“There is nothing more uncertain than life and there is nothing more certain than life insurance� --- Miles m Dawson (the business of life insurance)
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Certificate I, Sidharth Saxena , hereby certify that Mr. Vishal Dubey of Thakur College of Sci. & Comm. of T.Y.B.M.S. (SEM -5) has completed project on Life Insurance – Need of the hour, in the academic year 2006-07. The information submitted is true and original to my knowledge.
Project Guide
Life Insurance – Need Of the Hour.
Coordinator
Principal.
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Declaration I, Mr. Vishal Dubey of Thakur College of Sci. & Comm. Of T.Y.B.M.S. (SEM -5) hereby declare that I have completed the project on ‘Life Insurance - Need of the hour’, in the academic year 2006-07. The information submitted is true and original to the best of my knowledge.
Signature of the student
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Acknowledgement. First of all I would like to thank the Mumbai University for having projects as a part of B.M.S. curriculum. This project is a result of efforts of several people, who have affected its shape and content. With great pleasure I thank Mrs. Richa Jain, B.M.S. coordinator at Thakur College of Science & Commerce, for being an inspiration in the completion of this project. I thank her for her invaluable guidance and numerous suggestions provided from time to time. I express my sincere gratitude towards Mr. Sidharth Saxena who has been like a mentor to me throughout the project. This project would not have been possible if it were not for the support and co-operation of him. This is gratefully acknowledged. I would also like to thank Mrs. Suwarna Walawalkar, the trainer for the 100 hours training at Tata-AIG. She was the person where the idea of this project generated. I would also like to thank my friends and family without whose co-o p eratio n an d u n d erstan d in g th is w o u ld n ’t h ave been possible. Eventually I would thank the divine intervention who backed me at all times.
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Executive summary Security has always been a universal desire, right from the earliest civilizations. This quest for security has been a major motivating force in the progress of mankind. The early societies looked up to their families for providing this security, which resulted in cohesive units. Gradually, as lifestyles changed and as man progressed into a more modern industrialized setup, this cohesive quality of the family started fading. One had to look for other ways of providing economic security and somewhere along the line w as bo rn ‗insurance‘.
The insurance landscape in India is in the process of tremendous change. Closed to foreign competition due to nationalization in 1956, the Indian insurance industry was run by the government for over 40 years through the ‗life in su ran ce co rpo ration o f Ind ia‘ (L IC ) and fou r general in suran ce companies that spanned the length and breadth of the country. While these companies had done a commendable job in helping the industry grow, the task of making an essential financial product available to the masses gave scope to several other companies to participate in this arena. Consider some facts. Only 22% of the insurable populations in India possess life insurance, and in a country of over 1.06 billion people, life insurance premia forms 1.8% of the G.D.P., indicating the extent of underinsurance or rather revealing the latent potential in insurance spectrum.
Liberalization is in full swing in the Indian markets. Insurance industry being one of the most affected markets has experienced a plethora of new
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relationship in the last couple of years there are a few forces acting on the industry that have brought about significant changes in the behavior of the industry trends. Moreover there have been significant changes in the service outlook with respect to insurance industry. From the opinion that it was an instrument intended to provide monetary support at the time of the death of an individual, life insurance life insurance grew up to be a major financial instrument during the past 50 years in our country. There has also been a change in the consumer outlook with regards to life insurance as very beneficiary financial tool as against the orthodox thinking of unfruitful use of money.
In this highly competitive market where mere survival has become primary objective for companies, customer service holds a major place in business. Every insurance company delivers service as per the terms of contract, however there are very few companies that go beyond the contract and augment the customers. This requires a learned and trained staff i.e. the agents.
The following findings throw light on the service perspective bringing out the fundamentals of service marketing and its determinants. The finding of the research widens the consumer understanding aspect and it would be very helpful to imbibe customization. The research studies the changing trends in life insurance and describes the latent potential and also gives a hypothesis on the future of the insurance industry based on the study of insurance sector and the expert opinion.
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CONTENTS Section – I The Service marketing Perspective
1. Origin of insurance.
10 - 13
2. Need of life insurance.
14 - 15
3. Working of life insurance.
16
4. The life insurance mix.
17 - 48
5. Life insurance marketing triangle.
49 - 50
6. Life insurance – flower of service.
51 - 54
7. 4 – I‘s o f L ife in su ran ce.
55 - 58
8. Complaint handling.
59 - 61
9. Service recovery.
62 - 65
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Section – II A study of the Industry
1. A sectoral study.
67 - 78
2. Expert opinion a. ICICI Prudential.
79-84
b. Tata AIG.
85 - 87
3. PEST analysis of the life insurance sector.
88 - 99
4. SWOT analysis of the life insurance sector.
100 - 102
5. Findings and Hypothesis.
103- 107
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The Service Marketing Perspective
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Origin of Insurance. We live in exciting times with changes and upheavals all around. New technologies, new inventions and changes in the economic and financial scenario, all have thrown up new insurance needs; needs never felt or heard before. This type of evolutionary process, in the last few decades, has given hope to new types of need-based insurance covers; public liability insurance, product liability insurance, indemnity for medical practitioners for negligence, indemnity for chartered accountants and auditors for professional lapses, etc. Further, covers are engineering insurance, erection insurance, loss of profit, cover against atomic radiation and space travel and contracting AIDS. Around 6000 years ago, Babylonians, whose home in the Tigris – Euphrates valley lay at the crossroads of early world traffic, had developed business practices to a high degree. Babylon had become the clearinghouse of trade as all the important land trade routes converged in that territory. From Armenia in the north, China and India in the east, Egypt in the west, caravans came laden with merchandise. Though Babylon built up a great commercial system, and her people were the first to enjoy the fruits of political economy, their territory was surrounded by huge tracts of desert.
The travelers by land were exposed to the risk of robbery, which then was considered not so abominable a means of livelihood and the same view held good for the piracy on the high seas. Besides, during those days, the ships
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were entirely at the mercy of the winds. Under such conditions, till the goods reached their destination, the consignor was constantly worried about its safety.
In fact, many traders could not meet the obligations of the principals and, as per their contracts, were forced to become slaves along with their families. Human ingenuity was set to work and, in course of time, a practice developed that debt of the trader, both principal and interest, should be absolved if certain specified contingencies occur.
Research scholars claim that insurance was known and practiced in India even during the ancient Vedic times. Manu the ancient scholar and lawgiver enjoined that a special change be made on goods carried from one place to another to ensure their safe carriage, until it was finally handed over to the consignee at the destination.
Recorded evidences testify that ancient India was a prominent maritime power. There were busy seaports on the west coast at Broach, at Kaveripumpatnam in the south and Banga in the east. Traders expressed difficulties in realizing money for the goods sent abroad. Loans were advanced to traders at specified rates of interest depending on the risk run and the duration of time for which money was required. Men skilled in sea voyages worked out risk premium rates.
On successful conclusion of the voyage, the borrower returned the loan along with interest, when the eventuality insured against did not materialize
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but it often happened that he was unable to deliver the goods in sound condition at the time and place specified or if he was robbed, he was absolved of his liability. If the cargo was lost due to the negligence of the crew, the loss was to be borne by all the crewmembers, but when loss was caused by God, the members of the crew were not held responsible. A carrier who failed to reach the destination, could not claim freight, but was exempted from responsibility if loss was occasioned by an act of God. If the loss was due to ―P iracy‖, th e cashier w as no t p ro tected .
We have had bizarre insurance covers. Lizza Minnelli the singing sensation had insured her voice and so have Boy George and Michael Jackson. Marine Dietrich and B etty G rab le, H ollyw o od ‘s leading lad ies h av e insu red th eir legs. A well-known comedian in the USA had a policy insuring those in his audience, against anyone dying of laughter after hearing his Jokes!
The business of insurance started with marine business traders, who used to gather in the Lloyds coffee house in London agreed to share the losses to their goods while being carried by ships. The losses occurred due to pirates robbing the goods or perils of the sea. The first insurance policy was issued in 1583 in England. In India, insurance began with life insurance being transacted by an English company- the European and the Albert. The first Indian insurance company was the Bombay Mutual Assurance Society ltd., formed in 1870. This was followed by the Oriental life Assurance in 1874, the Bharat in 1896 and the Empire of India in 1897.
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Later the Hindustan Cooperative was formed in Calcutta, the United India in Madras, The Bombay Life in Bombay, The National in Calcutta, The New India in Bombay, The Jupiter in Bombay and the Lakshmi in New Delhi. These were all Indian companies started as a result of the swadeshi m o v em en t in th e early 1 9 00 ‘s. B y th e year 1 95 6 , w h en the L ife insu ran ce business was nationalized and the Life Insurance Corporation of India (LIC) was formed on 1st September 1956, there were 170 companies and 75 provident fund societies transacting life insurance business in India. After the amendment to the relevant laws in 1999, the LIC did not have the exclusive privilege of doing life insurance business in India. By 31st march 2002, eleven new insurance companies had been registered and began to transact life insurance business in India.
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Does one need insurance?
The business of insurance is related to protection of the economic values of the assets. Every asset is of some value and is expected to last for a certain period of time during which it will deliver that value. In case the asset is destroyed it ceases to provide the value to the owner thus leading to an unpleasant situation. Insurance is a mechanism to reduce the affect of such unpleasant situation. Human life is considered to be a value generating asset and is also subject to risks.
Assets are insured because there if a possibility that perhaps they might get destroyed, through accidental occurrences. Such possible occurrences are called perils. If such perils can cause damage to the asset we say that the asset is exposed to risk. To be more précised Perils are the events and risks are the consequential losses or damages. The risk only means that there is a possibility of a loss or damage, the loss may or may not happen. Insurance is done against the contingency that it might happen. Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured against. In case of human beings death is certain; however the time of death is uncertain. In su ran ce do esn ‘t protect th e asset. It d oesn ‘t p rev en t the lo ss du e to its p eril. The perils can sometime be avoided by ensuring better safety and damage control management. Insurance only tries to reduce the impact of the risk on
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the owner of the asset and those who depend on that asset. Only economic consequences can be insured. If the loss is not financial, insurance may not be possible.
Moreover insurance is backed up with many economic benefits which can be enlisted as follows. Life insurance provides financial security to the family in case of untimely or premature death. Life insurance is also a potent instrument for saving. Life insurance provides financial independence in old age. Organizations or individuals, who are in credit business, can ensure for themselves recovery of loan in case their debtor dies. A partnership firm can insure partners to the extent of capital invested by each in the business. U n d er ‗k ey m an ’ insurance, an organization can insure the lives of their executives, whose expertise greatly contributes to their profits. Organizations can purchase group insurance policies as a part of their employee- welfare program. Life insurance also provides tax benefits to the holder. Life insurance policies create an estate. Life insurance policies also create thrift. I.e. a compulsory saving. A policy of life insurance can b used as a collateral security for procuring loans from the market.
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Working of life-Insurance Business There are thee primary methods to avoid risk viz. A) AVOID B) REDUCE C) TRANSFER
Insurance deals with transfer of risk from the consumer to the provider. Insurance works on a fundamental principle of pooling of risk. People who are exposed to the same risk come together and agree that, if any one of them suffers a loss, the others will share the loss and make good the person who has suffered the loss. The manner in which the loss is to be shared can be determined before hand. It may be proportional to the risk that each person is exposed to. This would be indicative of the benefit he would receive if the peril befell him.
Insurance companies collect the share in the form of premiums and create a fund from which losses are paid; this fund is known as the life fund. The insurance company pays the losses to the members of that group. The insurance company also invests the funds in governmental ant private organizations.
Ex. LIC has lent a capital of Rs.215million to NABARD for its rural financing activities.
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Life insurance mix. T h e id en tificatio n o f th e sev en P ‘s o f m ark eting m ix h elp s a firm to fo rm better marketing strategies and also to serve the customers in a more efficient manner.
Product Mix. The best way to get and keep customers is to constantly figure out how to give them more for less.
A product mix is the set of all products and items that a particular seller offers for sale. In case of insurance sector, the product mix comprises of Life and Non – life insurance policies that are offered to the customer by the company. A co m p an y‘s p rod u ct m ix h as certain w id th , len gth , d ep th and co nsisten cy. The length of a product mix refers to the total number of items in the mix. In case of insurance sector, the following is the length of product mix: Whole Life Policy Limited Payment Life Convertible Whole Life Policy Joint Life Endowment Policy
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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 refers to how many variants are offered of each product in the line In the insurance sector, one policy can be made available in different variations. Some of the examples are as follows:
Article I. Article II. Article III.
Whole life With profit policy
WHOLE LIFE SCHEMES
Limited payment whole life policy
Single Premium whole life
These product mix dimensions permit the company to expand its business. E.g.: It can add new product lines thus widening its product mix.
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Product Differentiation. Product differentiation may be referred to as the points or the qualities that a firm has in its product, which makes the product different from its co m p etitors‘ p ro du ct.
The product differentiation as far as the insurance sector and LIC in particular is concerned are as follows--- Bonus- insurance companies issue bonus to their policyholders when they make a substantial amount of profit. If a company issues a high amount of bonus, it delights the customer and creates a good image in the eyes of the customer. Past records- the differentiation can be done on the basis of past records. Customers choose to take policy from that company which has well past records in terms of claim settling periods, premium collection intervals etc. Market reputation- a company with a good market reputation and goodwill is perceived to deliver the best of the service quality and customer satisfaction.
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Technology- technology plays an important part in product differentiation. For e.g.: - LIC was the first company in the insurance sector to introduce use of I.T and Computers. This makes customers feel that the company is not lagging behind the world and is capable of making the full use of technology to satisfy the customers. Feedback- feedback from customers also is an important tool with which product of the company can be differentiated. If effective steps are been taken on the feedback of the customers, it leaves a long lasting impression on the minds of the customers. Price- if a particular company charges more for the same product as compared to their competitors, it may loose the customers and vice versa.
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THE SERVICE PRODUCT:
The offer has a nucleus or core in the center, which is supported by series of tangible and intangible features and benefits and these form a cluster around the core product. The surrounding features are known as supplementary services. The core product and the supplementary services share a symbiotic relation, i.e. both are not complete without each other. Hence supplementary services are of immense importance.
AUGMENTED
E X P E C T E D
CORE
POTENTIAL
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Level Type product/ service
of Contents
Level Core or generic Basic service product 1 product/ service
Level Expected Basic product 2 product/ service minimum purchase must be met
Insurance sector
Life Non-life policy
insurance
and After sales service that Bonus on policy Low claim settling period
Level Augmented Something different which Technology 3 product/ service enables one product to be Online premium differentiated from other payment P aym en t th ru ‘ cred it cards Standing instruction to bank
Level Potential Features that attract the Maturity claims 4 product/ service customers and are useful to settled on or before them. the maturity date.
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Price Mix. Price is one element in the marketing mix that produces revenue; all the other elements produce costs. Prices are easiest marketing mix elements to adjust; product features, channels and even promotion take more time. Price also co m m u n icates to the m ark et th e co m p an y‘s in tend ed v alue position ing of its product or brand.
In the insurance sector, every company has to deposit an initial fixed capital of about Rs. 100 crore with Insurance Regulatory Development Authority, which is considered as the apex body of Insurance sector. The company gets periodic interest on this amount. With this interest amount, the company pays for the recruitment, training and development of the agents. The price in case of insurance sector refers to the premium charged on the policy. The Tariff advisory committee fixes the price for each policy. Hence all insurance companies have to charge approximately similar premium on similar policies. However, different elements affect the rate of premium to be charged on each policy. The price for the same policy is different for different companies.
The company must set its price in relation to the value delivered and perceived by the customer. If, the price is higher than the value received, the customer will not be willing to pay so high and the company will loose potential profits. If the price is less than the value received then, the company will fail to receive the profit that it deserves for providing a good service. Life Insurance – Need Of the Hour.
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V A L U E R E C I E V E D
HIGH HIGH HIGH
MISSED OPPORTUNITIES
MEDIUM
PRICE = VALUE
UNHARVESTED VALUE LOW LOW
MEDIUM
HIGH
PRICE PAID
There are various steps, which are followed in order to fix the price. They are as follows: 1) Selecting The Pricing Objective 2) Determining Demand
3) Estimating Costs
4) Analyzing com petitor‘s costs, price and offers 5) 5) Selecting the Final Price 6)
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STEP 1 In the first step, the company decides where it wants to position its m ark et o ffering . T h e clearer th e firm ‘s o b jectiv e, easier it is to set th e p rice. STEP 2 Each price will lead to a different level of demand therefore has a different impact on co m p an y‘s m ark eting strateg y. In case of insurance sector too, before fixing a price for a particular policy, the field officers are asked to find out the demand for various policies and on the basis of this demand, the price is fixed. STEP 3 Demand sets the ceiling whereas costs set the floor on the price the company can charge for its product/service. In case of insurance sector, it comprises of costs of recruiting, training, motivating agents along with other fixed and variable costs. STEP 4 Within the range of possible prices determined by the market demand and co m p any co sts, th e firm m u st tak e th e co m p etitor‘s co sts, prices and possible price
reaction into account. In order to win the market share,
such products/ services, which have not yet been created by the competitors, should be created by the company. LIC (India) offers a differentiated product in the form of Life Insurance Policies especially for landless laborers and rickshawallas. STEP 5 In selecting the price in insurance sector, the company must consider life expectancy of the person as well as his financial position. In case of Life Insurance, if the person while taking the policy is at a high
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risk of some terminal disease then he is charged a higher premium. At the same time, if a person who does not enjoy good financial condition cannot take a high price insurance policy. Thus, every customer taking a policy should disclose all his medical as well as financial details in utmost good faith to the insurance agent. In case of Non Life Insurance, correct financial evaluation of the cost of the goods which have been insured should be done by the insurance agency because the customer may get the goods insured for a higher cost than they actually are and if the goods are damaged, then the insurance company will have to pay a higher price than the actual cost of goods destroyed. E.g.: Whole Life with Profits Plan Plan Parameters: Age at entry: Minimum - 18 years last birthday Maximum - 60 years Sum Assured: Minimum - Rs.50, 000/- Maximum - No limit Mode of payment: Yearly, half-yearly, quarterly, monthly
Life Insurance Pricing: The pricing in case of life insurance is done on the basis of: ďƒ˜ Life Expectancy: In case of life insurance, the premium amount tends to be different for different customers. This differentiation is on the basis of age, medical history of a person.
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1) Age E.g.: Low premium is charged for children and youngsters as it is assumed that they are at a lesser risk of death as compared to the aged people. 2) Medical History
The medical history should be revealed to the insurance company by the customer in Utmost Good Faith i.e. the insured must provide to the insurer complete, correct and clear information of the subject matter of insurance. E.g.: If in the medical history it is mentioned that the person has suffered from heart attack in the past or if he is suffering from any terminal disease like cancer or AIDS then, he is at a higher risk of death and hence higher p rem iu m is ch arg ed. H o w ev er, if th e in su red do esn ‘t rev eal th at h e is suffering from terminal disease or has suffered a heart attack previously and he dies due to the disease or heart attack then, the insurance company does not pay the claim for the same.
Case: The pricing of the policies in LIC (India) is done by the Actuarial Department, which is at the corporate level. The prices of the policies are fixed depending on the following conditions: o Rate of return on investment in the present market scenario o Life expectancy of the customer
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ďƒ˜ Discount Pricing: In insurance sector, discount is offered if group insurance is opted for. Group Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is very low. Under Group Insurance Scheme, life insurance cover is allowed to all the members of a group subject to some simple insurability conditions without insisting upon any medical evidence. The restrictions under a Group Term Insurance Scheme mainly relate to size of the group, amount of cover allowable, minimum and maximum age limit for eligibility of cover (18 & 60), participation of minimum percentage (75%) of eligible members of the group at inception and compulsory participation of all new members. Discount is given on group insurance scheme because the insurance company gets a large number of customers at a time and hence it saves expenses on promotion and advertisement, which are to be incurred to attract new customers. Thus, discount is given in order to attract more customers at a time by this group insurance scheme. The cost incurred on giving discount is much less as compared to the cost spend and advertising and promotion. Hence discounting is much more profitable for the company.
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Place Mix. Today you have to run faster to stay in the same place Place mix can be defined as th e ―P h ysical distribution i.e. the d eliv ery o f g ood s/ services at the righ t tim e at th e rig ht place to th e cu sto m ers.‖ P lace decisions involve building relationships with the wholesalers, retailers and through these intermediaries building relationships with the customers. Products and services must be at the right place, at the right time in order to be consumed. Probably the best way to perceive place is to think of the flow of products from manufacturer through intermediaries to the consumer or user. This flow can be thought of as a channel used to move goods and services. The channel of distribution is a component of the place mix: Channels: According to Philip Kotler, ―Channels are sets of interdependent organizations involved in the process of making the product or service available for use or consumption‖ M arketing ch an nel d ecisio ns are am o n g th e m o st critical decisions facing the management. The channels chosen intimately affect all the other marketing decisions.
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In case of insurance sector, the following channel of distribution is followed according to the target market:
CHANNELS Direct Selling
Agents Financial Advisors
Call Centers Partner Selling
Bancassurance Postal Department
Selling through Corporate
Electronic channels
LIC on internet Information Kiosks SMS
1) DIRECT SELLING: Agents: The agents are selected and recruited by the development officer of the insurance company. These agents inform the customers about the various insurance policies offered by the company and convince them to buy these policies.
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Financial Advisors: The financial advisors are also consulted by the customers regarding their financial matters. These advisors suggest their clients to get their goods insured against any calamity or risk. Hence they act as a channel in distribution of insurance. Call centers: The people who require insurance call up the call centers. These call centers send their direct marketing agents who go to the custo m er‘s p lace and sell th e insu ran ce p olicy. 2)
PARTNER SELLING: Bancassurance: With the evolution of interconnected financial serv ices, b an ks are con v erting them selves into ‗on e stop fin an cial sup erm ark ets‘. T h is h as pro m o ted tw o b ig classes o f finan cial institutions: banks and insurance companies to combine and deliver an innovative product i.e. Bancassurance. In Bancassurance, the insurance products are sold through the banks network of branches. Postal Department: India has an extremely well developed postal network, which is even stronger than the 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 department to sell and distribute various insurance covers. This would certainly require upfront training costs, as the postal employees in turn need to educate and sell the concept and benefits of insurance to the people in rural areas. Such a tie up with the postal department would o pen u p Ind ia‘s ru ral areas, w hich are larg ely u ntap ped fo r insu ran ce sector. This can prove to be a sustainable source of growing revenues.
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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 free from the Maruti Company itself. Thus this is termed as selling insurance through corporate. Electronic Channels: In the last decade, numbers of technological advances have taken 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 offer. The addresses/e-mail Ids of their zonal offices, zonal training
centers,
management
development
centers,
overseas
branches, 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 screen multimedia KIOSKS in prime locations in metros and some major cities for dissemination information to general public on our products and services. These KIOSKS are enabling to provide policy details and accept premium payments.
SMS: Sims through mobile phone is recently new technology introduced by the LIC to promote their product.
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LOCATION: In insurance, location, the place where office situated is not so important as mostly the agents of the insurance company goes to the place of the customers for doing most of that customers work. However they situate their office branches at important location, which is convenient for the customer to visit. (May be near station or near commercial area).
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Promotion Mix. The best advertising is done by an augmented customer.
‗P ro m o tio n ‘ is a descrip tive term fo r th e m ix o f co m m u n icatio n activities, which a service organization carries out in order to influence the public on w h o m th eir sales d epend . It is an elem en t in an o rg anization ‘s m ark eting m ix that serves to inform, persuade, or/ and remind people about an organization or individual goods, service, image, ideas, community involvement or impact on the society. It is used in hopes of influencing the recipients feeling, belief or behavior through any form of communication. Steps to create a favorable awareness amongst the target audience: STEP 1: Identification of Target Market: The target market is the focus of deciding the promotion mix. The total number of groups is analyzed and decision is taken regarding which segment is to be targeted. In case of insurance sector, mass marketing is favorable however, different policies are targeted towards customers from different income groups. E.g. LIC (India) has introduced a new life insurance policy especially for rickshawallas and landless laborers.
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STEP 2: Determination and Setting Objectives: Service marketers employ a range of promotion al m eth o ds, so it is essen tial to ‗W h at the p ro m o tion h as to ach iev e‘. It is n ecessary to d efin e m ark eting ob jectiv es clearly so that most effective type of promotion is designed and utilized. In case of insurance sector, the main objectives of a promotion campaign will be: 1) To make all or maximum population aware of the various insurance policies of the company. 2) To promote the advantages of all the insurance policies. 3) To make the people aware of the risks involved and the importance of taking insurance. E.g.: LIC (India) conducts seminars and mass marketing campaigns in order to make the customers aware of insurance and why it is needed. STEP 3: Message development for right communication effect: The message is an instrument for converting a suspect into a prospect. To obtain an effective response from the target market, there is always need to plan an effective message such that promotional efforts cause: Building of brand image Service awareness The promotional message should aim: To provide knowledge for service/product
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To ensure that customer will have a positive perception for service/ goods promoted To build up preference for service/ goods offered In the insurance sector, LIC (India) and MetLife Insurance are examples of companies who have used promotion mix to promote insurance. E.g.: LIC (India) promotes its life insurance policies using the slogan ―Z in d ag i ke saath b hi, Zindagi k e b aad bhi‖ T h is creates aw areness o f risk of death as well as the importance of insurance. The slogan creates a positive perception about life insurance in the minds of people.
STEP 4: Selection of communication mix: There should be a careful blend of promotion mix with the marketing strategy of the firm and each situation should be examined for its merits and demerits. The following criteria should be considered while devising different promotional techniques: Overall marketing objectives Nature of the service Activities of the competitors Characteristic of target customer Cost effectiveness Integration with other marketing elements Requirements for effective implementation Management Issues Legal and ethical considerations Life Insurance – Need Of the Hour.
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Advertising: It is a paid form of non-personal communication. It is used to develop attitudes, create awareness and transmit information in order to gain a response from the target market. Various media channels can be used for advertisement such as print media, electronic media etc. E.g.: MetLife India insurance has aired a television advertisement with the caption lin e ―h av e yo u M etL ife tod ay?‖ T h e advertisement shows that people are falling from high places but instead of falling on the ground and getting hurt, they are falling on a bed called MetLife. This advertisement assures the customer that the risk is covered efficiently by the policies of MetLife insurance company.
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People Mix. It is no longer enough to satisfy the customers, you must delight them. Employees The various employees involved in providing service to the customer in insurance sector are: Customer
service
representatives
They,
process
insurance
policy
applications, changes, and cancellations. They review applications for completeness, compile data on policy changes, and verify the accuracy of insurance company records. They may also process claims and sell new policies to existing clients. Nowadays, these workers are taking on increased responsibilities in insurance offices, such as handling most of the continuing contact with clients. A growing number of customer service representatives work in call centers that are open 24 hours a day, 7 days a week, where they an sw er clients‘ q u estio ns, up date p olicy in fo rm ation , and p ro vid in g p oten tial clients with information regarding the types of policies the company issues. More than 28 percent of insurance workers are in management or business and financial operations occupations. Marketing and sales managers constitute the majority of managers in carriers‘ lo cal sales o ffices and in the insurance sales agents segment. These employees sell insurance products, work with clients, and supervise staff. Other managers who work in their companies' home offices are in charge of
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functions such as actuarial calculations, policy issuance, accounting, and investments. Claims adjusters, appraisers, examiners, and investigators decide whether claim s are co v ered by th e cu sto m er‘s p olicy, co n firm p aym en t, and , w h en necessary, investigate the circumstances surrounding a claim. Claims adjusters work for property and liability insurance carriers or for independent adjusting firms. They inspect property damage, estimate how much it will cost to repair, and determine the extent of the insurance co m p an y‘s liability; in so m e cases, th ey m ay h elp th e claim an t receive assistance quickly in order to prevent further damage and begin repairs. Adjusters plan and schedule the work required to process claims, which may include interviewing the claimant and witnesses and consulting police and hospital records. In some property-casualty companies, claims adjusters are called claim s ex am in ers, b ut in o th er co m p an ies, a claim s ex am in er‘s primary job is to review claims to ensure that proper guidelines have been followed. Only occasionally— especially when disasters suddenly increase the volume of claims— do these examiners aid adjusters with complicated claims. In the offices of life and health insurance carriers, claims examiners are the counterparts of the claims adjuster who works in a property and casualty insurance firm. Examiners in the health insurance field review health-related claims to see whether the costs are reasonable based on the diagnosis. Examiners check claim applications for completeness and accuracy, interview medical specialists, and consult policy files to verify information on a claim. Claims examiners in the life insurance field review causes of
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death and also may review new applications for life insurance to make sure that the applicants have no serious illnesses that would prevent them from qualifying for insurance. Insurance investigators handle claims in which companies suspect fraudulent o r crim in al activ ity, su ch as suspicious fires, qu estion ab le w o rk ers‘ d isability claims, difficult-to-explain accidents, and dubious medical treatment. 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 recorded statement, take photographs, inspect facilities, and conduct surveillance on suspects. Investigators often consult with legal counsel and are sometimes called to testify as expert witnesses in court cases. Auto damage appraisers usually are hired by insurance companies and independent adjusting firms to inspect the damage to a motor vehicle after an accident and to provide unbiased estimates of repair cost. Claims adjusters and auto damage appraisers can work for insurance companies, or they can be independent or public adjusters. Insurance companies hire independent adjusters to represent their interests while assisting the insured, w h ereas pub lic ad justers are h ired to represen t th e in su red ‘s interests ag ainst insurance carriers. Loss control representatives assess various risks faced by insurance companies. These workers inspect the business operations of insurance applicants, analyze historical data regarding workplace injuries and automobile accidents, and assess the potential for natural hazards, dangerous business practices, and unsafe workplace conditions that may result in
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injuries or catastrophic physical and financial loss. They might then recommend, for example, that a factory add safety equipment, that a house is reinforced to withstand environmental catastrophes, or that incentives be implemented to encourage automobile owners to install air bags in their cars or take more effective measures to prevent theft. Because the changes they recommend can greatly reduce the probability of loss, loss control representatives are increasingly important to both insurance companies and the insured. Underwriters 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 accept or reject an application, and they determine the appropriate premium for each policy. Insurance sales agents About 15 percent of wage and salary employees in the industry are sales workers, selling policies to individuals and businesses. Insurance sales agents, also referred to as producers, may work as exclusive agents, or captive agents, selling for one company, or as independent agents selling for several companies. Through regular contact with clients, agents are able to update coverage, assist with claims, ensure customer satisfaction, and obtain referrals. Insurance sales agents may sell many types of insurance, including life, annuities, property-casualty, health, and disability insurance. Many insurance sales ag en ts are inv olv ed in ―cro ss-sellin g ‖ or ―to tal accou nt d ev elop m en t,‖ w h ich m eans th at, b esid es o fferin g in su ran ce, they have become licensed to sell mutual funds, annuities, and other
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securities. These agents usually find their own customers and ensure that the policies sold meet the specific needs of their policyholders. Lawyers The insurance industry employs relatively few people in professional or related occupations, but those who are so employed are essential to company operations. For example, insu ran ce co m p anies‘ lawyers defend clients who are sued, especially when large claims may be involved. These lawyers also review regulations and policy contracts. Nurses and other medical professionals advise clients on wellness issues and on m ed ical p ro cedu res co vered b y th e co m p an y‘s m an ag ed -care plan. Actuaries represent a relatively small proportion of employment in the insurance industry, but they are vital to the in dustry‘s p ro fitab ility. A ctu aries study the probability of an insured loss and determine premium rates. They must set the rates so that there is a high probability that premiums paid by customers will cover claims, but not so high that their company loses business to competitors. Customers People mix not only includes employees but also customers. The customers are to be treated with respect and courtesy. LIC (India) ltd. provides following facilities to keep the customers happy and satisfied. The birth dates of the policyholders are recorded and on the day of the b irth day, th e p olicyh o ld er is g iv en a ―h app y b irth day‖ call b y th e co m p an y. The customers are reminded to pay their premium on time through sms.
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Physical Evidence. Companies try to demonstrate their service quality through physical evidence and presentation. However, in case of insurance sector, the customer rarely visits the insurance company. The customer comes mostly only in contact with the service provider hence the service provider (insurance agent) should. Look presentable. Have a pleasant personality. Have good communication skills. The physical evidence factor is directly proportional to the level of faith of customers as well as the employees in the organization. Physical evidence g oes w ay b eyo n d an in div id ual. It in cludes the co m p an y‘s ad v ertisem en ts, public relation, employees, and branches. Insurance Service
Tangibles as Physical Evidences
1
Policy Documents
2
Brochures
3
Periodic Statements
4
Renewal Notices
5
Business Cards
6
Stationary
7
Calendar, Diaries
8
Letters/Cards
9
Website
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Process Mix. It is more important to do what is strategically right than what is immediately profitable - Philip Kotler
In case of insurance sector, the process mix includes the various interactions that take place between the insurance agent and the customer in the process of selling the policy to the customer till the settlement of claims. The following process mix is followed by insurance companies in case of life insurance: 1) The insurance agent calls up the customer and informs him about the different policies offered by the company and the price mix of all the policies. If, the customer seems interested in taking the policy then, he fixes an appointment with the customer. 2) The insurance agent meets the customer and gives him some information about the insurance company and also about the benefits of the policy. 3) The customer is then asked to fill a financial review form (FRF) and the agent is asked to find out the standard of living of the customer so that the insurance company gets a clear picture about the financial condition of the customer and what kind of policy he can afford. 4) The insurance company offers various policies but they might not be suitable for the customer hence, on the basis of his requirements and Life Insurance – Need Of the Hour.
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financial status, the insurance agent suggests two or three policies to the customer, which will be suitable for him. 5) The insurance agent explains the different policy plans in detail to the customer i.e. the amount of premium to be paid, the time interval at which the premium is to be paid, the benefits of each of the policy etc. A brochure is also provided to the customer wherein the entire description of all the policies is given. 6) Then, the insurance agent provides a feedback form to the customer and asks him to give his feedback regarding the policies that he has been informed about. This feedback is taken in order to find out whether the customer is satisfied with the plans of the policy or whether the company needs to make the policy plans more attractive so that it may appeal to its future customers. 7) Then, the next appointment is fixed by the insurance agent with the customer and in this meeting; the customer selects the policy plan, which appeals to him. The customer is then asked to fill up the proposal form which contains various details of the payment and he is asked to make the first premium payment. 8) Then, the insurance agent submits the duly filled and signed form in the insurance office along with the other necessary documents. E.g.: Medical Reports in case of Life Insurance. Submission of Age Proof is essential as the rate of premium payable on a life insurance policy generally varies with age, and therefore age is one of the most important factors in determining the rate of premium payable in an individual case.
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The following is accepted as age proof: C ertified extract fro m m u n icip al o r lo cal bo d y‘s reco rd s m ad e at th e tim e of birth. Certificate of Baptism if it contains date of birth Passport issued by passport authorities in India. Certified Extract from school or college records, 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 report is favorable, then only LIC will issue the policy. 10)
An average twelve days time is taken by the company to verify the
submitted documents. After the twelve days period, the insurance agent meets the customer to provide him a policy document, which consists of the terms and conditions of the policy. This is because terms and conditions of the policy differ for different customers due to differences in medical conditions of customers in case of life insurance and due to differences in nature of goods and mode of transportation in case of marine and fire insurance. 11)
Then, a reconfirmation is taken by the agent from the customer that
he agrees with the terms and conditions of the policy. 12)
The insurance agent then regularly collects the premium from the
customer whenever the premium becomes due.
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BLUE PRINTING - SEVICE MAPPING The blue printing show what the product should look like a details the specification to which it should conform. In contrast to the physical architecture of building, ship, or piece of equipment service process have a largely intangible structure. The process of logistics, industrial engineering, decision theory, and computer system analysis each of which employs blue print techniques to describe processes involving flow, sequences, relationship and dependencies. Telephonic conversation between the agent and the potential consumer
Explaining product in detail clearing every doubt. The product should be presented in a customized manner.
Completing formalities like filling forms and receiving necessary documents.
Interaction with customer and analyzing customer need.
Offering a product keeping in mind various product specifications.
Collecting payments and closing the sale.
After sale service and handling customer queries. Customer retention.
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Claim settling Process: (Life Insurance) 1) Claim by maturity/ Installment Payment: The Company strives to settle maturity claims and make periodic payments, as in case of Money Back Policies, on date itself. The office which services the policy sends out an intimation regarding the payment along with the necessary discharge voucher for the execution by the assured approximately two months before the due date of such payment.
2) Death Claim: Intimation of Death: In the event of the death of the policy holder, the claimant or the nominee should immediately intimate the branch office where the policy is serviced, the fact of such death, along with the following particulars: (a) Policy number, (b) name of the life assured, (c) Date of death and (d ) claim an t‘s relation ship w ith th e assu red . Claim Forms: Soon after the receipt of the intimation of death, the branch office will send the necessary claim forms for completion along with instructions regarding the procedure to be followed by the claimant. Evidence of Title: The claim is usually payable to the nominee as the case may be. However, if the deceased policy holder has not nominated or h asn ‘t m ad e a suitable p ro vision regarding the policy money by the way of will, the claim is payable to the holder of a succession certificate or some such evidence of title from a court of law. Payment of Claim: The Company then makes payment to the rightful recipient.
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Life Insurance Marketing Triangle. The concept of services marketing triangle is as follows:-
COMPANY
Internal Marketing
SERVICE PROVIDER
External Marketing
CONSUMERS
The above diagram explains the services triangle with its three constituents, namely, the company, the provider and the consumer. Each of them have been explained as follows:The Company The company makes various promises to its customers through external marketing. The way and means of marketing will be covered it the marketing mix.
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The Provider The agents and the development officers act as the front-line staff and they are in direct contact with the potential or existing customers. They are the ones who keep or satisfy the promises made by the company. The marketing of insurance basically comes under concept selling. The agents are thus given various incentives, rewards, commissions and all the necessary training required.
As regards incentive, they receive PLI (Productivity Linked Incentive), which is based on the increase in premium amount and the sums assured by the agent. They are also given extra commissions in case of policies, which are of high value. There are normal promotions for any good work done on a regular basis. The agents generally work under the training and guidance of their respective development officers. The Consumers The consumers are the policyholders. Apart from the routine life insurance policies other services like housing finance, mutual funds, pension and group insurance. Thus the range of consumers is far and wide.
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Life Insurance Flower of Service. Flower of services refer to a well-formed package of total services with all the supplementary services being well formulated along with the core services. The various petals of the flower are:
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Information: A marketer needs to provide adequate information to his employees and his customers. This information is general information provided through various communication channels.
In the insurance industry information is provided to the customers with the help of:
Agents
Seminars
Web sites
Print media
Radio
Television, etc.
Consultancy: This is additional customized information provided to the potential customers by the service provider. In the insurance industry it is provided by co m p an y‘s staff and ag en ts.
Example: In LIC when a customer enters asking of information about the policy, he is directed towards the assistant sales manager. Assistant sales m an ag er w ill listen to th e custo m er‘s req uirem en t and as p er his requ irem en t list the number of policies that are available. He will also ask the customer about the price and limit the number of options for the customer, so that he can easily choose the policy without confusion.
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Order taking: Order taking should be done without mistakes. In LIC order taking is generally done by:
By Agents
On Web site
By Assistant sales manager directly in the office.
Hospitality: Hospitality is a very pretty petal, reflecting pleasure at meeting new customers and greeting old ones when they return. Hospitality finds its full expression in face-to-face encounters.
In LIC customers directly come in contact with the sales manager. The customers are treated as guests. The sales managers of LIC are given special training of how to sell the policies to the clients. It is only in LIC that a customer can meet the chairman directly without any appointment.
Safe keeping: It is in the process and procedures used by marketers to safe guard and to maintain secrecy. In LIC the data of the customers is very important. They feed the data of the customers in their Front and Application Program Software which is connected with all the branches of LIC. The data is only available with the sales people and not shown to any person.
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Exceptional: E x ception al service m ean s service ov er an d abo ve custo m er‘s exp ectatio ns.
LIC has the fastest claim settlement in the world thereby providing exceptional service. LIC also solves complains of the customers within 7days.
Payment: The payment of premium is normally through cheques. Customer can make payment in LIC through:
Agents
Loans
Web sites
Standing instruction to banks:
In this the account holder will give standing instruction to his bank to pay the amount of premium every month without his consent on the given date directly to LIC.
Billing: The billing should be done in such a way that there are no mistakes and if there are any they must be immediately rectified. The billing should provide break-ups of premium charged, service charges, etc.
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4 I’s for Life Insurance Life insurance has four major characteristics that greatly affect the marketing programs.
Article III. ntangibility
Inseparability
Service
I
Article II. nconsistency
I
Article I. Inventory
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1. Intangibility: Unlike products, services cannot be held, touched, or seen before the purchase decision thus, they should be made tangible to a certain extent. M ark eters sho uld ―tan gib ilize th e intan gible‖ to co m m u n icate service n atu re and quality. This can be done through:
Environment
Uniforms
Paperwork
Brochures
Insurance is a guarantee against risk and neither the risk nor the guarantee is tangible. Hence, insurance rightly come under services, which are intangible. Efforts have been made by the insurance companies to make insurance tangible to some extent by including letters and forms .
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2.
Inconsistency:
Service quality is often inconsistent. This is because service personnel have different capabilities, which vary in performance from day to day. This problem of inconsistency in service quality can be reduced through standardization, training and mechanization. In insurance sector, all agents should be trained to bring about consistency in providing service or, the insurance process should be mechanized to a certain extent. E.g.: the customers can be reminded about the payment of premium through e-mails and sms instead of agents.
3. Inseparability: Services are produced and consumed simultaneously. Consumers cannot and do not separate the deliverer of the service from the service itself. Interaction between consumer and the service provider varies based on whether consumer must be physically present to receive the service. In insurance sector too, the service is produced when the agent convinces the consumer to buy the policy and it is said to be consumed when the claim is settled and the policyholder gets the money. In both the above cases, it is essential for the service provider (agent) and the consumer (policy holder) to be present.
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4. Inventory: No inventory can be maintained for services. Inventory carrying costs are more subjective and lead to idle production capacity. When the service is available but there is no demand, cost rises as, cost of paying the people and overhead remains constant even though the people are not required to 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 directly proportionate to the policy sold.
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Complaint Handling. In a vast Organization like LIC, catering to the various needs and aspirations of millions of policyholders, grievances of customers do arise occasionally. In order to redress these grievances LIC has established elaborate Grievance Rederessal Machinery and the details are as under.
1) Grievance Redressal Officers: Grievance Redressal Officers have been designated at all levels of the Organization: At the Branch level: The Sr/Branch Manager At the Divisional level: The Marketing Manager At the Zonal level: The Regional Manager (Marketing) in case of Ordinary policies. The Regional Manager (Pension and Group Schemes) in case of P&GS. At the Central level: The Addl. Executive Director/Chief (Marketing/Customer Services) in case of Ordinary policies. Chief (Pension and Group Schemes) in case of P & GS policies. Policyholders can personally contact these designated Officials and seek redressal of their grievances. The respective Grievance Redressal Officers are available at their Offices for personal interviews with the customers on all Mondays between 2.30 p.m. to 4.30 p.m. without prior appointment.
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Customers can meet the Grievance Redressal Officers on other days also with prior appointment. The names of the Grievance Redressal Officers are displayed in the respective Offices and are periodically published in the local
II) Complaint Cells: For those customers who are not in a position to meet the Grievance Redressal Officers in person, a Complaint Cell is functioning at the Central, Zonal and Divisional Offices. They can send their written complaints to these Offices. Such complaints are registered and monitored with the respective servicing units for proper redressal.
III) Claims Review Committee: In a few cases of death claims, LIC is put to the necessity of repudiating them to safeguard the interest of the genuine policyholders. Claimants who are dissatisfied with the decision of repudiation of claim can approach the Claims Review Committees set up at all the seven Zonal Offices and at the Central Office. These Committees comprise of senior Officials of the Corporation and also retired High Court/District Judges and they review the claims objectively and dispassionately to rule out any miscarriage of justice to the claimant.
IV) Complaints received through the Government: Some of the aggrieved policyholders write directly to the Government of India seeking redressal of their grievances. Such grievances are attended to
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on a top priority basis. For this purpose, a special cell has been set up at the Central Office level for monitoring and for satisfactory redressal.
V) Policyholder Councils and Zonal Advisory Boards: In all the 100 Divisional Centers, Policyholders' Councils have been established. Three policyholders of the area represent the interest of the policyholders and interact with the Divisional Management on consumer concerns. Similarly, at all the seven Zonal Centers, Zonal Advisory Boards are functioning. Many consumer-activists are inducted as Members to these Forums to protect the rights of the consumers.
VI) Consumer Affairs Committee: A Consumer Affairs Committee has been constituted at the Board level with many eminent consumer activists and members of public joining as members along with the Chairman and the Managing Directors of the Corporation. This Committee looks into various areas of consumer interests and advises the Corporation.
VII) Citizens' Charter: LIC has adopted a Citizens Charter through which it reiterates its commitments to the customers and the standards for general procedures, the standards for policy servicing, the standards for easy access to information for customers and the standards for fairness in dealing with the customers have been laid down.
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Service Recovery A disappointed customer does not just go away, but he/she goes away and might not come back at all. And there are great chances that he might take away some other existing customers or he may restrict the potential customer to be the Loyal Customer of the Company. Here lies the need for Service Recovery. It is quiet possible that at every given opportunity, he might speak about the negative experience that he had with the Company which finally affects the decision of the other customers too.
In case of Insurance, it might the customer may be disappointed due various reasons like: Faulty claim settlement Lack of concern on part of the Agents/Company Lengthy and exhausting procedures Excessive number of documents for getting a policy as well as for claim Inflexibility in terms of premiums. Unavailability of required Infrastructure/ Technical Support System. (computers, printers etc) Better service quality from the competitors. And many personal reasons. Im p act o f w ord o f m o u th on custo m er‘s repu rch ase decision is tw ice as important as corporate advertising. So the Company needs to recover before things start to get worse.
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Insurance Companies should make sure that their customers are not dissatisfied due to service failure. And if at all they are disappointed, they follow some basic steps to recover from the loss of Customer Dissatisfaction. Some of the steps are: Apologise or Acknowledge: Apology rendered in first person is the most powerful tool. The magic word ―I am S o rry‖ p ro vid es auth enticity o f p erso nal invo lv em en t.
LIC has realised the importance of personal involvement and has included it in the training program itself. Once the Agent is recruited he needs to undergo a compulsory training program designed by LIC. The Training Program also explains them the importance of the smallest of the customer .i.e. customer who is just seeking general information. The Agents and Employees are trained to Apologise to its customers even if they are not at fault. Listen, Empathise and Asks Question: Customers are looking for a good listener who allows them to vent their frustrations, shows understanding of their upset and by listening offers tactic ev id en ce o f believ ing th e custo m er‘s rep o rt o f th e erro r on p art o f the company. As mentioned earlier, LIC has established elaborate Grievance Redressal Machinery at different level as per the customer requirement. There are Complaint cells which are specially set up to listen up to each and every cu sto m er‘s p rob lem s. L IC g as also set u p Policyholder Councils and Zonal
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Advisory Boards to understand the problems of their customer situated in any part of the city. Offers a Fair Fix to Problem: Customers want wrong to be set right and expects service contact employee to be skilled, empowered and interested in setting things right. This is the main reason why LIC conducts training programs for the newly recruited Agents as well as the other Employees. In any kind of breakdown situations LIC try to offer a rational explanation and demonstrate sensitivity and concern to the customer rather than defending themselves.
For e.g. there is a breakdown in a computer at the payment counter. Now, these Payment Counter might be open only at a particular time of the day. So if the problem is repairable within a short period of time, than the Branch Manager would extend the timings for Payment (only for that day) so that th e custo m er d o n ‘t h av e w aste an oth er d ay fo r th e sam e p u rpose. Offers Some Compensation for the Inconvenience: C o m p en sation here w o uldn ‘t m ean o f ju st m o n etary co m p en sation o r so m e extreme measures like firing the Branch Manager Etc; but it is just to makeu p for th e lo ss o f custo m er satisfactio n . It co uld b e lik e ―it‘s o n us‖; ―free serv ice‖ etc. T h e serv ice prov id er sh ould p lan certain co m p en sation policies in advance for various types of situations and deliver it as and when the situation is faced.
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For e.g.: Suppose there is a customer who is standing in a long queue for payment of his premium on the very last date of the permissible period. And all the payments were not accepted on the same day within office timings and hence the payment was finally delayed. There are chances that the customer may blame the employees of the Company for slow clearance of the premium. The Company could however compensate to the customer by waiving the penalty payable due to delay in payment of premium. Keep the Promises: It basically means that the Company should keep the promises made to the Customer before or at the time of service provision i.e. the Company should fulfil its commitments. LIC makes sure that none of the Agents provide any kind of wrong information or false promises to its customers which mislead them. LIC ask their Agents to give reasonable commitments so that they could be fulfilled by the Company or the Agent on behalf of the Company. Follow Up: This is the most important step in Service Recovery as it ensures that whether the implemented Service Recovery was Satisfactory or not. It would include Internal and External Follow-up. Internal Follow-up would be to ensure that the solutions they put in motion are actually executed and the External part would be to get feedback from the customer whether he is satisfied or not.
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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 there are several reasons for opening up of insurance sector the foreign investors are eyeing it as a very lucrative prospect. After the opening up, several private insurers have started operating in life insurance, especially in metro areas. New marketing channels like Bancassurance, brokers, etc. are also in the offing.
KEY MARKET INDICATORS. Size of market life & non life $16 billion Total Global insurance premium (as on 2001) Rate of annual growth 2002-03
$2408.25 billion(-1.5% as against 2000) Life- 11.27% Non life- 23%
Geographical restriction for new players Registration restriction
None. Players can operate all over the country. Composite registration not available.
Equity restriction in the new Indian insurance company Number of registered companies.
Foreign investor can hold up to 26% of the equity. Public sector – 01 Private sector – 13
Source: IRDA annual report 2002 - 03
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Life insurers in India. As an answer to globalization of economy and the increasing pressure of the WTO regulations, the govt. appointed the Malhotra Committee. After considering all aspects, the government ultimately enacted Insurance Regulatory and development authority and vested the authority to formulate regulations for insurance industry. IRDA and the LIC allowed the entry of foreign investors on a condition that they enter in collaboration with a local company. Public sector Life Insurance Corporation of India(LIC)
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Private sector 1. Allianz bajaj life insurance Company limited. 2. Birla sun life insurance Company limited. 3. HDFC standard life insurance company limited. 4. ICICI Prudential life insurance Company limited. 5. Reliance life insurance Company limited. 6. ING vysya life insurance Company limited. 7. Max New York life insurance Company limited. 8. MetLife insurance company limited. 9. Om kotak mahindra life insurance co. ltd. 10.SBI insurance company limited 11.TATA-AIG life insurance Company limited. 12.AMP-Sanmar Assurance Company limited. 13.Aviva Life insurance company limited
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Performance of the Industry
Post-Privatization, the life insurance industry grows by leaps and bounds. The attitude of people towards life insurance itself is changing. People are becoming more and more aware of the advantages of the Life insurance policies. Generally performance in life is measured in terms of first year premium collection and no. of lives covered. In 2003-04 Life Industry grew by 10.5% in terms of first year premium. It is showing steady growth rate in the current financial year as well. The sector witnessed a growth of over 50% for the month of April 2004, vis-Ă -vis April 2003. The premium In comparison, LIC underwrote premium of Rs.72,304.62 lakh i.e., a market share of 82.33%. In terms of policies Underwritten, the market share of the private players was 17.88% as against 82.17% of LIC. The premium underwritten by the private players for individual policies stood at Rs.12,107.63 lakh, towards 89,918 policies with group premium accounting for Rs.3,411.30 lakh towards 84 schemes. The number of lives covered under group schemes was 1,01,392. ICICI Prudential continued to lead amongst the private players with premium at 6.15% and policies at 4.85%. In terms of number of lives covered, OM Kotak led with 21,325 lives viz., 5.83% of the total lives covered. Premium underwritten by LIC under Varishtha Bima Yojana during the month of April, 2004 was Rs.26, 734.25 lakh towards 13899 policies of which 29.60%, in terms of both premium and policies, was underwritten in the rural sector.
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From the opinion that it was an instrument intended to provide monetary support at the time of the death of an individual, life insurance life insurance grew up to be a major financial instrument during the past 50 years in our country. There has also been a change in the consumer outlook with regards to life insurance as very beneficiary financial tool as against the orthodox thinking of unfruitful use of money. Increasing number of people has been opting for it. The number of policies issued by the LIC of India since 199596 is a clear indication of the popularity gained by life insurance. Table year.
No. of policies (total)
No. of policies (rural)
1995-96
1.10 crore
52.57 lacs.
1996-97
1.23 crore
60.33 lacs.
1997-98
1.33 crore
68.40 lacs.
1998-99
1.48 crore
81.23 lacs.
1999-2000
1.70 crore
97.04 lacs.
2002-2003
2.42 crore
45.23 lacs.
(Source: 46th annual report of LIC of India for the year 2002-03) Form the above table it is eminent that the importance of life insurance has grown gradually over a period of time not only in metro areas but also in rural areas.
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As there has been a dramatic increase in the importance of life insurance, the number of policies issued per annum has also increased, thus leading to a great change in the total premium amount collected. The total amount mobilized by LIC during the past few years‘ stands witness to the growing importance of insurance.
Total amount mobilized
1998-99
2002-03
Total premium income
Rs.22,805.80
Rs.54602.37
Income from investments
Rs. 13,183.92
Rs.25030.50
(Rs. In Crores) (Source: 46th annual report of LIC of India for the year 2002-03.)
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Trough life insurance, people could save more than Rs. 50,000 crore in just two years. B y in v estin g p eo ple‘s savings, L IC co uld g en erate inv estm en t income of nearly Rs. 30,000 crore in the last two years. Life insurance thus proved to be very potent instrument of public savings, so much necessary for developing a country like India. Over the past 48 years, LIC of India provided financial security to millions of families as the following figures for past five years indicate. YEAR 1995-96
No. of claims paid 41.67
1996-97
49.49
1997-98
56.52
1998-99
59.83
1999-2000
66.42
2002-03
96.53
(Source: 46th annual report of LIC of India for the year 2002-03)
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INVESTMENT PATTERN
Sr. No.
1
2
AUTHORITIES
Electricity: (State boards/power corp.) Housing: (State govt. for housing schemes. Like HUDCO,
Loan advanced during 19992000 1,366.11
Loans advanced during 200203 1,060.93
970.00
890.07
383.15
570.33
65.29
465.00
358.96
278.68
HDFC.)
3 4 5
Water supply and sewerage Transport: SRTC Industrial development: Joint stock companies.
(PUBLIC SETOR)
(www.lic.com) (Rs. In Crore) From the above table it is eminent that the Life Insurance Corporation primarily invests in the public sector undertakings. There has not been much change in the investment pattern for electricity, Housing and industrial development. However, there has been a large contribution in the transport and water supp ly secto r w hich in dicates that L IC ‘s inv estm en t in th is aren a is o f im m en se im p o rtan ce fo r th e cou ntry‘s in frastru ctu re.
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Present Market Structure The insurance sector in India has come a full circle from being an open competitive market to nationalization and now back to a liberalized market again. After privatization LIC is no longer a monopoly. Insurance sector was converted into Oligopoly. The market share of private players is as under.
ING Vyasa 3.5% AVIVA Life SBI Life 3.7% 4.1%
Metlife 1.1%
AMP Sanmar 1.2% ICICI Pru 36.2%
Om Kotak 5.7% Max NYL 6.2%
Allianz Bajaj 8.7%
Tata AIG 6.0%
Birla Sunlife 14.0%
HDFC Standard 9.4%
(Source: - IRDA Journal Edition June, 2004)
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Total market share of LIC as compared to other private players.
LIC ICICI PRU SUNIFE BIRLA TATA AIG OTHERS
From the above figure it is eminent that LIC has the largest market share in the life insurance industry till date.
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Characteristics of Insurance sector as oligopoly are as follows:
1. Presence of few sellers: After liberalization the no. of sellers increased from 1 to 13 as on date, like LIC, ICICI Prudential, HDFC Standard, Birla Sun life, Om Kotak, SBI Life, ING Vysya, and MAX New York Life etc.
2. Regulator:
IRDA (Insurance Regulatory Development Authority)
regulates the Insurance industry. License to the new comer is granted by it only. All products, premiums, Tariffs require its approval.
3. Price Giver: Price of the policy i.e. premium is calculated by the actuaries of the respective companies depending upon the nature of risks covered, coverage of the policy and many other probability calculations. But premium as well as the product needs to be approved by IRDA.
4. Entry or Exit Barrier: There is no free entry into this sector as already outlined New entrants has to satisfy certain condition before entering into this industry. Exit is even tougher since all the contracts are long term so there are very strict regulations for exit from the industry by IRDA.
5. Product Differentiation: There are no homogenous products. There are wide varieties of products available in the market. Each seller can introduce Life Insurance – Need Of the Hour.
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any new policy depending on the efficiency of its product development team within the broad guidelines of IRDA.
6. Advertisement: Sellers spend huge amount of their yearly budget on advertisement to educate the consumers about their products and their company. IRDA ensures that advertisement does not mislead people. The IRDA has made it mandatory that every advertisement carries the line, ―In su rance is m atter o f so licitation ‖ so th at people kno w that th ey are reading an advertisement.
7. Investment Policy: Investment of life fund upto 75% in government securities is mandatory as per IRDA. 89% of the total surplus to be distributed to policyholder as bonus every year.
8. Market Share: Still the private sector companies are in nascent stage and major chunk of market pie is still owned by public sector giant (LIC). But private players are also competing very bravely.
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The influence of private players has created the following benefits:  Benefits to customers: o Reduction in the price of product under competitive market. o More innovative products to be available in a competitive market. o Improved management of investment portfolio. o Improved quality of service due to use of IT and multi distribution channels.  Benefits to Industry: o New Insurers to earn high profit in the initial stages due to large size of Indian insurance market. o Insurance intermediaries will include agents, Brokers, Independent Financial Consultants etc. The commission paid may exceed Rs.46000 Crores in a period of 10 yrs annually. o Advertising campaigns may reap benefits as an additional advt. market for Rs.10000 Crores will be opened in 10 yrs directly related to the insurance sector. o Computer industries will benefit. o Placement services, management institutes & training institutes will also be benefited as the insurance sector after opening up will require many people thus increasing the employment opportunities.
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EXPERT OPINION. Interview: Shikha Sharma, MD, ICICI Prudential For decades now, life insurance has been synonymous with LIC. But private player ICICI Prudential is giving the public sector behemoth a run for its money. Offering a wide range of products, declaring portfolio regularly, following a product philosophy that revolves around the customer... little wonder that it is today the leading private insurer. It’s b een over tw o years sin ce IC IC I P ru d en tial w as started . H ow would describe your experience and achievements? It‘s b een a v ery in teresting tw o years. P erso nally, it h as b een rew ard ing . In the past two years at the industry level, there have been many new channels coming in– brokers, corporate agents, Bancassurance. Then, there have been product innovations– the flexibility of riders, market-linked plans... There has also been lots of innovation on the pension front and there has been considerable progress in educating customers about the need for financial planning, in clud ing in su ran ce and p ension p lann ing . It‘s b een fu n to b e a part of that and see the industry evolve.
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Is there a specific strategy the company has followed to become the leading private player? Our strategy is simple. Look for what makes sense for the customer and try to deliver maximum value. Whether it is distribution, service, or products, w e d o w hat w e think is in the custo m er‘s b est interest. S o w e w en t m u ltichannel virtually on day one. We went multi-product with a full suite of products because every customer does not need the same product. Although we were a young company, we invested in the web and in call centers so customers can contact us easily. We empowered our agents with technology so that they had the information they needed when they were talking to customers. ICICI Pru is the first insurance company to implement Six Sigma. What is this about? Six Sigma is an initiative pioneered by GE and now used by other companies. We are the first insurance company to use it. It is a quality initiative to measure what service we are delivering to customers on a monthly basis. The best thing about Six Sigma is that it begins with and ends with the customer– from capturing the voice of the customer to measuring improvements he has experienced. We have used Six Sigma for over a year now to drive continuous process improvement across processes that touch cu sto m ers. W e d id a cu sto m er su rv ey last year, an d w e‘re g o ing to d o o ne this year. That is when we will have a comparative picture as to whether customer satisfaction has gone up. We do know that our measured service delivery has improved significantly over the last year.
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W h at is IC IC I P ru ’s p rod u ct an d reven u e m ix? W ill you b e look in g at launching new products to fill any gap in the product portfolio? Today, unit-linked products constitute over 60 per cent of the products; participating products account for 40 per cent. Pensions have also done very w ell. In fact, last year w e h ad abo ut 23 per cent o f the to tal p ensio n ‘s category. Bancassurance has helped, and contributes 18 per cent to our business; about 30 per cent of business is from alternative channels (non-tied ag en ts). W e d on ‘t thin k there‘s a g ap in o ur p rodu ct po rtfolio . W e h av e a traditional endowment product; we have a linked product. And within that, we have a traditional pension and a linked pension plan. We have term, with single premium and regular premium. We recently launched two new endowment products, and we have also entered the group segment. O u r p rod u ct philosoph y h as b een: ‗K eep it sim p le, don ‘t con fuse th e cu sto m er w ith to o m an y n am es an d b rand s‘. F o r in stan ce, ou r link ed plan – Lifetime– is a w hole life plan , th oug h it‘s no t b ran ded as on e. B ut it is a w h ole life p lan b ecause yo u can k eep it as long as yo u w ant; it do esn ‘t hav e a m atu rity d ate. S o , it‘s n o t n ecessary fo r us to laun ch a w h ole life p ro du ct when you get the same benefits in a linked product. We are looking at launching a couple of new products, but the product philosophy will remain the same.
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Agents abroad are paid commission for about six years. Here, agents get commission throughout the policy term; LIC even pays hereditary commissions. Is this in the interest of the policyholder? W e‘ll h av e to w ait for th e leg islatio n to chang e first. I th in k th ere is so m e merit in providing a trailing commission. There are certain segments of the market where automated premium payment is possible, but there are other segments where this is not possible. But while I see the benefit of a trailing commission, I do not see any benefit in hereditary commissions. As long as th e ag ent is servicing th e custo m er, th ere‘s a case to trail co m m ission . How is ICICI Pru different in terms of the qualitative aspect of its investment strategy? It‘s a qu estion of w h ere w e inv est o ur en erg y as an organization. Did we invest our energies only in marketing or only in distribution, or holistically across the organization? Many insurance companies might have decided to invest in the front-end first, ignoring the back-end of the business. We have not done that. In order to get both the front and back end in place, we initiated Six Sigma. We hired two fund managers with excellent track records when we had a policyholder fund of under Rs 1 crore. We did not favor taking advice from somebody else to manage out portfolio. As the fund size grows, we will hire additional fund managers.
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As far as fund management is concerned, you must have the right philosophy, the right policy and the right control systems. We have fairly well defined limits and policies on how they can invest. These limits are apart from what IRDA has prescribed. In terms of transparency, people are not worried about money put in LIC because it is a government company. How will a private company convince policyholders about the safety and whereabouts of their money? First, just because LIC is government guaranteed, policyholders should not relax. The guarantee is only on the guaranteed return and not on the participating policy. Investment performance is critical, irrespective of whether investment is with LIC or a private insurer. Government guarantee has credibility only in a guaranteed return product. But most companies, including LIC, are moving towards non-guaranteed products. As far as disclosure is concerned, we have led the way. We declare the portfolio to our customers in unit-linked policies on a quarterly basis. B esid es, w e h av e separate fun ds fo r differen t p ro du cts, so th ere‘s no cro sssubsidization. We have clearly laid down the investment policy information, and we have declared portfolio for all our linked funds. Going forward, we will be the first to declare the portfolio on participating products.
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D oesn ’t th e govern m en t gu aran tee com e in th e w ay of a level p layin g field? As a competitor, I think it would be great if LIC did not have a government guarantee. But when I was granted the license, I knew LIC had this guarantee. I entered the arena with my eyes open. The guarantee is fine, as long as it is handled in a professional and commercial fashion. As long as the government is making sure that the LIC investment philosophy is such th at th e g uaran tee is w arranted and viab le, it‘s ok ay to giv e a guarantee. The market is moving towards non-guaranteed products where government guarantee has no role to play. Also, over a 10-year period, sustaining the government guarantee is going to be difficult. If LIC has a hole in its investment return, can the government keep pumping in money? No. Then the guarantee is just a soft comfort. Ultimately, LIC has to sell products that will earn returns. Just the guarantee is not going to get them very far. Short term, psychologically yes. In the real world, it makes no difference.
Source: 16 Sep 2003 - Money outlook
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Human resource opinion at TATA-AIG
W h at’s th e q u an tity of b u sin ess you h ave alread y gen erated an d w h at is your target for the current year? What are your management expenses and when do you hope to break even? We hope to sell about 50,000 policies by the end of March 2002. So far we have sold about 8,000 policies and approximately 4,000 are under submission (about 50 per cent of our business is generated in the last quarter of the fiscal). We have yet to venture into the rural areas, though. At present we are not insuring people above 60 and fewer than 18. We do have products that cover these age groups in the world market, but we will at a later stag e design som eth ing th at‘s suitable fo r th e Ind ian m ark et. At the current pace of growth, we hope to break even between the fifth and seventh year. However, if we decide to get very aggressive about our expansion, which would mean opening more branches, incurring more overheads and more fixed expenses, we will break even by the end of the seventh year. As for management expenses, in the life insurance segment these have to be understood differently. In the first year of the premium income, management expenses amount to more than 100 per cent, largely on account of start-up costs and high acquisition costs, which include the costs of agent commissions, medical underwriting and processing of new business. But management expenses go down substantially from the second year onwards.
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Over a period of time, we hope to bring our management expenses down to approximately 5 per cent of revenues (LIC's is 20 per cent). There is a perception that LIC has scored over the new private sector insurance companies. Is this true and, if so, why? It would not be wrong to say that a lot of the advantage of advertising by new private sector insurance companies has by default gone to LIC. While we have created a lot of awareness through our advertisements, LIC has benefited. Why? Because LIC has a much wider branch network, and buyers are surer of LIC because it has been in existence for long; they are more comfortable about its safety. I must add that some LIC agents continue to follow the unethical practice of offering discounts from their commissions to new policy buyers; this makes a difference.
Is Tata AIG thinking of introducing policies that are better and more innovative than those of LIC? To come out with innovative products will take time. We are all still new in India and are kind of testing the waters. New entrants are averse to taking risks and have, therefore, taken the safe route. Moreover, innovative products have failed in the past (the unit-linked insurance plan, for instance; it was too complicated). Agents will sell only those products they themselves understand and are comfortable with. Where we are scoring is in terms of additional benefits. In terms of basic product structure there is not much variation, but in terms of add-ons there
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are many differences. Take, for example, our 15-year ‘term w ith refu n d of p rem iu m ’ p olicy, which is similar to LIC's Bima Kiran: not only is our premium cheap, which helps the buyer go for a higher cover, it also has an add-on in the form of a double and triple accident indemnity rider, which Bima Kiran does not have.
Critics say that the new private sector companies are riding piggyback on LIC's premium tables and rates. The premium rates and tables used by us are our very own. Our premium rates appear to be on the higher side when compared with others because our policies carry more add-on benefits. All our policies, endowment, money back, etc, carry compound reversionary bonus, which means the bonus is being compounded. In the case of LIC, the bonus is simple. We give terminal bonus on death. Then there is a guaranteed addition of 10 per cent of the sum assured after 10 years. We have been able to sell even though our premium rates are higher by 30 to 40 per cent because of the value we add. The market understands this value addition very well. Premium rates are not dependent merely on mortality rates; they also depend on morbidity, inflation, solvency rates, taxes, investment rates, expenses and more. We want to invest more in technology. Our future plans include speeding up our response time. We will equip each of our offices with underwriters and claim processors, besides offering personalized service to policy owners. Source: Personal interview with Mrs. Suwarna H.R. manager TATA-AIG.
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PEST Analysis for Insurance services
Political/ Legal Influences which have an impact on financial services and consumer confidence include the following:
 The Insurance Regulatory and Development Authority (IRDA): Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the laun ch o f th e IR D A ‘s o nlin e serv ice fo r issue and ren ew al o f licen ses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. The IRDA since its incorporation as a statutory body has been framing regulations and registering the private sector insurance companies. IRDA being an independent statutory body has put a framework of globally compatible regulations.
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 Privatization of Insurance sector: The introduction of private players in the industry has added to the colours in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed among the private players. Though LIC still holds the 80% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future.
 FDI in insurance sector: Then, the issue came of amount of FDI to be allowed by a foreign player in the insurance sector. The government had allowed the private players to have foreign equity up to just 26 %. Efforts are going on to raise this to 49 %. After the opening up of the sector, a total of 18 private sector companies have entered the life insurance business and all of them have entered with a foreign partner.
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Economic Economic factors are key variables which have an impact on the activity in the financial services sector. The level of consumer activity is governed by income levels and personal wealth. As income levels grow, more discretionary income is available to spend on financial services. Consumer confidence in the economy and in job security also has a major impact; if lean times are foreseen ahead, savings will take priority over loans and other forms of expenditure. Consumers may also seek easy access savings and be willing to tie up their money for longer periods with potentially more attractive investments.
 Indian economy – growth projections: By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US.
India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. All these facts or forecasts only drive at one point. India is booming as a market. The global insurance industry has a big eye on India owing to its big opportunity. India is the next big thing in the global insurance industry.
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Many new insurance companies are planning to enter Indian markets. South African major Sanlam recently announced a tie up with Chennai based Shriram Group for life insurance business. French multinational AXA, which has been studying the Indian market for long, is expected to finalize its plan this year. Dutch insurer Aegon, on its second visit to the country after a gap of four years, is scouting for a partner and has set up an office. Korean giant Samsung, the newest kid on the block, also has set up a representative office.
 Growing premiums: Growing premiums are obviously attracting the new players. During the financial 2004 05 alone, the life insurance premium grew by 35% to over US $ 13.5 billion in 2004-05. According to Mumbai based research agency Crystalise Research, over the next five years, Crystalise believes this figure to zoom past the US $ 33.5 billion mark. The numbers at the industry level perhaps tell only one part of the story. The entry of private insurers in India has changed the way in which life insurance business has been done in India. Premiums of each of the dozen private players has gone up significantly within two years of operations, and the incumbent, LIC is being forced to pull up its socks. SBI Life Insurance reported a rise of 166% in its premium income to US $ 138 million for the financial year 2004-05, compared with US $ 53 million it collected in 2003-0 4. H D F C S tand ard L ife‘s prem iu m in com es w en t up from US $ 67 million to US $ 113 million for fiscal 2004-05. In terms of first year premium revenue, the biggest gainer has been Bajaj Allianz, with a
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growth of 446.9%. The increasing premium rates are a reason why multinational insurers are flocking to India.
Per capita GDP: According to a study by Swiss Re, a leading global reinsurance company, once per capita GDP touches $10,000, life insurance premium collection takes off. Ind ia‘s per capita G D P is h ov erin g arou nd $ 300 0 b ut is exp ected to go up steeply given the economic growth projections. Also, India, despite being the second largest in terms of population and insured lives, posts a v ery lo w fig u re in term s o f the cou ntry‘s sh are o f life in su ran ce p rem iu m in th e w o rld ‘s total life p rem iu m co llection – about 0.8%. This shows that the insurance sector provides ample untapped market for insurers.
Tax benefits: Payment of insurance premium had also been included in the service tax net in the 2004 budget. Although 2004 seemed to be a dampener for individuals insured, the Budget 2005 was a delight.
Section 88 benefits have been scrapped. This means that tax rebate under Section 88 will not be applicable to an individual anymore. It has now been replaced by Section 80C. Under Section 80C, one can now invest a sum of up to Rs 100,000 in investment avenues like NSC, PPF, infrastructure bonds and /o r life insurance an d th e sam e w ill b e d edu cted fro m an ind iv idu al‘s taxable income.
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This is a welcome move. For one, there was a limit of Rs 70,000 on life insurance premium to avail of Section 88 benefits. This ceiling has now been raised to Rs 100,000. An individual can now allocate an enhanced amount to insure himself adequately and still get a tax benefit. He can also manage his portfolio better without having to worry about tax benefits. For example, he can increase his insurance coverage by buying a term plan (pure risk cover plan) and allocate a sizable amount from his portfolio towards retirement planning. T h e ch an ges in this year‘s bu dg et h av e also co m e as a w elcom e m o v e fo r individuals whose annual earnings exceed Rs 500,000. Until now, these individuals did not benefit from the tax-saving on account of paying a life insu ran ce p rem iu m . B u t th is year‘s b ud get has rem o v ed this ano m aly and they too can now look at life insurance up to a ceiling of Rs 100,000 premium to avail of tax benefit.
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Socio-cultural Many demographic factors have an important bearing on financial services markets.
 Life expectancy & Mortality rate: The life expectancy is defined as the number of years for which a new born baby will live in the prevailing mortality condition ns of that particular year. The mortality or crude death rate refers to the number deaths per thousand people. Both these factors are very important as they are used to derive the premium of a particular policy. All the insurance companies follow a set standard table referring to which they decide upon the premium rates. This is generally prescribed by the government. Following is the life expectancy and death rate in India:
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
Demographics:
One of the major influences on the premiums or prices charged by insurance companies is on the basis of the demographics. Premium rates largely depend on the age, sex of the individual insured. All the insurance policies have a different rate of premiums to be paid. This is mainly due to the difference in the risk involved of different individuals insured.
 Gender discrimination: Gender based discrimination is rampant in any industry. In the insurance industry the companies have different premium rates for men and women. This cannot be actually called as gender discrimination. As is said earlier the premium depends on the life expectancy in the particular country. More often than not the life expectancy is different for men and women. Usually the women are expected to live more than the men and the difference is 5 years and greater. Hence, what the insurers argue is that the women are a relative less risk than the men and hence the premium charged is more for women. Insurers are providing cover against risk In order to provide them with cover against potential liabilities (that they can pay claims or the right level of benefits), pricing would have to be biased towards the most secure and often least favourable- variant. This is to allow insurers to fulfil all their commitments. "Gender-neutral" insurance in the true meaning of the word is impossible in voluntary insurance products.
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Improving standard of living: If, by 2030 AD 50% Indian population reaches the level of middle class, Indian market for Insurance Sector will reach the level of 600 million from conservatively estimated present level of 100 million. Even at the present level of 100 million, Indian market is big enough by global standards for vigorous development as the premium density is only 0.6% as compared to 3 to 5% for developed markets. Prospects for conventional insurance development in Indian market in 21st Century are bright provided its transformation takes place in the right form and right type of strategy is developed to transform hidden potential into business.
Consumer attitude and preferences: Insurance was always viewed by people as a safety net. Indians specially are very emotional as far as family members, security, social status and other such issues are concerned. The insurance industry is primarily based on the fact that people live their family their belongings and hence want them to be with them forever. This is the basic attitude of people towards insurance. The Indians, hence, are more vulnerable and tend to pay more attention towards the insurance advertisements and insurance products.
Other factors:
Changing attitude towards consumer credit and debt Changing employment patterns Numbers of working women The ageing population Marriage/divorce/birth rates Consumption trends.
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Technological. Computerization: In itially, in th e late 19 50 ‘s th e insu rance co m p an ies used U n it R eco rd Machines (Electro Magnetic Machines) to process data punched into cards. C o m p u ters w ere intro du ces in th e m id 19 60 ‘s and b y th e 198 0 ‘s th e U n it Phased Machines were phased out and the entire process was computerized. This brought about greater efficiency and quick service delivery. Internet: Internet usage has drastically improved in the last decade. There was a tremendous increase in the use of technology by L IC d urin g th e late 199 0 ‘s. The company launched its website www.licindia.com in th e m id 19 90 ‘s to offer basic services such as modifying policies (change of address, change of nominee, etc) and querying the status of the policy.
But today, the internet has completely changed the service delivery process. Internet is today used to even sell insurance policies. Internet is, in fact, proving to be one of the widely used distribution networks for selling insurance policies. Also internet is used for sending premium notices to policy holders through e-mails.
Also LIC has a special feature on its website. It has a premium calculator which accurately displays the amount of premium month wise and the remaining balance. One just has to enter the age, name of the insurance
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policy, the sum assured and whether there is an accident cover or not. By keying in this information, the entire premium amounts are shown within no time. This has helped the customer in a way so that he/she do esn ‘t h av e to travel all the way to the branch to ascertain the amount of premium to be paid. Metropolitan Area Network (MAN) and Wide Area Network (WAN): LIC has commissioned a MAN connecting more than 75 branches in Mumbai. This enabled the policy holders to pay their premiums and get their status report, surrender value quotations and loan quotation, from any branch in the city. Following the MAN in Mumbai, seven MAN centres (Chennai, Bangalore, Delhi, Calcutta, Pune, Hyderabad, and Ahmedabad) became operational. These MAN centres were connected to each other by a WAN network. This WAN was designed for distributed processing without a central database – each division maintained a database of the policyholders. The central office in Mumbai maintained an index of policy numbers and the corresponding IP addresses of the servers where the details of the policy were maintained. Electronic Clearance Service (ECS): Almost all the big organizations today provide the ECS facility to its customers. A policy holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. The advantage here is that once the option is exercised, the policy holder need not visit a branch for paying the premium or collecting the receipts. On
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the day indicated by the policy holder, the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office. B an k A T M ’s: Many insurance companies have a tie-up with commercial banks so as to enable policyholders to use the facility of paying premiums through the bank A T M ‘s. IC IC I P ru den tial h as a tie up w ith IC IC I b ank ; L IC h as a tie-up with Corporation bank and UTI Bank. Call Centres and SMS services: Almost all the insurance companies have their own call centres which cater to the phone based queries of the policyholders. This service is 24x7 and they have the Interactive Voice Response (IVR) systems at all the branches.
Also, LIC and other companies now provide SMS services going with the new trends like SMS banking in the banking sector.
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SWOT ANALYSIS OF INSURANCE SECTOR Strengths: Consumer Grievance Redressal The Insurers have to face the redressal of the consumers, grievances for deficiency in products and services. The Insurance Regulatory Development Authority (IRDA), the regulatory body has already appointed Ombudsman for looking into the grievances of the policyholders. His judgment will be binding on the insurers. Further under Consumer Protection Act, 1986, the consumer courts are operating at the district, state and national levels. This is a major strength from the consumer point of view as they could easily fight for their rights. Increasing customer awareness The gradual growth of the industry and also the increasing number of claims settled has slowly led to the increase in the awareness in the minds of the customers. These aware customers are now potential clients which can be used by the companies and converted into new clients. Channels Insurance companies are getting savvy. Enhanced marketing thus is crucial. Already, many companies have full operation capabilities over a 12-hour period. Facilities such as customer service center are already into 24-hour
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mode. The opening up of the industry has defined new frontiers of distribution of which consumer concern is an indispensable part.
Weakness: Challenge to new insurers. The new insurers will have to invest a minimum capital of Rs. 100 Crores. The normal gestation period is of 5 years. The generation of profit normally starts in the sixth year. Hence the new insurers have to lock up their capital for at least 5 years. Outdated products Today, LIC has more than 60. But most of them are outdated, as they are not suitable to the needs of the consumers. Hence old as well as new insurers have to offer innovative products to the consumers and bringing more products would require good amount of capital investment.
Opportunities: Vast country India is a vast country with more than 5, 76,000 villages having a population of at least 500-600 per village. The companies could recognize the fact that if it takes the whole zilla as one, it would consist of a population more than 5000-10000. One zilla could give them a good amount of business. The company could have this opportunity and tap it and reap revenues.
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ď ś Trained manpower. Since the sector has opened up, many new companies have already started its operation and few are just about to begin. The government has also introduced professional courses like Bcom. (Banking and insurance), identifying the potential growth in the insurance sector.
Threats: ď ś Lack of understanding. Very soon the market will be flooded by a large number of products by a fairly large number of insurers operating in the Indian market. Even with limited range of products offered by LIC, there is chaos as far as the consumers are concerned. Their confusion will further increase in the face of a large number of products in the market. The existing level of awareness of the consumers for insurance products is very low. This is because only 62% of the population of India is literate and only 10% are well educated. Even the educated consumers are ignorant about the various products of insurance. With new companies coming in the market, the products would be comparatively more, which would again create confusion in the minds of the customers so as to which policy best suits the needs.
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Findings from the study With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs.450 billion. According to government sources, the insurance and banking services' contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP. Till date, only 20% of the total insurable population of India is covered under various life insurance schemes, the penetration rates of health and other non-life insurances in India is also well below the international level. These facts indicate the of immense growth potential of the insurance sector.
Though the total volume of LIC's business increased in the last fiscal year (2004-2005) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to about 22% in a year's time. The figures for the first two months of the fiscal year 2005-06 also speak of the growing share of the private insurers. The share of LIC for this period has further come down to 75 percent, while the private players have grabbed over 24 percent. There are presently 12 general insurance companies with four public sector companies and eight private insurers. According to estimates, private insurance companies collectively have a 10% share of the non-life insurance market.
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Thus it is clear, that insurance sector is booming and is one of the most dynamically growing sectors of the Indian chapter. Growth potentials are tremendous, and in era of cut-throat competition, the best marketer can reach to dizzying heights. The life insurance industry in India grew by an impressive 36%, with premium income from new business at Rs.253.43 billion during the fiscal year 2004-2005, braving stiff competition from private insurers. The market share of the state behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest the fall in its market share, as private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04.
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Future of the Insurance Sector - A hypothesis based on the study. Wage and salary employment in the insurance industry is projected to increase 8 percent between 2002 and 2012, more slowly than the 16 percent average for all industries combined. While demand for insurance is expected to rise, downsizing, productivity increases due to new technology, and a trend toward direct mail, telephone, and Internet sales will limit job growth. H o w ev er, so m e jo b gro w th w ill result from th e indu stry‘s expansion into the broader financial services field, and employment in the medical service and health insurance areas is anticipated to grow. Also, thousands of openings are expected to arise in this large industry to replace workers who leave the Many successful insuran ce co m p an ies w ill reco gn ize the In ternet‘s poten tial as a powerful marketing tool. Not only might this reduce costs for insurance companies, but it also could enable many clients to turn to the Internet first to get information on their policies, obtain quotes, or submit claims. As insurance companies begin to offer more information and services on the Internet, some occupations, such as insurance sales agent, could experience slower employment growth. There could be a huge inflow of funds into the country. Given the industry's huge requirement of start-up capital, the initial years after opening up are bound to see a strong inflow of foreign capital. Moreover, given that the break-even, typically, comes much later than in the case of other sectors,
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odds is that the first remittance of dividend will not happen before a good 10-15 years. Sales agents working in the property and casualty market, particularly in auto insurance, will be most affected by increasing reliance on the Internet. Auto policies are relatively straightforward and can be issued more easily without the involvement of a live agent. Also, auto premiums tend to cost more per year than do other types of policies, so people are more likely to shop around for the best price. The Internet makes it easier to compare rates among companies. Insurance companies will continue to face increased competition from banks and securities firms entering the insurance markets. As more of these firms begin to sell insurance policies, increasing numbers of insurance sales agents will be employed in them, rather than in insurance companies. In order to stay competitive, insurance companies have begun to expand their financial service offerings or to establish partnerships with banks or brokerage firms. Productivity gains caused by the greater use of computer software will continue to limit the growth of certain jobs within the insurance industry. For example, the use of underwriting software that automatically analyzes and rates insurance applications will limit the employment growth of underwriters. Also, computers linked directly to the databases of insurance carriers and other organizations have made communications easier among sales agents, adjusters, and insurance carriers, so that all have become much more productive. Furthermore, efforts to contain costs have led to an increasing reliance on customer service representatives to deal with the dayto-day processing of policies and claims. In addition, the Internet has made
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insurance investigators more productive by drastically reducing the amount of time it takes to perform background checks, allowing investigators to handle an increasing number of cases, but limiting their employment growth. Sales agents and adjusters still are needed to meet face-to-face with clients, many of whom prefer to talk directly with an agent, especially regarding complicated policies. Opportunities will be best for sales agents who sell more than one type of insurance or financial service. Adjusters will still be needed to inspect damage and interview witnesses, and although the number of available jobs for actuaries will be limited due to the small size of the occupation, employment opportunities should be good as stringent qualifying requirements resulting from the examination system limit the number of new entrants. 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. Worldwide interest in E-commerce and India's predominant position in information technology and software development is also likely to be a major factor in the marketing of insurance products in the immediate future. The internet account is increasing in arithmetic progression and the trend has already been set by some of the leading insurers and insurance brokers worldwide.
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Concluding summary. Life Insurance in India has a long way to go in terms of percentage of population covered by life insurance companies if we compare ourselves to most of the developed and developing nations and in terms of customer service. Some of the statistics that further gives evidence of the immense scope of Life Insurance industry in India o
The global life insurance market stands at $1,521.2 billion while the non-life insurance market is placed at $922.4 billion.
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The United States itself accounts for about one-third of the $2443.6 billion global insurance market and Japan stands next with a 20.62% share.
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India takes 23rd position with US $9.933 billion annual premium collections and a meager 0.41% share.
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Out of one billion people in India, only 35 million people are covered by life insurance.
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India's life insurance premium as a percentage of GDP is just 1.77 %.
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Indian insurance market is set to touch $25 billion by 2010, on the assumption of a 7 % real annual growth in GDP.
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Planning of various reforms in this industry are in the process like privatization of pension funds, increase in the FDI in this sector, increasing automation and better customer service.
But the biggest barriers in the growth of Life Insurance Industry is in terms of the attitude of people towards life insurance and certain bad practices existing in the market as a result of prolonged monopoly of public sector. Some People still think that it is an investment product where we get low return or a simple tax saving device u/s 88 or Sec10CCC.Awareness regarding the insurance is not merely an investment but it covers your life risk as well; is required and new private players have already started the job of enlightening people.
The problem of lack of knowledge of the product among the distributors has already been solved by IRDA by making the 100 hrs training compulsory for all the distributors. More and more stress should be given on customer service and prompt payment of claim.
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Bibliography. PRIMARY DATA The 100 hours training at Tata-AIG proved to be the main source of primary data. Also the guidance provided by Mr. Sidharth Saxena was very beneficial I deriving conclusions. SECONDARY DATA I. BOOKS o Service Marketing by:- Ravi Shankar o Insurance by:- M.J. Mathew o Life insurance IC-33. II. JOURNALS o ICFAI insurance industry vol. – III o 46th annual report of the LIC of India o Money outlook o Insurance chronicle III. WEBSITES o
www.lic.com.
o
www.tataaig.com.
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