A PROJECT REPORT ON “PRODUCT/SERVICES AND MARKETING STRATEGIES” Of “KOTAK MAHINDRA LIFE INSURANCE” Submitted In the Partial Fulfillment for the Award of the Degree Of BACHELOR OF BUSINESS ADMINISTRATIONSubmitted to: Submitted by:Mrs.RAJNI SOFAT SAHIL SOOD 80103320068 BBA V Session: 2008-2011
DeclarationT h i s p r o j e c t t i t le d “PRODUCT AND MARKETING STRATEGIESREGARDING KOTAK MAHINDRA BANK” b e i n g su b m i t t e d b y m e i nthe partial f u l f i l lm e n t of r e q u ir e m e n t s for the award ofBachelor Of Business Administration degree from GuruNanak Institute of Management and Technology, affiliated toPunjab Technical University Jalandhar.SAHIL SOODB.B.A V80103320068
ACKNOWLEDGEMENTA t t h e o u t s e t , I w o u l d l i k e t o t h a n k t h e st a f f o f K O T A KMAHINDRA BANK for giving me the approval and co-operating me in my project and as well as giving meguidance in the problems faced.A h e a r t f e l t t h a n k t o t h e m a n y r e s p o n d e n t s s u r ve y e d w h o s ei d e a s , c r i t i c a l i n s i g h t s a n d s u g g e s t i o n s h a v e b e e n i n va l u a b l ein the preparation of this report.
EXECUTIVE SUMMARYIn today’s corporate and competitive world, I find that insurance sector hasthe maximum growth and potential as compared to the other sectors.Insurance has the maximum growth rate of 70-80% while as FMCG sectorhas maximum 12-15% of growth rate. This growth potential attracts me toenter in this sector and KOTAK LIFE INSURANCE has given me theopportunity to work and get experience in highly competitive and enhancingsector.Companies now are tapping a lot of ways to capture the market and henceadopting different ways to hold the large portion of the market.My summer training learning helped me a lot to complete my project in orderto learn a lot of things of the corporate. As a project trainee the first taskgiven to me was to understand the basic behaviour of the consumer in orderto manipulate the market according to our target competition. For this Ideveloped a questionnaire and I did my survey in Jaipur city.This job training also helped me a lot in understanding the process ofbuilding effective marketing channels for life insurance products byestablishing network of life insurance advisors.The success story of good market share of different market organizationsdepends upon the availability of the product and services near to thecustomer, which can be distributed through a distribution channel. InInsurance sector, distribution channel includes only agents/advisors oragency holders of the company. If a company like KOTAK LIFE INSURANCE,ICICI PRUDENTIAL, RELIANCE LIFE INSURANCE, TATA AIG, MAX etc hasadequate agents in the market, they can capture big market as compared tothe other companies.
INTRODUCTIONThe story of insurance is probably as old as the story of mankind. Tendencyof a human being to secure themselves against loss and disaster has beenfrom the starting of world. They sought to avert the evil consequences of fireand flood and loss of life and were willing to make some sort of sacrifice inorder to achieve security. Though the concept of insurance is largely adevelopment of the recent past, particularly after the industrial era – pastfew centuries – yet its beginnings date back almost 6000 years as perrecords.Functions of insurance: • Provide Protection: The primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happening of risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others. • Collective bearing of risk: Insurance is an instrument to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is paid. • Assessment of risk: Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also. • Provide certainty: Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain. • Small capital to cover larger risk: Insurance relieves the businessmen from security investments, by paying small amount of premium against larger risks and uncertainty.
• Contributes towards the development of industries: Insurance provides development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery. • Means of savings and investment: Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insureds For the purpose of availing income-tax exemptions also, people invest in insurance. • Source of earning foreign exchange: Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways. • Risk free trade: Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.Insurance is divided into two basic zones: • General Insurance • Life insuranceGENERAL INSURANCEInsurance of the non life assets are called general insurance, this includesloss of asset against water, fire, earthquake etc. With the opening up of theIndian Market in Insurance sector for private players, in General Insurancethe monopoly of the general Insurance public sector’s companies has beenbroken. With the entrance of the new private player market innovativetechnique has been introduced to capture the market. In general Insurancearound 17% of the market has been captured by the private players.General Insurance is a sector which alone has many type of insurancecoverage in it like Fire Insurance, Marine Insurance, motor Insurance,Liability Insurance, Engineering Insurance etc.The Non Life Insurers: • National Insurance Co. Ltd • New Indian Assurance Co. Ltd
• Oriental Insurance Co. Ltd • United India Insurance Co. Ltd • Tata AIG General Insurance Co. Ltd • Bajaj Allianz General Insurance Co. Ltd • IFFCO Tokio General Insurance Co. Ltd • ICICI Lombard General Insurance Co. Ltd • Reliance General Insurance Co. Ltd • Royal Sundaram Alliance Insurance Co. Ltd • Bharti Axa General Insurance • HDFC ChubLIFE INSURANCELife insurance is a contract under which the insurer (Insurance Company) inConsideration of a premium paid undertakes to pay a fixed sum of money onthe death of the insured or on the expiry of a specified period of time,whichever is earlier. In case of life insurance, the payment for life insurancepolicy is certain. The Event insured against is sure to happen only the time ofits happening is not known. So life insurance is known as ‘Life Assurance’.The subject matter of insurance is life of human being. Life insuranceprovides risk coverage to the life of a person. On death of the personinsurance offers protection against loss of income and compensate thetitleholders of the policy.Roles of Life Insurance • Life insurance as an investment: Insurance products yield more than any other investment instruments and it also provides added incentives or bonus offered by insurance companies. • Life insurance as risk cover: Insurance is all about risk cover and protection of life. Insurance provides a unique sense of security that no other form of invest can provide. • Life insurance as tax planning: Insurance serves as an excellent tax saving mechanism too.
Importance of Life Insurance • Protection against untimely death: Life insurance provides protection to the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured. • Saving for old age: After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age. • Promotion of savings: Life insurance encourages people to save money compulsorily. When life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him. In case of surrender of policy, the policyholder gets the surrendered value only after the expiry of duration of the policy. • Initiates investments: Life Insurance Corporation encourages and mobilizes the public savings and channelizes the same in various investments for the economic development of the country. Life insurance is an important tool for the mobilization and investment of small savings. • Credit worthiness: Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business. • Social Security: Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future. • Tax Benefit: Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.
RESEARCH METHODOLOGYTITLETo determine customer buying behavior with a focus on marketsegmentation for Kotak Life Insurance.OBJECTIVESThe objectives of the present study are as following: • Proper understanding and analysis of life insurance industry. • To know about brand awareness of Kotak Life Insurance and customer’s preference about Kotak Life Insurance. • Conduct market survey on a sample selected from the entire population and derive opinion on that research. • To help company in establishing a network of Life Insurance Advisors and to promote the benefits those are provided by Kotak Life Insurance to its Life Insurance Advisors. • To offer suggestions based upon findings.RESEARCH METHODOLOGY
All the findings and conclusions are based on the survey done in the workingarea within time limit. I tried to select a sample representative of the wholegroup during my job training. I have collected data from 100 respondents forstudying Customer Buying Behaviour and Market Segmentation, selectedrandomly from different areas in Jaipur such as: • Public places like shopping centers, malls, restaurants etc. • Employees of Government Departments • Employees of Private Firms • Business / Self EmployedFor recruitment of Life insurance Advisors, I have collected data from 200respondents from following groups: Chartered Accountants Tax Consultants Businessmen Share Brokers Lawyers Working Professionals House Wives Retired PersonsRESEARCH DESIGNResearch was initiated by examining the secondary data to gain insight intothe problem. The primary data is evaluated on the basis of the analysis ofthe secondary data.DEVELOPING THE RESEARCH PLAN
The data for this research project has been collected through selfadministration. Due to time limitation and other constraints direct personalinterview method is used. A structured questionnaire was framed as it is lesstime consuming, generates specific and to the point information, easier totabulate and interpret. Moreover respondents prefer to give direct answers.In questionnaires open ended and closed ended, both the types of questionshas been used.COLLECTION OF DATASecondary Data: It was collected from internal sources. The secondarydata was collected on the basis of organizational file, official records, newspapers, magazines, management books, preserved information in thecompany’s database and website of the company.Primary data: Individual respondents, Chartered Accountants, TaxConsultants, Insurance Agents, Auto loan providers were personally visitedand interviewed. They were the main source of Primary data. The method ofcollection of primary data was direct personal interview through a structuredquestionnaire.SAMPLING PLANSince it is not possible to study whole population, it is necessary to obtainrepresentative samples from the population to understand its characteristics. Sampling Units: Individual respondents for studying Customer Buying Behaviour and Market Segmentation, selected randomly from different areas in Jaipur, like various shopping malls and markets, Government Offices. Chartered Accountants, Tax Consultants, Lawyers, Business Men, Professionals and House Wives of Jaipur for recruitment of Life Insurance Advisors Sample Technique: Random Sampling Research Instrument: Structured Questionnaire Contact Method: Personal InterviewSAMPLE SIZE Study of Customer Buying Behaviour and Market Segmentation: 100 respondents
Recruitment of Life Insurance Advisors for Kotak Life Insurance: 200 respondentsDATA COLLECTION INSTRUMENT DEVELOPMENTThe mode of collection of data is based on Survey Method and Field Activity.Primary data collection is based on personal interview. I have prepared thequestionnaire according to the necessity of the data to be collected.RESEARCH LIMITATIONS • The research is confined to certain parts of Jaipur and does not necessarily show a pattern applicable to all of country. • Some respondents were reluctant to divulge personal information which can affect the validity of all responses. • In a rapidly changing industry, analysis on one day or in one segment can change very quickly. The environmental changes are vital to be considered in order to assimilate the findings. INDIAN INSURANCE INDUSTRYHISTORY:Life insurance came to India from England in 1818 when oriental lifeinsurance company started in Calcutta by Europeans. After this manyinsurance companies had been started in India. But these companies werelooking after only the needs of European community established in India.Indian people were not being insured by these companies. First Indian lifeinsurance company came as Bombay mutual life insurance assurance.Second company was Bharat insurance company came in 1896. After thisthe united India in Madras, national Indian and national insurance in Calcuttaand the co-operative assurance in Lahore were established in 1906. To regulate Indian insurance business first insurance act came in 1912as life insurance company act and provident fund act. These acts consist ofpremium rates tables and periodical valuations of companies. In the first twodecade of 20th century many life insurance companies were started. So theinsurance act came in 1938 to governing life and non life insurance
companies and to provide strict state control. In 1956 the life insurancebusiness in India was nationalized. In 1956 life insurance corporation of India(LIC) was created to spreading life insurance much more widely particularlyin rural areas. In that year LIC had 5 zonal offices, 33 divisional offices and212 branch offices. In 1957 the business of LIC of sum assured of 200crores,1000crores in 1970, and 7000crores in 1986.INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY:In 1999, the Insurance Regulatory and Development Authority (IRDA) wasconstituted as an autonomous body to regulate and develop the insuranceindustry. The IRDA was incorporated as a statutory body in April, 2000. Thekey objectives of the IRDA include promotion of competition so as toenhance customer satisfaction through increased consumer choice and lowerpremiums, while ensuring the financial security of the insurance market. TheIRDA opened up the market in August 2000 with the invitation for applicationfor registrations. Foreign companies were allowed ownership of up to 26%.The Authority has the power to frame regulations under Section 114A of theInsurance Act, 1938 and has from 2000 onwards framed various regulationsranging from registration of companies for carrying on insurance business toprotection of policyholders’ interests.Role of IRDA: • Protecting the interests of policyholders. • Establishing guidelines for the operations of insurers and brokers. • Specifying the code of conduct, qualifications and training for insurance intermediaries and agents. • Promoting efficiency in the conduct of insurance business. • Regulating the investment of funds by insurance companies. • Specifying the percentage of business to be written by insurers in rural sectors. • Handling disputes between insurers and insurance intermediaries.Changing perception of Indian customers:Indian Insurance consumers are like Indian Voters, they are soft but whentime is right and ripe, they demand and seek necessary changes. De-tariff of
many Insurance Products are the reflection of changing aspirations andgrowing demand of Indian consumers.For historical years, Indian consumers were at receiving end. InsuranceProduct was underwritten and was practically forced onto consumers on a“Take-it-As-it-basis”. All that got changed with passage of IRDA act in 1999.New insurance companies have come into existence leading to opencompetition and hence better products for customers.Indian customers have become very sensitive to Coverage / Premium as wellas the Products (read Risk Solution), that is given to them. There are notready to accept any product, no matter even if that is coming from themarket leader, should that product is not serving the purpose. A case inpoint is ULIP Product / Group Life and Credit Life in Life Insurance segmentand Travel / Family Floater Health and Liability Insurance in the Non-lifesegment are new age Avatar. The new products are constantly beingdemanded by Indian consumers, which is putting huge pressures onInsurance companies (Read Risk Under-writers) and Brokers to respond.Customers are looking at Insurance for covering Pure Risk now which I havecovered in my next section. Another good reason why we are seeing quickchanges in the buying behavior of Insurance from mere Investment to riskmitigation is the cost of Replacement of Goods (ROG) or Cost of Services(COS).Now Indian customers are aware of insurance industry and insuranceproducts provided by companies. They have become more sensitive. Theywould not accept any type of insurance product unless it fulfills theirrequirements and needs. In historic day’s customers looking at insuranceproducts as a life cover which can provide security against any unacceptableevents, but now customers look at insurance products as an investment aswell as life cover. So today’s customers wants good return from theinsurance companies. The Indian customer’s forms the pivot of eachcompany’s strategy.Investment of Indian household savings (as a % in different sector) BANK DEPOSITS 39 CORP. BANKS 2 SHARES AND DEBENTURES 1 MUTUAL FUNDS 2
NBFC’S 3 GOVT. BONDS 13 INSURANCE 13 PF/ RETIRE FUNDS 21 CURRENCY 6 Source: www.avivaindia.comChanging face of Indian insurance industry:After the Insurance Regulatory and Development Authority Act have beenpassed there has been establishment of many private insurance companiesin India. Previously there was a monopoly business for Life InsuranceCorporation of India (L.I.C.) who was the only life-insurance company for thepeople till 2000. L.I.C. still holds 71.4% of the market share in 2006. But afterthe introduction of private life insurance companies there is a greatcompetition in Indian market now. Everyone is trying to capture the freshmarket here and penetrate it with aggressive marketing strategies. Todaylife-insurance is not only limited up to just life risk cover and maturity periodbonuses but changed to greater return from the investments. With theintroduction of the unit linked insurance policies these companies areinvesting the money in different investment instruments like shares, bonds,debentures, government and other securities. People are demanding forhigher returns with the life risk cover and private companies are giving 30-40% average growth per annum. These life-insurance companies have everykind of policies suiting every need right from financial needs of, marriage,giving birth and rearing up a child, his education, meeting daily financialneeds of life, pension solutions after retirement. These companies haveevery aspects and needs of our life covered along with the death-benefit.In India only 25% of the population has life insurance. So Indian life-insurance market is the target market of all the companies who either wantto extend or diversify their business. To tap the Indian market there hasbeen tie-ups between the major Indian companies with other Internationalinsurance companies to start up their business. The government of India hasset up rules that no foreign insurance company can set up their business
individually here and they have to tie up with an Indian company and thisforeign insurance company can have an investment of only 24% of the totalstart-up investment.Indian insurance industry can be featured by: • Low market penetration. • Ever growing middle class component in population. • Growth of customer’s interest with an increasing demand for better insurance products. • Application of information technology for business. • Rebate from government in the form of tax incentives to be insured. Today, the Indian life insurance industry has more than a dozen privateplayers, each of which are making strides in raising awareness levels,introducing innovative products and increasing the penetration of lifeinsurance in the vastly underinsured country. Several of private insurershave introduced attractive products to meet the needs of their targetcustomers and in line with their business objectives. The success of theireffort is that they have captured over 28% of premium income in five years. The biggest beneficiary of the competition among life insurers hasbeen the customer. A wide range of products, customer focused service andprofessional advice has become the mainstay of the industry, and the Indiancustomer’s forms the pivot of each company’s strategy. Penetration of lifeinsurance is beginning to cut across socio-economic classes and attractpeople who have never purchased insurance before. Life insurance is also now being regarded as a versatile financialplanning tool. Apart from the traditional term and saving insurance policies,industry has seen the entry and growth of unit linked products. This providesmarket linked returns and is among the most flexible policies available todayfor investment. Now products are priced, flexible, and realistic and sustain sopeople in better position to understand the risk and benefits of the productand they are accepting these innovative products. So it is clear that the face of life insurance in India is changing, butwith the changes come a host of challenges and it is only the credibleplayers with a long term vision and a robust business strategy that willsurvive. Whatever the developments, the future and the opportunities in thisindustry will surely be exciting.The number of companies in Insurance particularly in Life Insurance haschanged drastically now the number is in 17. List of them are mentioned asbelow :
1. ICICI Prudential Life Insurance 2. TATA AIG Life Insurance 3. Max New York Life Insurance 4. AVIVA Life Insurance 5. Bharti AXA Life Insurance 6. Kotak Mahindra Life Insurance 7. Reliance Life Insurance 8. SBI Life Insurance 9. HDFC Standard Life Insurance 10. Birla Sun Life Insurance 11. Sahara Life Insurance 12. ING Vysya Life InsuranceAnd so on…Increasing growth since liberalization: YEAR LIC (in billion Rs.) PRIVATE PLAYERFY 03 110 10FY 04 120 20FY 05 130 40FY 06 140 60FY 07 240 160Possibilities for insurance companies in India: • Further deregulation of the market. • Greater concern for the customers. • Newer products and services. • Competition and quality consciousness. • Cost effective operations. • Restructuring of the public sector. • Consolidation of domestic insurance markets. • Technology driven shift in product design. • Actual operations and distribution. • Convergence of financial services.
GLOBAL INSURANCE INDUSTRYGlobally, insurers increasingly are pressured by the demands of their clients.The development of global insurance industry over the past few years wasinfluenced by booming stock markets which enabled considerable capitalgains to be made in non life business. Increase in insurers equity capitalincreased underwriting capacity, while demand did not develop at the samepace, resulting in decrease in insurance policies prices. The stock marketboom of the past few years led to demand for unit linked insurance products. The global insurance industry is growing at rapid pace. Most of themarkets are undergoing globalization. Lot of mergers and acquisition aretaking place in the insurance world. The rapidity in the industry,technological improvement has resulted in pressures on a few economicparameters. The world insurance industry is at peak of its globalizationprocess. Global insurance market is increasing by an average of six percent peryear since 1990. Insurance companies have collected $2443.7 billionpremium worldwide according to the global development of premium volumein 144 countries in 2005. $1521.3 has been generated as life insurancepremium and $922.7 as non life insurance premium. The US accounted for35% of global life and non life premium, Japan had global share of 21%, andUK was having 10% of global share.Influence on Indian Insurance Industry:In this era of globalization, insurance companies face a dynamic globalenvironment. Dramatic changes are taking place owing to theinternationalization of activities, appearance of new risk, new types of coversto match with new risk situations, and unconventional and innovative ideason customer services. Low growth rates in developed markets, changingcustomers needs, and the uncertain economic conditions in the developingworld are exerting pressure on insurer’s resources and testing their ability tosurvive. Now the existing insurers are facing difficulties from non-traditionalcompetitors those are entering the retail market with new approaches andthrough new channels.
India has a rapidly growing middle class and this section can afford tobuy insurance products. This shows the attraction that the Indian marketholds for foreign insurers who have been putting pressure on developingcountries as well as on India to open up its market. Life Insurance Penetration as a % of GDP United Kingdom 8.9 Japan 8.3 Korea 7.3 United States 4.1 Malaysia 3.6 India 3.0 China 1.8 Brazil 1.3 Source: www.indianinsuranceresearch.com
INSURANCE AND ECONOMY • Indian economy is growing in reference to global market. Business of insurance with its unique features has a special place in Indian economy. • It is a highly specialized technical business and customer is the most concern people in this business, therefore this business is able to spur the growth of infrastructure and act as a catalyst in the overall development of Indian economy. • The high volumes in the insurance business help spread risk wider, allowing a lowering of the rates of the premium to be charged and in turn, raising profits. When there is a bigger base, the probabilities become more predictable, and with system wide risks balanced out, profits improve. This explains the current scenario of mergers, acquisitions, and globalization of insurance. • Insurance is a type of savings. Insurance is not only important for tax benefits, but also for savings and for providing security. It can be serving as an essential service which a welfare state must make available to its people. • Insurance play a crucial role in the commercial lives of nations and act as the lubricants of economic activities. Insurance firms help to spread the potentially financial consequences of risk among the large number of entities, to mobilize and distribute savings for productive use, facilitate investment, support and encourage external trade, and protect economic entities against external risk.Insurance and economic growth mutually influences each other. As theeconomy grows, the living standards of people increase. As a consequence,the demand for life insurance increases. As the assets of people and ofbusiness enterprises increase in the growth process, the demand for generalinsurance also increases. In fact, as the economy widens the demand fornew types of insurance products emerges. Insurance is no longer confined toproduct markets; they also cover service industries. It is equally true thatgrowth itself is facilitated by insurance. A well-developed insurance sectorpromotes economic growth by encouraging risk-taking. Risk is inherent in alleconomic activities. Without some kind of cover against risk, some of theseactivities will not be carried out at all. Also insurance and more particularlylife insurance is a mobilizer of long term savings and life insurance
companies are thus able to support infrastructure projects which require longterm funds. There is thus a mutually beneficial interaction betweeninsurance and economic growth. The low income levels of the vast majorityof population have been one of the factors inhibiting a faster growth ofinsurance in India. To some extent this is also compounded by certainattitudes to life. The economy has moved on to a higher growth path. Theaverage rate of growth of the economy in the last three years was 8.1 percent. This strong growth will bring about significant changes in the insuranceindustry.At this point, it is important to note that not all activities can be insured. Ifthat were possible, it would completely negate entrepreneurship. ProfessorFrank Knight in his celebrated book “Risk Uncertainty and Profit” emphasizedthat profit is a consequence of uncertainty. He made a distinction betweenquantifiable risk and non-quantifiable risk. According to him, it is non-quantifiable risk that leads to profit. He wrote “It is a world of change inwhich we live, and a world of uncertainty. We live only by knowingsomething about the future; while the problems of life or of conduct at least,arise from the fact that we know so little. This is as true of business as ofother spheres of activity”. The real management challenges are uninsurablerisks. In the case of insurable risks, risk is avoided at a cost.
FUNCTIONING OF INSURANCE INDUSTRYInsurer’s Business Model:Profit = Earned Premium + Investment Income – Incurred Loss –Underwriting expensesInsurers make money in two ways: 1. Through Underwriting, the processes by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks, and 2. By investing the premiums they collect from insured.The most difficult aspect of the insurance business is the underwriting ofpolicies. Using a wide assortment of data, insurers predict the likelihood thata claim will be made against their policies and price products accordingly. Tothis end, insurers use actuarial science to quantify the risks they are willingto assume and the premium they will charge to assume them. Data isanalyzed to fairly accurately project the rate of future claims based on agiven risk. Actuarial science uses statistics and probability to analyze therisks associated with the range of perils covered, and these scientificprinciples are used to determine an insurers overall exposure. Upontermination of a given policy, the amount of premium collected and theinvestment gains thereon minus the amount paid out in claims is theinsurers underwriting profit on that policy.An insurers underwriting performance is measured in its combined ratio. Theloss ratio (incurred losses and loss-adjustment expenses divided by netearned premium) is added to the expense ratio (underwriting expensesdivided by net premium written) to determine the companys combined ratio.The combined ratio is a reflection of the companys overall underwritingprofitability. A combined ratio of less than 100 percent indicates underwritingprofitability, while anything over 100 indicates an underwriting loss.
Insurance companies also earn investment profits on “float”. “Float” oravailable reserve is the amount of money, at hand at any given moment thatan insurer has collected in insurance premiums but has not been paid out inclaims. Insurers start investing insurance premiums as soon as they arecollected and continue to earn interest on them until claims are paid out.Naturally, the “float” method is difficult to carry out in an economicallydepressed period. Bear markets do cause insurers to shift away frominvestments and to toughen up their underwriting standards. So a pooreconomy generally means high insurance premiums. This tendency to swingbetween profitable and unprofitable periods over time is commonly known asthe "underwriting" or insurance cycle.Finally, claims and loss handling is the materialized utility of insurance. Inmanaging the claims-handling function, insurers seek to balance theelements of customer satisfaction, administrative handling expenses, andclaims overpayment leakages. Investment ManagementInvestment operations are often considered incidental to the business ofinsurance, and have traditionally viewed as secondary to underwriting. In thepast risk management was the most important part of business, whereastoday the focus has shifted to fund management. Investment income is alarge component of insurance revenues, skilful and careful management offunds. Insurance is a business of large numbers and generates huge amountof funds over time. These funds arise out of policyholder funds in the case oflife insurance, and technical and free reserves in the non-life segments. Timelag between the procurement of premium and the payment of claim providesan interval during which the funds can be deployed to generate income.Insurance companies are among the largest institutional investors in theworld. Assets managed by insurance companies are estimated to account forover 40% of the world’s top ten asset managers. Returns on investments influence the premium rates and bonuses andhence investment income will continue to be an important component ofinsurance company profits. In life insurance, benefits from insurance profitsaccrue directly to policy holders when it is passed on to him in the form of abonus. In non life insurance the benefits are indirect and mostly by thecreation of an investment portfolio. Investment income has to compensatefor underwriting results which are increasingly under pressure. In the case ofinsurance, the difference between revenue and the expenses is known asoperating surplus. • Revenue = Premium
• Expenses = (Sum of Claims + Commission payable on procurement of business + Operating expenses) • Operating Surplus = (Revenue – Expenses)Net investment income includes income from trading in and holding stockmarket securities including government securities, special deposits with thecentral government, loans to several public utilities and service providers instate government. Insurance premium collected is converted in a pool of fund thendivided in to four expenses. • To pay the expenses of the management • To pay agency commission • To pay for the claims • Surplus money will be invested in govt. securities Requirements of an insurance riskInsurance normally insure only pure risks .However, not all pure risk isinsurable .certain requirements usually must be fulfilled before a pure riskcan be privately insured .From the view point of the insurer, there are ideallysix requirement of an insurable risk: • There must be a large number of exposure units • The loss must be accidental and unintentional • The loss must be determinable and measurable • The loss should not be catastrophic • The chance of loss must be calculable • The premium must be economically feasibleComparison of Insurance with other Similar Factors 1. Insurance and Gambling compared
Insurance is often erroneously confused with gambling .There are twoimportant differences between them .First , gambling creates a newspeculative risk ,while insurance is a technique for handling an alreadyexisting pure risk .thus ,if you bet Rs 300 on a horse ,a new speculativetechnique is created ,but if you pay Rs 300 to an insurer for fire insurance,the risk of fire is already present and is transferred to the insurer by acontract. No new risk is created by the transaction. The second difference between insurance and gambling is thatgambling is socially unproductive, because the winner’s gain comes at theexpense of the loser .In contract; insurance is always socially productive,because neither the insurer nor the insured is placed in a position where thegain of the winner comes at the expense of the loser. The insurer and theinsured have a common interest in the prevention of a loss. Both parties winif the loss does occur .Moreover, consistent gambling transaction generallynever restore the losers to their former financial position .In contract,insurance contracts restore the insured’s financially in whole or in part if aloss occurs. 2. Insurance and Hedging comparedThe concept of hedging is to transferring the risk to the speculator throughpurchase of future contracts .An insurance contract, however, is not thesame thing as hedging .Although both technique are similar in that risk istransferred by a contract, and no new risk is created, there are someimportant difference between them. First, an insurance transaction involvesthe transfer of insurable risks, because the requirement of an insurable riskgenerally can be met .However, hedging is a technique for handling risksthat are typically uninsurable ,such as protection against a decline in theprice agriculture products and raw materials. A second difference between insurance and hedging is that insuranceand hedging is that insurance can reduce the objective risk of an insurer byapplication of the law of large numbers. As the number of exposure unitsincreases, the insurer’s prediction of future losses improves, because therelative variation of actual loss from expected loss will decline .thus, manyinsurance transactions reduce objective risk. In contract, hedging typicallyinvolves only risk transfer , not risk reduction .The risk of adverse pricefluctuation is transferred because of superior knowledge of marketconditions .The risk is transferred, not reduced, and prediction of lossgenerally is not based on the law of large numbers.Various types of life insurance policies: • Endowment policies: This type of policy covers risk for a specified period, and at the end of the maturity sum assured is paid back to policyholder with the bonuses during the term of the policy.
• Money back policies: This type of policy is for periodic payments of partial survival benefits during the term of the policy as long as the policy holder is alive.• Group insurance: This type of insurance offers life insurance protection under group policies to various groups such as employers employees, professionals, co-operatives etc it also provides insurance coverage for people in certain approved occupations at the lowest possible premium cost.• Term life insurance policies: This type of insurance covers risk only during the selected term period. If the policy holder survives the term, risk cover comes to an end. These types of policies are for those people who are unable to pay larger premium required for endowment and whole life policies. No surrender, loan or paid up values are in such policies.• Whole life insurance policies: This type of policy runs as long as the policyholder is alive and is covered for the entire life of the policyholder. In this policy the insured amount and the bonus is payable only to nominee on the death of policy holder.• Joint life insurance policies: These policies are similar to endowment policies in maturity benefits and risk cover, but joint life policies cover two lives simultaneously such as married couples. Sum assured is payable on the first death and again on the death of survival during the term of the policy.• Pension plan: a pension plan or annuity is an investment over a certain number of years but does not provide any life insurance cover. It offers a guaranteed income either for a life or certain period.• Unit linked insurance plan: ULIP is a kind of insurance plan which provides life cover as well as return on premium paid over a certain period of time. The investment is denoted as units and represented by the value called as net asset value (NAV).
DISTRIBUTION OF INSURANCE PRODUCTSInsurance has to be sold the world over. The Touch point with the ultimatecustomer is the distributor or the producer and the role played by them ininsurance markets is critical. It is the distributor who makes the difference interms of the quality of advice for choice of product, servicing of policy postsale and settlement of claims. In the Indian market, with their distinctcultural and social ethics, these conditions will play a major role in shapingthe distribution channels and their effectiveness. In todays scenario,
insurance companies must move from selling insurance to marketing anessential financial product. The distributors have to become trusted financialadvisors for the clients and trusted business associates for the insuranceCompanies.Challenges for insurance companies and intermediaries in India- • Building faith about company in the mind of clients. • Building personal credibility with the clients.Different distribution channels in India:A multi-channel strategy is better suited for the Indian market. Indianinsurance market is a combination of multiple markets. Each of the marketsrequires a different approach. Apart from geographical spread the socio-cultural and economic segmentation of the market is very wide, exhibitingdifferent traits and needs. Different multi-distribution channels in India are asfollows: • Agents: Agents are the primary channel for distribution of insurance. The public and private sector insurance companies have their branches in almost all parts of the country and have attracted local people to become their agents. Todays insurance agent has to know which product will appeal to the customer, and also know his competitors products to be an effective salesman who can sell his company, the product, and himself to the customer. To the average customer, every new company is the same. Perceptions about the public sector companies are also cemented in his mind. So an insurance agent can play an important role to create a good image of company. • Banks: Banks in India are all pervasive, especially the public sector banks. Many insurance companies are selling their products through banks. Companies which are bank owned, they are selling their products through their parent bank. The public sector banks, with their vast branch networks, are helpful to insurance companies. This channel of selling insurance is known as Bank assurance. INSURANCE COMPANY ASSOCIATE BANKSICICI Prudential ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, Punjab and Maharashtra
Cooperative BankSBI Life State Bank of IndiaBirla Sun Life Deutsche Bank, Citibank, Bank of Rajasthan, Andhra BankING Vysya Bank Vysya BankAviva Life Insurance ABN Amro Bank, Canara BankHDFC Standard Life HDFC Bank, Union Bank, Indian BankMet Life Karnataka Bank, J&K Bank Source: Hindu Business Line, January 08, 2007 • Brokers: Now a day’s different financial institution are selling insurance. These financial institutions are known as brokers. They are taking some underwriting charges from the insurance companies to sell their insurance products. • Corporate agents: Corporate agency is a cross selling type of channel. Insurance companies’ tie-up with business houses in other industries to sell insurance either to their employees or their customers. Insurance industry, during the past 2 years has witnessed a number of such strategic tie-ups and alliances. Corporate agents have become a major force to reckon with in distributing insurance products. Such as- Bajaj Allianz tied up with Maruti Udyog and Ford for auto insurance and Tata AIG life has tied up with Tata tea, Khaitan’s Williamson major and bridge foundation for selling rural policies. • Internet: In this technological world internet is also a channel of selling insurance. This can be as direct marketing. EFFECTIVE MARKETING STRATEGIES FOR INSURANCE PRODUCTS
Now the Indian consumer is knowledgeable and sensitive. Consumers areincreasingly more aware and are actively managing their financial affairs.People are increasingly looking not just at products, but at integratedfinancial solutions that can offer stability of returns along with totalprotection. In view of this, the insurance managers need to understand moreabout the details that go into the introduction of insurance products to makeit attractive in this competitive market. So now days an insurance managerrequires leadership, commitment, creativity, and flexibility. "Every family inevery village in the country should feel safe and secure". This vision alonewill help to bring the new ideas to the insurance manager. Financial, marketing and human resource polices of the corporationsinfluence the unit mangers to make decisions. Performance of insurancecompany depends on the effectiveness of such policies. Insurancecorporations formulate and revise these policies from time to time to ensurethat the performance of the managers is best for the organization.In the competitive market, insurance companies are being forced to adopt astrictly professional approach in marketing. The insurance companies facethe challenge of changing the uninspiring public image of the industry.Some of the important marketing elements are- • Marketing mix. • The importance of relationship. • Positioning. • Value addition. • Segmentation. • Branding. • Insuring service quality. • Effective pricing. • Customer satisfaction research.
The growth of insurance sector is governed largely by factors external to it.The following factors influence the market and demand of product- • Government policies. • Growth in population. • Changing age profile. • Income wise distribution of the population. • Level of insurance awareness. • The pricing of the policies. • The economic climate of the country. • The aversion to risk. • Social and political features of the country. • Growth scenario in the world.Different companies adopt different approaches in their marketingstrategies. One approach is focus upon product quality which can giveconfidence in the mind of customers that they are offered by best featuredproducts. And other approach is focusing on customer’s needs, which involvea heavy investment in developing relationships with policyholders. Under thisapproach customer can expect a range of products and service offered tohim. Third approach is market segmentation under which the population canbe divided into several homogeneous products and groups, the effort shouldbe tie clients to the company by customized combination of coverage, easypayment plans, risk management advice, and convenient and quick claimhandling.An insurance product can be classified into three phases:Core product: In insurance industry the core product is the policy thatprovides protection to the customers.Expected product: Because of competition customers start to expect morefrom an insurance product. Then insurance companies provide some tangibleattributes in their product to differentiate from competitors, such as- • Brand • Some additional features in existing product • By providing instruction manual with the policy
Augmented product: An insurance company can provide different types ofservices to differentiate their products- • Post sales services. • Branches in different places for customers. • Customer complaint management. • Payment option convenient to customers.The entry of private players and their foreign partners has given domesticplayers a tough time, because the opening up of the sector has not broughtin only foreign players, but also professional techniques and technologies.The present scene in India is such that everyone is trying to put in the bestefforts. There are marketing strategies more for survival than growth. Butthe most important gift of privatization is the introduction of customer-oriented services. Utmost care is being taken to maximize customersatisfaction.Success of an insurance company depends on four importantfunctions: • Identification of markets: Identification of markets means need to understand the trends in culture and businesses constantly, through conducting research and analysis. Insurance companies can take this job on their own or assign it to an external agency. Relying on an external agency can be risky due to the questionable loyalty of the agents. • Assessment of risks (of the insured and the insurance corporation) and estimation of losses: Efficiency of actuaries and assessors of the insurance policies in fixing premiums and settling claims is foremost an important area for achieving overall efficiency in operations. The quality of assessing the risk and estimation of losses has the largest claim on the performance of an insurance company. Well trained, experienced and expert hands are needed for the operations. • Penetration into and exploitation of markets: Market penetration or exploitation of a company can be identified with the growth in number of policies in each type of insurance, growth rate in earnings or turnover, company’s market share, increase in number of branches and divisions etc. Efforts of the company as a whole and that of the divisions and branches are assessed to measure the effectiveness.
• Control over investment and operating costs: Control over resources such as men, machines, and materials at each level of the organization provides measures of efficiency of a unit as well as the organization. Investment control and expense control are dealt separately and the effectiveness of management’s’ decisions at various levels is to be assessed separately.To find best prospects: • Allocating marketing strategies against market potential. • Estimating potential for specific products within local markets. • Identifying high opportunity areas. • Measuring agency performance relative to market potential. • Optimizing your agency network against market potential.Attributes to develop marketing strategies: • Channel data: - Useful to know future buying preferences, learning about products and purchase channels. • Consumer attitudes. • Consumption data: - Useful to evaluate annual premiums, number of annuities owned, value of annuities, and with which company the current policy is held.Effective Strategies for Insurance Agents: • Learn how to construct a mental image for success. • Learn how to find a proper perspective and how to turn off all the signals that cause people not to buy from you. • Learn how to get and set more appointments. • Learn how to convert a new lead into sales. • Learn how to act when you meet a client for the first time.
• Learn how the order in which you explain the types of policies can double your income. • Take Easy steps to avoid delays in issuing policies. COMPANY PROFILE (About Kotak Mahindra Old Mutual Life Insurance)Kotak Mahindra is in business since 1985 as a partnership between UdayKotak and Mr. Mahindra, and insurance part of their business came intoexistence in the year 2001.Evolution of Insurance business in Kotak Mahindra business is like this:- YEAR SIGNIFICANT CHANGES BUSINESS DEVELOPMENT 1985 Trade Finance 1986 Corporate Finance 1990 Car Finance 1991 Investment Banking 1992 Goldman Sachs Brokerage and Distribution 1995 Ford Credit Commercial Vehicle 1997 Consumer Finance 1998 Mutual Fund 2001 Old Mutual Plc Life Insurance
2003 BankKMOM- The Partnership and Lineage A 26% - 74% Joint Venture BetweenAs stated above Kotak Mahindra Life Insurance has Joint venture with OldMutual plc.Old Mutual Plc is the 12th largest Insurance Company in the world. It has itsbase of over 4 million life assurance policyholders. It has one of the best“Payouts” among insurers in the world. It has one of the best “SolvencyRatios” among insurers in the world. A FTSE 100 financial services group andranks as a Fortune Global 500 company.The Old Mutual group manages inexcess of 239 billion pounds in funds (Dec’06). The company is 160 years oldand has prominent presence in the United States and the United Kingdom.Now the question arises that why for the business in India of life insuranceKotak Mahindra chose Old Mutual plc and vice versa.Features of Kotak Mahindra and Old Mutual plc at a glance: KOTAK MAHINDRA OLD MUTUAL plcBrand Equity Domain KnowledgeBranch Network TechnologyEntrepreneur Employees Product InnovationKnowledge of Indian Market Training ExpertiseAccess to customer base Global PerspectivesDistribution Associates System and Process Multi Channel Working System
PRODUCTSTerm Plans • Kotak Term Assurance Plan • Kotak Preferred Term PlanEndowment Plans • Kotak Endowment Plan • Kotak Money Back Plan • Kotak Child Advantage Plan • Kotak Capital Multiplier Plan • Kotak Retirement Income Plan • Kotak Premium Return PlanUnit Linked Plans • Kotak Retirement Income Plan (Unit Linked) • Kotak Safe Investment Plan II • Kotak Flexi Plan • Kotak Easy Growth Plan • Kotak Privilege Assurance Plan
Group • Employee Benefits • Kotak Term Group Plan • Kotak Credit-Term Group Plan • Kotak Complete Cover Group Plan • Kotak Gratuity Group Plan • Kotak Superannuation Group PlanRural • Kotak Gramin Bima YojnaIf we look at the status of Kotak Life Insurance’s market share incomparison of other private company in comparison of premiumearned:- No. INSURER Market Share (%)1 Bajaj Allianz 7.562 ICICI Prudential 7.353 HDFC Standard Life 2.874 SBI Life 2.315 Birla Sun Life 1.896 Tata AIG 1.297 Max New York 1.238 Aviva 1.149 Kotak Mahindra Old Mutual 1.1110 ING Vysya 0.7911 Reliance Life 0.5412 Met Life 0.40
13 Sahara Life 0.0614 Shriram Life 0.03If we talk the growth of Insurance industry’s private players inrecent years, the data will reflect:-Structure of Kotak Life Insurance • Managing Director: GAURANG SHAH • CFO: G.MURALIDHAR • Vice President (Training and Management Development): ARUN PATIL • Vice President (HR): SUGATTA DUTTA
• Vice President (Distribution Development and Planning) : KAMLESH VORA • Appointed Actuary : JOHN BRYCEIts hierarchy in Kotak Life Insurance is like this: MANAGI NG DIRECTO R CFO APPOINT MARKETI TRAININ SALES HR & ED NG CIO G HEAD ADMIN. ACTUAR HEAD HEAD Y HIERARCHY OF KMOM LIFE INSURANCE LIMITED (JAIPUR BRANCH)
REGIONAL MANAGER BRANCH OPERATIONSAREA MANAGER INCHARGE OPERATIONSALES MANAGER EXECUTIVE ASST. SALES OPERATIONS MANAGER LIFE ADVISOR DATA VALIDATIONCUSTOMER BUYING BEHAVIOUR & MARKET SEGMENTATION FOR LIFE INSURANCE PRODUCTS
RECOMMENDATIONS• Networking is needed to be made broad as the number of branches with Kotak Life Insurance is only 75 and only 7 states are touched by the company so, there is a huge untapped market available for Kotak Life.• Marketing in terms of the media via advertisements on Television to small commercials on FM, hoardings and signage etc. has to be made because there were respondents who haven’t even heard about Kotak Life Insurance.• Awareness camp for sub-urban area should be focused.• State and Central Government employees should be targeted because of reasons like: They don’t have Life Insurance cover other than that provided by their respective employers and LIC.
Most of them are underinsured. They have a stable source of income and social security. • Kotak Life Insurance recruits its advisors mainly through personal reference, through advertisement and through walk-in interviews. They must also recruit them though placement agencies on trial basis. • Kotak Life Insurance must build its reputation by focusing on service quality. Better service quality. Better service quality may be in the form: Issuing policy in time. Providing claims in time. Making customers aware about their status of policy. CONCLUSIONSDuring the data collected, it has been found that people have greatawareness about various companies but a lot more has to be done,especially by smaller companies like Kotak Life Insurance to establish theirmarket presence.People are beginning to look beyond LIC for their insurance needs and arewilling to trust private players with their hard earned money.
People in general have been influenced by the marketing activities ofinsurance companies. A high penetration of print, radio and TV ad campaignsover the years is beginning to have its impact now.Another important trend was in terms of people viewing insurance as a taxsaving and investment instrument as much as protective one.The general satisfaction levels among public with regards to policy andagents still requires improvement. Here lies the opportunity for a relativelynew comer like Kotak Life Insurance. LIC has never been known for promptservice or customer oriented methods but Kotak Life Insurance can build itsreputation based on these factors.
CUSTOMER BUYING BEHAVIOUR –QUESTIONNAIREDear Sir/Madam, I am a BBA student of Punjab technical university,Jalandhar , and presently doing a market survey on ‘Customer BuyingBehaviour with a focus on Market Segmentation for Life Insurance Products’.I request you to kindly furnish information on the questionnaire below.I assure you that your identity shall not be disclosed and the data shall beused only for academic purpose. QUESTIONNAIREQ 1) Do you have any life insurance policy? a) YES b) NO
Q 2) Are you aware about the Life Insurance products or willprefer to purchase the Life Insurance products of (mark √): • LIC • ICICI Prudential Life Insurance • HDFC Standard Life Insurance • SBI Life Insurance • Kotak Life Insurance • TATA AIG Life Insurance • Reliance Life InsuranceQ3) Which company’s insurance policy do you have?___________________________________________________________________Q4) Term of your insurance policy? a) < 5 years b) 5 – 10 years b) c) 10 – 20 years d) any other_______________
Q5) What do you think are the benefits of Life Insurance? a) Covers future uncertainty b) Tax Savings c) Investments d) Comprehensive investment and risk coverage instrumentQ6) Which feature of Life Insurance policy will you consider whilebuying? a) Money Back Guarantee b) Larger Risk Coverage c) Low Premium d) Company’s Credibility e) Easy Access to AgentsQ7) How have you bought / would buy a Life Insurance policy? a) Customer approaching insurance company / agent b) Insurance company / agent approaching the customer
Q8) Are you satisfied with your Life Insurance policy? a) Highly Satisfied b) Satisfied c) Not So Satisfied d) NotRespondingQ9) According to you, what is the right age to buy insurance? a) < 25 years b) 25 – 35years c) 35- 45 years d) > 45 years e) Anytime THANK YOU Respondent’s Profile(Optional): • NAME:
• AGE: • GENDER: • EDUCATIONAL QUALIFICATION: • PROFESSION: (Business, Professional, Service, Any Other) • ANNUAL HOUSEHOLD INCOME (<2 lakhs, 2-5 lakhs, 5-10 lakhs, >10 lakhs) LIFE INSURANCE ADVISORS – QUESTIONNAIREDear Sir/Madam, I am a BBA student of PUNJAB TECHNICAL UNIVERSITY,JALANDHAR, and presently doing Market Research on LIFE INSURANCEADVISORS for KOTAK LIFE INSURANCE, ludhiana. It is requested tokindly furnish the following information:Name: _____________________________________ Age: _______________Address (For correspondence):____________________________________________________________________________________________________Contact Nos. : ___________________________________________________E mail: _________________________________________________________ QUESTIONNAIRE
Q1) Educational Qualification • Undergraduate • Graduate • Post GraduateQ2) Number of years are you in ludhiana • Less than 5 years • More than 5 yearsQ3) Occupation • Business • Profession • Service • Any Other _____________________________________________________(Please mention below the type of business/ profession you are in,in case of service please mention your organisation name anddesignation)_________________________________________________________________
Q4) Your annual household income • < 2 lakhs • 2 – 5 lakhs • 5 – 10 lakhs • > 10 lakhsQ5) What is your perception about insurance sector? • Laborious & Lucrative • Laborious but not Rewarding • Easy & Rewarding • Easy but not Rewarding • No IdeaQ6) Are you aware of KOTAK LIFE INSURANCE? • Yes • No
Q7) Are you associated with any insurance company as LifeInsurance Advisor? • Yes • NoIf yes please specify whichcompany____________________________________Are you satisfied with the company, if so, reasons thereof:_________________________________________________________________________________Q8) Would you like to avail a business opportunity with KOTAKLIFE INSURANCE? • Yes • NoQ9) How much time can you spare for this business opportunity?a) Few hours daily b) Weekends andholidaysc) Cannot commit specific time schedule