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Emergence of Insurance as a viable Investment Tool with Reference to ICICI PRUDENTIAL LIFE INSURANCE LTD
ABOUT THE INDUSTRY
The insurance industry provides protection against financial losses resulting from a variety of perils. By purchasing insurance policies, individuals and businesses can receive reimbursement for losses due to car accidents, theft of property, and fire and storm damage; medical expenses; and loss of income due to disability or death.
The insurance industry consists mainly of insurance carriers (or insurers) and insurance agencies and brokerages. In general, insurance carriers are large companies that provide insurance and assume the risks covered by the policy. Insurance agencies and brokerages sell insurance policies for the carriers. While some of these establishments are directly affiliated with a particular insurer and sell only those carrier policies, many are independent and are thus free to market the policies of a variety of insurance carriers. In addition to supporting these two primary components, the insurance industry includes establishments that provide other insurance-related services, such as claims adjustment or third-party administration of insurance and pension funds.
Insurance carriers assume the risk associated with annuities and insurance policies and assign premiums to be paid for the policies. In the policy, the carrier states the length and conditions of the agreement, exactly which losses it will provide compensation for, and how much will be awarded. The premium charged for the policy is based primarily on the amount to be awarded in case of loss, as well as the likelihood that the insurance carrier will actually have to pay. In order to be able to compensate policyholders for their losses, insurance companies invest the money they receive in premiums, building up a portfolio of financial assets and income-producing real estate which can then be used to pay off any future claims that may be brought. There are two basic types of insurance carriers: direct and reinsurance. Direct carriers are responsible for the initial underwriting of insurance policies and annuities, while reinsurance carriers assume all or part of the risk associated with the existing insurance policies originally underwritten by other insurance carriers.
Direct insurance carriers offer a variety of insurance policies. Life insurance provides financial protection to beneficiaries usually spouses and dependent children upon the death of the insured. Disability membership organizations for the benefit of their members. Among the most common policies of this nature insurance supplies a preset income to an insured person who is unable to work due to injury or illness, and health insurance pays the expenses resulting from accidents and illness. An annuity (a contract or a group of contracts that furnishes a periodic income at regular intervals for a specified period) provides a steady income during retirement for the remainder of one life. Property-casualty insurance protects against loss or damage to property resulting from hazards such as fire, theft, and natural disasters. Liability insurance shields policyholders from financial responsibility for injuries to others or for damage to other people property. Most policies, such as automobile and homeowners insurance, combine both property-casualty and liability coverage. Companies that underwrite this kind of insurance are called property-casualty carriers.
Some insurance policies cover groups of people, ranging from a few to thousands of individuals. These policies usually are issued to employers for the benefit of their employees or to unions, professional associations, or other are group life and health plans. Insurance carriers also underwrite a variety of specialized types of insurance, such as real-estate title insurance, employee surety and fidelity bonding, and medical malpractice insurance.
A relatively recent act of Congress allows insurance carriers and other financial institutions, such as banks and securities firms, to sell one anothers products. As a result, more insurance carriers now sell financial products such as securities, mutual funds, and various retirement plans. This approach is most common in life insurance companies that already sell annuities; however, property and casualty companies also are increasingly selling a wider range of financial products. In order to expand into one anothers markets, insurance carriers, banks, and securities firms have engaged in numerous mergers, allowing the merging companies access to each other's client base and geographical markets.
Insurance carriers have discovered that the Internet can be a powerful tool for reaching potential and existing customers. Most carriers use the Internet simply to post company information, such as sales brochures and product information, financial statements, and a list of local agents. However, an increasing number of carriers are starting to expand their websites to enable customers to access online account and billing information, and a few carriers even allow claims to be submitted online. Some carriers also provide insurance quotes online based on the information submitted by customers on their Internet sites. In the future, carriers will allow customers to purchase policies through the Internet without ever speaking to a live agent.
In addition to individual carrier-sponsored Internet sites, several lead-generating sites have emerged. These sites allow potential customers to input information about their insurance policy needs. For a fee, the sites forward customer information to a number of insurance companies, which review the information and, if they decide to take on the policy, contact the customer with an offer. This practice gives consumers the freedom to accept the best rate.
The insurance industry also includes a number of independent organizations that provide a wide array of insurance-related services to carriers and their clients. One such service is the processing of claims forms for medical practitioners. Other services include loss prevention and risk management. Also, insurance companies sometimes hire independent claims adjusters to investigate accidents and claims for property damage and to assign a dollar estimate to the claim.
Other organizations in the industry are formed by groups of insurance companies, to perform functions that would result in a duplication of effort if each company carried them out individually. For example, service organizations are supported by insurance companies to provide loss statistics, which the companies use to set their rates.
BRIEF ABOUT INSURANCE
What is Insurance?
"Insurance is 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."
Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insuring public and the Insurance Companies act as trustees to the amount collected.
For Example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person receives a fixed compensation on the death of the insured.
Similarly, in a car insurance, in the event of the car meeting with an accident, the insured receives the compensation to the extent of damage.
It is a system by which the losses suffered by a few are spread over many, exposed to similar risks.
Why should you take Insurance?
Insurance is desired to safeguard oneself and one's family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events.
By taking life insurance a person can have peace of mind and need not worry about the financial consequences in case of any untimely death.
Certain Insurance contracts are also made compulsory by legislation. For example, Motor Vehicles Act 1988, stipulates that a person driving a vehicle in a public place should hold a valid insurance policy covering "Act" risks. Another example of compulsory insurance pertains to the Environmental Protection Act, wherein a person using or carrying hazardous substances (as defined in the Act) must hold a valid public liability (Act) policy.
Who provides Insurance?
In India, prior to liberalization Insurance protection was made available through Public sector Insurance Companies, namely, Life Insurance Corporation of India (LIC) and the four subsidiaries of General Insurance Corporation of India (GIC).
By the passing of the IRDA Bill, the Insurance sector has been opened up for private companies to carry on Insurance business. Click on the following link for the list of insurance companies operating in India.
What is the procedure to obtain insurance?
The simplest procedure to obtain insurance is:
1. Approach the Insurance Companies directly or through Insurance agents of the concerned companies orthrough Intermediaries.
2. Complete a proposal form giving full details.
3. Submit Date of Birth Certificate and other relevant documents.
Insurance contracts are based on good faith i.e. the details furnished by the proposer are accepted in good faith and this will form the basis of the contract.
What are the other alternatives to Insurance?
One alternative to Insurance is to provide self-Insurance i.e. the individual has to create a fund to meet risk exigencies.
Specified trusts have also tried to provide insurance by a scheme of self-insurance. However, these are not very popular.
The postal department provides Insurance coverage to all working people.
There are many financial instruments, which advocate savings and provide future returns at specific intervals such as the provident fund and pension plans. However, none of these provide for life coverage.
Life insurance is a critical part of your long term financial planning. Every person with dependents should have life insurance.
Life Insurance is particularly important if you are the sole breadwinner for your family. The loss of you and your income could devastate your family. Life insurance will ensure that if anything happens to you, your loved ones will be able to manage financially.
But don't ignore life insurance if you are the 'stay-at-home' spouse. Your value to the family will include child care and many other functions which will potentially become 'paid' functions if you are gone.
While called "life insurance," what you are being insured against is your death. The benefit (in most life insurance policies) will only be paid out if you die. Some life insurance policies accumulate a cash value - and this would be the only exception in which you could receive a 'benefit' from a life insurance policy without dying. However, the cash value is many times less than the death benefit, and life insurance is (in fact) a savings plan and insurance rolled into one.
Many life insurance policies carry restrictions around the circumstances of your death. Usually if you commit suicide your loved ones will not receive any death benefits (This is one area where "cashing in your chips" won't leave you with a big bank roll).
Why Do I Need Life Insurance?
You need life insurance in order to ensure that your loved ones can cope financially with your loss. That's the bottom line.
The reasoning behind life insurance is most evident when you consider sole breadwinners, but applies to everyone who has dependents, even stay-at-home spouses. If you (as the stay-at-home spouse) were to suddenly die, your family would have to find other ways to: ensure care of children; get the family home cleaned; handle dry cleaning and laundry; do grocery shopping; and many other tasks which you currently handle. While your services appear to be 'low cost' because no one is paying you directly, if your family has to replace you with paid help you will quickly see your 'value'.
In addition, funerals are expensive. An average funeral can set you back between $8,000 and $10,000 considering the funeral home services, casket, burial plot and headstone. This is part of what you want to insure yourself against. You can bundle in these costs when you consider a life insurance policy's total benefit amount that you insure yourself for.
While you can buy life insurance policies which are a small amount suitable only to cover funeral costs, you will generally need much more life insurance than that. Many of these life insurance policies look good because of low prices, but you have to look closely. For the dollar amount of coverage you get, it is generally a more expensive life insurance policy.
Some people who are single or have no dependents might want to consider 'funeral coverage' only. For the rest of us, we should be looking at more substantial life insurance.
Life Insurance - How do I decide what I need?
This is a big question. In general, most financial planners will say that you should have life insurance equal to at least 5 times your annual salary. Some folks with more dependents (older parents, children and spouse) may need more life insurance.
Other financial planners say that you should look at the total amount of income that you want to replace between now and retirement. While the numbers can be big and scary if you are young, your actual life insurance needs will decrease over time.
Let's look at an example. If I'm 25 and make $35,000 a year and I want to replace the income I'd make between now and retirement age, I'd be looking at life insurance for $848,000. Whew! Well, there are a number of concerns with that:
1. First and foremost, can I afford the premium?2. At this age, you may be able to. The risk to a life insurance company is low.
3. Does my spouse work? 4. If my spouse does work I may not have to replace my total salary.
5. If I have a stay-at-home spouse, would they consider going back to work after a certain period?
If you think your spouse may want to retrain for another career you may actually need to consider more money. Or perhaps, if the total amount of the life insurance policy paid out the mortgage and put some money in the bank, your spouse could return to the workforce on a part-time basis.
6. Am I trying to leave my family 'set for life' or am I trying to get them over a tough time?7. This is entirely up to you. Balance it out against the amount of the life insurance premium.
These are questions which must be considered. At a minimum, your life insurance coverage should:
Fully pay out your mortgage
Fully pay for funeral costs
Allow for supplementary childcare for at least 2 years (if you have children)
Fully pay out any other debts, like car loans, outstanding bills from credit cards or utilities, etc
Leave a little something in the bank for emergencies
Does 5 times your salary meet these requirements? Great. If not, you might have to consider up to 8 times your salary. Then consider all the factors which might affect your spouse's ability to handle the situation - perhaps you've died in an accident in which they were hurt too, or perhaps you have a family of 9 children and your spouse couldn't return to work - and add additional money as required.HISTORY OF INDIAN INSURANCE INDUSTRY
The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.
Insurance industries in India have a long history. Life Insurance in existing form came in India from UK in 1818 with Oriental Life Insurance Company. The Indian Life Assurance companies Act, 1912 was the first measure to regulate Life Insurance business. Later in 1928 the Indian Insurance Companies act was enacted, which was amended in 1938. Finally Government of India in 1950 again amended this act. Life Insurance Corporation of India was formed in September 1956 by passing LIC Act, 1956 in Indian parliament.
The first general insurance company- Sun Insurance Office Ltd. was established in Calcutta in the year 1710. General Insurance business in India was nationalized with effect from 1.1.73 by the General Insurance Business Act. from 1973, The General Insurance Company (GIC) as a holding company divided in four subsidiaries as:
National Insurance Company Ltd.,
The New India Assurance Company Ltd.
The Oriental Insurance Company Ltd.
The United India Insurance Company Ltd.
DEVELOPMENTS IN THE INDIAN INSURANCE SECTOR
Liberalization and reforms have the potential to change the complexion of an industry. The Indian insurance sector is no exception. Until recently, India continued to be one of the few remaining countries of the world to remain insulated from the foreign direct investment in its insurance sector. In a bid to make this sector more competitive the government constituted an eight-member committee chaired by Mr. R N Malhotra in 1993. The committee took a year to submit its report. The main thrust of its recommendations was:
Open up the insurance sector
Improve the service standards of Indian insurance majors
Extend insurance coverage to a larger section of the Indian population.
The benefits of liberalization of Indian insurance sector were deemed to be that reforms would lead to:
A competitive environment
World-class sophisticated technology
Better & wider range of products with more reasonable & affordable pricing
Price war, leading to competitive pricing of the products
Efficient & effective service
Efficiency in the conduct of insurance business
Global expertise & practices of insurance
New entrants with a professional approach & state of art technology to revolutionize the market
Services of intermediaries like corporate agents, brokers etc
Malhotra Committee, in its report stated that only 22% of the Indian population is insured. The poor reach of insurance in the country and the sheer numbers make India a market with tremendous potential. The following facts show how under-developed the Indian insurance business is due to state monopoly and lack of aggressive marketing of insurance policies:
Per capita insurance premium in India is a mere US$ 6, one of the lowest in the world. In South Korea, the corresponding figure is US$1,338, in USA it is $ 2250 and in UK it is $1589.
Insurance premium in India accounts for a mere 2 per cent of GDP compared to the world average of 7.8 per cent and G-7 average of 9.2 per cent.
Insurance premium as a percentage of savings is barely 5.95 per cent in India compared to 52.5 per cent in the UK.
Nationalized insurance companies have not been able to target niche markets that are currently served poorly or not at all. Life insurance products provide a good example. They compete with investment and savings options like mutual funds. It is imperative that they should offer comparable returns and flexibility. For instance, pure protection products like term assurance account for up to 20 per cent of policies sold in developed countries. In India, the figure is less than one percent because policies are inflexible. Besides, no Indian life assurance product is linked to non-traditional investment avenues such as stock market indices. Therefore, returns are lower than those on other savings instruments.
Retail segment or personal lines insurance, especially in general insurance is another area unexplored. Currently personal insurance, including health, householders, shopkeepers, personal accident, travel insurance and professional indemnity covers, constitute only 12 per cent of Indian general insurance premium. This poor figure is largely due to the lack of adequate distribution channels rather than a lack of products. By tapping such under-served niches, new entrants can expand the market substantially. Since service and speed will be valued, a price premium is also possible.
Keeping in mind the problems that ensnared LIC & GIC, the Malhotra Committee Report recommended the end of monopoly market in insurance.
This recommendation was implemented with the passage of Insurance Regulatory Development Act (IRDA) through Indian Parliament in late 1999.
Due to this Act the private players were allowed to enter the market from 1999. Several Indian private companies have entered into the insurance market, and some companies have joined with foreign partners. After the passage of this Act, with effect from December 2000, all the four subsidiaries of GIC have been de-linked from the parent company and have been made independent insurance companies. GIC now functions as a National Reinsurer.
IRDA, for the time being, prohibits 100% foreign equity in insurance. It requires the Indian promoter to invest either wholly in an insurance venture or team up with a foreign insurer, with a cap of 26% of equity for a foreign partner.
Since the opening up of Insurance Sector, 12 private players have entered the Life Insurance sector & 9 private players have entered the general insurance sector.
Insurance Regulatory & Development Authority
Under the Insurance Regulatory Development Act, Insurance Regulatory & Development Authority (IRDA) was formed which acts as the regulatory authority in the insurance sector. The main aim of the Act is to activate an insurance regulatory apparatus essential for proper monitoring and control of the Insurance industry. TAC is a Statutory Body under Insurance Act 1938. Tariff Advisory Committee controls and regulates the rates, advantages, terms and conditions that may be offered by insurers in respect of General Insurance Business relating to Fire, Marine (Hull), Motor, Engineering and Workmen Compensation.
Liberalization Scenario in India
Recent economic liberalization started few years ago have started bringing in new investments from global giants and the government was hard pressed to facilitate global integration by lowering trade barriers for the free flow of technology, intellectual and financial capital. Additionally, reforms are essential if the Indian economy is to achieve and sustain a growth rate of 7 to 8 per cent per annum. Reaching a faster growth path also implies attracting foreign direct investment inflows of $ 10 Billion every year, up from the current level of $ 3 to $ 3.5 Billion. Thus liberalization of insurance creates an environment for the generation of long-term contractual funds for infrastructural investments. Nationalized Sectors Performance
In 1995-96, LIC had a total income from premium and investments of $ 5 Billion while GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's income grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US).
LIC has even provided insurance cover to five million people living below the poverty line, with 50 per cent subsidy in the premium rates. LIC's claims settlement ratio at 95 per cent and GIC's at 74 per cent are higher than that of global average of 40 per cent. Compounded annual growth rate for Life insurance business has been 19.22 per cent per annum and for General insurance business it has been 17 per cent per annum.
However, there is other side of the coin too. Their large scale of operations, public sector bureaucracies and cumbersome procedures hampers nationalized insurers. The field staff and the agents of the GIC and its four wholly owned subsidiary companies have seldom bothered to venture out into the rural hinterland to sell crop or any other personal line insurance. The domestic insurance companies, despite meeting their social objectives of going into the deepest interiors of the country, have lagged behind in meeting customer expectations in products and services.
Private Players in Insurance Sector
Potential private entrants expect to score in the areas of customer service, speed and flexibility. It is expected that their entry will mean better products and choice for the consumer. Critics counter that the benefit will be slim, because new players will concentrate on affluent, urban customers as foreign banks did until recently.
This might seem a logical strategy from the point of view of new players. Start-up costs-such as those of setting up a conventional distribution network-are large and high-end niches offer better returns. However, in the long run 'middle-market' offers the greatest potential as in terms of it is the second largest market in the world. This may still be an urban market but goes beyond the affluent segment.
Insurance, even more than banking, is a volume game. A very exclusive approach is unlikely to provide meaningful numbers. Therefore, private insurers would be best served by a middle-market approach, targeting customer segments that are currently untapped.
Repositioning of Public Sector Companies
Floodgates of competition opened up by the privatization of insurance industry did throw a challenge to the well-protected nationalized sector and it seems they have picked up the gauntlet. LIC and GIC, both are trying to reposition themselves by having re-engineering done on the structure and operations of their respective organizations.
Life Insurance Corporation is at present going through presentations from top management consultants. These consultants have been asked to narrate their experiences in countries where the insurance sector has been opened up for private competition so that the public sector player can draw lessons. Based on these, LIC will appoint a consultant which can provide them broad terms of reference on what changes are required to tackle the impending competition.
GIC has already identified the areas that need to be activated and given a shape through the four subsidiary companies. Foremost is the area of providing health insurance services. A change in the GIC Act will enable the corporation to float a joint venture company for health insurance. Other areas that the GIC is looking at are savings-linked insurance products and use of alternate distribution channels including bancassurance. Also in progress is the co-ordination of all foreign operations of the group.
The PSU companies have offered VRS to their employees in an effort to reduce the manpower cost & to make their operations more effective.
Changes in Distribution Channel
Substantial shift in the distribution of insurance in India is likely to take place. Many of these changes will echo international trends. Worldwide, insurance products move along a continuum from pure service products to pure commodity products. Initially, insurance is seen as a complex product with a high advice and service component. Buyers prefer a face-to-face interaction and place a high premium on brand names and reliability.
As products become simpler and awareness increases, they become off-the-shelf, commodity products. Sellers move to remote channels such as the telephone or direct mail. Various intermediaries, not necessarily insurance companies, sell insurance. In the UK for example, retailer Marks & Spencer now sells insurance products. In some countries like Netherlands and Japan, insurance is marketed using post office's distribution channels. At this point, buyers look for low price. Brand loyalty could shift from the insurer to the seller.
In other markets, notably Europe, this has resulted in bancassurance: banks entering the insurance business. The Netherlands led with financial services firms providing an entire range of products including bank accounts, motor, home and life insurance, and pensions. Other European markets have followed suit. In France over half of all life insurance sales are made through banks. In the UK, almost 95% of banks and building societies are distributing insurance products today.
In India too, banks hope to maximize expensive existing networks by selling a range of products. Various seminars and conferences on bancassurance are taking place and many bankers have clearly shown their inclination to enter insurance market by leveraging their strengths in the areas of brand image, distribution network, face to face contact with the clients and telemarketing coupled with advanced information technology systems.Problems
Consumer awareness level is still off the mark. According to the recently conducted FICCI survey on the Present State of Indian insurance industry, a copy of which is available with all of you, the awareness levels regarding Insurance are still in the realm of medium to low. This clearly indicates the onerous task that companies have in creating awareness about "need to Insure" and also tremendous potential they have in expanding the markets by getting more customers in their fold by increasing awareness levels.
Insurers in India should also explore distribution through non-financial organizations. For example, insurance for consumer items such as refrigerators can be offered at the point of sale. This piggybacks on an existing distribution channel and increases the likelihood of insurance sales. Alliances with manufacturers or retailers of consumer goods will be possible. With increasing competition, they are wooing customers with various incentives, of which insurance can be one.
Another potential channel that reduces the need for an owned distribution network is worksite marketing. Insurers will be able to market pensions, health insurance and even other general covers through employers to their employees. These products may be purchased by the employer or simply marketed at the workplace with the employers co-operation.
Finally, some potential Indian entrants into insurance hope to ride their existing distribution networks and customer bases. For example, financial organizations like ICICI, HDFC or Kotak Mahindra intend to tap the thousands of customers who already buy their deposits, consumer loans or housing finance. Other hopeful entrants anticipate specific alliances such as with hospitals to provide health cover. International Experience
Cross-country experience shows that nowhere in the world has the entry of foreign firms threatened the position of domestic companies. Whether it is Malaysia, where the insurance sector has been open for more than 50 years and foreign companies account for about 10 per cent of market penetration or it is Indonesia, Thailand, China or the Philippines, where the market has been opened more recently, the total market share of foreign companies is less than 10 per cent except in Indonesia where it is about 20 per cent. Closer home, we have the experience of the banking sector where despite the presence of 42 foreign banks, their share in total banking assets is less than 10 per cent.
Today hardly 20 per cent of the population in India is insured and insurance premium (life as well as non-life) account for just 2 per cent of GDP as against the G-7 average of 9.2 per cent. Consequently, the fear that new companies will displace public companies is misplaced. There is room for more for not only the existing companies but also for any number of competitors. Future Possibilities for the Next 5-10 Years
Job opportunities are likely to increase manifold in the insurance sector. The number of people working in the insurance sector in India is roughly the same as in the UK with a population that is 1/7 India's; the US with a population 1/4 the size of India has nearly 4 times the number. In the emerging markets, the picture is no less encouraging. In S Korea, the number of full time employees has more than doubled over a ten year period. Thailand added 50 per cent more jobs in four years.
The liberalization of the insurance sector promises several new jobs opportunities for those employed in the finance sector who are equipped with degrees in finance. Finance professionals who had witnessed a slump in the job market would be much in demand with the opening up of insurance sector.
The type of jobs that will be created once the private players are established in the country won't be far different from the traditional streams in any other industry. There will be demand for marketing specialists, finance experts, human resource professionals, engineers from diverse streams like the petrochemical and power sectors, systems
Professionals, statisticians and even medical professionals. Apart from this, there will be high demand for professionals in the streams like Underwriting and claims management and actuarial sciences.
The structure of an insurance company, generally, comprises the Operating Department, Administrative Department and the Finance Department. The Operating Department generally performs the basic functions pertaining to the designing of products, marketing thereof, servicing the insured, management of portfolio, etc. The Administrative Department looks after the day to day affairs of the company. The Finance Department backs the operations and administration of the company by accounting for the transactions, streamlining the flow of funds, materializing the management decisions, etc. The Administration Department as well as the Finance Department, usually, functions through in-house setup. The Finance Department functions in the areas of accounting, financial and management reporting, budgeting and controlling, etc. and thus renders enormous scope for professionals. Over the past three years, around 40 companies have expressed interest in entering the sector and many foreign and Indian companies have arranged anticipatory alliances. The threat of new players taking over the market has been overplayed. As is witnessed in other countries where liberalization took place in recent years we can safely conclude that nationalized players will continue to hold strong market share positions, but there will be enough business for new entrants to be profitable.
Opening up the sector will certainly mean new products, better packaging and improved customer service. Both new and existing players will have to explore new distribution and marketing channels. Potential buyers for most of this insurance lie in the middle class. New insurers must segment the market carefully to arrive at appropriate products and pricing. Recognizing the potential, in the past three years, the nationalized insurers have already begun to target niches like pensions, women or children.
Marketing of Insurance products
Marketing as we know deals with all those processes required to put the products in the hands of the ultimate consumer. Philip Kotler, considered by many as the Marketing Guru of our times gives a pithy definition on marketing thus:' Marketing is the delivery of customer satisfaction at a profit.' Thus one of the essential parameters that judge the effectiveness of marketing exercise is the effect it has on the organization's bottom line.
The steps involved in marketing processes are brought out by the study of four critical parameters, which are the famous 4P's. i.e. Price, Place, Product and Promotion.
A Company or an organization coming with a product offer, has to design an appropriate mix of these four parameter consistent within its standing in the market. Typically the importance of each of these parameter vary in importance depending on the nature of the product, nature of the market and the size of the company.
For instance while product issue forms the important deciding factor in the purchase of commodities and manufactured goods promotion is of key importance in Fast Moving Consumer Goods marketing. The four parameters also take on different intensities depending on which stage of the product life cycle the product is in.
Accordingly the marketing process could take a product centric view, a customer centric view or as is happening these days it could be taken on as a organizational philosophy resulting in market driven companies.
In order to link the marketing process to Insurance products, first it has to be seen in the broader context of financial services marketing and also the regulatory environment that is in place. Financial services whether its Banking, or Investments, Life Insurance, General Insurance, though target separate need base, have the services component connecting them.
Services being intangible the four aspects of the marketing mix discussed above, which are developed for product centric markets, do not find the same level of application and thus needs a fresh perspective to be developed in relation to services marketing. Theories have evolved over time in this direction first by identifying the aspects of services marketing and then providing solutions for this line of marketing, which existing insurance policies may provide cover?
Financial Services Marketing:
Services have some unique features separating itself from traditional product marketing:
They are intangible, there is nothing physical so consumers do not have any way to actually take a test drive or in any way get a feel about the product before its purchase.
The services are inseparable from the product itself. Here the product is produced and consumed in the same instance and requires the presence of the end customer.
It is heterogeneous and quality control is difficult where the quality of the service is dependent on the quality of the service provider.
The product differentiation is minimum with in a category of product say in Banking or Investment etc; Added to this the customer more often relies on hope of appreciation of his investments or safe return of his deposits with the promised yield. The kind of trusteeship found in all financial services makes the companies all the more responsible in handling the hopes of their consumers. Also the regulatory environment plays a crucial role in marketing of financial products. There are restrictions on the content of ad-messages so as to ensure that customers are not taken for a ride by unscrupulous elements, which unfortunately are not hard to find in this sector.
How does insurance sector fit in this arena.
The very nature of the contract puts the insured at a vantage position as to the information regarding risk element one is exposed to. Owing to this insurance contracts are sourced through an intermediary, an agent in this case who is expected to have better knowledge of the person or the risk in question. Insurance companies rely on the report of its agents in its decision to acceptance or otherwise and in premium setting for the risk in question. A reason why many lines of insurance are not available off the shelf.
Even as this is the case, Insurance contracts especially those in life insurance are typically sold rather than bought. The reason being that there in no adequate appreciation of the concept of insurance, which seeks to indemnify/ compensate the insured for financial loss suffered on account of an accidental event. Typically life insurance policies are compared with bank fixed deposits or mutual funds, and are shown in poor light for their poor returns. One fails to appreciate that the need base differs when one is taking up a life insurance policy. Most of the plans while offering decent returns offer life covers that are a unique feature compared to other financial products.
Insurance companies have been countering their poor image by coming out with innovate features like unit-linked schemes, which offer more of a saving component and less of a risk component. Also there are various tax incentives provided by the government for investments into life insurance plans, to encourage the habit of buying insurance.
Also there is strict regulatory compliances to be compiled with while selling insurance products. For instance there is that provision of Section 41 of the Insurance Act, 1938, which prohibits offer of rebates in any kind from the premium monies by the intermediaries in their efforts to source business for insurance companies. The advertising code as prescribed by the regulator, the IRDA, requires to be clearly worded in their ad-message.
What the future has in store for the segment:
Typically the entire business in life insurance and a huge proportion of business in non-life insurance is sourced through agents of insurance companies. New intermediary options are being broached including an option of disintermediation in certain lines of business. The new distribution alternatives include the brokers, who act on behalf of the customers and advice of best-suited policies and banks.
The general integration of different classes of financial services has created a large opportunity for banks to enter in to the insurance sector. The branch network and the high relationships maintained with its clientele is being put to good use while marketing insurance products. A new alternative like selling insurance over the net is also catching up. Insurance companies are opting for disintermediation in certain lines of business aimed at corporates, where highly specialized knowledge on risk analysis is called for.
1. Familiarization with the insurance concepts and insurance industry in India.
2. Collection of database from Working Individuals through a questionnaire.
3. Analysis and interpretation of data.
4. Reaching at conclusions and suggestions based on analysis.
According to Green and Tull: A research design is the specification of methods and procedures for acquiring the information needed. It is he overall operational pattern or framework of the project that stipulates which information is to be collected from which sources by what procedures.
SOURCES OF DATA COLLECTION
For conducting the study, the researcher has adopted both primary as secondary method of data collection. personal interview - by means of a questionnaire.
Secondary Data: It has been collected from various books and Internet sites. Researcher has adopted this method of data collection, as the researcher liters no access to magazines and journal but a plenty of material was available on the Internet sites.
Sample: Due to time and resource constraints, the sample of the study is taken as one and the technique of sampling adopted is: convenient sampling.1. Primary Sources
200 people in NCR
Demographic Profile of Sample
25ysr & above
Randomly Selected People
LIMITATIONS OF THE RESEARCH
Selected only 200 respondents due to time constraint, which might have led to several sample errors.
Study is restricted to NCR, which might not give the national picture.
The duration of time for the study was limited & hence a comprehensive & elaborate study could not be undertaken.
Rural areas could not be touched during the study, which have huge potential for life Insurance exists.
Primary Data: For the purpose of collecting primary data, the researcher has adopted the method of survey. Survey can be telephonic, by mail personal and by the diary. For the purpose of collected detailed information, researcher has chosen surveys based on OVERVIEW
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and Prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). ICICI Prudential's equity base stands at Rs. 2602 crore with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. For the period April 30, 2007 to July 31, 2007, the company garnered Rs 1415 crore of weighted retail + group new business premiums and wrote over 5 million relail policies. The company has a assets held to the tune of over Rs 20,000 crore. For the past six years, ICICI Prudential has retained its position as the No. 1 private life insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life.
The vision of ICICI PRUDENTIAL:
To make ICICI Prudential the dominant Life and Pensions player built on trust by world-class people and service.
This we hope to achieve by:
Understanding the needs of customers and offering them superior products and service Leveraging technology to service customers quickly, efficiently and conveniently Developing and implementing superior risk management and investment strategies to offer sustainable and stable returns to our policyholders Providing an enabling environment to foster growth and learning for our employees And above all, building transparency in all our dealings.The success of the company will be founded in its unflinching commitment to 5 core values-- Integrity, Customer First, Boundary less, Ownership and Passion. Each of the values describes what the company stands for, the qualities of our people and the way we work.
We do believe that we are on the threshold of an exciting new opportunity, where we can play a significant role in redefining and reshaping the sector. Given the quality of our parentage and the commitment of our team, there are no limits to our growth.MANAGEMENTBoard of DirectorThe ICICI Prudential Life Insurance Company Limited Board comprises reputed people from the finance industry both from India and abroad. Mr. K.V. Kamath, Chairman Mr. Barry stoweMrs. Keki DadisethMrs. Kalpana MorpariaMrs. Chanda KochharMr. HT PhongMr. M.P. ModiMr. R NarayananMs. Shikha Sharma, Managing DirectorMr. N.S. Kannan, Executive Director
Management TeamMs. Shikha Sharma, Managing Director & CEOMr. N.S. Kannan, Executive DirectorMr. Azim Mithani,Chief -ActuaryMr. Bhargav Dasgupta, Executive DirectorMs. Anita Pai, Chief -Customer Service and OperationsMr. Puneet Nanda, Chief Investments
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse, and Prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA).
ICICI Prudentials equity base stands at Rs. 2602 crore with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. For the period April 30 to July 31, 2007, the company garnered Rs 1415 crore of weighted retail + group new business premiums and wrote over 5 million retail policies. For the past six years, ICICI Prudential has retained its position as the No. 1 private life insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life. To know more about the company, please visit www.iciciprulife.com.
ICICI Prudential is also the only private life insurer in India to receive a National Insurer Financial Strength rating of AAA ( Ind ) from Fitch ratings. The AAA rating is the highest credit rating, and is a clear assurance of ICICI Prudentials ability to meet its obligations to customers at the time of maturity or claims.
DISTRIBUTIONICICI Prudential has one of the largest distribution networks amongst private life insurers in India, having commenced operations in over 116 cities and towns in India, stretching from Bhuj in the west to Guwahati in the east, and Amritsar in the north to Trivandrum in the south.
The company has 23 bancassurance tie-ups, having agreements with ICICI Bank, Bank of India, Federal Bank, South Indian Bank, Ernakulam Bank, Lord Krishna Bank and some co-operative banks, as well as about 680 corporate agents and brokers. It has also tied up with NGOs, MFIs and corporates for the distribution of rural policies and organisations like Dhan for distribution of Salaam Zindagi, a policy for the socially and economically underprivileged sections of society.
ICICI Prudential has recruited and trained more than 235,000 insurance advisors to interface with and advise customers. Further, it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers.
PRODUCTSInsurance Solutions for Individuals
ICICI Prudential Life Insurance offers a range of innovative, customer-centric products that meet the needs of customers at every life stage. Its products can be enhanced with up to 7 riders, to create a customized solution for each policyholder.
Savings Solutions SecurePlus is a transparent and feature-packed savings plan that offers 3 levels of protection.
CashPlus is a transparent, feature-packed savings plan that offers 3 levels of protection as well as liquidity options.
SavenProtect is a traditional endowment savings plan that offers life protection along with adequate returns.
CashBak is an anticipated endowment policy ideal for meeting milestone expenses like a childs marriage, expenses for a childs higher education or purchase of an asset.
LifeTime & LifeTimeII offer customers the flexibility and control to customize the policy to meet the changing needs at different life stages. Each offer 4 fund options ? Preserver, Protector, Balancer and Maximiser.
LifeLink II is a single premium Market Linked Insurance Plan which combines life insurance cover with the opportunity to stay invested in the stock market.
Premier Life is a limited premium paying plan that offers customers life insurance cover till the age of 75.
InvestShield Life is a Market Linked plan that provides capital guarantee on the invested premiums and declared bonus interest.
InvestShield Cash is a Market Linked plan that provides capital guarantee on the invested premiums and declared bonus interest along with flexible liquidity options.
InvestShield Gold is a Market Linked plan that provides capital guarantee on the invested premiums and declared bonus interest along with limited premium payment terms.
Protection Solutions LifeGuard is a protection plan, which offers life cover at very low cost. It is available in 3 options ? level term assurance, level term assurance with return of premium and single premium.
HomeAssure is a mortgage reducing term assurance plan designed specifically to help customers cover their home loans in a simple and cost-effective manner.
Child Plans Smart Kid education plans provide guaranteed educational benefits to a child along withlife insurance cover for the parent who purchases the policy. The policy is designed to provide money at important milestones in the childs life. SmartKid plans are also available in unit-linked form ? both single premium and regular premium.
Retirement Solutions ForeverLife is a retirement product targeted at individuals in their thirties.
SecurePlus Pension is a flexible pension plan that allows one to select between 3 levels of cover.
Market-linked retirement products LifeTime Pension IIis a regular premium market-linked pension plan
LifeLink Pension II is a single premium market-linked pension plan.
InvestShield Pension is a regular premium pension plan with a capital guarantee on the investible premium and declared bonuses.
Golden Years: is a limited premium paying retirement solution that offers tax benefits up to Rs 100,000 u/s 80C, with flexibility in both the accumulation and payout stages.
ICICI Prudential also launched Salaam Zindagi, a social sector group insurance policy targeted at the economically underprivileged sections of the society.
Health Solution Health Assure: Is a regular premium plan which provides l long term cover against 6 critical illnesses by providing policyholder with financial assistance, irrespective of the actual medical expenses.
Health Assure Plus: Is a regular premium plan which provides long term cover against 6 critical illnesses by providing financial assistance, irrespective of actual medical expenses, as well as an equivalent life insurance cover
Group Insurance Solutions ICICI Prudential also offers Group Insurance Solutions for companies seeking to enhance benefits to their employees.
ICICI Pru Group Gratuity Plan: ICICI Prus group gratuity plan helps employers fund their statutory gratuity obligation in a scientific manner. The plan can also be customized to structure schemes that can provide benefits beyond the statutory obligations.
ICICI Pru Group Superannuation Plan: ICICI Pru offers a flexible defined contribution superannuation scheme to provide a retirement kitty for each member of the group. Employees have the option of choosing from various annuity options or opting for a partial commutation of the annuity at the time of retirement.
ICICI Pru Group Term Plan: ICICI Prus flexible group term solution helps provide affordable cover to members of a group. The cover could be uniform or based on designation/rank or a multiple of salary. The benefit under the policy is paid to the beneficiary nominated by the member on his/her death.
Flexible Rider OptionsICICI Pru Life offers flexible riders, which can be added to the basic policy at a marginal cost, depending on the specific needs of the customer.
Accident & disability benefit: If death occurs as the result of an accident during the term of the policy, the beneficiary receives an additional amount equal to the rider sum assured under the policy. If the death occurs while traveling in an authorized mass transport vehicle, the beneficiary will be entitled to twice the sum assured as additional benefit.
Accident Benefit: This rider option pays the sum assured under the rider on death due to accident.
Critical Illness Benefit: protects the insured against financial loss in the event of 9 specified critical illnesses. Benefits are payable to the insured for medical expenses prior to death.
Income Benefit: This rider pays the 10% of the sum assured to the nominee every year, till maturity, in the event of the death of the life assured. It is available on SmartKid, SecurePlus and CashPlus
Waiver of Premium: In case of total and permanent disability due to an accident, the premiums are waived till maturity. This rider is available with SecurePlus and CashPlus.
ABOUT THE PROMOTERSICICI Bank (NYSE:IBN) is India''s second largest bank and largest private sector bank with assets of Rs 3569.32 billion as onJune 30, 2007. ICICI Bank provides a broad spectrum of financial services to individuals and companies. This includes mortgages, car and personal loans, credit and debit cards, corporate and agricultural finance. The Bank services a growing customer base of more than 18 million customers through a multi-channel access network which includes over 850 branches and extension counters, 3469 ATMs, call centers and Internet banking (www.icicibank.com).
Established in London in 1848, Prudential plc, through its businesses in the UK and Europe, the US and Asia, provides retail financial services products and services to more than 20 million customers, policyholder and unit holders worldwide. As of June 30, 2007, the company had over US$3256 billion in funds under management. Prudential has brought to market an integrated range of financial services products that now includes life assurance, pensions, mutual funds, banking, investment management and general insurance. In Asia, Prudential is the leading European life insurance company with a vast network of 24 life and mutual fund operations in twelve countries - China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.The ICICI Prudential Edge - What makes us No. 1The ICICI Prudential edge comes from our commitment to our customers, in all that we do - be it product development, distribution, the sales process or servicing. Here's a peek into what makes us leaders.
1. Our products have been developed after a clear and thorough understanding of customers' needs. It is this research that helps us develop Education plans that offer the ideal way to truly guarantee your child's education, Retirement solutions that are a hedge against inflation and yet promise a fixed income after you retire, or Health insurance that arms you with the funds you might need to recover from a dreaded disease.
2. Having the right products is the first step, but it's equally important to ensure that our customers can access them easily and quickly. To this end, ICICI Prudential has an advisor base across the length and breadth of the country, and also partners with leading banks, corporate agents and brokers to distribute our products
3. Robust risk management and underwriting practices form the core of our business. With clear guidelines in place, we ensure equitable costing of risks, and thereby ensure a smooth and hassle-free claims process.
4. Entrusted with helping our customers meet their long-term goals, we adopt an investment philosophy that aims to achieve risk adjusted returns over the long-term.
5. Last but not least, our 10,000+ strong staff is given the opportunity to learn and grow, every day in a multitude of ways. We believe this keeps them engaged and enthusiastic, so that they can deliver on our promise to cover you, at every step in life.SWOT ANALYSIS
SWOT Analysis is a technique for understanding strengths, weakness, opportunities and threats of an organization.
The SWOT Analysis is a technique used for identifying an organizations strengths and weakness and examining the opportunities and threats which the organization is facing.
First private entrant in the market.
High brand recognition.
Large customer base.
New in the market. Low trust level. Lesser work post.OPPUTUNITIES
Huge potential in the market (only 2% population adequately insured). Unexplored areas like rural.
Liberal laws of Indian govt.
Around 14 players, new ones are still coming.
Huge acceptability of LIC.
Left (CPIM) oppossion to private players.
COLLECT THE DATA
S. No.Company No. of people contactedAddress
1Amway India2Okhla Phase-II
2Beehive Systems2Sector-1, Noida
3Cidex Trade Fair3Sarita Vihar
5Delhi Toyota5Mohan Cooperatives
8HCL BPO10Sector-58, Noida
9Hollostic India Ltd.2Sector-58, Noida
10Idea Cellular5Mohan Cooperatives
12Microland Systems4Sector-58, Noida
13NeoMagic Semiconductor3Sector-1, Noida
15Olive E-Solutions4Mohan Cooperatives
16Patni Computers1Sector-59, Noida
17Philips India12Mohan Cooperatives
18R Systems8Sector-59, Noida
19Samtech Infonet2Mohan Cooperatives
20Schneider Electric3 Mohan Cooperatives
22Solution Inc.7Mohan Cooperatives
23Tele Atlas6Sector-1, Noida
24V Customers10Mohan Cooperatives
25Xansa BPO17Sector-1, Noida
40 other Companies including CA, Self employed etc.
Okhla ( Phase I,II ) Mohan Cooperatives Noida ( Sector- 1,2,58,59 ) Faridabad (Ansal Plaza ) Sarita Vihar DATA ANALYSIS
Monthly Family Income Level(Rs.):
5 people didnt disclose their family income.
INTERPRETATION: After analyzing the data it was found that 14 families have monthly family income level less than Rs 10000, 41 families have between rs 10000 and Rs 20000, 76 families have between Rs 20000 and Rs 40000, 64 families have above Rs 40000.
Annual Investment Level(Rs.):
5 people didnt disclose their Investment level.
INTERPRETATION: After analyzing the data it was found that 35 people invest less than Rs 10000 annually, 59 people invest between Rs 10000 and Rs 25000 annually, 42 people invest between Rs 25000 and Rs 50000 annually, and 60 people invest more than Rs 50000 annually.
Factors of Investment:
S. No.Ist PriorityNo. of People Favoring
6 people Didnt Disclose.
INTERPRETATION: After analyzing the data it was found that while investing 68 people gave priority to tax benefits,15 people to liquidity,52 people to safety and 59 people to returns.
S. No.InfluencerNo. of People
1 Didnt Disclose.
INTERPRETATION: after analyzing the data it was found that 118 people are influenced by self/ spouse, 49 by parents, 17 by intermediaries and 15 by friends.
NO. OF YEARSNO. OF PEOPLE
No. of people
INTERPRETATION: After analyzing the data it was found that 63 people invest for less than 1 year, 77 for 1 to 3 years, 35 for 3 to 10 years, 25 for more than 10 years.
INSTRUMENTS YOU INVEST IN
S.NO. INSTRUMENTSNO. OF PEOPLE
No. of people
INTERPRETATION: After analyzing the data it was found that 25 people invest in equity shares, 75 people invest in ppf, 40 people in fixed deposits and 60 people invest in life insurance.
Preference for Life Insurance as an Investment:
S. No.Investment OptionNo. of People
4Saving for old age17
3 people didnt disclose.
INTERPRETATION: After analyzing the data it was found that 76 people prefer life insurance an investment for saving tax, 93 people for family security, 11 for unforeseen expense and 17 for old age.
Return on investment:
S. No.No. of YearsNo. of people
8 people didnt disclose.
INTERPRETATION: After analyzing the data it was found that 53 people want return on investment before 3 years, 67 people want between 3 years to 5 years, 33 people want between 5 years to 10 years and 39 people want after 10 years.
Consultancy of any financial intermediary to make investment in Life Insurance.
INTERPRETATION: After analyzing the data it was found that 140 people consulted financial intermediary to make investment in life insurance where as 60 people didnt consulted any body.
How do you save your tax?
NO. OF PEOPLE
1INVEST IN LIFE INSURANCE40
2INVEST IN PPF75
3INVEST IN INFRASTRUCTURE BONDS30
4INVEST IN PENTION PLANS
No. of people
INTERPRETATION: After analyzing the data it was found that 40 people save tax by investing in life insurance, 75 people by investing in ppf, 30 people by investing in infrastructure bonds, 55 people by investing in pension plans. CONCLUSIONS
From the findings of the study it can be said that the scope of Life Insurance market in India is full of opportunities & a huge potential lies in rural areas.
The potential customers want value added products to meet their needs & requirements on individual basis.
From the study it can be inferred that people have started looking towards Life Insurance as a future long-term source of investment with life cover.
Insurance is a source of tax saving among corporates.
People give priority to family security while investing in any Life Insurance policy.
Private players in the industry need to focus towards marketing strategies to capture more of industry share with the growing competition.
The private companies have to improve their awareness among the people so as to build a brand image for them in comparison with LIC. The companies have huge potential unexplored market, which is ready to buy the product, but only if priced & targeted well.
The companies can have agents to sell their products & else sell through mailer but in future it should also go in for selling through Internet. The companies need to market their products in such a way so that it reaches each & every potential customer. The company should create value added services & brand image so that they can ride on them to sell their products & to overcome its competitors. Insurance as a future source of long term gains need to be informed while selling a Insurance product. ANNEXURE QUESTIONNAIRENAME: -----------------------------------COMPANY:-----------------------
MONTHLY FAMILY INCOME (Tick the appropriate one)
1. Rank the following factors in order of your preference, which you consider while making any investment:
Returns 2. Who influences your investment decisions? (Tick the appropriate one)
Intermediaries (Agents, Brokers etc)
3.what is the time horizon for which you generally invest? (Tick the appropriate one)
4. How much money do you invest annually? (Tick the appropriate one)
5. What are the instruments you invest in? (Tick your choices)
6. What is your order of preference for LIFE INSURANCE as an Investment option?
Savings for old age
7. Have you ever consulted any financial intermediary to make investment in Life Insurance options?
If No, then how do you make investment __________________________________________________________________
8. You would prefer to get returns within? (Tick the appropriate one)
9. Give ratings in order of your preference for these advantages of investing in Life Insurance options?
Long Term Savings
Tax Savings & Tax Free Returns
Peace of mind for Family
Provision after retirement
10. How do you save your Tax? (Tick the appropriate one)
Invest in Life Insurance
Invest in PPF
Invest in Infrastructure bonds
Invest in pension plans
Marketing Management-PHILIP KOTLER
Research Methodology C.R. KOTHARI
Company Brouchers and Journals
No. of people
S. No.No. of YearsNo. of people
No. of people
S. No.InfluencerNo. of People
No. of People
S. No.Investment OptionNo. of People
4Saving for old age17
No. of People
No. of People Favoring
S. No.Ist PriorityNo. of People Favoring
No. of People Favoring