analysis of life insurance sector(life insurance corporation)
DESCRIPTION
based on 2006-07 data, report presented on Apr 09TRANSCRIPT
Analysis of Life Insurance Sector(Life Insurance Corporation)
Presented by
Ashish Chandra (29041)
C. Sudhir (29044)
Parvati Singh (29055)
Sharat Jha (29065)
Institute of Rural Management, Anand
Demographic environment India has, according to 2001 census, 65.38%
literacy rate. The literacy rate varies across rural (59.4%) and urban (80.3%) India. These contrasts in literacy levels are significant and have important implications for insurers.
Literacy and education increases employability of the person in higher earning jobs and also brings about a change in perception about need for insurance.
The median age in country was 23.8 years in 2005.
Increase in double income families.
Education level
Year Number of graduates
1991 20.5 million
2001 37.6 million
2004 48.7 million
.
Political and legal environmentIRDA Act 1999 The Bill allowed for up to 26% foreign equity
participation in the insurance sector. The minimum paid up equity capital, excluding
required deposits with the RBI and any preliminary expenses in the formation of the country, requirement of an insurer would be Rs 100 crore to carry on life insurance business
Insurance business in Rural Sector: -
After the commencement of the IRDA Act, 1999, (Malhotra committee) every insurer would have to undertake such percentage of life insurance business in the rural sector as may be specified by the IRDA in this behalf. It is mandatory for the new companies to meet the obligations relating to the rural and unorganized sector as per section 32-B.
Economic environmentInflation rate: -Inflation can also be one of the causes to change
the scenario of the insurance sector. High inflation for instance, would tend to reduce the insurance business, particularly life, because the real value of the money paid back to the policyholder on maturity of the policy would go down and would, therefore, lose its attraction for the investor.
Impact of income on insurance: Income level significantly affects the demand for life insurance. Life insurance becomes more affordable when income increases((Rubayah and Zaidi (2000)).
Socio-Cultural and technological environment
Decline of joint family structure has added to need for insurance.
New channels like Bancassurance, corporate agents and websites selling life insurance products are ubiquitous testaments to how the channels have grown in terms of not only selling, but also increasing awareness about life insurance.
More innovative channels like a supermarket, a bank, a post office, an ATM, an internet kiosk or a departmental store could be introduced in the future. . For example MetLife India, a subsidiary of global insurance giant, entered into a strategic tie up with Viswas, a Hyderabad based retail chain, to offer life insurance and other financial products in the rural areas.
Company- LICLife Insurance Corporation was formed as a
government regulated monopoly in September 1956 by an Act of Parliament, (LIC Act 1956) with a capital contribution of Rs. 50 million.
The total life insurance market can be judged on two parameters – premium collected and number of new policies underwritten. It can be seen that LIC has a market share of 53% which roughly amounts to Rs. 20000000 crores out of a total market of 4.3 crore crores.
The number of players in this segment have increased to 30 (15 in private sector), with Life Insurance Corporation (LIC) being the dominant player (market share of over 53%)
Objectives
• When The Life Insurance Corporation of India was set up in 1956, its primary objective was to propagate the idea and practice of life insurance in rural areas among financially backward people so that their risks were covered in the event of death.
• The Life Insurance Corporation of India intends to increase the mobility of individual savings to the maximum extent possible.
• The Life Insurance Corporation of India seeks to employ the investments of its customers in the best possible manner while at the same time prioritizing matters of national importance.
• The company aims at meeting the dynamic expectations of its investors by adding innovative schemes and products to its portfolio.
Culture • LIC has had many problems relating to the
efficient use of its human resources since the time it was set up.
• Many of these problems related to the fact that it was a public sector organization. The corporation's managers were too bureaucratic.
• The work culture in the organization was sloppy.
• Strong trade unions made it difficult for managers to get the work done.
• The corporation's development officers focused on their own earnings and incentives, rather than on customer satisfaction.
Product line• Schemes: money back plans, whole life plans, and
term assurance plans, several special insurance plans for children, women, physically challenged dependants, and high net-worth individuals.
• Pension plans - Jeevan Nidhi, Jeevan Akshay, Jeevan Dhara, and Jeevan Suraksha.
• The company has 3 Unit plans - Market Plus, Profit Plus, and Fortune Plus.
• Group schemes - Gratuity Plus, Group gratuity Scheme, and Group Leave Encashment Scheme.
• New plans- ULIP, health insurance• In 2005-06 , LIC added as many as 100,00,000
policies to its already impressive portfolio and grew by almost 17% during the given period.
Competitors of LICPrivate players allowed in the
market in 2000Currently, close to 30 public and
private firms in India dealing in life insurance
Competitors of LIC
53%
3%5%
39%
Market Share (Premium wise)2007-2008 (Rs. 1.5 lakh crores)
LICBajaj AllianzICICI PrudentialOthers
Source: IRDA annual report 2008
An overview of the competitive life insurance market in India
INDUSTRY COMPETITORSLIC, BAJAJ ALLIANZ, SBI
LIFE, RELIANCE LIFE, HDFC STANDARD LIFE, BIRLA
SUN LIFE, MAX NEW YORK LIFE, KOTAK MAHINDRA
SUBSTITUTESUNIT PLUS (SBI LIFE),NEW CAPITAL GAIN (BAJAJ ALLIANZ) etc.
POTENTIAL ENTRANTSDLF PRAMERICA LIFE, STAR UNION DAI-CHI
LIFE, FUTURE GENERALI LIFE, SRIRAM SUNLAM
LIFE
BUYERSSWITCHING TO DIFFERENT INVESTMENT SECTORS FOR
BETTER RETURNS, UNDIFFERENTIATED
PRODUCT
SUPPLIERS GROWING POWERS
BANKS, CA ARE IMPORTANT CHANNELS TO REACH THE CLIENT. HIGH BARGAINING
POWER
Comparisons between the trioDistribution Network
LIC8 zonal offices, 100 divisional offices, 2048 branch offices. Agents over 10 lakhs and 26 bancassurance partners
ICICI Prudential2100 branch offices, agents over 2.9 lakhs, 18 bancassurance partners
Bajaj Allianz1200 branches, agents over 2.5 lakhs, tie-ups with 5 co-operative banks
Comparisons between the trio (contd)
Grievances◦Grievance settlement ratio was 90%
for ICICI Prudential, 81% for Bajaj Allianz and 12% for LIC
• Promotion expenditure LIC - Rs. 116 crore in 2008 Bajaj Allianz – Rs. 17.7 crore in 2008 ICICI Prudential – Rs. 15.4 crore in 2008
Financial comparisons with competitors
Parameter
Company LIC ICICI Pru Bajaj Allianz
Year/Ratios 04-05 07-08 04-05 07-08 04-05 07-08
Operating Efficiency
Operating exp % of premium earned 0.086 0.088 0.729 0.195 3.517 0.214Commission exp as % of premium earned 0.091 0.087 0.124 0.033 0.329 0.146
Profitability Measure Return on assets 0.003 0.002 0.318 0.048 0.103 -0.35
Return on equity - - 0.553 0.229 0.105 0.245Marketing Efficiency
Premium earned per agent 11.25 20.04 1.06 7.9 0.16 3.07
Bajaj Allianz – S.W.O.T.Strengths Strong promoters, all-India
network, products across all lines, strong IT infrastructure
Weaknesses Little product differentiation (premium wise and offering wise), vulnerable to risk associated with investment in the money market, high expenditure on advertising (Rs. 17.7 crores approx: ICICI Prudential – Rs. 11.1 crores)
Opportunities Geographical expansion, differential pricing
Threats Product differentiation is difficult in current market, competition getting keener
ICICI Prudential – S.W.O.T.Strengths Money power, larger
network branches, large portfolio (in built fund hedge), price competitive products and low upfront charge
Weaknesses Little product differentiation, most of the plans too complicated to understand, more centred in urban areas
Opportunities Insurance coverage both to the parents and children, leverage the customer base of bancassurance partner, strong distribution network
Threats Players like Bajaj Allianz with low premium for same plan, LIC offering huge surplus in life fund, product differentiation is difficult
LIC – S.W.O.T.
Strengths Brand Image, Govt. Guarantee, Claim settlement ratio, Large product portfolio
Weaknesses Ultra-slow decision making process, typical government organizational problems
Opportunities Pension market, health insurance, large real estate portfolio
Threats Internal discord, new players, red-tapism
Comparison of similar policy of competition
Company
Policy Min/Max entry age
Minimum Premium
Min sum assured
Liquidity years
Maturity benefits
LIC Moneyback with Profit
13/50 Rs. 3186 yearly
Rs. 50000
5,10,15,20
40% of sum assured + bonuses
ICICI Prudential
CashBak 16/55 Rs. 6000 yearly
Rs. 75000
4,8,12,16,20
50% of sum assured + bonuses
Bajaj Allianz
CashGain 14/50 Rs. 5000 yearly
Rs. 50000
4,8,12,16,20
125% of sum assured + bonuses
Market Size and Growth205.9 million households61.4 million urban householdsRs 1.5 lakh crore premium
collected (industry) in 2006-07 (19.9% growth vs 2.9% growth in world market)
Life Insurance penetration ≈ 3 %
Consumer Behaviour Cultural Factors
◦ Unnatural events◦ Sub culture (Urban-Rural divide)
Awareness, Per Capita Income Middle class – for protection & savings Upper class – for investment, tax benefit & savings
Social Factors◦ Reference group, family, status◦ In joint families less stress on buying insurance◦ Women factor
Personal Factors◦ Buyer’s age◦ Stage in Life cycle◦ Occupation◦ Economic Circumstances◦ Personality◦ Life style
1. <150,00010%
2. 150,000 - 300,000
20%
3. 300,000 - 500,000
35%
4. 500,000 and above
35%
Income Level of Respondents
Less than 15 years5%
15 - 30 years35%
30 - 45 years40%
45 and above20%
Age Profile
1. Service
2. Business
3. Student
4. Self employed
(for e.g CA,Lawyer)
16
10
8
6
Occupation of the re-spondents
Consumer Behaviour
Benefit that consumer is seeking
1. Security50%
2. Investment17%
3. Tax saving25%
4. Asset Pro-tection
8%
What needs must be satis-fied?
Consumer Behaviour
Where are the present investments?
1. Real estate
2. Gold 3. Mu-tual
funds\equity
4. Insur-ance
6. Other
Series1
0.05 0.25 0.15 0.3 0.45
Where have you invested in?
Perc
en
tag
e o
f re
sp
on
den
ts
Factors Influencing final choice of life insurance company
1. Reliability
2. Policy scheme
3. Brand Name
4. Customer service
5. Promotion
6. Ease of availability
72.5%
15.0%
80.0%
57.5%
45.0%
75.0%
Type of Insurance preferred by consumers
Term
Pla
ns
Endo
wmen
tULI
P
Not sur
e0%
10%
20%
30%
40%
50%
60%
70% 60%
25%
10% 5%
Major factors influencing decision to purchase insurance
12%
55%
12%
7%
10%4%
advertisement
agent
friends and nieghbours
family
co workers
others
1. Agent/Broker55%
2. Direct from
company33%
3. Ban-cassur-ance7%
4. Other5%
Where do they go or look to buy life insurance
preference for mode of payment of premium
8%
60%
28%
2%
2%
single premium
annual
half yearly
monthly
Quaterly
Major decision maker in buying the policy
67%
15%
17%1%
policy holder
spouse
parents
children
Short term objectivesTo invest an additional Rs. 4000
crore in the stock marketIt would employ 11 lakh more
agents to double its field workforce
Long term objectivesSpread life insurance to the rural
areas and socio-economically backward classes
Maximize mobilization of people’s savings by making insurance-linked savings more attractive
Involve all people working the Corporation to the best of their capability in furthering the interests of the insured public
References www.irdaindia.org http://www.mouthshut.com/review/Life_Insurance_Corporation-1291
19-1.html http://www.financialexpress.com/news/lic-to-hike-advertising-spend-
to-target-youth/131089/ www.licindia.com The Marketing Whitebook 2009-2010 Marketing Management – 13th Edition, Kotler, Keller, Koshy & Jha http://www.business-standard.com/india/news/insurers-miss-outrura
l-social-obligations/351625/ Life Insurance in India : Emerging Issues (Indira Gandhi Institute of
Development Research) http://www.financialexpress.com/news/pvt-players-snuffing-life-out-
of-market-leader-lic/171530/0 http://www.icmrindia.org/casestudies/catalogue/business%20strate
gy5/CLBS016.htm http://www.rediff.com/money/2005/dec/19guest1.htm http://en.wikipedia.org/wiki/Tertiary_education_in_India http://www.topnews.in/lic-invest-rs-4000-cr-stock-markets-march-20
09-2115764 http://www.licindia.com/objectives.htm
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