Project on Life Insurance An Introduction to insurance A system under which the insurer, for a consideration usually agreed upon in advance, promises to reimburse the insured or to render services to the insured in the event that certain accidental occurrences result in losses during a given period. It thus is a method of coping with risk. Its primary function is to substitute certainty for uncertainty as regards the economic cost of loss-producing events. Insurance relies heavily on the “law of large numbers.” In large homogeneous populations it is possible to estimate the normal frequency of common events such as deaths and accidents. Losses can be predicted with reasonable accuracy, and this accuracy increases as the size of the group expands. From a theoretical standpoint, it is possible to eliminate all pure risk if an infinitely large group is selected. ICICI PRUDENTIAL
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Project on Life Insurance
An Introduction to insurance
A system under which the insurer, for a consideration usually agreed upon in advance,
promises to reimburse the insured or to render services to the insured in the event that
certain accidental occurrences result in losses during a given period. It thus is a
method of coping with risk. Its primary function is to substitute certainty for
uncertainty as regards the economic cost of loss-producing events.
Insurance relies heavily on the “law of large numbers.” In large homogeneous
populations it is possible to estimate the normal frequency of common events such as
deaths and accidents. Losses can be predicted with reasonable accuracy, and this
accuracy increases as the size of the group expands. From a theoretical standpoint, it is
possible to eliminate all pure risk if an infinitely large group is selected.
From the standpoint of the insurer, an insurable risk must meet the following
requirements:
1. The objects to be insured must be numerous enough and homogeneous enough to
allow a reasonably close calculation of the probable frequency and severity of losses.
2. The insured objects must not be subject to simultaneous destruction. For example, if
all the buildings insured by one insurer are in an area subject to flood, and a flood
occurs, the loss to the insurance underwriter may be catastrophic.
ICICI PRUDENTIAL
Project on Life Insurance
3. The possible loss must be accidental in nature, and beyond the control of the
insured. If the insured could cause the loss, the element of randomness and
predictability would be destroyed.
4. There must be some way to determine whether a loss has occurred and how great
that loss is. This is why insurance contracts specify very definitely what events must
take place, what constitutes loss, and how it is to be measured.
From the viewpoint of the insured person, an insurable risk is one for which the
probability of loss is not so high as to require excessive premiums. What is
“excessive” depends on individual circumstances, including the insured's attitude
toward risk. At the same time, the potential loss must be severe enough to cause
financial hardship if it is not insured against. Insurable risks include losses to property
resulting from fire, explosion, windstorm, etc.; losses of life or health; and the legal
liability arising out of use of automobiles, occupancy of buildings, employment, or
manufacture. Uninsurable risks include losses resulting from price changes and
competitive conditions in the market. Political risks such as war or currency
debasement are usually not insurable by private parties but may be insurable by
governmental institutions. Very often contracts can be drawn in such a way that an
“uninsurable risk” can be turned into an “insurable” one through restrictions on losses,
redefinitions of perils, or other methods.
ICICI PRUDENTIAL
Project on Life Insurance
Life insurance industry
Life insurance may be defined as a plan under which large groups of individuals can
equalize the burden of loss from death by distributing funds to the beneficiaries of
those who die. From the individual standpoint life insurance is a means by which an
estate may be created immediately for one's heirs and dependents. It has achieved its
greatest acceptance in Canada, the United States, Belgium, South Korea, Australia,
Ireland, New Zealand, The Netherlands, and Japan, countries in which the face value
of life insurance policies in force generally exceeds the national income.
In the United States in 1990 nearly $9.4 trillion of life insurance was in force. The
assets of the more than 2,200 U.S. life insurance companies totaled nearly $1.4
trillion, making life insurance one of the largest savings institutions in the United
States. Much the same is true of other wealthy countries, in which life insurance has
become a major channel of saving and investment, with important consequences for
the national economy.
Life insurance is relatively little used in poor countries, although its acceptance has
been increasing.
Types of contracts
The major types of life insurance contracts are term, whole life, and universal life, but
innumerable combinations of these basic types are sold. Term insurance contracts,
issued for specified periods of years, are the simplest. Protection under these contracts
ICICI PRUDENTIAL
Project on Life Insurance
expires at the end of the stated period, with no cash value remaining. Whole life
contracts, on the other hand, run for the whole of the insured's life and gradually
accumulate a cash value. The cash value, which is less than the face value of the
policy, is paid to the policyholder when the contract matures or is surrendered.
Universal life contracts, a relatively new form of coverage introduced in the United
States in 1979, have become a major class of life insurance. They allow the owner to
decide the timing and size of the premium and amount of death benefits of the policy.
In this contract, the insurer makes a charge each month for general expenses and
mortality costs and credits the amount of interest earned to the policyholder. There are
two general types of universal life contracts, type A and type B. In type-A policies the
death benefit is a set amount, while in type-B policies the death benefit is a set amount
plus whatever cash value has been built up in the policy.
Life insurance may also be classified, according to type of customer, as ordinary,
group, industrial, and credit. The ordinary insurance market includes customers of
whole life, term, and universal life contracts and is made up primarily of individual
purchasers of annual-premium insurance. The group insurance market consists mainly
of employers who arrange group contracts to cover their employees. The industrial
insurance market consists of individual contracts sold in small amounts with premiums
collected weekly or monthly at the policyholder's home. Credit life insurance is sold to
individuals, usually as part of an installment purchase contract; under these contracts,
if the insured dies before the installment payments are completed, the seller is
protected for the balance of the unpaid debt.
ICICI PRUDENTIAL
Project on Life Insurance
Insurance may be issued with a premium that remains the same throughout the
premium-paying period, or it may be issued with a premium that increases periodically
according to the age of the insured. Practically all ordinary life insurance policies are
issued on a level-premium basis, which makes it necessary to charge more than the
true cost of the insurance in the earlier years of the contract in order to make up for
much higher costs in the later years; the so-called overcharges in the earlier years are
not really overcharges but are a necessary part of the total insurance plan, reflecting
the fact that mortality rates increase with age. The insured is not overpaying for
protection, because of the claim on the cash values that accumulate in the early years;
the policyholder may borrow on this value or may recapture it completely by lapsing
the policy. The insured does not, however, have a claim on all the earnings that accrue
to the insurance company from investing the funds of its policyholders.
ICICI PRUDENTIAL
Project on Life Insurance
INSURANCE SECTOR IN INDIA
The insurance sector in India has come a full circle from being an open
competitive market to nationalisation and back to a liberalised market
again. Tracing the developments in the Indian insurance sector reveals the
360-degree turn witnessed over a period of almost two centuries.
A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India
in the year 1818 with the establishment of the Oriental Life Insurance
Company in Calcutta.
Some of the important milestones in the life insurance business in India
are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government
to collect statistical information about both life and non-life insurance
businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act
with the objective of protecting the interests of the insuring public.
ICICI PRUDENTIAL
Project on Life Insurance
1956: 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalised. LIC formed by an Act of Parliament, viz.
LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government
of India.
The General insurance business in India, on the other hand, can trace its
roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in
India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India,
frames a code of conduct for ensuring fair conduct and sound business
practices.
1968: The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised
the general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the
National Insurance Company Ltd., the New India Assurance
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Project on Life Insurance
Company Ltd., the Oriental Insurance Company Ltd. and the
United India Insurance Company Ltd. GIC incorporated as a
company.
Insurance sector reforms:
In 1993, Malhotra Committee headed by former Finance Secretary and
RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance
industry and recommend its future direction.
The Malhotra committee was set up with the objective of complementing
the reforms initiated in the financial sector. The reforms were aimed at
"creating a more efficient and competitive financial system suitable for
the requirements of the economy keeping in mind the structural changes
currently underway and recognizing that insurance is an important part of
the overall financial system where it was necessary to address the need for
similar reforms…"
In 1994, the committee submitted the report and some of the key
recommendations included:
ICICI PRUDENTIAL
Project on Life Insurance
1) Structure
Government stake in the insurance Companies to be brought down to 50%
Government should take over the holdings of GIC and its subsidiaries so
that these subsidiaries can act as independent corporations
All the insurance companies should be given greater freedom to operate
2) Competition
Private Companies with a minimum paid up capital of Rs.1bn should be
allowed to enter the industry
No Company should deal in both Life and General Insurance through a
single entity
Foreign companies may be allowed to enter the industry in collaboration
with the domestic companies
Postal Life Insurance should be allowed to operate in the rural market
Only One State Level Life Insurance Company should be allowed to
operate in each state
ICICI PRUDENTIAL
Project on Life Insurance
3) Regulatory Body
The Insurance Act should be changed
An Insurance Regulatory body should be set up
Controller of Insurance (Currently a part from the Finance Ministry)
should be made independent
4) Investments
Mandatory Investments of LIC Life Fund in government securities to be
reduced from 75% to 50%
GIC and its subsidiaries are not to hold more than 5% in any company
(There current holdings to be brought down to this level over a period of
time)
5) Customer Service
LIC should pay interest on delays in payments beyond 30 days
Insurance companies must be encouraged to set up unit linked pension
plans
Computerisation of operations and updating of technology to be carried
out in the insurance industry The committee emphasized that in order to
improve the customer services and increase the coverage of the insurance
industry should be opened up to competition.
ICICI PRUDENTIAL
Project on Life Insurance
LIFE INSURANCE SECTOR IN INDIA
Many may not be aware that the life insurance industry of India is as old
as it is in any other part of the world. The first Indian life insurance
company was the Oriental Life Insurance Company, which was started in
India in 1818 at Kolkata1. A number of players (over 250 in life and
about 100 in non-life) mainly with regional focus flourished all across the
country. However, the Government of India, concerned by the unethical
standards adopted by some players against the consumers, nationalised
the industry in two phases in 1956 (life) and in 1972 (non-life). The
insurance business of the country was then brought under two public
sector companies, Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC).
In line with the economic reforms that were ushered in India in early
nineties, the Government set up a Committee on Reforms (popularly
called the Malhotra Committee) in April 1993 to suggest reforms in the
insurance sector. The Committee recommended throwing open the sector
to private players to usher in competition and bring more choice to the
consumer. The objective was to improve the penetration of insurance as a
percentage of GDP, which remains low in India even compared to some
developing countries in Asia.
ICICI PRUDENTIAL
Project on Life Insurance
Reforms were initiated with the passage of Insurance Regulatory and
Development Authority (IRDA) Bill in 1999. IRDA was set up as an
independent regulatory authority, which has put in place regulations in
line with global norms. So far in the private sector, 12 life insurance
companies and 9 general insurance companies have been registered.
INSURANCE MARKET IN INDIA
By any yardstick, India, with about 200 million middle class households,
presents a huge untapped potential for players in the insurance industry.
Saturation of markets in many developed economies has made the Indian
market even more attractive for global insurance majors. Table 1 reflects
the low percentage and per capita penetration of insurance in India
compared to other developed and developing countries2.
ICICI PRUDENTIAL
Project on Life Insurance
With the per capita income in India expected to grow at over 6% for the
next 10 years and with improvement in awareness levels, the demand for
insurance is expected to grow at an attractive rate in India. An
independent consulting company, The Monitor Group has estimated that
the life insurance market will grow from Rs.218 billion in 1998 to
Rs.1003 billion by 2008 (a compounded annual growth of 16.5%)3.
WINDS OF CHANGE
Reforms have marked the entry of many of the global insurance majors
into the Indian market in the form of joint ventures with Indian
companies. Some of the key names are AIG, New York Life, Allianz,
Prudential, Standard Life, Sun Life Canada and Old Mutual. The entry of
new players has rejuvenated the erstwhile monopoly player LIC, which
has responded to the competition in an admirable fashion by launching
new products and improving service standards.
The following are the key winds of change brought about by privatisation.
ICICI PRUDENTIAL
Project on Life Insurance
Market Expansion: There has been an overall expansion in the market.
This has been possible due to improved awareness levels thanks to the
large number of advertising campaigns launched by all the players. The
scope for expansion is still unlimited as virtually all the players are
concentrating on large cities and towns - except by LIC to an extent there
was no significant attempt to tap the rural markets.
New Product Offerings: There has been a plethora of new and
innovative products offered by the new players, mainly from the stable of
their international partners. Customers have tremendous choice from a
large variety of products from pure term (risk) insurance to unit-linked
investment products. Customers are offered unbundled products with a
variety of benefits as riders from which they can choose. More customers
are buying products and services based on their true needs and not just
traditional money-back policies, which is not considered very appropriate
for long-term protection and savings. However, there are still some key
new products yet to be introduced - e.g. health products.
ICICI PRUDENTIAL
Project on Life Insurance
Customer Service: Not unexpectedly, this was one area that witnessed
the most significant change with the entry of new players. There is an
attempt to bring in international best practices in service and operational
efficiency through use of latest technologies. Advice and need based
selling is emerging through much better trained sales force and advisors.
There is improvement in response and turnaround times in specific areas
such as delivery of first policy receipt, policy document, premium notice,
final maturity payment, settlement of claims etc. However, there is a long
way to go and various customer surveys indicate that the standards are
still below customer expectation levels.
Channels of Distribution: Till two years back, the only mode of
distribution of life insurance products was through Agents. While agents
continue to be the predominant distribution channel, today a number of
innovative alternative channels are being offered to consumers. Some of
them are bancassurance, brokers, the internet and direct marketing.
Though it is too early to predict, the wide spread of bank branch network
in India could lead to bancassurance emerging as a significant distribution
ICICI PRUDENTIAL
Project on Life Insurance
Table 2 below gives a snapshot of the performance for 2003-04 (up to
October) of the 13 life insurance payers in India based on the first year
premium figure 4.
Insurance is in a manner of speaking the last frontier in the financial sector to
open. It is also a sector which will lead to benefits across the full spectrum, from
the individual who will now have wider choices, to the economy which will see
increased savings, to the infrastructure sector which can look forward to long
term funding being available. In an under-insured economy, newer channels of
distribution will have to be utilized to intensify the reach of insurance both in
urban and rural markets. This will create huge employment opportunities not
only within insurance companies but also as agents and consultants of insurance
companies.
ICICI PRUDENTIAL
Project on Life Insurance
SUMMARY
Overall, the life insurance and pension sector is set for rapid changes and
growth in the years ahead. Delivering service, building trust and being
innovative are key areas in which any company will have to excel in order
to do well in the long road ahead. Different companies will take different
approaches and it would be myriad of solutions that will be found to
delight the Indian customer.
For instance, investors in Prudential-ICICI Liquid Plan can
withdraw any amount over and above Rs 15,000, provided they have
an account with ICICI Bank.
Technology can play a crucial role in delivering the highest standards
set by the company and it will be imperative for any serious player to
excel in all these.
ICICI PRUDENTIAL
Project on Life Insurance
PROBLEMS AND OBJECTIVES
THE PROBLEM
There are too many companies/players in the market who are
offering a number of policies to the customers. As a result individual is
confused about the brand and the policy he/she should take and from
which insurer for fulfillment of his/her life needs.
Objectives of the Project
Primary objectives-
Study will be conducted on Brand Image of ICICI Prudential
Life Insurance.
An attempt will also be made to study the viewpoint of policyholders and
further to suggest the modalities to improve the efficiency of ICICI
PRUDENTIAL.
Secondary objectives-
To find out the advantages of the policies offered by ICICI PRUDENTIAL
over various companies.
An attempt will also be made to study the differentiating strategies adopted by
ICICI PRUDENTIAL to win the customers.
ICICI PRUDENTIAL
Project on Life Insurance
Research Methodology
Data is collected from both primary & secondary sources. As a primary source
a survey of policyholders & company officials has been conducted.
Articles, , newspapers, magazines, referral books and Internet services have
been used as secondary source of data.
Different tools like ratio analysis, correlation and regression have
been used to analyse the collected data.
ICICI PRUDENTIAL LIFE INSURANCE COMPANY
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a
premier financial powerhouse and prudential plc, a leading international financial
services group headquartered in the United Kingdom. ICICI Prudential was amongst
the first private sector insurance companies to begin operations in December 2006
after receiving approval from Insurance Regulatory Development Authority (IRDA).
ICICI Prudential's equity base stands at Rs. 6.75 billion with ICICI Bank and
Prudential plc holding 74% and 26% stake respectively. In the year ended March 31,
2008, the company had issued over 430,000 policies, for a total sum assured of over
Rs 8,000 crore and premium income in excess of Rs. 980 crore. The company has a
network of about 30,000 advisors; as well as 12 bancassurance tie-ups. Today the
company is the #1 private life insurer in the country.
ICICI PRUDENTIAL
Project on Life Insurance
Particulars for the period ended March 31, 2008
2008 2007
Premium Income 4176.00 1163.00
Other Income 120.60 220.71
Total Income 4424.00 1193.71
Expenditure 8.63 11.07
Net Profit/(Loss) (1471.82) (1050.98)
Share Capital 4250.00 1900.00
ICICI PRUDENTIAL
Project on Life Insurance
Partners
ICICI and Prudential came together in 1993 to form Prudential ICICI Asset
Management Company, which has today emerged as one of the leading mutual funds
in India. The two companies bring together two of the strongest financial service
brands in Asia, known for their professionalism, excellent quality of service and long
term commitment to YOU. Riding on the success of this relationship, the two
companies joined hands once more in 2000, to form ICICI Prudential Life Insurance,
with a commitment to provide leading-edge life insurance solutions.
ICICI Bank has 74% stake in the company, and Prudential plc has 26%.
ICICI Bank
ICICI Bank (NYSE:IBN) is India''s second largest bank with an asset base of Rs.
106812 crore. ICICI Bank provides a broad spectrum of financial services to
individuals and companies. This includes mortgages, car and personal loans, credit
and debit cards, corporate and agricultural finance. The Bank services a growing
customer base of more than 7 million customer accounts and 5 million bondholders
accounts through a multi-channel access network. This includes about 450 branches
and extension counters, 1675 ATMs, call centres and Internet banking
(www.icicibank.com). ICICI Bank posted a net profit of Rs.1,206 crore for the year
ended March 31, 2003. ICICI Bank is the only Indian company to be rated above the
country rating by the international rating agency Moody''s and the only Indian
company to be awarded an investment grade international credit rating. The Bank
enjoys the highest AAA (or equivalent) rating from all leading Indian rating agencies.