Gap in Insurance Industry

7/30/2019 Gap in Insurance Industry

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33Gap Analysis Between Customers Expectation and Current Provisions

of Indian Life Insurance Industry

Subhasis Ray* and Shahid Ali**

Introduction

Insurance is a contract between two parties whereby one party, called insurer, undertakes

in exchange for a fixed sum called premiums, to pay the other party, called insured,

a fixed amount of money on the event of any mishap or a calamity. In other words, insuranceis a protection against financial loss arising from the unexpected event. Insurance companies

collect premiums to provide for this protection. A loss is paid out of the premiums collected

from the insured and the insurance companies act as trustees to the amount collected. 1

A well-developed life insurance industry is a reflection of a well organized and sophisticated

economy, with a great portion of risks faced by individuals being properly handled. Life

insurance products (or policies) are used not only as a means to mitigate the financial

impact of death, disability, diseases and accidents, but also takes care of longevity.

Since liberalization in 2000, the Indian insurance sector has become a buyers market,

where the customer has the choice to select from a variety of products, services and

service providers. With the regulators (i.e., IRDA) giving licenses to many private players,

many companies have entered the insurance market leading to a fierce competition for

market share. Multinationals are now collaborating with Indian companies who can help

them with local requirements. Table 1 shows the market share of leading insurance

companies in India (Pitalwalla, 2006). In this competitive market, the insurance companies

need to understand the needs of people and should design products accordingly.

* Faculty Member, The Icfai Business School, Kolkata, India. E-mail: [email protected]

** Student, Class of 2008, The Icfai Business School, E-mail: [email protected]

The Life Insurance Industry in India is on the rise. With less than 40% of the insurable

population being insured, the potential for growth for this industry is inevitable. With increased

number of private players currently in the market, the going will be tough, but surely it willbe rewarding for those who can align their products with consumers expectation. This

paper makes an attempt to identify the gap between available and desired features in

terms of existing products and services in life insurance. This paper also gauges general

awareness about life insurance, investigates reasons for buying life insurance and finds

preferred tenure and age cut off for entering into a life insurance.

Gap Analysis Between Customers

Expectation and Current Provisions


2008 The Icfai University Press. All Rights Reserved.

1 http://www.bimaonline.com/cgi-bin/ind/basics.asp, last accessed on September 25, 2007.


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34 The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008

Objective of the Study

The set of objectives include:

Finding out the general awareness

level of various savings/investment

instruments.

Finding out the relative importance

of factors in the purchase decision

of a life insurance product.

Assessment of existing features/

additional needs for various plans,

e.g., Term Plan, Money Back Policy,

Unit Linked Insurance Plan.

Understanding peoples preference

relating to after sales services.

Methodology

Literature/Internet Survey

The study started with the literature

survey of journals and magazines that

helped to comprehend the various facets

Company Market Share (%)

Max New York 1.35

Tata AIG 1.63

Bajaj Allianz 7.00

AMP Sanmar 0.61

Metlife 0.43

Birla Sunlife 1.91

ING Vysa 0.63HDFC Standard Life 3.11

Kotak 0.81

ICICI Prudential 6.42

Aviva 1.13

SBI Life 1.49

LIC 74.31

Table 1: Performance of Major

Indian Insurance Companies

Figure 1: Schematics Showing Methodological Steps

Literature Survey/

Internet Survey

Design of

Questionnaire

Design of

Sample Survey

Determination of

Data Analysis

Methods

Data Tabulation/

Data ValidationData Collection

Interpretation

of Results

Source: www.insuremagic.com/Content/

PlanInfo/lic_products.asp

Source: Ray S and Pathak A, 2006.


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of the insurance industry2 (Ray and Pathak, 2007). Also, the Internet survey was conducted

to understand the latest occurrences in the industry. These sources provided the basicknowledge about the industry, key players apart from LIC like ICICI Prudential, Bajaj

Allianz, Birla Sunlife, TATA AIG, etc., their performance, key communication mediums,

product features, etc., which facilitated the designing of questionnaire and hence analysis 3

(Levin and Rubin, 1995; and Pitalwalla, 2006).

Design of Questionnaire

The questionnaire was designed based upon the objectives of the study. The questionnaire

consisted of mainly closed questions. It was divided into three parts, viz., (1) understanding

awareness of insurance and its drivers; (2) finding out feedbacks on existing features and

assessing needs for additional ones for current plans; and (3) knowing customers choice

on after sales services. Major rules and regulations mandated by Insurance Regulatory

and Development Authority (IRDA) were also considered while preparing the questionnaire.The questionnaire is attached in Appendix I.

Design of Sample Survey

Primary data was collected to conduct the study as it helps to derive more authentic

conclusions from the findings. In this study, the primary data is collected by means of a

structured questionnaire via one-to-one interaction with the respondents. The respondents

were mostly from central Kolkata in the age group varying between 18 and 65 years.

They were approached in different branches of banks, post offices and also restaurants,

cafes, etc. In this study, the target sample size was kept at 300 (without repetition) to

meet budget and time constraints.

Data Tabulation/Validation

After the data collection, the data was tabulated in a Microsoft Excel sheet and the data

was edited, coded and verified for validity. During the survey, 300 respondents were

interviewed from the target group. Out of this, no record was rejected due to inconsistencies

or incompleteness.

Determination of Data Analysis Methods

The data was analyzed using the Microsoft Office Excel 2003. Mainly bar charts and pie

charts were used in this analysis to portray peoples awareness of insurance, motivating

factors behind an insurance purchase, preferred age limit for buying insurance, tenure of

such investments, etc. Chi-square test of independence was also carried out to check

the dependency between risk and return.

Interpretation of the Result

Finally, the results that emerged from the study were analyzed and interpreted and suitable

conclusions were drawn from those results. Recommendations have been made keeping

in mind various rules and regulations mandated by IRDA.

2 www.tata-aig-life.com; www.myiris.com/insurance/index.php3 Taxhounds Sniff Money in ULIP Fees, 2007, http://www.moneycontrol.com/mccode/news/article/

news_article.php?autono=282803, last accessed on September 25, 2007; Life Insurance Industry Grows38% in April-October, 2005, http://personalfinance.moneycontrol.com/mccode/news/article/news_article.php?autono=194338, last accessed on September 25, 2007; Market Share of Private LifeInsurers at 25.7%, 2006, http://news.moneycontrol.com/mccode/news/article/news_article.php?autono=197524, last accessed on September 25, 2007; http://www.bimaonline.com/cgi-bin/ind/basics/basics.asp, last accessed on September 25, 2007.


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Data Analysis

General Awareness and Generic Needs

In this section, four questions were taken into consideration. The first question deals with

the peoples awareness of various investment/savings channels.

As per Figure 2, out of the 300 respondents, majority of the people knew about banks,

insurance, post office deposits, shares and fixed deposits. It is to be seen that 246 out

of 300 respondents knew that life insurance is an investment channel to protect the future.

Even though the figures are inflated due to mostly urban respondents, this augurs well for

the insurance industry, demonstrating a lot of potential to grow.

Figure 2: Awareness of Various Investment Channels

Knowledge of Investment Channels

300

250

200

150

100

50

0

BanksInsur-

anceGold Debent NSC Real

Est.

Post

Off .Comm . Shares FDs

Govt.

BondPPF

282

246

117

82

179

134

231

58

210

247

121 122

The next question was targeted to understand the main driving reasons behind purchasing

an insurance. The results are shown in Figure 3.

Figure 3: Relative Importance of Various Driving Factors for Life Insurance

Need for Insurance (1-Highest, 7-Lowest)

6

5

4

3

21

0

Response

TaxPlanning

Risk CoverAgainstDeath/

Accident

ChildrensMarriage/Education

Post-Retirement

Needs

Att ract ive

Investment

Schemes

Freeing the

Flat from

Mortgage/Debt

Forced

Savings

3.182.70

3.50 3.15 3.48

5.34 4.84

Here the respondents were asked to rate the importance of various factors (on a scale

of 1 to 7 with 1 being the highest and 7 being the lowest) when they invest in life insurance.

Respondents


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As shown in Figure 3, the most important driver for life insurance is Risk coverage against

death/accident with an average rating of 2.7. The next factor that came out was that the

people take an insurance policy to meet Post-retirement needs. The next most important

factor is tax planning and the fact that it is being looked upon as an attractive investment

scheme. This may be influenced again by the selection of respondents who are mostly

from the city of Kolkata. Still, the figures are encouraging for the life insurance industry,

since this is perceived as an attractive investment channel with the additional benefit of

tax saving.

The next investigation was related to finding out preferred age limit for people to buy a

life insurance product. The options for minimum age were 50, 55, 60, 65 years and also

no limit. The data is tabulated in Figure 4.

As many as 163 out of 300 respondents voted for having no age limit for entering into

life insurance which is understandable. If a regulatory framework does not allow

implementing this, the next best option is 55 years which has attracted 28% of the

responses.

The next question was to find out the preferred tenure of investment in life insurance

policies. The basic motivation was to see the total number of years people like to remain

invested in a policy. The result is shown in Figure 5.

A total of 111 respondents (37%) out of 300 responded that the tenure should be 15 or

more number of years. This was followed by 93 respondents (31%) who want it to be

between 6 and 10 years. The respondents are divided between long-term and short-term

plans. This can be explained if we look at various types of life insurance products,

e.g., Term Plan and Endowment Plan. Term plans purely cover the risk of the policyholder

Figure 4: Preferred Age Limit for Buying Life Insurance

180

21

Respondents

160

140

120

100

80

60

40

20

0

50 Years 55 Years

Age Limit for Buying Insurance

60 Years 65 Years No Limit

84

2111

163


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without having any saving benefit in the future, whereas Endowment plans gives life cover

to the policyholder and also pays the maturity benefit. The endowment products can be

further sub-divided into two categories:

1. Participatory plans

2. Non-participatory plans/Unit Linked Products

Participatory plans are those plans which enjoy the benefit of bonuses earned by the

company in a particular financial year whereas Non-participatory plans/Unit linked products

enjoy returns from the stock market. People voting for long-term tenures are generallybuyers of term plan or participatory plan whose main aim is to cover risk against death,

etc., and meet post-retirement expenses. On the other hand, people opting for small-term

tenures prefer unit linked products who want the flexibility to time the share market and

look at insurance more from a wealth accumulation perspective.

Plan Specific Analysis

The study is also aimed towards some plan specific features so that the gap between

companys offering and peoples expectation can be identified.

The first point that was revealed is that 95% of the people want to earn bonus on Term

Plans. For Unit Linked Products (ULIP), most of the people prefer the option of capital

guarantee. In order to understand risk appetite of people, respondents were asked tomark their preferred rate of return (low, moderate and high) and level of risk (low, moderate

and high) they are ready to take. The data is shown in Table 2. A chi-square test of

independence was carried to check the dependency between risk and return.4 The null

hypothesis:

H0: Risk and return are independent.

H1: Risk and return are not independent.

Figure 5: Preferred Tenure of Insurance

Number of Years

43

Respondents

120

100

80

60

40

20

00-5 6-10 11-15 15 Above

93

53

111

4 https://iciciprulife.com/public/Life-plans/Plans.htm


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The observed

chi-square value is88.13. The tabulated

chi- square value for four

degrees of freedom at

5% level of significance

is 9.488. Since the

observed chi-square

value is greater than the tabulated value, H0

should be rejected. This shows that the

question was unambiguously understood by the respondents. A closer look at Table 2

reveals that people expect moderate to high return at a low to moderate risk.

The next question was related to money back policy seeking to know preferredpattern of returns. The options for getting money back were (a) annually after completion

of first seven years; (b) gap of three years; and (c) gap of five years. The result is shown

in Figure 6.

Low Moderate High

Low 39 52 32

Moderate 2 32 86

High 0 12 45

Table 2: Cross-Tabulation of Risk and Return

RiskReturn

It is seen that 139 of the 300 respondents (46%) preferred three yearly returns. The

next choice was to get returns annually after completion of first seven years. Most of theexisting policies do not conform to any of these choicesso it is imperative that companies

design products accordingly.

The next plan was the pension plan. There were two basic reasons for analysis, firstly,

to find out (a) what is the preferred age when a person wants to receive pension; and

(b) what kind of equity exposure should the pension fund be exposed to.

It is found from Figure 7 that 126 of the 300 respondents wanted pension from the age

of 50 years followed by 55 years. These two groups include 79% of the total respondents.

Figure 6: Preferred on Money Back Policies

Frequency of Returns in Money Back Policies

94

139

68

Respon

dents

Annual ly After

Seven YearsEvery Three Years After Every Five Years

160

140

120

100

80

60

40

20

0


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Companies disbursing pension before the age of 45 or after the age of 55 may like to

revisit their pension plans.

Figure 7: Preferred Timeframe for Receiving Pension

Time of Return

29Respondents

45 Years

140

120

100

80

60

40

20

0

126112

33

50 Years 55 Years 60 Years

The respondents were asked to mark the kind of equity exposure that the unit linked

pension funds should be having. Figure 8 shows an overwhelming 76% of respondents

voting for balanced funds, as expected. This is slightly different from Table 2 as people

tend to be less adventurous with respect to pension plan which essentially meets post

retirement needs.

The last plan was related to childrens plan. The analysis was aimed at finding out

whether the return should be lump sum on maturity of the policy or it should be regular

periodic return. In the analysis it is seen that 56% of the total sample respondents have

preferred to receive the lump sum return whereas only 44% of the respondents have

preferred regular periodic returns.

Figure 8: Preference for Equity Exposure of Pension Funds

Equity Exposure for Pension Funds

Low

High

Balanced

17 (6%)

55 (18%)

228 (76%)


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After Sales Services and Communication Channels

After sales services is the most important differentiator especially in the insurance industry.

In the face of stiff competition, all major players generally stay at par in terms of product

offering. One companys successful innovative product gets replicated by other companies

soon. When there is very little choice of products, service is very important to get repeat

business and also to extend business. In this section, an attempt has been made to find

out services that are perceived to be important and the preferred mode of communication.

Firstly, an analysis was done to find out the most important service which people

want. Here also the rating method has been used where 1 is the highest and 5 the lowest.

The average rating on four designated services are captured in Figure 9.

Here it is seen that the most important service is to get the reminder of the dates for

premium payment. Secondly, it is the fund statement which the people need, followed by

information on switching of funds to new products. So it is a good reminder for the companies

that they should now make arrangements for providing customers with information on

switching of funds.

As per this survey, SMS came out to be the most preferred mode of communication

(see Figure 10). This is followed by phone calls and e-mails. It should also be noted that

company representatives have got the last preference, which means most people do not

want company representatives to come and approach them. However, one must admit

that the finding is influenced by urban respondents who are more exposed to mobile and

internet technology.

The last part of the analysis was to find out the frequency of receiving the fund statement.

The options were the company should send account statements (a) quarterly;

(b) half-yearly; or (c) annually. The findings are shown in Figure 11.

Figure 9: Preference of After Sales Services

Rating

2.6

1.7

2.52.3

3.0

2.5

2.0

1.5

1.0

0.5

0

New Product

Information

Dates for

Premium Renewal

Switching of

Funds

Fund Statement

After Sales Services


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Figure 10: Preferred Mode of Communication

Responses

1.89

4.5

SMS

2.00

2.603.00

4.00

3.504.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0Phone Calls E-mails Letters Co. Rep. Co. Bro./Mag.

Preference of Communication

Out of 300 respondents,

183 people (61%) want the

fund statement to be

sent once in a quarter.

Half-yearly and annual

statements follow this with

24% and 15% respectively.

Even though this (i.e.,

sending fund statements

quarterly) requires an extra

cost, the companies should

try to satisfy its customers.

Cheaper options can be

through SMS, online with

the consent of the customer.

Conclusion

From the study, it can be concluded:

People have good knowledge about different investment/savings channels includingbanks, post office, share market and also insurance.

Life insurance nowadays has become an attractive investment channel along with

providing risk coverage against death/accident, tax savings and also for meeting

post-retirement needs, etc.

Insurance companies should try to come up with a product where there should be no

entry limit on age. But in order to do so, the company should follow the IRDA rules and

directives. The next best option is at least 55 years.

Figure 11: Preferred Frequency of Fund Statement

Frequency of Fund Statement

15%

61%

24%

Quarterly

HalfYearly

Yearly


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Traditionally, people tend to invest in life insurance for a long-term period say 15 years

and above. But there is a polarization as a good proportion of people are coming upwho want it to be short-termbetween 6-15 years.

Life insurance companies may come up with a term policy that earns bonus, however,

this needs further probing since term plan is specifically designed for covering the risk.

People prefer balanced equity fund for their pension to grow and the pension should

start at the age of 50 years.

People like to receive quarterly statement. Companies should also inform people about

premium payment, its new products and also about switching of funds. The preferred

media of communication is SMS, phone call and e-mail at least for the urban population.

Sending representative may not work that well with the population in urban areas.

A lot of companies give a lump sum return in its child policies, which is what most

people want. But since there is not much of a difference (of proportions) between the

two, it would be beneficial for a company if it starts giving regular periodic returns too,

as it will enable the company to maximize its market share among the sections of the

people who want regular periodic returns.

Future Study

The sample consisted of respondents within the age group of 18-65 years in central

Kolkata. Even though the study included a large spectrum of age dimension,

this study can further be conducted in different segments of population, e.g., rural,

semi-urban, etc. Income level can be a good differentiator.

In this sample, some of the respondents were not insured. So it is wiser to get feedback

from people on general as well as specific plans from customers and non-customers.

Finally, this study should be treated as a first step and can provide stimulus for more

in-depth research. qReferences

1. Levin Richard I and Rubin David S (1995), Statistics for Management, 6th Edition,

Prentice-Hall of India Private Limited.

2. Pitalwalla Yasir A (2006), Gasping for Capital, Businessworld, February 13,

pp. 34-35.

3. Ray S and Pathak A (2006), Strategizing the Exposure Mix in Various Communication

Channels for Enhancing Visibility in the Indian Insurance Industry, Icfaian Journal of

Management Research, Vol. 5, No. 10, pp. 7-17.

4. Ray S and Pathak A (2007), Strategizing Brand Positioning in the Context on Indian

Insurance Industry, Icfai Journal of Brand Management, Vol. 4, No. 1.

5. www.bajajallianzlife.co.in/lifeinsurance/products/individual.asp

6. www.birlasunlife.com/BirlaSunLife/Insurance/BSLI_MP/index5.aspx


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Questionnaire

Initial Information

Name:

Address:

Telephone: Mobile:

Age: Pro fession:

Total no. of family members: No. of dependents:

No. of earning members: Gross annual income:

Q1) Which among these are you aware of as a savings/investment channel?

Banks NSC Shares

Insurance Real Estate Fixed Deposits

Gold Post Office Govt. Bonds

Debentures Commodities PPF

Q2) What according to you are the reason/s to buy a Life Insurance product?

please rate it on scale of 1 to 7, 1 the highest and 7 the lowest.

Reason Rating

Tax Planning

Risk Cover against Death/Accident

Childrens Marriage/Education

Post-Retirement Needs

Attractive Investment Schemes

Freeing the Flat from Mortgage/Debt

Forced Savings

Q3) Do you think there should be an age limit for an individual to buy a Life

Insurance policy?

50 yrs 55 yrs 60 yrs 65 yrs No such limit

Appendix

(Contd...)


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Appendix

(Contd...)

(...contd)

Q4) Your investment in Life Insurance should be of

0-5 yrs 6-10 yrs 11-15 yrs Above 15 yrs

Term Plan

Q5) Would you like to buy a Life Insurance product which earns bonus?

Strongly Disagree Disagree Neither Agree or Disagree

Agree Strongly Agree

Unit Linked Insurance Plan

Q6) The feature of capital guarantee adds safety to the investment

Strongly Disagree Disagree Neither agree or Disagree

Agree Strongly Agree

Q7) Your investment in a Unit Linked Insurance plan should perform as:

RiskLow Moderate High

Low

Moderate

High

Money Back Policy

Q8) When do you want your money back in a Money Back plan?

Annually After every 3 years After every 5 years

(After completion of first 7 years)

Pension Plan

Q9) Your Pension plan should start giving you return from the age of:

45 50 55 60

Q10) What type of equity exposure should your Unit Link Pension plan have?

High Balanced Low

Children Plan

Q11) Children plan should give you:

Regular Periodic Returns Lump Sum Return

Questionnaire

Return


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Appendix

(...contd)

Q12) Please rate the following notifications from your life insurance company on a

scale of 1 to 5, where 1 is the highest and 5 is the lowest.

New product information

Dates for the renewal of premium

Information about the switching of funds

Fund statements

Q 13) Please rate communication modes on a scale of 1 to 5, 1 being the highest

and 5 being the lowest

SMS Phone Calls E-mails

Letters in self addressed envelopes Company representatives

Company brochures/magazines

Q14) The frequency of the fund statement should be

Quarterly Half -yearly Yearly

Name of the Interviewer:

Date:

Questionnaire

Reference # 46J2008090301


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Gap in Insurance Industry

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