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CHAPER-1 INSURANCE- AN INTRODUCTION

A. Meaning:
Insurance may be described as a social device to ensure protection of economic value of life and other assets. 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 = Collective Bearing of Risks

Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The term "risk" is used to describe the possibility of adverse results flowing from any occurrence or the accidental happenings, which produce a monetary loss. Insurance is a pool in which a large number of people exposed to a similar risk make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. The sharing of risk among large groups of people is the basis of insurance. The losses of an individual are distributed over a group of individuals. 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.

B. Definitions: I) Fundamental Definition

In the words of D.S. Hansell, Insurance accumulates contributions of all parties participating in the scheme. II) 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 insurers incurring the risk of paying a large sum upon a given contingency.

1.1.3 Working of Insurance

C) Introduction:
According to the U.S. Life Office Management Inc. (LOMC), "Life Insurance provides a sum of money if the person who is insured dies whilst the policy is in effect."

Life insurance has come a long way from the earlier days when it was originally conceived as a risk-covering medium for short periods of time, covering temporary risk situations, such as sea voyages. As life insurance became more established, it was realized what a useful tool it was for a number of situations that includes temporary needs/threats, savings, investment, retirement etc.

D) Origin of Life Insurance in India:

In India, after failure of two British companies, the European and the Albert in 1870, which attempted writing business on Indian lives, first Indian Life Assurance Society was formed in the same year called Bombay Mutual Assurance Society Ltd. It was followed by the Oriental Life Assurance Company Limited in 1874, Bharat in 1896 and Empire of India in 1897. The Idea of insurance was born out of a desire of the people to share loss of an individual by many. Originally it restricted to forms other than life assurance. The Government began to exercise a certain measure of control on Insurance business by passing the `Insurance Act in 1912. For controlling investment of funds, expenditure and management, a comprehensive Act was passed known as `The Insurance Act 1938. For controlling the affairs, the office of Controller of Insurance was established. The act was extensively amended in 1950. In the year 1955, approximately 170 Insurance Offices and 80 Provident Fund Societies had been registered for transacting Life Assurance business in India. There were malpractices in insurance business. For achieving the following purposes it was felt necessary to nationalize the insurance business in India. The Life Insurance Corporation Act was passed by the Parliament in June 1956 which came in force on 1st July 1956.

E) Important Milestones in the Life insurance business in India:

1870: Bombay Mutual life assurance society is the first Indian owned life insurer. 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 are nationalized. LIC formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crores from the Government of India. 1997: Insurance regulator IRDA set up. 2000: IRDA starts giving licenses to private insurers like Kotak Life Insurance, 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 were allowed to sell insurance plans. As Third Party Administrations (TPAs) enter the scene, insurers start setting non-life claims in the cashless mode. 2004-05: The Government proposed for increasing the foreign equity stake to 49%. 2007: First Online Insurance portal, set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt. Ltd.

CHAPTER-2 INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. In 1994, the committee submitted the report and some of the key recommendations included: Structure of the Indian Insurance Industry. Competition. Regulatory Body. Investments. Customer Service. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body i.e. The Insurance Regulatory and Development Authority. Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA online service for issue and renewal of licenses to agents.

A) INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

The Insurance Act, 1938 had provided for setting up of the Controller of Insurance to act as a strong and powerful supervisory and regulatory authority for insurance. Post nationalization, the role of

Controller of Insurance diminished considerably in significance since the Government owned the insurance companies. The Insurance Regulatory and Development Authority Act, 1999 is an act to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 to end the monopoly of the Life Insurance Corporation of India (for life insurance business). Following are some of the powers, functions and duties of IRDA: Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration. Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents. Specifying the code of conduct for surveyors and loss assessors. Promoting efficiency in the conduct of insurance business. Promoting efficiency in the conduct of insurance business; promoting and regulating professional organisations connected with the insurance and re-insurance business. Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. Supervising the functioning of the Tariff Advisory Committee;

Exercising such other powers as may be prescribed.

B) 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 markets have witnessed dynamic changes because of Indian Insurers going global. Most of the private insurance companies have formed Joint ventures partnering well recognized foreign players across the globe. There are now 22 Life insurance companies operating in the Indian market. With many more joint ventures in the offing, the insurance industry in India today stands at a crossroads as competition intensifies and companies prepare survival strategies in a detariffed scenario. There is pressure from both within the country and outside on the Government to increase the foreign direct investment (FDI) limit from the current 26% to 49%, which would help Joint ventures partners to bring in funds for expansion.

1. State Insurers Continue To Dominate: There may be room for many more players in
a large underinsured market like India with a population of over one billion. But the reality is that the intense competition in the last five years has made it difficult for new entrants to keep pace with the leaders and thereby failing to make any impact in the market. Also as the private sector controls over 26.18% of the life insurance market a public sector companies still call the shots. The countrys largest life insurer, Life Insurance Corporation of India (LIC), had a share of 64% in new business premium income in November 2009. ICICI Prudential Life Insurance Company continues to lead the private sector with a 9% market share in terms of fresh premium.

2. Reaching Out To Customers: No doubt, the customer profile in the insurance industry is
changing with the introduction of large number of divergent intermediaries such as brokers, corporate agents, and banc assurance. The industry now deals with customers who know what they want and when, and are more demanding in terms of more demanding in terms of better service and speedier responses.

3. Intense Competition: In a de-tariffed environment, competition will manifest itself in

prices, products, underwriting criteria, innovative sales methods and creditworthiness. Insurance companies will vie with each other to capture market share through better pricing and client segmentation. The battle has so far been fought in the big urban cities, but in the next few years, increased competition will drive insurers to rural and semi-urban markets. 4.

Global Standards:

While the world is eyeing India for growth and expansion, Indian

companies are becoming increasingly world class. Take the case of LIC, which has set its sight on becoming a major global player following Rs. 280-crore investment from the Indian government. The company now operates in Mauritius, Fiji, the UK, Sri Lanka, and Nepal and will soon start operations in Saudi Arabia. It has already ventured into the African and Asia-Pacific regions in the year 2006. With life insurance premiums being just 2.5% of GDP, the opportunities in the Indian market

place is immense. The next five years will be challenging but those that can build scale and market share will survive and prosper.

C) Driving Innovation in the Insurance Industry

WRITTEN BY CIOZONE STAFF Advances in technology, particularly centered around business intelligence and global positioning systems, are set to radically alter the insurance industry over the next five to 10 years, predicts a report from the Tower Group, a Needham, Mass. research firm that specializes in the financial services industry.

The insurance industry has managed to plod along without the major upheavals seen in many other sectors, but that is about to end, says Tower Group Research Director David West. Several technologies are coming together that will result in dramatic improvements to safety in vehicles as well as enable insurance companies to offer a wide range of new pricing plans based on distances driven, time of day, and individual driving habits.

The direct result is that companies that seize the opportunity to innovate first will have a distinct advantage to survive and lead as the industry goes through the predicted upheaval. "The timing is right for it," says West. "I don't think this [the major changes forecasted] could have happened 10 years ago - the technology wasn't ready. But what we're seeing now is a convergence of several important technologies and behind those technologies is information - information to make better decisions on risk and price plans accordingly."

In his report, The Digital Chauffeur: Real-World Principles of Innovation for the Insurance Industry, West notes the evolution taking place in such areas as passenger air bags. Early air bags required inflation forces much stronger than those of modern air bags and produced unexpected consequences such as injuring passengers who sat too close to the air bag. To better learn how air bags performed in crashes, vehicle manufacturers such as General Motors and Ford Motor, began installing event data recorders in vehicles to capture information related to the seconds immediately before and after an air bag deployment.

By combining the two technologies, vehicle manufacturers were able to reduce the number of fatalities per million vehicles from about .35 per million in 1991 to practically zero from 2004 through 2007.

Now a number of insurance carriers are making use of that same event data recorder (EDR) information. The practice has raised privacy concerns, and some states, such as California, have enacted legislation requiring manufacturers to disclose to customers whether EDRs are installed in their vehicles. The National Highway Traffic Safety Administration issued a rule in August 2006 that will require all automakers to tell new car buyers if an EDR has been installed, beginning with model year 2011 cars.

West says one insurance carrier he spoke with, which could not be named, used EDR information to reconstruct an accident in which a driver claimed to have hit a deer. The change in velocity recorded by the EDR clearly showed a collision with a fixed object, not a deer. It was later determined the driver hit a concrete barrier.

The direct result is that through this innovation insurance carriers have been able to better reconstruct events that took place at an accident and, in the process, better determine appropriate damages and deter fraud. As vehicle manufacturers implement further safety systems, such as systems to detect if a vehicle is approaching another vehicle too quickly and is in danger of being involved in a crash, more information will be at their disposal.

An equally important innovation is taking place in the area of pay as you drive (PAYD) insurance. By combining global positioning systems, along with cellular technologies, insurance companies are beginning to offer policies where drivers are charged based on the amount they drive, as well as the time of day and how well they drive. Progressive Insurance introduced the concept in the U.S. about 10 years ago, but with limited success.

The Progressive system was called Autograph, and combined GPS technology with cellular systems to record and transmit driving information. However, the technology was still relatively new and expensive to purchase and install. They were not being installed directly by automakers, so insurance policy holders had to pay for the installation themselves. The idea was ahead of its time, says West, but since then more cost effective systems have been developed.

One insurer, Norwich Union, has launched what appears to be a successful version of PAYD insurance in Britain. Powering the system is a large Teradata data warehouse and business intelligence systems. Through an on-board GPS system that is about the size of a compact disc player and cellular technology, the carrier can now track an individual's driving patterns, from how many miles they drive in a day, to whether they drive on city streets, major highways or rural roads, what time of day they drive, and how fast. In turn, the carrier is able to greatly reduce the risk associated with pricing a policy and offer discounts to qualifying customers. In some cases, Norwich says customers have changed their driving patterns to qualify for lower pricinga win for both sides.

In the U.S., Progressive Insurance re launched its pay as you drive program in Minnesota in 2004 under the name Trip Sense, and expanded the program in 2007 into Oregon and Michigan. Other carriers such as Safeco are offering other innovations, such as Teen insurance, which allows parents to track their teen's driving. According to Safeco's Web site, the GPS-based system allows parents to set "safe driving zones", essentially a perimeter in which the teen is allowed to drive. If a vehicle goes outside the perimeter, the parent is notified by phone or text message.

"A lot of the innovation in the years ahead will be driven by competition," says West. "If you want to capture business from your competitor, you're going to have to be more innovative, you're going to have to consider what your customers want, be able to implement systems to offer it, then price it accordingly."

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CHAPTER-3 PRIVITIZATION OF INSURANCE SECTOR

Insurance Services
Insurance investors developed economies, particularly from Western Europe and the US find Indian market as having greater growth potential than their domestic markets. Therefore, a high level of interest exists for these companies to acquire insurance concerns. Many international players are eyeing the vast potential of the Indian market and are already making plans to enter. The entry of the foreign players in the sector with more financial resources/ better experience and lower operational costs will have an advantage over the Indian companies involved in the business. The bigger private players claim that opening up insurance will give policyholders better products and service, the opponents of privatization argue that in a poor country like India insurance needs to have social objectives and newcomers will not have that commitment. Better experience provides them with the wherewithal to have a better product mix and more operational flexibility. Moreover, they will operate with a lean staff and lower operational cost. The domestic Insurance industry will as a result, have to face a greater competition. But the resources with the foreign players are limited, as they can invest up to 40 percent of the equity of their joint-venture with Indian firms. This is a great hindrance for them to perform at their optimum level. IRDA is working out to gradually dismantle the tariff structure. Not much threat is perceived as to any price war since the new companies will stress more on the non-actuarial product differentiation. However, the Indian Insurers due to their extensive branch networking and long-standing association with the client still have an advantage. Further, insurance products can become competing investment product vis--vis other saving, etc. Already LIC has launched Equity linked Indexed Insurance Policies, which have been received quite well. The new players are expected to bring in spate of such products. Insurance is viewed as a tax saving instrument rather than protecting one's own kith and kin from the vagaries of the future. The rush for insurance policies to save tax bills can be seen at the end of the financial year. With the entry of private and global players like HDFC Standard Life, JCTCI Prudential, Kotak Mahindra Club Insurance, Hindustan Times Commercial Union to name a few, the insurance industry is going to provide many jobs and is going to witness phenomenal growth.

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CHAPTER-4 LIBERALISATION OF INSURANCE MARKETS

Meaning:
A liberal insurance market is one in which the market, subject only to economically justifiable government restrictions, determines; who should be allowed to sell insurance, what product should be sold, how product should be sold, and the prices at which the product should be sold.. In turn market access issues encompass prudential regulation. Second and fourth items commonly deal with issues such as product, price, and market conduct regulation. All four items subsume competition regulation. Preconditions for Liberalization: a) Sound competitive law. b) Efficient and reliable regulation. c) Phased-Liberalization. d) Efficient disclose and dissemination of information to the society. For developing countries, the regulation of insurance business in liberalization era poses following concerns and special interest a) Restriction on entry, especially foreign players. b) Suppression of price and product competition; and. c) Control of inter-industry competition from those selling similar or complementary products. Insurance markets in countries like India inherently imperfection justifying the need for competition as well as regulation. This is attributable for the following reason: a) Lack of knowledge on part of insured. b) Insurance is a complicated, technical subject. c) Intensity of price discrimination is high when there is competition.

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CHAPTER-5

Call for Innovation

Insurers have always been aware of the importance of new product launches and their effect on sales and profitability. Industry analysts have confirmed the importance of keeping product portfolios fresh and current to meet market demands. A recent Celent study1 reaffirms that market demands like Time to Market and Ease of Doing Business are among the top business issues for both Life/Health and P&C insurers (Fig. 1). The report identifies Improving Time to Market as the most frequently cited market demand. This is borne out by the fact that Improvements to Policy Administration Systems which in turn positively influences the time-to-market issue has been identified by all respondents as one of the top three IT initiatives for 2007. Business drivers that accentuate the need to quickly and cost-effectively launch new or enhanced products can be grouped under the following four major heads (Fig. 2): Customer demand: Competition in the insurance marketplace has raised the level of customer awareness. Today, customer expectations are very specific and customers have plenty of choices before them. Customer demographics are also changing. The earliest of the 77 million baby boomers turned sixty in 2006.Insurers need to cater to the diverse demands of the post-retirement life of this economically active group and also the discerning young generation whose needs and expectations are dramatically different. Many economic factors such as stock market performance, interest rates, inflation, etc. also contribute to the rapidly changing customer needs. Pressure from distributors: The demands of distributors especially the successful ones are increasing. Distributors looking to differentiate themselves in the marketplace expect insurers to develop and market distributor-specific products. Additionally, distributors are seeking ways to increase their clients wallet share by offering additional products to address perceived gaps in coverage or investment needs. Pressure from competitors: Insurance companies are being pressured by both insurance and non-insurance financial services competitors. As new product offerings from innovative insurance companies gain traction in the market, other companies feel the pressure to copy. To prevent non-insurance competitors from gaining further market share, insurance companies develop products that take full advantage of their unique tax and protection characteristics. The mounting competitive pressure makes it imperative for insurance companies to keep a close watch on the market and design, develop and implement new insurance products that better address the needs of the market. Regulations the moving target: Insurance is a highly regulated industry that must constantly review and adjust its product offerings to ensure compliance. In addition, the changing regulations often offer new opportunities to aggressive and innovative carriers. Regulations impact every aspect of the product design and development process product filings, rate approvals, regulatory reporting, tax treatment, disclosure, etc.

What Ails the Product Development Process?

The product development or enhancement process in a typical insurance company requires a high level of collaboration and coordination among various stakeholders from product design, programming, legal,

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compliance, operations, marketing, training, etc. More than 50% resources of the total product development lifecycle are taken by the implementation phase. The actual implementation of new products entails substantial resource investments. The process also necessitates many handoffs between the stakeholders.

The emerging trends in the industry in terms of product innovation

Riders and unit linked products have led some of the visible innovations in the market place. Riders can be used to customize life insurance for varying customer requirements, provide health coverage, and improve a product's competitive profile through improved customer value. Health oriented life insurance covers, asset allocation products, saving products, which offer downside protection with the opportunity to participate in upsides, worksite-marketing products, and customized group corporate retirement products are among the emerging innovative product categories. Regulation will also play a crucial role in the speedy emergence and efficacy of other innovative product offerings and categories. Finally, as the pension market develops, variable annuities (VA) and equity-indexed annuities could emerge as part of the product suite of life insurance companies. Clearly, product innovation is a major strategic imperative for insurers. The key is to offer products based on deep insights of consumer needs. In the long term, only such products survive and grow into a meaningful and profitable component of an insurer's product portfolio. The opening up of the insurance sector saw the emergence of innovations introduced by private players, initially in terms of product offerings. The insurance industry, which till then had seen minimal product innovations, saw the advent of unit linked insurance products (ULIPs). Moreover, liberalization of the sector also saw the advent of over-the-counter and pre-underwritten products that are offered by banks to its customers. These are products with no underwriting that are cross-sold with home loans and the like. Innovations have also come about in the area of value added services as companies started providing value additions like online purchase of insurance policies, payment of premiums by credit cards and online tracking of net asset values (NAVs).

The rise in preference for ULIPs as compared to traditional products

Apart from protection benefits, ULIPs provide policyholders an opportunity to earn returns linked to the underlying financial markets. Also, unlike conventional products, the charges in ULIP share transparent. Top-ups, premium redirection options, facility to switch partially or fully from one fund to another, etc, make these products very flexible. Lower regulatory capital requirements vis--vis endowment products have also helped insurers drive down the costs of these products. These factors coupled with stellar returns in the equity markets have made ULIPs, particularly, appealing. ULIPs give customers an option to participate in equity and debt markets depending on their risk appetite. Traditional products did not offer the facility to choose and change their pattern of investment in a particular policy. ULIPs are useful for those who want to be insured but at the same time are interested in investing in an avenue, which matches their risk-return profile. ULIPs are best suited for those who have a conceptual understanding of financial markets and are genuinely looking for a flexible, long-term investment-cum-insurance. ULIPs have gained in popularity due to the flexibility they offer to policyholders in choosing the investment pattern along with the transparency in charges besides the ease of comparison of the final illustrated values.

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Chapter-6 A BRIEF HISTORY OF UNIT LINKED INSURANCE PLAN

ULIP stands for Unit Linked Insurance Plan. It provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV).ULIP came into play in the 1960s and became very popular in Western Europe and America. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers. As times progressed the plans were also successfully mapped long with life insurance need to retirement planning. In todays times, ULIP provides solutions for insurance planning, financial needs, financial planning for childrens future and retirement planning. These are provided by the insurance companies or even banks. These investments can also be used for tax benefit under section 80C

5 steps to selecting the right ULIP

Here's a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right unit-linked insurance plans (ULIPs).But before we get there, let's understand what ULIPs are all about? For the generation of insurance seekers who thrived on insurance policies with assured returns issued by a single public sector enterprise, unit-linked insurance plans are a revelation. Traditionally insurance products have been associated with attractive returns coupled with tax benefits. The returns part was often so compelling that insurance products competed with investment products for a place in the investor's portfolio. Perhaps insurance policies then were symbolic of the times when high interest rates and the absence of a rational risk-return trade-off were the norms.

What are Unit-Linked Insurance Plans?

Unit-linked insurance plans, ULIPs, are distinct from the more familiar with profits policies sold for decades by the Life Insurance Corporation. With profits policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. ULIPs also serve the same function of providing insurance protection against death and provision of longterm savings, but they are structured differently. In with profits policies, the insurance company credits the premium to a common pool called the life fund, after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders accounts in the form of a bonus. In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges. The rest of the premium is used to invest in a fund that invests money in stocks or bonds. The policyholders share in the fund is represented by the number of units.

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The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units. If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices an equity (growth) fund, balanced fund and a fund which invests in bonds. In both with profits policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents commissions. Unit-linked insurance plans, ULIPs, are distinct from the more familiar with profits policies sold for decades by the Life Insurance Corporation. With profits policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. ULIPs also serve the same function of providing insurance protection against death and provision of longterm savings, but they are structured differently. In with profits policies, the insurance company credits the premium to a common pool called the life fund, after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders accounts in the form of a bonus. In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges. The rest of the premium is used to invest in a fund that invests money in stocks or bonds. The policyholders share in the fund is represented by the number of units. The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units. If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices an equity (growth) fund, balanced fund and a fund which invests in bonds. In both with profits policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents commissions.

A) UNIQUE FEATURES
1. Unit linked plan to give you efficient earnings in the long term. 2. Three investment fund options: protector, builder and enhancer, with the freedom to switch between funds any time during the policy tenure. 3. Flexibility to make additional lump sum investments ( top ups ) to increase the savings portion of your policy. 4. Minimum guaranteed returns of 3% pa. On your premium net of all policy fee and charges the entire upside on the performance of the fund is passed on to you. 5. Option to make tax free withdrawal from your fund any time after three years. 6. Loan against your policy or surrender of the policy without penalty after a policy year 7. Vary the face amour during the premium paying period depending on your life insurance requirements.

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8. Convenient premium payment option singe pay, short pay or regular pay.
Which is better, unit-linked or with profits?

The two strong arguments in favour of unit-linked plans are that the investor knows exactly what is happening to his money and two; it allows the investor to choose the assets into which he wants his funds invested. A traditional with profits, on the other hand, is a black box and a policyholder has little knowledge of what is happening. An investor in a ULIP knows how much he is paying towards mortality, management and administration charges. He also knows where the insurance company has invested the money. The investor gets exactly the same returns that the fund earns, but he also bears the investment risk.

B) Are ULIPs similar to mutual funds?

In structure, yes; in objective, no. Because of the high first-year charges, mutual funds area better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several advantages over mutual fund managers. Since policyholder premiums come at regular intervals, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice. The transparency makes the product more competitive. So if you are willing to bear the investment risks in order to generate a higher return on your retirement funds, ULIPs are for you. Traditional with profits policies too invest in the market and generate the same returns prevailing in the market. But here the insurance company evens out returns to ensure that policyholders do not lose money in a bad year. In that sense they are safer. ULIPs also offer flexibility. For instance, a policyholder can ask the insurance company to liquidate units in his account to meet the mortality charges if he is unable to pay any premium instalment . This eats into his savings, but ensures that the policy will continue to cover his life But in the long-term, ULIP managers have several advantages over mutual fund managers. Since policyholder premiums come at regular intervals, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.

C) Advantages of ULIPS to insurers:

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Insurers love ULIPs for several reasons. Most important of all, insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies. In traditional with profits policies,the insurance company bears the investment risk to the extent of the assured amount. In ULIPs, the policyholder bears most of the investment risk. Since ULIPs are devised to mobilize savings, they give insurance companies an opportunity to get a large chunk of the asset management business, which has been traditionally dominated by mutual funds. Most insurers in the year 2004 have started offering at least a few unit-linked plans. Unit-linked life insurance products are those where the benefits are expressed in terms of number of units and unit price. They can be viewed as a combination of insurance and mutual funds. The number of units, which the customer would get, would depend on the unit price when he pays his premium. The daily unit price is based on the market value of the underlying assets (equities, bonds, government securities etc.) and computed from the net asset value.

The advantage of Unit linked plans:

Unit Linked plans are simple, clear, and easy to understand. Being transparent the policyholder gets the entire upside on the performance of his fund. Besides all the advantages they offer to the customers, unitlinked plans also lead to an efficient utilization of capital. Unit-linked products are exempted from tax and they provide life insurance. Investors welcome these products as they provide capital appreciation even as the yields on government securities have fallen below 6 per cent, which has made the insurers slash payouts. According to the IRDA, a company offering unit linked plans must give the investor an option to choose among debt, balanced and equity funds. If you opt for a unit-linked endowment policy, you can choose to invest your premiums in debt, balanced or equity plans. If you choose a debt plan, the majority of your premiums will get invested in debt securities like gilts and bonds. If you choose equity, then a major portion of your premiums will be invested in the equity market. The plan you choose would depend on your risk profile and your investment need. The ideal time to buy a unit-linked plan is when one can expect long-term growth ahead. This is especially so if one also believes that current market values (stock valuations) are relatively low. So if you are opting for a plan that invests primarily in equity, the buzzing market could lead to windfall returns. However, should the buzz die down, investors could be left stung. If one invests in a unit-linked pension plan early on, say 25, one can afford to take the risk associated with equities, at least in the plan's initial stages. However, as one approaches retirement the quantum of returns should be subordinated to capital preservation. At this stage, investing in a plan that has an equity tilt may not be a good idea. Considering that unit-linked plans are relatively new launches, their short history does not permit an assessment of how they will perform in different phases of the stock market. Even if one views insurance as a long-term commitment, investments based on performance over such a short time span may not be appropriate.

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Ever since the insurance sector was opened up, private players have been trying to entice the Indian customer with new and innovative policies. But is the customer ready for innovations--such as unit-linked plans? These plans are popular in developed and other developing markets, but India has so far had only one such product from LIC. Stuart Purdy, managing director, Aviva Life Insurance India,told Narayan Krishnamurthy and Udayan Ray that most of Avivas offerings here are unit-linked and he is betting on these products being successful. Can unit-linked plans actually fetch you market linked returns? Unit-linked insurance plans are all of a sudden much talked about, publicized and sold. While these are not a recent phenomenon, since a number of insurance companies already had these products as a part of their portfolio, of late these plans have seen sudden frenzy. It is perhaps the bull phase or the lure of market-linked returns that insurance companies have been shouting hoarse about that is responsible for these products outselling others. Given a thought? Do these products actually provide you market linked returns? Now before we get into the details, is that what you should be looking for from an insurance product? Isnt insurance in the real sense of the term meant for covering risk? And should you be aiming at financial Returns from an insurance product since that would mean compromising on the much more important security cover for yourself and your family? If returns are your aim dont you think you should be opting for other investment avenues rather than risk your risk cover. While this is not to dissuade you from purchasing unit linked covers it would be in your interest to take a peek at the market linked returns you can expect. And if you think that the entire premium you pay is invested in avenues chosen by you to maximize returns you could be wrong. Expenses during the first year: A substantial amount is deducted from your premium income by the insurance company towards various charges reducing the investible amount considerably. In the first year Allianz Bajaj through its Unit Gain SP Plus claims to allocate 100percent of the single premium you Invest but cancels units on a monthly basis towards various charges from your fund. Accordingly Kotak Safe Investment Plan allocates 86% and Life time of ICICI Prudential Life allocates 80percent for amounts less than Rs50,000 and 82percent for those above Rs50,000 towards investments. Administration expenses: The fund expense is the highest in the first year. ICICI Pru Life charges administration expenses of 20percent of the premium for amounts below Rs50,000 and 18percent for amounts over Rs50,000 in the first year while it is 7percent for amounts upto Rs20,000in case of Kotak Safe Investment plan. Again there are annual administrative charges that are as high as 1.25percent per annum of net assets on Life Link of ICICI Pru Life and on Unit Gain SP Plus of Allianz Bajaj Life Insurance.

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Will unit linked risk products continue to rule: Unit linked risk plans are doing roaring business agreed but if the recent reports are any indication a shakeup is on the cards. The mutual fund industry is all set to get aggressive to counter competition from the insurance industrys unit linked risk products. For mutual funds the unit linked insurance products launched by life insurance companies are an encroachment on their territory. Consider this: Around 80 per cent of the premium income of life insurers has come in through unit-linked plans in 2004 thanks to the boom in the equity markets. This means mutual fund companies are losing out on a huge market that would have otherwise been theirs. To put an end to such a situation they are toying with the idea of aggressively publicizing its products through celebrity endorsements which mutual funds feel will give a never-before fillip to its unit linked schemes. Unit linked insurance products launched have been doing brisk business and insurers have been coming out with several such products with slight variations to suit the changing needs of the customers. These products are investment avenues that provide market related returns to the investor with an element of insurance thrown in. For the customer the attraction of market related returns with insurance is an attractive option. On the contrary though mutual fund companies also have unit-linked products what is absent is the insurance cover. But the grouse of mutual funds is that they have to adhere to stringent regulations that are absent for insurance companies when the products are almost similar. While for insurance companies it is not mandatory to disclose the various expenses related to unit linked risk products such as expense ratio and brokerages among others, for mutual fund companies it is mandatory. The Association of Mutual Funds will soon be setting up a committee to work out an advertising strategy after which it plans to approach SEBI to take it from there. But will SEBI be able to take up the matter with the insurance regulator? Should I invest in unit-linked plans? So have unit linked plans - the much talked about high-return offering product of late taken your fancy? Wondering what it is all about and how unit linked plans are able to offer a comparatively better return on your investment. While they are not a totally new concept considering that the Indian investor is familiar with mutual funds that have been around for some time now, as far as insurance goes, unit linked has all of a sudden caught the fancy of the Indian customer. If you are all set to take the plunge into buying a unit linked product it would do well to know a few things about their working. Combination of mutual fund and insurance cover: Unit-linked plans are a combination of an investment fund and an insurance policy. A major part of the premium amount received on such policies is invested in the stock market by the insurer in select funds depending on the risk level chosen by the customer. Mind you, this is after deducting administration charges and management expenses that may vary from one fund to the other. Choice of Funds: The customer has the option of choosing from debt, balance and equity funds. If the individual chooses a debt fund, a major part of his premia is invested in debt securities like gilts and bonds. But if it is equity, a major portion goes towards investments in the stock market. So depending on the risk profile the individual may choose his investmentoption.20

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What do unit-linked products actually offer in terms of value-addition? When you are looking at a long-term plan, there are always factors that will change from time to time to meet any challenges. Also, plans change so that the company can offer some amount of customization. Among other things, we offer to add the cover to the policy, add riders when necessary, and change the investment structure. We also let customers choose from different fund options on the investment without compromising on the basic product. While all these options do come with caps to follow the regulatory framework, they definitely offer value-addition to the customer. And, with the NAV (net asset value) of the fund calculated at the end of the day, the customer knows the value of his funds. I must add that that in case of death, the beneficiary gets the sum assured or the NAV of the fund, whichever is higher. So, there is no reduction in protection in these plans. Is the investment risk left to the customer who buys unit-linked plans? For any investor, the idea is to maximize returns. Wise customers know that the era of guaranteed returns is over. The fall in interest rates in the past 18 months is indication enough of what lies ahead. What unitlinked products offer is a long-term investment option where returns are far more real and there is no compromise in the protection that the policy offers. In the guaranteed returns regime, the guaranteed component was met by paying lower interest rates to those who did not have any guarantee on their plans. Compared to this, unit-linked plans offer greater value to the customer. Yes, to an extent the risk is in the hands of the customer. However, the flexibility to opt for funds means that the customer can benefit as well. And finally, the returns that these products offer are bound to be relatively higher than what similar traditional plans offer. In order to cater to customers with very low risk appetite we also offer a unitised, with- profit plan across our products, where the bonus rate is declared in advance for the year. This is a conservative approach but it has its takers. What has been the performance of unit-linked plans in other emerging markets? In a country like Poland, where the markets were opened a little over a decade ago, we are today the largest private insurance company. The demand for our unit-linked products is high. Worldwide, the growth of these products is high when compared to traditional products, an indication of where the market is headed. There are a few people who view unit-linked plans as pure investment products that offer little cover. But this is a myth and customers realize this when the benefit of these plans is explained to them. With investment options regulated, one has to be prudent with the money that is contributed for the product and has to add value for the business to be successful. I feel that both developed and developing markets understand the great value proposition that unit-linked insurance plans offer.

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CHAPTER-7 RIDERS

Riders are the additional benefits the company offers to the customer in addition to the life coverage. The customer has to pay additional premium to get this benefit. However the benefit of rider is optional, the client has full power to take or leave the riders. There are five riders normally provided by the insurance companies and they are,5 riders-terms riders, AD&D rider, critical-illness, critical illness pus or critical illness woman rider. I can add or delete them (only after the 1st policy year) as my needs change You can further customize your Birla sun life insurance plan by adding riders to base plan at a marginal extra cost. 1. Accidental death and dismemberment benefit rider. It provides 100% of coverage in case of death due to accident; loss of more than one limb or sight in both the eyes or in case of loss of one limb and loss of sight in one eye 50% coverage in23case of loss of one lib or sight in one eye. 2. Term rider: it provides additional amount of cover in the event of death of the life insured. 3. Critical illness rider: it provides a cover in the event of life insured being diagnosed as suffering from any of seventeen illnesses specified under the critical illness plus rider. 4. Critical illness woman rider: it provides a cover against several critical illness including woman specific illnesses, pregnancy complication and congenital anomalies in a new born child. 5. Waiver of premium: this rider waives payment of future premiums on the happening of any of the unforeseen events as covered under this rider. For rider deletion I am required to give a written intimation along with the policy documents. For rider addition, my certificate on insurability and the receipt of payment of rider premium will be needed (ride addition is subject to underwriting condition.

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CHAPTER-8 MARKETING STRATERGIES

Birla sun life has adopted various marketing strategies to market its product. The company has adapted to main strategies two main ways. 1. Corporate agent: Marketing through corporate agents is the traditional ways of marketing the insurance products. Birla sun life also has huge number of agent spread all over the country. 2. Banc assurance: Banc assurance is also a modern method of marketing insurance product in the market. It is done in three ways. In banc assurance is a coming together of a bank and insurance company to market the insurance product. The banks provide its customer data or sell the insurance product to its customer. 1) Joint venture 2) Corporate agent 3) Customer base Effective Banc assurance model There are broadly three banc assurance models in operation globally

In joint venture bank and insurance company form a separate insurance company as in the case on ICICI prudential life insurance? in corporate agent module a bank act as an agent of the insurance company and sell products to its customers . The bank gets commission for its service as in the case of LIC and Corporation bank in customer base the bank allow to sue its customer data and its premises to insurance company to sell its products. Birla sun life insurance Company has tied up with three bank to market its products. They act as a corporate agent of the bank
1) CITI BANK 2) IDBI BANK 3) KARUR VYSYA BANK

Among these three banks Citi bank is the most active agent of the company .the company also give various benefit to the customer of the Citi bank. For e.g.:- if a normal customer is above the age of 45 or the policy amount exceed the amount of rs15lacs then he is required to submit FMR(FULL MEDICAL REPORT) .but for the customer of city bank the limit is exceeded to rupees 20lacs . Recently the company has decided to target the SME sector i.e. small-scale enterprise to market this product. They have innovated new product. Basically for this the company has decided to use industrial marketing strategies. The product innovated are explained below Mot of the partnership in India fall in to the first model, were banks have offered their services as distribution channels

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for insurance products through their branch network. In terms of present regulatory frame work banks have taken up corporate agency for marketing insurance products for an agreed referral fee/commission.27 Banc assurance in India is very much in its infancy. There are a wide variety of banks, which are very different; both in makeup, culture, geographic spread and working practices. There are wide number of approaches and models that can be adopted for banc assurance, many of which are dependent on this attributes, as well as the insurance partner views and competencies, and also the nature of relationship between the bank and insurer-whether one of equity sharing company structure, or of a profit share nature or purely a distribution management. The effective banc assurance model is the one, which helps, in pushing sales as well as satisfying customer needs and helping banks to become a One stop shop. As a Banc assurance model, if the bank is using distribution agreement model, it should, go in for an exclusive agreement with an insurance company of repute. The reason being, while signing up with multiple insurers you end up looking like a broker who is not committed to brand or a product or a particular level of service, which is so vital for the growth of Banc assurance. By signing an exclusive agreement with the insurer, the bank can put the stamp of its own Brand on the product without actually taking any risk. The bank will thus be identified with the product it is selling and will be able to convince the customer in a much better way. However, if the insurance market is not mature and there is lack of creativity and innovation, even non-exclusive agreement is workable.
Sale of insurance products by the banks offers the following benefits:

It adds to the portfolio of retail products already offered by the banks It helps in building and packaging the existing core banking products like adding deposit life insurance on a pure term deposit product. Balances the less performing products. It is a risk management device, since the fee increase earned on the sale of insurance can be used to offset the loss on account of bad loans. It helps in increasing customer loyalty since they have more reason than just the banking to continue their relationship with the bank. It helps bank to become a one stop shop for all the financial needs of the customers while it is banking insurance investments or state planning.

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CHAPTER-9 THE WORKING OF BANCASSURANCE

The distribution channel today for insurance products is widening. Increase in distribution channels among others has also seen the concept of Banc assurance taking roots in India, which is emerging to be a viable solution to mass selling of insurance products. A popular concept in the West, Banc assurance put in simple terms means selling insurance products through banks.

Wide network of branches

The Insurance Regulatory Development Authority (IRDA) has permitted banks to venture into marketing insurance products on a risk participation basis. Banks need to possess at least 500crores of net worth and capital adequacy of a minimum of 10 per cent to make an entry. Since banks have wide number of branches, distribution will be smoother

Corporate clients
Banks can utilize their existing clientele, which includes corporate as well as retail clients to market insurance products. Depending on the relationship with its clients it would become easier to influence tile insurance purchase decisions of its clients. Customers too, having banked with a particular bank for a long period repose a sense of trust and faith in the bank.

Customer database
Customer database - raw information on the customers spending habits, investment purchase, can prove to be a goldmine. Such information channelised in the right manner can help work out marketing strategies and arrive at result-oriented decisions targeting prospects.

Personalized Service
Since banks have direct contacts with customers, the service area can be tackled easily. Customers, other than their day-to-day financial requirements can also get assistance for premium payment, surrender, transfer of policies and many more.

Rural penetration
Penetration into the rural areas is easier for banks. Having been accustomed to the customers' choices, banks are in a better position to understand the needs of the customers and sell tailor made policies.

Cross-selling products
Banks in their normal course of functions lend finance in the form of loans for cars or for buying a house. They can combine insurance products and sell as a package. In the current scenario banks can cross sell their products along with the insurance products.

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Fee based service

Insurance products can be sold as a fee based service. in which some broker charge commission to policyholder against the insurance product , such as, selling of insurance policy, different types of scheme ( ULIPS, endowment, personal accident, whole life, money back policy and joint life policy ) etc. Joint life policy is much suitable for fee based services to the insurance agents in the insurance sectors. And now, in ULIPS are most benefited to insured persons as well as insurers agents.

Cheaper than agents

Banc assurance may work out to be cheaper compared to companies appointing agents for selling insurance products. This is particularly considering the banks wide network and the reach they have compared to the agents. "Integration of Banks and Insurance Companies is Likely to have a Longer Impact" Insurance companies have been very slow to use the Web, for example, and their web pages are among the poorest designed in the financial services industry in the US. France, Canada has picked up banc assurance very fast whereas US, Japan has not. They've lagged behind in the US for a number of reasons. Consumers don't see banks as a primary source for insurance. Consumers do not have a lot of confidence in banks' financial expertise outside of loans and deposits. There are well-developed distribution channels for insurance that are effective. Banks thought they could get "easy sales" by cross-selling insurance, forgetting that: They are not good cross-sellers, The level of training required to sell insurance and the licensing requirements are far heavier than what they're used to for selling other products, and The banks have not, in most cases, put a strong emphasis on insurance sales. Annuities, somewhat, more than other products. The time taken to overcome the sluggishness can also because of the reason that functioning of banks and insurance companies are different from each other. On the other hand, this integration of banks and insurance companies is likely to have a longer impact. Over time, they will integrate increasingly as public perceptions change and banks put more effort behind it. The insurance companies are trying the idea of selling banking services. Some banks and insurance companies fear that this will lead to higher growth and revenues but for those companies, which have not opted for banc assurance, it will be an end. I think it will be easier for the insurance companies to offer banking services than it will be for the banks to offer insurance products. The insurance companies are more under threat from industry consolidation and cost pressures within their own industries than they are from bank/insurance company combinations at this point. The dream was that the banks' customer-bases would be "ripe for picking", but the banks' sales and marketing teams have not figured out how to make it work. "For Banc assurance to be successful, the savings made on the distribution may have to be passed on to the customer. Insurance companies need to design products specifically for distributing through banks."

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On usefulness of Banc assurance: Globally, there is a trend of convergence of all personal finance services including insurance. In this scenario, it is possible for banks to distribute some of the insurance products to their customers. It is possible for banks to cross-sell insurance to their customers. Thus, the existing distribution network and the existing customer-base of the banks are utilized for selling insurance. There will be savings in distribution cost as well as customer acquisition cost. These savings will be passed on to insurance seekers. On new pricing issues: Marketing, especially the pricing may be the key issue. For banc assurance to be successful, the savings made on the distribution may have to be passed on to the customer. Insurance companies need to design products specificallyfor distributing through banks. Trying to sell traditional insurance products may notwork. On the success factors: The concept will succeed, as the customer is ultimately the same. However, it may not work for traditional insurance products. It is right that the functioning of banks and insurers is different. New products need to be designed keeping in mind the functioning of banks and the needs of bank customers. On the measures of strategies to be taken up by companies: Companies not opted for Banc assurance could consider approaching or identifying the customers through other channels. For example, a customer approaching a bank for home loan can be offered Householder insurance policy through Banc assurance. However, other insurers through a real estate developer or a real estate broker can offer the same customer a Householder insurance policy. On level of success in India: In India, the level of success could be high. Many banks have entered the insurance sector through joint ventures and others have formed alliances with Banks. These new companies will try to exploit the branch networks of the banks. For example, Standard Chartered bank has already started selling personal accident covers of Royal Sundaram Alliance Insurance Company to its credit cardholders. On the competition between LIC and SBI: It is too early to comment. The strength of LIC is their agent network. LIC is said to have over eight lakh agents. The strength of SBI is their branch network. Traditionally, life insurance is best sold through agents, while bank branches only supplement.

Other marketing and distribution channels

a) Internet Though India is joining the fast growing breed of net users, using net for transactions has not yet caught up. Though a few banks provide online banking, the usage is still a small fragment. The insecurity associated with transactions over the net is still an inhibiting factor. At present most of the insurance companies have product information and/or illustrative tools on the web. We do not see the web evolving into a means for direct selling of insurance in the current scenario. In the Indian market, where insurance is sold after considerable persuasion even after face-to-face selling, the selling over the net, which must be initiated by the client, would take some more time. While the technology capability is there, improvements in width and infrastructure are needed. Also needed are simpler products where auto-underwriting is feasible. Automobile insurance, one of the segments of insurance purchased "off the shelf" in India, would be the ideal segment to start with. On the

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life side, term assurance for standard lives with simplified underwriting is a possibility. These channels by themselves will not be able to overcome the mindset of the people, but rather can only be enablers for the human channels. b) Electronic Channels: In the last decade, numbers of technological advances have taken place due to immense use of EDI (Electronic Data Interchange) i) LIC on Internet: They have their own site, which is very informative. They display information about them and its subsidiaries, the product they offer. The addresses/e-mail Ids of their zonal offices, zonal training centers, management development centers , overseas branches, Divisional offices and also all Branch offices with a view to speed up the communication process. ii) SMS: SMS through mobile phone is recently new technology introduced by the LIC to promote their product. iii) Advertising: It is a paid form of non-personal communication. It is used to create awareness and transmit information in order to gain a response from the target market. Forms of advertising are as follows: c) News Papers and Magazines: LIC give ads in the newspapers 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 d) Electronic media: Insurance companies also advertise its services in the
i) Internet (Websites ): 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.

ii) iii) iv)

Television: Companies like LIC, Met Life India, advertise on television to make people aware of their products and services. Radio: ICICI Prudential advertises on 92.5 red Fm. Punch lines and logos: It helps to create awareness about the brand among the target audience. It also helps the company to convey its message to the customer.

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CHAPTER-10 DISABILITY INSURANCE

Most of us insure our lives, effectively insuring that we will be able to provide income for our families in event of our untimely death since we believe that we are doing something reasonable to prevent any undue financial burden from affecting the lives of our loved ones. Yet, most of us never insure a part of us that is much more important. Not only can a disabled person not work but he or she has to undergo extensive medical regimes while still incurring the daily costs of living. And health insurance is not enough to circumvent the perils associated with permanent disability. A recent study conducted abroad found that although 96percent of seriously ill people had medical insurance over a third of them lost everything that they owned and maintained owing to their disability. After all, a disabled person still needs to eat and drink like the rest of normal human society. Given the fact that he or she is disabled now requires extra care from the family or paid professional help that eventually uses up the funds much beyond what they might have earned. People may be put off by the price of disability insurance but the only reason why the policy premiums are higher is because there is a much greater chance of you actually needing the policy. Most of the Indian insurance policies have an in-built disability clause. So the next time any agent tries to sell you a life insurance policy, do inquire more about the disability clauses. Also, check out the definition of disabled in the policy that the agent offers since you must be insured for your chosen occupation. At times, a disability may stop you from working at your current job but still lets you perform other activities. Do verify if there is coverage offered for partial disability since it could be the moot point between over-taxing yourself and worsening your condition and being able to achieve the needful by performing whatever amount of work seems prudent. Also, look for a policy that holds a guarantee and is non-cancelable. Guaranteed policies are policies where the payment stays fixed. Non-cancelable policies stay in effect regardless of whatever that might happen and as long as the premium is paid from time to time. Finally, the last option to map is to calculate how much actual cover you may be having currently or might need in the times to come. An insurance cover of Rs.1lakh may have been adequate when you started working and earned Rs.3000 per month. But it sure will be insufficient now that you have risen up in the world and your salary has risen to over Rs.20000/- month. Keep your interests in mind while choosing the insurance policy and you will never regret it. After all, in the materialistically inclined times where we subsist, self-centredness is the only truly justifiable prerogative in life Please go through this list. It is designed as the starting point to help you make the right choice while purchasing a life insurance policy. Answer the questions with your policy in perspective and eliminate any conflicting doubts that might arise. Is your life insurance so arranged that the proceeds stand exempted from the claims of creditors, in case you have any? Will it stand against any judgment passed by a court of law?

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If and when desired, will the cash values of the insurance policy result in the largest possible income for yourself? In case, you have named your children as beneficiaries, do all of them participate? In case your children are minors, can your expenses be correctly and swiftly liquidated? In case of an unexpected emergency, will the settlement provision prove sufficiently flexible? Or will your benefactors interests be jeopardised? Are all beneficiary designations correct and complete? Do your beneficiaries need to be altered due to new family circumstances?

Is there a chance of your current life insurance policy being subject to probationary delays or unnecessary additional expenses? Do your grandchildren, if any obtain equal shares in your estate? Are the beneficiary clauses formulated in a way that they perform your last wishes to their fullest, with no violation whatsoever? Will your spouse be guaranteed the most favourable income from the insurance proceeds? Is the extent to which your life insurance policy providing income absolutely clear in your mind? Can your spouse outlive the income provided? Is your insurance policy arranged in a manner to create an income for your childs educational and marriage expenditure? Shouldnt you provide a cash fund for your spouses last expenses? Have you taken full advantage of the best possible exemptions from tax? Is the insurance policy so arranged that your spouse will be provided with similar income advantages as yourself, if he or she outlives you? Is there a chance of saving more if you opt to change the frequency of the payment of premium? Is there a non-forfeiture option provided? Would a change in the non-forfeiture option be beneficial? Would the proceeds of your life insurance policy be subject to double taxation if you predecease your spouse? Is the plan of distribution of your life insurance coordinated with your general property? Do you now own a substandard policy? If so, do the conditions that caused the extra rating still exist? Are there any "gaps" left in your "earning years"? For instance, your agent might go on selling you shortterm policies, all of them maturing between 50-55 years of age. Eventually you will be resigned to a zeroinsurance status when you actually need it the most.

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There are no hard and fast rules, nor any easy formulae to help you decide how much life insurance cover you need. However, there is a fairly straight forward approach which each of us can follow. Since life insurance is, first and foremost, financial security for your family, you can judge how much money your family will need increase of your premature death and build your insurance portfolio accordingly.

For instance, if you are contributing Rs.3,000 a month for meeting your familys needs, you must have a life insurance cover of around Rs.3 lakhs. In case of the policy holders death the family can invest this amount in some absolutely safe investment avenue such as government bonds, which pay 12% interest. The annual interest of Rs.36,000 . Additionally, the insurance portfolio could also include polices specifically earmarked for the education and marriage of your children. Income replacement is another approach to determine how much insurance one needs. There are ways to figure it; two are discussed below: 1. Seventy-five percent solutions: Some observers believe that a family, particularly a young one, needs about 75percent of the take-home pay the insured would have received until age sixty-five. 2. Five times solution: A second income replacement formula is to buy insurance equal to five times your annual income less any insurance equal to five times your annual income less any insurance already held. Suppose your annual income isRs.25, 000. Multiply this by 6 and it equals Rs.1,50,000. Now if you haveRs.25,000 in-group life insurance, you need an additional Rs.1,25,000(Rs.1,50,000 minus Rs.25,000) of life insurance.

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CHAPTER-11 BUSINESS INSURANCE

Business insurance is a type of insurance which is taken out by the business concerns. Every business house, small or large requires security for their business. For the security and safety of their employee & employers, they require certain type of insurance which will help them to preserve from the uncertainties arising in the business. A business concerns include company, partnership or sole trading concern. Every business concern take out insurance for their employee, key person etc. This helps them to protect the interest of their employees. Business Insurance comprises of: Key Person/man Insurance Partnership Insurance Employer- Employee Insurance

What is Key Person Insurance?

Key man insurance is the insurance taken out by the business concern to indemnify himself from the loss which may suffer in the event of death or loss of skill of the key person, it can also be defined as Insurance taken by a Business Concern on the lives of the Key Employees / Directors / Working Partners. Their Talent and Experience account for much for the success of the Business Who cannot be easily replaced by virtue of their long experience. A Key Person is: Key Executive Key Employee Whole Time Director Working Partner Business Concern includes: A business concern includes: Company To insure key employees / directors Partnership firm To insure working partners/ Employees Sole proprietor concern To insure key employees, but not the sole proprietor The risk arising from the death of key employee is as follows: Reduction in value of business Decrease in sales and production

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Impaired customer and supplier confidence Weakened credit standing of business Forced liquidation of business48 Delay or termination of projects or future plans Reduced Brand Value Reduction of profits Provide funds to recruit, hire, and train suitable replacement Assure customers, creditors and employees of the continuity of the business Pay a death benefit to the Key Persons family Reduction in profits Hostile Takeovers The benefits of key men insurance to particular business concern are as follows: Replace loss of profits Provide funds to recruit, hire, and train suitable replacement Assure customers, creditors and employees of the continuity of the business Pay a death benefit to the Key Persons family Ensure Liquidity Create policy cash value which accumulates and can be used for emergency business requirement or opportunity Key Employee retirement / disability income. As explained earlier that the key man insurance is taken out by the business concern to indemnify himself from the loss arise due to death of the key employee of the company, the benefit of the key men insurance is enjoyed by the company himself. Key person insurance is taken by a business concern for its own benefit and not for the benefit of its employee / individual. The control of the key men insurance is also with the company as the following right are with the company himself.

Premium is paid By the Business Concern

- It retains the right to the Policy - Is eligible to receive the policys benefits -On what basis can key person insurance be given?

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-Holdings - Contribution to Profits & Profile - Documents Holdings

-In case of an entity, the key person should not hold;

- More than 50% individually, and - More than 75% jointly with his family - (Family includes spouse and minor children when a minor becomes a major, then he/ she is not a part of the family for this purpose) - The above are more of a convention and not a rule or law. - Contribution to the Profits & Profile - Quantum of Insurance will depend on the key persons contribution to the concerns profits keeping in mind - His Qualifications - Experience - No. of key persons in the concern - Documents - Profits & Compensation
-The cover for all the key persons in the concern will be limited to the least of;

- 3 Times of Average PBDT ( Profit before Depreciation- and Taxes) for the last 3 years - 5 Times of Average Profit before Taxes (PBT) - for the - Last 3 years- Individual Key persons cover limit - Up to 8 times of the annual compensation of key person. -Assume that the Key mans annual compensation is Rs. 12 Lakhs and commission@ 1% of the PAT. -3 Times of Average PBDT for the last 3 years = 280 + 250 + 200 X 3 = 7303-5 Times of Average Profit before Taxes = 220 + 190 + 140 X 5 = 917 - For the last 3 years 3-8 times of the annual compensation = 12 + (1% of 139.5) X 8 = 107 -Of key person -The cover for all the key persons in the concern will be limited to 730lakhs&individual Key persons cover limit will be 107 lakhs. -Where do you get the information on PBT & PBDT?

Balance Sheet& P & L Statement:

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-forming a part of the Companys Annual Report -Balance Sheet: -Presents the snapshot of the companys financial -Position and reflects the sources and application of funds.

Documents Required:
- Copy of Memorandum and Articles of Association - Copy of Resolution of Board authorizing such insurance - Copy of audited accounts for the last 3 years- Key person Questionnaire - I. T. returns of the Key person for the last 3 years

Plans & Policy Procedures:

- Flexi Save Plus, Flexi Life Line, Classic Life and Term Plan can be given - Term and CI riders can be added - Concern being the owner of the policy, nomination is not possible. - Assignment can be made in favour of the key person, in case of the key person leaving, can also be assigned in favour of - New employer 1. Premium paid by the concern not a perquisite in the hands of the key person. 2. Policy proceeds received will not be exempt under Sec. 10(10D)s of the I.T. Act. 3. Policy proceeds received by the concern to be treated as business income and taxed under Sec. 28 of I. T. Act.

Benefits of Key person policy:

Concern is indemnified in case of sudden death of the key person. Corporate tax saving A tool for retention of key person Policy can be gifted to the key person as a recognition Policy can be used as a collateral security Withdrawals from the policy possible to meet any emergency. This is the various advantages which the company provide to its employee in turn of the services, given to them as a customer made by his employee. Key Man insurance gives a chance of confidence to the company as well as to the employee, to work hard and acquire success in the business.

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CHAPTER-12 PARTNERSHIP INSURANCE

According to section 4 of Partnership is The relationship between the people who has agreed to share the profit of business carried on by all or any one of them acting for all. Partnership Insurance is their, where two or more persons come together and together sharing / business profit, which they acquire through trade, and invest in the insurance as policy performance for future predictability, safety and security purpose. In simple words it is a type of insurance taken by a partnership firm on the lives of partners.

What is the objective?

1. It allows predictability, safety and security to the partnership firm. 2. It is useful to protect their business from the various factor of risk. 3. It provides the central trust/mutual understanding from beginning process to ending process towards partnership firm. 4. To enable the partnership firm / remaining partners to buy the deceased partners share without disturbing the firms financial position.

Insurable Interest:
A partnership firm has an insurable interest in the lives of its partners to the extent of purchase money ( capital and goodwill ) required to be paid in respect of share of each partner.

Qualifying Conditions:
1. If partners are so related that one partner is the sole legal heir of the other partner, then partnership insurance cannot be considered 2. All partners must be insured unless they are uninsurable on medical or agegrounds3.The partnership deed should contain a clause that the partnership is revocable definitely in the case of demise of a partner

Documents Required:
Normal medical requirements for individual partners application Copy of original and supplementary partnership deed Consent letter to place an endorsement on the policy Copy of I.T. returns for the last 3 years. Copy of Audited accounts for the last 3 years.

Policy Procedures:
Policy to be endorsed stating that in case of dissolution of firm for reason other than death of partner, the policy will either be surrendered or absolutely assigned in favour of the insured partner. The following are the points to be considered: 1. Firm being the owner of policy, nomination is not possible 2. Assignment, except in case of dissolution of firm not allowed

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Tax Treatment:

Insurance premium paid by the firm to be treated as business expense under Sec.37 of Income Tax act Policy proceeds will be treated as income of the firm Benefits of Partnership Insurance: Takes care of financial insecurity in the event of a partners death. Promotes a firms life Tax benefits to the firm Financial stability. Survival benefit. Mutual understanding.

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CHAPTER-13 EMPLOYER-EMPLOYEE SCHEME

What is Employer Employee Insurance Scheme? Insurance is taken by an employer on the life of an employee for the benefit of the employee. Every company takes out insurance for his employee. The insurance taken out is in huge number and the insurance company sees the employer employee insurance as a big market for their business and has invented this product.
What is the objective?

1. To enable an enlightened employer to provide for insurance for the benefit of a loyal employee.58 2. Employer has an insurable interest on the life of an employee
What are the options available?

1. Application is completed by the employee;- Application to be accompanied by a letter from the employer committing to pay the premium 2.Application is signed by the employers authorized person- Application to be accompanied by a letter from the employer stating the object of insurance, restrictions imposed regarding loan, surrender, etc., and that the policy would be immediately assigned in favour of the employee.
Tax Treatment:

Premium paid by the employer to be treated as business expense in the employers books Premium paid by the employer to be treated as perquisite in the hands of employee under Sec. 17 of I.T. Act. Employee can claim I. T. rebate under Sec. 88 Policy proceeds exempt under Sec.10 (10D)
Benefits of Employer Employee Insurance:

Employer earns loyalty of employee /s Employee gets benefits of life insurance59 Tax benefits to employer and employee /s Motivation of the employee. Mutual understanding among the employees. Participative management.

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CHAPTER-14 The Insurance Tipping Point: Innovation and transformation

In the past couple of years, the trend toward watching reality tv shows and reading self-help or selfimprovement books has certainly skyrocketed. That said, today there are countless books on leadership, management, achieving success in business, and living the good life. To a certain degree, all of these books touch a common baseline when it comes to advicedo the right thing, live the good life, and you will be rewarded with success. The commonality could lead one to discount all books of this ilk as hockey and contrived. However, one author whose books stand above the rest is Malcolm Gladwell. Gladwells book The Tipping Point, suggests an event of the magnitude the title names occurs when an idea, trend, behavior or expectation crosses a threshold and spreads like wildfire. When a tipping point occurs, it can change the fundamentals of business and be sudden. Needless to say, history has seen many tipping points, which have offered opportunities to use technology, thereby creating leaps in innovation and transformation. It is easy to believe that another tipping point is underway today. Carlota Perez, a scholar of technology and socio-economic development at Cambridge University, believes that from the Industrial Revolution to the Information Age there is a consistent pattern in the diffusion of technological revolutions and their impact on macro-economic trends. She implies growth in the economy takes place by successive surges of about half a century, each driven by a technological revolution. Perez suggests core radical innovations come first, spawning a wave of interrelated investment. Each such revolution takes about half a century to spread around the world, and is characterized by two distinct periods: Installation and deployment. A typical installation period lasts years, but often ends in a speculative financial boom or bubble. It is important to note that installation periods are times of creative destruction during which the emergence of new technologies into the marketplace is common. New businesses quickly begin using these technologies during installation periods, and new business models emerge for existing businesses. History shows the reversal of a boom or a bubble collapse typically leads to a market correction. The deployment period follows, weaving technology into the fabric of business and society. The deployment period is a time of creative construction and institutional re-composition. New technologies and business paradigms become the norm and tend to drive long-term growth and expansion of successful business models. Over the past couple of centuries, there has been a technology revolution every 40 to 60 years, starting with the Industrial Revolution in 1771. The Industrial Revolution was followed by the age of steam and coal, iron and railways, which started in 1829. The days of steam, coal, iron and railways were followed by steel and heavy engineering (electrical, chemical, civil and naval) in 1875; and then the automobile age which began in 1908. The current era of information technology and telecommunications started in 1971, and represents the fifth major revolution during this 200+ year span.

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As for todays crisis, it is now evident that the boom and crash came in two episodes, the Internet frenzy which ended the .COM crash, and the credit bubbles of 2003-08 which resulted in the market crash and great recession now underway. Perez suggests the next two to three decades will be the deployment period during which business will begin to again use new technology to create a new business paradigm based on innovation. The financial crisis is indeed a once in a half century event, but one Perez asserts has happened four times before over the last 200+ years. Each technology-based revolution had unique dynamics, but the historical view provides insight for insurance companies as they embrace the current disruption, and use new technologies like SOA, SaaS, social media, and mobile Internet computing to plan for the future. New technologies and innovations advocated by entrepreneurs and leading companies are the force that creates and sustains long-term economic growth, even as this same powerful force creates a new competitive landscape and destroys the value of established companies if they do not re-shape their companies.

Reshaping The Insurance Industry

Considering innovation and insurance together are viewed by many as oxymoronic. While the insurance industry demonstrated innovation during the 1960s and 1970s by creating new products, services and distribution methods using technology, innovation slowed measurably. But during this period of innovation, early-adoption fueled growth, expanded customer access and competitive pricing through more efficient operations enabled by technology. This value has diminished due largely to the Achilles heel of legacy solutions and models. Once again, innovation and disruption are needed for a new round of competition. Increased competition, cost inflation, changing customer loyalty, and decreasing premium growth are pushing the industry to change its paradigm again. Insurance companies must re-assess business models and focus on insurance profitability fundamentals. Customer expectations, as well as product/services access, are influenced by the Internet and by businesses operating on it. Information transparency, product choices, behavioral/life-style shifts, and social media providing recommendations are changing consumer mind-sets. A fundamental power shift is underway, and the shift is moving away from the agent/broker and insurance company to the consumer. The emergence of consumerization requires innovation. Recent research from Global Futures and Foresight, Gartner and Celent highlight the current focus on innovation and on how new thinking is identifying ways to use technology to unleash opportunities. Some of these analyst insights indicate:

Innovation is a key differentiator, high priority and discussion point among insurers. Mash-up business models, combining elements of multiple platforms and/or existing models are increasingly viable. The Internet is a critical thread through business strategies and innovation and must be embraced. The Internet radically changed the way people communicate, interact and reconfigure their relationship to business entities. Product innovation will be a top priority among leading P&C insurers during the next five years.

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The customer is increasingly powerful relative to the company. Customers are empowered through information transparency, social-network interactions and information availability. Customer intelligence is critical to determine product and service needs. Customer experience of convenience and quality service levels are expected not desired. Customer innovation and use of new technologies will be critical to support the "consumer of the future."

Long-held, traditional business and technology strategies inhibit future success. Insurance companies must embrace new technology to unleash innovation in critical areas, including:

Customer Innovation Product Innovation Service/Claims Innovation Business Model Innovation

How can your company survive the shift underway? By innovating through new technologies and ideas insurance companies can create a new foundation that leverages the shift and which will enable future growth and transformation.

I) Customer Innovation
There has been a fundamental shift in consumer spending patterns, as restraint has become the new mantra. Over the next 18 months to two years, consumers will make critical decisions about discretionary spending, saving, or paying down debt, which will have long-term bottom line implications. Nielsen Chairman and CEO David Calhoun (July 30th 2009) Increasingly, researchers find consumer social attitudes and behaviors have been irrevocably altered by the financial crisis. Insurance companies are seeing decreased premiums from customers who are switching policies to find lower cost/more value. Brand loyalty is becoming a casualty of costcomparisons. Furthermore, the emergence of the Net-Generation is fundamentally changing businesses notes Don Tapscott in Growing up Digital. As identified by Tapscott, the net-generation represents 88 million offspring produced by 85 million baby-boomers. The net-generation eclipses their parents in terms of both size and impact. Members of the net-generation are the first to grow-up surrounded by digital media, with technology incorporated into all aspects of their lives. This fact alone will change their expectations of society, resulting in social transformation. They live and breathe innovation. Mary Meeker of Morgan Stanley identified one aspect of this innovation in her recent research. Meeker notes the dramatic adoption of mobile Internet computing which is creating new communication options for distribution and interaction within a fast-growing user-base. Leading insurers are proactively responding, recognizing a new dynamic of interaction between customers, mobile computing and online networks, re-constructing the marketplace with new solutions. Recent Celent research identified that most of the top 10 U.S. insurers have a social media presence. However, by contrast, very few UK insurers have a presence on social networks. These innovative companies obviously recognize the fast-changing market dynamics and opportunities that the Internet and social media provide. These opportunities include the facts that:

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People will share significantly more data online via communities and networks. Insurance schemes based on groups will become more common as their popularity increases. Insurance companies will increasingly use public, shared data when assessing potential customers using sophisticated analytics. Social networks are here to stay, and will have an increasing impact on how people experience the Internet and other media. Today, financial services aggregators make the best use of social networks which divert customers from insurers. Social networks currently offer an inexpensive route to the customer, one that customers will actively promote if the content is right. Insurance companies must decide how they can best use this opportunity to first advertise and then to actively engage with their customers.

One leader in this new area of innovation is Geico. In business more than 70 years, ranked a top 5 U.S. auto insurer, and a leader in online quoting/selling, Geico expanded customer interaction by connecting the companys website with Facebook, allowing customers to tell their stories, including product reviews and cost savings by switching powerful customer recommendations.

II)Product Innovation
Product innovation, a key focus, includes both the product and how it is developed. Technology innovations such as Web 2.0 allow customers to participate in product innovation by co-creating products. This approach uses technology to link partners, suppliers, and customers to co-create targeted, richer products quicker than traditional methods. While new products have been slow to market the last ten years, this co-creation or co-development approach and the emerging new products and services are poised to disrupt market dynamics. Products with built-in customer input and value will challenge product price wars and redefine customer relationships. Examples include:

Accident Forgiveness, which keeps rates from going up because of an accident; Safe Driving Bonus, which rewards consumers with up to 5 percent of their premiums back for every 6 months of accident-free driving; New Car Replacement, which replaces a car if a policyholder has an accident during the first three years of owning a new car; Recover Care, which pays for assistance with cooking, cleaning, shopping, transportation and yard work if the policyholder is injured in a car accident; Lifetime Car Repair Guarantee; which reduces costs by using authorized repair shops to guarantee all repairs; and Disappearing Deductible, which rewards good driving with a reduction in the collision deductible by $150 and which continues to provide reductions of $50 for each year of a policyholders good driving record.

III)Service/Claims Innovation

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Service is the moment of truth for insurance companies. Customer preferences are changing and new access options are expanding beyond website self-service to ease-of-access with any device. With a growing mobile market, consumers want innovative ways to shop for and manage their insurance. Insurance companies are expanding the online experience using mobile Internet devices with mobile apps that:

Quote; Pay bills; Report claims; Find repair-shops with Google maps; Provide ID card access; and Offer daily repair monitoring.

Today, service is about insurance companies being able to provide 24 X 7 X 365 access, all based on customer preference. Esurance, a direct-to-consumer auto insurer, is another example of innovation in insurance. The company expanded their online services by offering self-service claims. Esurances solution provides a revolutionary claims experience through reflexive, conditional questioning, real-time triaging, assignment and scheduling repairs.

IV)Business Model Innovation

Insurance companies are reinventing their business models by transforming/optimizing existing business capabilities to create a new business model. Consider the example of one leading insurance company which launched a new auto brand that is 100 percent Internet-based. The companys virtual operation is uniquely positioned to serve the mobile/portable, Generation Y or Net-Generation insured. Customer demand is highlighted by significant growth on the order of more than 1000 new customers per month since the companys launch. The operation captures, prepares and processes insurance from quote through claims, repair and renewals to transact ALL insurance needs electronically, much like banking. The results are impressive: The company reports double-digit new business conversions, as well as business growth, decreased expense ratio and claims costs, better-than-average customer service and repair quality exceeding expectations. This virtual insurance company has created an innovative, relevant, modern operation by embracing trends and customer expectations to deliver top-tier value and service.

V)SaaS Model
Innovation comes in many forms. Consider a leading workers compensation insurance company which utilized a SaaS (software as a service) model to deliver new technologies which transformed the companys business model. This innovation not only enhanced the companys competitive position, but successfully mitigated and managed the companys risk exposure, supported profitable growth, and provided a platform for expansion. The companys approach included using a functionally-rich, modern solution with a SaaS delivery model, thereby creating economic benefit by reallocating capital to expand their product and service offerings.

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The SaaS deployment was critical to enhance the companys disaster recovery capabilities, given their U.S. Gulf Coast location along hurricane alley. With a multiple-hosted site strategy, the company was insulated from business disruptions. This virtual insurance company believes insurance consumers will greatly influence SaaS-based operations. As customers demand more, insurance companies must have quick deployment of products, achievable in a SaaS model. Access to current solution releases, enables continuous innovation.

VI)Results Matter
This new deployment period of technology-based revolution requires business innovation for future success. Financial ratings analysts are now focusing on core business operations, forcing the insurance industry to consider customer, product, service and business model innovation. Why? Financial ratings analysts are focusing beyond top line growth and bottom line financial results, to core business process and IT performance. The analysts are evaluating insurance companies use of capital, whether for market expansion, growth, operational efficiency, product and service innovation, or transformation initiatives. The days of significant capital investment in IT systems are changing due to the increased need for capital to expand and grow the business. Because of this new focus, insurance companies are considering customer, product, service, and business model innovation. With these insurance company examples in mind, it can be said that results matter, and innovation delivers. The insurance industry is at the tipping point, a new deployment period converging change, technology and customer expectations. Just like the past, the industry has the potential to truly innovate and transform by embracing the disruption and creating a new paradigm of sustainable competitiveness. Warren Buffet states: Be fearful when others are greedy and be greedy when others are fearful. Now is the time to be greedy greedy for innovation.

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CHAPTER-15 CASE STUDY

CLIENT SPOTLIGHT: COLONIAL LIFE & ACCIDENT INSURANCE COMPANY IMPROVING PRODUCT DEVELOPMENT THROUGH PROCESS INNOVATION Colonial Life & Accident Insurance Company is a leader in providing voluntary supplemental benefit products and services for employees and their families at the worksite. Headquartered in Columbia, SC, Colonial has more than two million policies in force and serves more than 45,000 businesses and organizations by offering a broad line of insurance products, including disability, accident, life, cancer, critical illness, and hospital confinement. CHALLENGES Operational efficiency has been a core value at Colonial for many years, driven by the need to process large transaction volumes efficiently and cost effectively. Additionally, delivering quality products to the market quickly is a key driver of growth in the voluntary benefit market. This operating environment demands an effective product development process that is able to quickly convert product concepts into well-designed, customer-focused products and services, and deploy them efficiently to the field sales force. Colonials existing product development process was simply taking too long more than 12 months for next generation products and 12 24 months for new products. Rapid changes in the voluntary insurance market heightened Colonials need to significantly speed up the process. Colonial has conducted process improvement initiatives over the years, but was at a turning point when it began looking for new ways to meet the demands of a competitive marketplace. NOLAN APPROACH It was at this crucial point that Colonial engaged the Robert E. Nolan Company to help it take a different approach: one focused on innovation, rather than incremental improvement. Nolan partnered with Colonial to redesign its product development process and help it implement an effective, flexible, and repeatable process innovation methodology. Nolan was selected for its 38 years of experience in assisting financial services organizations with improvement initiatives, and for its collaborative approach to consulting. Nolan recommended the use of a crossfunctional team to look at the entire product development process, from ideation through product launch and assessment, to identify opportunities for increased speed while maintaining or increasing the level of quality. METHODOLOGY Nolans approach was to help Colonial formalize a process innovation capability, characterized as having: A collaborative, participative approach to build ownership and imbed innovation into the culture

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A customer- and fact-focused approach using assessment of current and desired results A focus on stretch goals to stimulate innovative thinking and willingness to overturn traditions A customized ability to meet Colonials needs using mapping and metrics An end-to-end process view from Operations to Marketing to Sales to the Customer As part of this initiative, a cross-functional team was formed, consisting of employees that were at the heart of the product development process. The team was charged with analyzing all of their processes, both core and peripheral, and identifying those that were impeding speed or not adding value to customers. The result would be a product development process capable of providing faster and better products to the market. Additionally, this initiative would drive the development of an environment that embraces process innovation. RECOMMENDATIONS With assistance from Nolan, the team identified 17 distinct opportunities for improvement within their respective functional areas, as well as across the enterprise. Most importantly, the teams solution was tailored to Colonials strong customer orientation and culture that is built on an appreciation for efficiency and optimum effectiveness. The recommendations for rapid product development focus on communication, between functions in the organization and between product developers and the field. They also provide a greater degree of integration among various functions in the organization. They involve non-Marketing functions early in the product development process and allow these functions (such as Underwriting, Compliance and IT) to significantly influence decision-making; they encourage physical proximity of product development personnel; and they give sufficient authority to project managers to get the job done. Product concepts are now vetted by a small cross-functional team and design principles are applied to generate exact product specifications. Similar to an architects blueprint, they provide the detail necessary to begin construction. Construction is followed by Product Launch, in which the product is released to the field sales force. Each step in the product development process is followed by a formal decision point to move forward to the next step, terminate the project, or return to the previous step to revise conceptual or design work. The development process is carefully staged to permit assessment of the work to date, validate assumptions, and avoid problems before additional resources are committed. The decision points, in effect, mitigate risk and help ensure faster and more successful product launches. RESULTS Nolan helped Colonial design a new product development process capable of delivering multiple products concurrently, as well as next generation products in three months, versus the previous 12 months and new products in nine months, versus the previous one to two years. Some of the recommendations coming out of the workshop have already been implemented, while others are being implemented during the next few months. Among these are a number of changes designed to improve workflow and eliminate unnecessary or non-value added work and increase speed to market.

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Bibliography/Webliography

http://www.jstor.org/discover/10.2307/251177?uid=3738256&uid=2129 &uid=2&uid=70&uid=4&sid=21101636804273 http://www.gettingyourich.com/1/post/2013/01/innovation-in-insuranceproducts.html http://www.swissre.com/media/news_releases/nr_20111206_sigma_prod uct_innovation_in_non_life.html http://www.jiops.com/01/2011/the-insurance-tipping-point-innovationand-transformation/

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Conclusion

In the end we reach to the conclusion that the insurance industry has witnessed a huge amount of innovation after the privatization of the insurance sector. the privatization has facilitated the entry of foreign and private players to the industry, due to which the competition in the insurance market has became very severe and in order to attract the customer and to retain the customer the insurance company has introduce various new product. Again the majority of the potential customers are unaware of the insurance companies and with a view to increase the aware the insurance companies has innovated the new marketing channels. Again the e need of the customer in the present world has increase a lot due to increasing uncertainty in the present world. And to meet their requirement of the insurance the companies are designing multi benefit products.