Emerging Trends In Insurance Sector

Emerging Trends in life insurance sector

ACKNOWLEDGEMENT The success of this final report is the outcome of Guidance and valuable suggestions provided by all the concerned without whom the report could not fide on the right back. I would like to express my sincere gratitude to Coordinator and Guide MRs Mahek Mansuri for giving me an opportunity to do this project work. I express my sense of deep gratitude to. Faculty’s supervisor of S.K Somaiya COLLEGE, for inclusions and timely suggestions in the preparation of this final report. Finally, I will be failing in my duty, if I do not thank my parents, brother & friends and well wishers for their enthusiastic support and who have directly or indirectly helped in some way or the other in making this final report a success.

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Emerging Trends in life insurance sector

PREFACE 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. What is the likely impact of opening up India’s insurance sector? The large scale of operations, public sector bureaucracies and cumbersome

procedures

hampers

nationalized

insurers.

Therefore, potential private entrants expect to score in the areas of customer service, speed and flexibility. They point out that their entry will mean better products and choice for the consumer. The critics counter that the benefit will be slim, because new players will concentrate on affluent, urban customers as foreign banks did until recently. This seems to be a logical strategy. Start-up costs-such as those of setting up a conventional distribution network-are large and high-end niches offer better returns. However, the middle-market segment too has great potential. Since insurance is a volumes game. Therefore, private insurers would be best served by a middle-market approach, targeting customer segments that are currently untapped

2

Emerging Trends in life insurance sector

Contents Sr. No.

1. 1.1 1.2 1.3 1.4 2. 2.1 2.2 2.3 2.4 2.5 2.6 3. 3.1 4. 4.1

5.

Subjects Covered Project Proposed Objective of the project Methodology Sampling Limitations Introduction Introduction to insurance Definition of insurance Pre liberalization of insurance Post liberalization of insurance Trends in Insurance Sector Indian Insurance in 21 Century Emerging Trend in Indian Insurance Sector Growth of Insurance Sector Present Scenario of Insurance Sector in India Technology Trend in Insurance Sector Globalization of Life Insurance Market Impact of Budget on Insurance Sector Impact of Budget 2004 Private V/S Public Insurance Sector Comparison between private and Public Insurance sector In India Company Analysis of LIC& ICICI Prudential

5.1 Mission Statement of LIC 5.2 Vision of LIC & ICICI Prudential 5.3 Goal of LIC & ICICI Prudential 5.4 Organizational Structure of LIC and ICICI Prudential 3

Pages

Emerging Trends in life insurance sector

5.5 Market Share of LIC & ICICI Prudential 37 – 39 6.

Product Offered by LIC & ICICI Prudential 6.1 Product Offered by LIC & ICICI Prudential

40 - 42

6.2 New Products by LIC & ICICI Prudential

43 - 46 47 - 52

7.

Innovation Strategy & IT in LIC & ICICI Prudential 7.1 Innovation Strategy in LIC & ICICI Prudential

53 - 62

7.2 IT in LIC & ICICI Prudential

63 - 69 70 - 71

8.

Emerging Trend in LIC & ICICI prudential 8.1 Emerging Trends in LIC & ICICI Prudential

9

72 - 91 92

Impact of Financial Crisis on LIC 9.1 Impact of Financial Crisis on LIC Conclusion

4

Emerging Trends in life insurance sector

Scope of the Study

Methodology Used Objective Of the Study

Design of the Study

Limitation

5

Emerging Trends in life insurance sector

Objective The project was conducted after taking into consideration the changing face of the life insurance sector. The objective for conducting this project was •

To understand the life insurance sector in India.

•

To learn about LIC & ICICI prudential.

•

To know the scope of life insurance in India.

To realize the masses how carrier can be developed generating huge income from insurance

Scope The project gives brief description of the following •

What is insurance?

•

Effect of liberalization

•

Trends in insurance sector

•

Impact of budget on insurance sector

•

Product offered by LIC & ICICI Prudential

•

Impact of financial crisis on LIC

Limitation •

Life

Insurance is a vast subject. It is not possible to provide

information regarding all the different types of policies which provides different benefits. The project would have been much better if the comprehensive study of all the different types of policy provided by different companies is undertaken.

6

Emerging Trends in life insurance

sector

RESEARCH METHODOLOGY Information Research

Secondary data collection

Primary data collection

Personal interview Internet

Mr ashsish shukla Insurance agent (LIC )

Mr parvinder singh Insurance agent (ICICI Prudential)

7

Literature study

Books on insurance agency

Various insurance magazines

Emerging Trends in life insurance sector

EXECUTIVE SUMMARY The huge and ever rising population levels in out country provide an attractive opportunity for the global insurance majors to seek their fortunes here. That is the reason why we find so many private players today competing with LIC the only life insurer prior to liberalization of out economy, for insuring Indian lives. In spite of the loud noises made by the various companies’ vying for a slice of the large Indian Insurance pie, the irony is that even today not more than 20% of the population of out country is aware about the very basic concepts regarding Life Insurance. This is the precisely the reason why we see a mandatory tag today with every advertisement that advertises for a 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 throws light on the emerging trend of the insurance industry in India.

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Emerging Trends in life insurance sector

Chapter 1

Introduction to Insurance

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Emerging Trends in life insurance sector

INSURANCE INDUSTRY: CLASSIFICATION

INSURANCE

GENERAL INSURANCE

LIFE INSURANCE

Fire insurance

Marine insurance

Mediclaim

Insurance = Collective bearing of Risk 10

Motor vehicle

Emerging Trends in life insurance sector

Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose. Basic Human trait is to be averse to the idea of risk taking. Insurance, whether life or non-life, provides people with a reasonable degree of security and assurance that they will be protected in the event of a calamity or failure of any sort. Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance.

Insurance Indemnifies Assets & Income 11

Emerging Trends in life insurance sector

Every Asset has a value and generates Income to its Owner. There is a normally expected Life-time for the Asset during which time it is expected to perform. If the Asset gets lost earlier, being destroyed or made Non-functional through an Accident or other unfortunate event the Owner is Prejudiced.

Insurance helps to

reduce CONSEQUENCES of such Adverse Circumstances which are called Risks

Insurance is the science of spreading of the risk It is the system of spreading the losses of an Individual over a group of Individuals

Insurance is a Method of sharing of financial losses of a few from a common fund formed out of Contribution of the many who are equally exposed to the same loss What is uncertainty for an Individual becomes a certainty for a Group. This is the basis of All Insurance Operations. Thus insurance convert uncertainties to certainty

DEFINITIONS 12

Emerging Trends in life insurance sector

The definition of insurance can be made from two points: Functional definition. Contractual definition.

Functional definition Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk.

General Definition Insurance has been defined to be that in which a sum of money as a premium is paid in consideration of the insurer’s incurring the risk of paying a large sum upon a given contingency. In the words of John Magee, “Insurance is a plan by themselves which large number of people associate and transfer to the shoulders of all, risks that attach to individuals.”

Fundamental Definition

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Emerging Trends in life insurance sector

In the words of D.S. Hansell, “Insurance accumulated contributions of all parties participating in the scheme.”

Contractual Definition In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”

Working of Insurance

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Emerging Trends in life insurance sector

Pre-Liberalization Scenario Indian History: Time to turn the clock back-and open up insurance

Fifty years ago, India had a bustling, if somewhat chaotic, entirely private insurance industry. The year after Independence, 209 life Insurance companies were doing business worth Rs712.76 crore (which grew to an amazing Rs 295,758 crore in 1995-96). Foreign insurers had a large market share 40 per cent for general insurance but there were also plenty of Indian companies, many promoted by business houses like the Tatas and Dalmias. The first Indian-owned life insurance company, the Bombay Mutual Life Assurance Society, was set up in 1870 by six friends. It Insured Indian lives at the normal rates instead of charging a premium of 15 to 20 percent as foreign insurers did. Its general insurance counterpart, Indian Mercantile Insurance Company Ltd., opened in Bombay in 1907. A plethora of insufficiently regulated players was a sure recipe for abuse, especially because there was no separation between business houses and the insurance companies they promoted. The Insurance Act, 1938, introduced state controls on insurance, including mandatory investments in approved securities, but regulation remained ineffective. In 1949, Purshottamdas Thakurdas, chairman of the Oriental Assurance Company, admitted: "We cannot deny that, today, there is a tendency on the part of insurance companies in general to make illicit gains. Can we overlook the cutthroat competition for acquiring business? And still worse is the dishonest practice of adjusting of accounts." After a 1951 inquiry, the 15

Emerging Trends in life insurance sector

government was dismayed that companies had high expense and premium rates, were speculating in shares, and giving loans regardless of security. No wonder that between 1945 and 1955, 25 insurers went into liquidation and 25 transferred their business to other companies. This reckless record stoked the pro-nationalization fires. The 1956 life insurance Nationalization was a top-secret intrigue; for fear that unscrupulous insurers would siphon funds off if warned. The government resolved to first take over the management of life insurance companies by ordinance, then their ownership. The then finance minister C.D. Deshmukh later wrote: 'Seth Ramakrishna Dalmia’s extraction of Rs.225 crore (misappropriation by the Bharat Insurance Company) was a heaven-sent opportunity. We were ready to nationalize, with every detail worked out." On 19 January 1956, the news was announced on the radio, though even the director- general of AIR was not shown the speech. The next morning, at 9 am, while executives were frantically seeking details over the trunk telephone, says Deshmukh in his autobiography, our officers walked into the respective insurance offices, showed their authority and then took over the business. I believe this will be regarded as one of the best kept secrets of the Government of India in all times to come." The ordinance transferred control of 245 insurers to the government. LIC, established eight months later, took over their ownership. General Insurance had its turn in 1972, when 107 insurers were amalgamated into four companies headquartered in the four metros, with GIC as a holding company. Nationalization brought some benefits. Insurance

16

Emerging Trends in life insurance sector

spread from an urban-oriented, high-end business to a mass one. Today, 48 per cent Of LIC's new business is rural. Net premium income in general insurance grew from Rs222 crore in 1973 to Rs 5,956 crore in 1995- 96. Yet, rigid controls hamper operational flexibility and initiative so both customers service and work culture today are dismal. The frontier spirit of the early insurers has been lost. Insurance companies have also been timid in managing their investment portfolios. Competition between the four GIC subsidiaries remains illusory. If Nationalization ever had a purpose, it has been served. It's now time to turn back the clock in some respects, and open up the sector again. The government already intends to insist on large minimum capital requirements, a strong regulator, and a healthy distance between insurers and industry. To ensure that history doesn't repeat itself

17

Emerging Trends in life insurance sector

Post Liberalization Scenario While no aspect of the reform process in India has gone smoothly since its inception in 1991, no individual initiative has stirred the proverbial hornets' nest as much as the proposal to liberalize the country's insurance industry. However, the political debate that followed the submission of the report by the Malhotra Committee has presumably come to an end with the ratification of the Insurance Regulatory Authority (IRA) Bill both by the central Cabinet and the standing committee on finance. This section traces the evolution of the life insurance companies in the US from firms underwriting plain vanilla insurance contracts to those selling sophisticated investment contracts bundled with insurance products. In this context, it brings into focus the importance of portfolio management in the insurance business and the nature and impact of portfolio related regulations on the asset quality of the insurance companies. It also provides a rationale for the increased autornatisation of insurance companies, and the increased emphasis on agent-independent marketing strategies for their products. If politicized, regulations have potential to adversely affect the pricing of risks, especially in the non-life industry, and hence the viability of the insurance companies. Finally, the backdrop of US experience provides some pointers for Indian policymakers

18

Emerging Trends in life insurance sector

Chapter 2

Trends in Insurance Sector

19

Emerging Trends in life insurance sector

INDIAN INSURANCE IN 21ST CENTURY: 2000: IRDA starts giving licenses to private insurers: ICICI prudential and HDFC Standard Life insurance first private insurers to sell a policy 2001: Royal Sundaram Alliance first non life insurer to sell a policy 2002:

Banks allowed selling insurance plans. As TPAs enter the scene,

insurers start setting non-life claims in the cashless

mode 2007: First Online Insurance portal, https:/// set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt Ltd. The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Minimum capital requirement for direct life and Non-life Insurance company is INR1000 million and that for reinsurance company is INR 2000 million. In the 2004-05 budgets, the Government proposed for increasing the foreign equity stake to 49%, this is yet to be effected. Under the current guidelines, there is a 26 percent equity cap for foreign partners in direct insurance and reinsurance Company.

20

Emerging Trends in life insurance sector

Emerging Trend in Indian Insurance Sector Market by 2015, particularly in countries like India and China. The IRDA is the major body, which is providing better opportunities for the private player in India. GIC & LIC's monopoly market approach is no more prevalent in India. The new market scenario for insurance is growing; no doubt it is a flying bird. Change is the eternal law of nature. Everything is changing according to the need of the time. Economic growth and social development in present scenario is due to sudden change in industrial policy and economic planning. Globalization has been the basic mantra after 1991, so every one thinks of being global. Liberalization, privatization and globalization is the basic concept of success in all aspect of development. Competition is tough now due to globalization. Business has positioned the entire economy, and industrialists think about making things global. There are no stringent rules or regulations for making any business house or industry. Government gives more emphasis on export and entrepreneurship. This is a changing world. Everyone has to compete for better success. Marketing is the major concept for developing any type of business. After globalization, marketing has taken a new dimension and it is the most challenging task now. The new horizon of marketing in the field of finance and insurance in present scenario is a good sign of development.

21

Emerging Trends in life insurance sector

Globalization - "The Dynamic Force" Many people consider globalization nothing new - societies have been interconnected for years. The world has never experienced globalization at this level of intensity before, or the speed at which it is transforming and integrating societies. Herman E. Daly, an analyst of Global Policy Forum, characterizes globalization as, "Global integration of many former national economies into global economy, mainly by free trade and free mobility, but also by easy or uncontrolled economic purposes." He further clarifies that globalization is not internationalization globalization brings about a single, integrated, global economy, while internationalization is a federation of nations cooperating as sovereign units to advance the national interest of all members. Though globalization has become a broad heading for a multitude of global interactions, ranging from the expansion of cultural influences across borders to the enlargement of economic and business relations throughout the world, it has different dynamic force for different person. For the economist, globalization is essentially the emergence of a global market. For a historian, it is an epoch dominated by global capitalism. Sociologists see globalization as the celebration of diversity and the convergence of social preferences in matters of life style and social values. To the political scientist, it represents the gradual erosion of state sovereignty. But discipline specific studies explain only a part of the phenomenon. 22

Emerging Trends in life insurance sector

From a multi-disciplinary angle, globalization may be treated as a phenomenon, a philosophy and a process, which affects human beings as profoundly as any previous event. Several factors have been responsible for this phenomenon. This study confines its attention to four growth-enhancing facets of globalization that have been among its key drivers, namely trade, finance, communication and transport.

MNCs - "The New Path Maker" After globalization, so many MNCs are the major path maker for economic growth. The world-class MNCs constantly pursued their strategy of gaining access to every promising market world over, which had sound growth potentialities, in order to expand their network and control over the respective local economies. The consequence was that some of the markets, particularly in developing countries like China and India, adopted some sort of selfprotectionist mechanisms by imposing certain deliberate politico-legal restrictions in order to restrict the entry of capital goods of these MNCs into their markets. Insurance being an integral part of financial service could not claim immunity to the impact of the globalization process and opened up to private and global players world over, including India. So many MNCs are now entering into the insurance sector which is now a booming sector.

23

Emerging Trends in life insurance sector

New Horizons of Insurance Market after Globalization After 1970, insurance sector has become more prosperous. For a long time, the two most important insurance players were LIC & GIC. Now so many MNCs have entered into the same sector like Bajaj Allianz, Aviva, Birla Sunlife, ICICI Prudential, etc. Insurance is now acting on two dimensions, i.e., the element of investment and the element of protection. The Economic Value Addition (EVA) has taken the major concern of the same business.

Marketing after globalization has become: •

More customer oriented

•

Mostly better service oriented

•

More competitive

Better satisfaction, more value addition and strategic development can help any insurance sector to sustain in the present era.

New Market Scenario & Insurance Insurance market in present scenario though is a booming sector, but the market has changed from simpler to complex, less challenging to more challenging. Going domestic to international is a very difficult task. Understanding market synergy and cognisation of perception of customer in the insurance field is very difficult. The Regulatory Board like 'IRDA' is playing a very crucial role for the benefit of the insurance holder. The premium and interest rate can't be violated for

24

Emerging Trends in life insurance sector

better profit and development. The market is becoming tougher gradually.

Globalization of Insurance Market Historically, insurance has been an integral part of financial services system and recognized as a corner-stone of a country's financial health and symbol of progress. Insurance provides for the financial security of citizens and their families. It offers valuable investment advice and serves as an effective step towards both individual and national financial stability. After the terrorist attack on the World Trade Center in September 2001, the momentum of growth of world economy suffered some temporary setback. According to 3rd Annual Globalization Index Report of World Watch Institute, the growth rate fell sharply from 4% in 2000 to 1.3% in 2001. But the world had become stabilized after that and the economic growth was back with entry of so many MNCs and insurances. Triggered by the sound fundamentals in global economy and internationalization of world markets, several countries turned towards free market regimes in banking and insurance, putting an end to several decade-old state-owned controlled markets. The insurance market in China & India is brighter. The leading reinsurance company like Swiss Re & Munich Re has projected 2025% growth in life and health insurance market by 2015, particularly in countries like India & China

25

Emerging Trends in life insurance sector

Growth of Insurance GROWTH OF LIFE INSURANCE SOME FACTS (MAY 2008): HOW THEY STACK UP Premium income of life insurers in Rs crore

April - June LIC ICICI Prudential Bajaj Allianz SBI Life HDFC Standard Max New York Reliance Life Birla Sun Life Total Private Total Market

2007 8580.84 1056.45 731.85 426.39 355.93 289.74 204.10 174.63 3930.95 12511.80

2008 7524.56 1,590.27 829.24 1,148.67 490.40 501.16 557.33 501.53 6,795.64 14,320.20

Growth %

Global Industry Statistics Emerging Markets (Total Premium, figures in $billion) Taiwan 17.3 China 13.4 India 7.2 Hong Kong 6.1 Israel 5.8 Singapore 5.0

26

-12 51 13 169 38 73 173 187 73 14

Total Share (%) 52.55 11.11 5.79 8.02 3.42 3.50 3.89 3.50 47.45 100.00

Emerging Trends in life insurance sector

Present Scenario of the Insurance Sector in India As per the findings of a survey carried out in 2003-04, the Indian insurance market ranked 5th in the Asian continent after Japan, South Korea, China & Taiwan, and 19th In India, the process of liberalization and opening of insurance sector to private and foreign players started taking shape as part of the series of financial and economic reforms brought in by the Government

in

the

late

1990s,

in

accordance

with

the

recommendations made by R. N. Malhotra Committee constituted by the Government in April 1993. By amending the relevant provisions of the Insurance Act, 1938, and passing the IRDA Act, 1999, by an Act of Parliament, Insurance Regulatory and Development Authority (IRDA) was established in the year 2000, which marked the opening act of the insurance sector to private participation and foreign investment.

GDP & Insurance Though potentially insurance is more than Rs. 500 Billion business in India, and together with banking, it adds slightly more than 7.5% to

27

Emerging Trends in life insurance sector

the GDP, of the country, the gross premium collection has been hardly 2% of the GDP, not withstanding its growth between 15-20% annually, during the decade preceding the opening up of insurance market for private and foreign players in the year 2000. As the insurance premium database of various developed and developing countries for the year 1999 indicates, the per capita premium of India was just around $ 8 as against the same having been very high in the developed countries. In other words, and in terms of percentage of GDP, it was 14% for Japan, 12% for Korea and 9% for UK as against the same staggering below 2% for India for the fiscal year 2000-2001. In the new economic reality in globalization, insurance companies in 21st century face a dynamic global business environment. Radical changes are taking place owing to the internationalization of activities. The appearance of new risks, new types of cover to match with new risk situation, unconventional and innovative ideas on customer service, low growth rates in developed markets, changing customer needs and the uncertain economic conditions in the developing world are exerting pressure on insurer’s resources while testing their ability to survive. The existing insurers are facing difficulties from non-traditional competitors that are entering the retail market with new approaches and through new channels. The basic premise of globalization is opening up of new service markets to provide the developing countries with new opportunities for the expansion of trade and economic growth.

28

Emerging Trends in life insurance sector

The rapidly changing economic scene, the political attitude, social values and structures, cultural patterns, developments in IT have transformed lifestyles in urban and rural areas. Developments in other parts of the world, which are witnessing sweeping changes in terms of convergence of financial and insurance markets through banc assurance, replacement of reinsurance contracts by financial instruments, sale of insurance through mergers and acquisitions will also have their impact on Indian Insurance Industry.During the long monopoly regime, the government attempted minor changes in the procedures without going into the root cause. The deregulation requires comprehensive changes in the character and basic policies of the industry. Till the year 2000, the insurance industry was a government monopoly and is now experiencing cut-throat competition because a number of players have entered into the Indian market in the form of Joint ventures with Indian private sector partners. Consequently, Indian Insurance Industry has closely integrated with world economy thereby making crucial for insurance companies to operate outside national boundaries. India Insurance sector after globalization has brighter future. The economic status of people is changing. So many new government policies and economic reforms are impetus for insurance sector. The firmament of economic growth is vast and never ending but the insurance as a bird have to fly. No doubt insurance market after globalization is "A flying bird"!

29

Emerging Trends in life insurance sector

TECHNOLOGY TREND IN INSURANCE MARKET ARE AS FOLLOWS

Computerization: Initially, in the late 1950’s the insurance companies used Unit Record Machines (Electro Magnetic Machines) to process data punched into cards. Computers were introduces in the mid 1960’s and by the 1980’s the Unit Phased Machines were phased out and the entire process was computerized. This brought about greater efficiency and quick service delivery

Internet:

30

Emerging Trends in life insurance sector

Today, the internet has completely changed the service delivery process. Internet is today used to even sell insurance policies. Internet is, in fact, proving to be one of the widely used distribution networks for selling insurance policies. Also internet is used for sending premium notices to policy holders through e-mails Companies

like

LIC

(www.licindia.com),

ICICI

(www.iciciprudential.com) all have websites from which people can get the information about their products, prices, various schemes, and lots of other information. People can also purchase the product through this website.

Electronic Clearance Service (ECS): Almost all the big organizations today provide the ECS facility to its customers. A policy holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. The advantage here is that once the option is exercised, the policy holder need not visit a branch for paying the premium or collecting the receipts. On the day indicated by the policy holder, the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office.

Call Centres and SMS services:

31

Emerging Trends in life insurance sector

Almost all the insurance companies have their own call centres which cater to the phone based queries of the policyholders. This service is 24x7 and they have the Interactive Voice Response (IVR) systems at all the branches

Globalization of Life Insurance Market SOME GENERAL INFORMATION ABOUT LIFE INSURANCE IN INDIA

32

Emerging Trends in life insurance sector

Significant channel for  household savings into capital  formation 2nd largest  financial service    in India after  banking

GDP penetration  of 4.1% 

Life Insurance

Statutory  requirements to  provide  reach   to rural areas

Total Assets Under Management  of Life Insurance Cos. as on  March 31, 2008­ Rs. 8,50,000 

Total number of  lives insured and  on books as on  March 31, 2008­  

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 premium of the 12 private players has 33

Emerging Trends in life insurance sector

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 waysthey are persuading people to take out bigger policies. For instance, the average size of a life insurance policy before privatisation was 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.

34

Emerging Trends in life insurance sector

Buoyed by their quicker than expected success, nearly all private insurers are fast- forwarding the second phase of their expansion plans. No doubt the aggressive stance of private insurers is already paying rich dividends. But a rejuvenated LIC is also trying to fight back to woo new customers

Market Share of Private Sector life Insurance Companies

35

Emerging Trends in life insurance sector

Chapter 3

Impact of Budget on Insurance Sector

IMPACT OF BUDGET 2004 The finance minister’s reform to strengthen risk management in 36

Emerging Trends in life insurance sector

banking The Finance Bill has some brilliant promises to offer and yet there are adverse to the financial service sector. The decision to permit 49 per cent foreign direct investment (FDI) in insurance is welcome. The industry will agree that there is an acute need for it to grow and to write more business. If one were to analyze the growth of some new private sector insurance players the underlying strength seems to be their ability to get more capital and meet the solvency requirement perform, write more business and grow faster. Let’s not forget that these insurance companies will be able to tap the capital market in two to three years. The best performer in the sector have also expanded their capital to about Rs. 700 to 800 crore. A look at the non performers suggests that they do not have adequate capital to grow. Hence the increase in the FDI limit would help. More importantly, this will give greater control to the foreign partners in areas of management control and governance. They will now be more willing to bring in their expertise in product development, technology, and implement best practices. The striking future of the Finance Bill is that the government has accepted defined contribution as the way forward for pension reforms, particularly for new government employees. One could have expected some clarity on the subject of multiple regulators for pension. Though there be some benefits having a separate pension regulator, one supposes that there would be a strong case for just one regulator both the pension and insurance sectors. The government must examine the confusion that may arise on account of having multiple regulators. 37

Emerging Trends in life insurance sector

Banking and insurance companies are significant players in the securities market today. Midsize public sector banks may have made a turnover of about Rs. 40,000 crore on securities trade and larger banks would have made two to three times the number. The transaction tax of a 0.15 per cent would certainly eat away a good part of banks’ profits. Likewise, all services rendered by banks (except the fund based assistances) would attract service tax. Banks would be able to conveniently pass on some of these costs to the customers. So, each time an individual goes and gets a demand draft or pay order, they will end up paying much more than the existing rates. However, if competition becomes acute, banks would have to bear it, which is bad news for the banking companies.

38

Emerging Trends in life insurance sector

Chapter 4

Private V/S Public Insurance Sector

PRIVATE V/S PUBLIC INSURANCE SECTOR Private players in the life insurance business are growing at a scorching pace. Within three years of their inception, they have seized about 14 per cent of the market. Compare this to new generation private-sector banks, which took nine years for 20 per cent share in the Indian banking industry. And 39

Emerging Trends in life insurance sector

after seven years in the industry, in 2000, private mutual funds accounted for just 9 per cent of a market that had been dominated by the Unit Trust of India. There's another dimension to the insurance numbers game. While the private insurance companies have attained 13 to 14 per cent share of the overall insurance market, their share in the key metros (Mumbai and Delhi) is as high as 30 to 40 per cent. "We have to struggle to complete a deal in the metros now, because policyholders are comparing products and asking for better deals," says S B Mathur, chairman of the Life Insurance Corporation of India. Private insurance companies are essentially joint ventures with global insurance companies holding a maximum of 26 per cent stake. The foreign partners are investing heavily in the Indian market and, thereby, driving sales, because they see India emerging as one of the biggest markets in the Asian region. "India will become the biggest market for us in the next three to four years," predicts Dan Bardin, Prudential Corporation Asia managing director south Asia and greater China. Private players have certainly done their bit to increase the penetration levels of insurance, mainly by creating alternative distribution channels--such as associations with banks, brokers and corporate agents.

40

Emerging Trends in life insurance sector

"Our

bancassurance

channel--with

tie-ups

with

four

banks--

contributes almost 70 per cent of our total sales," says Aviva CEO Stuart Purdy. OM Kotak Mahindra Life, which is ranked eighth among private players, is also leaning towards alternative distribution channels that will contribute to 45 per cent of total sales, in line with the contribution from its tied agency force. In sharp contrast, most of the LIC's policies continue to be sold through

its

tied-agency

network.

The

state

life

corporation

acknowledges that it is unable to maintain its lead in some metros: penetration by the private-sector insurers has come of age and they are giving the LIC a run for its money. The multi-channel approach adopted by private insurance companies has proved to be a boon in terms of costing and their ability to capture business. Earlier, most private insurance companies focused their energies on the top 20 cities. Today they are moving to smaller cities. "The potential in smaller cities is increasing and companies are moving to smaller cities and towns because these are increasingly becoming more prosperous with a rise in agricultural income. With the increase in buying power, this has fuelled growth opportunities for us," says Max New York Life CEO Anuroop Tony Singh. AMP Sanmar, another private player, has tied up with various chit funds and transport finance companies in the country, where it is 41

Emerging Trends in life insurance sector

selling life policies on the back of fixed deposits and bonds. A senior company official cites the example of Vijaywada where a significant portion of the income is derived from farming activities. "The rural populace is managing their money well and no longer keeping it under their beds. They have mobile phones and have opened bank accounts. They are not very different from their urban counterparts when it comes to purchasing life insurance covers," he points out. And that's making the private sector optimistic about its future in the Indian insurance market. "We [private insurers] are becoming an alternative to LIC. If a customer has already bought an LIC plan, his second policy is likely to be bought by the private insurance sector on account

of

various

reasons--more

specifically

flexibility

and

transparency," says OM Kotak Mahindra Life CEO Shivaji Dam. Perhaps this partly explains why the LIC has increased its advertising spend multifold since the insurance sector was privatized. Its ad spend more than doubled to Rs 81 crore (Rs 810 million) in fiscal 2003, against Rs 37 crore (Rs 370 million) in 1999-2000, prior to the industry being privatized. Of course, the private insurance sector has also been steadily increasing its ad spend, from Rs 29 crore (Rs 290 million) in fiscal 2001 when the industry opened up, to Rs 92 crore (Rs 920 million) the following year. In fiscal 2003, private insurers spent Rs 143 crore (Rs 1.43 billion) on advertising.

42

Emerging Trends in life insurance sector

But it's not the increased spend on advertising alone that has helped private players in grabbing market share. One of the key differential factors responsible for their growing market is the 150,000-odd life insurance advisors of the private insurance companies. "The private insurance agents sell better than their counterparts at the LIC. Life insurance advisors of private sector insurance companies adopt the need-based selling approach, unlike the LIC's agency force that pushes the number of policies," says Dam. This also gets reflected in the average sum assured by private insurance companies being higher than that of the LIC. Policies sold by the private players tend to be of a higher value. For instance, Birla Sun Life's average premium stands at Rs 24,500, while that of OM Kotak Mahindra Life is equally high at Rs 20,400. Against this is the LIC's average premium of Rs 3,200. Of course, there's also a difference in the target client of the private and the state-run insurance companies. While the private players are targeting the upper middle-class and high net-worth individuals, the LIC aims for the masses through its 2,048 branches spread across semi-rural and rural towns. Meanwhile, private insurance companies are capitalizing on global relationships. "Business deals are often a call away since we capitalize on AIG's global relationship with multinational companies such as GE and Kodak," says Tata AIG Life Ian Watts.

43

Emerging Trends in life insurance sector

OM Kotak has gone a step further and tied up with Swiss Life International so that it can capitalize on the latter's relationship with 300 multinational subsidiaries and affiliates. But it's not as if LIC has lost out on group insurance. The insurance major's group business reached new heights in fiscal 2004, recording a 119 per cent growth in new premium income and 50 per cent increase in the number of lives covered. Still, new business income for private companies has grown at 146 per cent in fiscal 2004, compared to the 18 per cent average industry growth in new premium income for the same period. "The key in product sales lies in offering unbundled and transparent products that give customer value," points out Dam. The biggest draw in insurance in fiscal 2004 was unit-linked plans. Ninety-five per cent of the policies sold by Birla Sun Life and over 80 per cent of the 436,000 policies sold by ICICI Prudential were unitlinked plans. And even though the LIC was late (January 2004) in pushing its unitlinked product "Bima Plus", it managed to mop up a premium income of Rs 373 crore (Rs billion) with the sale of just under 1.7-lakh unitlinked policies, the highest sales figure in the industry. The advantage with unit-linked plans is that they offer policyholders transparency in terms of costs, annual returns and bonus calculations. With many companies guaranteeing the capital

44

Emerging Trends in life insurance sector

investment (some like Birla Sun Life even guarantee 3 per cent assured returns on its unit-linked plans), the interest in unit-linked plans only increased. And the switch from traditional products to unit-linked plans gained momentum as the Sensex climbed higher: the returns on such policies are linked to the equity market. "The stock market has helped to a certain extent and has contributed to our growth and performance," agrees Birla Sun Life CEO Nani Javeri. Aviva has shown a compounded aggregate growth rate of 36 per cent since the inception of its fund. Returns on OM Kotak's balanced and growth funds stand at 31.79 to 43.25 per cent respectively. Dam claims that OM Kotak has sold several policies of Rs 25-50 lakh (Rs 2.5-5 million) since the "savvy investor thinks it best to invest in unit-linked products." He adds: "Growth is coming faster in insurance companies with unit-linked plans."

Chapter 5 45

Emerging Trends in life insurance sector

Company Profile of LIC & ICICI Prudential

COMPANY PROFILE

46

Emerging Trends in life insurance sector

Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost. LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office in the year 1956. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services need was felt in the later years to expand the operations and place a branch office at each district headquarter. Re- organization of LIC took place and large numbers of new branch offices were opened. As a result of reorganisation servicing functions were transferred to the branches, 47

Emerging Trends in life insurance sector

and branches were made accounting units. It worked wonders with the performance of the corporation. It may be seen that from about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crore mark of new business. But with reorganisation happening in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on new policies. Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the Corporate office. LIC’s Wide Area Network covers 100 divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities. LIC’s ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centres have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, LIC has launched its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year. It has crossed the milestone of

48

Emerging Trends in life insurance sector

issuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67% over the corresponding period of the previous year. From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business. The same motives which inspired our forefathers to bring insurance into existence in this country inspire us at LIC to take this message of protection to light the lamps of security in as many homes as possible and to help the people in providing security to their families Life Insurance Corporation of India is a wholly owned undertaking of the Government of India. Life Insurance Corporation of India was established by an Act of Parliament on 1st September, 1956. Its Central Office is located in Mumbai. It also has seven zonal offices each located in Mumbai(Western Zone), New Delhi (Northern Zone), Kanpur (NorthCentral Zone), Bhopal (Central Zone), Chennai (Southern Zone), Hyderabad(South-Central Zone), and Kolkotta (Eastern Zone). It has a network of over 2000(2048) branches and more than nine lakh agents. Over 47 years, LIC has become a household name for providing security for a lifetime and is synonymous to life insurance in India. LIC ranks No.1 in the list of top 500 companies on the basis of Net Worth(Rs. 15, 47, 951 million) as well as Net Profit(2,66,277 million)Dun & Bradstreet (India 500)

49

Emerging Trends in life insurance sector

Mission "Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development."

Vision "A trans-nationally competitive financial conglomerate of significance to societies and Pride of India."

Goals •

Promote within the Corporation greater awareness of the changing environment and the need to align the corporate policy to the emerging situation.

•

Help fashioning, within the constraints, its policies, programmes,

practices

and

products

to

meet

the

expectations of the Public. Help the public to appreciate the performance and the limitations of LIC.

50

Emerging Trends in life insurance sector

51

Emerging Trends in life insurance sector

Company profile of ICICI PRUDENTIAL The company assigned to me is ICICI Prudential Life Insurance Company. It is in to selling life insurance products. 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). At present it is growing at a tremendous pace. Now we can say there is no close competitor to ICICI Prudential. ICICI Prudential’s equity base stands at Rs. 9.25 billion with ICICI Bank and Prudential PLC holding 74% and 26% stake respectively. In the financial year ended March 31, 2005, the company garnered Rs. 1,584 crores of new business premium for a total sum assured of Rs. 13,780 crores and wrote nearly 6,15,000 policies. The company has a network of about 56,000 advisors as well as 7-bank assurance and 150 corporate agent tie-ups. For the past five years, ICICI Prudential has retained its position as No. 1 private life insurance in the country, with a wide range of flexible products that meet the needs of Indian customer at every step in life.

52

Emerging Trends in life insurance sector

The company mainly depends on advisors. The advisors are considered as the brand ambassadors of the company or the working partner who doesn’t have to invest to get returns but just work with the company to make money. Advisors main job is to sell policy and in return the advisors get huge return like high commission, rewards, recognition etc. He is, for all purposes, an authorized salesman for insurance. Advisors can become the Unit Manager of the company if they pass the pinnacle program. ICICI Prudential has recruited and trained about 56,000 insurance advisors to interface with and advise customers. Further, it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers. Manager will get a fixed salary and the commission on the policies sold by his advisor and the commission of the policies which he has already sold. Tiger team manager is one who gets to sell the policy and get commission, train the advisors about the product and he is also a paid up employee of the company.

ICICI GROUP

53

Emerging Trends in life insurance sector

VISION To be the dominant Life, Health and Pensions player built on trust by world-class people and service

hope to achieve by: •

Understanding the needs of customers and offering them superior products and service

•

Leveraging technology to service customers quickly, efficiently and conveniently

•

Developing and implementing superior risk management and investment strategies to offer sustainable and stable returns to our policyholders

•

Providing an enabling environment to foster growth and learning for our employees

•

And above all, building transparency in all our dealings

VALUES Very member of the ICICI Prudential team is committed to 5 core values: Integrity, Customer First, Boundaryless, Ownership, and Passion. These values shine forth in all we do, and have become the keystones of our success

54

Emerging Trends in life insurance sector

Organization Structure of ICICI CHIEF MANAGING DIRECTOR (CMD)

CHIEF AREA OFFICER

CHIEF AREA OFFICER

(PENINSULAR)

(HIMALAYAN)

Sales Head

ZONAL MANA GER

ZONAL MANA GER

ZONAL MANA GER

ZONAL MANA GER

ZONAL MANA GER

ZONAL MANA GER

AREA SALES MANA GER

Unit Manager / Area Manager/ Senior Agency Manager

55

ZONAL MANA GER

Emerging Trends in life insurance sector

Market Share

Total Market Share

22%

8% 70%

56

LIC ICICI Prudentail Others

Emerging Trends in life insurance sector

Chapter 6

Product Offered By LIC & ICICI Prudential

57

Emerging Trends in life insurance sector

Product offered by LIC Insurance Plan As individuals it is inherent to differ. Each individual’s insurance needs and requirements are different from that of the others. LIC insurance plans are policies that talk to you individually and give you the most suitable option that can fit customer requirements.

Children plan •

Komal Jeevan - Plan No. 159

•

Children Deferred - Plan no.41

•

Jeevan Kishore - Plan no.102

•

Jeevan Chhaya - Plan no.103

•

Marriage Endowment/Educational Annuity - Plan No. 90

•

Jeevan Anurag - Plan no.168

Endowment Policy •

Endowment with Profits - Plan no.14 Limited Payment Endowment with Profits - Plan no.48

•

Jeevan Mitra - Plan no.88

•

New JanaRaksha Policy - Plan no.91

•

Jeevan Anand Plan no. 149

•

Jeevan Mitra Triple Cover - Plan no.133

58

Emerging Trends in life insurance sector

Group Insurance Policy Group Insurance Scheme is life insurance protection to groups of people. This scheme is ideal for employers, associations, societies etc. and allows you to enjoy group benefits at really low costs. •

Janashree Bima Yojana

•

Group Insurance Scheme in lieu of EDLI

•

Group (Term) Insurance Scheme

•

Group Savings Linked Insurance Scheme

Group Superannuation Scheme Group Mortgage Redemption Assurance Scheme

Joint Life Policy •

Jeevan Saathi - Plan no.89

Money Back Policy •

Money Back with Profit - Plan no.75

•

New Money Back - Plan no.93

•

Jeevan Surabhi 15 yrs - Plan no.106

•

Jeevan Surabhi 20 yrs - Plan no.107

•

Jeevan Surabhi 25 yrs - Plan no.108 Jeevan Bharati Plan No 160 Jeevan Samriddhi Plan No 154, 155, 156 157 Bima Bachat- Plan no.175

59

Emerging Trends in life insurance sector

Pension Plans or Annuities Pension Plans are Individual Plans that gaze into your future and foresee financial stability during your old age. These policies are most suited for senior citizens and those planning a secure future, so that you never give up on the best things in life. •

New Jeevan Dhara - Plan no.148

•

New Jeevan Suraksha Plan no. 147

•

Jeevan Akshay II Plan no. 163

•

Jeevan Nidhi Plan no. 169

•

Jeevan Akshay V Plan no. 183

Special Plans LIC’s Special Plans are not plans but opportunities that knock on your door once in a lifetime. These plans are a perfect blend of insurance, investment and a lifetime of happiness! •

Term Assurance - Plan no.43

•

Mortgage Redemption - Plan no.52

•

Jeevan Aadhar - Plan no.114

•

Market Plus - Plan No 181

•

Jeevan Vishwas Plan No. 136

•

Jeevan Saral Plan No. 165 Jeevan Pramukh Plan No. 167

• •

Bima Nivesh 2005 Plan No 171 Money Plus-Plan No 180

60

Emerging Trends in life insurance sector

Term Policy •

Convertible Term Assurance - Plan no.58

•

New Bima Kiran

•

Term Assurance

•

Anmol Jeevan I Plan No- 164

•

Amulya Jeevan-Plan No-177

Unit Plans Unit plans are investment plans for those who realise the worth of hard-earned money. These plans help you see your savings yield rich benefits and help you save tax even if you don't have consistent income. •

Market plus

•

Profit plus

•

Fortune plus

•

Money plus

•

Child fortune plus

LIC has Introduce a New Product 61

Emerging Trends in life insurance sector

JEEVAN AASTHA PLAN Life Insurance Corporation of India (LIC) has launched its closeended single premium product, Jeevan Aastha, which offers guaranteed benefits to customers. “The plan has a maximum shelf life of 45 days and offers five and ten year maturities to customers, The scheme has fixed the minimum age at entry as 13 years which would enable parents to make provisions for higher education of their children,” Vijayan said. Similarly, the maximum age at entry has been fixed as 60 years. The plan offers guaranteed addition of Rs100 for every thousand of maturity sum assured for 10 years term and Rs90 per annum for policies with five year term. “The policy holder can also avail the benefits of tax exemption and has the options of surrendering the policy or to raise loan under the policy,” the Chairman said

Features LIC’s Jeevan Aastha is a single premium assurance plan which offers guaranteed benefits on death and maturity. The Plan is close ended and would be available for a maximum period of 45 days from the date of its launch i.e. 08.12.2008

Eligibility conditions and other restrictions a) Minimum Entry Age : 13 years (completed) 62

Emerging Trends in life insurance sector

b) Maximum Entry Age : 60 years (nearest birthday) c) Minimum Basic Sum Assured: Rs.1,50,000 d) Maximum Basic Sum Assured: No Limit The basic sum assured shall be available in multiples of Rs. 30,000. e) Policy Term : 5 or 10 years f) Premium payment mode : Single premium only

Premium rates Specimen Single Premium rates per Rs.1000 Basic Sum Assured for some of the ages are as under: Age at

Policy Term Policy Term

entry 20 30 40 50

5 years 174.50 174.70 176.10 180.85

10 years 165.00 165.40 167.95 175.90

Products Offered By ICICI Prudential ICICI Prudential has a wide array of insurance plans that have been designed with the philosophy that different individuals are bound to have differing insurance needs.

63

Emerging Trends in life insurance sector

The ideal insurance plan is one that addresses the exact insurance needs of the individual that will depend on the age and life stage of the individual apart from a host of other factors.

Life Insurance Plans Under Life insurance plans, ICICI Prudential offers plans under the following •

Education Insurance Plans

•

Wealth Creation Plans

•

Premium Guarantee plans

•

Protection Plans

Pension & Retirement Solutions: The primary objective of a pension plan is to help you provide for your financial needs in your post retirement years. You will find a Pension Planning Calculator on the site, meant to make your pension plan review as simple as possible. The calculator is the first step in your Pension Plan scheme, there are othe steps towards getting the Indian pension policy you need. •

LifeStage Pension

•

LifeTime Super Pension

•

LifeLink Super Pension

•

ForeverLife

64

Emerging Trends in life insurance sector

Health Product Suite Under Health Product Suite, ICICI Prudential offers plans under the following major need categories:

Hospitalisation Plans •

MediAssure

•

Hospital Care

Critical Illnessl Pans •

Crisis Cover

Cancer Products •

Cancer Care

Diabetes Products •

Diabetes Care Active

•

Diabetes Assure

Retirement Solutions ICICI PRUDENTIAL Provide a wide range of retirement plans and they are as follows

65

Emerging Trends in life insurance sector •

LifeStage Pension

•

LifeTime Super Pension

•

LifeLink Super Pension

•

ForeverLife

•

Immediate Annuity

Group Plans ICICI Prudential offers a suite of group insurance plans that are as follows: •

Group super annuation

•

Group gratuity period

•

Annuity solution plan

•

Group term insurance plan

•

Group term insurance in lieu of EDL

Group Plans •

ICICI Pru suraksha

•

ICICI pru suraksha kavach

ICICI Introduced a New Product

66

Emerging Trends in life insurance sector

Wealth Advantage (a single-premium unit-linked insurance policy (Ulip): This plan provides insurance cover to investors till the age of 70 years. ICICI Prudential's new plan is a single-premium policy bundled with additional benefits such as option to withdraw money systematically after six years of taking the policy, thereby increasing the liquidity of investment. Minimum investment amount in this policy is Rs 25,000. ICICI Prudential Life Wealth Advantage plan allows consumers to stay invested in the plan for as long as they live, even beyond the age of 70 years, thereby ensuring long-term coverage. It also offers the flexibility to increase or decrease the sum assured in accordance with the individual's protection needs.

Key benefits of Wealth Advantage: •

Single premium plan with a whole life investment advantage.

•

Life cover upto the age of 70 years.

•

Two options of Sum Assured (125% or 500% of premium) to provide complete protection

•

Option to withdraw money systematically through Automatic Withdrawal Plan, from the 6th policy year onwards

•

Higher allocation of premium to ensure wealth maximization

67

Emerging Trends in life insurance sector

LIC New Jeevan Suraksha VS ICICI Prudential Forever life LIC’s New Jeevan Suraksha I offers cool comfort to serve the young, the middle aged and the old which has also the security and safety backing of Government of India. It is an ideal solution for people as it not only offers retirement benefits but also takes care of our protection needs (with term rider option). To combat the increase in longevity, this plan provides regular guaranteed income at old age and helps in planning to meet requirements for current and future needs. This plan provides a lot of flexibility in terms of various pension options for you to choose from. Additionally you can also opt for an insurance cover during the deferment period by taking the Term Rider add on. At the end of the deferment period when the premium ceases, this policy can, at your option, pay you a lumpsum amountand a suitable pension for your ifetime. The similar product marketed by ICICI Prudential Life Insurance Company is Forever Life, a comprehensive retirement solution that is developed keeping in mind your capabilities and needs with respect to your retirement planning. The salient features of this plan are as Under:

A deferment pension plan to build up your retirement benefits. 68

Emerging Trends in life insurance sector

(i) It provides regular income for life, after a stipulated date. (ii) The amount you receive depends on the premium you pay till the Stipulated date and the option you choose. (iii) It also offers life cover during the deferment period. (iv) Postponement of retirement age. (v) Health cover till age 65 through add-on benefits, not only while Paying premium, but also while receiving pension

The table below shows the summarised comparison of LIC’s New Jeevan Suraksha-I vs. ICICI’s Forever Life.

69

Emerging Trends in life insurance sector

Features

Jeevan Suraksha-I

Forever Life

Age at entry

18 – 70 years last birthday

18- 60 years

Deferment period

2 - 35 years

Min. term = 5 years

Vesting age

50 -79 years last birthday

Max. term = 30 years 50- 70 years

Minimum single

Rs. 10,000

Min. SA = Rs. 50,000/-

Single ,yearly, half yearly, quarterly, monthly , SSS

----

RS 2500

----

Yearly, half-yearly, quarterly & monthly

Yearly, half-yearly, quarterly &

premium Mode of premium payment Minimum amount of annual premium Mode of annuity payment Tax benefits

Choice of retirement

monthly Tax benefits u/s 80CCC(I) for

Same as in case of Jeevan

investment up to Rs. 10,000/-

Suraksha –I.

(deducted from taxable income). Flexibility option not available.

The annuitant has the

date

flexibility to postpone the vesting from originally chosen vesting date up to a maximum

Open Market Option

Flexibility option not available.

of 70 years of age. This option gives annuitant the flexibility to buy a pension from any other Company of his choice.

Chapter 7 70

Emerging Trends in life insurance sector

Innovation Strategy and IT in LIC & ICICI Prudential

INNOVATION STARTEGY IN LIC LIC has realised the importance of personal involvement and has included it in the training program itself. Once the Agent is recruited he needs to undergo a compulsory training program designed by LIC. The Training Program also explains them the importance of the

71

Emerging Trends in life insurance sector

smallest of the customer .i.e. customer who is just seeking general information. The Agents and Employees are trained to Apologise to its customers even if they are not at fault. “SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE LIC LOGO TO COME CLOSER FOR APOLOGY”

, LIC has established elaborate Grievance Redressal Machinery at different level as per the customer requirement. There are Complaint cells which are specially set up to listen up to each and every customer’s problems. LIC gas also set up Policyholder Councils and Zonal Advisory Boards to understand the problems of their customer situated in any part of the city. Offers a Fair Fix to Problem: Customers want wrong to be set right and expects service contact employee to be skilled, empowered and interested in setting things right. This is the main reason why LIC conducts training programs for the newly recruited Agents as well as the other Employees. In any kind of breakdown situations LIC try to offer a rational explanation and demonstrate sensitivity and concern to the customer rather than defending themselves.

•

Offers Some Compensation for the Inconvenience: 72

Emerging Trends in life insurance sector

Compensation here wouldn’t mean of just monetary compensation or some extreme measures like firing the Branch Manager Etc; but it is just to make-up for the loss of customer satisfaction. It could be like “it’s on us”; “free service” etc. The service provider should plan certain compensation policies in advance for various types of situations and deliver it as and when the situation is faced.

•

Keep the Promises:

It basically means that the Company should keep the promises made to the Customer before or at the time of service provision i.e. the Company should fulfill its commitments. LIC makes sure that none of the Agents provide any kind of wrong information or false promises to its customers which mislead them. LIC ask their Agents to give reasonable commitments so that they could be fulfilled by the Company or the Agent on behalf of the Company.

•

Follow Up:

This is the most important step in Service Recovery as it ensures that whether the implemented Service Recovery was Satisfactory or not. It would include Internal and External Follow-up. Internal Follow-up would be to ensure that the solutions they put in motion are actually

73

Emerging Trends in life insurance sector

executed and the External part would be to get feedback from the customer whether he is satisfy

•

Complaint Handling

In a vast Organization like LIC, catering to the various needs and aspirations of millions of policyholders, grievances of customers do arise occasionally. In order to redress these grievances LIC has established elaborate Grievance Redressal Machinery

INNOVATION STRATEGY IN ICICI An innovation refers to any good, service, or idea. That is perceived by someone as new. The idea may have long history, but it is an innovation to the person who sees it as new. Innovation takes time to spread through the special system. The consumer adoption process focuses on the mental process through which an individual passes

74

Emerging Trends in life insurance sector

from first hearing about an innovation to final adoption. Adopters of new products have moved through the following five stages. 1.

Awarness:

The consumer becomes aware of the innovation

but lacks information about it. 2.

Intrest:

The consumer is stimulated to see the information

about the innovation. 3.

Evaluation:

The Consumer considers whether to try the

innovation or not. 4.

Trial:

The consumer tries the innovation to improve his

estimate of its value. 5.

Adoption:

The consumer decides to make full and regular

use of the innovation

IT in LIC In today’s world, IT is a must for any industry to keep pace with the customer’s changing expectations. This is especially relevant in the service industry. The insurance sector has to ensure that the technology it chooses does not lag behind where customer expectations are concerned. LIC has more than 16 crore policy holders. So it has to induct the best IT products available and use them to cater to the needs of the 75

Emerging Trends in life insurance sector

customers and deliver anywhere any time service on demand and to add value to its new products. The trust and the goodwill of the customer gained in the last 50 years have to be consolidated by making all activities more customer-focused. For instance, LIC has a corporate Web site to provide information on products, services, policy status, grievances and premium calculator. Other facilities include touch-screen information kiosks at central locations to provide 24 x 7 inquiry services to customers.

IT in ICICI Prudential The Information technology function at ICICI Prudential is committed to enable a business through the use of technology. It is segmented into 4 groups to enable highest level of delivery of customer. Life Asia Solution Group that provide flexibility in designing better product offering to end user, the solution group- Web that provide real time information to customer and is responsible for customer relationship management, IT Architecture & corporate solution group is in charge of developing and marinating a blue print for the IT architecture for the enterprise as whole. This team work as an in house R&D solution group, exploring new technological initiatives and also caters to information needs of corporate function in the organization. IT 76

Emerging Trends in life insurance sector

infrastructure group is responsible for providing hardware, software, network service to the whole organization. This group run at Digital nervous system of the enterprise at the highest level of efficiency and provide

robust,

scalable

and

highly

available

development business application

Chapter 8

77

platform

for

Emerging Trends in life insurance sector

Emerging Trend in LIC & ICICI Prudential

EMERGING TREND IN Life Insurance Corporation With the emergence of competition, LIC has implemented strategic moves for business growth, as well as ensured quality improvement in service standards. As on today, they have been providing service to around 12 crore policy holders and their track has been well acknowledged as reflected through continual upgradation of service

78

Emerging Trends in life insurance sector

standards culminating into a world class performance in the area of claim settlement operations. It is well acknowledged that LIC has been able to provide appropriate IT support in furtherance of prompt service to their valued policy holders. The complex task of conversion of computerization of all the branches with their conversion as Front Line offices has been completed in aphase manner. In addition to this, the launching of the IVRS facility, MAN and Wide Area Network operations has helped the co-operation improve its servicing.

LIC’s strength lies in: a. Wide network of branches covering rural areas. b. A large and well- spread agency organization. c. An acknowledged record of performance. d. Adequate yield with high risk cover being offered keeping the

policy holders satisfied in the existing in the economic scenario. e. Well accepted brand equity throughout the country.

In addition to this, LIC has an established and well administered Grievance Redressal Mechanism and with Ombudsman intervention, the customers appear to be well attended. However, this mechanism has to be restructured keeping in view the additional legal provisions laid down by the regulator as expounded in the IRDA act. •

Futuristic Approach

Till today, LIC enjoyed a monopoly. It is now that reality exists in the are of marketing (i.e. sales and after sales service operations). It will 79

Emerging Trends in life insurance sector

now have to follow a multi-faceted strategy towards customer retention and also expanding to a new clientele. With the new face of the market, relationship management seems to be the new mantra. At the nucleus of this approach is the concept of Customer Relationship management. The need is to have a comprehensive review of the business keeping in view customer expectations •

Customer Orientation

LIC, to be in the reckoning, has to have an efficient feed-back system, so as to understand what the customer desires in terms of product

design,

service

procedures,

relationship

convinience,

accessibility, responses in terms of personalized service, attendance, core and complimentary on an individual basis. The new players in the market like ICICI, HDFC etc. will definitely be very aggressive in the open market. LIC has to go ahead with their former customers, existing customer, in a very gentle and courteous manner, reassuring them of their better services with persona, attention.

ADVERTISING TRNED IN LIC •

News Papers and Magazines LIC give ads in the news papers and magazines round the year to continue its brand image and also when new products are introduced. Normally its ads are published in Times of India.

•

Television

80

Emerging Trends in life insurance sector

Companies like LIC, advertise on television to make people aware of their products and services

•

Gifts LIC provides diaries, pens, booklets, etc to its customers

•

Hoardings LIC put its hoardings where there is a mass flow of people, especially outside the railway station or at the backside of the bus.

•

Advertisement At Kumbh Mela LIC has also advertised about its products and the corporation

even in the kumbh mela

•

Advertisement On Radio satellite channel Advertisement about LIC are frequently been telecast on radio

and satellite channel.

EMERGING TREND IN ICICI PRUDENTIAL In a significant move, ICICI Prudential Life Insurance — a joint venture between the ICICI group and Prudential Plc of the UK — has expanded its marketing platform for promoting life insurance products to 1,500 banks branches from 642 branches through its existing bancassurance tie-up with seven banks.

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Emerging Trends in life insurance sector

With this, ICICI Prudential has increased the number of bank branches (under banc assurance tie-ups) by about 130 per cent. In fiscal 2002-2003, the number of bank branches networked by the company grew by 270 per cent to 642 branches. Of these, 338 branches were from four new banc assurance relationships which it had forged with Allahabad Bank, South Indian Bank (SIB), Federal Bank and Lord Krishna Bank. The remaining expansion is from earlier relationships, notably ICICI Bank and Bank of India (BoI), ICICI Prudential chief-marketing Saugata Gupta told FE. On the company’s new plans, Mr Gupta said: “The greatest expansion has come from BoI and Allahabad Bank. In addition, ICICI Bank, SIB and Federal Bank have also increased the number of branches.” Further, Mr Gupta informed that after having released advertising campaign through print, outdoor and radio, the company has also recently released a new advertising campaign through the electronic media on ‘Smart Kid’ Insurance Policy. This policy is positioned as — Child’s plan that leaves nothing to chance. According to Mr Gupta: “Last fiscal, Rs 102 crore of premium came through alternate distribution channels which comprises of bancassurance channel. This channel is serviced by 430 financial service consultants. There are 80 active corporate agents, and 22,000 life insurance advisors, at present.”

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Emerging Trends in life insurance sector

ICICI Prudential has garnered Rs 364 crore as the new business premium income in fiscal 2002-03. In fact, in the first quarter of this fiscal, the company has issued around 51,000 policies, Rs 70 crore in new business premium income which accounts for a growth of 132 per cent over last year’s first quarter. It has also crossed Rs 10,000 crore sum assured mark. As for emerging trends, Mr Gupta explained that private participation in insurance as a tax saving tool for comprehensive financial solution, and, product pushing for need-based solutions required for personal financial review is fast emerging. The Company recently tied up with the Forbes Six Sigma rated Dabbawalla organization in Mumbai for a direct marketing exercise. In a Unique effort to create awareness about a tax saving product, the company attached a creative of a bitten apple to Mumbai’s ubiquitous lunchboxes. It worked wonderfully with Mumbai’s officegoers and one that translated into substantial business for the company

ADVERTISING TREND IN ICICI •

Radio: ICICI Prudential advertises on 92.5 red Fm

•

Television

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Emerging Trends in life insurance sector

ICICI Prudential has been advertising in outdoor, TV and press. The company launched a corporate television campaign – Saat Phere – which took the emotions and thoughts of initial Sindoor corporate film a few steps further.

Tie- UP with DABBAWALA

•

ICICI Prudential tie-up with the Dabbawalla Organization in Mumbai for a direct marketing exercise, to talk to the customer through a non-cluttered route, and thereby have a higher impact. •

Seminars

ICICI Prudential regularly holds consumer awareness meets on ‘the need for retirement planning’ in different cities such as Pune, Aurangabad, Coimbatore, Nagpur, Bangalore and Mangalore.

Chapter 7 84

Emerging Trends in life insurance sector

Impact of financial Crisis on LIC

Impact of the financial crisis on Life Insurance Corporation LIC is a public sector insurer and a domestic investor. As such, LIC are not directly affected by the global financial crisis. However, the volatility in Indian financial market due to the uncertainty in global markets may affect returns get on their investments. But LIC has an indisputable record of prudently planning its investments and getting the maximum returns on the policyholders’ money. Will LIC continue to that in any type of scenario the ratio . Why has the new business growth slowed? What will be the impact of the lower growth on LIC’s 85

Emerging Trends in life insurance sector

performance

will

it

affect

the

ratio?

Total premium growth of LIC has always been quite stable, even when there are periodical ups and downs in new premium income. Last year, LIC ended the year with around 10% growth in First Premium income despite several odds. However, the growth in total premium income was quite healthy, indicating better conservation ratio. LIC overall expense ratio is the least in the industry. Last year, was only 11.94%, and it was just 5.56%, excluding the commission. The surplus generated was a record high of Rs 16,598.65 crore, which enabled

to give higher terminal bonus to their “with profit”

policyholders and to increase dividend to the government. Having said that, LIC agree that there has been a decline in the new premium in the current financial year. One of the reasons was that after withdrawal of their successful old plans, they did not immediately introduce any new ULIP. Since then, they have launched new products and the response has been very positive and encouraging. Also, LIC had some issues with the union of development officers, which have been more or less sorted out through series of consultations and discussions. In September, the figures have started picking up. Private insurers are growing their market share by growing distribution. LIC is close to saturation level in terms of distribution. How will you retain the market share? 86

Emerging Trends in life insurance sector

It is not accurate to say that LIC has reached its saturation point in terms of distribution, as they are expanding their reach and network. Other insurers are perhaps expanding very fast and the effect is reflected in their balance sheets. LIC do have constraints of capital and any growth has to be supported by internal accruals only. Hence, LIC follow the policy of steady and profitable growth and distribute 95% of surplus to their “with profit” policyholders. Such a practice makes our products better. And sure, this will, in the long run, determine who becomes winner in the life insurance market in India How do you propose to comply with IRDA’s decision to cap single company

exposure

at

10%

of

a

company’s

capital?

First of all new regulations are not only about equity exposure, but encompass several other aspects too. Second, these norms are not just LIC-centric, but applicable to the whole industry. LIC total assets of more than Rs 8-lakh crore are their legacy built on the basis of earlier

regulations

and

norms

under

the

Insurance

Act.

LIC have always followed applicable norms in their operations and they have an impeccable track record of being a prudent investor, keeping in view the best interests of their policyholders. New investment

norms

have

several

changes

from

the

earlier one and we are working on them and are in touch with IRDA where

LIC

have

87

problems.

Emerging Trends in life insurance sector

Will the exposure limit force LIC to divest in blue chips and invest in companies

that

have

a

lower

credit

rating?

CONCLUSION Competition will surely cause the market to grow beyond current rates, create a bigger "pie," and offer additional consumer choices through the introduction of new products, services, and price options. Yet, at the same time, public and private sector companies will be working together to ensure healthy growth and development of the sector. Challenges such as developing a common industry code of conduct, contributing to a common catastrophe reserve fund, and chalking out agreements between insurers to settle claims to the benefit of the consumer will require concerted effort from both sectors. The market is now in an evolving phase where one can expect a lot

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Emerging Trends in life insurance sector

of actions in coming days. The current impediments for foreign participation – like 26% equity cap on foreign partner, ill defined regulatory role of IRDA (Insurance Regulatory development Authoritythe watchdog of the industry) in pension business etc.—are expected to be removed in near future. The early-adopters will then have a clear advantage compared to laggards in gaining the market share and market leadership. The will need to make sure right now that all their infrastructure is in place so that they can reap the benefit of an "unlimited potential."

Bibliography •

Life-Insurance , by Mc GILL

•

Insurance Industry by ICFAI Publication

•

Insurance in India

Important Website •

www.iciciprudential.com

•

www.licindia.com

•

www.pdfcoke.com

•

www.google.co.in/indian insurance industry

Newspaper •

Times of India

89

Emerging Trends in life insurance sector •

The Economic Times

90