Introduction To Insurance Industry

CHAPTER 1 INTRODUCTION TO INSURANCE INDUSTRY 1. INSURANCE INDUSTRY IN INDIA 1.1 INDIAN INSURANCE MARKET – HISTORY Insurance has a long history in India. Life Insurance in its current form was introduced in 1818 when Oriental Life Insurance Company began its operations in India. General Insurance was however a comparatively late entrant in 1850 when Triton Insurance company set up its base in Kolkata. History of Insurance in India can be broadly bifurcated into three eras: a) Pre Nationalization b) Nationalization and c) Post Nationalization. Life Insurance was the first to be nationalized in 1956. Consolidating the operations of various insurance companies formed Life Insurance Corporation of India. General Insurance followed suit and was nationalized in 1973. General Insurance Corporation of India was set up as the controlling body with New India, United India, National and Oriental as its subsidiaries. The process of opening up the insurance sector was initiated against the background of Economic Reform process, which commenced from 1991. For this purpose Malhotra Committee was formed during this year who submitted their report in 1994 and Insurance Regulatory Development Act (IRDA) was passed in 1999. Resultantly Indian Insurance was opened for private companies and Private Insurance Company effectively started operations from 2001.

1.2 INSURANCE MARKET - PRESENT The insurance sector was opened up for private participation four years ago. For years now, the private players are active in the liberalized environment. The insurance market has witnessed dynamic changes, which include presence of a fairly large number of insurers both life, and non-life segment. Most of the private insurance companies have formed joint venture partnering well-recognized foreign players across the globe.

1.3 CAPITAL REQUIREMENTS AND FOREIGN PARTICIPATION Minimum capital requirement for direct life and Non-life Insurance company is INR1000 million and that for reinsurance company is INR2000 million. A maximum 26% foreign equity stake is allowed in direct insurance and reinsurance companies. In the 200405 budget, the Government proposed for increasing the foreign equity stake to 49%, this is yet to be effected.

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There are a total of 13 life insurance companies operating in India, of which one is a Public Sector Undertaking and the balance 12 are Private Sector Enterprises. Sr. No.

Name of the company

1 2 3 4 5 6 7 8 9 10 11 12 13

Allianz Bajaj Life Insurance Co AMP Sanmar Assurance Co Aviva Life Insurance Birla Sun Life Insurance Co HDFC Standard Life Insurance Co ICICI Prudential Life Insurance Co ING Vysya Life Insurance Co. Life Insurance Corporation of India Max New York Life Insurance Co. MetLife Insurance Co. Om Kotak Mahindra Life Insurance SBI Life Insurance Co TATA- AIG Life Insurance Company

Nature of Holding Private Private Private Private Private Private Private Public Private Private Private Private Private

Table 1.1 Different private companies in insurance industry

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CHAPTER 2 THE TATA GROUP 2.1 THE TATA GROUP The Tata Group is one of India's largest and most respected business conglomerates, with revenues in 2006-07 of $28.8 billion (Rs.129,994 crore), the equivalent of about 3.2 per cent of the country's GDP, and a market capitalisation of $72.2 billion as on December 6, 2007. Tata companies together employ some 289,500 people. The Tata Group has operations in more than 85 countries across six continents, and its companies export products and services to 80 countries.[1]

2.2 AMERICAN INTERNATIONAL GROUP, INC. (AIG) American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Paris and Tokyo.[1]

2.3 TATA AIG INSURANCE COMPANY LIMITED Tata AIG Life Insurance Company Limited and Tata AIG General Insurance Company Limited (collectively 'Tata AIG') are joint ventures of the Tata Group and American International Group, Inc. (AIG). Tata AIG combines the strength and integrity of the Tata Group with AIG's international expertise and financial strength. Tata AIG Life Insurance Company Limited (Tata AIG Life) is a joint venture company, formed by the Tata Group and American International Group, Inc. (AIG). Tata AIG Life combines the Tata Group’s pre-eminent leadership position in India and AIG’s global presence as the world’s leading international insurance and financial services organization. The Tata Group holds 74 per cent stake in the insurance venture with AIG holding the balance 26 percent. Tata AIG Life provides insurance solutions to individuals and corporates. Tata AIG Life Insurance Company was licensed to operate in India on February 12, 2001 and started operations on April 1, 2001. Tata AIG Life Insurance Company Ltd. "Tata AIG Life" offers a broad array of life insurance products to individuals, associations and businesses of all sizes, with a wide variety of additional coverage to ensure our customers can find an insurance product to meet their needs.[1]

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2.4 LIST OF PRODUCT OFFERED BY TATA-AIG The life insurance plans are generally divided into two types: (a) Traditional plans (b) Unit linked insurance plans (ULIP). Traditional plans are basically insurance plus savings whereas ULIPs are insurance plus investment. Further they are classified into pure protection, savings, investments, pension and living benefits. The classification are shown in the table below.[2] Pure protection 1. Raksha

Pure protection -

Traditional plans Savings Investments Pension 1.Maha Life 1.Nirvana Plus gold 2.Easy retire 3.Riders

Living benefits 1.Health protector 2.Riders

Unit linked insurance plans (ULIPs) Savings Investments Pension Living benefits 1.Invest 1.Invest 1.Invest assure 1.Health investor Assure Gold assure plus future 2.Invest Assure II

2.Invest assure flexi

Table 2.1 Different products offered by TATA AIG Life Insurance

2.5 NEEV – THE FOUNDATION PROGRAM This is three days training program at TATA AIG office about product knowledge. We were trained about different TATA AIG Life insurance products and their details. As we are working under Tier one we have been given few product knowledge. The products taught are a) b) c) d) e) f) g) h) i)

Raksha (Pure Protection) Health Protector (Living Benefits) Mahalife Gold (Savings) InvestAssure II (Savings) InvestAssure Gold (Savings) InvestAssure Plus (Investment) Nirvana Plus (Pension) InvestAssure Flexi (Investment) InvestAssure Future (Pension)

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Out of these products my focus is Unit Linked Insurance Plans (ULIPs). So the following are the ULIP that are discussed further a) b) c) d) e)

InvestAssure II (Savings) InvestAssure Gold (Savings) InvestAssure Plus (Investment) InvestAssure Flexi (Investment) InvestAssure Future (Pension)

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CHAPTER 3 INTRODUCTION OF THE RESEARCH STUDY 3.1 INTRODUCTION The marketing of insurance policies involves unique practices when compared to marketing of any other product. Insurance policies are services and hence intangible in nature. So people do not realize the need and importance of insurance. The sales of any particular product depends on how the agents sells it, different agents sells on basis different parameter like commission gained, agent’s perception about the product, agent’s understanding about the products, his convincing power etc.

3.2 OBJECTIVES OF THE STUDY The following are the main objectives of the study. 1. To study the sales insurance service in Noida and Ghaziabad region. 2. To analyze the buying behavior of the policyholders in the study area with respect to age for ULIPs. 3. To study about preference of the customer among the selected private insurance companies i.e. Aviva life insurance, ING Vysaya life insurance, Bajaj Allainz life insurance and Met life insurance 4. To study the comparison of the various products by the above mention companies and to know in which parameters does TATA AIG’s product is lagging behind according to customers.

3.3 METHODOLOGY The study was aimed at measuring the customer’s preference for life insurance companies and the comparison of various ULIP insurance policies of the various companies on basis of various parameters based on customer’s responcse in Noida and Ghaziabad region. The survey was done on 150 general residents of the selected region. Methods adopted for surveys 1. Field survey method 2. Personal interview technique 3. Secondary sources viz company database The data collected are represented into suitable tabular forms for drawing inferences. Quantitative techniques like averages, percentages, range, two-way tables, chisquare tests analysis are applied as per the requirement. The level of preference, perception of the 6

customers about the product and company were identified by means of a scoring scheme. For the representation of data various charts and graphs are used as per requirement

3.4 FACTORS INFLUENCING THE BUYING OF UNIT LINKED INSURANCE PLANS (ULIPs) The degree of buying of ULIPs insurance varies from person to person. It depends upon many factors. The factors can be classified into personal, social, economic, psychological and company related variables. Age and experience of policyholder are personal factors, while the co education is a social factor. Economic factors include occupation, income and wealth, and the psychological factors consist of perception, satisfaction about the services rendered by insurance companies, the impact of advertisement and personal selling made by insurance companies on policyholders. The company related variables are the promotional efforts to sell the policies to prospective buyers. These include advertisement and personal selling. The questionnaire contains suitable questions and the answers elicited from the respondents were presented into tables in coming chapter. The factors influencing the buying of policies by the policyholders were identified. For this, eight factors pertaining to policyholder’s personal economic and psychological aspects were chosen. The degree of influence of these factors on buying the policies, by the policyholders was studied with the help of two-way tables, percentages, averages and chi-square () tests as found necessary. In order to find the relationship between the personal, socio-economic and psychological variables, it was hypothesized that all background variables influence the value of insurance purchased by the policyholders. The value of insurance policy can be related to the amount of premium paid by the policyholders. Hence, the amount of premium is taken as the variable and the background variable and the background variables are treated as independent variables. Buyer behavior is the act of individuals directly involved in obtaining and using goods and services. It is a process in which potential customers are subjected to various stimuli. Hence, an attempt is made to study the buying behavior of insurance policyholders in the study area-especially their profile, pattern of buying insurance policies, degree of awareness on different types of policies, renewal of policies, coinsurance, claims and settlement and problems faced by the policyholders.

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CHAPTER 4 SURVEYS AND RESULTS 4.1 AGE AND PREFERENCE OF ULIPs Age is a crucial factor in decision-making. Age and experience are interrelated. Young persons are expected to buy more number of unit linked insurance policies than their older counterparts, because young people can bear more market risk. An attempt was made to analyze the relationship between the age of the respondents and their preferences for unit linked insurance plans. For this the respondents were classified, according to their age viz., young, middle aged and old aged. Sr. No.

Age

1. 2. 3.

Young Middle Old Total

No. of respondents 62 52 36 150

%

Average

41.4 34.6 24 100

54.5 36.4 36.5

Range Min Max 35 80 15 48 21 49

S.D. 6.9 7.7 9.6

Table 4.1 Age and preference of ULIP The above table shows that premium paid by the young policyholders ranged between 35 and 80 with an average of 54.5. The middle-aged respondents’ ranged between 15 and 48 with an average of 36.4. On the other hand, the old aged respondents ranged between 21 and 49 with an average of 36.5. Thus, it is inferred from the above analysis that the respondents belonging to young age group prefers more of the ULIP insurance policies. With a view to find the degree of association between age of the respondents and their preference, a two-way table is prepared and the results are shown in the following table. Sr. No. 1.

Age Young

2.

Middle

3.

Old Total

Low 15 (24.19) 12 (23.07) 5 (13.8) 32

Medium 27 (43.5) 22 (42.3) 20 (55.5) 69

High 20 (32.25) 18 (34.6) 11 (30.5) 49

Total 62 52 36 150

Table 4.2 Age and preference of ULIP (Two way table) It is found from the above table that the percentage of high preference of ULIP insurance was the highest (34.6) among the middle-aged respondents and the lowest (30.5) among the old respondents. The percentage of medium level of preference of ULIP insurance was the highest (55.5) among the old aged respondents and the same was the

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lowest (42.3) among the middle-aged respondents. On the other hand, the percentage of low preference of ULIP insurance was the highest (24.19) among the young aged respondents and the lowest (13.8) among the old aged policyholders. In order to find the relationship between the age of the respondents and the level of preference of ULIP insurance, a chi-square test was used and result of the test is shown in the following table. Factor Age

Calculated χ2 Value 2.33

Table value

D.F.

Remarks

9.488

4

Significant at 5% level

Table 4.3 Age and preference of ULIP (Chi-squares table) It is noted from the above table that the calculated Chi-square value is less than the table value and the result is significant at 5% level. Hence, the null hypothesis “the age of the respondents and the preference of ULIP insurance” holds good. From the above analysis it is concluded that there is a close relationship between the age of the respondents and the preference of the ULIP insurance plans. 4.2 CUSTOMERS AND PRERENCE OF COMPANY After privatization in India many foreign companies have entered in the life insurance industry out of which we have compared between the following companies 1. Bajaj allainz life insurance 2. ING Vysaya life insurance 3. Aviva life insurance 4. Met life insurance Under this survey we have asked customers to give their preference against the above mention companies and rate them out of 50. The customers have given their preference according to their experience and perception about the products of the company. These responses depend on many other factors, which are discussed in the next section of the survey. The following shows preference of the customers and companies

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Sr. No.

Companies

1. 2.

Met life ING Vysaya Bajaj Allianz TATA AIG Aviva Life Total

3. 4. 5.

No. of respondents 9 17

%

Average

6 11.3

24.4 32.1

Range Min Max 15 35 13 40

30

20

38.9

27 47

70 24 150

46.7 16 100

39.5 36.3

29 49 18 49

Table 4.4 Customer and preference of companies The above table shows that the customer response for TATA AIG is highest at 46.7% of the total 150 customers, with second Bajaj Allianz at 20%, at third it is Aviva Life insurance with 16%, fourth is ING Vysaya with 11.3 and Met life insurance at fifth position with 6% of total respondents. In terms of rating of the customers for preference out 50 again TATA AIG leads with the average rating of 39.5, at second Bajaj Allianz with average of 38.9, at third it is Aviva Life insurance with 36.3, fourth is ING Vysaya with 32.1 and Met life insurance at fifth position with 24.4 average. From this survey we can clearly see that the customer preference for TATA AIG’s product leads among the four competitors in insurance sectors. The reason for this preference is shown in the next survey. The above rating chart has been scaled downed to 1 to 5 rates and shown in a semantic scale below.

Figure 4.1 Semantic Differential Chart of different companies and customer preferences rated from 1 to 5

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4.3 REASONS FOR CUSTOMER’S PREFERENCE FOR COMPANY Customer preference is based on many parameters, as it is intangible product. Different companies have different products with various features. Out of all the features we have taken some of the features and tried to compare the above-mentioned company’s product. In the above survey we have seen that customer preferred for TATA AIG’s product so in this section we have taken some salient feature of the ULIP product and asked customer for his responses The features of the product are returns, premium, flexibility, no of funds and transparency of the taxes. The following table shows the response of the customer’s perception of the product of different company. Companies/ Parameters Premium Charged Flexibility No. of Funds

Met Life

Ing Vysaya

TATA AIG Life 2.2

Aviva Life

2.4

Bajaj Allianz 4.5

1.8

2.5 2.9 Fund Returns 2.7 Transparency 2.1

3.1 3.2 2.3 2.4

3.6 3.5 3.4 1.8

4 4.5 4.6 4.5

3.4 3.7 3.5 3.2

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Table 4.5 Table of ratings of service by different companies based on different parameters The above table shows that TATA AIG lags behind with respect to premium charged to other companies. As per customers the premium charge by TATA AIG is more than other companies with so rated average at 2.2. The leading company in this category is Bajaj Allianz with 4.5 rates. Flexibility means customization of the product according to the customers need. In flexibility TATA AIG life leads with 4 points followed by Bajaj Allianz. Number of funds is another parameter to judge the company’s product. In ULIP the money are invested in the particular funds these are funds are classified according to the risk related to market. TATA AIG leads this category because of its unique capital guaranteed fund in which gains are guaranteed by the company upto some extend. Fund return is basically the performance of the fund with market. According to survey the returns given by the funds of TATA AIG is highest in December 2007. The most important thing id transparency of the allocation of the premium of the customers, this section is grabbed by TATA AIG as it clearly specifies about the service tax and premium allocation so there is no hidden charges that creates confusion to the customer.

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The above table is represented in a graphical way as below

Figure 4.2 Graphical Representation of the above table

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CHAPTER 5 RECOMMENDATIONS AND BENEFITS 5.1 RECOMMENDATIONS TO THE COMPANY As in case of ULIP TATA AIG has one of the best products as compared to the four private companies, but still our survey result says that TATA AIG needs some minor improvement regarding its premium charges and advertisement to its target customers 1. Premium charges Due to its high premium charges customers perception about the company’s product has become that its only for the upper middle class people. Where as TATA AIG do has some policy with low premium but the charges of allocation are too high. So we would like to suggest lowing down its premium charges to some extend by reducing administration charges and other charges. 2. Advertisement During surveys we have found that due to lack of advertisements about the products and agents selling the products in which they get high commissions customers are somewhere mislead and they know about very few products though TATA AIG has wide range of variety of the products. So we would recommend TATA AIG to invest more in advertisement in form of TV commercials, pamphlets and hoardings

5.2 BENEFITS TO THE COMPANY AND US With the valuable time spend on the surveys and sales done by us it is a win-win situation for both company and me. The benefits of this summer internship program are discussed below 1. Benefit to the company a) This survey done in Noida and Ghaziabad region on comparison of TATA AIG’s product and its competitor can give a idea of this position in the market. As TATA AIG leads in most of the parameters so it should continue to serve in the same manner. b) The survey also shows the customers perception about TATA AIG’s life ULIP product with which it can improve its impression better than now. c) The recommendation given in this report will help TATA AIG to position its product properly to the target customers d) Moreover the sales done during this internship of 2 lakhs have done a good business for the company

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2. Benefit to us a) Doing internship in TATA AIG have given me immense experience in the insurance industry for these fourteen weeks. b) Interaction with the customers for survey and sales has developed our marketing skills. c) Working in the office premises has given exposure to corporate world and an experience in working in corporate pressure. d) Commissions obtained from sales is the stipend received during this internship

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CHAPTER 6 CONCLUSION AND REFERENCE 6.1 CONCLUSION Here I conclude that the summer internship program, done for partial fulfillment of the MBA course in ICFAI University, in TATA AIG Life Insurance Co. Ltd. has been completed successfully. Following are the achievements done during the summer internship from 24th February 2008 to 24th May 2008 a. Survey done with interest of TATA AIG has been conducted successfully and results are discussed above. b. Sales done during the time have done great business to the company. c. The experience gained during the internship has sharpen my skills and given a corporate exposure

6.2 REFERENCE The report have been made on the basis of following references a. www.tata-aig-life.com b. www.italic.com c. www.indianinsuranceresearch.com d. www.bimaonline.com

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