EXECUTIVE 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. During the first part, I was given complete classroom training about the various unit linked as well as the traditional plans and solutions which the company offers. Later, Market Research was done through various activities and tele-calling which are discussed further in the report. Activities led to practical exposure and taught me the aspects of customer dealing. Finally, interesting conclusions were drawn out of the data collected regarding the Awareness of Financial Planning among the people in today’s environment. 1
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EXECUTIVE 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.
During the first part, I was given complete classroom training about the various unit
linked as well as the traditional plans and solutions which the company offers.
Later, Market Research was done through various activities and tele-calling which
are discussed further in the report. Activities led to practical exposure and taught me
the aspects of customer dealing.
Finally, interesting conclusions were drawn out of the data collected regarding the
Awareness of Financial Planning among the people in today’s environment.
It was great experience because selling an insurance product demands a great deal
of confidence and product knowledge.
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INDUSTRY PROFILE
Overview
With largest number of life insurance policies in force in the world, Insurance
happens to be a mega opportunity in India. It’s a business growing at the rate
of 15-20 per cent annually.
Together with banking services, it adds about 7 percent to the country’s
GDP .In spite of all this growth the statistics of the penetration of the
insurance in the country is very poor. Nearly 80 per cent of Indian population
is without life insurance cover while health insurance and non-life insurance
continues to be below international standards. And this part of the population
is also subject to weak social security and pension systems with hardly any
old age income security. This it-self is an indicator that growth potential for the
insurance sector is immense.
Historical Perspective
The insurance came to India from UK; with the establishment of the Oriental Life
insurance Corporation in 1818.The Indian life insurance company act 1912 was the
first statutory body that started to regulate the life insurance business in India. By
1956 about 154 Indian, 16 foreign and 75 provident firms were been established in
India. Then the central government took over these companies and as a result the
LIC was formed. Since then LIC has worked towards spreading life insurance and
building a wide network across the length and the breath of the country.
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Important milestones in the life insurance business in India:
1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
1956: 245 Indian and foreign insurers and provident societies were taken over by the
central government and nationalized. LIC formed by an Act of Parliament- LIC Act
1956- with a capital contribution of Rs.5 cr. from the Government of India.
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.
1972: The general insurance business in India nationalized through The General
Insurance Business (Nationalization) Act, 1972 with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies- the National Insurance
Company Limited, the New India Assurance Company Limited, the Oriental
Insurance Company Ltd. and the United India Insurance Company Ltd. GIC
incorporated as a company.
Insurance Sector Reforms
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Prior to liberalization of Insurance industry, Life insurance was
monopoly of LIC.
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:
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.
Competition
Private Companies with a minimum paid up capital of Rs.1 billion should be allowed
to enter the sector. 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.
Regulatory Body
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The Insurance Act should be changed. An Insurance Regulatory body should be set
up. Controller of Insurance- a part of the Finance Ministry- should be made
independent
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)
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. Computerization
of operations and updating of technology is to be carried out in the insurance
industry.
STATISTICS (INDIAN & GLOBAL)
This section gives the users important and detailed statistics of the Indian as well as
the Global insurance industry. These statistics would give important insights of
where the respective markets are headed for.
The global life insurance market stands at $1,521.2 billion while the non-life
insurance market is placed at $922.4 billion.
The United States itself accounts for about one-third of the $2443.6 billion
global insurance market and Japan stands next with a 20.62% share.
India takes the 23rd position with US $9.933 billion annual premium
collections and a meager 0.41% share.
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Out of one billion people in India, only 35 million people are covered by
insurance.
India's life insurance premium as a percentage of GDP is just 1.77 per cent.
The income derived by GIC and its subsidiary companies through investment
was Rs.2491.76 crore and the investable fund generated was Rs.2843 crore
in 1999-2000.
Indian insurance market is set to touch $25 billion by 2010, on the assumption
of a 7 per cent real annual growth in GDP.
NATURE OF INDUSTRY
The insurance industry provides protection against financial losses resulting from a
variety of perils. By purchasing insurance policies, individuals and businesses can
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receive reimbursement for losses due to car accidents, theft of property, and fire and
storm damage; medical expenses; and loss of income due to disability or death.
The insurance industry consists mainly of insurance carriers (or insurers) and
insurance agencies and brokerages. In general, insurance carriers are large
companies that provide insurance and assume the risks covered by the policy.
Insurance agencies and brokerages sell insurance policies for the carriers.
Insurance companies assume the risk associated with annuities and insurance
policies and assign premiums to be paid for the policies. In the policy, the companies
states the length and conditions of the agreement, exactly which losses it will provide
compensation for, and how much will be awarded.
The premium charged for the policy is based primarily on the amount to be awarded
in case of loss, as well as the likelihood that the insurance carrier will actually have
to pay. In order to be able to compensate policyholders for their losses, insurance
companies invest the money they receive in premiums, building up a portfolio of
financial assets and income-producing real estate which can then be used to pay off
any future claims that may be brought.
There are two basic types of insurance carriers: Direct and Reinsurance.
Direct carriers are responsible for the initial underwriting of insurance policies and
annuities, while Reinsurance carriers assume all or part of the risk associated with
the existing insurance policies originally underwritten by other insurance carriers.
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Direct insurance carriers offer a variety of insurance policies.
Life insurance provides financial protection to beneficiaries—usually spouses and
dependent children—upon the death of the insured.
Disability insurance supplies a preset income to an insured person who is unable
to work due to injury or illness
Health insurance pays the expenses resulting from accidents and illness.
An Annuity (a contract or a group of contracts that furnishes a periodic income at
regular intervals for a specified period) provides a steady income during retirement
for the remainder of one’s life.
Property-casualty insurance protects against loss or damage to property resulting
from hazards such as fire, theft, and natural disasters.
Liability insurance shields policyholders from financial responsibility for injuries to
others or for damage to other people’s property. Most policies, such as automobile
and homeowner’s insurance, combine both property-casualty and liability coverage.
Companies that underwrite this kind of insurance are called property-casualty
carriers.
What is Life Insurance?
Human life is subject to risks of death and disability due to natural and accidental
causes. When human life is lost or a person is disabled permanently or temporarily,
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there is a loss of income to the household. The family is put to hardship. Risks are
unpredictable. Death/disability may occur when one least expects it. There are a
number of life insurance products which offer protection and also coupled with
savings.
A Term insurance product provides a fixed amount of money on death during the
period of contract.
A Whole Life insurance product provides a fixed amount of money on death.
An Endowment Assurance product provided a fixed amount of money either on
death during the period of contract or at the expiry of contract if life assured is alive.
A Money Back Assurance product provides not only fixed amounts which are
payable on specified dates during the period of contract, but also the full amount of
money assured on death during the period of contract.
An Annuity product provides a series of monthly payments on stipulated dates
provided that the life assured is alive on the stipulated dates.
A Linked product provides not only a fixed amount of money on death but also
sums of money which are linked with the underlying value of assets on the desired
dates.
There are a variety of life insurance products to suit to the needs of various
categories of people—children, youth, women, middle-aged persons, old people; and
also rural people, film actors and unorganized laborers.
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Life insurance products could be purchased from registered life insurers notified by
the IRDA. Insurers appoint insurance agents to sell their products.
As per regulations, insurers have to give the various features of the products at the
point of sale. The insured should also go through the various terms and conditions of
the products and understand what they have bought and met their insurance needs.
They ought to understand the claim procedures so that they know what to do in the
event of a loss.
INDIAN INSURANCE SECTOR
REGULATORY BODY
Insurance is a federal subject in India. The primary legislation that deals with
insurance business in India is: Insurance Act, 1938, and Insurance Regulatory &
Development Authority Act, 1999.
The Insurance Regulatory and Development
Authority (IRDA)10
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory body
in April 2000 has fastidiously stuck to its schedule of framing regulations and
registering the private sector insurance companies.
The other decision taken simultaneously to provide the supporting systems to the
insurance sector and in particular the life insurance companies was the launch of the
IRDA’s online service for issue and renewal of licenses to agents. Since being set up
as an independent statutory body the IRDA has put in a framework of globally
compatible regulations.
MISSION-IRDA
“To protect the interests of the policyholders, to regulate, promote and ensure
orderly growth of the insurance industry and for matters connected therewith
or incidental thereto.”
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IMPACT OF LIBERALISATION
The introduction of private players in the industry has added to the colors in the dull
industry. The initiatives taken by the private players are very competitive and have
given immense competition to the on time monopoly of the market LIC. Since the
advent of the private players in the market the industry has seen new and innovative
steps taken by the players in this sector.
The new players have improved the service quality of the insurance. As a result LIC
down the years have seen the declining phase in its career. The market share was
distributed among the private players. Though LIC still holds the 79% of the
insurance sector but the upcoming natures of these private players are enough to
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give more competition to LIC in the near future. LIC market share has decreased
from 95% (2002-03) to 81 %( 2004-05).
LIC has the current market share of 79%.
Among the private players ICICI Prudential has the maximum of approx. 5.60%
Followed by Bajaj Allianz (3.27 %) and HDFC Standard Life of about 3.11%.
Below is the table that shows the market share of various players of the industry.
The following companies have the rest of the market share of the insurance industry.
COMPANY NAME MARKET SHARE
LIC 79.30
ICICI PRUDENTIAL 5.63
BAJAJ ALLIANZ 3.27
HDFC STANDARD LIFE 3.11
BIRLA SUNLIFE 2.32
TATA AIG 1.45
SBI LIFE 1.24
MAX NEWYORK 0.90
AVIVA LIFE 0.82
ING VYSYA 0.66
OM KOTAK LIFE 0.54
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AMP SANMAR 0.38
METLIFE 0.33
RELIANCE LIFE 0.05
The liberalization of the Indian insurance sector has opened new doors to private
competition and the new and improved insurance sector today promises several new
job opportunities. With private players now in the field, there will be innovative
products, better packaging, improved customer service, and, most importantly,
greater employment opportunities.
There are a number of options to choose from for a career in Insurance. Ideally
an insurance company will have openings in the following fields:
Actuaries
Underwriter
Surveyor
Investment
Marketing & Distribution
Actuaries
Evaluates the risk for companies to be used for strategic management
decisions.
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Actuaries use their analytical skills to predict the risk of writing insurance
policies through the use of mathematical, statistical and economic models.
An actuary not only fixes the premium rates for new products, but also revises
both products and prices. They calculate costs to assume ris
Underwriters
Insurance underwriters review insurance applications and decide whether
they should be accepted or rejected based on the degree of risks involved in
insuring the people or objects of concern.
In the life insurance business, an underwriter is expected to filter the "bad or
substandard lives". Whereas, in the general insurance segment, he takes care
of risk management.
Agents/Brokers:
Insurance agents may work for one insurance company or as independent
agents selling for several companies.
Insurance agents and brokers can find openings in the health insurance
sector, financial planning services, retirement planning counseling or even
provide other services, for e.g. sell mutual funds, annuities etc.
Surveyor/Loss Assessor:
Surveyors are professionals who assess the loss or damage and serve as a
link between the insurer and the insured.
They usually function only in non life business.
Their job is to assess the actual loss and avoid false claims.
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Sales/Marketing:
And who can forget the guys who make and break a brand. They would be
required in a large number in order to promote the number of products that will be
launched by numerous companies in the insurance sector.
CURRENT SCENARIO OF THE INDUSTRY
INSURANCE MARKET IN INDIA
India with about 200 million middle class household shows 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. The insurance sector in India has come to a position of very high
potential and competitiveness in the market.
Innovative products and aggressive distribution have become the say of the day.
Indians, have always seen life insurance as a tax saving device, are now suddenly
turning to the private sector that are providing them new products and variety for
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their choice. Life insurance industry is waiting for a big growth as many Indian and
foreign companies are waiting in the line for the green signal to start their operations.
The Indian consumer should be ready now because the market is going to give them
an array of products, different in price, features and benefits. How the customer is
going to make his choice will determine the future of the industry.
CUSTOMER SERVICE
Consumers remain the most important centre of the insurance sector. After the entry
of the foreign players the industry is seeing a lot of competition and thus
improvement of the customer service in the industry. Computerization of operations
and updating of technology has become imperative in the current scenario. Foreign
players are bringing in international best practices in service through use of latest
technologies. The one time monopoly of the LIC and its agents are now
Going through a through revision and training programs to catch up with the other
private players. Though lot is being done for the increased customer service and
adding technology to it but there is a long way to go and various customer surveys
indicate that the standards are still below customer expectation levels.
DISTRIBUTION CHANNELS
Till date insurance agents still remain the main source through which insurance
products are sold. The concept is very well established in the country like India but
still the increasing use of other sources is imperative. It therefore makes sense to
look at well- balanced, alternative channels of distribution.
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LIC has already well established and have an extensive distribution channel and
presence. New players may find it expensive and time consuming to bring up a
distribution network to such standards. Therefore they are looking to the diverse
areas of distribution channel to have an advantage. At present the distribution
channels that are available in the market are:
• Direct selling/Retail
• Corporate agents
• Group selling
• Brokers and cooperative societies
• Banc assurance
DIRECT SELLING/RETAIL
Direct selling or retail business is carried out by Agents of the company. This is the
main distribution channel due to the complexity of most Insurance products
(Endowment, Whole of Life, Unit Linked). This tends to be the focus of most
companies due to its past success as well as its ability to deliver the right advice.
However, this channel can be expensive and it is a time consuming sales process.
An agent is the public face of an Insurance company. Hence it is important that this
face is always smiling and presentable and the facts and figures at his/ her
command are updated and correct.
An agent should be a pleasing personality with complete knowledge about the
various plans and solutions which the company has to offer and must also
understand the customer’s psychology well to deal in an efficient manner.
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BANCASSURANCE
Banc assurance is the distribution of insurance products through the bank's
distribution channel. It is a phenomenon wherein insurance products are offered
through the distribution channels of the banking services along with a complete
range of banking and investment products and services. To put it simply, Banc
assurance, tries to exploit synergies between both the insurance companies and
banks.
Advantages to banks
Productivity of the employees increases.
By providing customers with both the services under one roof, they
can improve overall customer satisfaction resulting in higher customer retention
levels.
Increase in return on assets by building fee income through the sale of
insurance products.
Can leverage on face-to-face contacts and awareness about the
financial Conditions of customers to sell insurance products.
Banks can cross sell insurance products e.g.: Term insurance products with loans.
Advantages to insurers 19
Insurers can exploit the banks' wide network of branches for distribution of
products. The penetration of banks' branches into the rural areas can be
utilized to sell products in those areas.
Customer database like customers' financial standing, spending habits,
investment and purchase capability can be used to customize products and
sell accordingly.
Since banks have already established relationship with customers, conversion
ratio of leads to sales is likely to be high. Further service aspect can also be
tackled easily.
Advantages to consumers
Comprehensive financial advisory services under one roof. i.e., insurance
services along with other financial services such as banking, mutual funds,
personal loans etc.
Enhanced convenience on the part of the insured
Easy accesses for claims, as banks are a regular go.
Innovative and better product ranges
WHAT DOES LIFE INSURANCE HAVE TO OFFER?
Life insurance is many different things to many different people. For some, it is a
premium to be paid on time. For others it offers liquidity since cash can be borrowed
when needed. For the investment-minded, it denotes a constantly growing capital
account and numerous other benefits.
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The contractual guarantee is the promise to pay, backed by one of the oldest and
most stably regulated financial industry operating in the Indian sub-continent today.
1) Insurance Buys Time and Money
People like to refer to life insurance as time insurance, the reason being that life
insurance proceeds are paid to the insured's beneficiaries in case of death. The
money proffered by life insurance helps buy time to adjust to the change of
circumstances. Insurance provides large amounts of cash that will keep the lifestyle
for the survivors the way it was before the insured's death.
2) Insurance Offers Peace of Mind
For the person who buys an insurance policy, it offers absolute and complete peace
of mind. He or she knows that the decision made by him will provide sound benefits
in the future, whether or not the individual may live to see it.
3) Multiple Applications
The future is uncertain for each and every one. No one knows how long He or she
will live. The investment benefit is paid to the insured's beneficiaries after his death
or it can be used during the life as well. Life insurance policy owners can turn to the
cash value of the policy in case of a financial emergency when all avenues are either
blocked or denied.
4) Enduring Elasticity
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Since life insurance is flexible enough to serve several needs, the insured can keep
several long-term goals in mind once he or she invests in the insurance plan. The
cash value of the policy can be allocated towards augmenting the monthly income
during the retirement years. Leisure years should be turned into pleasure years.
Permanent life insurance is designed on the concepts of long-term flexibility.
5) Financial Security
The insurance policy offers contractual guarantees to people looking for peace of
mind when they buy life insurance. Life insurance offers complete financial security.
The purchase of life insurance demonstrates concern for a family's future financial
well being.
6) Regard for Family
The purchase of life insurance clearly displays care and concern for the people the
policy owner loves.
7) Insurance is Safer
No financial institution can do what life insurance does. No industry can back its
products with reserves and surplus as sound as those of the insurance industry. The
proof of strength and safety that insurance companies have ensured even under the
most adverse of conditions is a matter of pride for the entire insurance industry. For
generation after generation, life insurance has been acclaimed as the very
benchmark of security against which the other industries are measured.
OPPORTUNITIES FOR INSURANCE COMPANIES
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In the now open sector on insurance, the following is what I feel will determine the
success of the company in particular and the industry in general:
A change in the attitude of the population
Indians have always been wary of employing their hard-earned money in a venture
that will pay them on their death. Insurance has always been used as a Tax saving
tool. No more, no less. It is upon the insurers to educate the people to secure/insure
their future against any unknown calamity and make a shield around their families
and businesses.
An open and transparent environment created under the IRDA.
The reason for this being on the top of our understanding is that when ever we have
seen any sector open up in India there are always grey areas and unsure policies.
These are not exactly what any player, be it Indian or foreign, looks for. It creates an
air of uncertainty in all the decision making process. Insurance as a sector requires
players who are strong financially and are willing to wait for returns. Their confidence
can be bolstered only if there is an open and a transparent policy guidelines. This will
also help the consumers feel safe that the regulatory is an active one and cares to
do everything possible to keep things under control and help the insurance
environment grow maturely. A well-established distribution network.
To cater to the largest democracy in the world is by no means a cakewalk. Insurance
profits are directly related to number of insured and this is in turn related to the
reach.
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Trained professionals to build and sell the product.
It is said that the insurance agent is the best salesman in the world. He makes you
pay, regularly, an amount promising to pay back only on your death. Thus the
players will require an excellent sales team to sell their products in the now
competitive environment.
Encouragement of new and better products and letting the hackneyed ones
die out.
This will itself ensure the market grows. And that every class/society gets a product
that best suits them.
SPECIAL PROVISIONS
The Income Tax Act and Life Insurance policies
Under Section 10(10D), any sum received under a Life Insurance policy (not
being a Key Man policy) is also exempt from taxation. But it is wise to remember
that Pensions received from Annuity plans are not exempted from Income Tax.
Section 80C provides a deduction up to Rs.1, 00,000/- to an individual assesses
for any amount paid as a premium.
POLICYHOLDERS GRIEVANCES
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Policyholders may have complaints against insurers either in respect of their policies
or their claims. As per Regulations for Protection of policyholders’ interests, 2002,
every insurer should have in place, a grievance reprisal system to address the
complaints of policyholders. The IRDA has a Grievance Reprisal Cell which plays a
facilitative role by taking up complaints against insurers with the respective
companies for speedy resolution. The IRDA however does not adjudicate on
complaints.
SWOT ANALYSIS OF INSURANCE INDUSTRY
STRENGTH
1. Best returns with the added advantage of 100% life insurance coverage.
2. Good option for new investors into the market as all the money is invested by best
fund managers so with less knowledge also they can earn good Returns.
3. Best commission charges paid to the agents which vary from 12% to 35% which is
much higher as compared to mutual funds i.e. , only 2-2.5%.
WEAKNESS
1. HDFC SLIC could not able to match LIC in remote areas services.
2. Misleading facts given by life advisors about the returns of ULIPs.
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3. Hidden charges taken by the companies.
4. Less Promotional Campaigns.
OPPORTUNITY
1. 80 percent of Indian population is still under insured. So there is
a big opportunity for insurance companies.
2. As the stock market can be under the mark any time so it can
bring loss to the investors but as in ULIPs there is proper mixture of debt
securities and equity so the loss is incurred during dark trading days also.
3. Unit-linked products are exempted from tax and they provide life insurance.
4. Increasing consumer awareness about Insurance and its use.
THREAT
1. Cannibalism within the industry by providing misleading figures to the investors.
2. Govt.’s instability has a long term repercussions affecting company’s policies
and its growth.
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COMPANY’S PROFILE
INTRODUCTION
Helping Indians experience the joy of home ownership.
Incorporated in 1977 with a share capital of Rs. 10 crores, HDFC has since emerged
as the largest residential mortgage finance institution in the country. The corporation
has had a series of share issues raising its capital to Rs. 119 crores. HDFC operates
through 75 locations throughout the country with its Corporate Headquarters in