INTRODUCTION

INTRODUCTION

Technological development in various countries as part of economic

growth has placed the service sector in a strategic position. The services

economy has been growing at a rapid pace after the Second World War. A

cross country comparison on the share of service sector to Gross Domestic

Product (GDP) shows that, it is about 75 percent in developed countries.

Among Asian countries, it is 65 percent in Singapore, followed by 57

percent in India, 54 percent in Srilanka, 53 percent in Pakistan, and 42

percent in Indonesia. In India, the service sector has grown from 5.7

percent in 2000-01 to 11 percent in 2006-071. The financing, insurance,

real estate and business services have grown by 10.6 percent in 2006-07 as

compared to 10.9 percent in 2005-06. Within this sub sector, GDP

emanating from insurance has contributed to 17 percent in 2006-07. With

the liberalization of economy and globalization of financial services with

wider ramifications, rapid developments in insurance have taken place in

the last decade. Insurance business is one of the fast emerging financial

services in a developing country like India, in terms of the population it

services.

The present study focuses on marketing of life insurance by Life

Insurance Corporation of India with special reference to Kasargod and

Kannur district in Kerala. This chapter is intended to present a conceptual

framework of the study. It explains briefly the operational concepts and

definitions of certain terms used in this study. Role and importance of

insurance, distinguishing features of life insurance service, problem

statement, significance, objectives, scope and coverage of the study,

hypotheses framed, research methodology, and limitations of the study are

briefly explained in this chapter.

Insurance is the outcome of man’s constant search for security. The

urge to provide insurance or protection against loss of life and property

prompted people to make some sort of sacrifice willingly in order to achieve

security through “Collective Co-operation”. Indeed risk aversion provides a

basic explanation for why we buy insurance 2. In the case of an individual,

there are two distinct risks with regard to life; premature death and

superannuation. Insurance is only one of the ways of dealing with risks.

Insurance, similar to savings and borrowings, is a part of risk mitigation

strategy3. It is a financial control technique and is one of the cheapest

modes generally used by individuals for risk management4.

Insurance contributes to economic development through risk

management, protection of assets, and mobilization of savings leading to

capital formation in the country 5. In India, the role played by the insurance

industry so far has been legendary not only in terms of payment of taxes,

payment of dividend but also in contributing to the development of

infrastructure in the economy by its investment policies. The contours of

insurance business have been changing across the globe and the ripple

effects of the same can be observed in the domestic markets as well. An

evolving insurance sector is of vital importance for economic growth. While

encouraging savings habit it also provides a safety net to both enterprises

and individuals.

The insurance industry can sustain itself only if there is continuous

growth in the number of policies it sells and the premium income it earns.

A life insurance company’s success reflects the consolidated effort of all of

its activities such as marketing, investment, and administration6. Of these

three areas, marketing is the largest in terms of both personnel

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requirements and costs and is critical to success7. Prompt and efficient

service on the part of life insurance agents and front-office staff can

motivate people more than anything else. This makes the marketing of life

insurance a difficult proposition. Just like manufacturing businesses, good

service firms use marketing to position them strongly in chosen target

markets. Since services differ from tangible products, they often require

additional marketing approaches8.

Life Insurance Corporation of India (LIC) was established with the

nationalization of life insurance business in 1956. At the time of

nationalization, there were 245 private insurance companies and societies

functioning in India. LIC had monopoly over the life insurance business in

India from the day it was created in 1956 till the year 1999, when changes

in India’s economic philosophy brought about relaxation of State control

over insurance sectors of the economy by passing Insurance Regulatory

and Development Authority Bill. Insurance Regulatory and Development

Authority (IRDA) acts as a watchdog for maintaining best practices in the

Indian insurance industry. Since opening up of the sector in 1999, 16

private companies have been granted licenses by March, 2007 to conduct

business in life insurance and the number is growing fast. At the time of

opening up of the sector, life insurance was viewed as a tax saving device.

Of late, policyholders’ perspective is slowly changing towards taking

insurance cover irrespective of tax incentives. The insurers are increasingly

introducing innovative products to meet the specific needs of the

prospective policyholders. More notably, most Indian insurance companies

whether domestically owned or joint venture have recognized that service

competition should be more important than price competition. The concept

of service competition is a result of the participation of foreign insurance

companies through joint ventures9.

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The insurance industry is estimated to be of Rs.500 billion business in

India and the gross premium collection is about 2 percent of the country’s

GDP. The industry is growing at a rate between 15 and 20 percent per

annum. Up to the end of 2006-07, capital amounting to Rs. 8,119.41 crore

was brought in by private players, of which the contribution of the foreign

partners has been Rs. 1,809.75 crore10. The total funds with LIC alone are

almost 8 percent of the GDP. Yet, more than three-fourths of India’s

population has no life insurance cover i.e., only around 65 million out of 250

million people are covered by life insurance. Therefore, the potential for

the insurance market is quite evident. The untapped potential in the

market is attracting many global players.

Beginning from scratch, the market share of the private life insurance

companies increased to 13 percent during 2003-04 and to 27.53 percent at

the end of 2006-0711. This was largely because of the introduction of

innovative products, smart insurance marketing, aggressive selling and

distribution strategies that enabled the private players to augment their

customer base faster than expected. Before liberalization, customers were

required to accept any product that was made available by LIC in the

market. Today, in the era of competition, the customer is truly the king.

Products are being designed, redesigned and customized to suit the

changing preferences of customers, taking into account their paying

capacity. There is scope to explore the market potential by proper market

survey, followed by systematic segmenting, targeting and positioning of

products and services.

CONCEPTUAL FRAMEWORK

Marketing life insurance means marketing something intangible, i.e.,

an assurance or a promise to perform in future when the insured event

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takes place. We cannot deny the fact that selling of promises complicates

the task of marketers since they find it difficult to identify the stage or time

when the services start degenerating or when the promises fail. The

present study on topic “Marketing of Life Insurance by Life Insurance

Corporation of India with special reference to Kasargod and Kannur districts

in Kerala”, discusses the performance of LIC in marketing individual life

insurance products in Kasargod and Kannur districts, in terms of certain

parameters such as number of products, sum assured of products, premium

income and productivity of agents during the post-liberalization period of

six years from 2001-02 to 2006-07. The impact of privatization of insurance

sector on the performance of LIC in terms of parameters such as market

share of products, premium income of products marketed are also dealt

with in the study. The study analyses the views of urban and rural

policyholders of LIC in Kannur and Kasargod districts, regarding their

awareness about life insurance products, product satisfaction, service

satisfaction, and also analyses the views of LIC agents in the districts about

their attitude towards the profession and job satisfaction.

Marketing of life insurance calls for the concerted efforts at four

levels, namely:

(i) The Insurer (LIC of India), (ii) Branch Manager, (iii) Development Officer,

and (iv) Intermediary (Agent). The model depicted in Figure 1.1 throws

light on the functional strength of LIC in marketing life insurance products.

The duties and responsibilities of each of these functionaries are discussed

briefly in the fourth chapter, “Profile of LIC”.

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Figure 1.1. Functional Strength of LIC in Marketing Life Insurance

Customer satisfaction plays an important role in life insurance

marketing. A satisfied customer always tries to find out new products and

passes on that information to many others. The market focused

management model believes that the purpose of the firm is to serve the

customer12. This is understandable even in the context of the Indian

market where we are moving towards market economy with customer as

the central focus. Model depicted in Figure 1.2 throws light on customer

satisfaction in life insurance.

Insurer (LIC of India)

Development Officers

Intermediaries (Agents)

Branch Manager

Prospects/Customers

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Fig 1.2. Determinants of Customer Satisfaction in Life Insurance

Customer satisfaction in life insurance depicted in the model (Figure

1.2) is affected by a number of factors such as product features, agent’s

services, and office services, etc. Here, product means the life insurance

policy that the customer has; agent’s services refer to all the pre-sale and

post-sale services of LIC agents and office services refer to the LIC’s branch

office services covering all service dimensions. Life insurance product

satisfaction is a function of cost satisfaction, need, safety, liquidity, and

The Product Features

Customer

1. Cost (premium),2. Risk protection,3. Savings, 4. Income- tax benefits, 5. Return,6. Safety and,7. Liquidity.

Pre-sale services:Selection of policy,Explanation of product benefits,Product knowledge, Financial advice, Assistance in filling forms and, Attentiveness to customers

The Office Services

The Agent’sServices

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1. Tangibility, 2. Accessibility, 3. Competence, 4. Communication, 5. Assurance, 6. Responsiveness, 7. Reliability,8. Empathy,9. System and procedure,

and10. Understanding the

Post-sale services:1. Agent’s visit, 2. Reviewing further

insurance needs, 3. Assistance in premium

notice,4. Assistance in premium

remittance,5. Assistance in policy

documents and, 6. Other services.

return satisfaction. The agent’s pre-sale services are considered as

important and are performed at the initial stage in converting the

prospective customers into the customers of LIC. The post-sale services are

rendered to retain the customers and to attract them towards the

Corporation for more business. These services performed by the agents

may have an impact on customers’ perception of service quality. Office

services would have a significant impact on overall service quality.

The three sides of the triangle in Figure 1.2 represent service

delivery. The customer in the middle gets squeezed if service quality is not

being adequately provided by any of the service lines. In this study,

customer satisfaction of the product, service quality of the agent and

service quality of the office were measured by customers’ perception using

Likert five point scale. The measurement of these parameters is dealt with

in the fifth chapter. At the same time, attitude of agents towards the

profession and job satisfaction shall go a long way in influencing the

customers. The sixth chapter deals with the attitude of LIC agents towards

the profession and their perceived job satisfaction.

OPERATIONAL CONCEPTS AND DEFINITIONS

The basic concepts and terminologies of life insurance used in this

study are briefly described in the following pages.

Risk

Risk refers to the possibility that something unpleasant or dangerous

might happen13. Simply put, risk is a condition in which there is possibility

of an adverse deviation from an expected outcome14. In the case of an

individual, there are two distinct risks with regard to life; premature death

and superannuation. Insurance is one of the cheapest modes generally

used by individuals for risk management. Figure 1.3 exhibits the risk

management process for individuals and firms.

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Figure 1.3. Risk Management Process Flow Chart.

Insurance

Insurance is a complicated and intricate mechanism and therefore

difficult to be defined. However, in its simplest aspect, it has two

fundamental characteristics:

(i) Transferring or shifting risk from one individual to a group, and (ii)

Sharing losses, on some equitable basis, by all members of the group.

From an economic perspective, insurance is a financial

intermediation function by which individuals exposed to a specified

contingency each contribute to a pool from which covered events suffered

by participating individuals are paid15.

From an individual point of view, insurance is an economic device

whereby the individual substitutes a small certain cost (the premium) for a

large uncertain financial loss (the contingency insured against) that would

exist if it were not for the insurance16.

Risk Handling

Physical control and reduction measures

Financial control measures

-Risk avoidance-Risk reduction

-Risk spreading/diversification

Risk retention

Risk transfer

InsuranceHedging

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From the social point of view, insurance is an economic device for

reducing and eliminating risk through the process of combining a sufficient

number of homogeneous exposures into a group to make the losses

predictable for the group as a whole 17.

Life Insurance

Life insurance is a contract, whereby the insurer in consideration of a

premium undertakes to pay a certain sum of money either on the death of

the insured or on the expiry of a fixed period. Life insurance is designed to

provide protection against two distinct risks: premature death and

superannuation. Under life insurance, the subject matter of insurance is life

of a human being. The amount payable on a claim arising in life insurance

is not in doubt. It is as mentioned in the policy.

Life insurance is a long period contract. Most of the policies are for

term of 15 years or more. Long term nature of the life insurance policy

results in a long lasting relationship between the insurer and the customer

(insured), and in the meantime a number of policy services arise. The long

lasting relationship between the insurer and the customer calls for

relationship marketing in life insurance services. Since life insurance is a

long term contract, prompt and efficient service on the part of life insurance

agents and front-office staff can motivate people more than anything else

18.

Based on the above, the present study presents a new definition for

the term “life insurance” as “an arrangement by which the insurance

company (insurer) undertakes to pay a definite sum of money to the

policyholder (insured) or his/her beneficiaries on the happening of the

insured event i.e., living too long or dying too early, in return for payment of

a regular amount called premium”. This definition emphasizes the aspects

involved in the insurance contract and obligations of each party.

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Marketing

One of the shortest definitions of marketing is “meeting needs

profitably”19. The basic marketing concept is concerned with identifying

and satisfying the needs and wants of customers by providing a market

offering to fulfill those needs and wants through exchange processes,

profitably20. For the first time in nearly 20 years, the American Marketing

Association (AMA) has updated its definition of marketing. The new

definition puts stronger emphasis on the power of building stronger

customer relationships. The new definition of marketing unveiled at AMA’s

Summer Education Conference in August 2004 is: “Marketing is an

organizational function and a set of processes for creating, communicating

and delivering value to customers and for managing customer relationships

in ways that benefit the organization and its stakeholders” 21.

Life Insurance Marketing

In life insurance what the marketer tries to sell is an assurance, i.e., a

promise to perform in future when the insured event takes place. The term

‘life insurance marketing’ refers to the marketing of life insurance services

with the motto of customer–orientation and profit-generation22. In this

study, the marketing of individual life insurance by LIC alone is taken into

consideration.

Active Agent

An active agent is an agent who brings at least one policy to the

Corporation for the relevant year.

Actuarial Valuation

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Insurance is a product for which the cost of goods sold is not known

at the time the price is set. Thus, insurers rely heavily on individuals called

actuaries with advanced skill in mathematics, statistics, economics and

business to assist in developing competitive prices. The process, by which

net liability of the insurer is ascertained by an actuary, is known as actuarial

valuation.

Annuity

An annuity is a periodical level payment made in exchange of the

purchase money for the remainder of the life time of a person or for a

specified period.

Assignment

Assignment is the transfer of interest in a life insurance policy to

another person for legal consideration or love and affection.

Human Life Value Concept

Human life value can be defined as the present value of the family’s

share of the deceased person’s future earnings24. The HLV concept

provides an economic rationale for the purchase of life insurance.

Claim

Claim means the amount payable by the insurance company to the

insured or his/her legal heirs on the happening of the contingency insured

against. The life insurance claims can be classified in to two categories: (a)

Death claims and (b) Maturity claims.

Days of Grace

Additional period allowed by the insurer to the insured for remitting

the premium is known as days of grace. One month days of grace is

allowed for payment of yearly, half-yearly and quarterly mode, and 15 days

for payment of monthly premiums.

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Insurance Rate and Premium

An insurance rate is the price per unit of protection or exposure. In

insurance, unlike other industries, the cost of production is not known when

the product is sold and it will not be known until some time in the future,

when the policy has expired. The ratemaking function in life insurance

company is performed by the actuarial department.

An insurance premium is the total price of coverage25. Premium is

the price paid by the insured under a contract of insurance for risk

coverage. Mortality, interest and expense loading are three primary

elements in life insurance premium computation26. Premium is usually paid

in installments which may be annual, half-yearly, quarterly or monthly.

Moral Hazard

Moral hazard is the potential cost of insurance in which the presence

of insurance increases the tendency for losses to occur through careless,

irresponsible or perhaps illegal behaviour.

Life Insurance Fund

The excess of premium and other incomes over claims, annuities,

surrenders, bonus and other expenses of management is life insurance fund

at the end of the period.

Nomination

Nomination is a process by which the holder of a life insurance policy

on his own life nominates a person or persons to whom the money secured

by the policy shall be paid in the event of his/her death. Nomination is done

either at the time of effecting policy or at any subsequent time before the

policy matures.

Prospecting

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Prospecting is the method adopted to identify the people who need

insurance protection and who would be capable and willing to pay the

premium for the risk covered.

Policy Lapse

Cessation of life insurance policy due to non payment of premium

within the days of grace is called policy lapse. Up on policy lapse, the

liability ordinarily ceases under the policy and the contract comes to an

end.

Revival

If a policy lapses by non-payment of premium within the days of

grace, it may be revived at any time during the life time of the life assured,

but within a period of five years from the due date of the first unpaid

premium and before the date of maturity.

Policy Surrender

If the insured is unable to revive his policy, he can return the policy

to the insurer and can get cash surrender value. In India, the LIC has

guaranteed surrender value if the premiums have been paid for at least two

years or to the extent of one-tenth of the total number of premiums

stipulated for in the policy, provided such one-tenth exceeds one full year’s

premium.

Underwriting

Underwriting is the process of selecting and classifying exposures. It

is the insurance function that is responsible for assessing and classifying

the degree of risk a proposed faces and making a decision concerning

coverage of that risk27. In the life insurance field, the person responsible

for evaluation and acceptance/rejection of risks and computation of

premium is called as the underwriter.

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Productivity

Productivity is the ratio between output and input 28. In 1950, the

organization of European Economic Co-operation gave the definition of

productivity: “Productivity is the quotient obtained by dividing outputs by

one of the factors of production. In this way, it is possible to speak of

productivity of capital, investment or raw material according to whether the

output being considered is in relation to capital, investment or raw material.

Productivity is a combination of effectiveness and efficiency” 29.

In service organizations, the measurement of productivity is very

difficult due to the intangible nature of services. For the purpose of this

research work, productivity of agent has been defined as out put in terms of

number of policies sold as well as the total sum assured and first premium

income per agent under the policies.

Satisfaction and Service Quality

There are alternative definitions for customer satisfaction/

dissatisfaction. Simply put, it is a comparison of customer expectations

with perceptions regarding the service encounter30. The quality of service

is the corner-stone of customer satisfaction31. Satisfaction is the

consumer’s fulfillment response. It is a judgment that a product or service

feature, or the product or service itself, provides a pleasurable level of

consumption-related fulfillment32. Satisfaction is the customers’ evaluation

of a product or service in terms of whether that product or service has met

their needs and expectations33.

The term “Quality” is referred as goodness of a product or service,

durability, reliability, defect free nature and the like 34. Juran defines

quality as ’meeting of specification of a product’35. The International

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Standard Organization (ISO) defines quality as ‘Totality of features and

characteristics of a product or service that bear on its ability to satisfy

stated and implied needs’ 36. In this study, the customer satisfaction of the

product, service quality of the agent and the office are measured by

customer’s perception.

ROLE AND IMPORTANCE OF INSURANCE

The role of insurance cannot be neglected in the present time when

uncertainty is prevailing everywhere. The significance of insurance is not

limited to an individual or to a family alone but it has spread over the entire

nervous system of a business or the country as a whole. The significance of

insurance from economic point of view is given below:

Investment opportunities for the savings of the individual and the group

will grow. The insurance players may device various plans to tap

savings of the growing earning population.

Pension business will grow in the light of employee benefits and this

aspect of social insurance will bring in sizeable funds for management of

insurance.

Investment portfolio of the insurers will boost economic development.

Investment in infrastructure and long term projects will assume

importance with the help of insurers and this will give fillip to the

economic reform which is taking place in India.

Inflow of foreign funds will increase as new insurers come in joint

ventures.

Credit facility can be obtained by mortgaging the policy with the banks.

Similarly banks will provide hypothecation of goods if there is an

adequate insurance cover.

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Life insurance premium paid up to Rs.1, 00,000 shall be allowed from

the amount of total income of an individual or H U F under the Income

Tax Act. Also, the right or interest of the assessee in any policy of

insurance will not be included in the net wealth.

Protection from the loss of key-men is significant benefit to business

from insurance.

Insurance protects the wealth of the society. Each and every

member of the society will have financial security against old age,

death, damage, and destruction of wealth.

The insurance fulfills its social obligation by providing employment

opportunities to the general public.

The insurance reduces the inflationary pressure by extracting money in

supply to the amount of premium collected. It also narrows down the

inflationary gap by providing sufficient funds for production.

DISTINGUISHING FEATURES OF LIFE INSURANCE SERVICE

Life insurance business is basically different from other businesses.

Insurance and insurance related services are part of financial services. In

life insurance, the marketer is trying to sell an assurance, i.e., only a

promise to perform in future when the insured event takes place. These

characteristics create special marketing challenges. The features that

make the marketing of life insurance products different from the

manufacturing ones are given below:

Intangibility: Life insurance services are performances or actions and

therefore, they cannot be seen, felt, touched or tasted. The tangible

component of life insurance is the policy document. The customer has to

be encouraged, enthused and helped to visualize the unforeseen tomorrow

and usefulness of life insurance products. Unlike tangible products, there

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are no factories and production lines for life insurance. The intangibility of

life insurance services presents several marketing challenges. The

resulting implications are: life insurance products cannot be readily

displayed or inventoried. They cannot be patented. Further, pricing of

services is rather difficult.

Perishability: Perishability refers to the fact that life insurance services

cannot be stored, resold or returned. Since life insurance services are

perishable, they demand proximity and simultaneous activity between

service provider and the customer. The resulting implication of

perishability is that it is difficult to synchronize supply and demand of

services.

Inseparability: Production and consumption of insurance services cannot

be separated; they cannot be separated from their provider. Life insurance

products are long term products; therefore, for making its service available,

the insured has to go on paying the premium through out the term of the

policy. This ensures that the benefits already accrued under the policy are

not lost. The quality of service and customer satisfaction will be highly

dependant on what happens in “real time”, including actions of agents,

employees and the transactions between employees and customers. The

resulting implication of inseparability is that ‘direct sale of services’ is the

only channel of distribution.

Heterogeneity: Different kinds of insurance products have been

developed from time to time to cater to the specific needs of customers.

But no two services will be precisely alike. The quality of service typically

depends on personal interaction as a consequence of which the chance for

variability is very high. In life insurance, the quality of the service depends

on interaction between agent and customer and interaction between front-

line staff and customer. The resulting implication is that it is difficult to

standardize quality of service.

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Fluctuating Demand: The success in life insurance marketing depends

on the ability of the marketer to find customers and to satisfy their wants.

The insurer has to develop products needed by the customers and market

the same. Life insurance market is a sellers’ market. The insurance

company has to take a decision whether to sell a particular policy to a

particular person or not on the basis of information disclosed in the

proposal form.

Fiduciary Responsibility: Fiduciary responsibility refers to the implicit

responsibility of the insurance organization for the management of their

controlled funds. National priorities and obligation of reasonable returns to

the policy-holders is the main criteria of the investments of LIC. The

investment of LIC is governed by Section 27A of the Insurance Act, 1938,

subsequent guidelines/instructions issued there under by the Government

of India from time to time and the (Investment) Regulations prescribed by

the IRDA. Life Insurance Company is required to distribute 95% of the

profits among the policyholders as bonus on with-profit policies 37.

Government Regulations: Life insurance business in almost all countries

of the world is subject to government regulations. In India, life insurance

business is governed by the Insurance Act 1938 and the IRDA Act 1999. In

the case of LIC of India, the LIC Act 1956 is also applicable. As per the IRDA

Act, no insurer is allowed to do composite business. As per the Regulations,

a life insurer is required to keep 1.5 times of its insurance liability as

solvency margin38.

Two-way Information Flow: Life insurance is a contract of sale;

therefore, flow of information between buyer and seller of policy is

particularly relevant in this business. The customer is required to provide

all information which affects the contract of life insurance and the insurer is

required to keep the promises made in the contract. In turn, the life

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insurance agent has to provide information about the insurance product

which is to be sold to the prospect.

Significance of Pre and Post Sale Services: In order to sell the

product, the agent is required to explain its features and benefits to the

customer. The agent has to select a policy or mix of policies most suitable

to the needs of the prospect. In this process, he may be required to contact

the prospect again and again. He should be a true financial advisor to his

customer39. After the sale, the agent is required to be in touch with the

customer to build relationship and review further insurance needs of the

customer. The agent is required to do after sale services like reminding

premium due, assistance in premium remittance, obtaining policy loans and

assistance in claim settlement and the like.

STATEMENT OF THE PROBLEM

Even though LIC achieved tremendous progress after nationalization,

it is a known fact that after 52 years of existence, the Corporation covers

about 24 per cent of insurable population in India40. Before liberalization,

customers had to accept any product that was made available by LIC in the

market. Now, in the liberalized market, more than a score players offer

innovative products to suit the changing preferences of customers.

The success in life insurance marketing depends on the awareness

created among the prospects, quality of the product, quality of services of

the agents and branch office services41. If the perceived service falls below

the expected service, customers may be disappointed. If the perceived

service meets or exceeds their expectations, they may use the provider

again and even give word of mouth advertising 42. It is a general feeling

among the prospects that they are not well informed about the various life

insurance products or their benefits. Due to low level of awareness, people

often buy products recommended by agents who always give importance to

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their commission. Discussion with Branch Managers and Development

officers revealed that product knowledge of the agent is not satisfactory.

The knowledge of LIC agent about various life insurance products, their

attitude towards the profession, support from the organization, and job

satisfaction are the important factors affecting the success in agency

business. To sum up, ensuring customer satisfaction and job satisfaction of

agents are the twin issues in the competitive environment before LIC, which

must be tackled for success in life insurance marketing. It is against this

background that the researcher has carried out this study on the marketing

of life insurance by Life Insurance Corporation of India in Kasargod and

Kannur districts in Kerala.

SIGNIFICANCE OF THE STUDY

The present study differs from the previous studies found in the

literature review, in content and approach. This study has a micro level

approach for identifying and reviewing the number and first premium

income of individual products marketed by LIC of India in Kasargod and

Kannur districts. It studies in greater detail the awareness of urban as well

as rural customers of LIC about different products, and their perceived

satisfaction of the product and services. It also studies the attitude of LIC

agents towards the job, evaluates their job satisfaction and analyzes the

problems faced by them in marketing life insurance products in the two

districts. The present study has a great significance in the event of

competition in the insurance market. It evaluates the productivity of agents

in terms of number of products, sum assured and first premium income of

products marketed in Kasargod and Kannur districts during the post-

liberalization period of six years from 2001-02 to 2006-07. Since it

assesses the productivity of agents in two districts, LIC can analyze its

contributing factors. Assessment of product satisfaction of customers will

help the Corporation to ascertain the aspect of the product which gives

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them more satisfaction. It would also help LIC in effective product

positioning and in developing customer driven product-mix. Since the

study evaluates the service quality parameters, the Corporation can know

the customer satisfaction of the service quality. It would help the

Corporation to identify the gaps in service quality, if any, with a view to

effecting appropriate corrective measures.

There are ten branch offices in the area of study; seven in Kannur

and three in Kasargod district. The area and population covered by the LIC

branches in Kannur and Kasargod districts are given in Table 1.1

Table 1.1

Area and Population Covered by LIC’s Branches in Kannur and

Kasargod Districts

District and Name of Branches Area in sq. km. Population(As per 2001

census)

KANNUR DISTRICTPayyannur 526.53 3,57,377

Taliparamba 925.74 5,23,998

Kannur I & II 309.11 5,85,184

Thalasserry I & II 331.64 5,97,250*

Mattannur 883.96 3,84,389

Total 2,976.98 24,48,198

KASARGOD DISTRICTKasargod 972.59 6,06,748

Kanjhangad 574.33 3,30,026

Nileswar 414.37 2,66,568

Total 1,961.29 12,03,342

* Include U T Mahe population Source: Compiled from LIC, Kozhikode Divisional Office.

The market segments for LIC in Kannur and Kasargod districts are

given in Table 1.2

22

Table 1.2

Market segments for LIC in Kannur and Kasargod districts.

Particulars KANNUR KASARGODPopulation (As per 2001 census) 24,12,365 12,03,342Male 11,54,144 5,87,763Female 12,58,221 6,15,579Urban population 12,17,163 2,33,745Rural Population 11,95,202 9,69,597Total workers 7,67,197 4,17,845Agriculturist 45,924 20,869Agricultural labourers 1,01,681 41,999Cottage industrial workers 19,243 50,492Small scale industrial workers 94,615 38,325Factory workers 29,061 3,104Other workers 6,00,349 3,04,485Registered factories 1,698 260Registered small scale industries 14,212 7,065Educational institutions 1,427 633

Source: Compiled from various sources like District Hand Book, Economic Review, etc.

OBJECTIVES OF THE STUDY

The following are the objectives of the study.

1) To examine the number of products, sum assured, and first

premium income of products marketed by LIC in Kasargod and Kannur

districts and to assess the performance of the Corporation in the

context of growing competition from private sector.

2) To examine the socio-economic profile of policyholders of LIC in

Kasargod and Kannur districts and to assess their awareness,

preference and ownership of various life insurance products so that LIC

can design an appropriate penetration strategy for the market.

3) To evaluate customer satisfaction of life insurance products, branch

office services, and pre-sale and post-sale services of agents so that

LIC can improve its products and services.

23

4) To analyse the socio-economic and demographic profile of LIC

agents and to evaluate their attitude towards the profession and job

satisfaction.

5) To examine the productivity of LIC agents in Kasargod and Kannur

districts.

6) To identify problems, if any, faced by LIC agents in marketing life

insurance products in the urban and rural areas of Kasargod and

Kannur districts and to make recommendations for improvement in

marketing products.

SCOPE AND COVERAGE OF THE STUDY

The study is confined to Kasargod and Kannur districts coming under

the Kozhikode Division of LIC. The present study intends to examine the

marketing of individual life insurance products by LIC, analyzing variables

like awareness, preference, and product satisfaction of urban as well as

rural customers. It also examines the agents’ pre-sale and post-sale service

and the branch office service satisfaction perceived by urban as well as

rural customers. It also analyzes the job satisfaction of LIC agents in

Kasargod and Kannur districts. Group insurance products and social

security schemes marketed directly by the Corporation are not included in

the study. The study examines whether there is any significant difference

in the productivity of agents in Kasargod and Kannur districts.

HYPOTHESES

Based on the objectives mentioned above, the following null

hypotheses have been formulated.

Hypothesis No. 1

The success in life insurance marketing greatly depends on the

awareness created among target customers. The low level of awareness

24

makes the job of LIC agent rather difficult. Therefore, to test the awareness

of customers, the following null hypothesis is formulated.

Ho 1: There is no difference in product awareness between urban and rural

policyholders.

Hypothesis No. 2

With increase in savings, people are expected to spend more on

buying life insurance products. Human life value increases with increase in

their income. To test savings and life insurance purchase behaviour of the

policyholders, the following hypothesis is formulated.

Ho 2: There is no association between rate of saving and life insurance

purchase of policyholders.

Hypothesis No. 3

People invest their savings in different investment avenues. The

selection of investment proposals depends up on factors such as returns

from the scheme, risk, safety, liquidity, etc. LIC should be able to attract

the savings of the people towards its various insurance products. Therefore,

to test the investment preference of policyholders, the following null

hypothesis is formulated.

Ho 3: Urban and rural policyholders do not prefer LIC policy as the best

investment proposal to invest their savings.

Hypothesis No. 4

A satisfied customer is likely to accept the company and even give

word of mouth advertising. Customer satisfaction depends on both product

and service quality. Therefore to test the customer satisfaction the

following main hypothesis is formulated.

Ho 4: There is no difference between the urban and rural customers of LIC

in the case of overall satisfaction.

25

The main hypothesis may be tested with the help of the following

sub-hypotheses.

Ho 4 (i): There is no difference in the product satisfaction perception

between urban and rural customers of LIC.

Ho 4 (ii): There is no difference in perception about the pre-sale services of

LIC agents, between urban and rural customers.

Ho 4 (iii): There is no difference in perception about the post-sale services

of LIC agents, between urban and rural customers.

Ho 4 (iv): There is no difference in perception between urban and rural

customers about LIC’s branch office services.

Hypothesis No. 5

To test the job satisfaction of agents, the following hypothesis is

formulated.

Ho 5: The Life Insurance agents are least satisfied in their job and job

prospects.

Hypothesis No. 6

In marketing life insurance products, agents face many problems. To

test whether there is any significant differences in problems between urban

and rural areas, the following hypothesis is formulated.

Ho 6: The marketing problems faced by LIC agents do not differ in urban

and rural areas.

RESEARCH DESIGN

The study is designed as a descriptive one. Both primary and

secondary data were collected and used for the study. A presentation of

the topic was made before the Senior Divisional Manager, Marketing

Manager, Manager (Planning & Market Research), Manager (Sales),

26

Manager (Claims) and other executives of LIC, Kozhikode Division. On the

basis of the presentation, discussions were held with them. Discussions

were also held with Assistant Branch Managers, Branch Managers, Assistant

Administrative Officers, and Administrative Officers at some of the branches

in Kannur district. Also, the Marketing Manager and Manager, Southern

Zone, Chennai were interviewed. These interviews and discussions helped

the researcher to know about the marketing practices followed by LIC.

Discussions were also held with the Agents and Development officers to

know the various aspects of life insurance services.

Sampling Frame

The policyholders were classified into urban and rural on the basis of

their domicile. Since two-third of the population belong to rural area, a

sample of 400 policyholders consisting of 264 rural and 136 urban

policyholders were selected at random from all the ten branches in

Kasargod and Kannur district. Two types of agents are attached to a

branch office; (i) Career Agent, and (ii) Direct agent. A sample of 200

agents consisting of 100 Rural Career Agents and 100 Direct Agents were

selected from all the ten branches.

Collection of Data

a) Primary data: The primary data were collected from policyholders and

agents through a structured questionnaire. The questionnaire for

policyholders was finalized after conducting a pilot study among 40

policyholders in Kannur district. The questionnaire for agents was also pre-

tested among 20 agents. The researcher himself collected the data from

agents in both the districts and from policyholders in Kannur district.

Enumerators were used to collect data from policyholders in Kasargod

district. The researcher experienced some difficulties while collecting data

from agents. A few of them were reluctant to answer the questions on the

suspicion that the researcher colleted data for helping private insurers.

27

Certain officers were also reluctant to disclose information. The researcher

himself attended the training programme on life insurance, conducted at

the LIC’s Zonal Training College, Chennai during the period December 2005.

The researcher also observed the training programme for agents of

Chairman’s Club, conducted at Zonal Training College, Chennai. It helped

the researcher in understanding the awareness level of top agents about

various life insurance products and also the quality of training programme.

The collected data were tabulated and analyzed. The suggestions

received from policyholders, agents, development officers, and executive

officers were analyzed and incorporated in the thesis.

b) Secondary data: The secondary data were collected from the

following sources:

Journal of Insurance and Risk Management, Journal of Marketing,

IRDA Journal, Asia Insurance Post, Journal of the Insurance Institute of India,

The Insurance Chronicle, Yogakshema, The Insurance Times, Indian

management, Economic and Political Weekly, Southern Economist, Yojana,

Business India, Dhanam, District Hand Book, research papers on life

insurance, IRDA Annual Report, Divisional Office profile, Annual Reports of

LIC of India for various years, India Insurance Report series - 1, Agents’

manual, and websites of various insurance and re-insurance organizations.

The rationale for selection of the two districts is as follows:

Kannur and Kasargod districts are situated on the northern part of

Kerala. Kasargod is the 14th and last formed district in Kerala. There are

significant differences between the two districts. Kannur district is ahead of

Kasargod regarding population, literacy, number of small industrial

concerns, educational institutes, number of industrial workers and the like.

The literacy rate in Kannur is 92.59 percent and 84.57 percent in

28

Kasargod43. Wide differences exist between the two districts regarding

number of branch offices, agents and the like.

FRAME WORK OF ANALYSIS

In addition to percentage, average, charts, diagrams and graphs, the

following statistical tools were applied in order to examine the perceptions

of respondents:

(i) Chi-square for testing the difference in awareness of life insurance

products among urban and rural respondents.

(ii) Likert’s five point scale to assess the respondents’ satisfaction of

product, branch office services and agents’ pre-sale and post-sale

services.

(iii) Chi-square to test the significance of difference in satisfaction

between urban and rural respondents about product, agents’ services

and office services.

(iv) ANOVA for ascertaining the difference in mean values of product

satisfaction, branch office services and agents’ pre-sale and post-sale

services perceived by urban and rural respondents.

(v) Likert’s three point scale technique to measure LIC agents’ attitude

towards the job and job Satisfaction.

(vi) Chi-square to test the significance of difference in product

acceptability between urban and rural customers.

(vii) Chi-square to test the significance of difference in marketing

problems between urban and rural areas.

The necessary tables and descriptive statistics such as Mean,

Standard Deviation, etc. were generated by using Microsoft Excel software

and Statistica package.

Description of the variables

29

The description of all the variables used for analysis in the study is

given in Table 1.3.

Table 1.3

List of Variables and Description of Data

Sl. No.

Variables Description

1 Productivity of Agent Average value of number, sum assured, and premium income per agent.

2 Sources of Advertising Rank score from 1 to 63 Product awareness Numerical value: where 1= aware and

0= not aware.4 Investment preference Rank score I to VI5 Objective of buying

policies “ “

6 Product satisfaction factors:(a) Cost (i.e., premium) Scale value: where 1=very high,

2=high, 3=reasonable,4=low, and 5=very low.

(b) Risk protection Scale value: where 1=very poor, 2=poor, 3=moderate, 4=good, and 5=excellent.

(c) Savings “ “(d) Income-tax “ “(e) Return Average value in comparison to other

financial products.(f) Safety “ “(g) Liquidity “ “

7 Pre-sale services Mean value of pre-sale service elements

8 Post-sale services Mean value of after-sale service elements

9 Office services Mean value of office service dimensions.

10 Criteria for recommending products

Rank score I to VI

11 Methods of prospecting “ “12 Product preference “ “13 Surrender and lapse

reason “ “

14 Rate of Savings Percentage value15 Spending on life insurance “ “16 Reason for low coverage “ “

30

17 Claim settlement difficulties

Likert scale of frequency ranging from 1=never to 5=always.

18 Job satisfaction Scale value, where 1=low, 2=moderate, 3=high.

19 Marketing problems Rank score I to VII

31

REFERENCE PERIOD

Secondary data for analyzing the business performance of LIC at

national level has been taken for twelve years from 1995-96 to 2006-07. A

longer period was taken wherever necessary. Data for six years from 2001-

02 to 2006-07 were taken to assess the growth indicators of branches in

Kannur and Kasargod districts and to assess the productivity of LIC agents.

The field work for collecting primary data was conducted from March 2006

to December 2007.

LIMITATIONS OF THE STUDY

The study is subject to the following limitations:

1. The marketing aspects of individual products by individual agents of

LIC alone were considered for the study. Group insurance and other

social security schemes directly marketed by the Corporation were

not included in the study.

2. The bias on the part of respondents cannot be ruled out. But care

has been taken to cross check the answers given by them.

3. Since this study was confined to Kasargod and Kannur districts, its

findings cannot be generalized.

SCOPE FOR FURTHER RESEARCH

The present study is confined to the marketing aspects of LIC in

Kasargod and Kannur districts only. The limitations of this study provide

some guidelines for future research. Therefore, the following are the scope

for further research:

1. There is scope for conducting similar studies in other districts.

2. Similarly, the role of other insurance organizations, such as private

insurers, postal life insurance and State Government Departments in

life insurance coverage can be studied.

32

3. There is scope for investigation into lapses of LIC policies, their

causes and effects.

4. Another area of scope is health insurance.

CHAPTER SCHEME

This study report consists of seven chapters.

Chapter 1 – Introduction.

Chapter 2 – Review of literature.

Chapter 3 – Life insurance industry.

Chapter 4 – Profile of Life Insurance Corporation of India.

Chapter 5 – Analysis of the views of policyholders.

Chapter 6 – Analysis of the views of LIC Agents.

Chapter 7 –Summary, findings and recommendations.

CONCLUSION

Life insurance occupies an important position in the financial sector

of an economy. It contributes to economic development through risk

management, protection of risks, and mobilization of savings leading to

capital formation in the country. Life insurance business in India was

nationalized in the year 1956 and LIC of India was established on

September1, 1956. After 44 years of State monopoly, the life insurance

industry has been opened to competition in 1999. With more than one

billion population, India still exhibits a lukewarm attitude towards insurance.

About 74 per cent of India’s population live in rural areas and the objective

of the authorities is that the benefits of insurance liberalization should

extend to the people in rural areas.

Kasargod and Kannur districts are in the Northern part of Kerala.

Kasargod is the last formed district in Kerala which possesses several

33

characteristics different from other districts in terms of population, literacy,

occupation and the like. Kannur district is ahead of Kasargod regarding

literacy, number of small industrial concerns, educational institutes,

occupation and the like. There are imbalances between the two districts

regarding number of LIC’s branch offices. Customer satisfaction plays an

important role in life insurance marketing. It has come to the researcher’s

notice that the policyholders in a majority of cases feel that the agents and

the front-line staff have hardly been offering them the services promised.

At the same time, there exist large untapped areas. When uncertainty

about life prevails everywhere, the LIC agent should be able to canvas

prospects by offering a particular life insurance product or mix of products,

taking into account their paying capacity. It is in this context that the

present study is undertaken.

The next chapter reviews the studies already made in the field.

34

References:

1. Sharma, N.C., Asia Insurance Post, Volume 8, Issue 6, June 2007, pp.

22-24.

2. Emmett, J. Vaughan and Therese Vaughan, Risk and Insurance, John

Wiley & Sons, Inc., 2003, pp. 3-7.

3. Holzmann, R. and Jorgensen, ‘Social Risk Management: A new

Conceptual Framework for Social Protection and Beyond’, Social

Protection Discussion Paper No. 0006, the World Bank, Washington,

DC, 2000.

4. Gupta, P.K., Insurance and Risk Management, 1st ed., Himalaya

Publishing House, Mumbair, 2004, pp. 4-25.

5. Mishra, K.C., Indian Insurance Industry, Chartered Financial Analyst,

Vol.IX, Issue 12, Dec. 2003, pp. 41-47.

6. Venkateswara, Rao, LIC New Business Lacks Vigor, Insurance

Chronicle, Vol. VI, Issue VI, June 2006, pp. 33-40.

7. Kenneth Black, Jr. and Harold, D. Skipper, Jr., Life and Health

Insurance, 13th ed, Pearson Education Pvt. Ltd., Singapore, pp. 600-

632.

8. Philip Kotler and Gary Armstrong, Principles of Marketing, Prentice Hall

of India Pvt. Ltd., New Delhi, 2001, pp. 318 -319.

9. Mishra, K.C., op. cit..

10. IRDA Annual Report 2006-07.

11. Joy Chakraborty, Private Life Insurance Companies in India- Growing

Prospects and Challenges, Insurance Chronicle, Vol. VII, Issue VIII,

August 2007, pp. 29-39.

12. Srinivasan, R., Services Marketing: The Indian Context, Prentice-Hall of

India Pvt. Ltd., New Delhi, pp. 1-17.

13. Arthur, C., Williams, Jr. et al., Risk Management and Insurance, 8th ed.,

Irwin Mc-Graw Hill, Singapore, p. 3.

35

14. Russell, B., Gallagher, “Risk Management: A New Phase of Cost

Control”, Harvard Business Review, September-October, 1991.

15. Emmett, J. Vaughan, op. cit., pp. 33-52.

16. Kenneth Black, Jr., op. cit., pp. 1-25.

17. Emmett, J. Vaughan, op. cit., pp. 23-32.

18. Jha, S.M., Services Marketing, 6th ed., Himalaya Publishing house,

Mumbai, 2003, p. 162.

19. Philip, Kotler and Kevin Lane, Marketing Management 12th ed. Pearson

Education, Delhi, 2006, p.5.

20. Hellen, Woodruffe, Services Marketing, Macmillan India Ltd., New Delhi,

2000, p. 14.

21. OoRja, IIIM Journal of Management & IT, Volume 3, No. 2, May-August

2005, pp. 27-28.

22. Jha, S.M., op. cit., p.11.

23. Kenneth Black,Jr., op. cit., pp. 693-711.

24. The Hindu Business Review, February 10, 1999.

25. Arthur, C. Williams, Jr. et al., op. cit., p. 409.

26. Ibid, 410.

27. Kenneth Black, Jr. and Harold D. Skipper, Jr., op. cit., pp. 633-641.

28. Sumninder Kaur Bawa, Life insurance Corporation of India: Impact of

Privatisation and Performance, Regal Publications, New Delhi, p. 114-

117.

29. Ibid.

30. Schlesinger, Leonard A., and Heskett, James L., The Service-Driven

Service Company, Business Review, September-October 1991, pp. 71-

75.

31. Srinivasan, R., op. cit., p. 110.

36

32. Oliver, R.L., Satisfaction, a Behavioral Perspective on the Consumer,

McGraw- Hill, New York, 1997, p. 13.

33. Valarie, A. Zeithaml and Mary Jo Bitner, Services Marketing, Tata

McGraw-Hill, New Delhi, 2004, p. 86.

34. Steward Doss and Kaveri, V.S., Total Quality Assessment in Insurance,

1st ed., Akansha Publishing House, New Delhi, p 39.

35. Juran, J.M., Planning for Quality, The Free Press, New York, 1988 p. 5.

36. Dennis Green, The complete ISO 9000 Manual, London: Kogan Page

Ltd., 1996, p.13.

37. Life Insurance Administration, Re. ed., Insurance Institute of India,

1988, pp. 1-23.

38. IRDA Journal, Vol. III Issue 9, September 2006.

39. Steward Doss, op. cit., p. 16.

40. Israni, S.D., “Trusting Customer”, Asia Insurance Post, Vol. 7, Issue 3,

October 2008.

41. Ibid.

42. Philip Kotler and Kevin Lane Keller, Marketing Management 12th ed.,

Pearson Education (Singapore) Pte. Ltd., Indian Branch, Delhi, 2006, p.

382.

43. District Hand Book, Department of Information & Public Relations,

Government of Kerala.

37