life insurance Marketing

Page 1

“There is nothing more uncertain than life and there is nothing more certain than life insurance” --- Miles m Dawson (the business of life insurance)

Life Insurance – Need Of the Hour. Page 2

Certificate I, Sidharth Saxena , hereby certify

that Mr. Vishal Dubey of Thakur

College of Sci. & Comm. of

T.Y.B.M.S. (SEM -5) has completed

project on Life Insurance – Need

of the hour, in the academic year

2006-07. The information submitted

is true and original to my

knowledge.

Project Guide Coordinator Principal.


Declaration

I, Mr. Vishal Dubey of Thakur

College of Sci. & Comm. Of

T.Y.B.M.S. (SEM -5) hereby declare

that I have completed the project

on ‘Life Insurance - Need of the

hour’, in the academic year 2006-07.

The information submitted is true

and original to the best of my

knowledge.

Signature of the student


Acknowledgement.

First of all I would like to thank the Mumbai University for having projects as a part of B.M.S. curriculum. This project is a result of efforts of several people, who have affected its shape and content. With great pleasure I thank Mrs. Richa Jain, B.M.S. coordinator at Thakur College of Science & Commerce, for being an inspiration in the completion of this project. I thank her for her invaluable guidance and numerous suggestions provided from time to time. I express my sincere gratitude towards Mr. Sidharth Saxena who has been like a mentor to me throughout the project. This project would not have been possible if it were not for the support and co-operation of him. This is gratefully acknowledged. I would also like to thank Mrs. Suwarna Walawalkar, the trainer for the 100 hours training at Tata-AIG. She was the person where the idea of this project generated. I would also like to thank my friends and family without whose co-operation an d u n derstan din g th is w ou ld n ’t h ave been possible. Eventually I would thank the divine intervention who backed me at all times.


Executive summary

Security has always been a universal desire, right from the earliest

civilizations. This quest for security has been a major motivating force in the

progress of mankind. The early societies looked up to their families for

providing this security, which resulted in cohesive units. Gradually, as

lifestyles changed and as man progressed into a more modern industrialized

setup, this cohesive quality of the family started fading. One had to look for

other ways of providing economic security and somewhere along the line

w as born ‗insurance‘.

The insurance landscape in India is in the process of tremendous change.

Closed to foreign competition due to nationalization in 1956, the Indian

insurance industry was run by the government for over 40 years through the

‗life insurance corporation of India‘ (L IC ) and four general insurance

companies that spanned the length and breadth of the country. While these

companies had done a commendable job in helping the industry grow, the

task of making an essential financial product available to the masses gave

scope to several other companies to participate in this arena.

Consider some facts. Only 22% of the insurable populations in India possess

life insurance, and in a country of over 1.06 billion people, life insurance

premia forms 1.8% of the G.D.P., indicating the extent of underinsurance or

rather revealing the latent potential in insurance spectrum.

Liberalization is in full swing in the Indian markets. Insurance industry

being one of the most affected markets has experienced a plethora of new


relationship in the last couple of years there are a few forces acting on the

industry that have brought about significant changes in the behavior of the

industry trends. Moreover there have been significant changes in the service

outlook with respect to insurance industry. From the opinion that it was an

instrument intended to provide monetary support at the time of the death of

an individual, life insurance life insurance grew up to be a major financial

instrument during the past 50 years in our country. There has also been a

change in the consumer outlook with regards to life insurance as very

beneficiary financial tool as against the orthodox thinking of unfruitful use

of money.

In this highly competitive market where mere survival has become primary

objective for companies, customer service holds a major place in business.

Every insurance company delivers service as per the terms of contract,

however there are very few companies that go beyond the contract and

augment the customers. This requires a learned and trained staff i.e. the

agents.

The following findings throw light on the service perspective bringing out

the fundamentals of service marketing and its determinants. The finding of

the research widens the consumer understanding aspect and it would be very

helpful to imbibe customization. The research studies the changing trends in

life insurance and describes the latent potential and also gives a hypothesis

on the future of the insurance industry based on the study of insurance sector

and the expert opinion.


CONTENTS

Section – I

The Service marketing Perspective

1. Origin of insurance. 10 - 13

2. Need of life insurance. 14 - 15

3. Working of life insurance. 16

4. The life insurance mix. 17 - 48

5. Life insurance marketing triangle. 49 - 50

6. Life insurance – flower of service. 51 - 54

7. 4 – I‘s of L ife insurance. 55 - 58

8. Complaint handling. 59 - 61

9. Service recovery. 62 - 65


Section – II

A study of the Industry

1. A sectoral study. 67 - 78

2. Expert opinion

a. ICICI Prudential. 79-84

b. Tata AIG. 85 - 87

3. PEST analysis of the life insurance sector. 88 - 99

4. SWOT analysis of the life insurance sector. 100 - 102

5. Findings and Hypothesis. 103- 107


The Service Marketing Perspective


Origin of Insurance. We live in exciting times with changes and upheavals all around. New

technologies, new inventions and changes in the economic and financial

scenario, all have thrown up new insurance needs; needs never felt or heard

before. This type of evolutionary process, in the last few decades, has given

hope to new types of need-based insurance covers; public liability insurance,

product liability insurance, indemnity for medical practitioners for

negligence, indemnity for chartered accountants and auditors for

professional lapses, etc. Further, covers are engineering insurance, erection

insurance, loss of profit, cover against atomic radiation and space travel and

contracting AIDS.

Around 6000 years ago, Babylonians, whose home in the Tigris – Euphrates

valley lay at the crossroads of early world traffic, had developed business

practices to a high degree. Babylon had become the clearinghouse of trade as

all the important land trade routes converged in that territory. From Armenia

in the north, China and India in the east, Egypt in the west, caravans came

laden with merchandise. Though Babylon built up a great commercial

system, and her people were the first to enjoy the fruits of political economy,

their territory was surrounded by huge tracts of desert.

The travelers by land were exposed to the risk of robbery, which then was

considered not so abominable a means of livelihood and the same view held

good for the piracy on the high seas. Besides, during those days, the ships


were entirely at the mercy of the winds. Under such conditions, till the goods

reached their destination, the consignor was constantly worried about its

safety.

In fact, many traders could not meet the obligations of the principals and, as

per their contracts, were forced to become slaves along with their families.

Human ingenuity was set to work and, in course of time, a practice

developed that debt of the trader, both principal and interest, should be

absolved if certain specified contingencies occur.

Research scholars claim that insurance was known and practiced in India

even during the ancient Vedic times. Manu the ancient scholar and lawgiver

enjoined that a special change be made on goods carried from one place to

another to ensure their safe carriage, until it was finally handed over to the

consignee at the destination.

Recorded evidences testify that ancient India was a prominent maritime

power. There were busy seaports on the west coast at Broach, at

Kaveripumpatnam in the south and Banga in the east. Traders expressed

difficulties in realizing money for the goods sent abroad. Loans were

advanced to traders at specified rates of interest depending on the risk run

and the duration of time for which money was required. Men skilled in sea

voyages worked out risk premium rates.

On successful conclusion of the voyage, the borrower returned the loan

along with interest, when the eventuality insured against did not materialize


but it often happened that he was unable to deliver the goods in sound

condition at the time and place specified or if he was robbed, he was

absolved of his liability.

If the cargo was lost due to the negligence of the crew, the loss was to be

borne by all the crewmembers, but when loss was caused by God, the

members of the crew were not held responsible. A carrier who failed to

reach the destination, could not claim freight, but was exempted from

responsibility if loss was occasioned by an act of God. If the loss was due to

―P iracy‖, the cashier w as not protected.

We have had bizarre insurance covers. Lizza Minnelli the singing sensation

had insured her voice and so have Boy George and Michael Jackson. Marine

Dietrich and B etty G rable, H ollyw ood‘s leading ladies have insured their

legs. A well-known comedian in the USA had a policy insuring those in his

audience, against anyone dying of laughter after hearing his Jokes!

The business of insurance started with marine business traders, who used to

gather in the Lloyds coffee house in London agreed to share the losses to

their goods while being carried by ships. The losses occurred due to pirates

robbing the goods or perils of the sea. The first insurance policy was

issued in 1583 in England. In India, insurance began with life insurance

being transacted by an English company- the European and the Albert. The

first Indian insurance company was the Bombay Mutual Assurance Society

ltd., formed in 1870. This was followed by the Oriental life Assurance in

1874, the Bharat in 1896 and the Empire of India in 1897.


Later the Hindustan Cooperative was formed in Calcutta, the United India in

Madras, The Bombay Life in Bombay, The National in Calcutta, The New

India in Bombay, The Jupiter in Bombay and the Lakshmi in New Delhi.

These were all Indian companies started as a result of the swadeshi

m ovem ent in the early 1900‘s. B y the year 1956, w hen the L ife insurance

business was nationalized and the Life Insurance Corporation of India (LIC)

was formed on 1st September 1956, there were 170 companies and 75

provident fund societies transacting life insurance business in India. After

the amendment to the relevant laws in 1999, the LIC did not have the

exclusive privilege of doing life insurance business in India. By 31st march

2002, eleven new insurance companies had been registered and began to

transact life insurance business in India.


Does one need insurance? The business of insurance is related to protection of the economic values of

the assets. Every asset is of some value and is expected to last for a certain

period of time during which it will deliver that value. In case the asset is

destroyed it ceases to provide the value to the owner thus leading to an

unpleasant situation. Insurance is a mechanism to reduce the affect of such

unpleasant situation. Human life is considered to be a value generating

asset and is also subject to risks.

Assets are insured because there if a possibility that perhaps they might get

destroyed, through accidental occurrences. Such possible occurrences are

called perils. If such perils can cause damage to the asset we say that the

asset is exposed to risk. To be more précised Perils are the events and risks

are the consequential losses or damages. The risk only means that there is a

possibility of a loss or damage, the loss may or may not happen. Insurance is

done against the contingency that it might happen. Insurance is relevant only

if there are uncertainties. If there is no uncertainty about the occurrence of

an event, it cannot be insured against. In case of human beings death is

certain; however the time of death is uncertain.

Insurance doesn‘t protect the asset. It doesn‘t prevent the loss due to its peril.

The perils can sometime be avoided by ensuring better safety and damage

control management. Insurance only tries to reduce the impact of the risk on


the owner of the asset and those who depend on that asset. Only economic

consequences can be insured. If the loss is not financial, insurance may not

be possible.

Moreover insurance is backed up with many economic benefits which can be

enlisted as follows.

Life insurance provides financial security to the family in case of

untimely or premature death.

Life insurance is also a potent instrument for saving.

Life insurance provides financial independence in old age.

Organizations or individuals, who are in credit business, can ensure

for themselves recovery of loan in case their debtor dies.

A partnership firm can insure partners to the extent of capital invested

by each in the business.

U nder ‗key m an’ insurance, an organization can insure the lives of

their executives, whose expertise greatly contributes to their profits.

Organizations can purchase group insurance policies as a part of their

employee- welfare program.

Life insurance also provides tax benefits to the holder.

Life insurance policies create an estate.

Life insurance policies also create thrift. I.e. a compulsory saving.

A policy of life insurance can b used as a collateral security for

procuring loans from the market.


Working of life-Insurance Business There are thee primary methods to avoid risk viz.

A) AVOID

B) REDUCE

C) TRANSFER

Insurance deals with transfer of risk from the consumer to the provider.

Insurance works on a fundamental principle of pooling of risk. People who

are exposed to the same risk come together and agree that, if any one of

them suffers a loss, the others will share the loss and make good the person

who has suffered the loss. The manner in which the loss is to be shared can

be determined before hand. It may be proportional to the risk that each

person is exposed to. This would be indicative of the benefit he would

receive if the peril befell him.

Insurance companies collect the share in the form of premiums and create a

fund from which losses are paid; this fund is known as the life fund. The

insurance company pays the losses to the members of that group. The

insurance company also invests the funds in governmental ant private

organizations.

Ex. LIC has lent a capital of Rs.215million to NABARD for its rural

financing activities.


Life insurance mix. T he identification of the seven P ‘s of m arketing m ix helps a firm to form

better marketing strategies and also to serve the customers in a more

efficient manner.

Product Mix.

The best way to get and keep customers is to constantly figure out how to

give them more for less.

A product mix is the set of all products and items that a particular seller

offers for sale.

In case of insurance sector, the product mix comprises of Life and Non – life

insurance policies that are offered to the customer by the company.

A com pany‘s product m ix has certain w idth, length, depth and consistency.

The length of a product mix refers to the total number of items in the mix.

In case of insurance sector, the following is the length of product mix:

Whole Life Policy

Limited Payment Life

Convertible Whole Life Policy

Joint Life Endowment Policy


Double Endowment Policy

Jeevan Saathi

Money Back Policy

Annuity Plans

Group Insurance Policy

Bima Sandesh

With or Without Profit Policy

The depth of a product mix refers to how many variants are offered of each

product in the line

In the insurance sector, one policy can be made available in different

variations. Some of the examples are as follows:

Article I.

Article II.

Article III. WHOLE LIFE SCHEMES

Whole life Limited payment whole Single Premium

With profit policy life policy whole life

These product mix dimensions permit the company to expand its business.

E.g.: It can add new product lines thus widening its product mix.


Product Differentiation.

Product differentiation may be referred to as the points or the qualities that a

firm has in its product, which makes the product different from its

com petitors‘ product.

The product differentiation as far as the insurance sector and LIC in

particular is concerned are as follows----

Bonus- insurance companies issue bonus to their policyholders when

they make a substantial amount of profit. If a company issues a high

amount of bonus, it delights the customer and creates a good image in the

eyes of the customer.

Past records- the differentiation can be done on the basis of past

records. Customers choose to take policy from that company which has

well past records in terms of claim settling periods, premium collection

intervals etc.

Market reputation- a company with a good market reputation and

goodwill is perceived to deliver the best of the service quality and

customer satisfaction.


Technology- technology plays an important part in product

differentiation. For e.g.: - LIC was the first company in the insurance

sector to introduce use of I.T and Computers. This makes customers feel

that the company is not lagging behind the world and is capable of

making the full use of technology to satisfy the customers.

Feedback- feedback from customers also is an important tool with

which product of the company can be differentiated. If effective steps are

been taken on the feedback of the customers, it leaves a long lasting

impression on the minds of the customers.

Price- if a particular company charges more for the same product as

compared to their competitors, it may loose the customers and vice versa.


THE SERVICE PRODUCT:

The offer has a nucleus or core in the center, which is supported by series of

tangible and intangible features and benefits and these form a cluster around

the core product. The surrounding features are known as supplementary

services. The core product and the supplementary services share a symbiotic

relation, i.e. both are not complete without each other. Hence supplementary

services are of immense importance.

AUGMENTED CORE POTENTIAL

EXPECTED


Level Type of product/ service

Contents Insurance sector

Level 1

Core or generic product/ service

Basic service product Life Non-life insurance

policy

Level 2

Expected product/ service

Basic product and minimum purchase that must be met

After sales service Bonus on policy Low claim settling

period

Level 3

Augmented product/ service

Something different which enables one product to be differentiated from other

Technology Online premium

payment P aym ent thru‘ credit

cards Standing instruction

to bank

Level 4

Potential product/ service

Features that attract the customers and are useful to them.

Maturity claims settled on or before the maturity date.


Price Mix.

Price is one element in the marketing mix that produces revenue; all the

other elements produce costs. Prices are easiest marketing mix elements to

adjust; product features, channels and even promotion take more time. Price

also com m unicates to the m arket the com pany‘s intended value positioning

of its product or brand.

In the insurance sector, every company has to deposit an initial fixed capital

of about Rs. 100 crore with Insurance Regulatory Development

Authority, which is considered as the apex body of Insurance sector. The

company gets periodic interest on this amount. With this interest amount, the

company pays for the recruitment, training and development of the agents.

The price in case of insurance sector refers to the premium charged on the

policy. The Tariff advisory committee fixes the price for each policy.

Hence all insurance companies have to charge approximately similar

premium on similar policies. However, different elements affect the rate of

premium to be charged on each policy. The price for the same policy is

different for different companies.

The company must set its price in relation to the value delivered and

perceived by the customer. If, the price is higher than the value received, the

customer will not be willing to pay so high and the company will loose

potential profits. If the price is less than the value received then, the

company will fail to receive the profit that it deserves for providing a good

service.


There are various steps, which are followed in order to fix the price. They are as follows:

MISSED OPPORTUNITIES

PRICE = VALUE UNHARVESTED VALUE

HIGH HIGHHIGH

MEDIUM

LOW

LOW MEDIUM HIGH

PRICE PAID

V A L U E R E C I E V E D

1) Selecting The Pricing Objective

2) Determining Demand

3) Estimating Costs

4) Analyzing com petitor‘s costs, price and offers

5)

5) Selecting the Final Price

6)


STEP 1 In the first step, the company decides where it wants to position its

m arket offering. T he clearer the firm ‘s objective, easier it is to set the price.

STEP 2 Each price will lead to a different level of demand therefore has a

different impact on com pany‘s m arketing strategy. In case of insurance

sector too, before fixing a price for a particular policy, the field officers are

asked to find out the demand for various policies and on the basis of this

demand, the price is fixed.

STEP 3 Demand sets the ceiling whereas costs set the floor on the price the

company can charge for its product/service. In case of insurance sector, it

comprises of costs of recruiting, training, motivating agents along with other

fixed and variable costs.

STEP 4 Within the range of possible prices determined by the market

demand and com pany costs, the firm m ust take the com petitor‘s costs, prices

and possible price reaction into account. In order to win the market share,

such products/ services, which have not yet been created by the competitors,

should be created by the company.

LIC (India) offers a differentiated product in the form of Life Insurance

Policies especially for landless laborers and rickshawallas.

STEP 5 In selecting the price in insurance sector, the company must

consider life expectancy of the person as well as his financial position. In

case of Life Insurance, if the person while taking the policy is at a high


risk of some terminal disease then he is charged a higher premium. At the

same time, if a person who does not enjoy good financial condition

cannot take a high price insurance policy. Thus, every customer taking a

policy should disclose all his medical as well as financial details in

utmost good faith to the insurance agent. In case of Non Life Insurance,

correct financial evaluation of the cost of the goods which have been

insured should be done by the insurance agency because the customer

may get the goods insured for a higher cost than they actually are and if

the goods are damaged, then the insurance company will have to pay a

higher price than the actual cost of goods destroyed.

E.g.: Whole Life with Profits Plan

Plan Parameters:

Age at entry: Minimum - 18 years last birthday Maximum - 60 years

Sum Assured: Minimum - Rs.50, 000/- Maximum - No limit

Mode of payment: Yearly, half-yearly, quarterly, monthly

Life Insurance Pricing: The pricing in case of life insurance is done on the basis of:

Life Expectancy: In case of life insurance, the premium amount tends to

be different for different customers. This differentiation is on the basis of

age, medical history of a person.


1) Age

E.g.: Low premium is charged for children and youngsters as it is assumed

that they are at a lesser risk of death as compared to the aged people.

2) Medical History

The medical history should be revealed to the insurance company by the

customer in Utmost Good Faith i.e. the insured must provide to the insurer

complete, correct and clear information of the subject matter of insurance.

E.g.: If in the medical history it is mentioned that the person has suffered

from heart attack in the past or if he is suffering from any terminal disease

like cancer or AIDS then, he is at a higher risk of death and hence higher

prem ium is charged. H ow ever, if the insured doesn‘t reveal that he is

suffering from terminal disease or has suffered a heart attack previously and

he dies due to the disease or heart attack then, the insurance company does

not pay the claim for the same.

Case: The pricing of the policies in LIC (India) is done by the Actuarial

Department, which is at the corporate level. The prices of the policies are

fixed depending on the following conditions:

o Rate of return on investment in the present market scenario

o Life expectancy of the customer


Discount Pricing:

In insurance sector, discount is offered if group insurance is opted for.

Group Insurance Scheme is meant to provide life insurance protection to

groups of people. Administration of the scheme is on group basis and cost is

very low. Under Group Insurance Scheme, life insurance cover is allowed to

all the members of a group subject to some simple insurability conditions

without insisting upon any medical evidence. The restrictions under a Group

Term Insurance Scheme mainly relate to size of the group, amount of cover

allowable, minimum and maximum age limit for eligibility of cover (18 &

60), participation of minimum percentage (75%) of eligible members of the

group at inception and compulsory participation of all new members.

Discount is given on group insurance scheme because the insurance

company gets a large number of customers at a time and hence it saves

expenses on promotion and advertisement, which are to be incurred to attract

new customers. Thus, discount is given in order to attract more customers at

a time by this group insurance scheme. The cost incurred on giving discount

is much less as compared to the cost spend and advertising and promotion.

Hence discounting is much more profitable for the company.


Place Mix.

Today you have to run faster to stay in the same place

Place mix can be defined as the ―P hysical distribution i.e. the delivery of

goods/ services at the right tim e at the right place to the custom ers.‖ P lace

decisions involve building relationships with the wholesalers, retailers and

through these intermediaries building relationships with the customers.

Products and services must be at the right place, at the right time in order to

be consumed. Probably the best way to perceive place is to think of the flow

of products from manufacturer through intermediaries to the consumer or

user. This flow can be thought of as a channel used to move goods and

services.

The channel of distribution is a component of the place mix:

Channels: According to Philip Kotler,

―Channels are sets of interdependent organizations involved in the

process of making the product or service available for use or

consumption‖ M arketing channel decisions are am ong the m ost critical

decisions facing the management. The channels chosen intimately affect all

the other marketing decisions.


In case of insurance sector, the following channel of distribution is followed

according to the target market:

CHANNELS

Direct Selling Agents

Financial Advisors

Call Centers

Partner Selling Bancassurance

Postal Department

Selling through Corporate

Electronic channels LIC on internet

Information Kiosks

SMS

1) DIRECT SELLING:

Agents: The agents are selected and recruited by the development

officer of the insurance company. These agents inform the customers

about the various insurance policies offered by the company and

convince them to buy these policies.


Financial Advisors: The financial advisors are also consulted by the

customers regarding their financial matters. These advisors suggest

their clients to get their goods insured against any calamity or risk.

Hence they act as a channel in distribution of insurance.

Call centers: The people who require insurance call up the call

centers. These call centers send their direct marketing agents who go

to the custom er‘s place and sell the insurance policy.

2) PARTNER SELLING:

Bancassurance: With the evolution of interconnected financial

services, banks are converting them selves into ‗one stop financial

superm arkets‘. T his has prom oted tw o big classes of financial

institutions: banks and insurance companies to combine and deliver an

innovative product i.e. Bancassurance. In Bancassurance, the

insurance products are sold through the banks network of branches.

Postal Department: India has an extremely well developed postal

network, which is even stronger than the network of banks in the

country. Post offices have been established even in the interior parts

of the country. Insurance companies can tie up with the postal

department to sell and distribute various insurance covers. This would

certainly require upfront training costs, as the postal employees in turn

need to educate and sell the concept and benefits of insurance to the

people in rural areas. Such a tie up with the postal department would

open up India‘s rural areas, w hich are largely untapped for insurance

sector. This can prove to be a sustainable source of growing revenues.


Selling Through Corporate: Insurance can be sold through corporate too.

E.g.: When a customer purchases a Maruti car, he gets the insurance of

the car free from the Maruti Company itself. Thus this is termed as

selling insurance through corporate.

Electronic Channels: In the last decade, numbers of technological advances

have taken place due to immense use of EDI (Electronic Data Interchange)

LIC on Internet: They have their own site, which is very informative.

They display information about them and its subsidiaries, the product

they offer. The addresses/e-mail Ids of their zonal offices, zonal

training centers, management development centers, overseas

branches, Divisional offices and also all Branch offices with a view to

speed up the communication process.

Information kiosks: LIC have set up 150 interactive Touch screen

multimedia KIOSKS in prime locations in metros and some major

cities for dissemination information to general public on our products

and services. These KIOSKS are enabling to provide policy details

and accept premium payments.

SMS: Sims through mobile phone is recently new technology

introduced by the LIC to promote their product.


LOCATION: In insurance, location, the place where office situated is not so

important as mostly the agents of the insurance company goes to the place of

the customers for doing most of that customers work. However they situate

their office branches at important location, which is convenient for the

customer to visit. (May be near station or near commercial area).


Promotion Mix.

The best advertising is done by an augmented customer.

‗P rom otion‘ is a descriptive term for the m ix of com m unication activities,

which a service organization carries out in order to influence the public on

w hom their sales depend. It is an elem ent in an organization‘s m arketing m ix

that serves to inform, persuade, or/ and remind people about an organization

or individual goods, service, image, ideas, community involvement or

impact on the society. It is used in hopes of influencing the recipients

feeling, belief or behavior through any form of communication.

Steps to create a favorable awareness amongst the target audience:

STEP 1: Identification of Target Market: The target market is the focus

of deciding the promotion mix. The total number of groups is analyzed and

decision is taken regarding which segment is to be targeted.

In case of insurance sector, mass marketing is favorable however, different

policies are targeted towards customers from different income groups.

E.g. LIC (India) has introduced a new life insurance policy especially for

rickshawallas and landless laborers.


STEP 2: Determination and Setting Objectives: Service marketers

employ a range of promotional m ethods, so it is essential to ‗W hat the

prom otion has to achieve‘. It is necessary to define m arketing objectives

clearly so that most effective type of promotion is designed and utilized.

In case of insurance sector, the main objectives of a promotion campaign

will be:

1) To make all or maximum population aware of the various insurance

policies of the company.

2) To promote the advantages of all the insurance policies.

3) To make the people aware of the risks involved and the importance of

taking insurance.

E.g.: LIC (India) conducts seminars and mass marketing campaigns in order

to make the customers aware of insurance and why it is needed.

STEP 3: Message development for right communication effect: The

message is an instrument for converting a suspect into a prospect. To obtain

an effective response from the target market, there is always need to plan an

effective message such that promotional efforts cause:

Building of brand image

Service awareness

The promotional message should aim:

To provide knowledge for service/product


To ensure that customer will have a positive perception for service/

goods promoted

To build up preference for service/ goods offered

In the insurance sector, LIC (India) and MetLife Insurance are examples of

companies who have used promotion mix to promote insurance.

E.g.: LIC (India) promotes its life insurance policies using the slogan

―Z indagi ke saath bhi, Zindagi ke baad bhi‖ T his creates aw areness of risk of

death as well as the importance of insurance. The slogan creates a positive

perception about life insurance in the minds of people.

STEP 4: Selection of communication mix: There should be a careful

blend of promotion mix with the marketing strategy of the firm and each

situation should be examined for its merits and demerits. The following

criteria should be considered while devising different promotional

techniques:

Overall marketing objectives

Nature of the service

Activities of the competitors

Characteristic of target customer

Cost effectiveness

Integration with other marketing elements

Requirements for effective implementation

Management Issues

Legal and ethical considerations


Advertising: It is a paid form of non-personal communication. It is used

to develop attitudes, create awareness and transmit information in order to

gain a response from the target market. Various media channels can be used

for advertisement such as print media, electronic media etc.

E.g.: MetLife India insurance has aired a television advertisement with the

caption line ―have you M etL ife today?‖ T he advertisement shows that

people are falling from high places but instead of falling on the ground and

getting hurt, they are falling on a bed called MetLife. This advertisement

assures the customer that the risk is covered efficiently by the policies of

MetLife insurance company.


People Mix.

It is no longer enough to satisfy the customers, you must delight them.

Employees

The various employees involved in providing service to the customer in

insurance sector are:

Customer service representatives They, process insurance policy

applications, changes, and cancellations. They review applications for

completeness, compile data on policy changes, and verify the accuracy of

insurance company records. They may also process claims and sell new

policies to existing clients. Nowadays, these workers are taking on increased

responsibilities in insurance offices, such as handling most of the continuing

contact with clients. A growing number of customer service representatives

work in call centers that are open 24 hours a day, 7 days a week, where they

answ er clients‘ questions, update policy inform ation, and providing potential

clients with information regarding the types of policies the company issues.

More than 28 percent of insurance workers are in management or business

and financial operations occupations.

Marketing and sales managers constitute the majority of managers in

carriers‘ local sales o ffices and in the insurance sales agents segment. These

employees sell insurance products, work with clients, and supervise staff.

Other managers who work in their companies' home offices are in charge of

http://www.bls.gov/oco/ocos280.htm



functions such as actuarial calculations, policy issuance, accounting, and

investments.

Claims adjusters, appraisers, examiners, and investigators decide whether

claim s are covered by the custom er‘s policy, confirm paym ent, and, w hen

necessary, investigate the circumstances surrounding a claim. Claims

adjusters work for property and liability insurance carriers or for

independent adjusting firms. They inspect property damage, estimate how

much it will cost to repair, and determine the extent of the insurance

com pany‘s liability; in som e cases, they m ay help the claim ant receive

assistance quickly in order to prevent further damage and begin repairs.

Adjusters plan and schedule the work required to process claims, which may

include interviewing the claimant and witnesses and consulting police and

hospital records. In some property-casualty companies, claims adjusters are

called claim s exam iners, but in other com panies, a claim s exam iner‘s

primary job is to review claims to ensure that proper guidelines have been

followed. Only occasionally— especially when disasters suddenly increase

the volume of claims— do these examiners aid adjusters with complicated

claims.

In the offices of life and health insurance carriers, claims examiners are the

counterparts of the claims adjuster who works in a property and casualty

insurance firm. Examiners in the health insurance field review health-related

claims to see whether the costs are reasonable based on the diagnosis.

Examiners check claim applications for completeness and accuracy,

interview medical specialists, and consult policy files to verify information

on a claim. Claims examiners in the life insurance field review causes of



death and also may review new applications for life insurance to make sure

that the applicants have no serious illnesses that would prevent them from

qualifying for insurance.

Insurance investigators handle claims in which companies suspect fraudulent

or crim inal activity, such as suspicious fires, questionable w orkers‘ disability

claims, difficult-to-explain accidents, and dubious medical treatment.

Investigators usually perform database searches on suspects to determine

whether they have a history of attempted or successful insurance fraud.

Then, the investigators may visit claimants and witnesses to obtain a

recorded statement, take photographs, inspect facilities, and conduct

surveillance on suspects. Investigators often consult with legal counsel and

are sometimes called to testify as expert witnesses in court cases.

Auto damage appraisers usually are hired by insurance companies and

independent adjusting firms to inspect the damage to a motor vehicle after

an accident and to provide unbiased estimates of repair cost. Claims

adjusters and auto damage appraisers can work for insurance companies, or

they can be independent or public adjusters. Insurance companies hire

independent adjusters to represent their interests while assisting the insured,

w hereas public adjusters are hired to represent the insured‘s interests against

insurance carriers.

Loss control representatives assess various risks faced by insurance

companies. These workers inspect the business operations of insurance

applicants, analyze historical data regarding workplace injuries and

automobile accidents, and assess the potential for natural hazards, dangerous

business practices, and unsafe workplace conditions that may result in


injuries or catastrophic physical and financial loss. They might then

recommend, for example, that a factory add safety equipment, that a house is

reinforced to withstand environmental catastrophes, or that incentives be

implemented to encourage automobile owners to install air bags in their cars

or take more effective measures to prevent theft. Because the changes they

recommend can greatly reduce the probability of loss, loss control

representatives are increasingly important to both insurance companies and

the insured.

Underwriters Underwriting is another important management and business

and financial occupation in insurance. Underwriters evaluate insurance

applications to determine the risk involved in issuing a policy. They decide

whether to accept or reject an application, and they determine the

appropriate premium for each policy.

Insurance sales agents About 15 percent of wage and salary employees in

the industry are sales workers, selling policies to individuals and businesses.

Insurance sales agents, also referred to as producers, may work as exclusive

agents, or captive agents, selling for one company, or as independent agents

selling for several companies. Through regular contact with clients, agents

are able to update coverage, assist with claims, ensure customer satisfaction,

and obtain referrals. Insurance sales agents may sell many types of

insurance, including life, annuities, property-casualty, health, and disability

insurance. Many insurance sales agents are involved in ―cross-selling‖ or

―total account developm ent,‖ w hich m eans that, besides offering insurance,

they have become licensed to sell mutual funds, annuities, and other






securities. These agents usually find their own customers and ensure that the

policies sold meet the specific needs of their policyholders.

Lawyers The insurance industry employs relatively few people in

professional or related occupations, but those who are so employed are

essential to company operations. For example, insurance com panies‘

lawyers defend clients who are sued, especially when large claims may be

involved. These lawyers also review regulations and policy contracts. Nurses

and other medical professionals advise clients on wellness issues and on

m edical procedures covered by the com pany‘s m anaged -care plan.

Actuaries represent a relatively small proportion of employment in the

insurance industry, but they are vital to the industry‘s profitability. A ctuaries

study the probability of an insured loss and determine premium rates. They

must set the rates so that there is a high probability that premiums paid by

customers will cover claims, but not so high that their company loses

business to competitors.

Customers

People mix not only includes employees but also customers. The customers

are to be treated with respect and courtesy.

LIC (India) ltd. provides following facilities to keep the customers happy

and satisfied.

The birth dates of the policyholders are recorded and on the day of the

birthday, the policyholder is given a ―happy birthday‖ call by the com pany.

The customers are reminded to pay their premium on time through sms.




Physical Evidence.

Companies try to demonstrate their service quality through physical

evidence and presentation. However, in case of insurance sector, the

customer rarely visits the insurance company. The customer comes mostly

only in contact with the service provider hence the service provider

(insurance agent) should.

Look presentable.

Have a pleasant personality.

Have good communication skills.

The physical evidence factor is directly proportional to the level of faith of

customers as well as the employees in the organization. Physical evidence

goes w ay beyond an individual. It includes the com pany‘s advertisem ents,

public relation, employees, and branches.

Insurance Service Tangibles as Physical Evidences

1 Policy Documents

2 Brochures

3 Periodic Statements

4 Renewal Notices

5 Business Cards

6 Stationary

7 Calendar, Diaries

8 Letters/Cards

9 Website


Process Mix.

It is more important to do what is strategically right than what is

immediately profitable - Philip Kotler

In case of insurance sector, the process mix includes the various interactions

that take place between the insurance agent and the customer in the process

of selling the policy to the customer till the settlement of claims.

The following process mix is followed by insurance companies in case of

life insurance:

1) The insurance agent calls up the customer and informs him about the

different policies offered by the company and the price mix of all the

policies. If, the customer seems interested in taking the policy then, he fixes

an appointment with the customer.

2) The insurance agent meets the customer and gives him some

information about the insurance company and also about the benefits of the

policy.

3) The customer is then asked to fill a financial review form (FRF) and the

agent is asked to find out the standard of living of the customer so that the

insurance company gets a clear picture about the financial condition of the

customer and what kind of policy he can afford.

4) The insurance company offers various policies but they might not be

suitable for the customer hence, on the basis of his requirements and


financial status, the insurance agent suggests two or three policies to the

customer, which will be suitable for him.

5) The insurance agent explains the different policy plans in detail to

the customer i.e. the amount of premium to be paid, the time interval at

which the premium is to be paid, the benefits of each of the policy etc. A

brochure is also provided to the customer wherein the entire description of

all the policies is given.

6) Then, the insurance agent provides a feedback form to the customer and

asks him to give his feedback regarding the policies that he has been

informed about. This feedback is taken in order to find out whether the

customer is satisfied with the plans of the policy or whether the company

needs to make the policy plans more attractive so that it may appeal to its

future customers.

7) Then, the next appointment is fixed by the insurance agent with the

customer and in this meeting; the customer selects the policy plan, which

appeals to him. The customer is then asked to fill up the proposal form

which contains various details of the payment and he is asked to make the

first premium payment.

8) Then, the insurance agent submits the duly filled and signed form in

the insurance office along with the other necessary documents. E.g.:

Medical Reports in case of Life Insurance. Submission of Age Proof is

essential as the rate of premium payable on a life insurance policy generally

varies with age, and therefore age is one of the most important factors in

determining the rate of premium payable in an individual case.


The following is accepted as age proof:

C ertified extract from m unicipal or local body‘s records m ade at the tim e

of birth.

Certificate of Baptism if it contains date of birth

Passport issued by passport authorities in India.

Certified Extract from school or college records, if date of birth is

mentioned.

9) The customer must get himself examined from the approved doctor of

LIC. The medical examination is necessary to determine the physical fitness

of the customer. If the medical report is favorable, then only LIC will issue

the policy.

10) An average twelve days time is taken by the company to verify the

submitted documents. After the twelve days period, the insurance agent

meets the customer to provide him a policy document, which consists of

the terms and conditions of the policy. This is because terms and

conditions of the policy differ for different customers due to differences in

medical conditions of customers in case of life insurance and due to

differences in nature of goods and mode of transportation in case of marine

and fire insurance.

11) Then, a reconfirmation is taken by the agent from the customer that

he agrees with the terms and conditions of the policy.

12) The insurance agent then regularly collects the premium from the

customer whenever the premium becomes due.


BLUE PRINTING - SEVICE MAPPING The blue printing show what the product should look like a details the

specification to which it should conform. In contrast to the physical

architecture of building, ship, or piece of equipment service process have a

largely intangible structure. The process of logistics, industrial engineering,

decision theory, and computer system analysis each of which employs blue

print techniques to describe processes involving flow, sequences,

relationship and dependencies.

Offering a product keeping in mind various product specifications.

Collecting payments and closing the sale.

After sale service and handling customer queries. Customer retention.

Telephonic conversation between the agent and the potential consumer

Interaction with customer and analyzing customer need.

Explaining product in detail clearing every doubt. The product should be presented in a customized manner.

Completing formalities like filling forms and receiving necessary documents.


Claim settling Process: (Life Insurance)

1) Claim by maturity/ Installment Payment: The Company strives to

settle maturity claims and make periodic payments, as in case of Money

Back Policies, on date itself. The office which services the policy sends out

an intimation regarding the payment along with the necessary discharge

voucher for the execution by the assured approximately two months before

the due date of such payment.

2) Death Claim:

Intimation of Death: In the event of the death of the policy holder, the

claimant or the nominee should immediately intimate the branch office

where the policy is serviced, the fact of such death, along with the following

particulars: (a) Policy number, (b) name of the life assured, (c) Date of death

and (d) claim ant‘s relationship w ith the assured.

Claim Forms: Soon after the receipt of the intimation of death, the

branch office will send the necessary claim forms for completion along with

instructions regarding the procedure to be followed by the claimant.

Evidence of Title: The claim is usually payable to the nominee as the

case may be. However, if the deceased policy holder has not nominated or

hasn‘t m ade a suitable provision regarding the policy money by the way of

will, the claim is payable to the holder of a succession certificate or some

such evidence of title from a court of law.

Payment of Claim: The Company then makes payment to the rightful

recipient.


Life Insurance Marketing Triangle.

The concept of services marketing triangle is as follows:-

COMPANY

Internal Marketing External Marketing

SERVICE PROVIDER CONSUMERS

The above diagram explains the services triangle with its three constituents,

namely, the company, the provider and the consumer. Each of them have

been explained as follows:-

The Company

The company makes various promises to its customers through external

marketing. The way and means of marketing will be covered it the

marketing mix.


The Provider

The agents and the development officers act as the front-line staff and they

are in direct contact with the potential or existing customers. They are the

ones who keep or satisfy the promises made by the company. The marketing

of insurance basically comes under concept selling. The agents are thus

given various incentives, rewards, commissions and all the necessary

training required.

As regards incentive, they receive PLI (Productivity Linked Incentive),

which is based on the increase in premium amount and the sums assured by

the agent. They are also given extra commissions in case of policies, which

are of high value. There are normal promotions for any good work done on a

regular basis. The agents generally work under the training and guidance of

their respective development officers.

The Consumers

The consumers are the policyholders. Apart from the routine life insurance

policies other services like housing finance, mutual funds, pension and

group insurance. Thus the range of consumers is far and wide.


Life Insurance Flower of Service.

Flower of services refer to a well-formed package of total services with all

the supplementary services being well formulated along with the core

services. The various petals of the flower are:


Information: A marketer needs to provide adequate information to his employees and his

customers. This information is general information provided through various

communication channels.

In the insurance industry information is provided to the customers with the

help of:

Agents

Seminars

Web sites

Print media

Radio

Television, etc.

Consultancy: This is additional customized information provided to the potential

customers by the service provider. In the insurance industry it is provided by

com pany‘s staff and agents.

Example: In LIC when a customer enters asking of information about the

policy, he is directed towards the assistant sales manager. Assistant sales

m anager w ill listen to the custom er‘s requirem ent and as per his requirem ent

list the number of policies that are available. He will also ask the customer

about the price and limit the number of options for the customer, so that he

can easily choose the policy without confusion.


Order taking: Order taking should be done without mistakes. In LIC order taking is

generally done by:

By Agents

On Web site

By Assistant sales manager directly in the office.

Hospitality: Hospitality is a very pretty petal, reflecting pleasure at meeting new

customers and greeting old ones when they return. Hospitality finds its full

expression in face-to-face encounters.

In LIC customers directly come in contact with the sales manager. The

customers are treated as guests. The sales managers of LIC are given special

training of how to sell the policies to the clients. It is only in LIC that a

customer can meet the chairman directly without any appointment.

Safe keeping: It is in the process and procedures used by marketers to safe guard and to

maintain secrecy.

In LIC the data of the customers is very important. They feed the data of the

customers in their Front and Application Program Software which is

connected with all the branches of LIC. The data is only available with the

sales people and not shown to any person.


Exceptional: E xceptional service m eans service over and above custom er‘s expectations.

LIC has the fastest claim settlement in the world thereby providing

exceptional service. LIC also solves complains of the customers within

7days.

Payment: The payment of premium is normally through cheques. Customer can make

payment in LIC through:

Agents

Loans

Web sites

Standing instruction to banks:

In this the account holder will give standing instruction to his bank to pay

the amount of premium every month without his consent on the given

date directly to LIC.

Billing: The billing should be done in such a way that there are no mistakes and if

there are any they must be immediately rectified. The billing should provide

break-ups of premium charged, service charges, etc.


Article III. Intangibility

Article II. Inconsistency

Article I.

Inventory

Inseparability Service

4 I’s for Life Insurance Life insurance has four major characteristics that greatly affect the

marketing programs.


1. Intangibility:

Unlike products, services cannot be held, touched, or seen before the

purchase decision thus, they should be made tangible to a certain extent.

M arketers should ―tangibilize the intangible‖ to com m unicate service nature

and quality.

This can be done through:

Environment

Uniforms

Paperwork

Brochures

Insurance is a guarantee against risk and neither the risk nor the guarantee is

tangible. Hence, insurance rightly come under services, which are intangible.

Efforts have been made by the insurance companies to make insurance

tangible to some extent by including letters and forms

.


2. Inconsistency:

Service quality is often inconsistent. This is because service personnel have

different capabilities, which vary in performance from day to day. This

problem of inconsistency in service quality can be reduced through

standardization, training and mechanization.

In insurance sector, all agents should be trained to bring about consistency in

providing service or, the insurance process should be mechanized to a

certain extent. E.g.: the customers can be reminded about the payment of

premium through e-mails and sms instead of agents.

3. Inseparability:

Services are produced and consumed simultaneously. Consumers cannot and

do not separate the deliverer of the service from the service itself. Interaction

between consumer and the service provider varies based on whether

consumer must be physically present to receive the service.

In insurance sector too, the service is produced when the agent convinces the

consumer to buy the policy and it is said to be consumed when the claim is

settled and the policyholder gets the money. In both the above cases, it is

essential for the service provider (agent) and the consumer (policy holder) to

be present.


4. Inventory:

No inventory can be maintained for services. Inventory carrying costs are

more subjective and lead to idle production capacity. When the service is

available but there is no demand, cost rises as, cost of paying the people and

overhead remains constant even though the people are not required to

provide services due to lack of demand.

In the insurance sector however, commission is paid to the agents on each

policy that they sell. Hence, not much inventory cost is wasted on idle

inventory. As the cost of agents is directly proportionate to the policy sold.


Complaint Handling.

In a vast Organization like LIC, catering to the various needs and aspirations

of millions of policyholders, grievances of customers do arise occasionally.

In order to redress these grievances LIC has established elaborate Grievance

Rederessal Machinery and the details are as under.

1) Grievance Redressal Officers:

Grievance Redressal Officers have been designated at all levels of the

Organization: At the Branch level: The Sr/Branch Manager

At the Divisional level: The Marketing Manager

At the Zonal level:

The Regional Manager (Marketing) in case of Ordinary policies.

The Regional Manager (Pension and Group Schemes) in case of P&GS.

At the Central level:

The Addl. Executive Director/Chief (Marketing/Customer Services) in case

of Ordinary policies. Chief (Pension and Group Schemes) in case of P & GS

policies. Policyholders can personally contact these designated Officials and

seek redressal of their grievances.

The respective Grievance Redressal Officers are available at their Offices

for personal interviews with the customers on all Mondays between 2.30

p.m. to 4.30 p.m. without prior appointment.


Customers can meet the Grievance Redressal Officers on other days also

with prior appointment.

The names of the Grievance Redressal Officers are displayed in the

respective Offices and are periodically published in the local

II) Complaint Cells:

For those customers who are not in a position to meet the Grievance

Redressal Officers in person, a Complaint Cell is functioning at the Central,

Zonal and Divisional Offices. They can send their written complaints to

these Offices. Such complaints are registered and monitored with the

respective servicing units for proper redressal.

III) Claims Review Committee:

In a few cases of death claims, LIC is put to the necessity of repudiating

them to safeguard the interest of the genuine policyholders. Claimants who

are dissatisfied with the decision of repudiation of claim can approach the

Claims Review Committees set up at all the seven Zonal Offices and at the

Central Office. These Committees comprise of senior Officials of the

Corporation and also retired High Court/District Judges and they review the

claims objectively and dispassionately to rule out any miscarriage of justice

to the claimant.

IV) Complaints received through the Government:

Some of the aggrieved policyholders write directly to the Government of

India seeking redressal of their grievances. Such grievances are attended to


on a top priority basis. For this purpose, a special cell has been set up at the

Central Office level for monitoring and for satisfactory redressal.

V) Policyholder Councils and Zonal Advisory Boards:

In all the 100 Divisional Centers, Policyholders' Councils have been

established. Three policyholders of the area represent the interest of the

policyholders and interact with the Divisional Management on consumer

concerns. Similarly, at all the seven Zonal Centers, Zonal Advisory Boards

are functioning. Many consumer-activists are inducted as Members to these

Forums to protect the rights of the consumers.

VI) Consumer Affairs Committee:

A Consumer Affairs Committee has been constituted at the Board level with

many eminent consumer activists and members of public joining as

members along with the Chairman and the Managing Directors of the

Corporation. This Committee looks into various areas of consumer interests

and advises the Corporation.

VII) Citizens' Charter:

LIC has adopted a Citizens Charter through which it reiterates its

commitments to the customers and the standards for general procedures, the

standards for policy servicing, the standards for easy access to information

for customers and the standards for fairness in dealing with the customers

have been laid down.


Service Recovery

A disappointed customer does not just go away, but he/she goes away and

might not come back at all. And there are great chances that he might take

away some other existing customers or he may restrict the potential

customer to be the Loyal Customer of the Company. Here lies the need for

Service Recovery. It is quiet possible that at every given opportunity, he

might speak about the negative experience that he had with the Company

which finally affects the decision of the other customers too.

In case of Insurance, it might the customer may be disappointed due various

reasons like:

Faulty claim settlement

Lack of concern on part of the Agents/Company

Lengthy and exhausting procedures

Excessive number of documents for getting a policy as well as for

claim

Inflexibility in terms of premiums.

Unavailability of required Infrastructure/ Technical Support System.

(computers, printers etc)

Better service quality from the competitors.

And many personal reasons.

Im pact of w ord of m outh on custom er‘s repurchase decision is tw ice as

important as corporate advertising. So the Company needs to recover before

things start to get worse.


Insurance Companies should make sure that their customers are not

dissatisfied due to service failure. And if at all they are disappointed, they

follow some basic steps to recover from the loss of Customer

Dissatisfaction. Some of the steps are:

Apologise or Acknowledge:

Apology rendered in first person is the most powerful tool. The magic word

―I am S orry‖ provides authenticity of personal involvem ent.

LIC has realised the importance of personal involvement and has included it

in the training program itself. Once the Agent is recruited he needs to

undergo a compulsory training program designed by LIC. The Training

Program also explains them the importance of the smallest of the customer

.i.e. customer who is just seeking general information. The Agents and

Employees are trained to Apologise to its customers even if they are not

at fault.

Listen, Empathise and Asks Question:

Customers are looking for a good listener who allows them to vent their

frustrations, shows understanding of their upset and by listening offers tactic

evidence of believing the custom er‘s report of the error on part of the

company.

As mentioned earlier, LIC has established elaborate Grievance Redressal

Machinery at different level as per the customer requirement. There are

Complaint cells which are specially set up to listen up to each and every

custom er‘s problem s. L IC gas also set up Policyholder Councils and Zonal


Advisory Boards to understand the problems of their customer situated in

any part of the city.

Offers a Fair Fix to Problem:

Customers want wrong to be set right and expects service contact employee

to be skilled, empowered and interested in setting things right.

This is the main reason why LIC conducts training programs for the

newly recruited Agents as well as the other Employees. In any kind of

breakdown situations LIC try to offer a rational explanation and demonstrate

sensitivity and concern to the customer rather than defending themselves.

For e.g. there is a breakdown in a computer at the payment counter. Now,

these Payment Counter might be open only at a particular time of the day. So

if the problem is repairable within a short period of time, than the Branch

Manager would extend the timings for Payment (only for that day) so that

the custom er don‘t have w aste another day for the sam e purpose.

Offers Some Compensation for the Inconvenience:

C om pensation here w ouldn‘t m ean of just m onetary com pensation or som e

extreme measures like firing the Branch Manager Etc; but it is just to make-

up for the loss of custom er satisfaction. It could be like ―it‘s on us‖; ―free

service‖ etc. T he service provider should plan certain com pensation policies

in advance for various types of situations and deliver it as and when the

situation is faced.


For e.g.: Suppose there is a customer who is standing in a long queue for

payment of his premium on the very last date of the permissible period. And

all the payments were not accepted on the same day within office timings

and hence the payment was finally delayed. There are chances that the

customer may blame the employees of the Company for slow clearance of

the premium. The Company could however compensate to the customer by

waiving the penalty payable due to delay in payment of premium.

Keep the Promises:

It basically means that the Company should keep the promises made to the

Customer before or at the time of service provision i.e. the Company should

fulfil its commitments.

LIC makes sure that none of the Agents provide any kind of wrong

information or false promises to its customers which mislead them. LIC ask

their Agents to give reasonable commitments so that they could be fulfilled

by the Company or the Agent on behalf of the Company.

Follow Up:

This is the most important step in Service Recovery as it ensures that

whether the implemented Service Recovery was Satisfactory or not. It would

include Internal and External Follow-up. Internal Follow-up would be to

ensure that the solutions they put in motion are actually executed and the

External part would be to get feedback from the customer whether he is

satisfied or not.


A Study of the Industry


A Sectoral study

Insurance is suddenly gaining all the attention and what used to be a strange

would in it is a household name, thanks to opening up of the industry, while

there are several reasons for opening up of insurance sector the foreign

investors are eyeing it as a very lucrative prospect. After the opening up,

several private insurers have started operating in life insurance, especially in

metro areas. New marketing channels like Bancassurance, brokers, etc. are

also in the offing.

KEY MARKET INDICATORS.

Size of market life & non life $16 billion

Total Global insurance premium (as on 2001)

$2408.25 billion(-1.5% as against 2000)

Rate of annual growth 2002-03 Life- 11.27%

Non life- 23%

Geographical restriction for new players

None. Players can operate all over the country.

Registration restriction Composite registration not available.

Equity restriction in the new Indian insurance company

Foreign investor can hold up to 26% of the equity.

Number of registered companies. Public sector – 01 Private sector – 13

Source: IRDA annual report 2002 - 03


Life insurers in India.

As an answer to globalization of economy and the increasing pressure of the

WTO regulations, the govt. appointed the Malhotra Committee. After

considering all aspects, the government ultimately enacted Insurance

Regulatory and development authority and vested the authority to formulate

regulations for insurance industry. IRDA and the LIC allowed the entry of

foreign investors on a condition that they enter in collaboration with a local

company.

Public sector Private sector

Life Insurance Corporation of India(LIC) 1. Allianz bajaj life insurance Company limited.

2. Birla sun life insurance Company limited. 3. HDFC standard life insurance company

limited. 4. ICICI Prudential life insurance Company

limited. 5. Reliance life insurance Company limited. 6. ING vysya life insurance Company

limited. 7. Max New York life insurance Company

limited. 8. MetLife insurance company limited. 9. Om kotak mahindra life insurance co. ltd. 10. SBI insurance company limited 11. TATA-AIG life insurance Company

limited. 12. AMP-Sanmar Assurance Company

limited. 13. Aviva Life insurance company limited


Performance of the Industry

Post-Privatization, the life insurance industry grows by leaps and bounds.

The attitude of people towards life insurance itself is changing. People are

becoming more and more aware of the advantages of the Life insurance

policies. Generally performance in life is measured in terms of first year

premium collection and no. of lives covered.

In 2003-04 Life Industry grew by 10.5% in terms of first year premium. It is

showing steady growth rate in the current financial year as well. The sector

witnessed a growth of over 50% for the month of April 2004, vis-à-vis April

2003. The premium In comparison, LIC underwrote premium of

Rs.72,304.62 lakh i.e., a market share of 82.33%. In terms of policies

Underwritten, the market share of the private players was 17.88% as against

82.17% of LIC. The premium underwritten by the private players for

individual policies stood at Rs.12,107.63 lakh, towards 89,918 policies with

group premium accounting for Rs.3,411.30 lakh towards 84 schemes.

The number of lives covered under group schemes was 1,01,392. ICICI

Prudential continued to lead amongst the private players with premium at

6.15% and policies at 4.85%. In terms of number of lives covered, OM

Kotak led with 21,325 lives viz., 5.83% of the total lives covered. Premium

underwritten by LIC under Varishtha Bima Yojana during the month of

April, 2004 was Rs.26, 734.25 lakh towards 13899 policies of which

29.60%, in terms of both premium and policies, was underwritten in the

rural sector.


From the opinion that it was an instrument intended to provide monetary

support at the time of the death of an individual, life insurance life insurance

grew up to be a major financial instrument during the past 50 years in our

country. There has also been a change in the consumer outlook with regards

to life insurance as very beneficiary financial tool as against the orthodox

thinking of unfruitful use of money. Increasing number of people has been

opting for it. The number of policies issued by the LIC of India since 1995-

96 is a clear indication of the popularity gained by life insurance.

(Source: 46th annual report of LIC of India for the year 2002-03)

Form the above table it is eminent that the importance of life insurance has

grown gradually over a period of time not only in metro areas but also in

rural areas.

Table year. No. of policies (total) No. of policies (rural)

1995-96

1996-97

1997-98

1998-99

1999-2000

2002-2003

1.10 crore

1.23 crore

1.33 crore

1.48 crore

1.70 crore

2.42 crore

52.57 lacs.

60.33 lacs.

68.40 lacs.

81.23 lacs.

97.04 lacs.

45.23 lacs.


As there has been a dramatic increase in the importance of life insurance, the

number of policies issued per annum has also increased, thus leading to a

great change in the total premium amount collected. The total amount

mobilized by LIC during the past few years‘ stands witness to the growing

importance of insurance.

(Rs. In Crores) (Source: 46th annual report of LIC of India for the year 2002-03.)

Total amount mobilized

1998-99

2002-03

Total premium income Income from investments

Rs.22,805.80

Rs. 13,183.92

Rs.54602.37

Rs.25030.50


Trough life insurance, people could save more than Rs. 50,000 crore in just

two years. B y investing people‘s savings, L IC could generate investm ent

income of nearly Rs. 30,000 crore in the last two years. Life insurance thus

proved to be very potent instrument of public savings, so much necessary for

developing a country like India.

Over the past 48 years, LIC of India provided financial security to millions

of families as the following figures for past five years indicate.

(Source: 46th annual report of LIC of India for the year 2002-03)

YEAR No. of claims paid 1995-96

1996-97

1997-98

1998-99

1999-2000

2002-03

41.67

49.49

56.52

59.83

66.42

96.53


INVESTMENT PATTERN

(www.lic.com) (Rs. In Crore) From the above table it is eminent that the Life Insurance Corporation

primarily invests in the public sector undertakings. There has not been much

change in the investment pattern for electricity, Housing and industrial

development. However, there has been a large contribution in the transport

and water supply sector w hich indicates that L IC ‘s investm ent in this arena

is of im m ense im portance for the country‘s infrastructure.

Sr. No.

AUTHORITIES

Loan advanced during 1999-2000

Loans advanced during 2002-03

1 Electricity: (State boards/power corp.)

1,366.11 1,060.93

2 Housing: (State govt. for housing schemes. Like HUDCO, HDFC.)

970.00 890.07

3 Water supply and sewerage

383.15 570.33

4 Transport: SRTC

65.29 465.00

5 Industrial development: Joint stock companies.

358.96 278.68 (PUBLIC SETOR)


Present Market Structure

The insurance sector in India has come a full circle from being an open

competitive market to nationalization and now back to a liberalized market

again.

After privatization LIC is no longer a monopoly. Insurance sector was

converted into Oligopoly.

The market share of private players is as under.

Birla Sunlife14.0%

SBI Life4.1%

Max NYL6.2%

Om Kotak5.7%

HDFC Standard9.4%

AVIVA Life3.7%

ING Vyasa3.5%

Allianz Bajaj8.7% Tata AIG

6.0%

Metlife1.1% AMP Sanmar

1.2%

ICICI Pru36.2%

(Source: - IRDA Journal Edition June, 2004)


Total market share of LIC as compared to other private players.

LICICICI PRUSUNIFE BIRLA TATA AIGOTHERS

From the above figure it is eminent that LIC has the largest market share in

the life insurance industry till date.


Characteristics of Insurance sector as oligopoly are as follows:

1. Presence of few sellers: After liberalization the no. of sellers increased

from 1 to 13 as on date, like LIC, ICICI Prudential, HDFC Standard,

Birla Sun life, Om Kotak, SBI Life, ING Vysya, and MAX New York

Life etc.

2. Regulator: IRDA (Insurance Regulatory Development Authority)

regulates the Insurance industry. License to the new comer is granted by it

only. All products, premiums, Tariffs require its approval.

3. Price Giver: Price of the policy i.e. premium is calculated by the

actuaries of the respective companies depending upon the nature of risks

covered, coverage of the policy and many other probability calculations. But

premium as well as the product needs to be approved by IRDA.

4. Entry or Exit Barrier: There is no free entry into this sector as already

outlined New entrants has to satisfy certain condition before entering into

this industry. Exit is even tougher since all the contracts are long term so

there are very strict regulations for exit from the industry by IRDA.

5. Product Differentiation: There are no homogenous products. There are

wide varieties of products available in the market. Each seller can introduce


any new policy depending on the efficiency of its product development team

within the broad guidelines of IRDA.

6. Advertisement: Sellers spend huge amount of their yearly budget on

advertisement to educate the consumers about their products and their

company. IRDA ensures that advertisement does not mislead people. The

IRDA has made it mandatory that every advertisement carries the line,

―Insurance is m atter of solicitation‖ so that people know that they are

reading an advertisement.

7. Investment Policy: Investment of life fund upto 75% in government

securities is mandatory as per IRDA. 89% of the total surplus to be

distributed to policyholder as bonus every year.

8. Market Share: Still the private sector companies are in nascent stage

and major chunk of market pie is still owned by public sector giant (LIC).

But private players are also competing very bravely.


The influence of private players has created the following benefits:

Benefits to customers:

o Reduction in the price of product under competitive market.

o More innovative products to be available in a competitive market.

o Improved management of investment portfolio.

o Improved quality of service due to use of IT and multi distribution

channels.

Benefits to Industry:

o New Insurers to earn high profit in the initial stages due to large size

of Indian insurance market.

o Insurance intermediaries will include agents, Brokers, Independent

Financial Consultants etc. The commission paid may exceed Rs.46000

Crores in a period of 10 yrs annually.

o Advertising campaigns may reap benefits as an additional advt.

market for Rs.10000 Crores will be opened in 10 yrs directly related

to the insurance sector.

o Computer industries will benefit.

o Placement services, management institutes & training institutes will

also be benefited as the insurance sector after opening up will require

many people thus increasing the employment opportunities.


EXPERT OPINION.

Interview: Shikha Sharma, MD, ICICI Prudential

For decades now, life insurance has been synonymous with LIC. But private

player ICICI Prudential is giving the public sector behemoth a run for its

money. Offering a wide range of products, declaring portfolio regularly,

following a product philosophy that revolves around the customer... little

wonder that it is today the leading private insurer.

It’s been over tw o years since IC IC I P rudential w as started. H ow would

describe your experience and achievements?

It‘s been a very interesting tw o years. P ersonally, it has been rew arding. In

the past two years at the industry level, there have been many new channels

coming in–brokers, corporate agents, Bancassurance. Then, there have been

product innovations– the flexibility of riders, market-linked plans... There

has also been lots of innovation on the pension front and there has been

considerable progress in educating customers about the need for financial

planning, including insurance and pension planning. It‘s been fun to be a

part of that and see the industry evolve.


Is there a specific strategy the company has followed to become the

leading private player?

Our strategy is simple. Look for what makes sense for the customer and try

to deliver maximum value. Whether it is distribution, service, or products,

w e do w hat w e think is in the custom er‘s best interest. S o w e w ent m ulti-

channel virtually on day one. We went multi-product with a full suite of

products because every customer does not need the same product. Although

we were a young company, we invested in the web and in call centers so

customers can contact us easily. We empowered our agents with technology

so that they had the information they needed when they were talking to

customers.

ICICI Pru is the first insurance company to implement Six Sigma. What

is this about?

Six Sigma is an initiative pioneered by GE and now used by other

companies. We are the first insurance company to use it. It is a quality

initiative to measure what service we are delivering to customers on a

monthly basis. The best thing about Six Sigma is that it begins with and ends

with the customer– from capturing the voice of the customer to measuring

improvements he has experienced. We have used Six Sigma for over a year

now to drive continuous process improvement across processes that touch

custom ers. W e did a custom er survey last year, and w e‘re going to do one

this year. That is when we will have a comparative picture as to whether

customer satisfaction has gone up. We do know that our measured service

delivery has improved significantly over the last year.


W hat is IC IC I P ru’s product and revenue m ix? W ill you be looking at

launching new products to fill any gap in the product portfolio?

Today, unit-linked products constitute over 60 per cent of the products;

participating products account for 40 per cent. Pensions have also done very

w ell. In fact, last year w e had about 23 per cent of the total pension‘s

category. Bancassurance has helped, and contributes 18 per cent to our

business; about 30 per cent of business is from alternative channels (non-tied

agents). W e don‘t think there‘s a gap in our product portfolio. W e have a

traditional endowment product; we have a linked product. And within that,

we have a traditional pension and a linked pension plan. We have term, with

single premium and regular premium. We recently launched two new

endowment products, and we have also entered the group segment.

O ur product philosophy has been: ‗K eep it sim ple, don‘t confuse the

custom er w ith too m any nam es and brands‘. F or instance, our linked plan –

Lifetime–is a w hole life plan, though it‘s not branded as one. B ut it is a

w hole life plan because you can keep it as long as you w ant; it doesn‘t have

a m aturity date. S o, it‘s not necessary for us to launch a w hole life product

when you get the same benefits in a linked product.

We are looking at launching a couple of new products, but the product

philosophy will remain the same.


Agents abroad are paid commission for about six years. Here, agents get

commission throughout the policy term; LIC even pays hereditary

commissions. Is this in the interest of the policyholder?

W e‘ll have to w ait for the legislation to change first. I think there is som e

merit in providing a trailing commission. There are certain segments of the

market where automated premium payment is possible, but there are other

segments where this is not possible. But while I see the benefit of a trailing

commission, I do not see any benefit in hereditary commissions. As long as

the agent is servicing the custom er, there‘s a case to trail com m ission.

How is ICICI Pru different in terms of the qualitative aspect of its

investment strategy?

It‘s a question of w here w e invest our energy as an organization. Did we

invest our energies only in marketing or only in distribution, or holistically

across the organization? Many insurance companies might have decided to

invest in the front-end first, ignoring the back-end of the business. We have

not done that. In order to get both the front and back end in place, we

initiated Six Sigma.

We hired two fund managers with excellent track records when we had a

policyholder fund of under Rs 1 crore. We did not favor taking advice from

somebody else to manage out portfolio. As the fund size grows, we will hire

additional fund managers.


As far as fund management is concerned, you must have the right

philosophy, the right policy and the right control systems. We have fairly

well defined limits and policies on how they can invest. These limits are

apart from what IRDA has prescribed.

In terms of transparency, people are not worried about money put in

LIC because it is a government company. How will a private company

convince policyholders about the safety and whereabouts of their

money?

First, just because LIC is government guaranteed, policyholders should not

relax. The guarantee is only on the guaranteed return and not on the

participating policy.

Investment performance is critical, irrespective of whether investment is

with LIC or a private insurer. Government guarantee has credibility only in a

guaranteed return product. But most companies, including LIC, are moving

towards non-guaranteed products.

As far as disclosure is concerned, we have led the way. We declare the

portfolio to our customers in unit-linked policies on a quarterly basis.

B esides, w e have separate funds for different products, so there‘s no cross-

subsidization. We have clearly laid down the investment policy information,

and we have declared portfolio for all our linked funds. Going forward, we

will be the first to declare the portfolio on participating products.


D oesn’t the governm ent guarantee com e in the w ay of a level playing

field?

As a competitor, I think it would be great if LIC did not have a government

guarantee. But when I was granted the license, I knew LIC had this

guarantee. I entered the arena with my eyes open. The guarantee is fine, as

long as it is handled in a professional and commercial fashion. As long as

the government is making sure that the LIC investment philosophy is such

that the guarantee is w arranted and viable, it‘s okay to give a guarantee.

The market is moving towards non-guaranteed products where government

guarantee has no role to play. Also, over a 10-year period, sustaining the

government guarantee is going to be difficult. If LIC has a hole in its

investment return, can the government keep pumping in money? No. Then

the guarantee is just a soft comfort. Ultimately, LIC has to sell products that

will earn returns. Just the guarantee is not going to get them very far. Short

term, psychologically yes. In the real world, it makes no difference.

Source: 16 Sep 2003 - Money outlook


Human resource opinion at TATA-AIG

W hat’s the quantity of business you have already generated and w hat is

your target for the current year? What are your management expenses

and when do you hope to break even?

We hope to sell about 50,000 policies by the end of March 2002. So far we

have sold about 8,000 policies and approximately 4,000 are under

submission (about 50 per cent of our business is generated in the last quarter

of the fiscal). We have yet to venture into the rural areas, though. At present

we are not insuring people above 60 and fewer than 18. We do have

products that cover these age groups in the world market, but we will at a

later stage design som ething that‘s suitable for the Indian m arket.

At the current pace of growth, we hope to break even between the fifth and

seventh year. However, if we decide to get very aggressive about our

expansion, which would mean opening more branches, incurring more

overheads and more fixed expenses, we will break even by the end of the

seventh year.

As for management expenses, in the life insurance segment these have to be

understood differently. In the first year of the premium income, management

expenses amount to more than 100 per cent, largely on account of start-up

costs and high acquisition costs, which include the costs of agent

commissions, medical underwriting and processing of new business. But

management expenses go down substantially from the second year onwards.


Over a period of time, we hope to bring our management expenses down to

approximately 5 per cent of revenues (LIC's is 20 per cent).

There is a perception that LIC has scored over the new private sector

insurance companies. Is this true and, if so, why?

It would not be wrong to say that a lot of the advantage of advertising by

new private sector insurance companies has by default gone to LIC. While

we have created a lot of awareness through our advertisements, LIC has

benefited. Why? Because LIC has a much wider branch network, and buyers

are surer of LIC because it has been in existence for long; they are more

comfortable about its safety. I must add that some LIC agents continue to

follow the unethical practice of offering discounts from their commissions to

new policy buyers; this makes a difference.

Is Tata AIG thinking of introducing policies that are better and more

innovative than those of LIC?

To come out with innovative products will take time. We are all still new in

India and are kind of testing the waters. New entrants are averse to taking

risks and have, therefore, taken the safe route. Moreover, innovative

products have failed in the past (the unit-linked insurance plan, for instance;

it was too complicated). Agents will sell only those products they

themselves understand and are comfortable with.

Where we are scoring is in terms of additional benefits. In terms of basic

product structure there is not much variation, but in terms of add-ons there


are many differences. Take, for example, our 15-year ‘term w ith refund of

prem ium ’ policy , which is similar to LIC's Bima Kiran: not only is our

premium cheap, which helps the buyer go for a higher cover, it also has an

add-on in the form of a double and triple accident indemnity rider, which

Bima Kiran does not have.

Critics say that the new private sector companies are riding piggyback

on LIC's premium tables and rates.

The premium rates and tables used by us are our very own. Our premium

rates appear to be on the higher side when compared with others because our

policies carry more add-on benefits. All our policies, endowment, money

back, etc, carry compound reversionary bonus, which means the bonus is

being compounded. In the case of LIC, the bonus is simple. We give

terminal bonus on death. Then there is a guaranteed addition of 10 per cent

of the sum assured after 10 years.

We have been able to sell even though our premium rates are higher by 30 to

40 per cent because of the value we add. The market understands this value

addition very well. Premium rates are not dependent merely on mortality

rates; they also depend on morbidity, inflation, solvency rates, taxes,

investment rates, expenses and more.

We want to invest more in technology. Our future plans include speeding up

our response time. We will equip each of our offices with underwriters and

claim processors, besides offering personalized service to policy owners.

Source: Personal interview with Mrs. Suwarna H.R. manager TATA-AIG.


PEST Analysis for Insurance services

Political/ Legal Influences which have an impact on financial services and consumer

confidence include the following:

The Insurance Regulatory and Development Authority

(IRDA): Reforms in the Insurance sector were initiated with the passage of the IRDA

Bill in Parliament in December 1999. The IRDA since its incorporation as a

statutory body in April 2000 has fastidiously stuck to its schedule of framing

regulations and registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems

to the insurance sector and in particular the life insurance companies was the

launch of the IR D A ‘s online service for issue and renew al of licenses to

agents.

The approval of institutions for imparting training to agents has also ensured

that the insurance companies would have a trained workforce of insurance

agents in place to sell their products, which are expected to be introduced by

early next year.

The IRDA since its incorporation as a statutory body has been framing

regulations and registering the private sector insurance companies. IRDA

being an independent statutory body has put a framework of globally

compatible regulations.


Privatization of Insurance sector: The introduction of private players in the industry has added to the colours

in the dull industry. The initiatives taken by the private players are very

competitive and have given immense competition to the on time monopoly

of the market LIC. Since the advent of the private players in the market the

industry has seen new and innovative steps taken by the players in this

sector. The new players have improved the service quality of the insurance.

As a result LIC down the years have seen the declining phase in its career.

The market share was distributed among the private players. Though LIC

still holds the 80% of the insurance sector but the upcoming natures of these

private players are enough to give more competition to LIC in the near

future.

FDI in insurance sector: Then, the issue came of amount of FDI to be allowed by a foreign player in

the insurance sector. The government had allowed the private players to

have foreign equity up to just 26 %. Efforts are going on to raise this to 49

%. After the opening up of the sector, a total of 18 private sector companies

have entered the life insurance business and all of them have entered with a

foreign partner.


Economic Economic factors are key variables which have an impact on the activity in

the financial services sector. The level of consumer activity is governed by

income levels and personal wealth. As income levels grow, more

discretionary income is available to spend on financial services. Consumer

confidence in the economy and in job security also has a major impact; if

lean times are foreseen ahead, savings will take priority over loans and other

forms of expenditure. Consumers may also seek easy access savings and be

willing to tie up their money for longer periods with potentially more

attractive investments.

Indian economy – growth projections: By 2025 the Indian economy is projected to be about 60 per cent the size of

the US economy. The transformation into a tri-polar economy will be

complete by 2035, with the Indian economy only a little smaller than the US

economy but larger than that of Western Europe. By 2035, India is likely to

be a larger growth driver than the six largest countries in the EU, though its

impact will be a little over half that of the US.

India, which is now the fourth largest economy in terms of purchasing power

parity, will overtake Japan and become third major economic power within

10 years.

All these facts or forecasts only drive at one point. India is booming as a

market. The global insurance industry has a big eye on India owing to its big

opportunity. India is the next big thing in the global insurance industry.


Many new insurance companies are planning to enter Indian markets. South

African major Sanlam recently announced a tie up with Chennai based

Shriram Group for life insurance business. French multinational AXA,

which has been studying the Indian market for long, is expected to finalize

its plan this year. Dutch insurer Aegon, on its second visit to the country

after a gap of four years, is scouting for a partner and has set up an office.

Korean giant Samsung, the newest kid on the block, also has set up a

representative office.

Growing premiums: Growing premiums are obviously attracting the new players. During the

financial 2004 05 alone, the life insurance premium grew by 35% to over US

$ 13.5 billion in 2004-05. According to Mumbai based research agency

Crystalise Research, over the next five years, Crystalise believes this figure

to zoom past the US $ 33.5 billion mark.

The numbers at the industry level perhaps tell only one part of the story. The

entry of private insurers in India has changed the way in which life insurance

business has been done in India. Premiums of each of the dozen private

players has gone up significantly within two years of operations, and the

incumbent, LIC is being forced to pull up its socks.

SBI Life Insurance reported a rise of 166% in its premium income to US $

138 million for the financial year 2004-05, compared with US $ 53 million it

collected in 2003-04. H D F C S tandard L ife‘s prem ium incom es w ent up

from US $ 67 million to US $ 113 million for fiscal 2004-05. In terms of

first year premium revenue, the biggest gainer has been Bajaj Allianz, with a


growth of 446.9%. The increasing premium rates are a reason why

multinational insurers are flocking to India.

Per capita GDP: According to a study by Swiss Re, a leading global reinsurance company,

once per capita GDP touches $10,000, life insurance premium collection

takes off. India‘s per capita G D P is hovering around $ 3000 but is expected

to go up steeply given the economic growth projections. Also, India, despite

being the second largest in terms of population and insured lives, posts a

very low figure in term s of the country‘s share of life insurance prem ium in

the w orld‘s total life prem ium collection – about 0.8%. This shows that the

insurance sector provides ample untapped market for insurers.

Tax benefits: Payment of insurance premium had also been included in the service tax net

in the 2004 budget. Although 2004 seemed to be a dampener for individuals

insured, the Budget 2005 was a delight.

Section 88 benefits have been scrapped. This means that tax rebate under

Section 88 will not be applicable to an individual anymore. It has now been

replaced by Section 80C. Under Section 80C, one can now invest a sum of

up to Rs 100,000 in investment avenues like NSC, PPF, infrastructure bonds

and/or life insurance and the sam e w ill be deducted from an individual‘s

taxable income.


This is a welcome move. For one, there was a limit of Rs 70,000 on life

insurance premium to avail of Section 88 benefits. This ceiling has now been

raised to Rs 100,000. An individual can now allocate an enhanced amount to

insure himself adequately and still get a tax benefit. He can also manage his

portfolio better without having to worry about tax benefits. For example, he

can increase his insurance coverage by buying a term plan (pure risk cover

plan) and allocate a sizable amount from his portfolio towards retirement

planning.

T he changes in this year‘s budget have also com e as a w elcom e m ove for

individuals whose annual earnings exceed Rs 500,000. Until now, these

individuals did not benefit from the tax-saving on account of paying a life

insurance prem ium . B ut this year‘s budget has rem oved this anom aly and

they too can now look at life insurance up to a ceiling of Rs 100,000

premium to avail of tax benefit.


Socio-cultural Many demographic factors have an important bearing on financial services

markets.

Life expectancy & Mortality rate: The life expectancy is defined as the number of years for which a new born

baby will live in the prevailing mortality condition ns of that particular year.

The mortality or crude death rate refers to the number deaths per thousand

people.

Both these factors are very important as they are used to derive the premium

of a particular policy. All the insurance companies follow a set standard

table referring to which they decide upon the premium rates. This is

generally prescribed by the government. Following is the life expectancy

and death rate in India:


Demographics:

One of the major influences on the premiums or prices charged by insurance

companies is on the basis of the demographics. Premium rates largely

depend on the age, sex of the individual insured. All the insurance policies

have a different rate of premiums to be paid. This is mainly due to the

difference in the risk involved of different individuals insured.

Gender discrimination: Gender based discrimination is rampant in any industry. In the insurance

industry the companies have different premium rates for men and women.

This cannot be actually called as gender discrimination. As is said earlier the

premium depends on the life expectancy in the particular country. More

often than not the life expectancy is different for men and women. Usually

the women are expected to live more than the men and the difference is 5

years and greater. Hence, what the insurers argue is that the women are a

relative less risk than the men and hence the premium charged is more for

women. Insurers are providing cover against risk In order to provide them

with cover against potential liabilities (that they can pay claims or the right

level of benefits), pricing would have to be biased towards the most secure -

and often least favourable- variant. This is to allow insurers to fulfil all their

commitments. "Gender-neutral" insurance in the true meaning of the word is

impossible in voluntary insurance products.


Improving standard of living: If, by 2030 AD 50% Indian population reaches the level of middle class,

Indian market for Insurance Sector will reach the level of 600 million from

conservatively estimated present level of 100 million. Even at the present

level of 100 million, Indian market is big enough by global standards for

vigorous development as the premium density is only 0.6% as compared to 3

to 5% for developed markets. Prospects for conventional insurance

development in Indian market in 21st Century are bright provided its

transformation takes place in the right form and right type of strategy is

developed to transform hidden potential into business.

Consumer attitude and preferences: Insurance was always viewed by people as a safety net. Indians specially are

very emotional as far as family members, security, social status and other

such issues are concerned. The insurance industry is primarily based on the

fact that people live their family their belongings and hence want them to be

with them forever. This is the basic attitude of people towards insurance.

The Indians, hence, are more vulnerable and tend to pay more attention

towards the insurance advertisements and insurance products.

Other factors: Changing attitude towards consumer credit and debt Changing employment patterns Numbers of working women The ageing population Marriage/divorce/birth rates Consumption trends.


Technological. Computerization:

Initially, in the late 1950‘s the insurance com panies used U nit R ecord

Machines (Electro Magnetic Machines) to process data punched into cards.

C om puters w ere introduces in the m id 1960‘s and by the 1980‘s the U nit

Phased Machines were phased out and the entire process was computerized.

This brought about greater efficiency and quick service delivery.

Internet:

Internet usage has drastically improved in the last decade. There was a

tremendous increase in the use of technology by L IC during the late 1990‘s.

The company launched its website www.licindia.com in the m id 1990‘s to

offer basic services such as modifying policies (change of address, change of

nominee, etc) and querying the status of the policy.

But today, the internet has completely changed the service delivery process.

Internet is today used to even sell insurance policies. Internet is, in fact,

proving to be one of the widely used distribution networks for selling

insurance policies. Also internet is used for sending premium notices to

policy holders through e-mails.

Also LIC has a special feature on its website. It has a premium calculator

which accurately displays the amount of premium month wise and the

remaining balance. One just has to enter the age, name of the insurance

http://www.licindia.com/


policy, the sum assured and whether there is an accident cover or not. By

keying in this information, the entire premium amounts are shown within no

time. This has helped the customer in a way so that he/she doesn‘t have to

travel all the way to the branch to ascertain the amount of premium to be

paid.

Metropolitan Area Network (MAN) and Wide Area Network

(WAN):

LIC has commissioned a MAN connecting more than 75 branches in

Mumbai. This enabled the policy holders to pay their premiums and get their

status report, surrender value quotations and loan quotation, from any branch

in the city. Following the MAN in Mumbai, seven MAN centres (Chennai,

Bangalore, Delhi, Calcutta, Pune, Hyderabad, and Ahmedabad) became

operational. These MAN centres were connected to each other by a WAN

network. This WAN was designed for distributed processing without a

central database – each division maintained a database of the policyholders.

The central office in Mumbai maintained an index of policy numbers and the

corresponding IP addresses of the servers where the details of the policy

were maintained.

Electronic Clearance Service (ECS):

Almost all the big organizations today provide the ECS facility to its

customers. A policy holder having an account in any bank which is a

member of the local clearing house can opt for ECS debit to pay premiums.

The advantage here is that once the option is exercised, the policy holder

need not visit a branch for paying the premium or collecting the receipts. On


the day indicated by the policy holder, the premium amount will be directly

debited to the bank account of the policyholder and the receipt will be issued

by the designated branch office.

B ank A T M ’s:

Many insurance companies have a tie-up with commercial banks so as to

enable policyholders to use the facility of paying premiums through the bank

A T M ‘s. IC IC I P rudential has a tie up w ith IC IC I bank; L IC has a tie-up with

Corporation bank and UTI Bank.

Call Centres and SMS services:

Almost all the insurance companies have their own call centres which cater

to the phone based queries of the policyholders. This service is 24x7 and

they have the Interactive Voice Response (IVR) systems at all the branches.

Also, LIC and other companies now provide SMS services going with the

new trends like SMS banking in the banking sector.


SWOT ANALYSIS OF INSURANCE SECTOR

Strengths:

Consumer Grievance Redressal

The Insurers have to face the redressal of the consumers, grievances for

deficiency in products and services. The Insurance Regulatory Development

Authority (IRDA), the regulatory body has already appointed Ombudsman

for looking into the grievances of the policyholders. His judgment will be

binding on the insurers. Further under Consumer Protection Act, 1986, the

consumer courts are operating at the district, state and national levels. This is

a major strength from the consumer point of view as they could easily fight

for their rights.

Increasing customer awareness

The gradual growth of the industry and also the increasing number of claims

settled has slowly led to the increase in the awareness in the minds of the

customers. These aware customers are now potential clients which can be

used by the companies and converted into new clients.

Channels

Insurance companies are getting savvy. Enhanced marketing thus is crucial.

Already, many companies have full operation capabilities over a 12-hour

period. Facilities such as customer service center are already into 24-hour


mode. The opening up of the industry has defined new frontiers of

distribution of which consumer concern is an indispensable part.

Weakness:

Challenge to new insurers.

The new insurers will have to invest a minimum capital of Rs. 100 Crores.

The normal gestation period is of 5 years. The generation of profit normally

starts in the sixth year. Hence the new insurers have to lock up their capital

for at least 5 years.

Outdated products

Today, LIC has more than 60. But most of them are outdated, as they are not

suitable to the needs of the consumers. Hence old as well as new insurers

have to offer innovative products to the consumers and bringing more

products would require good amount of capital investment.

Opportunities:

Vast country

India is a vast country with more than 5, 76,000 villages having a population

of at least 500-600 per village. The companies could recognize the fact that

if it takes the whole zilla as one, it would consist of a population more than

5000-10000. One zilla could give them a good amount of business. The

company could have this opportunity and tap it and reap revenues.


Trained manpower.

Since the sector has opened up, many new companies have already started

its operation and few are just about to begin. The government has also

introduced professional courses like Bcom. (Banking and insurance),

identifying the potential growth in the insurance sector.

Threats:

Lack of understanding.

Very soon the market will be flooded by a large number of products by a

fairly large number of insurers operating in the Indian market. Even with

limited range of products offered by LIC, there is chaos as far as the

consumers are concerned. Their confusion will further increase in the face of

a large number of products in the market. The existing level of awareness of

the consumers for insurance products is very low. This is because only 62%

of the population of India is literate and only 10% are well educated. Even

the educated consumers are ignorant about the various products of insurance.

With new companies coming in the market, the products would be

comparatively more, which would again create confusion in the minds of the

customers so as to which policy best suits the needs.


Findings from the study

With an annual growth rate of 15-20% and the largest number of life

insurance policies in force, the potential of the Indian insurance industry is

huge. Total value of the Indian insurance market (2004-05) is estimated at

Rs.450 billion. According to government sources, the insurance and banking

services' contribution to the country's gross domestic product (GDP) is 7%

out of which the gross premium collection forms a significant part. The

funds available with the state-owned Life Insurance Corporation (LIC) for

investments are 8% of GDP. Till date, only 20% of the total insurable

population of India is covered under various life insurance schemes, the

penetration rates of health and other non-life insurances in India is also well

below the international level. These facts indicate the of immense growth

potential of the insurance sector.

Though the total volume of LIC's business increased in the last fiscal year

(2004-2005) compared to the previous one, its market share came down

from 87.04 to 78.07%. The 14 private insurers increased their market share

from about 13% to about 22% in a year's time. The figures for the first two

months of the fiscal year 2005-06 also speak of the growing share of the

private insurers. The share of LIC for this period has further come down to

75 percent, while the private players have grabbed over 24 percent. There

are presently 12 general insurance companies with four public sector

companies and eight private insurers. According to estimates, private

insurance companies collectively have a 10% share of the non-life

insurance market.


Thus it is clear, that insurance sector is booming and is one of the most

dynamically growing sectors of the Indian chapter. Growth potentials are

tremendous, and in era of cut-throat competition, the best marketer can reach

to dizzying heights.

The life insurance industry in India grew by an impressive 36%, with

premium income from new business at Rs.253.43 billion during the fiscal

year 2004-2005, braving stiff competition from private insurers.

The market share of the state behemoth, LIC, has clocked 21.87% growth in

business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05.

But this was still not enough to arrest the fall in its market share, as private

players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs.

24.29 billion in 2003-04.


Future of the Insurance Sector - A hypothesis based

on the study.

Wage and salary employment in the insurance industry is projected to

increase 8 percent between 2002 and 2012, more slowly than the 16 percent

average for all industries combined. While demand for insurance is expected

to rise, downsizing, productivity increases due to new technology, and a

trend toward direct mail, telephone, and Internet sales will limit job growth.

H ow ever, som e job grow th w ill result from the industry‘s expansion into the

broader financial services field, and employment in the medical service and

health insurance areas is anticipated to grow. Also, thousands of openings

are expected to arise in this large industry to replace workers who leave the

Many successful insurance com panies w ill recognize the Internet‘s potential

as a powerful marketing tool. Not only might this reduce costs for insurance

companies, but it also could enable many clients to turn to the Internet first

to get information on their policies, obtain quotes, or submit claims. As

insurance companies begin to offer more information and services on the

Internet, some occupations, such as insurance sales agent, could experience

slower employment growth.

There could be a huge inflow of funds into the country. Given the industry's

huge requirement of start-up capital, the initial years after opening up are

bound to see a strong inflow of foreign capital. Moreover, given that the

break-even, typically, comes much later than in the case of other sectors,


odds is that the first remittance of dividend will not happen before a good

10-15 years.

Sales agents working in the property and casualty market, particularly in

auto insurance, will be most affected by increasing reliance on the Internet.

Auto policies are relatively straightforward and can be issued more easily

without the involvement of a live agent. Also, auto premiums tend to cost

more per year than do other types of policies, so people are more likely to

shop around for the best price. The Internet makes it easier to compare rates

among companies.

Insurance companies will continue to face increased competition from banks

and securities firms entering the insurance markets. As more of these firms

begin to sell insurance policies, increasing numbers of insurance sales agents

will be employed in them, rather than in insurance companies. In order to

stay competitive, insurance companies have begun to expand their financial

service offerings or to establish partnerships with banks or brokerage firms.

Productivity gains caused by the greater use of computer software will

continue to limit the growth of certain jobs within the insurance industry.

For example, the use of underwriting software that automatically analyzes

and rates insurance applications will limit the employment growth of

underwriters. Also, computers linked directly to the databases of insurance

carriers and other organizations have made communications easier among

sales agents, adjusters, and insurance carriers, so that all have become much

more productive. Furthermore, efforts to contain costs have led to an

increasing reliance on customer service representatives to deal with the day-

to-day processing of policies and claims. In addition, the Internet has made


insurance investigators more productive by drastically reducing the amount

of time it takes to perform background checks, allowing investigators to

handle an increasing number of cases, but limiting their employment growth.

Sales agents and adjusters still are needed to meet face-to-face with clients,

many of whom prefer to talk directly with an agent, especially regarding

complicated policies. Opportunities will be best for sales agents who sell

more than one type of insurance or financial service. Adjusters will still be

needed to inspect damage and interview witnesses, and although the number

of available jobs for actuaries will be limited due to the small size of the

occupation, employment opportunities should be good as stringent

qualifying requirements resulting from the examination system limit the

number of new entrants.

Insurers in India should also explore distribution through non-financial

organizations. For example, insurance for consumer items such as

refrigerators can be offered at the point of sale. This piggybacks on an

existing distribution channel and increases the likelihood of insurance sales.

Alliances with manufacturers or retailers of consumer goods will be

possible. With increasing competition, they are wooing customers with

various incentives, of which insurance can be one.

Worldwide interest in E-commerce and India's predominant position in

information technology and software development is also likely to be a

major factor in the marketing of insurance products in the immediate future.

The internet account is increasing in arithmetic progression and the trend has

already been set by some of the leading insurers and insurance brokers

worldwide.


Concluding summary. Life Insurance in India has a long way to go in terms of percentage of

population covered by life insurance companies if we compare ourselves to

most of the developed and developing nations and in terms of customer

service.

Some of the statistics that further gives evidence of the immense scope of

Life Insurance industry in India

o The global life insurance market stands at $1,521.2 billion while the

non-life insurance market is placed at $922.4 billion.

o The United States itself accounts for about one-third of the $2443.6

billion global insurance market and Japan stands next with a 20.62%

share.

o India takes 23rd position with US $9.933 billion annual premium

collections and a meager 0.41% share.

o Out of one billion people in India, only 35 million people are covered

by life insurance.

o India's life insurance premium as a percentage of GDP is just 1.77 %.

o Indian insurance market is set to touch $25 billion by 2010, on the

assumption of a 7 % real annual growth in GDP.


Planning of various reforms in this industry are in the process like

privatization of pension funds, increase in the FDI in this sector, increasing

automation and better customer service.

But the biggest barriers in the growth of Life Insurance Industry is in terms

of the attitude of people towards life insurance and certain bad practices

existing in the market as a result of prolonged monopoly of public sector.

Some People still think that it is an investment product where we get low

return or a simple tax saving device u/s 88 or Sec10CCC.Awareness

regarding the insurance is not merely an investment but it covers your life

risk as well; is required and new private players have already started the job

of enlightening people.

The problem of lack of knowledge of the product among the distributors has

already been solved by IRDA by making the 100 hrs training compulsory for

all the distributors. More and more stress should be given on customer

service and prompt payment of claim.


Bibliography.

PRIMARY DATA

The 100 hours training at Tata-AIG proved to be the main source of primary data. Also the guidance provided by Mr. Sidharth Saxena was very beneficial I deriving conclusions. SECONDARY DATA

I. BOOKS

o Service Marketing by:- Ravi Shankar

o Insurance by:- M.J. Mathew

o Life insurance IC-33.

II. JOURNALS

o ICFAI insurance industry vol. – III

o 46th annual report of the LIC of India

o Money outlook

o Insurance chronicle

III. WEBSITES

o www.lic.com.

o www.tataaig.com.

http://www.lic.com/

http://www.tataaig.com/
