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    I am seeking permission for reproducing this wonderful article “Innovation Strategy in LIC” (weblink : http://www.scribd.com/doc/49626558/14616347-Emerging-Trends-in-Insurance-Sector) in the document at Scribd named “Emerging Trends in Life Insurance Sector” for a Course Book for Management students titled : “Risk Management and Insurance Planning”. If possible kindly provide me the editor’s/ author’s email ID so that I can contact him directly and provide him/ her with full details. Rgds ! Jatinder Loomba (Asstt. Professor). My email ID is : loomba.jatinder@gmail.com
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  • I am seeking permission for reproducing this wonderful article “Innovation Strategy in LIC” in the document at Scribd named “Emerging Trends in Life Insurance Sector” for a Course Book for Management students titled : “Risk Management and Insurance Planning”. If possible kindly provide me the editor’s/ author’s email ID so that I can contact him directly and provide him/ her with full details. Rgds ! Jatinder Loomba (Asstt. Professor). My email ID is : loomba.jatinder@gmail.com
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    14616347 emerging-trends-in-insurance-sector 14616347 emerging-trends-in-insurance-sector Document Transcript

    • Emerging Trends in life insurancesector ACKNOWLEDGEMENTThe success of this final report is the outcome of Guidanceand valuable suggestions provided by all the concernedwithout whom the report could not fide on the right back.I would like to express my sincere gratitude to Coordinatorand Guide MRs Mahek Mansuri for giving me an opportunityto do this project work.I express my sense of deep gratitude to. Faculty’s supervisor ofS.K Somaiya COLLEGE, for inclusions and timely suggestionsin the preparation of this final report. Finally, I will be failingin my duty, if I do not thank my parents, brother & friendsand well wishers for their enthusiastic support and who havedirectly or indirectly helped in some way or the other inmaking this final report a success. 1
    • Emerging Trends in life insurancesector PREFACEWhether the insurer is old or new, private or public,expanding the market will present multitude of challenges andopportunities. But the key issues, possible trends,opportunities and challenges that insurance sector will havestill remains under the realms of the possibilities andspeculation. What is the likely impact of opening up India’sinsurance sector?The large scale of operations, public sector bureaucracies andcumbersome procedures hampers nationalized insurers.Therefore, potential private entrants expect to score in theareas of customer service, speed and flexibility. They point outthat their entry will mean better products and choice for theconsumer. The critics counter that the benefit will be slim,because new players will concentrate on affluent, urbancustomers as foreign banks did until recently. This seems tobe a logical strategy. Start-up costs-such as those of settingup a conventional distribution network-are large and high-endniches offer better returns. However, the middle-marketsegment too has great potential. Since insurance is a volumesgame. Therefore, private insurers would be best served by amiddle-market approach, targeting customer segments thatare currently untapped 2
    • Emerging Trends in life insurancesector ContentsSr. No. Subjects Covered Pages Project Proposed Objective of the project Methodology Sampling Limitations 1. Introduction 1.1 Introduction to insurance 1.2 Definition of insurance 1.3 Pre liberalization of insurance 1.4 Post liberalization of insurance 2. Trends in Insurance Sector 2.1 Indian Insurance in 21 Century 2.2 Emerging Trend in Indian Insurance Sector 2.3 Growth of Insurance Sector 2.4 Present Scenario of Insurance Sector in India 2.5 Technology Trend in Insurance Sector 2.6 Globalization of Life Insurance Market 3. Impact of Budget on Insurance Sector 3.1 Impact of Budget 2004 4. Private V/S Public Insurance Sector 4.1 Comparison between private and Public Insurance sector In India Company Analysis of LIC& ICICI Prudential 5. 5.1 Mission Statement of LIC 5.2 Vision of LIC & ICICI Prudential 5.3 Goal of LIC & ICICI Prudential 5.4 Organizational Structure of LIC and ICICI Prudential 3
    • Emerging Trends in life insurancesector 5.5 Market Share of LIC & ICICI Prudential 37 – 39 Product Offered by LIC & ICICI Prudential 6. 6.1 Product Offered by LIC & ICICI Prudential 40 - 42 6.2 New Products by LIC & ICICI Prudential 43 - 46 47 - 52 Innovation Strategy & IT in LIC & ICICI 7. Prudential 7.1 Innovation Strategy in LIC & ICICI Prudential 53 - 62 7.2 IT in LIC & ICICI Prudential 63 - 69 70 - 71 Emerging Trend in LIC & ICICI prudential 8. 8.1 Emerging Trends in LIC & ICICI Prudential 72 - 91 9 92 Impact of Financial Crisis on LIC 9.1 Impact of Financial Crisis on LIC Conclusion 4
    • Emerging Trends in life insurancesector Scope of the Study Methodology Used Design of the Study Objective Of the Study Limitation 5
    • Emerging Trends in life insurancesector Objective The project was conducted after taking into consideration the changing face of the life insurance sector. The objective for conducting this project was • To understand the life insurance sector in India. • To learn about LIC & ICICI prudential. • To know the scope of life insurance in India.To realize the masses how carrier can be developed generating hugeincome from insurance ScopeThe project gives brief description of the following - • What is insurance? • Effect of liberalization • Trends in insurance sector • Impact of budget on insurance sector • Product offered by LIC & ICICI Prudential • Impact of financial crisis on LIC Limitation • Life Insurance is a vast subject. It is not possible to provide information regarding all the different types of policies which provides different benefits. The project would have been much better if the comprehensive study of all the different types of policy provided by different companies is undertaken. 6
    • Emerging Trends in life insurancesector RESEARCH METHODOLOGY Information Research Primary data Secondary data collection collection Personal interview Literature Internet study Mr ashsish shukla Insurance agent Books on insurance (LIC ) agency Mr parvinder singh Various Insurance agent insurance (ICICI Prudential) magazines 7
    • Emerging Trends in life insurancesector EXECUTIVE SUMMARYThe huge and ever rising population levels in out countryprovide an attractive opportunity for the global insurance majorsto seek their fortunes here. That is the reason why we find somany private players today competing with LIC the only lifeinsurer prior to liberalization of out economy, for insuring Indianlives. In spite of the loud noises made by the various companies’vying for a slice of the large Indian Insurance pie, the irony isthat even today not more than 20% of the population of outcountry is aware about the very basic concepts regarding LifeInsurance. This is the precisely the reason why we see amandatory tag today with every advertisement that advertisesfor a insurance product, that goes “INSURANCE IS THESUBJECT MATTER OF SOLICITATION”. The INSURANCEREGULATORY DEVELOPMENT AUTHORITY OF INDIA (IRDA) isaware of the fact that many Indian consumers can be taken fora ride by fly by night operators who could seek to sell insuranceas a pure investment instrument and make good with their hardearned money, promising them huge returns.This project throws light on the emerging trend of the insuranceindustry in India. 8
    • Emerging Trends in life insurancesector Chapter 1 Introduction to Insurance 9
    • Emerging Trends in life insurancesector INSURANCE INDUSTRY: CLASSIFICATION INSURANCE LIFE GENERAL INSURANCE INSURANCE Fire Marine Mediclaim Motor insurance insurance vehicle Insurance = Collective bearing of Risk 10
    • Emerging Trends in life insurancesector Insurance is nothing but a system of spreading the risk of oneonto the shoulders of many. While it becomes somewhat impossiblefor a man to bear by himself 100% loss to his own property or interestarising out of an unforeseen contingency, insurance is a method orprocess which distributes the burden of the loss on a number ofpersons within the group formed for this particular purpose. Basic Human trait is to be averse to the idea of risk taking.Insurance, whether life or non-life, provides people with a reasonabledegree of security and assurance that they will be protected in theevent of a calamity or failure of any sort.Insurance may be described as a social device to reduce or eliminaterisk of loss to life and property. Under the plan of insurance, a largenumber of people associate themselves by sharing risks attached toindividuals. The risks, which can be insured against, include fire, theperils of sea, death and accidents and burglary. Any risk contingentupon these, may be insured against at a premium commensuratewith the risk involved. Thus collective bearing of risk is insurance.Insurance Indemnifies Assets & Income 11
    • Emerging Trends in life insurancesector Every Asset has a value and generates Income to its Owner.There is a normally expected Life-time for the Asset during whichtime it is expected to perform. If the Asset gets lost earlier, beingdestroyed or made Non-functional through an Accident or otherunfortunate event the Owner is Prejudiced. Insurance helps toreduce CONSEQUENCES of such Adverse Circumstances which arecalled RisksInsurance is the science of spreading of the riskIt is the system of spreading the losses of an Individual over a groupof IndividualsInsurance is a Method of sharing of financial losses of a few from a common fund formed out of Contribution of themany who are equally exposed to the same lossWhat is uncertainty for an Individual becomes a certainty for a Group.This is the basis of All Insurance Operations. Thus insurance convertuncertainties to certainty DEFINITIONS 12
    • Emerging Trends in life insurancesectorThe definition of insurance can be made from two points:Functional definition.Contractual definition.Functional definitionInsurance is a co-operative device to spread the loss caused by aparticular risk over a number of persons who are exposed to it andwho agree to insure themselves against the risk.General DefinitionInsurance has been defined to be that in which a sum of money as apremium is paid in consideration of the insurer’s incurring the risk ofpaying a large sum upon a given contingency. In the words of John Magee, “Insurance is a plan bythemselves which large number of people associate and transfer tothe shoulders of all, risks that attach to individuals.”Fundamental Definition 13
    • Emerging Trends in life insurancesectorIn the words of D.S. Hansell, “Insurance accumulated contributions ofall parties participating in the scheme.”Contractual DefinitionIn the words of justice Tindall, “Insurance is a contract in which a sumof money is paid to the assured as consideration of insurer’s incurringthe risk of paying a large sum upon a given contingency.” Working of Insurance 14
    • Emerging Trends in life insurancesector Pre-Liberalization Scenario Indian History: Time to turn the clock back-and open up insuranceFifty years ago, India had a bustling, if somewhat chaotic, entirelyprivate insurance industry. The year after Independence, 209 lifeInsurance companies were doing business worth Rs712.76 crore(which grew to an amazing Rs 295,758 crore in 1995-96). Foreigninsurers had a large market share 40 per cent for general insurancebut there were also plenty of Indian companies, many promoted bybusiness houses like the Tatas and Dalmias. The first Indian-ownedlife insurance company, the Bombay Mutual Life Assurance Society,was set up in 1870 by six friends. It Insured Indian lives at the normalrates instead of charging a premium of 15 to 20 percent as foreigninsurers did. Its general insurance counterpart, Indian MercantileInsurance Company Ltd., opened in Bombay in 1907.A plethora of insufficiently regulated players was a sure recipe forabuse, especially because there was no separation betweenbusiness houses and the insurance companies they promoted. TheInsurance Act, 1938, introduced state controls on insurance, includingmandatory investments in approved securities, but regulationremained ineffective. In 1949, Purshottamdas Thakurdas, chairmanof the Oriental Assurance Company, admitted: "We cannot deny that,today, there is a tendency on the part of insurance companies ingeneral to make illicit gains. Can we overlook the cutthroatcompetition for acquiring business? And still worse is the dishonestpractice of adjusting of accounts." After a 1951 inquiry, the 15
    • Emerging Trends in life insurancesectorgovernment was dismayed that companies had high expense andpremium rates, were speculating in shares, and giving loansregardless of security. No wonder that between 1945 and 1955, 25insurers went into liquidation and 25 transferred their business toother companies.This reckless record stoked the pro-nationalization fires. The 1956 lifeinsurance Nationalization was a top-secret intrigue; for fear thatunscrupulous insurers would siphon funds off if warned. Thegovernment resolved to first take over the management of lifeinsurance companies by ordinance, then their ownership. The thenfinance minister C.D. Deshmukh later wrote: Seth RamakrishnaDalmia’s extraction of Rs.225 crore (misappropriation by the BharatInsurance Company) was a heaven-sent opportunity. We were readyto nationalize, with every detail worked out." On 19 January 1956, thenews was announced on the radio, though even the director- generalof AIR was not shown the speech. The next morning, at 9 am, whileexecutives were frantically seeking details over the trunk telephone,says Deshmukh in his autobiography, our officers walked into therespective insurance offices, showed their authority and then tookover the business. I believe this will be regarded as one of the bestkept secrets of the Government of India in all times to come." Theordinance transferred control of 245 insurers to the government. LIC,established eight months later, took over their ownership. GeneralInsurance had its turn in 1972, when 107 insurers were amalgamatedinto four companies headquartered in the four metros, with GIC as aholding company. Nationalization brought some benefits. Insurance 16
    • Emerging Trends in life insurancesectorspread from an urban-oriented, high-end business to a mass one.Today, 48 per cent Of LICs new business is rural. Net premiumincome in general insurance grew from Rs222 crore in 1973 toRs 5,956 crore in 1995- 96. Yet, rigid controls hamper operationalflexibility and initiative so both customers service and work culturetoday are dismal. The frontier spirit of the early insurers has beenlost. Insurance companies have also been timid in managing theirinvestment portfolios. Competition between the four GIC subsidiariesremains illusory. If Nationalization ever had a purpose, it has beenserved. Its now time to turn back the clock in some respects, andopen up the sector again. The government already intends to insiston large minimum capital requirements, a strong regulator, and ahealthy distance between insurers and industry. To ensure thathistory doesnt repeat itself 17
    • Emerging Trends in life insurancesector Post Liberalization ScenarioWhile no aspect of the reform process in India has gone smoothlysince its inception in 1991, no individual initiative has stirred theproverbial hornets nest as much as the proposal to liberalize thecountrys insurance industry. However, the political debate thatfollowed the submission of the report by the Malhotra Committee haspresumably come to an end with the ratification of the InsuranceRegulatory Authority (IRA) Bill both by the central Cabinet and thestanding committee on finance. This section traces the evolution ofthe life insurance companies in the US from firms underwriting plainvanilla insurance contracts to those selling sophisticated investmentcontracts bundled with insurance products. In this context, it bringsinto focus the importance of portfolio management in the insurancebusiness and the nature and impact of portfolio related regulations onthe asset quality of the insurance companies. It also provides arationale for the increased autornatisation of insurance companies,and the increased emphasis on agent-independent marketingstrategies for their products. If politicized, regulations have potentialto adversely affect the pricing of risks, especially in the non-lifeindustry, and hence the viability of the insurance companies. Finally,the backdrop of US experience provides some pointers for Indianpolicymakers 18
    • Emerging Trends in life insurancesector Chapter 2Trends in Insurance Sector 19
    • Emerging Trends in life insurancesector INDIAN INSURANCE IN 21ST CENTURY:2000: IRDA starts giving licenses to private insurers: ICICI prudential and HDFC Standard Life insurance first private insurers to sell a policy2001: Royal Sundaram Alliance first non life insurer to sell a policy2002: Banks allowed selling insurance plans. As TPAs enter the scene, insurers start setting non-life claims in the cashless mode2007: First Online Insurance portal, https:/// set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt Ltd.The Government of India liberalized the insurance sector in March2000 with the passage of the Insurance Regulatory and DevelopmentAuthority (IRDA) Bill, lifting all entry restrictions for private playersand allowing foreign players to enter the market with some limits ondirect foreign ownership.Minimum capital requirement for direct life and Non-life Insurancecompany is INR1000 million and that for reinsurance company is INR2000 million. In the 2004-05 budgets, the Government proposed forincreasing the foreign equity stake to 49%, this is yet to be effected.Under the current guidelines, there is a 26 percent equity cap forforeign partners in direct insurance and reinsurance Company. 20
    • Emerging Trends in life insurancesector Emerging Trend in Indian Insurance SectorMarket by 2015, particularly in countries like India and China. The IRDA isthe major body, which is providing better opportunities for the privateplayer in India. GIC & LICs monopoly market approach is no moreprevalent in India. The new market scenario for insurance is growing; nodoubt it is a flying bird.Change is the eternal law of nature. Everything is changing accordingto the need of the time. Economic growth and social development inpresent scenario is due to sudden change in industrial policy andeconomic planning. Globalization has been the basic mantra after1991, so every one thinks of being global. Liberalization, privatizationand globalization is the basic concept of success in all aspect ofdevelopment. Competition is tough now due to globalization.Business has positioned the entire economy, and industrialists thinkabout making things global. There are no stringent rules orregulations for making any business house or industry. Governmentgives more emphasis on export and entrepreneurship. This is achanging world. Everyone has to compete for better success.Marketing is the major concept for developing any type of business.After globalization, marketing has taken a new dimension and it is themost challenging task now. The new horizon of marketing in the fieldof finance and insurance in present scenario is a good sign ofdevelopment. 21
    • Emerging Trends in life insurancesectorGlobalization - "The Dynamic Force"Many people consider globalization nothing new - societies havebeen interconnected for years. The world has never experiencedglobalization at this level of intensity before, or the speed at which itis transforming and integrating societies.Herman E. Daly, an analyst of Global Policy Forum, characterizesglobalization as, "Global integration of many former nationaleconomies into global economy, mainly by free trade and freemobility, but also by easy or uncontrolled economic purposes." Hefurther clarifies that globalization is not internationalization -globalization brings about a single, integrated, global economy, whileinternationalization is a federation of nations cooperating assovereign units to advance the national interest of all members.Though globalization has become a broad heading for a multitude ofglobal interactions, ranging from the expansion of cultural influencesacross borders to the enlargement of economic and businessrelations throughout the world, it has different dynamic force fordifferent person. For the economist, globalization is essentially theemergence of a global market. For a historian, it is an epochdominated by global capitalism. Sociologists see globalization as thecelebration of diversity and the convergence of social preferences inmatters of life style and social values. To the political scientist, itrepresents the gradual erosion of state sovereignty. But disciplinespecific studies explain only a part of the phenomenon. 22
    • Emerging Trends in life insurancesectorFrom a multi-disciplinary angle, globalization may be treated as aphenomenon, a philosophy and a process, which affects humanbeings as profoundly as any previous event. Several factors havebeen responsible for this phenomenon. This study confines itsattention to four growth-enhancing facets of globalization that havebeen among its key drivers, namely trade, finance, communicationand transport.MNCs - "The New Path Maker"After globalization, so many MNCs are the major path maker foreconomic growth. The world-class MNCs constantly pursued theirstrategy of gaining access to every promising market world over,which had sound growth potentialities, in order to expand theirnetwork and control over the respective local economies. Theconsequence was that some of the markets, particularly indeveloping countries like China and India, adopted some sort of self-protectionist mechanisms by imposing certain deliberate politico-legalrestrictions in order to restrict the entry of capital goods of theseMNCs into their markets.Insurance being an integral part of financial service could not claimimmunity to the impact of the globalization process and opened up toprivate and global players world over, including India. So many MNCsare now entering into the insurance sector which is now a boomingsector. 23
    • Emerging Trends in life insurancesectorNew Horizons of Insurance Market after GlobalizationAfter 1970, insurance sector has become more prosperous. For along time, the two most important insurance players were LIC & GIC.Now so many MNCs have entered into the same sector like BajajAllianz, Aviva, Birla Sunlife, ICICI Prudential, etc. Insurance is nowacting on two dimensions, i.e., the element of investment and theelement of protection. The Economic Value Addition (EVA) has takenthe major concern of the same business.Marketing after globalization has become: - • More customer oriented • Mostly better service oriented • More competitiveBetter satisfaction, more value addition and strategic developmentcan help any insurance sector to sustain in the present era.New Market Scenario & InsuranceInsurance market in present scenario though is a booming sector, butthe market has changed from simpler to complex, less challenging tomore challenging. Going domestic to international is a very difficulttask. Understanding market synergy and cognisation of perception ofcustomer in the insurance field is very difficult. The Regulatory Boardlike IRDA is playing a very crucial role for the benefit of theinsurance holder. The premium and interest rate cant be violated for 24
    • Emerging Trends in life insurancesectorbetter profit and development. The market is becoming toughergradually.Globalization of Insurance MarketHistorically, insurance has been an integral part of financial servicessystem and recognized as a corner-stone of a countrys financialhealth and symbol of progress. Insurance provides for the financialsecurity of citizens and their families. It offers valuable investmentadvice and serves as an effective step towards both individual andnational financial stability.After the terrorist attack on the World Trade Center in September2001, the momentum of growth of world economy suffered sometemporary setback. According to 3rd Annual Globalization IndexReport of World Watch Institute, the growth rate fell sharply from 4%in 2000 to 1.3% in 2001. But the world had become stabilized afterthat and the economic growth was back with entry of so many MNCsand insurances.Triggered by the sound fundamentals in global economy andinternationalization of world markets, several countries turnedtowards free market regimes in banking and insurance, putting anend to several decade-old state-owned controlled markets. Theinsurance market in China & India is brighter. The leadingreinsurance company like Swiss Re & Munich Re has projected 20-25% growth in life and health insurance market by 2015, particularlyin countries like India & China 25
    • Emerging Trends in life insurancesector Growth of Insurance GROWTH OF LIFE INSURANCE SOME FACTS (MAY 2008): HOW THEY STACK UP Premium income of life insurers in Rs crore April - June Growth Total 2007 2008 % Share (%) LIC 8580.84 7524.56 -12 52.55 ICICI Prudential 1056.45 1,590.27 51 11.11 Bajaj Allianz 731.85 829.24 13 5.79 SBI Life 426.39 1,148.67 169 8.02 HDFC Standard 355.93 490.40 38 3.42 Max New York 289.74 501.16 73 3.50 Reliance Life 204.10 557.33 173 3.89 Birla Sun Life 174.63 501.53 187 3.50 Total Private 3930.95 6,795.64 73 47.45 Total Market 12511.80 14,320.20 14 100.00 Global Industry Statistics Emerging Markets (Total Premium, figures in $billion) Taiwan 17.3 China 13.4 India 7.2 Hong Kong 6.1 Israel 5.8 Singapore 5.0 26
    • Emerging Trends in life insurancesectorPresent Scenario of the Insurance Sector in IndiaAs per the findings of a survey carried out in 2003-04, the Indianinsurance market ranked 5th in the Asian continent after Japan,South Korea, China & Taiwan, and 19thIn India, the process of liberalization and opening of insurance sectorto private and foreign players started taking shape as part of theseries of financial and economic reforms brought in by theGovernment in the late 1990s, in accordance with therecommendations made by R. N. Malhotra Committee constituted bythe Government in April 1993. By amending the relevant provisions ofthe Insurance Act, 1938, and passing the IRDA Act, 1999, by an Actof Parliament, Insurance Regulatory and Development Authority(IRDA) was established in the year 2000, which marked the openingact of the insurance sector to private participation and foreigninvestment.GDP & InsuranceThough potentially insurance is more than Rs. 500 Billion business inIndia, and together with banking, it adds slightly more than 7.5% to 27
    • Emerging Trends in life insurancesectorthe GDP, of the country, the gross premium collection has beenhardly 2% of the GDP, not withstanding its growth between 15-20%annually, during the decade preceding the opening up of insurancemarket for private and foreign players in the year 2000. As theinsurance premium database of various developed and developingcountries for the year 1999 indicates, the per capita premium of Indiawas just around $ 8 as against the same having been very high in thedeveloped countries. In other words, and in terms of percentage ofGDP, it was 14% for Japan, 12% for Korea and 9% for UK as againstthe same staggering below 2% for India for the fiscal year 2000-2001.In the new economic reality in globalization, insurance companies in21st century face a dynamic global business environment. Radicalchanges are taking place owing to the internationalization ofactivities. The appearance of new risks, new types of cover to matchwith new risk situation, unconventional and innovative ideas oncustomer service, low growth rates in developed markets, changingcustomer needs and the uncertain economic conditions in thedeveloping world are exerting pressure on insurer’s resources whiletesting their ability to survive. The existing insurers are facingdifficulties from non-traditional competitors that are entering the retailmarket with new approaches and through new channels. The basicpremise of globalization is opening up of new service markets toprovide the developing countries with new opportunities for theexpansion of trade and economic growth. 28
    • Emerging Trends in life insurancesectorThe rapidly changing economic scene, the political attitude, socialvalues and structures, cultural patterns, developments in IT havetransformed lifestyles in urban and rural areas. Developments inother parts of the world, which are witnessing sweeping changes interms of convergence of financial and insurance markets throughbanc assurance, replacement of reinsurance contracts by financialinstruments, sale of insurance through mergers and acquisitions willalso have their impact on Indian Insurance Industry.During the longmonopoly regime, the government attempted minor changes in theprocedures without going into the root cause. The deregulationrequires comprehensive changes in the character and basic policiesof the industry. Till the year 2000, the insurance industry was a governmentmonopoly and is now experiencing cut-throat competition because anumber of players have entered into the Indian market in the form ofJoint ventures with Indian private sector partners. Consequently, Indian Insurance Industry has closely integratedwith world economy thereby making crucial for insurance companiesto operate outside national boundaries. India Insurance sector after globalization has brighter future. Theeconomic status of people is changing. So many new governmentpolicies and economic reforms are impetus for insurance sector. Thefirmament of economic growth is vast and never ending but theinsurance as a bird have to fly. No doubt insurance market afterglobalization is "A flying bird"! 29
    • Emerging Trends in life insurancesector TECHNOLOGY TREND IN INSURANCE MARKET ARE AS FOLLOWSComputerization: Initially, in the late 1950’s the insurance companies used UnitRecord Machines (Electro Magnetic Machines) to process datapunched into cards. Computers were introduces in the mid 1960’sand by the 1980’s the Unit Phased Machines were phased out andthe entire process was computerized. This brought about greaterefficiency and quick service deliveryInternet: 30
    • Emerging Trends in life insurancesector Today, the internet has completely changed the service deliveryprocess. Internet is today used to even sell insurance policies.Internet is, in fact, proving to be one of the widely used distributionnetworks for selling insurance policies. Also internet is used forsending premium notices to policy holders through e-mails Companies like LIC (www.licindia.com), ICICI(www.iciciprudential.com) all have websites from which people canget the information about their products, prices, various schemes,and lots of other information. People can also purchase the productthrough this website.Electronic Clearance Service (ECS): Almost all the big organizations today provide the ECS facilityto its customers. A policy holder having an account in any bank whichis a member of the local clearing house can opt for ECS debit to paypremiums. The advantage here is that once the option is exercised,the policy holder need not visit a branch for paying the premium orcollecting the receipts. On the day indicated by the policy holder, thepremium amount will be directly debited to the bank account of thepolicyholder and the receipt will be issued by the designated branchoffice.Call Centres and SMS services: 31
    • Emerging Trends in life insurancesector Almost all the insurance companies have their own call centreswhich cater to the phone based queries of the policyholders. Thisservice is 24x7 and they have the Interactive Voice Response (IVR)systems at all the branches Globalization of Life Insurance Market SOME GENERAL INFORMATION ABOUT LIFE INSURANCE IN INDIA 32
    • Emerging Trends in life insurancesector Significant channel for  household savings into capital  formation GDP penetration  2nd largest  of 4.1%  financial service    in India after  Life Insurance banking Statutory  requirements to  Total number of  provide  reach   lives insured and  to rural areas on books as on  Total Assets Under Management  March 31, 2008­   of Life Insurance Cos. as on  March 31, 2008­ Rs. 8,50,000 The Life Insurance market in India is an underdeveloped market thatwas only tapped by the state owned LIC till the entry of privateinsurers. The penetration of life insurance products was 19 percent ofthe total 400 million of the insurable population. The state owned LICsold insurance as a tax instrument, not as a product giving protection.Most customers were under- insured with no flexibility ortransparency in the products. With the entry of the private insurersthe rules of the game have changed. The 12 private insurers in the life insurance market havealready grabbed nearly 9 percent of the market in terms of premiumincome. The new business premium of the 12 private players has 33
    • Emerging Trends in life insurancesectortripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, stateowned LICs new premium business has fallen. Innovative products, smart marketing and aggressivedistribution. Thats the triple whammy combination that has enabledfledgling private insurance companies to sign up Indian customersfaster than anyone ever expected. Indians, who have always seen lifeinsurance as a tax saving device, are now suddenly turning to theprivate sector and snapping up the new innovative products on offer. The growing popularity of the private insurers shows in otherways. They are coining money in new niches that they haveintroduced. The state owned companies still dominate segments likeendowments and money back policies. But in the annuity or pensionproducts business, the private insurers have already wrested over 33percent of the market. And in the popular unit-linked insuranceschemes they have a virtual monopoly, with over 90 percent of thecustomers. The private insurers also seem to be scoring big in other ways-they are persuading people to take out bigger policies. For instance,the average size of a life insurance policy before privatisation wasaround Rs 50,000. That has risen to about Rs 80,000. But the privateinsurers are ahead in this game and the average size of their policiesis around Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the industryaverage. 34
    • Emerging Trends in life insurancesectorBuoyed by their quicker than expected success, nearly all privateinsurers are fast- forwarding the second phase of their expansionplans. No doubt the aggressive stance of private insurers is alreadypaying rich dividends. But a rejuvenated LIC is also trying to fightback to woo new customers Market Share of Private Sector life Insurance Companies 35
    • Emerging Trends in life insurancesector Chapter 3 Impact of Budgeton Insurance Sector IMPACT OF BUDGET 2004The finance minister’s reform to strengthen risk management in 36
    • Emerging Trends in life insurancesectorbanking The Finance Bill has some brilliant promises to offer and yetthere are adverse to the financial service sector.The decision to permit 49 per cent foreign direct investment (FDI) ininsurance is welcome. The industry will agree that there is an acuteneed for it to grow and to write more business. If one were to analyzethe growth of some new private sector insurance players theunderlying strength seems to be their ability to get more capital andmeet the solvency requirement perform, write more business andgrow faster. Let’s not forget that these insurance companies will beable to tap the capital market in two to three years.The best performer in the sector have also expanded their capital toabout Rs. 700 to 800 crore. A look at the non performers suggeststhat they do not have adequate capital to grow. Hence the increase inthe FDI limit would help. More importantly, this will give greatercontrol to the foreign partners in areas of management control andgovernance. They will now be more willing to bring in their expertisein product development, technology, and implement best practices.The striking future of the Finance Bill is that the government hasaccepted defined contribution as the way forward for pensionreforms, particularly for new government employees.One could have expected some clarity on the subject of multipleregulators for pension. Though there be some benefits having aseparate pension regulator, one supposes that there would be astrong case for just one regulator both the pension and insurancesectors. The government must examine the confusion that may ariseon account of having multiple regulators. 37
    • Emerging Trends in life insurancesectorBanking and insurance companies are significant players in thesecurities market today. Midsize public sector banks may have madea turnover of about Rs. 40,000 crore on securities trade and largerbanks would have made two to three times the number. Thetransaction tax of a 0.15 per cent would certainly eat away a goodpart of banks’ profits.Likewise, all services rendered by banks (except the fund basedassistances) would attract service tax. Banks would be able toconveniently pass on some of these costs to the customers. So, eachtime an individual goes and gets a demand draft or pay order, theywill end up paying much more than the existing rates. However, ifcompetition becomes acute, banks would have to bear it, which isbad news for the banking companies. 38
    • Emerging Trends in life insurancesector Chapter 4 Private V/S Public Insurance Sector PRIVATE V/S PUBLIC INSURANCE SECTORPrivate players in the life insurance business are growing at ascorching pace. Within three years of their inception, they haveseized about 14 per cent of the market.Compare this to new generation private-sector banks, which tooknine years for 20 per cent share in the Indian banking industry. And 39
    • Emerging Trends in life insurancesectorafter seven years in the industry, in 2000, private mutual fundsaccounted for just 9 per cent of a market that had been dominated bythe Unit Trust of India.Theres another dimension to the insurance numbers game. Whilethe private insurance companies have attained 13 to 14 per centshare of the overall insurance market, their share in the key metros(Mumbai and Delhi) is as high as 30 to 40 per cent."We have to struggle to complete a deal in the metros now,because policyholders are comparing products and asking forbetter deals," says S B Mathur, chairman of the Life InsuranceCorporation of India.Private insurance companies are essentially joint ventures with globalinsurance companies holding a maximum of 26 per cent stake. Theforeign partners are investing heavily in the Indian market and,thereby, driving sales, because they see India emerging as one of thebiggest markets in the Asian region."India will become the biggest market for us in the next three tofour years," predicts Dan Bardin, Prudential Corporation Asiamanaging director south Asia and greater China.Private players have certainly done their bit to increase thepenetration levels of insurance, mainly by creating alternativedistribution channels--such as associations with banks, brokers andcorporate agents. 40
    • Emerging Trends in life insurancesector"Our bancassurance channel--with tie-ups with four banks--contributes almost 70 per cent of our total sales," says Aviva CEOStuart Purdy.OM Kotak Mahindra Life, which is ranked eighth among privateplayers, is also leaning towards alternative distribution channels thatwill contribute to 45 per cent of total sales, in line with the contributionfrom its tied agency force.In sharp contrast, most of the LICs policies continue to be soldthrough its tied-agency network. The state life corporationacknowledges that it is unable to maintain its lead in some metros:penetration by the private-sector insurers has come of age and theyare giving the LIC a run for its money.The multi-channel approach adopted by private insurance companieshas proved to be a boon in terms of costing and their ability tocapture business. Earlier, most private insurance companies focusedtheir energies on the top 20 cities. Today they are moving to smallercities."The potential in smaller cities is increasing and companies aremoving to smaller cities and towns because these are increasinglybecoming more prosperous with a rise in agricultural income. Withthe increase in buying power, this has fuelled growth opportunities forus," says Max New York Life CEO Anuroop Tony Singh.AMP Sanmar, another private player, has tied up with various chitfunds and transport finance companies in the country, where it is 41
    • Emerging Trends in life insurancesectorselling life policies on the back of fixed deposits and bonds. A seniorcompany official cites the example of Vijaywada where a significantportion of the income is derived from farming activities."The rural populace is managing their money well and no longerkeeping it under their beds. They have mobile phones and haveopened bank accounts. They are not very different from their urbancounterparts when it comes to purchasing life insurance covers," hepoints out.And thats making the private sector optimistic about its future in theIndian insurance market. "We [private insurers] are becoming analternative to LIC. If a customer has already bought an LIC plan, hissecond policy is likely to be bought by the private insurance sector onaccount of various reasons--more specifically flexibility andtransparency," says OM Kotak Mahindra Life CEO Shivaji Dam.Perhaps this partly explains why the LIC has increased its advertisingspend multifold since the insurance sector was privatized. Its adspend more than doubled to Rs 81 crore (Rs 810 million) in fiscal2003, against Rs 37 crore (Rs 370 million) in 1999-2000, prior to theindustry being privatized.Of course, the private insurance sector has also been steadilyincreasing its ad spend, from Rs 29 crore (Rs 290 million) in fiscal2001 when the industry opened up, to Rs 92 crore (Rs 920 million)the following year. In fiscal 2003, private insurers spent Rs 143 crore(Rs 1.43 billion) on advertising. 42
    • Emerging Trends in life insurancesectorBut its not the increased spend on advertising alone that has helpedprivate players in grabbing market share. One of the key differentialfactors responsible for their growing market is the 150,000-odd lifeinsurance advisors of the private insurance companies."The private insurance agents sell better than their counterparts atthe LIC. Life insurance advisors of private sector insurancecompanies adopt the need-based selling approach, unlike the LICsagency force that pushes the number of policies," says Dam.This also gets reflected in the average sum assured by privateinsurance companies being higher than that of the LIC. Policies soldby the private players tend to be of a higher value.For instance, Birla Sun Lifes average premium stands at Rs 24,500,while that of OM Kotak Mahindra Life is equally high at Rs 20,400.Against this is the LICs average premium of Rs 3,200.Of course, theres also a difference in the target client of the privateand the state-run insurance companies. While the private players aretargeting the upper middle-class and high net-worth individuals, theLIC aims for the masses through its 2,048 branches spreadacross semi-rural and rural towns.Meanwhile, private insurance companies are capitalizing on globalrelationships. "Business deals are often a call away since wecapitalize on AIGs global relationship with multinational companiessuch as GE and Kodak," says Tata AIG Life Ian Watts. 43
    • Emerging Trends in life insurancesectorOM Kotak has gone a step further and tied up with Swiss LifeInternational so that it can capitalize on the latters relationship with300 multinational subsidiaries and affiliates.But its not as if LIC has lost out on group insurance. The insurancemajors group business reached new heights in fiscal 2004, recordinga 119 per cent growth in new premium income and 50 per centincrease in the number of lives covered.Still, new business income for private companies has grown at 146per cent in fiscal 2004, compared to the 18 per cent average industrygrowth in new premium income for the same period."The key in product sales lies in offering unbundled and transparentproducts that give customer value," points out Dam.The biggest draw in insurance in fiscal 2004 was unit-linked plans.Ninety-five per cent of the policies sold by Birla Sun Life and over 80per cent of the 436,000 policies sold by ICICI Prudential were unit-linked plans.And even though the LIC was late (January 2004) in pushing its unit-linked product "Bima Plus", it managed to mop up a premium incomeof Rs 373 crore (Rs billion) with the sale of just under 1.7-lakh unit-linked policies, the highest sales figure in the industry.The advantage with unit-linked plans is that they offer policyholderstransparency in terms of costs, annual returns and bonuscalculations. With many companies guaranteeing the capital 44
    • Emerging Trends in life insurancesectorinvestment (some like Birla Sun Life even guarantee 3 per centassured returns on its unit-linked plans), the interest in unit-linkedplans only increased.And the switch from traditional products to unit-linked plans gainedmomentum as the Sensex climbed higher: the returns on suchpolicies are linked to the equity market."The stock market has helped to a certain extent and has contributedto our growth and performance," agrees Birla Sun Life CEO NaniJaveri.Aviva has shown a compounded aggregate growth rate of 36 percent since the inception of its fund. Returns on OM Kotaksbalanced and growth funds stand at 31.79 to 43.25 per centrespectively.Dam claims that OM Kotak has sold several policies of Rs 25-50 lakh(Rs 2.5-5 million) since the "savvy investor thinks it best to invest inunit-linked products." He adds: "Growth is coming faster in insurancecompanies with unit-linked plans." Chapter 5 45
    • Emerging Trends in life insurancesector Company Profile of LIC & ICICI Prudential COMPANY PROFILE 46
    • Emerging Trends in life insurancesectorLife Insurance Corporation of India was created on 1st September,1956, with the objective of spreading life insurance much more widelyand in particular to the rural areas with a view to reach all insurablepersons in the country, providing them adequate financial cover at areasonable cost. LIC had 5 zonal offices, 33 divisional offices and212 branch offices, apart from its corporate office in the year 1956.Since life insurance contracts are long term contracts and during thecurrency of the policy it requires a variety of services need was felt inthe later years to expand the operations and place a branch office ateach district headquarter. Re- organization of LIC took place andlarge numbers of new branch offices were opened. As a result of re-organisation servicing functions were transferred to the branches, 47
    • Emerging Trends in life insurancesectorand branches were made accounting units. It worked wonders withthe performance of the corporation. It may be seen that from about200.00 crores of New Business in 1957 the corporation crossed1000.00 crores only in the year 1969-70, and it took another 10 yearsfor LIC to cross 2000.00 crore mark of new business. But with re-organisation happening in the early eighties, by 1985-86 LIC hadalready crossed 7000.00 crore Sum Assured on new policies.Today LIC functions with 2048 fully computerized branch offices, 100divisional offices, 7 zonal offices and the Corporate office. LIC’s WideArea Network covers 100 divisional offices and connects all thebranches through a Metro Area Network. LIC has tied up with someBanks and Service providers to offer on-line premium collectionfacility in selected cities. LIC’s ECS and ATM premium paymentfacility is an addition to customer convenience. Apart from on-lineKiosks and IVRS, Info Centres have been commissioned at Mumbai,Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi,Pune and many other cities. With a vision of providing easy access toits policyholders, LIC has launched its SATELLITE SAMPARK offices.The satellite offices are smaller, leaner and closer to the customer.The digitalized records of the satellite offices will facilitate anywhereservicing and many other conveniences in the future.LIC continues to be the dominant life insurer even in the liberalizedscenario of Indian insurance and is moving fast on a new growthtrajectory surpassing its own past records. LIC has issued over onecrore policies during the current year. It has crossed the milestone of 48
    • Emerging Trends in life insurancesectorissuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthygrowth rate of 16.67% over the corresponding period of the previousyear.From then to now, LIC has crossed many milestones and has setunprecedented performance records in various aspects of lifeinsurance business. The same motives which inspired our forefathersto bring insurance into existence in this country inspire us at LIC totake this message of protection to light the lamps of security in asmany homes as possible and to help the people in providing securityto their families Life Insurance Corporation of India is a wholly ownedundertaking of the Government of India.Life Insurance Corporation of India was established by an Act ofParliament on 1st September, 1956. Its Central Office is located inMumbai. It also has seven zonal offices each located inMumbai(Western Zone), New Delhi (Northern Zone), Kanpur (North-Central Zone), Bhopal (Central Zone), Chennai (Southern Zone),Hyderabad(South-Central Zone), and Kolkotta (Eastern Zone).It has a network of over 2000(2048) branches and more than ninelakh agents.Over 47 years, LIC has become a household name for providingsecurity for a lifetime and is synonymous to life insurance in India.LIC ranks No.1 in the list of top 500 companies on the basis of NetWorth(Rs. 15, 47, 951 million) as well as Net Profit(2,66,277 million)-Dun & Bradstreet (India 500) 49
    • Emerging Trends in life insurancesectorMission"Explore and enhance the quality of life of people through financialsecurity by providing products and services of aspired attributes withcompetitive returns, and by rendering resources for economicdevelopment."Vision"A trans-nationally competitive financial conglomerate of significanceto societies and Pride of India."Goals • Promote within the Corporation greater awareness of the changing environment and the need to align the corporate policy to the emerging situation. • Help fashioning, within the constraints, its policies, programmes, practices and products to meet the expectations of the Public. Help the public to appreciate the performance and the limitations of LIC. 50
    • Emerging Trends in life insurancesector 51
    • Emerging Trends in life insurancesector Company profile of ICICI PRUDENTIAL The company assigned to me is ICICI Prudential Life InsuranceCompany. It is in to selling life insurance products. ICICI PrudentialLife Insurance Company is a joint venture between ICICI Bank, aPremier Financial Powerhouse and Prudential PLC, a leadinginternational financial services group headquartered in the UnitedKingdom. ICICI Prudential was amongst the first private sectorinsurance companies to begin operations in December 2000 afterreceiving approval from Insurance Regulatory Development Authority(IRDA). At present it is growing at a tremendous pace. Now we cansay there is no close competitor to ICICI Prudential. ICICI Prudential’s equity base stands at Rs. 9.25 billion withICICI Bank and Prudential PLC holding 74% and 26% stakerespectively. In the financial year ended March 31, 2005, thecompany garnered Rs. 1,584 crores of new business premium for atotal sum assured of Rs. 13,780 crores and wrote nearly 6,15,000policies. The company has a network of about 56,000 advisors aswell as 7-bank assurance and 150 corporate agent tie-ups. For the past five years, ICICI Prudential has retained itsposition as No. 1 private life insurance in the country, with a widerange of flexible products that meet the needs of Indian customer atevery step in life. 52
    • Emerging Trends in life insurancesector The company mainly depends on advisors. The advisors areconsidered as the brand ambassadors of the company or the workingpartner who doesn’t have to invest to get returns but just work withthe company to make money. Advisors main job is to sell policy andin return the advisors get huge return like high commission, rewards,recognition etc. He is, for all purposes, an authorized salesman forinsurance. Advisors can become the Unit Manager of the company if theypass the pinnacle program. ICICI Prudential has recruited and trainedabout 56,000 insurance advisors to interface with and advisecustomers. Further, it leverages its state-of-the-art IT infrastructure toprovide superior quality of service to customers. Manager will get a fixed salary and the commission on thepolicies sold by his advisor and the commission of the policies whichhe has already sold. Tiger team manager is one who gets to sell thepolicy and get commission, train the advisors about the product andhe is also a paid up employee of the company. ICICI GROUP 53
    • Emerging Trends in life insurancesectorVISIONTo be the dominant Life, Health and Pensions player built on trust byworld-class people and servicehope to achieve by: • Understanding the needs of customers and offering them superior products and service • Leveraging technology to service customers quickly, efficiently and conveniently • Developing and implementing superior risk management and investment strategies to offer sustainable and stable returns to our policyholders • Providing an enabling environment to foster growth and learning for our employees • And above all, building transparency in all our dealingsVALUESVery member of the ICICI Prudential team is committed to 5 corevalues: Integrity, Customer First, Boundaryless, Ownership, andPassion. These values shine forth in all we do, and have become thekeystones of our success 54
    • Emerging Trends in life insurance sector Organization Structure of ICICI CHIEF MANAGING DIRECTOR (CMD) CHIEF AREA OFFICER CHIEF AREA OFFICER (PENINSULAR) (HIMALAYAN) Sales HeadZONAL MANA GER ZONAL MANA GER ZONAL MANA GER ZONAL MANA GER ZONAL MANA GER ZONAL MANA GER ZONAL MANA GER AREA SALES MANA GER Unit Manager / Area Manager/ Senior Agency Manager 55
    • Emerging Trends in life insurancesector Market Share Total Market Share 22% LIC ICICI Prudentail 8% Others 70% 56
    • Emerging Trends in life insurancesector Chapter 6 Product Offered By LIC & ICICI Prudential 57
    • Emerging Trends in life insurancesector Product offered by LICInsurance PlanAs individuals it is inherent to differ. Each individual’s insuranceneeds and requirements are different from that of the others. LICinsurance plans are policies that talk to you individually and give youthe most suitable option that can fit customer requirements.Children plan• Komal Jeevan - Plan No. 159• Children Deferred - Plan no.41• Jeevan Kishore - Plan no.102• Jeevan Chhaya - Plan no.103• Marriage Endowment/Educational Annuity - Plan No. 90• Jeevan Anurag - Plan no.168Endowment Policy• Endowment with Profits - Plan no.14 Limited Payment Endowment with Profits - Plan no.48• Jeevan Mitra - Plan no.88• New JanaRaksha Policy - Plan no.91• Jeevan Anand Plan no. 149• Jeevan Mitra Triple Cover - Plan no.133 58
    • Emerging Trends in life insurancesector Group Insurance PolicyGroup Insurance Scheme is life insurance protection to groups ofpeople. This scheme is ideal for employers, associations, societiesetc. and allows you to enjoy group benefits at really low costs.• Janashree Bima Yojana• Group Insurance Scheme in lieu of EDLI• Group (Term) Insurance Scheme• Group Savings Linked Insurance SchemeGroup Superannuation SchemeGroup Mortgage Redemption Assurance Scheme Joint Life Policy• Jeevan Saathi - Plan no.89 Money Back Policy• Money Back with Profit - Plan no.75• New Money Back - Plan no.93• Jeevan Surabhi 15 yrs - Plan no.106• Jeevan Surabhi 20 yrs - Plan no.107• Jeevan Surabhi 25 yrs - Plan no.108 Jeevan Bharati Plan No 160 Jeevan Samriddhi Plan No 154, 155, 156 157 Bima Bachat- Plan no.175 59
    • Emerging Trends in life insurancesector Pension Plans or AnnuitiesPension Plans are Individual Plans that gaze into your future andforesee financial stability during your old age. These policies aremost suited for senior citizens and those planning a secure future, sothat you never give up on the best things in life.• New Jeevan Dhara - Plan no.148• New Jeevan Suraksha Plan no. 147• Jeevan Akshay II Plan no. 163• Jeevan Nidhi Plan no. 169• Jeevan Akshay V Plan no. 183 Special Plans LIC’s Special Plans are not plans but opportunities that knock on your door once in a lifetime. These plans are a perfect blend of insurance, investment and a lifetime of happiness!• Term Assurance - Plan no.43• Mortgage Redemption - Plan no.52• Jeevan Aadhar - Plan no.114• Market Plus - Plan No 181• Jeevan Vishwas Plan No. 136• Jeevan Saral Plan No. 165 Jeevan Pramukh Plan No. 167• Bima Nivesh 2005 Plan No 171• Money Plus-Plan No 180 60
    • Emerging Trends in life insurancesectorTerm Policy• Convertible Term Assurance - Plan no.58• New Bima Kiran• Term Assurance• Anmol Jeevan I Plan No- 164• Amulya Jeevan-Plan No-177Unit PlansUnit plans are investment plans for those who realise the worth ofhard-earned money. These plans help you see your savings yield richbenefits and help you save tax even if you dont have consistentincome. • Market plus • Profit plus • Fortune plus • Money plus • Child fortune plus LIC has Introduce a New Product 61
    • Emerging Trends in life insurancesector JEEVAN AASTHA PLANLife Insurance Corporation of India (LIC) has launched its close-ended single premium product, Jeevan Aastha, which offersguaranteed benefits to customers.“The plan has a maximum shelf life of 45 days and offers five and tenyear maturities to customers,The scheme has fixed the minimum age at entry as 13 years whichwould enable parents to make provisions for higher education of theirchildren,” Vijayan said.Similarly, the maximum age at entry has been fixed as 60 years. Theplan offers guaranteed addition of Rs100 for every thousand ofmaturity sum assured for 10 years term and Rs90 per annum forpolicies with five year term.“The policy holder can also avail the benefits of tax exemption andhas the options of surrendering the policy or to raise loan under thepolicy,” the Chairman saidFeaturesLIC’s Jeevan Aastha is a single premium assurance plan which offersguaranteed benefits on death and maturity. The Plan is close endedand would be available for a maximum period of 45 days from thedate of its launch i.e. 08.12.2008Eligibility conditions and other restrictionsa) Minimum Entry Age : 13 years (completed) 62
    • Emerging Trends in life insurancesectorb) Maximum Entry Age : 60 years (nearest birthday)c) Minimum Basic Sum Assured: Rs.1,50,000d) Maximum Basic Sum Assured: No LimitThe basic sum assured shall be available in multiples of Rs. 30,000.e) Policy Term : 5 or 10 yearsf) Premium payment mode : Single premium onlyPremium ratesSpecimen Single Premium rates per Rs.1000 Basic Sum Assured forsome of the ages are as under: Age at Policy Term Policy Term entry 5 years 10 years 20 174.50 165.00 30 174.70 165.40 40 176.10 167.95 50 180.85 175.90 Products Offered By ICICI PrudentialICICI Prudential has a wide array of insurance plans that have beendesigned with the philosophy that different individuals are bound tohave differing insurance needs. 63
    • Emerging Trends in life insurancesectorThe ideal insurance plan is one that addresses the exact insuranceneeds of the individual that will depend on the age and life stage ofthe individual apart from a host of other factors.Life Insurance PlansUnder Life insurance plans, ICICI Prudential offers plans under thefollowing • Education Insurance Plans • Wealth Creation Plans • Premium Guarantee plans • Protection PlansPension & Retirement Solutions:The primary objective of a pension plan is to help you provide foryour financial needs in your post retirement years. You will find aPension Planning Calculator on the site, meant to make your pensionplan review as simple as possible. The calculator is the first step inyour Pension Plan scheme, there are othe steps towards getting theIndian pension policy you need. • LifeStage Pension • LifeTime Super Pension • LifeLink Super Pension • ForeverLife 64
    • Emerging Trends in life insurancesectorHealth Product SuiteUnder Health Product Suite, ICICI Prudential offers plans under thefollowing major need categories:Hospitalisation Plans • MediAssure • Hospital CareCritical Illnessl Pans • Crisis CoverCancer Products • Cancer CareDiabetes Products • Diabetes Care Active • Diabetes AssureRetirement Solutions ICICI PRUDENTIAL Provide a wide range of retirement plans and they are as follows 65
    • Emerging Trends in life insurancesector• LifeStage Pension• LifeTime Super Pension• LifeLink Super Pension• ForeverLife• Immediate AnnuityGroup PlansICICI Prudential offers a suite of group insurance plans that are asfollows:• Group super annuation• Group gratuity period• Annuity solution plan• Group term insurance plan• Group term insurance in lieu of EDLGroup Plans• ICICI Pru suraksha• ICICI pru suraksha kavach ICICI Introduced a New Product 66
    • Emerging Trends in life insurancesector Wealth Advantage (a single-premium unit-linked insurance policy (Ulip): This plan provides insurance cover to investors till the age of 70years. ICICI Prudentials new plan is a single-premium policy bundledwith additional benefits such as option to withdraw moneysystematically after six years of taking the policy, thereby increasingthe liquidity of investment. Minimum investment amount in this policyis Rs 25,000. ICICI Prudential Life Wealth Advantage plan allows consumersto stay invested in the plan for as long as they live, even beyond theage of 70 years, thereby ensuring long-term coverage. It also offersthe flexibility to increase or decrease the sum assured in accordancewith the individuals protection needs.Key benefits of Wealth Advantage: • Single premium plan with a whole life investment advantage. • Life cover upto the age of 70 years. • Two options of Sum Assured (125% or 500% of premium) to provide complete protection • Option to withdraw money systematically through Automatic Withdrawal Plan, from the 6th policy year onwards • Higher allocation of premium to ensure wealth maximization 67
    • Emerging Trends in life insurancesector LIC New Jeevan Suraksha VS ICICI Prudential Forever lifeLIC’s New Jeevan Suraksha I offers cool comfort to serve the young,the middle aged and the old which has also the security and safetybacking of Government of India. It is an ideal solution for people as itnot only offers retirement benefits but also takes care of ourprotection needs (with term rider option). To combat the increase inlongevity, this plan provides regular guaranteedincome at old age and helps in planning to meet requirements forcurrent and future needs. This plan provides a lot of flexibility in termsof various pension options for you to choose from. Additionally youcan also opt for an insurance cover during the deferment period bytaking the Term Rider add on. At the end of the deferment periodwhen the premium ceases, this policy can, at your option, pay you alumpsum amountand a suitable pension for your ifetime.The similar product marketed by ICICI Prudential Life InsuranceCompany is Forever Life, a comprehensive retirement solution that isdeveloped keeping in mind your capabilities and needs with respectto your retirement planning. The salient features of this plan are asUnder:A deferment pension plan to build up your retirement benefits. 68
    • Emerging Trends in life insurancesector(i) It provides regular income for life, after a stipulated date.(ii) The amount you receive depends on the premium you pay till the Stipulated date and the option you choose.(iii) It also offers life cover during the deferment period.(iv) Postponement of retirement age.(v) Health cover till age 65 through add-on benefits, not only while Paying premium, but also while receiving pension The table below shows the summarised comparison of LIC’s New Jeevan Suraksha-I vs. ICICI’s Forever Life. 69
    • Emerging Trends in life insurance sector Features Jeevan Suraksha-I Forever Life Age at entry 18 – 70 years last birthday 18- 60 years Deferment period 2 - 35 years Min. term = 5 years Max. term = 30 years Vesting age 50 -79 years last birthday 50- 70 years Minimum single Rs. 10,000 Min. SA = Rs. 50,000/- premium Mode of premium Single ,yearly, half yearly, quarterly, monthly , SSS ---- paymentMinimum amount of RS 2500 ---- annual premium Mode of annuity Yearly, half-yearly, quarterly & monthly Yearly, half-yearly, quarterly & payment monthly Tax benefits Tax benefits u/s 80CCC(I) for Same as in case of Jeevan investment up to Rs. 10,000/- Suraksha –I. (deducted from taxable income).Choice of retirement Flexibility option not available. The annuitant has the date flexibility to postpone the vesting from originally chosen vesting date up to a maximum of 70 years of age.Open Market Option Flexibility option not available. This option gives annuitant the flexibility to buy a pension from any other Company of his choice. Chapter 7 70
    • Emerging Trends in life insurancesectorInnovation Strategy and IT in LIC & ICICI Prudential INNOVATION STARTEGY IN LICLIC has realised the importance of personal involvement and hasincluded it in the training program itself. Once the Agent is recruitedhe needs to undergo a compulsory training program designed by LIC.The Training Program also explains them the importance of the 71
    • Emerging Trends in life insurancesectorsmallest of the customer .i.e. customer who is just seeking generalinformation. The Agents and Employees are trained to Apologiseto its customers even if they are not at fault. “SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE LIC LOGO TO COME CLOSER FOR APOLOGY”, LIC has established elaborate Grievance Redressal Machinery atdifferent level as per the customer requirement. There are Complaintcells which are specially set up to listen up to each and everycustomer’s problems. LIC gas also set up Policyholder Councilsand Zonal Advisory Boards to understand the problems of theircustomer situated in any part of the city. Offers a Fair Fix to Problem:Customers want wrong to be set right and expects service contactemployee to be skilled, empowered and interested in setting thingsright.This is the main reason why LIC conducts training programs forthe newly recruited Agents as well as the other Employees. In anykind of breakdown situations LIC try to offer a rational explanationand demonstrate sensitivity and concern to the customer rather thandefending themselves.• Offers Some Compensation for the Inconvenience: 72
    • Emerging Trends in life insurancesectorCompensation here wouldn’t mean of just monetary compensation orsome extreme measures like firing the Branch Manager Etc; but it isjust to make-up for the loss of customer satisfaction. It could be like“it’s on us”; “free service” etc. The service provider should plancertain compensation policies in advance for various types ofsituations and deliver it as and when the situation is faced.• Keep the Promises:It basically means that the Company should keep the promises madeto the Customer before or at the time of service provision i.e. theCompany should fulfill its commitments.LIC makes sure that none of the Agents provide any kind of wronginformation or false promises to its customers which mislead them.LIC ask their Agents to give reasonable commitments so that theycould be fulfilled by the Company or the Agent on behalf of theCompany.• Follow Up:This is the most important step in Service Recovery as it ensures thatwhether the implemented Service Recovery was Satisfactory or not.It would include Internal and External Follow-up. Internal Follow-upwould be to ensure that the solutions they put in motion are actually 73
    • Emerging Trends in life insurancesectorexecuted and the External part would be to get feedback from thecustomer whether he is satisfy• Complaint HandlingIn a vast Organization like LIC, catering to the various needs andaspirations of millions of policyholders, grievances of customers doarise occasionally. In order to redress these grievances LIC hasestablished elaborate Grievance Redressal Machinery INNOVATION STRATEGY IN ICICIAn innovation refers to any good, service, or idea. That is perceivedby someone as new. The idea may have long history, but it is aninnovation to the person who sees it as new. Innovation takes time tospread through the special system. The consumer adoption processfocuses on the mental process through which an individual passes 74
    • Emerging Trends in life insurancesectorfrom first hearing about an innovation to final adoption. Adopters ofnew products have moved through the following five stages. 1. Awarness: The consumer becomes aware of the innovation but lacks information about it. 2. Intrest: The consumer is stimulated to see the information about the innovation. 3. Evaluation: The Consumer considers whether to try the innovation or not. 4. Trial: The consumer tries the innovation to improve his estimate of its value. 5. Adoption: The consumer decides to make full and regular use of the innovation IT in LIC In today’s world, IT is a must for any industry to keep pace with the customer’s changing expectations. This is especially relevant in the service industry. The insurance sector has to ensure that the technology it chooses does not lag behind where customer expectations are concerned.LIC has more than 16 crore policy holders. So it has to induct thebest IT products available and use them to cater to the needs of the 75
    • Emerging Trends in life insurancesectorcustomers and deliver anywhere any time service on demand and toadd value to its new products. The trust and the goodwill of thecustomer gained in the last 50 years have to be consolidated bymaking all activities more customer-focused.For instance, LIC has a corporate Web site to provide information onproducts, services, policy status, grievances and premium calculator.Other facilities include touch-screen information kiosks at centrallocations to provide 24 x 7 inquiry services to customers. IT in ICICI PrudentialThe Information technology function at ICICI Prudential is committedto enable a business through the use of technology. It is segmentedinto 4 groups to enable highest level of delivery of customer. Life AsiaSolution Group that provide flexibility in designing better productoffering to end user, the solution group- Web that provide real timeinformation to customer and is responsible for customer relationshipmanagement, IT Architecture & corporate solution group is in chargeof developing and marinating a blue print for the IT architecture forthe enterprise as whole. This team work as an in house R&D solutiongroup, exploring new technological initiatives and also caters toinformation needs of corporate function in the organization. IT 76
    • Emerging Trends in life insurancesectorinfrastructure group is responsible for providing hardware, software,network service to the whole organization. This group run at Digitalnervous system of the enterprise at the highest level of efficiency andprovide robust, scalable and highly available platform fordevelopment business application Chapter 8 77
    • Emerging Trends in life insurancesector Emerging Trend in LIC & ICICI Prudential EMERGING TREND IN Life Insurance CorporationWith the emergence of competition, LIC has implemented strategicmoves for business growth, as well as ensured quality improvementin service standards. As on today, they have been providing serviceto around 12 crore policy holders and their track has been wellacknowledged as reflected through continual upgradation of service 78
    • Emerging Trends in life insurancesectorstandards culminating into a world class performance in the area ofclaim settlement operations.It is well acknowledged that LIC has been able to provide appropriateIT support in furtherance of prompt service to their valued policyholders. The complex task of conversion of computerization of all thebranches with their conversion as Front Line offices has beencompleted in aphase manner. In addition to this, the launching of theIVRS facility, MAN and Wide Area Network operations has helped theco-operation improve its servicing.LIC’s strength lies in: a. Wide network of branches covering rural areas. b. A large and well- spread agency organization. c. An acknowledged record of performance. d. Adequate yield with high risk cover being offered keeping the policy holders satisfied in the existing in the economic scenario. e. Well accepted brand equity throughout the country.In addition to this, LIC has an established and well administeredGrievance Redressal Mechanism and with Ombudsman intervention,the customers appear to be well attended. However, this mechanismhas to be restructured keeping in view the additional legal provisionslaid down by the regulator as expounded in the IRDA act. • Futuristic ApproachTill today, LIC enjoyed a monopoly. It is now that reality exists in theare of marketing (i.e. sales and after sales service operations). It will 79
    • Emerging Trends in life insurancesectornow have to follow a multi-faceted strategy towards customerretention and also expanding to a new clientele. With the new face ofthe market, relationship management seems to be the new mantra.At the nucleus of this approach is the concept of CustomerRelationship management. The need is to have a comprehensivereview of the business keeping in view customer expectations • Customer OrientationLIC, to be in the reckoning, has to have an efficient feed-backsystem, so as to understand what the customer desires in terms ofproduct design, service procedures, relationship convinience,accessibility, responses in terms of personalized service, attendance,core and complimentary on an individual basis. The new players inthe market like ICICI, HDFC etc. will definitely be very aggressive inthe open market. LIC has to go ahead with their former customers,existing customer, in a very gentle and courteous manner, reassuringthem of their better services with persona, attention. ADVERTISING TRNED IN LIC• News Papers and Magazines LIC give ads in the news papers and magazines round the year to continue its brand image and also when new products are introduced. Normally its ads are published in Times of India.• Television 80
    • Emerging Trends in life insurancesector Companies like LIC, advertise on television to make people aware of their products and services• Gifts LIC provides diaries, pens, booklets, etc to its customers• Hoardings LIC put its hoardings where there is a mass flow of people, especially outside the railway station or at the backside of the bus.• Advertisement At Kumbh Mela LIC has also advertised about its products and the corporationeven in the kumbh mela• Advertisement On Radio satellite channel Advertisement about LIC are frequently been telecast on radioand satellite channel. EMERGING TREND IN ICICI PRUDENTIAL In a significant move, ICICI Prudential Life Insurance — a jointventure between the ICICI group and Prudential Plc of the UK — hasexpanded its marketing platform for promoting life insurance productsto 1,500 banks branches from 642 branches through its existingbancassurance tie-up with seven banks. 81
    • Emerging Trends in life insurancesector With this, ICICI Prudential has increased the number of bankbranches (under banc assurance tie-ups) by about 130 per cent. Infiscal 2002-2003, the number of bank branches networked by thecompany grew by 270 per cent to 642 branches. Of these, 338branches were from four new banc assurance relationships which ithad forged with Allahabad Bank, South Indian Bank (SIB), FederalBank and Lord Krishna Bank. The remaining expansion is fromearlier relationships, notably ICICI Bank and Bank of India (BoI),ICICI Prudential chief-marketing Saugata Gupta told FE. On the company’s new plans, Mr Gupta said: “The greatestexpansion has come from BoI and Allahabad Bank. In addition, ICICIBank, SIB and Federal Bank have also increased the number ofbranches.” Further, Mr Gupta informed that after having releasedadvertising campaign through print, outdoor and radio, the companyhas also recently released a new advertising campaign through theelectronic media on ‘Smart Kid’ Insurance Policy. This policy ispositioned as — Child’s plan that leaves nothing to chance. According to Mr Gupta: “Last fiscal, Rs 102 crore of premiumcame through alternate distribution channels which comprises ofbancassurance channel. This channel is serviced by 430 financialservice consultants. There are 80 active corporate agents, and22,000 life insurance advisors, at present.” 82
    • Emerging Trends in life insurancesector ICICI Prudential has garnered Rs 364 crore as the newbusiness premium income in fiscal 2002-03. In fact, in the first quarterof this fiscal, the company has issued around 51,000 policies, Rs 70crore in new business premium income which accounts for a growthof 132 per cent over last year’s first quarter. It has also crossed Rs10,000 crore sum assured mark. As for emerging trends, Mr Gupta explained that privateparticipation in insurance as a tax saving tool for comprehensivefinancial solution, and, product pushing for need-based solutionsrequired for personal financial review is fast emerging. The Company recently tied up with the Forbes Six Sigma ratedDabbawalla organization in Mumbai for a direct marketing exercise.In a Unique effort to create awareness about a tax saving product,the company attached a creative of a bitten apple to Mumbai’subiquitous lunchboxes. It worked wonderfully with Mumbai’s office-goers and one that translated into substantial business for thecompany ADVERTISING TREND IN ICICI • Radio: ICICI Prudential advertises on 92.5 red Fm • Television 83
    • Emerging Trends in life insurancesector ICICI Prudential has been advertising in outdoor, TV and press. The company launched a corporate television campaign – Saat Phere – which took the emotions and thoughts of initial Sindoor corporate film a few steps further. • Tie- UP with DABBAWALA ICICI Prudential tie-up with the Dabbawalla Organization in Mumbai for a direct marketing exercise, to talk to the customer through a non-cluttered route, and thereby have a higher impact. • Seminars ICICI Prudential regularly holds consumer awareness meets on ‘the need for retirement planning’ in different cities such as Pune, Aurangabad, Coimbatore, Nagpur, Bangalore and Mangalore. Chapter 7 84
    • Emerging Trends in life insurancesector Impact of financial Crisis on LIC Impact of the financial crisis on Life Insurance CorporationLIC is a public sector insurer and a domestic investor. As such, LICare not directly affected by the global financial crisis. However, thevolatility in Indian financial market due to the uncertainty in globalmarkets may affect returns get on their investments. But LIC has anindisputable record of prudently planning its investments and gettingthe maximum returns on the policyholders’ money. Will LIC continueto that in any type of scenario the ratio . Why has the new businessgrowth slowed? What will be the impact of the lower growth on LIC’s 85
    • Emerging Trends in life insurancesectorperformance will it affect the ratio?Total premium growth of LIC has always been quite stable, evenwhen there are periodical ups and downs in new premium income.Last year, LIC ended the year with around 10% growth in FirstPremium income despite several odds. However, the growth in totalpremium income was quite healthy, indicating better conservationratio.LIC overall expense ratio is the least in the industry. Last year, wasonly 11.94%, and it was just 5.56%, excluding the commission. Thesurplus generated was a record high of Rs 16,598.65 crore, whichenabled to give higher terminal bonus to their “with profit”policyholders and to increase dividend to the government.Having said that, LIC agree that there has been a decline in the newpremium in the current financial year. One of the reasons was thatafter withdrawal of their successful old plans, they did notimmediately introduce any new ULIP. Since then, they have launchednew products and the response has been very positive andencouraging.Also, LIC had some issues with the union of development officers,which have been more or less sorted out through series ofconsultations and discussions. In September, the figures have startedpicking up.Private insurers are growing their market share by growingdistribution. LIC is close to saturation level in terms of distribution.How will you retain the market share? 86
    • Emerging Trends in life insurancesectorIt is not accurate to say that LIC has reached its saturation point interms of distribution, as they are expanding their reach and network.Other insurers are perhaps expanding very fast and the effect isreflected in their balance sheets. LIC do have constraints of capitaland any growth has to be supported by internal accruals only.Hence, LIC follow the policy of steady and profitable growth anddistribute 95% of surplus to their “with profit” policyholders. Such apractice makes our products better. And sure, this will, in the long run,determine who becomes winner in the life insurance market in IndiaHow do you propose to comply with IRDA’s decision to cap singlecompany exposure at 10% of a company’s capital?First of all new regulations are not only about equity exposure, butencompass several other aspects too. Second, these norms are notjust LIC-centric, but applicable to the whole industry. LIC total assetsof more than Rs 8-lakh crore are their legacy built on the basis ofearlier regulations and norms under the Insurance Act.LIC have always followed applicable norms in their operations andthey have an impeccable track record of being a prudent investor,keeping in view the best interests of their policyholders. Newinvestment norms have several changes from theearlier one and we are working on them and are in touch with IRDAwhere LIC have problems. 87
    • Emerging Trends in life insurancesectorWill the exposure limit force LIC to divest in blue chips and invest incompanies that have a lower credit rating? CONCLUSION Competition will surely cause the market to grow beyondcurrent rates, create a bigger "pie," and offer additional consumerchoices through the introduction of new products, services, and priceoptions. Yet, at the same time, public and private sector companieswill be working together to ensure healthy growth and developmentof the sector. Challenges such as developing a common industrycode of conduct, contributing to a common catastrophe reserve fund,and chalking out agreements between insurers to settle claims to thebenefit of the consumer will require concerted effort from bothsectors.The market is now in an evolving phase where one can expect a lot 88
    • Emerging Trends in life insurancesectorof actions in coming days. The current impediments for foreignparticipation – like 26% equity cap on foreign partner, ill definedregulatory role of IRDA (Insurance Regulatory development Authority-the watchdog of the industry) in pension business etc.—are expectedto be removed in near future. The early-adopters will then have aclear advantage compared to laggards in gaining the market shareand market leadership. The will need to make sure right now that alltheir infrastructure is in place so that they can reap the benefit of an"unlimited potential."Bibliography • Life-Insurance , by Mc GILL • Insurance Industry by ICFAI Publication • Insurance in IndiaImportant Website • www.iciciprudential.com • www.licindia.com • www.scribd.com • www.google.co.in/indian insurance industryNewspaper • Times of India 89
    • Emerging Trends in life insurancesector • The Economic Times 90