar e tax benefits, both in income tax and in capital gains.

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y Mark etability and liquidity ar e better. A lif e insurance policy is

property and can be transf err ed or mortgaged. Loans can be raised

against the policy.

The following tenets hel p agents to believe in the benefits of

lif e insurance: Such faith will enhance their determination to sell and their perseverance.

y Lif e insurance is not only the best possible way for family

protection. Ther e is no other way.

y Insurance is the only way to saf eguar d against the unpr edictable

risks of the futur e. It is unavoidable.

y The terms of lif e ar e har d. The terms of insurance ar e easy.

y The value of human lif e is far gr eater than the value of property.

Only insurance can pr eserve it.

y Lif e insurance is not surpassed by many other savings or

investment instrument, in terms of security, mark etability, stability

of value or liquidity.

y Insurance, including lif e insurance , is essential for the conservation

of many businesses, just as it is in the pr eservation of homes.

y Lif e insurance enhances the existing standar ds of living.

y Lif e insurance hel ps people live financially solvent lives.

y Lif e insurance perpetuates lif e, liberty and pursuit of happiness.

y Lif e insurance is a way of lif e.

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INTRODUCTION TO MARKETING

WHAT IS MARKETING?

Mark eting can be

examined from both points of

view as also from a managerial

process perspective. Mark eting

prof esses a broad philosophical

swee p with focus on customer satisfaction, which becomes the

hub fulcrum for successful

trading, and r ecommends the

usage employment of

management practices to identify

and r espond to customer needs.

Mark eting is a societal

process that is needed to discernconsumers' wants; focusing on a

product/service to those wants,

and to mould the consumers

towar ds the products/services.

Mark eting is fundamental to any

businesses growth. The

mark eting teams (Mark eters)

have the task to cr eate the

consumer awar eness of the

products/services through

mark eting techniques; unless it

pays due attention to its

products/services and consumers'

demographics and desir es, a business will not usually prosper long -term.

D EFINITION:-

Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitable.

-The Charted

Institute of Marketing, UK.

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals.

-The American Marketing Association, 1985.

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CHARACTERISTICS OF MARK ETING

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Life Insurance Marketing Strategies

y A very common way to promote a Lif e insurance company through

Lif e Insurance Mark eting is to mak e the name of the company familiar

to others by means of television commercials, handling out pamphlets,

hanging banners in populated ar eas and by providing exciting off ers.

y Tele phone mark eting is another way of Lif e Insurance Mark eting. One

can see the tele phone companies send messages about various off ers

and they even mak e phone calls. We b Insurance Mark eting is another

good strategy to promote insurance policies. The pop ups that one sees

while using Internet ar e actually a very eff ective way of sending

messages across the potential insurance customers.

y One should listen to the existing Lif e Insurance Policy Hold ers as well

as the potential Lif e insurance policy holders and listen to what people

who actually matters have to say. One common problem that the

insur ed persons face is that the insurance companies do not inform its

clients about the hik e in the pr emium rates. These things should be k e pt

in mind. Not only that, a client should be informed about everything

r elated to his policy and the Lif e insurance company should k ee p the

transpar ency as much as possible.

y Community Lif e Insurance Mark eting is another diff er ent way to get

promotion and a high r ecognition for the Lif e insurance company.

Eminent work ers join local community institutions, such as Chamber of

Commerce, and by signing up ther e one can hel p out various projects

that tak e place. These kinds of activities and social works on behalf of

the Lif e insurance company hel ps the company to get fr ee publicity as

their names ar e published in news paper and in media also. Doing

charity works also hel ps the Lif e insurance companies to come across

various people who act as volunteers and can act as their potential Lif e insurance clients. People also lik e to deal with lik e minded people and

companies and this is how many deals ar e made.

y A Lif e Insurance Company should not charge diff er ent Lif e insurance

client diff er ent charges for the same policy. This kind of policy gives

the Lif e insurance policy holders the f eeling that they ar e being tr eated

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unfair ly and also that the Lif e insurance companies ar e only looking for

profits and not the betterment of customer welf ar e.

y When a Lif e insurance claim is filed, especially for a very big hefty

amount, the Lif e insurance company should hel p out the policy holder

in processing out the paperwork. One should not let bur eaucracy enter

and mak e it so difficult for the one making the claim so that he gives

his claim .This has always been a common tactic on the insurance

company's part to avoid paying claims claimed by the policy holder.

This though mak es a short term profit for the company but it hurts in

the long run as the r e putation of the company is hamper ed sever ely.

y People in this Lif e insurance industry should always try to k ee p in

constant contact with the existing customers as well. The competition

in the insurance mark et is so fierce today that no company wants toloose out on a customer to another company. Clients who ar e not

contacted for a longer period of time normally fail to r emain loyal to

the insurance company and look for a diff er ent Lif e insurance

company. The company can k ee p the r ecor ds of the client's bi rthday

and days lik e anniversary and sent him or her small tok ens of love or

loyalty at a r egular basis. If the company can affor d a little mor e it can

send dinner coupons to the Lif e insurance policy holder. These things

play a major role and can be consider ed as an eff ective Lif e Insurance

Mark eting strategy.

y May be the most crucial thing in insurance mark eting is to always

speak about unity and honesty while dealing with a business. A Lif e

Insurance Holder can find so many frauds in various lif e insuranc e

companies today, that lif e insurance customers ar e going for products

and services which ar e trustworthy to them. Feeling saf e is about

insurances and other things ar e most important as far as the insurance

holder is concerned. So, if a company r emains l oyal to its customers it

will itself do Lif e Insurance Mark eting for itself. So, only by r emaining

loyal to its customers the company can do a wor ld of good to its

r e putation and this would in itself bring mor e potential Lif e Insurance

Holders to the company, because the customers pr ef er saf ety mor e than

anything else these days.

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7 P¶s of Life Insurance Mark eting Mix.

Mark eting Mix is a set of mark eting tools that a firm uses to pursue its mark eting objectives. The service mark eting mix comprises off the 7

P¶s.

MARKETIN

G MIX

Product

Productvariety

ualityDesignFeatur es

Brand name

Price List price DiscountsAllowancesPayment period Cr edit terms

Promotion

Sales promotionAdvertisingSales force Publicr elationsDir ectmark eting

Place

ChannelsCoverage AssortmentLocations

InventoryTransport

PEOPLEPHYSICAL

EVIDENCE PROCESS

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Product Mix

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

a particular seller off ers for sale. In case of insurance sector, the product

mix comprises of Lif e and Non ± lif e insurance policies that ar e off er ed

to the customer by the company. A companyµs product mix has certain

width, length, de pth and consistency. The length of a product mix r ef ers

to the total number of items in the mix. In case of insurance sector, the

following is the length of product mix:

Whole Lif e Policy

Limited Payment Lif e

Convertible Whole Lif e Policy

Joint Lif e Endowment Policy

Double Endowment Policy

Jeevan Saathi

Money Back Policy

Annuity Plans

Group Insurance Policy

Bima Sandesh

With or Without Profit Policy

The depth of a product mix r ef ers to how many variants

ar e off er ed of each product in the line. In the insurance sector, one policy

can be made available in diff er ent variations.

Price Mix.

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Price is one element in the mark eting mix that produces r evenue; all the

other elements produce costs. Prices ar e easiest mark eting mix elements

to ad just; product f eatur es, channels and even promotion tak e mor e time.

Price also communicates to the mark et the companyµs intended value positioning of its product or brand. In the insurance sector, every

company has to de posit an initial fixed capital of about Rs. 100 crore

with Insurance Regulatory Development Authority, which is

consider ed as the apex body of Insurance sector. The company gets

periodic inter est on this amount. With this inter est amount, the company

pays for the r ecruitment, training and development of the agents. The

price in case of insurance sector r ef ers to the premium charged on the

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

Hence all insurance companies have to charge approximately similar pr emium on similar policies. However, diff er ent elements aff ect the rate

of pr emium to be charged on each policy. The price for the same policy is

diff er ent for diff er ent companies.

The company must set its price in r elation to the value deliver ed and

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

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 r eceived then, the

company will fail to r eceive the profit that it deserves for providing agood service.

Ther e ar e various ste ps, which ar e followed in or der to fix the pric e. They

ar e as follows:

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Place Mix.

Place mix can be def ined as the Ph sical distr i bution i e the deli ery of

goods/ services at the r ight time at the r ight place to the customers. Place

decisions involve building r elationshi ps with the wholesalers, r etailers

and through these intermediar ies building r elationshi ps with the

customers. Products and services must be at the r ight place, at the r ight

time in order to be consumed. Proba bly the best way to per ceive place is

to think of the f low of products from manuf actur er through intermediar ies

to the consumer or user. This f low can be thought of as a channel used to

move goods and services.

Selecting The Pricing

Objective

Determining Demand

Estimating Costs

Analyzing competitorscosts, price and offers

Selecting the Final

Price

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The channel of distribution is a component of the place mix:

Channels: Accor ding to Philip Kotler,

³Channels are sets of interdependent organizations involved in the process of mak ing the

product or service available for use or consumption´

Mark eting channel decisions ar e among the most c ritical decisions facing

the management. The channels chosen intimately aff ect all the other

mark eting decisions. In case of insurance sector, the following channel of

distribution is followed accor ding to the target mark et:

1) DIRECT SELLING:

Agents:

The agents ar e selected and r ecruited by the development officer

of the insurance company. These agents inform the customers about the

various insurance policies off er ed by the company and convince them to

buy these policies.

Financial Advisors:

The financial advisors ar e also consulted by the

customers r egar ding their financial matters. These advisors suggest their

clients to get their goods insur ed against any calamity or risk. Hence they

act as a channel in distribution of insurance.

Call centers:

The people who r equir e insurance call up the call centers.

These call centers send their dir ect mark eting agents who go to the

customerµs place and sell the insurance policy.

2) PAR T NER SELLING:

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Bancassurance:

With the evolution of interconnected financial

services, banks ar e converting themselves into one stop financial

supermark etsµ. This has promoted two big classes of financial

institutions: banks and insurance companies to combine and deliver an

innovative product i.e. Bancassurance. In Bancassurance, the insurance

products ar e sold through the banks network of branches.

Postal De partment:

India has an extr emely well developed postal

network, which is even stronger than t he network of banks in the country.

Post offices have been established even in the interior parts of the

country. Insurance companies can tie up with the postal de partment to sell

and distribute various insurance covers. This would certainly r equir e

upfront training costs, as the postal employees in turn need to educate and

sell the conce pt and benefits of insurance to the people in rural ar eas.

Such a tie up with the postal de partment would open up Indiaµs rural

ar eas, which ar e largely untapped for insurance sector. This can prove to

be a sustainable source of growing r evenues.

Selling Through Corporate:

Insurance can be sold through corporate too.

E.g.: When a customer purchases a Maruti car, he gets the insurance of

the car fr ee from the Maruti Company itself. Thus this is termed as selling

insurance through corporate.

3) Electronic Channels:

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In the last decade, numbers of

technological advances hav e tak en place due to immense use of EDI

(Electronic Data Interchange)

LIC on Internet:

They have their own site, which is very informative.

They display information about them and its subsidiaries, the product

they off er. The addr esses/e-mail Ids of their zonal offices, zonal training

centers, management development centers, overseas branche s, Divisional

offices and also all Branch offices with a view to speed up the

communication process.

Information kiosks:

LIC have set up 150 interactive Touch scr een

multimedia KIOSKS in prime locations in metros and some major cities

for dissemination information to general public on our products and

services. These KIOSKS ar e enabling to provide policy details and acce pt

pr emium payments.

SMS:

Sims through mobile phone is r ecently new technologyintroduced by the LIC to promote their product.

Promotion Mix.

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µPromotion¶ is a descriptive term for the mix of communication

activities, which a service organization carries out in or der to inf luence

the public on whom their sales de pend. It is an element in an

organizationµs mark eting mix that serves to inform, per suade, or / and

r emind people about an organization or individual goods, service, image,ideas, community involvement or impact on the society. It is used in

hopes of inf luencing the r ecipients f eeling, belief or behavior through any

form of communication. Ste ps to cr eate a favorable awar eness amongst

the target audience:

STEP 1: Identification of Target Mark et:

The target mark et is the

focus of deciding the promotion mix. The total nu mber of groups is

analyzed and decision is tak en r egar ding which segment is to be targeted.In case of insurance sector, mass mark eting is favorable however,

diff er ent policies ar e targeted towar ds customers from diff er ent income

groups. E.g. LIC (India) has introduced a new lif e insurance policy

especially for rickshawallas and landless labor ers.

STEP 2: Determination and Setting Objectives:

Service mark eters

employ a range of promotional methods, so it is essential to What the

promotion has to achieveµ. It is necessary to define mark eting objectives

clear ly so that most eff ective type of promotion is designed and utilized.

In case of insurance sector, the main objectives of a promotion campaign

will be:

1) To mak e all or maximum population awar e of the various insurance

policies of the company.

2) To promote the advantages of all the insurance policies.

3) To mak e the people awar e of the risks involved and the importance of taking insurance.

E.g.: LIC (India) conducts seminars and mass mark eting campaigns in

or der to mak e the customers awar e of insurance and why it is needed.

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STEP 3: Message development for right communication eff ect:

The message is an

instrument for converting a suspect into a prospect. To obtain an eff ective

r esponse from the target mark et, ther e is always need to plan an eff ective

message such that promotional efforts cause:

Building of brand image

Service awar eness

The promotional message should aim:

To provide knowledge for service/ product

To ensur e that customer will have a positive perce ption for service/

goods promoted

To build up pr ef er ence for service/ goods off er ed

In the insurance sector, LIC (India) and MetLif e Insurance ar e examples

of companies who have used promotion mix to promote insurance. E.g.:

LIC (India) promotes its lif e insurance policies using the slogan ³Zindagi

k e saath bhi, Zindagi k e baad bhi´ This cr eates awar eness of risk of death

as well as the importance of insurance. The slogan cr eates a positive

perce ption about lif e insurance in the minds of people.

STEP 4: Selection of communication mix:

Ther e should be a car eful

blend of promotion mix with the mark eting strategy of the firm and each

situation should be examined for its merits and demerits. The following

criteria should be consider ed while devising diff er ent promotional

techniques:

Overall mark eting objectives

Natur e of the service

Activities of the competitors

Characteristic of target customer

Cost eff ectiveness

Integration with other mark eting elements

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R equir ements for eff ective implementation

Management Issues

Legal and ethical considerations

Advertising:

It is a paid form of non- personal communication. It is used

to develop attitudes, cr eate awar eness and transmit information in or der

to gain a r esponse from the target mark et. Various media channels can be

used for advertisement such as print media, electronic media etc.

E.g.: MetLif e India insurance has air ed a television advertisement with

the caption line have you MetLif e today? The advertisement showsthat people ar e falling from high places but instead of falling on the

ground and getting hurt, they ar e falling on a bed called MetLife. This

advertisement assur es the customer that the risk is cover ed efficiently by

the policies of MetLif e insurance company.

People Mix.

Employees

The various employees involved in providing service to

the customer in insurance sector ar e:

C ustomer service representatives

They process insurance policy

applications, changes, and cancellations. They r eview applications for

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

insurance company r ecor ds. They may also process claims and sell new

policies to existing clients. Nowadays, these work ers ar e taking on

incr eased r esponsibilities in insurance offices, such as handling most of

the continuing contact with clients. A growing number of customer

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service r e pr esentatives work in call centers that ar e open 24 hours a day,

7 days a week, wher e they answer clientsµ questions, update policy

information, and providing potential clients with information r egar ding

the types of policies the company issues.

M arketing and sales managers

They constitute the majority of

managers in carriersµ local sales offices and in the insurance sales agents

segment. These employees sell insurance products, work with clients, a nd

supervise staff. Other managers who work in their companies' home

offices ar e in charge of functions such as actuarial calculations, policy

issuance, accounting, and investments.

C laims adjusters, appraisers, examiners, and investigators

They decide

whether claims ar e cover ed by the customerµs policy, confirm payment,

and, when necessary, investigate the circumstances surrounding a claim.

Claims ad justers work for property and liability insurance carriers or for

inde pendent ad justing firms. They inspect property damage, estimate how

much it will cost to r e pair, and determine the extent of the insurance

companyµs liability; in some cases, they may hel p the c laimant r eceive assistance quick ly in or der to pr event further damage and begin r e pairs.

Ad justers plan and schedule the work r equir ed to process claims, which

may include interviewing the claimant and witnesses and consulting

police and hospital r ecor ds.

Insurance investigators

They handle claims in which companies

suspect fraudulent or criminal activity, such as suspicious fir es,questionable work ersµ disability claims, difficult-to-ex plain accidents,

and dubious medical tr eatment. Investigators usually perform database

searches on suspects to determine whether they have a history of

attempted or successful insurance fraud. Then, the investigators may visit

claimants and witnesses to obtain a r ecor ded statement, ta k e photographs,

inspect facilities, and conduct surveillance on suspects. Investigators

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often consult with legal counsel and ar e sometimes called to testify as

ex pert witnesses in court cases.

U nderwriters

Underwriting is another important management and

business and financial occupation in insurance. Underwriters evaluate

insurance applications to determine the risk involved in issuing a policy.

They decide whether to acce pt or r e ject an application, and they

determine the appropriate pr emium for each policy.

Insurance sales agents

About 15 percent of wage and salary

employees in the industry ar e sales work ers, selling policies to

individuals and businesses. Insurance sales agents, also r ef err ed to as

producers, may work as exclusive agents, or captive agents, selling for

one company, or as inde pendent agents selling for several companies.

Through r egular contact with clients, agents ar e able to update coverage,

assist with claims, ensur e customer satisfaction, and obtain r ef errals.

Insurance sales agents may sell many types of insurance, including lif e,

annuities, property-casualty, health, and disability insurance. Many

insurance sales agents ar e involved in cross -selling or total account

development, which means that, besides off ering insurance, they have

become licensed to sell mutual funds, annuities, and other securities.

These agents usually find their own customers and ensur e that the

policies sold meet the specific needs of their policyholders.

Lawyers

The insurance industry employs r elatively f ew people in

prof essional or r elated occupations, but those who ar e so employed ar e

essential to company operations. For example, insurance companiesµ

lawyers def end clients who ar e sued, especially when large cla ims may be

involved. These lawyers also r eview r egulations and policy contracts.

Nurses and other medical prof essionals advise clients on wellness issues

and on medical procedur es cover ed by the companyµs managed -car e plan.

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Actuaries

They r e pr esent a r elatively small proportion of employment in

the insurance industry, but they ar e vital to the industryµs profitability.

Actuaries study the probability of an insur ed loss and determine pr emium

rates. They must set the rates so that ther e is a high probability that

pr emiums paid by customers will cover claims, but not so high that their

company loses business to competitors.

C ustomers

People mix not only includes employees but also customers. The

customers ar e to be tr eated with r espect and courtesy. LIC (India) ltd.

provides following facilities to k ee p the customers happy and satisfied.

The birth dates of the policyholders ar e r ecor ded and on the day of

the birthday, the policyholder is given a ³happy birthday´ call by

the company.

The customers ar e r eminded to pay their pr emium on time through

sms.

Physical Evidence.

Companies try to demonstrate their service quality through physical

evidence and pr esentation. However, in case of insurance sector, the

customer rar ely visits the insurance company. The customer comes

mostly only in contact with the service provider hence the service

provider (insurance agent) should.

Look pr esentable.

Have a pleasant personality.

Have good communication skills.

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The physical evidence factor is dir ectly 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 companyµs

advertisements, public r elation, employees, and branches.

Insurance

Service

Tangibles as Physical Evidences

1 Policy Documents

2 Brochur es

3 Periodic Statements

4 R enewal Notices

5 Business Car ds

6 Stationary

7 Calendar, Diaries

8 Letters/Car ds

9 We bsite

Process Mix.

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

interactions that tak e place between the insurance agent and the customer

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in the process of selling the policy to the customer till the settlement of

claims. The following process mix is fol lowed by insurance companies in

case of lif e insurance:

1)The insurance agent calls up the customer and informs him about the diff er ent policies off er ed by the company and the price mix of all the

policies. If, the customer seems inter ested 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 ask ed to fill a financial r eview form (FRF) and

the agent is ask ed to find out the standar d of living of the customer so that

the insurance company gets a clear pictur e about the financial condition

of the customer and what kind of policy he can affor d.

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

suitable for the customer hence, on the basis of his r equi r ements and

financial status, the insurance agent suggests two or thr ee policies to the

customer, which will be suitable for him.

5) The insurance agent ex plains the diff er ent policy plans in detail to the

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

which the pr emium is to be paid, the benefits of each of the policy etc. A

brochur e is also provided to the customer wher ein the entir e description

of all the policies is given.

6) Then, the insurance agent provides a f eed back form to the customer

and asks him to give his f eed back r egar ding the policies that he has been

informed about. This f eed back is tak en in or der to find out whether the

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

needs to mak e the policy plans mor e attractive so that it may appeal to its

futur e 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 ask ed to fill up the proposal form

which contains various details of the payment and he is ask ed to mak e the

first pr emium 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 R e ports in case of Lif e Insurance. Submission of Age Proof isessential as the rate of pr emium payable on a lif e insurance policy

generally varies with age, and ther efor e age is one of the most import ant

factors in determining the rate of pr emium payable in an individual case.

The following is acce pted as age proof :

Certified extract from municipal or local bodyµs r ecor ds made at

the time of birth.

Certificate of Baptism if it contains date of birth Passport issued by passport authorities in India.

Certified Extract from school or college r ecor ds, if date of birth is

mentioned.

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

LIC. The medical examination is necessary to determine the physical

fitness of the customer. If the medical r e port is favorable, then only LIC

will issue the policy.

10) An average twelve days time is tak en 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

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

conditions of the policy diff er for diff er ent customers due to diff er ences

in medical conditions of customers in case of lif e insurance and due to

diff er ences in natur e of goods and mode of transportation in case of

marine and fir e insurance.

11) Then, a r econfirmation is tak en by the agent from the customer that

he agr ees with the terms and conditions of the policy.

12) The insurance agent then r egular ly collects the pr emium from the

customer whenever the pr emium becomes due.

4 I¶s for Life Insurance

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Lif e insurance has four major characteristics that gr eatly aff ect the

mark eting programs.

1. Intangibility:

Unlik e products, services cannot be held, touched,

or seen befor e the purchase decision thus, they should be made tangible

to a certain extent. Mark eters should tangibilize the intangible to

communicate service natur e and quality. This can be done through:

Environment

Uniforms

Paperwork

Brochur es

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

is tangible. Hence, insurance rightly come under services, which ar e

intangible. Efforts have been made by the insurance companies to mak e

insurance tangible to some extent by including letters and forms

2. Inconsistency: Service quality is often inconsistent. This is because

service personnel have diff er ent capabilities, which vary in performance

from day to day. This problem of inconsistency in service quality can be

r educed through standar dization, 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 r eminded about the payment of

pr emium through e-mails and sms instead of agents.

3. Inseparability:

Services ar e produced and consumed simultaneously.

Consumers cannot and do not se parate the deliver er of the service from

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the service itself. Interaction between consumer and the service provider

varies based on whether consumer must be physically pr esent to r eceive

the service. In insurance sector too, the service is produced when the

agent convinces the consumer to buy the policy a nd 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 pr esent.

4. Inventory:

No inventory can be maintained for services. Inventory

carrying costs ar e mor e subjective and lead to idle production capacity.

When the service is available but ther e is no demand, cost rises as, cost of

paying the people and over head r emains constant even t hough the people ar e not r equir ed to provide services due to lack of demand. In the

insurance sector however, commission is paid to the agents on each

policy that they sell. Hence, not much inventory cost is wasted on idle

inventory. As the cost of agents is dir ectly proportionate to the policy

sold.

A Study of the Industry

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A Sectoral study

Insurance is suddenly gaining all the attention and what used to be a

strange would in it is a household name, thanks to opening up of the

industry, while ther e ar e several r easons for opening up of insurance sector the for eign investors ar e eyeing it as a very lucrative prospect.

After the opening up, several private insur ers have started operating in

lif e insurance, especially in metro ar eas. New mar k eting channels lik e

Bancassurance, brok ers, etc. ar e also in the offing.

K ey M arket Indicators

Size of mark et lif e & non lif e $16 billion

Total Global insurance pr emium (as

on 2001)

$2408.25 billion(-1.5% as against

2000)

Rate of annual growth 2002-03 Lif e- 11.27%

Non lif e- 23%

Geographical r estriction for new

players

None. Players can operate all over

the country.

R egistration r estriction Composite r egistration not

available.

Equity r estriction in the new Indian

insurance company

For eign investor can hold up to

26% of the equity.

Number of r egister ed companies. Public sector ± 01 Private sector ±

13

Life insurers in India.

As an answer to globalization of economy and the incr easing pr essur e of

the WTO r egulations, the govt. appointed the Malhotra Committee. After

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considering all aspects, the government ultimately enacted Insurance

R egulatory and development authority and ve sted the authority to

formulate r egulations for insurance industry. IRDA and the LIC allowed

the entry of for eign investors on a condition that they enter in

collaboration with a local company.

Public sector Private sector

Lif e Insurance Corporation of

India(LIC)

1. Allianz bajaj lif e insurance

Company limited.

2. Bir la sun lif e insurance

Company limited.

3. HDFC standar d lif e insurance

company limited.4. ICICI Prudential lif e insurance

Company limited.

5. R eliance lif e insurance Company

limited.

6. ING vysya lif e insurance

Company limited.

7. Max New York lif e insurance

Company limited.

8. MetLif e insurance company

limited.

9. Om kotak mahindra lif e

insurance co. ltd.

10. SBI insurance company limited

11. TATA-AIG lif e insurance

Company limited.

12. AMP-Sanmar Assurance

Company limited.13. Aviva Lif e insurance company

limited

P erformance of the Industry

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

The attitude of people towar ds lif e insurance itself is changing. People ar e

becoming mor e and mor e awar e of the advantages of the Lif e insurance

policies. Generally performance in lif e is measur ed in terms of first year

pr emium collection and no. of lives cover ed. In 2003-04 Lif e Industrygr ew by 10.5% in terms of first year pr emium. It is showing steady

growth rate in the curr ent financial year as well. The sector witnessed a

growth of over 50% for the month of April 2004, vis-à-vis April 2003.

The pr emium In comparison, LIC underwrote pr emium of Rs.72,304.62

lak h i.e., a mark et shar e of 82.33%. In terms of policies Underwritten, the

mark et shar e of the private players was 17.88% as against 82.17% of

LIC. The pr emium underwritten by the private players for individual

policies stood at Rs.12,107.63 lak h, towar ds 89,918 policies with group

pr emium accounting for Rs.3,411.30 lak h towar ds 84 schemes. The number of lives cover ed under group schemes was 1,01,392. ICICI

Prudential continued to lead amongst the private players wit h pr emium at

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

Kotak led with 21,325 lives viz., 5.83% of the total lives cover ed.

Pr emium underwritten by LIC under Varishtha Bima Yojana during the

month of April, 2004 was Rs.26, 734.25 lak h towar ds 13899 policies of

which 29.60%, in terms of both pr emium and policies, was underwritten

in the rural sector.

From the opinion that it was an instrument intended to provide monetary

support at the time of the death of an individual, lif e insur ance lif e

insurance gr ew up to be a major financial instrument during the past 50

years in our country. Ther e has also been a change in the consumer

outlook with r egar ds to lif e insurance as very beneficiary financial tool as

against the orthodox thinking of unfruitful use of money. Incr easing

number of people has been opting for it. The number of policies issued by

the LIC of India since 1995-96 is a clear indication of the popularity

gained by lif e insurance.

Table year. No. of policies (total) No. of policies (rural)

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1995-96

1996-97

1997-98

1998-99

1999-2000

2002-2003

1.10ror e

1.23cror e

1.33 cror e

1.48 cror e

1.70 cror e

2.42 cror e

52.57 lacs.

60.33 lacs.

68.40 lacs.

81.23 lacs.

97.04 lacs.

45.23 lacs.

Form the above table it is eminent that the importance of lif e insurance

has grown gradually over a period of time not only in metro ar eas but also

in rural ar eas.

As ther e has been a dramatic incr ease in the importance of lif e insurance,

the number of policies issued per annum has also incr eased, thus leading

to a gr eat change in the total pr emium amount collected. The total amount

mobilized by LIC during the past f ew yearsµ stands witness to the

growing importance of insurance.

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M A 6

KE 7 IN G IN LIF E IN S

8 6 A NC E

Tot l market share o f LI C as compared t o ot her pr i at e pl ayers.

From the a bove f igur e it is eminent that LIC has the largest mark et shar e

in the lif e insur ance industry till date.

Sales

LIC

I PR

SUNLIFEBIR LATATA AIG

OTHER S