project on Impact of Innovation on Private Sector Insurance Industry in India

8/19/2019 project on Impact of Innovation on Private Sector Insurance Industry in India

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CHAPATER 1

INTRODUCTION AND THEORETICAL BACKGROUND

Introduction

The Statement of the Problem

The Indian economy is the tenth largest economy in the world on the basis of

nominal GDP, and third largest on the lines of purchasing power parity (PPP). Based

on percapitaincome, India is ran!ed "#"st by nominal GDP and "$%th by GDP (PPP)

in &%"&, as per I'. India still remains the " th largest e*porter and "%th largest

importer in the entire world. The economy slowed down to + in the year &%"&"$

fiscal year in comparison to the pre-ious fiscal years /.&. 0n 1ugust &2th, &%"$ the

Indian rupee touched all time low of /2.2 against the 34D. The go-ernment

introduced control on in-estments outside India by corporate as well as indi-iduals.

India grew at in the year &%"%&%""5 thus the growth has reduced to half of in

6ust three years. 7ile the Go-ernment of India e*pects the growth rate to be

anywhere around /."/.8 for the year &%"$"#, while the ape* ban! of the

country, the 9BI e*pects it to be around +.8. 'acroeconomic imbalance can be

corrected through policy steps that are material to stimulate growth.

In-estments are necessary for the growth of an economy5 sa-ings of the economy

contribute towards the in-estments. Insurance companies are a ma6or source for

mobili:ation of sa-ings from middle and lower income groups of the economy.

Insurance ser-es a number of important economic functions that are, to a large

e*tent, distinct from other financial intermediaries. In the recent few years, many

lines of research ha-e begun to chart the specific role of insurance in the economic

growth process and as well as in the wellbeing of the poor. 9esearch outcomes

ha-e shown that insurance contributes significantly to economic growth by impro-ing

in-estment climate and promoting a more efficient blend of acti-ities than would be

underta!en in the none*istence of ris! management instruments. This contribution

is increased by the complementary impro-ement of ban!ing and other financial

instruments. 9esearch has shown that nonlife insurance contribution towards

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growth in emerging economies at -arious le-els of de-elopment. 7hile life insurance

ma!es a significant contribution to growth mainly in de-eloped countries, because

life insurance forms a smaller part of the total insurance mar!et in low or middle

income countries.

7ithout insurance, business and trade and commerce will find it hard to face the

brunt of ma6or perils li!e fire, floods, earth;ua!e, loss of !ey personnel etc. inancial

institutions would crumble down if the manufacturing units financed by them are

reduced to ashes by any natural disaster. The financial institutions are also co-ered

if the borrowers default on their loans.

Need and S!nf"an"e of the St#d$

'any

• Inno-ation can be delegated.

• 'iddle management is an ally of inno-ation.

• Inno-ati-e people wor! for money.

• Inno-ation is luc!y accident.

•

The more open the inno-ation process, the less disciplined. (isher, &%"")

In a -ery competiti-e world its necessary to inno-ate. Today, you may introduce a

new product and patent it, but within si* months or so some company in some other

part of the world may produce something similar to your product. The only way out is

to be relentlessly inno-ati-e.


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de-eloping country. 4tudy shows that intellectual property protection is not the basis

for inno-ation in these countries ('oldaschl &%"%).

?iberali:ation helped open up to in-estments, de-elopment of sectors li!e a-iation,

liability and credit5 fast growing auto industry5 new products in health insurance5

growing reach of internet and information technology ha-e contributed to the growth

of this industry. 7hile the challenges to the industry are its a price dri-en

competition, delay in introduction of new products, low focus on understanding the

customer, lac! of s!illed resources, costly traditional channels (I


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". The study is limited to nonlife insurance companies in India.&. The study is carried out for the period &%%$&%"&.$. The study is limited to understanding the impact of inno-ation on the financial

performance of insurance companies.

Definitions

• Inno%aton can be defined as

o anything that pro-ides a new percei-ed benefit to a customer or

employee5o con-ersion of !nowledge and ideas into a benefit, which may be for

commercial use or for the public good5 the benefit may be new or

impro-ed products, processes or ser-ices5

o inno-ation is the result of a shoc! (a ma6or failure) to the system,

problematic search, random -ariability in e*perimentation, deliberate

decision to in-est in learning, match between a need and ideas which

already e*ist, formal -ehicles for stimulating inno-ation such as

research and de-elopment, managerial ris! see!ing or ris! a-erse

beha-iour, a-ailability of slac! resources, management philosophy and

organi:ational climate, and customer needs (I6uri and uhn, "22).

• Prod#"t nno%aton is achie-ed through either of the following

o Product e*tension (same base product with slight

modifications5 identical product in a new segment)o @ew platform product (net product from which product

e*tensions are possible)o @ewtothecompany products ando @ewtotheworld (ne-er been done before5 no mar!et

e*ists)

• Pro"e&& nno%aton inno-ations that change the way a product or ser-ice is

deli-ered.

• B#&ne&& model nno%aton This is the sense of inno-ation in the broader

conte*t of companies and mar!ets. Inno-ations meaning here is to alter the

landscape of business. 9ay 'eads says that a patentable solution that

changes the basis of business for that specific industry sector is called

business model inno-ation

• 3ne*pired ris! 1 reser-e account opened at the discretion of the insurer if it

belie-es the amount of funds !ept in the unearned premium reser-e account

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is not sufficient to co-er the amount of ris! percei-ed. 7hile unearned

premium reser-e minimums are set by law, an une*pired ris! reser-e is

-oluntary .

". Types of Inno-ation

'! 1( Inno%aton T$)e&

Inno-ation is spo!en of usually in the area of product, ser-ice, process and business

model. Product inno-ation refers to launch of new products that are radically new in

the mar!et or are incrementally changed from the e*isting ones. 4er-ice inno-ation

refers to the idea of enhancing the relationship between the customer and the

company. The process inno-ation refers to reduction in paper wor! for the company

and easy ways to store and e*tract data and also the way a ser-ice or product is

deli-ered. Business model inno-ation refers to changes in the way a company

conducts its business, e*ample while all other health insurance companies are going

in for a TP1 model 'a* Bupa Cealth Insurance


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creating a new one. Ce coined this process Ecreati-e destructionF. 0n studying this

he concluded that the ability of the company to inno-ate depends on the si:e of the

company. This he belie-ed to be true due to the fle*ibility of companies smaller in

si:e, but he changed his -iew years later because these companies ha-e larger

resources and more mar!et power. This inno-ation theory suffers from the lac! of

empirical e-idence.

This lac! of e-idence led academics o-er the ne*t few decades to e*plore other

-ariables that could e*plain what companies would be in a position to inno-ate and

the circumstances under which they would inno-ate. Therefore, in the late "8%s, the

Incremental-Radical dichotomy was one of the first theories of inno-ation to emerge.

Pioneer of the Incremental9adical inno-ation dichotomy is un!nown, but many

authors ha-e e*pressed the same thing in many different terminology. 1bernathy

("82) ga-e the difference between incremental and radical inno-ation, while 'ichel

Porter illustrated this concept in the form of continuous and discontinuous

technological changes.

To differentiate Incremental inno-ation from 9adical inno-ation two dimensions can

be used, namely internal and e*ternal dimension. The internal dimension is basedon !nowledge and resources a-ailable and in-ol-ed. Incremental inno-ation builds

on e*isting !nowledge and resources within the company, competenceenhancing.

7hile the radical inno-ation loo!s for new !nowledge and or resources leading to

competencedestroying. Therefore, incumbents will be in a comfortable position

using the incremental inno-ation, while new entrants will be in a better position using

he radical inno-ation because they neednt alter their !nowledge bac!ground. The

best e*ample of incremental inno-ation is oda!. The company was a mar!et leader

in the photography mar!et for many years5 the company strengthened its position

using the incremental inno-ation. It was tough to fight the radical inno-ation to !eep

it position as the era of technology re;uired a new !nowledge, resources and

mindset.

1nother inno-ation dichotomy is sustaining vs disruptive inno-ation. This is the

central theme of


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study showed that inno-ations that were radical still reinforced the incumbents

position in certain industries. This is contrary to the pre-ious models of inno-ation.

4ustaining inno-ation most often doesnt result in downfall of established companies

because it adds to the performance of the e*isting products by adding -alue to the

customers. 7hile the disrupti-e inno-ation pro-ide what the traditional customers

might not want, at least to begin with.

ta!ing on challenges, reaching brea!throughs, implementing

them and ma!ing a -alid contribution through your wor!. This is a much broader

concept than the creati-e thin!ing style that educates HleftbrainH and HrightbrainH

way of thin!ing.

=ach indi-idual has an inclination towards one of the four inno-ation styles but, the

seeds of the remaining styles are dormant in e-ery indi-idual. =-ery inno-ation style

is similar to a language, while one may easily e*press oneself in one or two styles,

one should learn to use all four.

nowing the 4tyles helps to...

• ?e-erage your strengths as indi-iduals and as a team5

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• Generate a more comprehensi-e as well as creati-e set of ideas5

• Depersonali:e interpersonal conflict and build more synergistic wor! teams

with di-erse people5

• Present your creati-e ideas and inno-ations more effecti-ely5

• ?ead better creati-ity sessions5• 'anage change more effecti-ely.

Indi-iduals who use the modifying and e*perimenting styles most prefer to gather

facts first then use their intuition to ma!e sense out of the data. Indi-iduals who

prefer the -isioning and e*ploring styles ha-e an inclination to use their intuition to

build up hypotheses first and then gather facts to support those insights.

1 ,&onn! St$le

4ome people li!e to focus on the end result. They ha-e a -ision of what they desire

to create. They let their goals be their guide. They pro-ide indi-iduals of the team

with direction, inspiration and momentum. They emphasi:e isioning

People fa-ouring the -isioning style trust their instincts and prefer to ma!e choice.

They loo! for solutions that focus on ma*imi:ing potential rather than focusing on

what has gone on in the past. Dri-en by their longterm goals and the organi:ationJsmission, they sol-e problems by relying on their -ision of the future to guide them.

This style is characteri:ed by people who are persistent, determined, hardwor!ing,

and -isionary.

The -isioning style supports inno-ation in the following manner>

• It pro-ides the Hbig pictureH and longterm direction5

•

It focuses on the -ision A goal though the path to get there is uncertain5 and• By being in touch with what people really want.

0-er emphasis on -isioning style can hinder inno-ation in the following manner>

• By not considering options that may differ from the -isionarys goals A

focus5

• Impatience with no change ta!ing place5

• 3nrealistic -iew about the le-el of change and resistance in-ol-ed in

manifesting their -ision.

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Important ;uestions the -isioning style answers are>

• 7hat is the purpose to be achie-ed K

• 7hat do we wish could happenK

•7hat is the right thing to doK

The -isioning style may not bring about the re;uired result if the indi-idual is

• @ot ha-ing an opportunity to dream5

• Implementation details5

• ocusing on the obstacles.

The -isioning styleJs fa-ourite idea !iller

That idea is too timid5 itJs not bold enough.

'yth> There e*ist creati-e people who are early adopters, and less creati-e people

who oppose change.

Truth> To create change, you need to engage all of the styles.

* E-)lorn! St$le

4ome people li!e to loo! at une*plored territory. They thri-e on the unfamiliar and

unpredictable path. They come up with fresh ideas from the thin air. They tend to add

a sense of ad-enture to any pro6ect and open up the potential for dramatic

brea!throughs. They emphasi:e =*ploring.

People fa-ouring the =*ploring 4tyle prefer to use their insights to guide them. They

;uestion suppositions and often put into practice their ideas despite resistance. They

are ad-enturous, disli!e routine, and li!e to be met headon.

This style supports inno-ation in the following manner

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• By challenging accepted ways of seeing things and see!ing out no-el

approaches to problems5

• By tac!ling the confused change with their own intestinal fortitude5

• By being ris!ta!ers, often 6umping before they loo!.

0-er emphasis on this style can hinder inno-ation

• By thin!ing of Hblue s!yH possibilities and ignoring details5

• By discounting wor! that has been done.

This style answers these ;uestions about a problem

• 7hat ifK

• Ca-e you thought to start from beginningK

• 1ssumptions that are ta!en for grantedK

This style can go wrong because of reasons li!e

• 9e6ecting ideas because they donJt relate to current reality5

• 9ules and structure5

• Ca-ing to finish what they start.

This styleJs fa-ourite idea !iller

Idea is too con-entional, not out of the bo* enough.

'yth To come up with brea!through ideas, you should try to be HoriginalH.

TruthTtrying to be HoriginalH is another way of censoring our ideas. Brea!through

ideas come when we 6ust let all the ideas flow

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+.E-)ermentn! St$le

4ome people li!e to e*periment. 0nce they agree on a common process or way of

thin!ing, they can troubleshoot anything. They contribute to the team by adding

careful testing and getting input from all concerned in order to confirm ideas. They

emphasi:e =*perimenting.

7hen people use the =*perimenting 4tyle, they emphasi:e fact finding and

information gathering. They see! solutions by applying preestablished processes

and trial and error. 1s problem sol-ers, they li!e to collect as many facts and

opinions as possible before they ma!e their decision. They are curious, practical,

and good team players.

This style supports inno-ation

• By pro-iding methods and A or systems to ta!e ris!s in stages (i.e., with a

good research design) e-en when the outcome A goal is uncertain5

• By getting people to collaborate and become in-ol-ed in the decision ma!ing5

• By de-eloping a process of planning and wor!ing together5

• By le-eraging e*isting technologies or methods in new ways.

0-er emphasis on this style can hinder inno-ation

• By getting lost in the details of implementation or being too concerned with the

process5

• By o-eremphasi:ing testing o-er action5

• By losing perspecti-e on what really matters.

This style answers the following ;uestions about a problem

• 7hat are some ways to find some immediate steps to ta!eK

• Cow can we get other peopleJs creati-e input on thisK

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• 7hat are the components of this problemK

This style can go haywire because of

• Ignoring ris!s and not paying attention to implementation re;uirements5

• @ot ha-ing a clear goal or purpose5

• 1lternati-ely, spending a lot of time discussing possible goals.

This styleJs fa-ourite idea !iller

EThat idea is too idealistic5 it could ne-er happen.F

'yth There is a right way to be creati-e.

Truth =instein and =dison were both -ery creati-e, with -ery different styles.

=instein had a preference for e*ploring and -isioning. =dison had a

preference for e*perimenting.

/ 0odf$n! St$le

4ome people feel comfortable mo-ing forward one step at a time5 they li!e to build

on what they already !now is true and pro-en. They pro-ide a team with the stability

and thoroughness it needs to do a ;uality 6ob. They emphasi:e 'odifying.

People who ta!e a modifying approach to inno-ation are most comfortable wor!ing

with facts and ma!ing decisions. They li!e to sol-e problems. They see! solutions by

applying methods that ha-e wor!ed in the past. These people tend to be precise,

reliable, efficient, and disciplined.

This style supports inno-ation

• By being responsi-e to immediate needs and ma*imi:ing a-ailable resources5

•

By helping the shortterm moti-ation of groups by finding practical ways of getting immediate success5

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• By !eeping the change rele-ant to current needs.

This style can hinder inno-ation if it is o-eremphasi:ed

• By being too tied to present circumstances and not recogni:ing farreaching

goals5

• By missing less ob-ious opportunities5

• By -erbali:ing obstacles and constraints too early in the process, when

di-ergent thin!ing is needed.

Important ;uestions about a problem that are answered by this style

• Cow can we impro-e on thisK

• 7hat has been done beforeK

• 7hat doesnJt wor! about thisK

This style can bac!fire on the grounds of

•


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Cha)ter *

LITERATURE RE,IE

Lterat#re Re%e2

The importance of this study in relation to inno-ation has already been

stressed in the pre-ious chapter.

The re-iew of literature attempted in this chapter has been carried out and presented

with the ob6ecti-es of>

a) pro-iding a reasonably self e*planatory o-er-iew of the pre-ious wor! done inthis area, and

b) de-eloping the base for this wor!.

eeping this in mind, the following se;uence has been adopted to present the re-iew

of related literature>

". 4tudies on Insurance

&. 4tudies on Inno-ation

$. 4tudies on Inno-ation in Insurance

#. 4tudies on actors Promoting Inno-ation

St#de& on Inran"e

0utre-ille ("%) has determine relationship between financial and economic

de-elopment and propertyliability insurance premium written. In order to pro-e this

hypothesis the propertyliability insurance industry across ++ de-eloping countries

was studied. The result showed a positi-e relationship between GDP per capita and

propertyliability premia per capita. The result also showed that a percent rise in GDP

caused more than a percent rise in demand for insurance products. 4econd

ob6ecti-e was to pro-e a positi-e relationship between insurance de-elopment

(defined as insurance penetration or ratio of Insurance premia to GDP) and financial

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de-elopment (ratio of '& to GDP). By using penetration as a pro*y for insurance

de-elopment and ratio of '& to GDP as a pro*y for financial de-elopment 0?4

(ordinary least s;uares) method of regression was conducted and the results yielded

a positi-e to the hypothesis. This further emphasi:es that for insurance demand

financial de-elopment is an important factor. Third ob6ecti-e was to pro-e that the

demand for propertyliability insurance premium per capita as a function of GDP per

capita. The results state that the elasticity of demand is greater than one and there

e*ists a positi-e relationship between demand for insurance and financial

de-elopment. Price is statistically insignificant -ariable.

I


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ishwanath (&%%$) focuses mainly on demutuali:ation process of insurance

companies and identifies the reasons why some mutuals ta!e to organi:ational

structure change. It found that the primary reason for demutuali:ation is the need for

capital. By statute mutuals are limited in their capital raising acti-ities while stoc! firm

can raise funds through -ariety of e;uity L debt offerings. Propertyliability mutuals

e*hibit lower surplus to asset ratio prior to demutuali:ation, this is eased after the

demutuali:ation. Demutuali:ation pre-ents future financial distress.

?i, 'oshirian, L 4im, (&%%$) is the first to study the determinants of intra industry

trade (IIT) in insurance ser-ices in light of growing significance of trade in financial

ser-ices. The article analy:es and measures the magnitude of IIT in insurance

ser-ices for the 3nited 4tates. The empirical results of the determinants of IIT

indicate that foreign direct in-estment in insurance ser-ices (DI) is a significant

contributor to the -olume of trade in insurance ser-ices. These empirical findings

confirm the new theoretical trade models that, unli!e the traditional trade theory that

considered trade and foreign direct in-estment in insurance ser-ices as substitutes,

trade and DI complement each other and hence multinational insurance companies

are contributing to an increase in the -olume of trade in insurance ser-ices.

urthermore, this study shows that trade intensity between the 3nited 4tates and itstrading partners leads to product differentiation in insurance ser-ices and hence an

increase in consumer welfare.

4tudies on Inno-ation

anter (&%%2) has stated that inno-ation is a bu:: word e-ery few years5 it

resurfaces as a prime focus of growth strategy. 7hen it does companies ma!e same

old mista!es. anter tells us how to a-oid these errors. 'any e*isting companies

fuel growth by disco-ering new products L ser-ices. Met many companies ma!e the

same mista!es which hinder the growth in their effort to inno-ate. =.g.> some

companies in-est only in those ideas they thin! are bloc!busters. 9esultK 4mall

ideas that could ha-e generated big profits get re6ected. 0ther companies err on the

side of process Nstrangling inno-ation by sub6ecting them to strict performance

criteria that the e*isting business follows.

augment potential Ebig betsF with promising midrange ideas L incremental


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inno-ations5 add fle*ibility to inno-ation planning, budgeting, L re-iews. 4ome others

ma!e structure mista!es isolating inno-ators L main stream business managers.

The remedy is to create or tighten the human connections between inno-ators L

managers. 1nother mista!e is the s!ills mista!e, shuffling of inno-ators from team to

team L assuming that technical people should lead the team. 4olution for this

mista!e is to select inno-ation leaders with strong interpersonal s!ills. Theyll !eep

the team intact L help embrace collecti-e goals, le-erage on anothers strength L

share !nowledge when inno-ation is under de-elopment.

Tubiana () studies that due to the conser-ati-e nature of the industry it en6oys

inno-ation and inno-ation is unnoticed. rom the first written insurance in Babylon by

ing Cammurabis men to the industrys current use of big data to cut cost L impro-e

results. 1ccording to


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residual measure of growth5 this article helps to understand growth by measuring

inno-ation. @ew ser-ices L products due to inno-ation are captured in the GDP L @I

and product accounts, but the in-estment to achie-e inno-ation is not captured. This

information is re;uired to impro-e our understanding of economic growth. This paper

discusses two framewor!s for measuring inno-ation> ") inno-ation acti-ity can be

measured by measuring the intangible assets that are created by L fed bac! into the

inno-ation process at the firm or organi:ational le-el, which can then be scaled up to

national le-el. Intangible assets can be categori:ed into three typeshuman capital,

intellectual capital, and organi:ational capital. ramewor! & measures inno-ation

in-estments, especially the broader in-estments that set the stage for inno-ation.

4tudies on inno-ation in Insurance

'erton (&%"$) has studied that new products L ser-ices are created to enable

people to do a tas! better than they pre-iously could do or couldnte.g. cashless

hospitali:ation is a-ailable by using a health insurance product. But inno-ations carry

ris!5 ris!iness depends on the choice people ma!e in using it. ?i!e in-estment,

inno-ation also deals with ris! L return. i-e rules of thumb to be aware of while

thin!ing of inno-ation L its effect are>

• To ma!e a 6udgment on the ris! L return a mathematical model is

needed

• 1c!nowledge the models limits

• =*pect the une*pected

• 3nderstand the use L the user

•


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addition, the empirical results indicate that DI in ban!ing is a complement to the

e*pansion of international insurance ser-ices.

1ccenture insurance sur-ey (&%"&) the results of this sur-ey indicate that inno-ation

is the !ey to customer ac;uisition and retention in the e-ol-ing mar!et place. The

mar!et place is no more the same way as it was a decade ago5 it has become more

competiti-e, changing customer needs 1nd the insurance industry is mo-ing from a

push side to pull side industry.


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Bhattad (&%"$)To reach out to customers L pro-ide them with a consistent L positi-e

e*perience, the insurers are le-eraging on the new L multiple distribution channels

bancassurance, social media, online purchase, mobile, L call centre. These are used

to better reach customers L impro-e operational performance. 'oreo-er, these

channels are rapidly gaining momentum with the present generation of youth who

are tech sa--y. 1s these channels are gaining momentum L prominence, though

less than initial e*pectations, customers in many mar!ets still consider ta!ing an

ad-ice from their agents to buy a life insurance policy. But this is not the case with

nonlife insurance products. Insures are le-eraging on growing technology to reach

customers L to incorporate their feedbac! ;uic!ly. Insurers are also focusing on

creating an effecti-e L comprehensi-e distribution channel while simultaneously

wor!ing to brea!down the entire sales process so that components to be automated

can be identified.

Trends identified across insurance industry>

• 9ise in use of internet among customers to buy insurance products.

• 9ise in use of social media as a distribution channel.

• 9ise in use of 4aa4 solutions to enable insurance distribution process across

multiple channels• 9ise in use of technological solutions to automate the underwriting process L

direct sales.

Otting, . (&%%) for any de-eloping nation affordable health care is a must, but it

remains a dream for many of the people. The root cause cost of health care. In

recent past many business models ha-e come up to cater to this problem. 4ome of

them are Ninsurance through microfinance institutions L communitybased health

insurance (


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insurers are concentrating on le-eraging distribution channels. 0ther areas of growth

are cross selling through bancassurance, ta!aful insurance, and other Islamic

financial products, telemar!eting, and -irtual mar!eting to sell insurance products.

4ome alternate channels to increase penetration are wor!site mar!etingmar!eting

financial products, paid for by the employee, facilitated and endorsed by the

employer. Its success depends on the education and training of the agentsL bro!ers,

cost L con-enience and employers cooperation. 4ome of the Indian companies that

ha-e considered this channel are NTata 1IG, CD< 4tandard ?ife, I


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incremental inno-ation to ta!e place without it. 1 study states that management,

policies, resources L incenti-es system are !ey areas for an organi:ation to loo!

after to stimulate inno-ation.


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Cha)ter +

Data Colle"ton and 0ethodolo!$

Nat#re of the St#d$

". The study is ;uantitati-e in nature. The current study is an empirical attempt

to understand inno-ation and the impact it has on the financial performance of

insurance companies in India.&. The study is partly ;ualitati-e to the e*tent it describes the different

inno-ations in Indian nonlife insurance companies.

Ob3e"t%e& of the St#d$

". To understand the different types of inno-ation in Indian pri-ate sector nonlife

insurance companies.&. To study the impact of inno-ation on the financial performance of Indian

pri-ate sector nonlife insurance companies. The financial performance

parameters studied are>o Total premium

o Total claims

o


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There is no significant relationship between inno-ation and financial performance in

Indian nonlife insurance sector.

4ampling Procedure

The following sampling procedure has been adopted for this study>

4ample of the 4tudy

The study includes all pri-ate sector nonlife insurance companies in India as on

une "st &%"$, registered with Insurance 9egulatory and De-elopment 1uthority

(I9D1), India.

Therefore the companies studied are>

• Ba6a6 1llian: General Insurance

• Bharti 11 General Insurance

•


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o 3nder writing profit Aloss

o 0perating profit

o 0perating e*penses

Data 4ources

Quantitati-e data was obtained from secondary data sources as follows>

". Indian insurance statistics, &%""&%"& published by the Insurance 9egulatory

and De-elopment 1uthority, India.&. 0fficial websites of the selected companies.

Qualitati-e data regarding the inno-ations of pri-ate sector nonlife insurancecompanies was obtained from>

$. =conomic Times website.#. 1rticles and papers published in professional 6ournals.+. 0fficial websites of the selected companies


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?imitations

The study is limited to studying inno-ation in Indian @on?ife Insurance


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CHAPTER /.

DATA ANAL4SIS AND INTERPRETATION

In this chapter the results of data analysis ha-e been presented and interpreted.

Qualitati-e 1nalysis

In this section the -arious types of inno-ations implemented by different companies

ha-e been described.

1 Prod#"t Inno%aton

Ten years after pri-ati:ation, the insurance industry has undergone a

significant change. The changes may ha-e gone unobser-ed year on year, but a

closer loo! at the performance in the year &%%" L &%"", there certainly has been a

noteworthy change.

The industry has ta!en a step further on numerous front in terms of increased

penetratione-en though this is far behind many of the other de-eloped countries

increased co-erage of propertyAli-es, more customer friendly products, a rapid

growth in distribution channels, better reach, better competiti-eness in the mar!et,

this has laid the pathway to inno-ation in this industry.

The most commonly understood form of product inno-ation is that which introduces

or impro-es a product or ser-ice N a change in what is offered to end users. There

has been a remar!able change in the type of products a-ailable o-er the last one

decade. Products that were not a-ailable or the customer were least aware of are

now a-ailable and ha-e become -ery popular as they offer real -alue to the

customer. 1lso, earlier the insurance mar!et was more of a sellers mar!et, but with

growing financial literacy the Indian insurance mar!et is turning into a buyers

mar!et.

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4ome of the e*ample of product inno-ation are as follows> In the year &%"&, 1pollo

'unich Cealth Insurance a standalone health insurance company launched a no-el

health insurance products which no other insurer in the industry was offering 0ptima

9estore. This is product with ne-erbefore feature and benefits. The product

includes cashless hospitali:ation care, ;uic! settlement of claims5 also this product

co-ers the insured for life time. Did any other healthi insurer e-er thin! of insuring the

insured for life timeK @o, but this company did. 1part from pro-iding financial help on

hospitali:ation, it pro-ides for Rreinstatement of the basic sum insured if it were to

e*haust during the hospital treatment. This is the Rrestore benefit. on a-ailing the

insurance amount once it reinstates the sum insured completely without additional

charges. or the first claim free year the company gi-es bonus by way of +%

increase of the basic sum insured, howe-er it increases to "%% of the basic sum

insured. 7ith this multiplier benefit that doubles the health co-er in 6ust two years,

the product is new compared to other health products. 1lso, this product pro-ides a

benefit of no sublimit on the room rent and it ta!es care of the additional e*penses

that stand as a peril towards ;uality medical treatment. In the health insurance

industry the insurers ha-e come out with products that include outpatient

department e*penses, disease management, and wellness offering.

The auto industry has mo-ed from pro-iding standard products to products that

pro-ide assistance ser-ices such as towing ser-ices, replacement -ehicles, and

emergency support ser-ice. 4ome others ha-e mo-ed on to pro-ide products which

offer the customer with the facility of Rpayasyoudri-e, road side co-erage.

In the year ending &%%$, Tata 1IG had come out with a policy to protect accountants

from clients claims. General professional indemnity co-er, in India until &%%$, was

a-ailable for professionals pro-iding feebased ser-ices, but T1T1 1IG was the first

to bring out a tailormade product that co-ered the accounting profession. This policy

was designed with the assistance of the Bombay


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of the aggregate limit, this product pays "%% of the limit liability. In addition to this it

is the duty the policy to defend wording, meaning T1T1 1IG will handle the entire

defence till the lawsuit reaches a logical conclusion. The policy also co-ers the

claims arising out of the fraudulent or dishonest conduct of any of hisAher employee

for which the insured is held liable, pro-ided the insured is not in-ol-ed in the act

T1T1 1IG also came up with another product RGreen


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1n insurance company pro-ides ser-ices li!e intimating the customer of annual

premium payments, addressing the changes in addresses, nominations, phone

numbers5 claims settlement in the least possible time, time ta!en to procure a policy

from the company. In insurance or for that matter in any financial ser-ice institution

ser-ice is of the utmost importance. 4er-ices pro-ide ha-e to be newer and there

should be continuous impro-ement L inno-ation in them. Inno-ation is a must

because through ser-ices the company is in constant touch with the customer, this

will pro-ide information regarding the customers need points or their distress point

that need to be addressed. Therefore, ser-ice is a function which has constant

interaction with the customer.

4ome of the inno-ations with regard to ser-ices are discussed below.

• Ba6a6 1llian: in the year ending &%"$ won the RBest ser-ice company of the

year. 3nli!e all other companies that ha-e centrali:ed claims settlement

and management model, this company has come out with a new

decentrali:ed claims management model. The result, it has shown the

highest efficiency in claims settlement. This has been demonstrated

through the total claims settlement ratio as well as a-erage turnaround

times for claims settlement.

• or any claims settlement the customer is e*pected to come to the local

officeAbranch of the company, this is -ery tiring or may not be possible for

the customer to come to the office to ma!e a claim on the insurer.

Therefore, Bharti 11 came up with a solution in the year &%"&Rclaims

settlement at home. The insurer has ta!en the responsibility of ensuring

customer satisfaction, by assuring claims settlement on intimation.

• uture Generali general insurance company with its large chain of malls

under the uture group has brought a new concept of Rmallassurance in

&%%. 1ny mall today has a -ery large population of people from -arious

bac!grounds, age groups that -isits for -ariety of reasons. To capture this

population the easiest way was by introducing this concept of

mallassurance wherein an insurance policy is bought by the customer in a

mall and the formalities to complete the contract are -ery limited.

• In &%"",CD< =9G0 came out with Rcashless claim ser-ice at any of their

"/%%S authori:ed networ! of garages for motor insurance policy holders.

30


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1lso they ha-e launched a website to purchase policies online with only

three clic!s of a button.

• I


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+ Pro"e&& Inno%aton

Process inno-ation is important as this !ind of inno-ation helps change the way a

ser-ice or product is deli-ered to the final customer. In some cases this inno-ation

can lead to paperless business, while in some others it helps to procure the desired

product or ser-ice in the least time possible, for e*ample some of the insurers

pro-ide a policy co-er with in two minutes or the entire process is complete within

three steps using the internet or mobile 1pps. This !ind of inno-ation has ta!en the

insurance industry much ahead compared to the "2%s and the "%s.

/ B#&ne&& 0odel Inno%aton

Business model is a plan that is implemented by a company to generate re-enue

and ma!e profits from the business operations.

Business model was the bu::word in dotcom boom, it was used by e-erybody. 1

business model can be simple or comple*. 1 restaurants business model is to earn

money by pro-iding the food to its customers, while that of a websites model might

be or might not be clear, as there are many ways of earning money for these

companies. Therefore, business model inno-ation is a must for sustainable growth.

Business inno-ation means a businesss attempt to rein-ent itself in order to obtain acompetiti-e edge and stimulate company growth (http>AAwww.ehow.com). 7ith the

rise in technology the term business model came to prominence. The rise is closely

related to the emergence and diffusion of commercial acti-ity on the internet. Its a

way to differentiate oneself and to e*plain their competiti-e position.

0ne of the first people to use the term business model were Ronc:al ("8+) and

Dottore ("88). Both used in the area of data and process modeling.


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• To e*periment with a new business concept or to emulate or study a

concept that is used by the competitor

• To loo! out for out sourcing opportunities

The word business model is being used widely now days. 7hile the term refers to

the model of an e*isting business in information management, the term can also

mean a plan to describe or design a new business.

'ost companies for a sustainable growth ha-e concentrated on efficiency or 6ust

good mar!eting. It was either through streamlining processes or introducing new

products to ensure growth by achie-ing smaller en-ironmental footprint. Product or

process inno-ation is a must and helps the company to mo-e closer to sustainable

de-elopment, but they dont address the underlying -alue structure of the company.

These inno-ations are incrementally better, but not transformati-e. Product or

process inno-ation shouldnt be mista!en for business model inno-ation.

Quantitati-e Data 1nalysis

Table shows the analysis of regression of change in inno-ation magnitude with that

of growth in miscellaneous premium.

Table 5 &ho2& relt& of re!re&&on anal$&& bet2een ma!nt#de "han!e& n

nno%aton 2th m&"ellaneo#& )rem#m.

T$)e& of Inno%aton Coeff"ent P5%al#e

33


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&

Product Inno-ation &"&.8% %.&$

4er-ices Inno-ation $$/2.+ %.&&

Processes Inno-ation 2&."8 %.%%

Business 'odelInno-ation "%./+ %.+"

Total Inno-ation &+$./# %."+

1n analysis of the abo-e table shows that processes inno-ation magnitude has a

significant impact on premium growth. The cell highlighted in grey represents

significance at +.

Im)a"t of Inno%aton on Clam&

Table shows the analysis of regression of change in inno-ation magnitude with that

of growth in total claims incurred.

Table (5 &ho2& relt& of re!re&&on anal$&& bet2een ma!nt#de "han!e& n

nno%aton 2th net total "lam& n"#rred.

T$)e& of Inno%aton

Coeff"ent

& P5%al#e

Product Inno-ation ""8.2 %.+"

4er-ices Inno-ation "$#+./& %.+"

Processes Inno-ation #2%.+/ %.%"

Business 'odel

Inno-ation 22#.# %.+"

Total Inno-ation "#$.+% %.#"

1n analysis of the abo-e table shows that processes inno-ation magnitude has a

significant impact on growth in total claims incurred. The cell highlighted in grey

represents significance at +.

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Table shows the results of comparison of premium growth between the two groups of

companies.

Table(5 Table &ho2n! "om)ar&on of total "lam& rato d#e to nno%aton.

T$)e& of Inno%aton 0ean P5%al#e

Com)ane&

2th

Inno%aton

Com)ane&

2tho#t

Inno%aton

Product Inno-ation


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Com)ane&

2th

Inno%aton

Com)ane&

2tho#t

Inno%aton

Product Inno-ation


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Business 'odel

Inno-ation


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youdri-e is a brilliant product inno-ation, while this is possible to ta!e place only in

the presence of information technology, this is ser-ice inno-ation. This product can

be renewed on the go, no paper wor! re;uired, a paperless transaction, a new

process.

Con"l#&on&

This study was conducted with the following hypothesis

There is no significant relationship between inno-ation and financial

performance in Indian nonlife insurance sector.

Based on the results of the study it has been found that there is significant impact of

indi-idual inno-ation types on different financial performance parameters. Therefore

the hypothesis of the study has not been found to be true.

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Implications of the 4tudy

Based on the analysis the following are the implications

Different types of inno-ation ha-e a significant impact on different

financial performance parameters of insurance companies. Therefore,

it is necessary to promote that specific type of inno-ation depending on

the need.

Inno-ation is a longterm in-estment5 therefore one shouldnt e*pect

immediate results. irms must continue inno-ating in spite of short

term hiccups.

S"o)e for f#rther St#d$

• This study can be carried out on the Indian life insurance companies.

•


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BIBLIOGRAPH4 AND RE'ERENCES

Bblo!ra)h$


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Referen"e&

2http344articles.economictimes.indiatimes.com

2http344articles.economictimes.indiatimes.com4$55/-56-$$4nes4$7875%/%9%9dalip-

2http344articles.economictimes.indiatimes.com4$55/-%%-

$:4nes4$78:/$$%9%9insurance-pac;age-a

Documents

project on Impact of Innovation on Private Sector Insurance Industry in India