PROJECT On insurance - 4 Weeks Ago

SECTION I: KNOWLEDGE OF THE

INSURANCE INDUSTRY

INTRODUCTION
Insurance industry has always been a growth-
oriented industry globally. On the Indian scene too,
the insurance industry has always recorded
noticeable growth vis-à-vis other Indian industries.
The Triton General Insurance Co. Ltd. was the first
general insurance company to be established in India
in 1850, which was a wholly British-owned
company. The first general insurance company to be
set up by an Indian was Indian Mercantile Insurance
Co. Ltd., which was established in 1907. There
emerged many a player on the Indian scene
thereafter.
The general insurance business was nationalised
after the promulgation of General Insurance
Business (Nationalisation) Act, 1972. The post-
nationalisation general insurance business was
undertaken by the General Insurance Corporation of
India (GIC) and its 4 subsidiaries:
1. Oriental Insurance Company Limited;
2. New India Assurance Company Limited;
3. National Insurance Company Limited; and
4. United India Insurance Company Limited.
Towards the end of 2000, the relation ceased to exist
and the four companies are, at present, operating as
independent companies.
The Life Insurance Corporation (LIC) was
established on 01.09.1956 and had been the sole
corporation to write the life insurance business in
India.
The Indian insurance industry saw a new sun when
the Insurance Regulatory & Development Authority
(IRDA) invited the applications for registration as
insurers in August, 2000. With the liberalisation and
opening up of the sector to private players, the
industry has presented promising prospects for the
coming future. The transition has also resulted into
introduction of ample opportunities for the
professionals including Chartered Accountants.
The Indian Insurance industry is featured by the
attributes:
♣ Low market penetration;
♣ Ever-growing middle class component in
population.
♣ Growth of consumer movement with an
increasing demand for better insurance products;
♣ Inadequate application of information technology
for business.
♣ Adequate fillip from the Government in the form
of tax incentives to the insured, etc.
The industry formations need to keep vigil on these
characteristics of the Indian market and formulate
their strategies to entail maximum contribution to
the output of the sector.
The Indian life and non-life insurance business
accounted for merely 0.42 percent of the world's life
and non-life business in 1997. The figures of the
basic parameters of the industry's performance viz.
Insurance Density and Insurance Penetration also are
evident of the hitherto existing low-yield Indian
market conditions.
The term "Insurance Penetration" broadly measures
the contribution of the insurance industry in relation
to a nation's entire economic productivity. The figure
of premium vis-à-vis the GDP of 1999 stood at 0.54
percent for non-life insurance business and 1.39
percent for the life insurance business. The term
"Insurance Density" reflects the Insurance
purchasing power. The premium per capita in India
amounted to US $ 2.40 for non-life insurance and
US $ 6.10 for life insurance in 1999 but with the
deregulation of the sector, a sea change in the scene
is most likely.
The insurance sector in India has come a full circle
from being an open competitive market to

nationalisation and back to a liberalized market

again. Tracing the developments in the Indian
insurance sector reveals the 360-degree turn
witnessed over a period of almost two centuries.
A BRIEF HISTORY OF THE INSURANCE
SECTOR

The business of life insurance in India in its existing

form started in India in the year 1818 with the
establishment of the Oriental Life Insurance
Company in Calcutta. Some of the important
milestones in the life insurance business in India are:

1912: The Indian Life Assurance Companies Act

enacted as the first statute to regulate the life
insurance business.

1928: The Indian Insurance Companies Act enacted

to enable the government to collect statistical
information about both life and non-life insurance
businesses.

1938: Earlier legislation consolidated and amended

to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident
societies taken over by the central government and
nationalised. LIC formed by an Act of Parliament,
viz. LIC Act, 1956, with a capital contribution of Rs.
5 crore from the Government of India. The General
insurance business in India, on the other hand, can
trace its roots to the Triton Insurance Company Ltd.,
the first general insurance company established in
the year 1850 in Calcutta by the British.

Some of the important milestones in the general

insurance business in India are:

1907: The Indian Mercantile Insurance Ltd. set up,

the first company to transact all classes of general
insurance business.

1957: General Insurance Council, a wing of the

Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound
business practices.
1968: The Insurance Act amended to regulate
investments and set minimum solvency margins and
the Tariff Advisory Committee set up.

1972: The General Insurance Business

(Nationalisation) Act, 1972 nationalised the general
insurance business in India with effect from 1 st
January 1973. 107 insurers amalgamated and
grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd.
and the United India Insurance Company Ltd. GIC
incorporated as a company.

STRUCTURE OF THE INSURANCE INDUSTRY

The structure of the insurance industry comprises of

the Operating department, Administrative
department and the finance department. The
Operating Department generally performs the basic
functions pertaining to the designing of products,
marketing thereof, servicing the insured, the the

the insured, management of portfolio, etc. The

Administrative Department looks after the day-to-
day affairs of the company. The Finance Department
backs the operations and administration of the
company by accounting for the transactions,
streamlining the flow of funds, materializing the
management decisions, etc.

The Administration Department as well as the

Finance Department, usually, functions through in-
house setup. The Finance Department functions in
the areas of accounting, financial and management
reporting, budgeting and controlling, etc. and thus
renders enormous scope for finance professionals.
The new entrants in the insurance sector are likely to
call for the services of the Chartered Accountants for
their financial setup requirements. The Chartered
Accountants have engaged themselves in the audit of
Insurance Companies since long. With the transition
in the insurance sector, the horizons for their
contribution have broadened. There has, emerged a
king-size pool of opportunities that the Chartered
Accountants can explore and apply their professional
wisdom and experience to.

BASIC FUNCTIONS OF THE INSURANCE

INDUSTRY

1. Risk Perception and Evaluation:

The fundamental function of an insurer is to provide

a cover against the detriment caused to the insured
due to the happening of certain specified and agreed
events. Thus, prior to providing such umbrella
through a product, the insurer has to assess the risk
involved in the transaction. The insurer has to
identify the element of risk prevalent in the
concerned industry or a particular unit. The
perception of risk requires the study of variables
through various methods including the application of
scientific and statistical techniques and correlation
thereof with the industry or unit under study in light
of their basic environmental and infra-structural
characteristics. After the identification and
categorisation of the risks perceived, the probability
of happening of the loss-causing events and the
severity of the loss has to be assessed.

2. Designing the Insurance Product:

On the basis of the risks perceived, the insurer

develops a product to cover the stipulated risks.
While designing an insurance product, an insurer
decides its cost to be charged from the insured in the
form of premium, reduction thereof in certain cases
like not lodging any claim during the previous
covered period(s), suggesting the implementation of
risk-mitigating measures, etc. The features of a
product should be flexible enough to provide for the
determination of premiums, rebates, additional
premiums, etc. depending upon the risk benchmarks
as determined.
3. Marketing of the Product:

The core function of the marketing force of an

insurance company is to generate awareness about
the insurance products among the target market. But
in the Indian scenario, where the insurance
penetration is too low as compared to the other
nations, the marketing force needs to perform the
pro-active role in developing an insurance culture. It
is through the efficiency of the sales force of an
insurance company that the desirability and the
success of a product are determined.

In Indian insurance market, the function is, basically

performed by the agents. The persons desiring to
function as insurance agents have to obtain license to
act as such from the IRDA or an officer authorised
by the Authority in this behalf. The agents approach
the prospective buyers and apprise them of the basic
features of the products. In order to dispense with
the functions, the agents need to possess adequate
knowledge of the insurance industry, products and
the modalities attached therewith. Further, the
marketing personnels should be adequately backed
by the back-office setup.

4. Selling of the Products:

The term selling in the context of insurance industry

connotes the issuance of policies to the applicant
proposer. The non-life insurance policy basically
embodies the covenant between the insurer and the
insured wherein the former agrees to indemnify the
latter for the loss caused to him on the happening of
the certain agreed events up to a specified limit. The
life insurance policy generally contains the
agreement whereby the insurer agrees to pay to the
insured or the beneficiary of the policy an agreed
amount on the expiry of the term of the policy or in
the event of the death of the insured respectively.
The additional benefits in the shape of Riders viz.
Accidental Death Benefit, Double Sum Assured,
Critical Illness benefits, Waiver of Premiums, etc.
can also be appended with the policy on the payment
of an additional premium.
In Indian industry, the function is, generally
performed by the insurer. In addition, the insurance
companies depute their Direct Selling
Representatives to look after the function. They
receive the proposal documents, vet them and issue
policies to the proposers.

5. Management of Portfolio:

The management of the portfolio includes the

assessment of requirement of funds, identification of
various sources of finance, the evaluation of the
sources in the light of their cost, availability, timing,
etc., reconciling the features of various sources with
the needs of the company and the selection of
appropriate conjunction of sources. The insurer
possesses huge amount of funds, which need proper
management. The management of the portfolio of an
insurance company requires the identification of
investment avenues, evaluation thereof and the
selection of the most appropriate mix of alternatives
where the funds of the company can be invested.
The selection requires the knowledge of finance
related functions and techniques apart from the in-
depth know of the patterns of requirement of funds
in the company as well as in the industry as a whole.
INSURANCE INDUSTRY: CLASSIFICATION

Fire Insurance Marine Insurance Mediclaim Motor

Vehicle

SOME PLAYERS IN THE INDUSTRY:

Life Insurance General Insurance

Life Insurance Corporation of India. General
Insurance Corporation of India.
1. Oriental Insurance Company Ltd.
2. New India Assurance Company Ltd.
3. National Insurance Company Ltd.
4. United India Insurance Company Ltd.
New Entrants
ICICI Prudential Life Insurance Ltd. Bajaj Alliaz
General Insurance Company Ltd.
Tata AIG Life Insurance Corporation Ltd. Reliance
General Insurance Company Ltd.
ING Vysya Life Insurance Corporation Ltd. Tata
AIG General Insurance Company Ltd.
Om Kotak Mahindra Life Insurance Corporation
Ltd. Royal Sundaram Alliance Insurance Company
Ltd.

INSURANCE SERVICE: ITS USERS

The formulation of creative marketing decisions is
not possible unless the different categories of users
using the services of insurance industry are known.
The general users assign due weightage to their own
interest whereas the industrial users assign an
overriding priority to the interests of their
organizations. The emerging changes in the socio-
economic conditions and governmental regulations
influence the interests of both the category of users.
It is against this background that an in-depth study
of users is found significant to the insurance
industry.

An individual or an institution, a person or a group

of people availing the services is termed to be the
actual users of the insurance industry. On the other
hand both the categories of prospects having the
potentials, bearing the willingness but not using the
service right now are termed as “potential
users/prospects”. The services are made available by
the Life Insurance Corporation of India and the
General Insurance Corporation and other private
insurance companies are used by both categories of
users.

The need and requirement can’t remain static. The

business environmental conditions influence the
process of change. The professionals engaged in
servicing the insurance organizations bear the
responsibility of understanding the changing level of
expectations of the different categories.
SECTION II

INSURANCE POLICY: THE TOTAL PRODUCT

CONCEPT
 
Theodore Levitt propounded the Total Product
Concept (TPC), which implied that a product had
three levels of features and the consumption was in
totality.

¬ LEVEL 1:

Core Product:
In the Insurance Industry the core product is the
policy that provides protection to the consumers
against the risks. This is the main reason for which
the Insurance Company is in existence. It provides
protection by way of various riders viz. Accidental
Death Benefit, Double Sum Assured, Critical Illness
benefits, Waiver of Premiums, etc.
On the basis of the risks perceived, the insurer
develops a product to cover the stipulated risks.
While designing an insurance product, an insurer
decides its cost to be charged from the insured in the
form of premium, reduction thereof in certain cases
like not lodging any claim during the previous
covered period(s), suggesting the implementation of
risk-mitigating measures, etc. The features of a
product should be flexible enough to provide for the
determination of premiums, rebates, additional
premiums, etc. depending upon the risk benchmarks
as determined.

¬ LEVEL 2:

Formal Product:
When the customers expectations grows
synchronized with increased competition the
marketer offers some tangibility to the existing core
product to differentiate itself from the competitors.

1. Brand:
In order to distinguish itself from the competitors,
the Insurance Company gives a brand name to its
policy. This brand name gives an identity to the
product (policy) offered by the insurance company.
Thus ICICI Prudential Life Insurance has brands viz
ICICI Pru Smart Kid, ICICI Pru Save ‘n’ Protect,
ICICI Pru LifeLink, etc.
2. Attributes:
Just giving a brand name to the policy may not be
enough for the insurance company to distinguish its
offerings. The product offering must also have
attributes that will attract the consumers to take the
policy. The attributes must suit and satisfy the needs
wants and desires of the various types of consumers
that the company is targeting at.
Thus ICICI’s investment plans suit the consumers
who want to secure their family through insurance or
invest money for growth. And its retirement plans
suit the ones who want to enjoy their fruits of labor
after retirement or want to go for a dream vacation.

3. Instruction Manual:
To make the service consumption easier for the
consumers, the instruction manual with the policy
becomes very important. The instruction manual
gives an overview to the consumers as to how to go
on with the filling of the application form. It also
gives information about the various formalities that
have to be adhered to at the time of submission of
the application form.

¬ LEVEL 3:

Augmented product:
With further expectation of the consumer – again
synchronized with intense competition – marketers
offer more and more intangible features.

1. Post-sales service:
The insurance company must not consider it as the
end of the service providing the consumer has taken
once the policy. The functions of an insurance
company include the provision of the Post-sales
services to the consumer. Among the services
rendered by the insurance company is the service of
processing and release of claims. The insurance
company needs to verify the accuracy of the facts
presented in relation to the insurance claim and the
documents produced in support thereof.

2. Delivery points:
The delivery points can be the branches that the
insurance company has at the discretion of the of the
consumers’ location. The delivery points can also be
mobilized with the presence of the insurance agents.
The agents can cover a wide area and get in contact
with the consumers to provide the service to him.

3. Customer education and training:

The customer education and training is very
important for the insurance company. The agents
play a vital role in this context. The customer can be
educated on various benefits that can be accrued in
his future life by taking a policy. This is where the
agents’ communication skills come into the picture.
The insurance company has to play an active role in
enabling the agents to impart the best customer
education through appropriate training given to the
agents.
4. Customer complaint management:
Customer complaints management with regards to
delay in discharge of claims must be effectively
handled by the insurance company to have
competitive edge over its competitors. The
complaint management will help the company to get
the consumers closer to the organization as the
consumers feel that their grievances are taken care
of.
Thus LIC has an online feedback system where the
consumers of the policy can register their
grievances.

5. Payment options:
The insurance company can offer payment options
to the consumers with regards to payment of
premium – the mode of payment and the period
within which the premium amount has to be paid.
SECTION III: WORKING OF THE INSURANCE
INDUSTRY

INSURANCE INDUSTRY: THE

PHILOSOPHICAL GOAL.

Channelising
The Insurance Company collects money in the form
of premium from individuals (A, B, C & D). The
money collected from people is used to meet one
person’s calamity.

The Insurance Company enters into the process of

channelising by disbursing the amount collected into
the command economy. Thus a significant part of the
activities of the insurance industry of an economy
entails mobilization of domestic savings and its
subsequent disbursal to investors.

The main risk faced by the insurance company is

when all the insurers claim for the reimbursement at
the same time. This situation is very rare to occur,
and is one of the major threat that the insurance
company faces in its business operations.

SECTION IV: MARKETING MIXES IN THE

INSURANCE INDUSTRY

PRODUCT MIX
The formulation of product mix for the insurance
business makes it significant to take a look at the
services and schemes of insurance organisations.
The product portfolio is known and the process of
formulating a package should be known. It is natural
that the users expect a reasonable return for their
investments. It is quite natural that the insurance
organisations want to maximise profitability. Both of
these dimensions are found interrelated.

It is well known that the key objectives of insurance

business are mobilisation of savings and
channelisation of investments. This makes it
essential that insurance business is made lucrative so
that the users /potential users get incentives to buy a
policy or to invest in the insurance organisations.
The insurance organisations also need to promote
the underwriting activities, which would activate the
process of arresting the regional imbalance. In the
context of formulating the product mix, it is essential
that the insurance organisations promote innovation
and in the product portfolio include even those
services and schemes which are likely to get a
positive response in the future.

The corporate objectives indicate that the insurance

organisations are required to be careful, especially
while launching a new policy. The policies should
not only generate enough premium but it is also
important that the policies cover persons working in
the informal sector, serving as porter, working as
manual labourers, or engaged in farm sector. It is the
need of the hour that the insurance organisations
make their service internationally competitive. This
makes a strong advocacy in favour of innovative
product mix strategy for the public sector insurance
organisations. Thus the formulation of product mix
should be in face of innovative product strategy.
Strategies of foreign and private insurance
companies should be taken into consideration while
initiating the innovative process.

The formulation of product strategy should assign

due weightage to the rural segment emerging as a
big profitable segment especially in the 21st century.
The policies and schemes should have rural
orientation so that backward and neglected regions
of the country get priority attention and the regional
imbalance is minimised.

In this context, it is also pertinent that the insurance

organisation make possible welfare orientation and
include in the product portfolio even those policies
and schemes which become instrumental in
safeguarding the interest of the weaker sections of
the society.
The formulation of package is also found important.
Designing a package on the basis of the needs and
requirements of the concerned segment would make
the product mix more competitive.

The partially tapped or totally untapped profitable

segments of the future should be identified and
tapping the potentials optimally is also important.
A sound product portfolio is the need of the hour and
therefore the regulatory barriers or constraints in
activating the innovation process should be
minimised.

Product Planning & Development

The purpose of insurance business is to generate
profits besides subserving the social interests. The
present business is likely to be more competitive.
Product is like a stage on which the entire drama of
successful marketing is acted. It is like an engine
that pulls the rest of the marketing programmes. It is
in this context that the product management in an
insurance organisation needs an intensive care.
Yesterday, the policyholders had limited hopes and
aspirations but today they expect more and they
would even like something more tomorrow. This
focuses on the fact that strategic decisions are
influenced by the environmental conditions.
The product development needs a new vision, a new
approach and a new strategy. Till now the public
sector insurance organisations have made possible
an optimum utilisation of their marketing resources
especially in rural areas where tremendous
opportunities are available. Thus they should assign
due weightage to the development services /schemes
which cater to changing needs and requirements of
the rural segment.
In the development of product, the corporate
investments need due priority.
Channelising the corporate investments influences
the rate of profitability of insurance companies and
also contributes considerably to the socio-economic
transformation process.

Thus the product planning and development should:

θ Give due weightage to the socially and
economically backward classes
θ Maximise the mobilisation of savings by offering
lucrative schemes.
θ Assign due weightage to interests of investors.
θ Maintain economy in business by promoting cost
effectiveness.
θ Act as a trustee of policyholders.
θ Keep in mind the emerging trends in business
environment.
θ Improve the quality of customer / user services.

PROMOTION MIX

With the advent of private players in the insurance,

companies resort to rampant promotion. Promotion
mix for this sector is as follows:

Advertisement
Advertisement can be done through the telecast
media, broadcast media and print media. Insurance
companies have been making optimal use of all the
three kinds. Use of World Wide Web, as media is
almost negligible and will not be very frequent in the
near future considering the fact that the majority of
customer base of these companies is not yet exposed
to the Internet. The telecast media has been the most
effective of all in case of the insurance sector. Most
of the companies have their separate advertising
section to take care of this aspect. An important
consideration while making the decision as to the
selection of the media is budgetary constraint. Since
the insurance companies work on a large scale,
usually this constraint does not stand as an obstacle.

Publicity
It is a device to promote business without making
any payment and therefore it could be also called as
unpaid form of persuasive communication bearing a
high rate of sensitivity. Developing

rapport with the media is an important aspect of

publicity. This makes it essential that the PR officers
working in the insurance organisations maintain
contacts with the media personnel, organise press
conference, and offer small gifts and momento to
them. These days LGD marketing is gaining
popularity the world over. It also can be applicable
here. At the apex and regional levels, the PRO’s bear
the responsibility of projecting positive image of the
organisation. Thus it is necessary to select suitable
personnel for this. They should be in particular
taught to deal with people, simple things like talking,
greeting etc.

Sales Promotion
Incentives to the end users for taking the policy play
an important role in promoting the insurance
business. Since the insurance business is also related
to achieving of a particular target, it is pertinent that
the policymakers assign due weightage to the same.
The offering of small gifts during a particular period,
the rebate, discount, bonus can increase business of
organisation by leaps and bounds. Besides, there can
be gifts for the insurance agents also.

Personal Selling
Personal selling in case of the insurance
organisations is quite important considering the
existence of the insurance agents spread at all levels.
Selection of these agents, their training is
responsibility of the organisation. There is difference
in urban and rural market. Rural customers might be
uneducated / uninformed etc. compared to the urban
customer. Hence the organisations will have to make
selections of the rural and urban agents accordingly.

Word of Mouth Promoting.

The word – of- mouth communications result into
wider publicity, which substantially sensitise the
process of influencing the impulse of users/prospects
of the insurance services. The satisfied group of
customers, opinion leaders, the social reformists, the
popular personalities act as word of mouth
communicators. The advertisement slogans may be
insensitive, the publicity measures may be
ineffective but the positive feelings of friends and
relations communicated cannot be ineffective. This
makes it clear that the most important thing in the
promotion of any business is the quality of services.

Telemarketing
With the development of satellite communication
facilities and with the expansion of the television
network, we find telemarketing gaining popularity
the world over. The insurance organisations in
general need to promote telemarketing. The foreign
insurance companies have been assigning due
weightage to this and in India this is beginning to
gain importance with the advent of competition in
this sector. The telemarketer is supposed to be well
aware of the telephonic code so that the task of
satisfying the customers/their queries will not
consume much of time.

World Wide Web

In banking as well as insurance, more and more
importance is being given to online contact facilities
whereby complaints/comments could be sent
through an email. Email is fastest written mode of
communication and since it has been recognized
legally, its use to clear doubts has been in full swing.

PRICE MIX
In the insurance business, the pricing decisions are
concerned with the premium charged against the
policies interest charged for defaulting the payment
of premiums & credit facilities, commission charged
for underwriting & consultancy services. The
formulation of pricing strategies becomes significant
with the viewpoint of influencing the target market
or prospects. To be more specific in the Indian
context where the disposable income in the hands of
prospects is found low, the increasing inflationary
pressure has been instrumental in contracting the
discretionary income, the increasing consumerism
has been making an assault on the saving potentials
of masses, it is pertinent that the insurance
organizations in general & public sector insurance
organizations in particular adopt such a strategy for
pricing that makes it a motivational tool & paves the
ways for increasing the insurance business. Of
course, a motivational pricing strategy is required to
be given due weightage. This necessitates a new
vision for setting premium structure & paying the
bonus & charging the interest.

The strategy may have a new vision in the sense that

the insurance organizations prefer to make a mix of
high & low pricing strategy. The motive is to make
the premium structure commercially viable so that
the insurance organisations succeed in having a
sound product portfolio besides fuelling
development orientation. The pricing decisions make
it essential that the insurers keep in their minds the
nature of policy vis-à-vis the segment to which the
prospects belong.

In the tangible products, cost of production is taken

as the basis for fixation of prices. Even in the
insurance business, it is found to be an important
consideration & a dominating base. This makes the
cost of insurance a decisive factor for charging
premium. The important bases for determining the
cost are rate of death, rate of interest & the expenses
incurred on the insurance business. The mortality
table helps the determination of death rate. It is to
predict future mortality. The best method of
construction of mortality table is to select a large
number of persons at attained age, which is meant
age close to the birth rate. The second important
element is the rate of interest. On the basis of
mortality rate, it is estimated that when & how much
amount is to be received as premium & would be
paid as claims but on the basis of interest rate, it is
estimated that how much interest can be earned by
investing the insurance funds. The last element is
cost which focuses on different types of expenses.
There are certain expenses, which incurred at the
time of inception of the policy. This necessitates
determination of the nature of expenses. The
determination of expenses according to occurrence
& equal distribution of the expenses every year for
equitable distribution of loading are found
significant to make possible a sound management of
expenses.

The process of rate of fixation in the insurance

organizations is not so scientific & identifies the
cases of moral hazard. It is easier to identify the
physical hazard but the task of identifying the moral
hazard is found difficult. The premium charged is to
be made rational to cater to the payment of claims on
a priority basis including the catastrophic losses,
management expenses & margin of profit. It is
essential that various related to both the hazards are
estimated in a scientific way. The actual process of
rating consists of three steps, e.g. classification,
discrimination & scheduling.

 
The price mix decisions are:

¬ Making possible cost of effectiveness

¬ Restructuring of premium
¬ Due priority to profit generating investments.
¬ Rationalizing or optimizing the social costs
¬ Paving avenues for channelising the productive
investments
¬ Assigning dude weightage to the policies meant
for the socially & economically backward classes
¬ Making the ways for maximizing profit

PLACE

The first component of the marketing mix is related

to the place decisions in which our focus would be
on the two important facets – managing the
insurance personnel and locating a branch. The
management of agents and insurance personnel is
found significant with the viewpoint of maintaining
the norms for offering the services. This is also to
process the services to the end user in such a way
that a gap between the services- promised and
services – offered is bridged over. In a majority of
the service generating organizations, such a gap is
found existent which has been instrumental in
aggravating the image problem. The policy makers
make provisions; the senior executives specify the
standards and quality and the branch managers with
the cooperation of the front-line staff and others bear
the responsibility of making available the promised
services to the end users. The public sector insurance
organizations have failed in both the areas. The
agents, rural career agents, the front-line staff and
even a majority of the branch managers have
become a party gap.

The transformation of potential policyholders to the

actual policyholders is a difficult task that depends
upon the professional excellence of the personnel.
The agents and the rural career agents acting as a
link lack professionalism. The front-line staff and
the branch managers are found not assigning due
weightage to the degeneration process. The
insurance personnel if not managed properly would
make all efforts insensitive. Even if the policy
makers make provision for the quality upgradation,
the promised services hardly reach to the end users.
This makes it significant that the insurance
organizations in general and the public sector
insurance organizations in particular keep their
minds in changing the expectations of customers and
the prospects. The behavioral profile of insurance
personnel is studied in a right fashion and the
changes required due to the changing perception of
expectation are incorporated. It is essential that they
have rural orientation and are well aware of the
lifestyles of the prospects or users. They are required
to be given adequate incentives to show their
excellence. While recruiting agents, the branch
managers need to prefer local persons and by
conducting refresher courses to brush up their
faculties to know the art of influencing the
users/prospects. In addition to the agents, the front-
line staff also needs an intensive training
programme. This makes it essential that the branch
managers organize an ongoing training programme,
which focuses on behavioral management.

Another important dimension to the Place Mix is

related to the location of the insurance branches.
While locating branches, the branch manager needs
to consider a number of factors, such as smooth
accessibility, availability of infrastructural facilities
and the management of branch offices

and premises. In addition it is also significant that

the branch managers assign due weightage to the
safety provisions. The management of offices makes
it significant that the branch mangers are particular
to the office furnishing, civic amenities and
facilities, parking facilities and interior office
decoration.

Thus the place management of insurance branch

offices needs a new vision, distinct approach and an
innovative style. This is essential to make the work
place conducive, attractive and proactive to the
generation of efficiency. The motives are to offer the
promised services to thee end users without any
distortion and making the branch offices a point of
attraction. The branch managers need professional
excellence to make place decisions productive.

PEOPLE
People are most important component of marketing
mix for the insurance industry. Sophistication in the
process of technological advances makes the ways
for the personnel in such a way that an organization
succeeds in making possible a productive utilization
of technologies used or likely to be used.
Professional qualification requirements change as
technological develops & evolves. The use of
computers microcomputers, fax machines,
sophisticated telephonic service, e-mailing, intra-net
service have been found throwing a big impact on
the perception of quality of service. This makes it
essential that the insurance organizations also think
in favour of developing personnel in line with the
development and use of information technologies.

The front-line-staff as well as the branch managers

are required to be given the training facilities so that
they in position to make possible an effective use of
the technologies. The insurance organizations bear
the responsibility of developing the credentials of
their employees. In this context, it is also significant
that they think about the behavioral profile of
insurance personnel. It is pertinent that the
employees are well aware of the behavioral
management. They know & understand the changing
level of expectations of users & make sincere efforts
to fulfill the same. In this context, it is also
significant that the senior executive while recruiting,
training & developing the insurance personnel make
it sure that employees serving the organization have
a high behavioral profile in which empathy has been
given due place. The psychological attributes
become significant with the viewpoint of influencing
the prospects or retaining the users. It is in this
context that the insurance companies need a rational
plan for the development of insurance personnel.

PHYSICAL EVIDENCE

Physical evidence includes facility design,

equipment, signage, employee dress, tangibles,
reports & statements.
¬ Signage:
Signage personifies the insurance company. It gives
an identity by which users recognize the company. A
signage depicts the company’s philosophy & policy.

Following are the some of the examples

¬ Tangibles:
Insurance companies give their customers & agents
various tangible items like pens, letter pad, calendars
etc. such things try to reduce the intangibility
characteristics of this industry.

¬ Statements:
The statements are the punch lines, which deeply
depicts the vision & attitude of an insurance
company towards its users/potentials. It also
indicates their business motive.

PROCESS

Flow of activities: Since major activities are

conducted through the agents, the agents are given
training and refresher courses etc. There are
branches of insurance organizations where these
agents go for processing of proposals/claims etc.

Standardization: The proposal/claim forms and other

formalities are standardized in case of each branch
of an organization. Standardization here implies
procedural standardization. But the processing may
differ from case to case in case of claims.
Customization: As stated earlier, each case has its
own peculiarities. Hence amount of premium,
proceedings of a claim etc. are quite subjective.

Number of steps: Clients of an insurance company

differ from an insurance policy – holder to a larger
conglometeer. Number of steps in case of each group
will definitely differ. However in case of individual
customer, the agents handling the proceedings. Thus
the actual customer, the agent handles the
proceedings. Thus the actual customer is not
involved in proceedings for a majority of steps. In
case of the corporate, usually separate officer are
appointed to take care of each case. Standardization
reduces many steps as well as the time taken.

Simplicity: Use the national language/regional

language, customer friendly forms and instruction
manuals, segregation of various department into
counter etc has made entire process quite simple.
Complexity: Insurance works on ‘spread of risk’
principle. The companies have to use others’ money
and hence they arte very careful not only while
processing the claims but also while accepting the
proposals in the first place. Because of some
stringent norms, the process of obtaining and
furnishing documents, proofs etc becomes complex;
but it has been quite simplified by the existence of
the agents.

Customer Involvement: Customers involvement in

case of insurance organization is quite limited. The
insurance agent acts as PROs for the company, they
perform majority of the necessary formalities. The
customers are only involved in case of formalities
like medical examinations, interviews etc. but the
organizations make it a point to let the customers
express their concerns through the customers
complaint cell and mail/email contacts.
SECTION V: SOME PLAYERS

ICICI PRUDENTIAL LIFE INSURANCE LTD.

ICICI Prudential Life Insurance was established in

2000 with a commitment to expand and reshape the
life insurance industry in India. The company was
amongst the first private sector insurance companies
to begin operations after receiving approval from
Insurance Regulatory Development Authority
(IRDA), and in the time since, has taken several
steps towards its realizing its goal.
The company's wide range of products, distribution
strengths and powerful brand has driven its growth
across a cross-section of people and cities. On June
30, 2002, the company crossed the 150,000 policies
milestone with a premium income of over Rs. 165
crores and a total sum assured in excess of Rs. 4,100
crore to establish itself as the No. 1 private life
insurer in the country.

VISION
The vision is to make ICICI Prudential Life
Insurance Company the dominant new insurer in the
life insurance industry. This it hopes to achieve
through our commitment to excellence, focus on
service, speed and innovation, and leveraging our
technological expertise. The success of this
organization will be founded on its strong focus on
values and clarity of purpose. These include:
• 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 stable
returns to their policyholders
• Providing an enabling environment to foster
growth and learning for their employees
• And above all building transparency in all its
dealings.

PRODUCTS OFFERED

SAVINGS PLAN
• ICICI Pru SmartKid - a superior way to guarantee
child’s future no matter what the uncertainty.
• ICICI Pru LifeTime - a complete market-linked
insurance plan that adapts itself to changing
protection and investment needs, throughout a
lifetime.
• ICICI Pru Save'n' Protect - a traditional endowment
savings plan that offers both high returns and
protection.
• ICICI Pru CashBak - an endowment savings plan
that allows one to get back substantial survival
benefits without having to wait till the maturity date.

PROTECTION PLAN
• ICICI Pru LifeGuard - a low cost-high protection
plan that offers protection over a specified period.

RETIREMENT PLAN
• ICICI Pru ForeverLife - a deferred annuity plan
that helps one save for retirement while providing
life insurance protection.

• ICICI Pru LifeLink Pension - a single premium

plan that allows one to park a lump sum amount for
a secure future.
• ICICI Pru LifeTime Pension - a plan that gives one
the twin benefit of market-linked annuity and life
insurance cover.
• ICICI Pru ReAssure - a plan that helps to invest
money prudently and safely and offers the benefit of
a regular income while providing life insurance
protection.

INVESTMENT PLAN

• ICICI Pru LifeLink - an investment plan that gives

the flexibility of choosing your investment options
while keeping you insured for life.
• ICICI Pru AssureInvest - a single premium
endowment plan that gives potentially high returns
coupled with insurance protection.

Each of these policies cater to different segments of

the consumers who take the policy to satisfy the
needs, wants and desires that are different from each
other.

BAJAJ ALLIANZ GENERAL INSURANCE

COMPANY LIMITED

INTRODUCTION
Bajaj Allianz General Insurance Company Limited is
a joint venture between Bajaj Auto Limited and
Allianz AG of Germany. Both enjoy a reputation of
expertise, stability and strength. Incorporated on
19th September 2000 Bajaj Allianz General
Insurance Company received the Insurance
Regulatory and Development Authority (IRDA)
certificate of Registration (R3) on May 2nd, 2001 to
conduct General Insurance business (including
Health Insurance business) in India. The Company
has an authorized and paid up capital of Rs 110
crores.
In less than twelve months of operation, the
company has assured numero uno position among
the private non-life insurers. As on 31st March 2002,
Bajaj Allianz General Insurance Co.Ltd completed a
premium income of Rs.142 Crores and already has a
network of 31 offices across the length and breadth
of the country.

VISION
• To be the first choice insurer for customers
• To be the preferred employer for staff in the
insurance industry.
• To be the number one insurer for creating
shareholder value

BUSINESS FOCUS
The business focus is to position themselves as a
leading corporate & retail insurance company
catering to the needs of our customers.
At Bajaj Allianz General Insurance, the guiding
principles are customer service and client
satisfaction. All efforts are directed towards
understanding the culture, social environment and
individual insurance requirements of the customers
so that they can cater to their varied needs.
They are working closely with leading
intermediaries including corporate agents; motor
dealers; agents; banks; associations and other
intermediaries to focus on the corporate and retail
business.
Bajaj Allianz General Insurance leverages the
customer base and expertise of Bajaj Auto Ltd and
Allianz AG.

They are technology driven and strive to set up

world-class technological infrastructure. This will
include a renowned insurance software; networking
of all offices and intermediaries as well as the ability
to interface with customers via all media.

PRODUCTS

Tariff Products
• Fire Insurance
• Consequential Loss (Fire) Insurance
• Industrial All Risk
• Motor (includes private cars, two wheelers and
commercial vehicles)
• Workmen’s Compensation
• Engineering (includes Contractors Plant and
Machinery, Electronic equipment, Machinery Loss
of Profits, Machinery, Boiler Explosion, Machinery
Breakdown, Deterioration of stock)
Non-Tariff products
• Health Guard
• Personal Accident
• Burglary
• Money
• Plate Glass
• Public Liability
• House Holders
• Overseas Travel
• Hospital Cash
• Office Package

Risk Management Services

The gamut of risk management services includes:
• Risk Analysis, Grading & Control.
• Accident Investigations
• Hazard and Operability Studies
• Safety Audit
• Disaster Management Planning
SECTION VI: RECENT TRENDS &
OPPURTUNITIES
IN THE INSURANCE INDUSTRY

NEW RISK HORIZONS

Business is becoming increasingly vulnerable due to

wide variety of risk particularly after September 11,
2001 disaster in which twin towers located in the
hearts of New York city were crashed by terrorist
attack resulting in loss of 6,000 human lives as well
as financial loss to the extent of $45 billion. The
impact of this terrorist attack has created new
horizon of risk to the business world today.

However, rapid changes in the global economy,

development of technology and e- business already
gathered momentum. Increased dependency on
technology has originated new risks that have
resulted in well-published incidents.

Computer hackers obtaining credit card information

from Visa and Power – Gen, the love Bug Virus,
cyber extortion, web content liability, professional
errors and omission, computers and other crimes and
activities such as terrorism, kidnapping and
company’s executive and extortion of money,
commercial liability etc have significant impact on
business resulting in extreme financial loss,
commercial embarrassment or regulatory
implications.

Corporate insurance/risk managers, under the

circumstances, have to demand increasingly
complex insurance products. They have to be more
attentive and knowledgeable about emerging risks,
how those risks are managed effectively and
efficiently, and how they could ultimately affect a
company’s financial situation and therefore its
position in the marketplace. In short, how such risks
are managed and can give to an insured a
competitive advantage.

In the changing times, adoption of e- commerce into

business models, the integration of web – based
communication and data transfer capabilities into the
business operations, and leveraging of advanced
network and technology architecture for maximum
benefit are the new horizons of the risks. For the
corporate insurance/risks manager, these new
exposures – cyber – risks – can lead to cyber losses,
widening the interpretation of what constitutes
insure property damage, particularly as it relates to
information technology and data.
All the while, organizations are under tremendous
pressure to reduce expenses and increase profit
margin, and cannot afford to suffer a property loss of
business interruption due to any cause (risk). How a
company identifies, quantifies, qualifies and
manages these new risks exposures, in addition to
the well – known traditional risks, is becoming an
important factor in creating shareholders value. This
often means changing the way. Everyone in the
organization have to think about risk.

Insurance managers are seeing price levels

(premium) continue to rise – albeit modestly- in
today’s primary commercial property and
reinsurance markets. They are
demanding that insurers improve their risk
assessment and quantification offerings so that an
insured may avail the benefit in cost (premium rate)
on account of well – managed risk.

The good news for insurance managers is that as the

economy evolves, insurers are increasingly matching
that evaluation with new products, service and
capabilities due to opening up the insurance market
to the private players.

Insurers who are truly listening to their customers

and striving to be more in tune with their needs are
responding to the fast changing corporate insurance
and risk management landscape. They are listening
to their customers. They are making fresh
approaches to address the new challenges faced by
insured organization by designing the new products
as per the need. Insurers are providing value-added
services to insured to protect the value created by the
business.

Insurers are increasingly required to develop and

expand their information technology platforms to
ensure that the vast amount of data they collect
about their customers. Insurance/risk portfolio can
easily and seamlessly be transformed into valuable
risk management information. To help their
customers, insurers should make better-informed
decisions. They must be able to swiftly deliver this
data to their customers (insured) anywhere in the
world. Insurers are also discovering that risk
assessment have to be customized to meet
policyholders’ new exposures and needs. The
insurance industry is stepping up and addressing
these challenges in several different ways.

LOOKING AHEAD

There is presently building in India an upsurge in

consumer awareness, putting immense and
unavoidable pressure on the insurance industry. A
lifting of the bar on composite insurance, where
companies are allowed to do only life or non-life
business today, can also be expected. Instead of
categorizing insurance by class, the focus may shift
more to the period for which the cover was offered
and the risk underwritten. Already there is demand
for permitting the industry to underwrite pure risk
and leaving investment decisions to policyholders.
With the entry of competition, the rules of the game
are set to change. The market is already beginning to
witness a wide array of products from players whose
number is set to grow. In such a scenario, the
differentiators among the different players are the
products, pricing, and service. Meanwhile, the
profile of the Indian consumer is also evolving.
Consumers are increasingly more aware and are
actively managing their financial affairs. Today,
while boundaries between various financial products
are blurring, people are increasingly looking not just
at products, but also at integrated financial solutions
that can offer stability of returns along with total
protection.

To satisfy these myriad needs of customers,

insurance products will need to be customized.
Insurance today has emerged as an attractive and
stable investment alternative that offers total
protection — Life, Health and Wealth. In terms of
returns, insurance products today offer competitive
returns ranging between 7% and 9%. Besides
returns, what really increases the appeal of insurance
is the benefit of life protection from insurance
products along with health cover benefits.

Consumers today also seek products that offering

flexible options, preferring products with benefits
unbundled and customizable to suit their diverse
needs. The trend in developed economies where
people not only live longer and retire earlier are now
emerging in India. Where once the fear was one of
dying too early, now, with increasing longevity, the
fear also is one of living too long and outliving one's
assets. With the breakdown of traditional forms of
social security like the joint

family system, consumers are now concerning

themselves with the need to provide for a
comfortable retirement.

This trend has been further driven by the long-term

decline in interest rates, which makes it all the more
necessary to start saving early to ensure long term
wealth creation. Today's consumers are increasingly
interested in products to help build wealth and
provide for retirement income.

This all adds up to major change in demand for

insurance products. While sales of traditional life
insurance products like individual, whole life and
term will remain popular, sales of new products like
single premium, investment linked, retirement
products, variable life and annuity products are also
set to rise. Firms will need to constantly innovate in
terms of product development to meet ever-changing
consumer needs. However, product innovations are
quickly and easily cloned. Pricing will also not vary
significantly, with most product premiums hovering
around a narrow band.
In this competitive scenario, a key difference will be
the customer experience that each life insurance
player can offer in terms of quality of advice on
product choice, along with policy servicing, and
settlement of claims. Service should focus on
enhancing the customer experience and maximizing
customer convenience. Long-term growth in the
business will depend greatly on the distribution
network, where the emphasis must evolve from
merely selling insurance to acting as financial
advisors, helping customers plan their finances
depending on life stage and personal requirements.
This calls for a strong focus on training of the
distribution force to act as financial consultants and
build a long lasting relationship with customer. This
would help create sustainable competitive advantage
not easily matched.

RURAL-URBAN MIX

It must be borne in mind that India is a

predominantly rural country and will continue to be
so in the near future. New players may tend to favor
the "creamy" layer of the urban population. But, in
doing so, they may well miss a large chunk of the
insurable population. A strong case in point is the
current business composition of predominant market
leader – the Life Insurance Corporation of India. The
lion's share of its new business comes from the rural
and semi-rural markets. In a country of 1 billion
people, mass marketing is always a profitable and
cost-effective option for gaining market share. The
rural sector is a perfect case for mass marketing.
Competition in rural areas tends to be "kinder and
gentler" than that in urban areas, which can easily be
termed cutthroat And the generally smaller policy
amounts in rural areas would be more than offset by
the higher volume potential in these areas in contrast
with

urban areas. Identifying the right agents to harness

the full potential of the vibrant and dynamic rural
markets will be imperative.
Rural insurance should be looked upon as an
opportunity and not an obligation. A smaller bundle
of innovative products in sync with rural needs and
perception and an efficient delivery system are the
two aspects that have to be developed in order to
penetrate the rural markets.
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 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 Authority- the 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."