Business Environmental Study

Business Environment

Executive Brief Financial Services The relentless pursuit of this mission, since our inception in 1974 has given the Shriram Group our raison d'être and our distinct identity. The Group’s reputation for effectiveness, transparency and integrity has helped it to become one of India’s largest Financial Services Network. The Shriram Group’s Financial Services Businesses manage assets exceeding Rs.13,500 crores, boast 4 million clients, served by 80,000 Agents and 12,000 employees, through nearly 1,000 Branches across India. Shriram Group’s businesses strive to serve the largest number of common people. Commercial Vehicle Financing, Consumer & Enterprise Finance, Retail Stock Broking, Life Insurance, Chit Funds and Distribution of Investment & Insurance Products. The business foray into Non-Life (General) Insurance shortly, is again a strong expression of this commitment. Thanks to this people-first philosophy, Group Companies soon emerge as market leaders in their chosen businesses. India’s No.1 NBFC (Non-Banking Finance Company). No.1 in Chit Funds. India’s hottest start-up Life Insurance Company.

HISTORY Shriram Life Insurance Co. Ltd. was launched in January 2006. India currently accounts for 16% of the world's population.70% of this population is below 35 years of age. Between 2001 and 2006, Indian demography has changed with the higher income classes (more than INR 70,000 per annum) constituting about 79%. This represents huge market for insurance products. This is amply reflected in the growth of insurance industry in the last couple of years. However, this growth has not really reached the Rural and Semi Urban areas. Shriram Group with its network of branches particularly in these areas enjoys an unique opportunity for reaching out to wider audience and sustain the growth story of the insurance industry. Most of the products of Shriram Life were designed by advisors working in the field and based on need analysis done through Intense Market Research. Presently the company offers 11 products catering to various situations and strata of society. Shri Life, Shril Nidhi, Shri Raksha, Shri Vidya, Shri Plus, Shri Plus (SP), Shri Laabh, Shri Vivah, Shri Vishram, Shri Sahay and Immediate Annuity Plan.

Strategic Objective: As a leading insurance company, we are committed to providing the best possible service for our clients. Since the establishment of the company, we have set a number of long term strategic goals. 1

Business Environment we are keen to achieve. On top of our goals is to build a strong loyal customer base that we always try to enrich by providing the best services at competitive costs. We have broadened our range of services over the years, in order to reach out for more customers and meet their precise needs. One of the main objectives of the company is to maintain a stable financial position in the market along with a stable growth in capital over the years. Finally, our achievements and clients speak for us, which proves that we are on the right track for more than 20 years now. Reaching the top is hard... staying on top is the hardest

Our Mission We focus on the needs of our customers and create confidence, trust and loyalty by offering a wide range of innovative insurance solutions. Strengthened by our commitment to professional management, we ensure the continued growth and advancement of our employees

Our Vision Shriram Life Insurance has a deep rooted commitment to improve the quality of life of its customers, employees and shareholders. We aim at improving the long term value in our relationship by continuous innovation and improvements. We do this by our three-prong effort which strives to make Shriram Life Insurance a corporate with values. Increase Customer Value  Shriram Life Insurance has gone to the heart of its customer's requirements and developed products which are unique and serve the customer needs perfectly. We built a relationship of mutual trust and benefit to serve the Indian customer. At Shriram Life Insurance the customer always comes first.  Cohesive Work Environment We form long-term partnership with our employees by offering them an invigorating work experience. We not only demand loyalty, sincerity and values but also give it back in equal measures. Shriram Life Insurance will like to offer its employees space to grow, innovate and build a long-term career.  Work with Honour Shriram Life Insurance delivers everyday services in the marketplace with the high sense of duty and commitment. Our employees strive to build the long-term value for all those come in contact with Shriram Life Insurance. Our consumers, distributors, employees, shareholders and the nation have our commitment that we will uphold the values of trust, integrity and a Sense of Honour in every thought, act and deed in order to positively contribute to individual, society and nation growth. 

INTERNAL FACTORS OF BUSINESS ENVIRONMENT SWOT ANALYSIS 2

Business Environment A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

Strengths  The intense competition brought about by deregulation has encouraged the industry to innovate in all areas; from underwriting, marketing, policy holder servicing to record-keeping.  Aggressive marketing strategies by private sector insurers will buoy consumer awareness of risk and expand the markets for products.  Competition in a deregulated environment will allow market forces to set premiums that are appropriate for exposures and push insurers to differentiate their products and services.

Weaknesses  Premiums rates will remain under pressure due to intense competition on the more profitable lines.  Falling premium income without a corresponding reduction in claims is likely to drive down profits.  Reinsurance is likely to cost more as treaty reinsurers reduce ceding commissions to compensate for the lower rates following deregulation.

Opportunities  Innovations in distribution and improvements in market penetration will follow as public and private insurers compete to market their products.  Allowing insurers to issue their own policy wordings and set their own rates will enable underwriters to tailor products to meet client needs.  The existence of stringent licensing requirements ensures that only adequately capitalized and professionally managed companies are eligible to carry out insurance and reinsurance.

Threats (Challenges)  Public and private sector insurers‟ greater reliance on their investment portfolios to generate sufficient income and gains for net profits would subject them to the volatility of the financial markets.  Private insurers need to raise more capital; otherwise growth could be constrained since reliance on reinsurance for capital relief is not always viable or available.  Traditional distribution channels, especially tied agents, need to be improved to match the new product offerings.  Like all developing economies on a fast track, the shortage of trained insurance professionals and technicians at all levels cannot be remedied in the short term. 3

Business Environment

EXTERNAL ENVIRONMENT PEST Analysis A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: • Political • Economic • Social • Technological The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macro environmental factors.

1. Political factors: Insurance regulator IRDA and the limitation of each countries governmentasked all life insurance companies not to deduct any premium while giving back the money to the customer who wants to cancel the policy within 15 days of opting for it. Its initial purpose was to bring about general discipline to the industry. It is responsible for protecting the interest of policyholders and promoting efficiency in the insurance business. Tariff free regime poses biggest challenge in quoting accurate pricing for the risks covered. It has proposed an initial increase of 150% in TP premium rates, which were later brought down to 70% once the transporters threatened to go on strike. The WTO has capped discounts in January at 49% for fire and engineering sector that cause drop in premium for the first quarter of 2007 – reputably as much as 50%. Insurance agents should have at least a high school diploma along with training of 100 hours from a recognized institution. The benefits for health insurance premium under section 80D of the Income Tax Act were extended by up to Rs.20,000 if the applicant pays for insuring his parents. 2.

Economic Factors: Economic factors affect the purchasing power of potential customers and the firm‟s cost of the capital. The following are the examples of factors in the macro economy:If we see the present scenario the world economy is in decline stage, also the economic growth of the developed and developing countries are decline. The economic growth factor affect the insurance companies a lot as their sales and profit goes down. This whole effect on insurance companies is because the salary of the many employees goes down and many of them lost their jobs due to slowdown and recession that cause decrease in premiums of policies because people use to buy the policies of low premium. There is also the decrease in the sales of the General Insurance Companies (GIC) because decrease in the growth the sales of the motor vehicles segment goes down. The interest rates on the loan also increases due to the inflammatory pressure in the economy cause decrease in the sales of to motor vehicles segment. 4

Business Environment

3. Social Factors: Include the demographic and cultural aspects of the external macro environment. These factors affect the customer’s needs and size of the potential markets. In today’s scenario the life is full of surprises….. Some bitter, some sweet. Health and wellness form an important aspect of the balance in people life. So today people used to insured their health with health insurance policies so to ensure that they take care of when the need arises. These policies cover much more than basic hospitalization. These social factors help in the increase in the profit and sales of the insurance companies. Today people also emphasize on safety, so they prefer various insurance services which ensure the safety of not only their lives but also their valuables such as goods, jewellery, their buildings or home etc. so in today’s scenario insurance companies are providing various services such as Burglary Insurance, Riot insurance, Home Insurance etc. which give them assurance from these problems. Regarding the safety of their future today people use to go for various insurance plans which secure their future such as pension plans, because today people are more conscious of their career.

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Technological Factors: Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Cost effective technology has come to the help of rural insurers in a big way. Currently there is considerable time lag between the actual collection of premium and depositing it in the insurer’s office. There can be a claim in the interim period. Mobile technology can provide a solution to this problem. A receipt for the transaction can be issued through a PDA at the point of sale.

Major Players in the Insurance Industry in World (Competitors) Life Insurance Corporation of India (LIC) The Corporation also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom. LIC is associated with joint ventures abroad in the field of insurance, namely, KenIndia Assurance Company Limited, Nairobi; United Oriental Assurance Company Limited, Kuala Lumpur; and Life Insurance Corporation (International), E.C. Bahrain. It has also entered into an agreement with the Sun Life (UK) for marketing unit linked life insurance and pension policies in U.K. In 1995-96, LIC had a total income from premium and investments of $ 5 Billion while GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's income grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US). In addition to above state insurers the following have been permitted to enter into insurance business: 5

Business Environment The introduction of private players in the industry has added to the colours 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 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 82 %( 2004-05).

1. ICICI Prudential Life Insurance Company Ltd. 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 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). The company has a network of about 56,000 advisors; as well as 7 banc assurance and 150 corporate agent tie-ups.

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HDFC Standard Life Insurance Company Ltd.

HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), India’s leading housing finance institution and The Standard Life Assurance Company, a leading provider of financial services from the United Kingdom. Their cumulative premium income, including the first year premiums and renewal premiums is Rs. 672.3 for the financial year, Apr-Nov 2005. They have managed to cover over 11,00,000 individuals out of which over 3,40,000 lives have been covered through our group business tie-ups.

3. Max New York Life Insurance Co. Ltd. Max New York Life Insurance Company Limited is a joint venture that brings together two large forces - Max India Limited, a multi-business corporate, together with New York Life International, a global expert in life insurance. With their various Products and Riders, there are more than 400 product combinations to choose from. They have a national presence with a network of 57 offices in 37 cities across India.

4. Birla Sun Life Insurance Company Ltd. 6

Business Environment Birla Sun Life Insurance Company is a joint venture between Aditya Birla Group and Sun Life financial Services of Canada.

5. Aviva plc Aviva is the UK’s largest and the world’s fifth largest insurance Group. With a history dating back to 1696, Aviva has a 50 million customer base worldwide. It has more than £381 billion of assets under management.

6. Standard Life Group Standard Life Group has been looking after the financial needs of customers for over 180 years. It currently has a customer base of around 7 million people who rely on the company for their insurance, pension, investment, banking and health-care needs. Its investment manager currently administers £125 billion in assets. It is a leading pension provider in the UK, and is rated by Standard & Poor's as 'strong' with a rating of A+.

7. New York Life LLC New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States and one of the largest life insurers in the world. It is headquartered in New York City, New York Life’s family of companies offer life insurance, annuities and long-term care insurance. New York Life Investment Management LLC provides institutional asset management and retirement plan services. Other New York Life affiliates provide an array of securities products and services, as well as institutional and retail mutual funds.

Conclusion Shriram Life Insurance Co. Ltd. is an Indian company and also has its base in South Africa. It has still the scope of penetrating in other countries’ insurance sector. The company has to come with a different competitive strategy as far as life insurance in concerned. The consumers of different countries behave differently with insurance policy. For a better market hold, the company has to prepare different marketing strategy for different economies. One more thing that the company has to come over is the existing competitors in the market. A thorough study is required for every market over premium setting, initial capital required as the business is going global, an efficient distribution channel, licensing and reinsurance. As far as IRDA is concerned, the regulation posed by the authority is applicable in Indian insurance market players. There are also other authorities for different countries which regulates the insurance market of that country. The purchasing power of consumers plays a vital role in insurance industry. The insurance buyers are more in UK than in US than in India.

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