DECLARATION I, Arun S Kaimal , studying in TY BMS of SIES COLLEGE OF ARTS, SCIENCE & COMMERCE, NERUL hereby declare that I have completed this project on “LIFE INSURANCE SECTOR IN INDIA” in the academic year 2003-04 as per the requirements of the MUMBAI UNIVERSITY as a part of BACHELOR IN MANAGEMENT STUDIES (BMS) programme . The information presented through this project is true and original to the best of my knowledge. Arun S Kaimal 1
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DECLARATION
I, Arun S Kaimal , studying in TY BMS of SIES COLLEGE OF ARTS,
SCIENCE & COMMERCE, NERUL hereby declare that I have completed
this project on “LIFE INSURANCE SECTOR IN INDIA” in the
academic year 2003-04 as per the requirements of the MUMBAI
UNIVERSITY as a part of BACHELOR IN MANAGEMENT STUDIES
(BMS) programme . The information presented through this project is true
and original to the best of my knowledge.
Arun S Kaimal
TYBMS
SIES NERUL
1
CERTIFICATE
I, Venkat S Iyer , hereby certify that Arun S Kaimal , of SIES COLLEGE
OF ARTS, SCIENCE & COMMERCE, NERUL has completed this project
on “LIFE INSURANCE SECTOR IN INDIA” in the academic year 2003-
04. The information submitted in this project is true and original to the best
of my knowledge.
Prof Venkat S Iyer Smitha Ramakrishna ProfG.V.Subramaniam
Project Guide BMS Cordinator Principal
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ACKNOWLEDGEMENTSThis project is the culmination of a study into the wide gamut of activities carried
on in the domain of Insurance especially LIFE INSURANCE in India. This project
would just not have been complete without the valuable contributions from
various people whom I have interacted with in the course of its completion. I
would like to express my sincere gratitude to all those people who have in their
own sweet ways helped me complete this project. I begin by thanking my Project
Guide and my Guru, Professor Venkat S Iyer, the treasure trove of information
who has rallied strongly behind me to see me complete this project. Without him
this project would have remained just an idea, without form or content. My
parents who have always stood by me as solid as a rock; it is their faith in me
that has seen me complete this project on time. My brother who helped me in
whatever small ways possible .The list goes on ……………
I wish to thank all those people who have lent me a helping hand in finishing this
project , whose names are too numerous to be mentioned here. I am also
grateful to our Principal Prof G. V. Subramaniam and our BMS Coordinator Mrs.
Smita Ramakrishna who have always been my guiding lights .
INDEX
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TOPIC PAGES
Executive Summary 01
What is Insurance 02-03
Principles of Insurance 04-05
History of Insurance 06-09
Types of Insurance 10-11
Kind of Products 12-16
Overview of the Life
Insurance Sector in India 17-18
IRDA-The Watch Dog 19-21
Players in the Indian
Market
22-44
Insurance Marketing 45-47
Range Of Products 48-54
The Market Scenario 55-56
The Road Ahead 57-63
Some Important Concepts 64-67
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EXECUTIVE SUMMARY
This project is aimed to be an eye opener for the layman of my country. The huge and ever rising
population levels in our country provides an attractive opportunity for the global insurance majors to
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seek their fortunes here. This is the reason why we find so many private players today competing with
Life Insurance Corporation of India (LIC) the only life insurer prior to liberalisation of our economy ,
for insuring Indian Lives. Inspite of the loud noises made by the various companys vying for a slice of
the large Indian Insurance Pie , the irony is that even today not more than 20% of the populace of our
country is aware about the very basic concepts regarding life insurance. This is precisely the reason
why we see a mandatory tag today with every advertisement that advertises for an Insurance product ,
that goes “INSURANCE IS THE SUBJECT MATTER OF SOLICITATION”. The Insurance
Regulatory Development Authority of India (IRDA) is aware of the fact that many Indian consumers
can be taken for a ride by fly by night operators who could seek to sell insurance as a pure investment
instrument and make good with their hard earned money, promising them huge returns.
This project seeks to throw light on the functioning of the insurance industry in India. Further this
project also aims to clear most of the doubts that may be clouding the minds of an average Indian,
regarding the LIFE INSURANCE SECTOR IN INDIA .
However this project has its own limitations as it is an effort by a 19 year old to understand the
working of an industry that has existed for many hundreds of years and is now poised to take a giant
leap forward, affecting the lives, livelihood and fortunes of millions and millions of our countrymen.
What Is Insurance?
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Insurance is not necessarily an investment from which one expects to get one's money back. Nor is it
gambling. A gambler takes risks, while insurance offers protection against risks that already exist.
Insurance is a way to share risk with others. Since ancient times, communities have pooled some of
their resources to help individuals who suffer loss.
"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 happening of a certain event."
“Insurance is a protection against financial loss arising on the
happening of an unexpected event. Insurance companies
collect premiums to provide for this protection. A loss is paid
out of the premiums collected from the insuring public and
the Insurance Companies act as trustees to the amount
collected.”
For example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person
receives a fixed compensation on the death of the insured. Similarly, in a car insurance, in the event of
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the car meeting with an accident, the insured receives the compensation to the extent of damage. It is a
system by which the losses suffered by a few are spread over many, exposed to similar risks. Insurance
is desired to safeguard oneself and one's family against possible losses on account of risks and perils.
It provides financial compensation for the losses suffered due to the happening of any unforeseen
events. By taking life insurance a person can have peace of mind and need not worry about the
financial consequences in case of any untimely death.
Certain Insurance contracts are also made compulsory by legislation. For example, Motor Vehicles
Act 1988, stipulates that a person driving a vehicle in a public place should hold a valid insurance
policy covering " Act" risks. Another example of compulsory insurance pertains to the Environmental
Protection Act, wherein a person using or carrying hazardous substances (as defined in the Act) must
hold a valid Public Liability (Act) Policy.
Principles of Insurance
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Insurance is a 'risk transfer mechanism' - it transfers the financial risks of everyday life from you to an
insurance company. But only in terms of the financial consequences of risk. Without insurance, if you
car was damaged, it would cost you a lot of money to fix it or to buy another one. It could cost you
even more to pay for compensation to someone else involved in an accident. Insurance protects your
financial interests. It cannot alleviate the emotional consequences of an accident. It cannot provide for
humanitarian ideals. It can't help you with sentimental losses. But properly used, it will protect your
financial investment in your car and your legal obligations should you have an accident.
Insurable Interest
Before you can insure anything, you must have a legally recognised financial interest in what you are
insuring. For motor insurance, you can't take out an insurance policy on the car driven by the latest
film star in the hope that it will crash and you can claim. That is nothing more than gambling. You
have no financial interest in the well being of the object insured and would gain by its destruction. But
you can insure the car you own, or drive. You would suffer financially if it is damaged or stolen and
benefit from its continued existence.
Indemnity
This word is used to describe the type of payment you would receive. A motor policy and a household
policy are both a contract of indemnity. It means, subject to the terms of the contract, you are entitled
to be put back in the same financial position after a loss as you were in before the loss. In terms of a
'new for old' policy the measure of indemnity is agreed at the point of sale rather than the time of
claim. The term is also sometime used to indicate if your insurer will meet the claim at all. A refusal to
indemnify is a refusal to pay the claim.
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Contribution
If there is more than one policy in force that you could claim on, you can't get payment from them
both that would exceed the value of your loss. So each policy would contribute a portion of the loss.
You would receive the full value of the loss but no more and the two policies would only bear part of
it each.
Subrogation
This is the right that your insurer has to recover from someone else where you are entitled to do so.
For example, if another driver causes damage to your car, and your insurers pay for it, subrogation
gives them the legal right to 'stand in your shoes' and reclaim their outlay from the responsible driver.
Proximate Cause
When you seek to claim from your insurers for a property or financial loss you must show that the loss
was caused as a result of a peril covered by the policy. There must be a direct relationship of cause and
effect, the cause must be proximate in efficiency but not necessarily in point of time. There might for
example, be a chain of causes in which each cause is the natural result of the preceding cause. It is the
immediate and not the remote cause which must be considered. The full and classic definition of this
principle is given in case law called 'Pawsey V Scottish Union and National Insurance Co (1908)'
History of Insurance
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Insurance has been around since ancient times. The Babylonians and Phoenicians had ocean marine
insurance to protect a merchant against losses incurred when a ship did not reach its intended
destination with its load of goods or did not return with payment. This form of insurance, called
respondentia, evolved because the goods on board often were used as collateral for a loan. The lender
charged the borrower interest on the loan and levied an additional sum, the premium, to cover the cost
of the respondentia contract. If the ship reached its destination and returned, the merchant received
payment for the goods and in turn paid the moneylender. If the ship failed to return, the debt was
cancelled. This system was profitable to lenders because many respondentia contracts were sold, and
debts were paid more often than cancelled.
In ancient Rome, associations had a form of insurance for their members. Each member made regular
payments to the association in return for coverage of funeral expenses or for assistance to family
members who were injured or ill.
Insurance also existed in 17th-century England, which was then one of the world's principal maritime
powers. Those seeking marine insurance would post a list of their cargo and voyages in a London
coffee house owned by Edward Lloyd. Private investors would examine the list and sign their name by
the entries they were willing to guarantee for a fee. These private investors were the first insurance
underwriters, and the coffee house became the world center of marine insurance. Today the
organization is known as Lloyds of London, and it brings together individuals, most often working in
syndicates, who write all types of insurance.
Insurance in the modern form originated in the Mediterranean during 14th century. The earliest
references to insurance have been found in Babylonia, the Greeks and the Romans. The use of insurance
appeared in the account of North Italian merchant banks who then dominated the international trade in
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Europe at that time. Marine insurance is the oldest form of insurance followed by life insurance and fire
insurance. The patterns that have been used in England followed in other countries also in these kinds of
insurance
The oldest and the earliest records of marine policy relates to a Mediterranean voyage in 1347. In the
year 1400, a book written by a merchant of Florence, indicates premium rates charged for the shipments
by sea from London to Pisa. Marine Insurance spread from Italy to trading routes in other countries of
Europe.
Fire insurance has its origin in Germany where it was introduced in municipalities for providing
compensation to owners of the property, in return for an annual contribution, based on the rent of those
premises. The fire insurance in its present form started after the most disastrous fire in human history
known as the 'Great Fire' in London, which had destroyed several buildings. It drew the attention of the
public and the first fire insurance commercially transacted in 1667. The Industrial Revolution (1720-
1850) gave much impetus to fire insurance. The Nineteenth century marked the development of fire
insurance.
Due to the increasing demands of the time, different forms of insurance have been developed. Industrial
Revolution of 19th century had facilitated the development of accidental insurance, theft and dacoity,
fidelity insurance, etc. In 20th century, many types of social insurance started operating, viz.,
unemployment insurance, crop insurance, cattle insurance, etc. This way the business of insurance
developed simultaneously with human and social development. Today, the use of computers in the field
of insurance is frequently increasing. Insurance becomes an inseparable part of human development.
The early developments of life insurance were closely linked with that of marine insurance. The first
insurers of life were the marine insurance underwriters who started issuing life insurance policies on the
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life of master and crew of the ship, and the merchants. The early insurance contracts took the nature of
policies for a short period only. The underwriters issued annuities and pension for a fixed period or for
life to provide relief to widows on the death of their husbands. The first life insurance policy was issued
on 18th June 1583, on the life of William Gibbons for a period of 12 months.
The history of life insurance in India dates back to 1818 when it was conceived as a means to
provide for English Widows. Interestingly in those days a higher premium was charged for Indian
lives than the non-Indian lives as Indian lives were considered more riskier for coverage. The Bombay
Mutual Life Insurance Society started its business in 1870. It was the first company to charge same
premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in
1880. The first general insurance company- Tital Insurance Company Limited, was established in
1850. Till the end of nineteenth century insurance business was almost entirely in the hands of
overseas companies.
Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of
1912 and the Provident Fund Act of 1912. Several frauds during 20's and 30's sullied insurance
business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation
was introduced with the Insurance Act of 1938 that provided strict State Control over insurance
business. The insurance business grew at a faster pace after independence. Indian companies
strengthened their hold on this business but despite the growth that was witnessed, insurance remained
an urban phenomenon.
The Government of India in 1956, brought together over 240 private life insurers and provident
societies under one nationalised monopoly corporation and LIC was born. Nationalisation was
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justified on the grounds that it would create much needed funds for rapid industrialization. This was in
conformity with the Government's chosen path of State- led planning and development.
The (non-life) insurance business, however, continued to thrive with the private sector till 1972. Their
operations were restricted to organised trade and industry in large cities. The general insurance
industry was nationalised in 1972. With this, nearly 107 insurers were amalgamated and grouped into
four companies- National Insurance Company Ltd., The New India Assurance Company Ltd., The
Oriental Insurance Company Ltd. and United India Insurance Company Ltd. These were subsidiaries
of the General Insurance Coororation of India (GIC)
TYPES OF INSURANCE
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General insurance
The basis for general insurance is "transfer of risk".
This means that the insurer agrees to compensate you if you suffer a loss. Without the insurance you
would have to pay for that loss yourself. Obviously this contract is made on the basis that the
insurance company calculates the risk that you, or the total number of people buying insurance, will
cost more in payouts than what is received in premiums. This is determined by the use of statistics and
the information you disclose on your application for insurance.
This includes:
Home contents. It can either be "defined event" i.e. the policy covers loss or damage from a list of
"defined" events, e.g. storm or fire; or "accidental loss or damage" i.e. all accidental loss with some
exclusions.
Motor vehicle. It can either be "comprehensive" i.e. it covers any damage to your car as well as
damage to the other car or another person's property; "third party property" i.e. it covers damage
caused by your car to another person's property. This type of insurance will not cover you for the cost
of repairs to your own car; "third party fire and theft i.e. it covers damage partly for damage caused by
your car to another person's property, and restricted cover for damage to your car cause by theft or fire.
Income protection. With this type of insurance the insurer agrees to pay you a specified amount of
money, usually in monthly payments, in the event that you become disabled and unable to work.
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Along the same lines you an purchase "trauma insurance" to cover a medical trauma such as a heart
attack.
Also in the modern day world a number of utility specific insurance policies are being
launched by the various players in the insurance market in an effort to stay one step ahead of their
competitors. Hence to make the Definition of General Insurance more broad based and inclusive we
can say that all the policies which do not fall under “Life Insurance “ category fall under the General
Insurance category.
Life Insurance
Life insurance is insurance that will protect your family and/or specified dependents in the event of the
policy holder’s death. In general, it is an essential component in planning for the future.
There are many options with coverage, depending on your situation. And there are three main
categories of life insurance: term life, universal life, and whole life insurance.
Term life is the simplest and least expensive type of policy. It's pure insurance with no cash value
account. A term life policy has only one function: to pay a specific lump sum to whoever you've
designated, upon a specific event, your death.
Whole life insurance provides permanent protection for your dependents while building a cash value
account. With this type of insurance, the insurance company manages the policies various accounts.
Universal life insurance provides permanent protection for your dependents and is more flexible than
whole or variable life.
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KINDS OF LIFE INSURANCE PRODUCTS
Term Life Insurance
Term life insurance is the easiest form of life insurance. It simply provides insurance protection for a
period of time and only pays a benefit during that period. Since term life insurance has no cash value,
the amount of protection in this policy is equal to its death benefit. There are three basic forms of term
life insurance: level term, decreasing term, and increasing term.
Level Term Life Insurance
Level term life insurance provides an equal amount of protection for a period of time. For example a
Rs 150,000 ten-year level term life insurance policy pays out Rs 150,000 of coverage until the ten
years are over. At the end of the ten years this level term life insurance policy would expire, and would
pay out no benefits.
Decreasing Term Life Insurance
Decreasing term life insurance is a policy where the benefit amount decreases gradually over the term
of the protection. A 30 year Rs 200,000 decreasing term policy, for example, wound pay a Rs 200,000
benefit at the beginning of the policy. This amount would gradually decline over the 30-year term and
would pay out Rs 0 at the end of the term. This type of term life insurance is good when the need for
protection declines over the years. For instance, if you just took out a Rs 200,000 30-year mortgage on
your home, the insurance would pay off the mortgage if the insured should pass away during the
mortgage term.
Increasing Term Life Insurance
Increasing term life insurance policies provide a payout benefit that gradually increases at periodic
intervals. These increase amounts are usually a percentage of the original amount. Increasing term life
Group Risk Care Plan Employer - Employee(Allianz Bajaj)
Group Risk Care Plan - Non Employer - Employee(Allianz Bajaj )
Group Credit Care Plan - Employer - Employee(Allianz Bajaj)
Group Credit Care Plan Non Employer - Employee(Allianz Bajaj )
Group Gratuity Plan
(ICICI Pru Life)
Group Term Assurance(ICICI Pru Life)
Group Term Assurance AMP Sanmar
Creditplus(Aviva Life)
FOR CHILDREN
General Plans
Children's Deferred Assurance Plan(LIC)
Jeevan Baalya(LIC)
Jeevan Kishore(LIC)
New Children's Deferred Assurance Plan(LIC)
Komal Jeevan(LIC)
SBI-Scholar(SBI Life)
ICICI Pru Smart Kid (ICICI Pru)
Kotak Child advantage plan (OM Kotak)
Children's Endowment Policy(Max New York)
Yuva Shree(AMP Sanmar)
Children's Plan(HDFC)
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GIRLS ONLY
Jeevan Sukanya(LIC)
FOR RETIREMENT
Bima Nivesh Triple Cover (LIC)
New Jeevan Akshay I(LIC)
New Jeevan Dhara 1(LIC)
New Jeevan Suraksha 1(LIC)
ICICI PRU Forever Life(ICICI Pru)
Sanjeevan(SBI Life)
Kotak Retirement Income Plan(OM Kotak)
Nirvana Pension Plan (Tata-AIG)
Life Long Pensions (SBI Life)
Bhagya Shree (AMP Sanmar)
Easy Life Retirement (Participating) Plan (Max NewYork)
Flexi Securelife Retirement Plan(Birla SunLife)
Pensionplus (Aviva Life)
SPECIALPLANS
Jeevan Asha(LIC)
Major Illness (LIC)
ICICI Pru Life Time(ICICI Pru)
HealthFirst(Tata AIG)
INVESTMENT PLANS
Bima Plus(LIC)
ICICI PRU Assure Invest (ICICI PRU)
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ICICI PRU Life Link(ICICI Pru)
ICICI Pru ReAssure(ICICI Pru)
Kotak Insurance Bond (OM Kotak)
Young Sanjeevan (SBI Life)
Flexible Bond(HDFC)
Single premium insurance bond (Max New York Life)
Single Premium Bond (Birla Sun Life)
LifeBond(Aviva Life)
THE PRESENT MARKET SCENARIO
MARKET SHARE OF LIC TO THE PRIVATE PLAYERS
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MARKET SHARE OF PRIVATE LTD. COMPANIES
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THE ROAD AHEAD
Individual life insurance Coverage Index, 1994
Country (No. Of policies per 100
persons)
Indonesia 2.0
Philippines 5.6
India 12.4
Thailand 14.7
Malaysia 35.5
Hong Kong69.4
South Korea 70.5
Taiwan 75.2
Singapore 112.6
Japan 198.4
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The Life Insurance market in India is an underdeveloped market that was only tapped by the state
owned LIC till the entry of private insurers. The penetration of life insurance products was 19 percent
of the total 400 million of the insurable population.The state owned LIC sold insurance as a tax
instrument, not as a product giving protection. Most customers were under- insured with no flexibility
or transparency in the products. With the entry of the private insurers the rules of the game have
changed.
The 12 private insurers in the life insurance market have already grabbed nearly 9 percent of the
market in terms of premium income. The new business premiums of the 12 private players has tripled
to Rs 1000 crore in 2002- 03 over last year. Meanwhile, state owned LIC's new premium business has
fallen.
Innovative products, smart marketing and aggressive distribution. That's the triple whammy
combination that has enabled fledgling private insurance companies to sign up Indian customers faster
than anyone ever expected. Indians, who have always seen life insurance as a tax saving device, are
now suddenly turning to the private sector and snapping up the new innovative products on offer.
The growing popularity of the private insurers shows in other ways. They are coining money in new
niches that they have introduced. The state owned companies still dominate segments like
endowments and money back policies. But in the annuity or pension products business, the private
insurers have already wrested over 33 percent of the market. And in the popular unit-linked insurance
schemes they have a virtual monopoly, with over 90 percent of the customers.
The private insurers also seem to be scoring big in other ways- they are persuading people to take out
bigger policies. For instance, the avaerage size of a life insurance policy before privatisation was
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around Rs 50,000. That has risen to about Rs 80,000. But the private insurers are ahead in this game
and the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the industry
average.
The insurance market is likely to witness a sea change in the marketing mix, that is product, price,
place (distribution channel) and promotion. The customer-driven market will result in lot of
flexibilities and innovations in product, pricing, distribution channels and communication
mechanisms. The IRDA, with its developmental and regulatory guidelines, is likely to promote
competition, fairness, and reliability, and, at the same time, protect insurance against excessive,
inadequate or unfairly discriminatory rates.
While efforts to strengthen the distribution channels and make them more effective will continue, the
introduction of intermediaries, such as insurance brokers, bancassurance, the electronic media and the
Internet, would call for new strategies. Communication to create greater and demand for insurance
products will continue to be important. At the same time, unfair or misleading advertisements will be
discouraged, and the necessary checks and controls will be in place.
Formulating a marketing strategy is more a process than an event. Environmental factors such as
macro-economic parameters, regulatory norms and themes, technology, infrastructure, legal set-up,
competition by way of new entry and the degree of globalisation need be considered in framing the
strategy. For instance, whether a company would adopt a strategy for market penetration, market
development or product development, or would go in for diversification could be determined by
analysing all the relevant data in terms of the product-market scope.
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The experience of the public sector Life insurance industry in India shows that the distinction between
market development and product development is often blurred.. The product development experience
with the Suhana Safar policy highlights the problems in bundling existing products and marketing
them without reliable, real-time market research back-up. In addition, political proclamations led to
products that customers rejected completely. On paper, the Lfe insurance industry has 90 products; at
best, 15 of them have currency in the market.
It is only after a thorough, continuous and pragmatic SWOT analysis and appropriate financial
implications review that a company should identify the generic strategy. Achieving cost leadership and
differentiation simultaneously has an element of inconsistency because differentiation is usually
costly. Moreover, every generic strategy has a definite risk. The reality is that barriers to imitation are
never insurmountable. Therefore, the strategy needs a constant evaluation and monitoring.
The marketing strategy cannot be taken up in isolation. All the major elements of the organisation --
structure, systems, processes, staff, skills, managerial styles and shared value -- should be
appropriately integrated into the implementation of the strategy. The basic tool for pinpointing
competitive advantage and finding ways to enhance it is the value chain, which divides the a company
into the discrete functions of designing, producing, marketing and distributing.
For, in the ultimate understanding, the marketing strategy is an integral part of the business value of
the company. A business value design is the totality of how a company selects its customers,
differentiates its offerings, defines the tasks it will perform itself and those it will outsource,
configures its resources, goes to the market, creates utility for customers and finally, captures profit. It
is the entire system for delivering utility to customers and earning profits from that activity.
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Today the Indian consumers are are increasingly becoming more aware and are actively managing
their financial affairs. Today, while boundaries between various financial products are blurring, people
are increasingly looking not just at products, but at integrated financial solutions that can offer stability
of returns along with total protection.
To satisfy these myriad needs of products, insurance products will need to be customized. Insurance
today has emerged as an attractive and stable investment alternatively that offers total protection -
Life, Health and Wealth. In terms of returns, insurance products today offer competitive returns
ranging from 7% to 9%. Besides returns, what really increases the appeal of insurance is the benefit of
life protection from insurance products along with health cover benefits.
Consumers today also seek products that offering flexible options, preferring products with benefits
unbundled and customizable to suit their diverse needs. While sales of traditional life insurance
products like individual, whole life and term will remain popular, sale of new products like single
premium, investment linked, retirement products, variable life and annuity products are also set to rise.
Firms will need to constantly innovate in terms of product development to meet ever-changing
consumer needs. However, product innovations are quickly and easily cloned. Pricing will also not
vary significantly, with most product premiums hovering around a narrow band.
In this competitive scenario, a key difference will be the customer experience that each insurance
player can offer in terms of quality of advice on product choice, along with policy servicing and
settlement of claims. Service should focus on enhancing the customer experience and maximizing
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customer convenience. Long-term growth in the business will greatly depend on the distribution
network, where the emphasis must evolve from merely selling insurance to acting as financial
advisors, helping customer's plan their finances depending on personal requirements. This calls for a
strong focus on training of the distribution force to act as financial consultants and build a long lasting
relationship with the customer. This would help create sustainable competitive advantage not easily
matched.
The main reason why the leading insurance companies in the world and the leading corporate groupS
in India have shown a keen interest in the insurance sector, is the vast potential for future business.
Restricted, as the market has been, through the operations of the two monopolies (LIC and GIC), it is
generally felt that the sector can grow exponentially if it is opened up. The decade 1987-97 has
witnessed a compounded growth rate of marginally more than 10% in life insurance business. LIC
predicts for itself that its business has potential to grow by 16.27% p.a. in a decade 1997-2007 (LIC,
1997). If we take a look at insurance coverage index for the age group of 20-59 years a considerable
gap between India and other countries in Asia can be observed. In this scenario, naturally insurance
companies see a vast potential.
“When winds of change blow some seek shelter, while some develop
windmills” the quote can be nailed to all the Insurance companies no matter nationalized or
private. Every company is gearing up and pulling up their socks to tap the maximum chunk of
population, which is uninsured. (Statistically, it is 96.5% of population is uninsured only 35 millions
or 3.5% of the total population are insured).
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The battle has started for the spoil with companies stepping out with innovative insurance products
and resorted to aggressive marketing to have a biggest bite on the insurance cherry, which is estimated
to grow to US $ 25 billion within a decade.
The purpose of the insurance sector is to cover maximum possible potential policyholders. Spotting
opportunities at the right time is essential to influence the target market. It is quite natural that the
needs and requirements of different users living in different segments, regions are not identical. The
needs and requirements of the rural sector would be different from the needs and requirements of the
urban sector.In the Indian perspective where we find a large number of users living in the rural areas,
the importance of the rural sector can’t be negated. In order to increase their market share insurance
organizations need to succeed in informing, sensing and persuading the different segments where
potential users are available. It is not productive to concentrate only on one segment. It is important to
do business in all segments, rural and urban, men and women, agricultural and industrial etc. Crop and
cattle insurance are important for furthering the interests of the agricultural sector.
Whether the insurer is old or new, private or public, expanding the
market will present multitude of challenges and opportunities. But the
key issues, possible trends, opportunities and challenges that insurance
sector will have still remains under the realms of the possibilities and
speculation.
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SOME IMPORTANT CONCEPTS
Annuitant is the person who receives certain amounts at yearly / half-yearly / quarterly / monthly intervals.
Assignee is the person to whom the benefits under a life policy are assigned.
Assignor is the person who holds the right/title under the policy and who can make a valid assignment.
Bonus is the amount added to the basic sum assured under a with-profit life insurance policy.
Claim Amount is the amount payable by the insurer under a policy on a claim arising
Dating Back or Back Dating is an option to the life assured to get the advantage of lower age wherein the policy is commenced from a date earlier than the date of signing of proposal form. However back dating is limited to one year.
DeferredAnnuity is an annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.
Deferment date is the date on which the deferment period ends.
Deferment period is the period from the date of commencement of the policy to the date of commencement of risk on the child's life under a Children's Deferred Endowment Assurancepolicy.
EPDBExtended Permanent Disability Benefit
Female livesCategory I: Women with income earned by
virtue of their employment in any reputed organisation or institution eligible for Non Medical Special Schemes.
Professions such as Medicine, Law, Charted Accountancy etc. and lady career agents of LIC.
Category II: Women with unearned income attracting payment on income tax or women holding sizeable personal properties/investments yielding income attracting assessment for income tax.
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First Class LifeAn Individual is categorised as First Class Life if is eligible to have insurance coverage at normal rates of premium.
First Unpaid Premium (FUP)First unpaid premium refers to the first default in paying premium by the policy holder. On payment of the due premium a receipt is issued and this receipt indicates the date of next due. If this due premium is not paid that date becomes the date of FUP.
Guaranteed Insurance Sum (GIS)Guaranteed Insurance Sum is equal to purchase price paid for a pension along with final Jeevan Akshay Bonus.
Gross Insurance Value Element (GIVE)Gross Insurance value element is the amount payable on death of a policy holder under a Jeevan Dhara Policy. Guaranteed Additions are calculated at a rate per every thousand of sum assured. They are added to the basic sum assured and are payable on admittance of claim. This benefit is allowed only for each year for which premiums are paid.
Life Assured refers to the person whose life is being insured.
Last Birth Day (L.B.D)Age at last Birthday
LienIn some cases extra risk is expected to decrease over a period of time. In such cases proposal is considered and accepted with lien. Lien operates through out the period, on a decreasing basis.In the event of death during the lien period full sum assured is not payable.Eg: If 25% decreasing lien is imposed for 5 years. It is understood that in first year risk cover(sum assured payable) is only upto 75%, second year-80%, third year-85%, fourth year 90%, fifth year 95%, and from sixth year onwards lien is not operative.
Loyalty AdditionsUnder certain life policies loyalty additions are given as an additional benefit to the policyholder. The rate of addition depends on the LIC's performance and is allowed only if the policy is in full force.
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Moral Hazard is said to exist in the case where we notice the absence of a genuine need for a life insurance or when a proposal for insurance is submitted by an individual beyond his means.
Near Birth Day (N.B.D)Age on nearest birthday
NomineeNominee is the person who is nominated to receive the amount under a policy and to give a valid discharge to the insurer on settlement of claim under a life insurance policy.
Non-Standard LifeAny individual, who cannot be granted a policy under normal rates of premiums but can be granted with an extra premium over normal rates of premium, is considered as a Non-Standard Life.
Paidup value is the reduced amount of sum assured paid by the insurer in case of discontinuation of the payment of premiums after paying the full premiums for the first three years. PDBPermanent Disability Benefit
Premium is the amount paid to secure an insurance policy.
Proposal FormIt is a form which is to be completed for securing an insurance policy.
Proposer is a person who proposes the insurance policy.
Premium Waiver Benefit (PWB) are the benefits which can be availed under children's policies, wherein the future premiums payable upto vesting date are waived in the event of death of the proposer.
Sum assured is the amount that an insurer agrees to pay on the occurance of an event.
Surrender value is the amount payable to the policy holder on his surrendering his right under a policy and terminating the contract of insurance.
Target pension is the amount of pension which one wishes to receive under a pension policy. Term is the period for which insurance coverage is given.
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Vesting DateThis is the date from which the life assured ie., child becomes the absolute owner of the policy.
Vesting BonusIt is the Bonus, which the insurer declares after evaluating its assets and liabilities, and that is added to the sum assured under a policy.
Waiting PeriodIt is the period starting from date of commencement of a policy to the date of commencement of risk under a Jeevan Kishore Policy.