A STUDY OF NEW DISTRIBUTION CHANNELS IN

INSURANCE SECTOR

SUMMER TRAINING PROJECT REPORT

SUBMITTED TOWARDS PARTIAL
FULFILLMENT
OF

MASTER OF BUSINESS ADMINISTRATION

( Af f i l i a t e d T o U . P . T e c h n i c a l . U n i v e r s i t y , L u c k n o w )
[2009-2010]

Submitted By
ARFANA YASMIN
Roll No. 0911570019

Under the guidance of:

External Supervisor Internal Supervisor

Mr. RAKESH Mr . Manish Bhaskar

(Asstt.channel Manager), Lecturer,AIM.
UNICON Ghaziabad

ADVANCE INSTITUTE OF MANAGEMENT

GHAZIABAD-201009

1
 PREFACE
“Learning categorize you and practicing on that learning
specialize you.”

Each and every theory being taught in academic institute can

only become fruitful practically. The important of any academic
courses would gain advantage and acceptance of true form;
only through practical experience. Hence it is quite necessary to
put theories as into task. This is made possible with summer
training at any of good companies under the expert guidance of
a competent person.

All organization face change in their environment with resultant

changes in their respective market and in their ability to satisfy
their market. Each organization has to face new marketing
problems and opportunities in their existing and potential
market.
The change trends and new skills being adopted by employees
in such a systematic way by getting various training sessions
which help them to make use of these new trends and
technologies.

This practical knowledge has made one thing clear in my mind

that to keep on the zenith one has to keep himself changing with
time.
The report is outcome of the summer training in unicon
investment solution.

This training is a part of curriculum of MBA program

at the department of business administration of
AIM,_GHAZIABAD. The main objective of this project
is to find “new distribution channel in insurance sector
“.

2
 ACKNOWLEDGEMENT

It’s with a great sense of satisfaction that I present my first real

venture in practical computing in the form of project work.

I am thank to the “UNICON” for giving me a great opportunity

to do my summer training in their valuable industry and make
the stage for practical exposure of my knowledge.

I am deeply indebted to Mr. RAKESH (Assistant Manager) for

providing this training and for his kind support and cooperation.

I pay my respect and gratitude to my project guide Mr.

MANISH BHASKAR for her constant help and guidance.

With Regards,

(ARFANA YASMIN)

3
 TABLE OF CONTENT

S.No. Contents Page No.

1) Executive summary 6
2) Introduction 7-8
3) Company profile 9-20
4) Distribution Channels 21-35
5) Telcassurance 36-39
6) Bancassurance 40-63
7) Objectives of the study 64
8) Research Methodology 65-67
 Research Design 65
 Data collection methods 66-67
9) Analysis and Findings 68-73
 List of Graphs 68
 Analysis of Data 69-72
10)  Findings 73
11) Limitations of the Study 74
12) Conclusion and 75-76
Recommendations
13) Appendices 77-80
 Questionnaire 78-80
14) Bibliography 81

4
 EXECUTIVE SUMMARY

The liberalization followed by growth of the Indian Insurance

industry has opened wide opportunities for Service and
Infrastructure sectors. This growth has to be properly channelised.
Some of the major challenges which have to be addressed for
channelising the growth of insurance sector are Product Innovation,
Distribution Network, Investment Management, Customer Service
and Education.

The aim of this project is to have an in-depth knowledge of the

booming Insurance sector in India and to study the various
EMERGING DISTRIBUTION CHANNELS in insurance, which
will help in increasing the penetration of Insurance in India and
also reduces the cost of insurers.

Firstly the Insurance industry as a whole has been studied with

emphasis on various distribution channels. Then the emerging
distribution channels in insurance industry have been discussed.
Emphasis is given on the new distribution channels which are
recently tried in India such as retail stores, telcassurance, and
internet. Finally the recommendations and conclusions on the basis
of my understanding and analysis about the Indian Insurance
Sector have been made.

5
 INTRODUCTION
The road less trodden is not so much a choice but a necessity in
journeys into the unknown. For an industry that is rediscovering
itself and its markets, ventures into distant rural markets and even
niche urban markets have been quite an experience. While agents
are, and are likely to be, the predominant channel for selling life
insurance and personal lines of non-life insurance, other means of
reaching the customer also assume importance given the low levels
of penetration of insurance in India. I have no doubt that everyone
in the insurance industry would like to see the country reach the
levels of financial security through insurance that more developed
countries have. And I am sure that this aspiration is not only driven
by commercial interests but also the aspiration for better social
security and prosperity. For taking that kind of leap every effort
counts and every new idea that can harvest a few thousand
customers will help. One never knows which of these new channels
will turn out to be a significant contributor of customers tomorrow!

"It is not the strongest species that survives nor he most

intelligent but the ones most responsive to change - Charles
Darwin

Think of insurance and the first thing that comes to mind is the
pesky agent who won’t take no for an answer. He tempts you with
tax benefits, scares you with the thought of dying and leaving your
family on the streets or steps in to get your medical policy just in
time for you to leave on that holiday abroad. Add to that your bank
trying to sell you some insurance when you take a housing loan. Or
when they find that you have surplus money in your account and
could do with more life insurance! And soon brokers will get to the
point where they will offer individuals a range of policies from
different insurers and find us the one that fits just right. But these
are the well known, by now, channels of reaching insurance as a
product to the customer. The new ones that are emerging slowly
present an interesting picture. Take the Internet for instance.
Companies are willing to provide quotes for certain types of
policies through their website. Not just Life policies or Motor, but
Marine Cargo policies….. Go to a bank automatic teller machine
(ATM) and you don’t come away with just cash. You are
bombarded with questions on whether you would like insurance

6
policies… did you check that option? It’s right there below the
internet hours! Call your bank’s phone banking service and, after
telling you your balance or whatever it is you seek, they will try to
interest you in a policy or two, or at least in playing host to an
agent who is eager to come in and say his piece. Or these calls out
of the blue asking if you are interested in insurance or a personal
loan or housing loan in three days flat!? In the rural areas there is a
different kind of intermediation emerging. The approach there is
very community based. The local community’s thought leader has
been roped in to spread the good word. They could be non-
governmental organisations (NGOs) working in education or
microfinance in that area, or a company with consumer contact
outlets – like one selling fertilisers or consumer goods of varying
kinds, or buying the produce of the land for that matter. They take
on the work of distributing insurance adding value to their
customers and adding a fee based income to their own revenue
streams. Some have met with good success and others are in the
process of settling down to what is essentially a tremendous task.
What does all this add up to? Other than more apparent marketing
activity for a product that was mostly bought rather than sold?
Other than being pursued for something that you sought out and
tried to buy with great difficulty? Other than intermediaries more
willing to tell you about the product than before when they just
expected to get your signature on a mostly blank proposal form and
run?! Marketers and market theory proponents say that it means
better service. That it means better product definition and hence the
development of more suitable products for the end customer. That
it means that the insurer and his intermediaries work at efficient
costs since someone else is always breathing down their necks. …
But it can also mean a loss of privacy. Not just in a personal way,
but also in that the confidentiality of your financial data is being
shared with people you have not authorised for access. Even if it is
the insurance company owned by your bank or represented by your
bank. In future it could mean that your financial status could
dictate your insurance premiums – as it does in many western
countries now – and that your financial status is being shared
without your consent or knowledge right now as you read this. Is
this such a big change? Certainly! As big a change as having an
insurance agent come to you to sell a policy is from the very early
days of insurance when the board members of an insurer personally
interviewed new applicants once in six months to decide whether
to insure him or not! And in the pipeline are policies from your
local post office and perhaps through your mobile phone!

7
 COMPANY PROFILE

Unicon has been founded with the aim of providing world class investing
experience to hitherto underserved investor community. The technology
today has made it possible to reach out to the last person in the financial
market and give him the same level of service which was available to
only the selected few.

They give personalized premium service with reasonable commissions on

the NSE, BSE & Derivative market through our Equity broking arm
Unicon Securities Pvt Ltd. and Commodities on NCDEX and MCX
through our Commodity broking arm Unicon Commodities Pvt. Ltd.
With their sophisticated technology you can trade through your computer
and if you want human touch you can also deal through their Relationship
Managers out of our more than 100 branches spread across the nation.

They also give personalized services on Insurance (Life & General) &
Investments (Mutual Funds & IPO's) needs, through our Insurance &
Investment distribution arm Unicon Insurance Advisors Pvt. Ltd. Their
tailor-made customized solutions are perfect match to different financial
objectives. Their distribution network is backed by in-house back office
support to serve our customers promptly.

8
Unicon offers a unique feature of a single Screen Trading Platform of
NSE , BSE & Derivatives. Unicon offers both Offline & Online trading
platforms. You can Walk in or place your orders through telephone at any
of our branch locations

Online Trading Products :

uniconPlus
uniconSwift

uniconPlus
Browser based trading terminal that can be accessed by a unique ID and
password. This facility is available to all our online customers the
moment they get registered with us.

uniconSwift
Application based terminal for active traders. It provides better speed,
greater analytical features & priority access to Relationship Managers.

9
Unicon Provides expert advice to its clients for their investments in
equity & debt markets through Mutual Funds.

Our experts advice you the best investment solutions that suit you and
help you to reach your financial goals.

We help you ascertain your risk profile & guide you with the right
product mix which reduce your tax liability, increase your savings &
enhance your wealth. Weather you have a conservative, medium or
aggressive investment risk appetite, our experts would guide you to build
a portfolio to optimize the return of interest.

10
Unicon offers a unique feature of a single screen trading platform in
MCX and NCDEX.Unicon offers both Offline & Online trading
platforms. You can Walk in or place your orders through telephone at any
of our branch locations

Online Commodity Internet trading Platform through UniFlex.

Live Market Watch for commodity market (NCDEX, MCX) in one

screen.

1. Add any number of scrips in the Market Watch.

2. Tick by tick live updation of Intraday chart.
3. Greater exposure for trading on the margin available
4. Common window for market watch and order execution.
5. Key board driven short cuts for punching orders quickly.
6. Real time updation of exposure and portfolio.
7. Facility to customize any number of portfolios & watchlists.
8. Market depth, i.e. Best 5 bids and offers, updated live for all
scripts.
9. Facility to cancel all pending orders with a single click.
10.Instant trade confirmations.

11
Unicon Depository Services offers dematerialization services as a
participant in Central Depository Services Limited (CDSL), through its
Depository operations. The company believes in efficient and cost-
effective and integrated service support to its brokerage business. Unicon
Securities Private Limited, as a depository participant, will offer
depository accounts for individual investors as well as corporates which
will enable them to transact in the dematerialized segment, without any
hassles.

Depository offers a safe, convenient way to hold securities as compared

to holding securities in paper form. Our service provides an integrated
single platform for all our clients ensuring a risk free, efficient and
prompt depository process.

Facilities Offered by Unicon

* De-materialization: You can submit your physical shares at the

Unicon branch for dematerialization into electronic form.
* Re-materialization:You can also request for Re-materialization
which enables you to convert the dematerialized shares into
physical form.
* Transfer: Inter and intra depository services are available through
which you can transfer shares.
* IPO: You can apply for IPO using your demat account details
and on allotment the securities are transferred directly to your
demat account.

12
At Unicon you can invest in the Primary markets (Initial Public
Offerings) online without going through the hassles of filling up any IPO
application forms or any other paperwork.
We shall make sure that you do not miss the opportunity to
subscribe/invest in a good IPO issue by providing you an online IPO
application form, transfer of funds online through secured payment
Gateways of leading banks like ICICI, HDFC, AXIS bank.

In addition to the above we shall provide you with the In-Depth analysis
of the IPO issues which shall be hitting the Indian Markets in near future,
IPO Calendar, analysis on the recent IPO listings, prospectus, offer
documents and other IPO research reports so as to help you take an
informed decision to invest in the IPO issues.

Online IPO facility is open to all our registered clients at no cost

whatsoever. All you need is the following to subscribe online to the IPO
issues:

• A trading account with Unicon

• A Demat account with Unicon
• An access to the net banking facility with the Banks through which
Unicon has operational Gateway facility (ICICI, HDFC and AXIS
Bank).
• You must have signed a Power of Attorney (POA) agreement for
applying in IPO’s online.

13
General Insurance
Unicon offers all products of General Insurance under one umbrella.
Unicon comprises of a team of distinguished professionals from
insurance, finance and other management disciplines who have vast
business & managerial experience.
Unicon team evaluates the client's business environment and studies the
risk profile. based on the results of these evaluations, Unicon team then
suggests the most cost effective , integrated insurance package that is
perfectly suited to the client's risk profile.
Unicon has a nationwide network of branches all over India, equipped
with top quality infrastructure facilities, to provide you prompt &
efficient service.

Life Insurance
Unicon offers you a Peace of Mind by offering various life insurance
plans for your unique & specific needs. Our philosophy is that for every
financial problem, there is a solution also. And we are here to give you
complete financial solutions. At the same time we offer you very Prompt
& Reliable Policy related service for enduring relationship.
We offer a very wide range of products to fulfill your particular
requirements. You can always have an access to our 83 Branch Offices
situated at prime locations of the city, or you can call our Relationship
Manager to guide on your Investments.

14
Following is the glimpse of Life Insurance Plans:
• Protection Plans
• Investment Plans
• Child Plans
• Retirement/Pension Plans
• Saving Plans
• NRI Plans
• Health Plans

15
Unicon is a specialized property broking company. Our highly
experienced and professional teams present retail, office, industrial and
residential property opportunities to a broad base of clients. Whether it is
a residential or commercial development, Unicon offers a total solution to
our clients inclusive of market research, marketing strategy, interaction
with the professional teams and sales or leasing of the property.

Unicon’s professional team of consultants will assist you to identify

suitable premises that satisfy your requirements. We will help you
negotiate favorable leases and assist with the preparation of all
documentation.

“Whether you are looking for a home or a place to conduct business

Unicon shall find you one”

We provide customer focused transparent investment planning and

solutions. We offer products which benefit your special status. PCG has a
specialized advisory team which nurtures all your investment. We ensure
that your investments work for you rather than you for them.
Products offered:

• Unicon Signature Account

• Nifty Tracker
• Unicon Trade Plus
• Unicon Wealth Planner

16
Brief History of the Insurance Sector

The business of life insurance in India in its existing form started in

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

1912: The Indian Life Assurance Companies Act enacted as the

first statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the

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

1938: Earlier legislation consolidated and amended to by the

Insurance Act with the objective of protecting the interests of the
insuring public.

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

Some of the important milestones in the general insurance business

in India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first
company to transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance

Association of India, frames a code of conduct for ensuring fair
conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set

minimum solvency margins and the Tariff Advisory Committee set
up.

17
1972: The General Insurance Business (Nationalization) Act, 1972
nationalized the general insurance business in India with effect
from 1st January 1973. 107 insurers amalgamated and grouped into
four companies’ viz. the National Insurance Company Ltd., the
New India Assurance Company Ltd., the Oriental Insurance
Company Ltd. And the United India Insurance Company Ltd. GIC
incorporated as a company.

INSURANCE SECTOR

The opening up of Insurance sector was a part of the on going

liberalization in the financial sector of India. The changing face of
the financial sector and the entry of several companies in the field
of life and non life Insurance segment are one of the key results of
these liberalization efforts. Insurance business by way of
generating premium income adds significantly to be the GDP. Over
the past three years, more than thirty companies have expressed
interest in doing business in India. The IRDA (Insurance
Regulatory Development Authority) is the regulatory authority,
which looks over all related aspects of the insurance business. The
provisions of the IRDA bill acknowledge many issues related to
insurance sector.
The IRDA bill provides guidance for three levels of players -
Insurance Company, Insurance brokers and Insurance agent. Life
Insurance sector is one of the key areas where enormous business
potential exists. In India currently the life insurance premium as a
percentage of GDP is 1.3 % against, 5.2 per cent in the US.

General Insurance is another segment, which has been growing at a

faster pace. But as per the current comparative statistics, the
general insurance premium has been lower than life insurance.
General Insurance premium as a percentage of GDP was a mere
0.5 per cent in 1996. In the General Insurance Business, General
Insurance Corporation (GIC) and its four subsidiaries viz. New
India Insurance, Oriental Insurance, National Insurance and United
India Insurance, are doing major business. The General Insurance
Industry has been growing at a rate of 19 percent per year.

18
The entry of several private insurance companies, particularly
international insurance companies, through joint ventures, will
speed up the process of insurance mobilization. The competition
will unleash new schemes and benefits, which will give consumers
a better Chance to save as well as insure. The regulatory system in

India is relatively new and takes some more time to make the
Insurance sector a perfectly competitive one. Insurance Regulatory
Authority of India issued regulations on 15 subjects which included
appointed. Actuary, actuarial report, Insurance agents, Solvency
margins, reinsurance, registration of Insurers, and obligation of
insurers to rural and social sector, investment and accounting
procedure. The reform in Insurance in India is guided by factors
like availability of a variety of products at a competitive price,
improvement in the quality of customer services etc. Also the
employment opportunities in the Insurance sector wil1 increase as
major players set their business plans in India. The policy of the
government to open up the financial sector and the Insurance sector
is expected to bring greater FDI inflow into the country. The
increase in the investment limit in this vital sector has generated
considerable business interests among the foreign Insurance
companies" Their entry wil1 certainly change the Insurance sector
considerably.

19
 WHAT IS A DISTRIBUTION CHANNEL?

A channel of distribution or trade channel is the path or route along

which goods move from producers to ultimate consumers or
industrial users. In other words, it is the distribution network
through which a producer puts his product in the hands of actual
users. The channel of distribution includes the original producer,
the final buyer and any middlemen-either wholesaler or retailer.
The term middleman refers to any institution or individual in the
channel which either acquires title to the goods or negotiates or
sells in the capacity of an agent or broker. But facilitating agencies
that perform or assist in marketing function are not included as
middlemen in the channel of distribution. This is because they
neither acquire title to the goods nor negotiate purchase or sale.
Such facilitating agencies include banks, railways, roadways,
warehouses, insurance companies, advertising agencies, etc. The
following diagram (chart) is illustrative of the channel of
distribution which may exist in a market.

20
The above chart indicates that the number of middlemen may vary.
If there is direct sale by the produce to the consumers then there is
no middleman. But that is very rare. As the chart shows the
producer may sell goods to retailer who may then sell the same to
consumers. The producer may sell goods to wholesalers who may
in turn sell to retailers and the retailer may sell to consumers. The
fourth alternative channel of distribution is when any agent/dealer
intervenes between the producer and retailers and acts as a
middlemen. The agent is appointed by the producer for the sale of
goods to the retailers. Another alternative channel is there when
producer’s agent sells goods to wholesalers who sell to retailers.
Agent/dealer is an independent person/firm buying goods and
selling them to retailers. Agent/dealer may also sell to wholesalers
who may then sell to retailers and goods are thus made available to
consumers. In the channel of distribution there may be more than
one agent/dealer and wholesaler.

Channel decisions determine how the firm will reach its target
markets. The choice and performance of the channel are major
determinants of an organization’s success. Channel of distribution
decisions are of vital importance to all types of firms, including
producers, wholesalers, and retailers. A key factor in selecting a
channel is economic performance- estimated revenue and cost
flows over the planning horizon. Qualitative factors are also
important in selecting channels of distribution. Given two channel
alternatives that are similar in their estimated economic
performance, selection may rest on the extent of management
control that the firm could exercise in the two channels. The
antitrust laws are of primary importance for channel selection
decisions.

21
Establishing the channel objectives and Constraints

The objectives include the desired level of customer service and

the desired functions intermediaries should perform. Each producer
develops his own objectives:
Customer characteristics: Channel design is greatly influenced by
customer characteristics. When trying to reach a large or widely
dispersed customer population, long channels are needed. If
customers buy small amounts frequently, long channels are needed
because of the high cost of filling small and frequent orders.

Middleman characteristics: Channel design reflects the strengths

and weaknesses of different types of intermediaries in handling
various tasks. For example, manufacturers’ representatives are able
to contact customers at a low cost per customer because the total
cost is shared by several clients. But the selling effort per customer
is less intense than if the company’s sales representatives did the
selling.

Competitive characteristics: Channel design is influenced by

competitors’ channels. Producers may want to compete in or near
the same outlets carrying the competitors’ products.

Product characteristics: Perishable products require more direct

marketing because of the dangers associated with delays and
repeated handling. Bulky products, such as building materials or
soft drinks, require channel arrangements that minimize the
shipping distance.

Environmental characteristics: When economic characteristics are

depressed, producers want to move their goods to market in the
most economical way.

Company characteristics: Company characteristics play in

important role in channel selection. The company’s size determines
the size of its markets and its ability to secured desired dealers. Its
financial resources determine which marketing functions it can
handle and which to delegate to intermediaries.

22
Market characteristics: Geography is one factor; in most cases, the
greater the distance between the producer and its market, the less
expensive is distribution through intermediaries rather than through
direct sales. Direct sales may be effective if a producer has
relatively few large buyers, but for larger markets middleman are
required.

AN INTERESTING FACET OF INSURANCE

Mark Twain, the great American humorist said in his speech on

Accident Insurance,

“There is nothing more beneficent than accident insurance. I’ve

seen an entire family lifted out of poverty and into affluence by the
simple boon of a broken leg. I’ve had people come to me on
crutches, with tears in their eyes, to bless this beneficent
institution. In all my experience of life, I have seen nothing so
seraphic as the look that comes into a freshly mutilated man’s face
when he feels his vest pocket with his remaining hand and finds his
accident ticket all right.”

23
Following are the factors that impact the selection of a channel:

Characteristics of Short Characteristics of Long

Channels Channels
Market factors Business users Consumers
Geographically Geographically diverse
concentrated
Extensive technical Little technical knowledge
knowledge and regular and regular servicing not
servicing required required
Large orders Small orders
Product factors Perishable Durable
Complex Standardized
Expensive Inexpensive
Producer factors Manufacturer has Manufacturer lacks
adequate resources to adequate resources to
perform channel perform channel functions
functions

Broad product line Limited product line

Channel control Channel control not
important important
Competitive Manufacturing feels Manufacturer feels
factors satisfied with marketing dissatisfied with marketing
intermediaries’ intermediaries’
performance in performance in promoting
promoting products products

24
4 I’s affected Insurance
Insurance has four major characteristics that greatly affect the
marketing and distribution.

1. Intangibility:

Unlike products, services cannot be held, touched, or seen before

the purchase decision thus, they should be made tangible to a
certain extent. Marketers should ―tangibilize the intangible to
communicate service nature and quality. This can be done through:

• Environment

• Uniforms

• Paperwork

• Brochures

Insurance is a guarantee against risk and neither the risk nor the
guarantee is tangible. Hence, insurance rightly come under
services, which are intangible. Efforts have been made by the
insurance companies to make insurance tangible to some extent by
including letters and forms.

2. Inconsistency:

Service quality is often inconsistent. This is because service

personnel have different capabilities, which vary in performance
from day to day. This problem of inconsistency in service quality
can be reduced through standardization, training and
mechanization. In insurance sector, all agents should be trained to
bring about consistency in providing service or, the insurance
process should be mechanized to a certain extent. E.g.: the
customers can be reminded about the payment of premium through
e-mails and sms instead of agents.

25
3. Inseparability:

Services are produced and consumed simultaneously. Consumers

cannot and do not separate the deliverer of the service from the
service itself. Interaction between consumer and the service
provider varies based on whether consumer must be physically
present to receive the service. In insurance sector too, the service is
produced when the agent convinces the consumer to buy the policy
and it is said to be consumed when the claim is settled and the
policyholder gets the money. In both the above cases, it is essential
for the service provider (agent) and the consumer (policy holder) to
be present.

4. Inventory:

No inventory can be maintained for services. Inventory carrying

costs are more subjective and lead to idle production capacity.
When the service is available but there is no demand, cost rises as,
cost of paying the people and overhead remains constant even
though the people are not required to provide services due to lack
of demand. In the insurance sector however, commission is paid to
the agents on each policy that they sell. Hence, not much inventory
cost is wasted on idle inventory. As the cost of agents is directly
proportionate to the policy sold.

26
THE INTERNET CHANNEL

27
The Internet is likely to be the most important of the new forms of
distribution as the government is encouraging its use (for eg. E-
choupal). It is already apparent that customers are using the new
Internet technology in other business fields (e.g. bookselling, air
ticketing etc.). However, insurers have been slow to get to this
market. For example, the worldwide property and casualty market
is estimated to be worth $l50bn but less than 1% of these insurance
transactions are currently being conducted online. India is no
exception to that, only iota of business is generated through this
channel. This sluggishness is perhaps a little surprising as the
simpler commoditized insurance products should sell quite well on
the Internet. Arguably, other more tangible products such as
clothing, furniture and sporting equipment may not sell so well
because customers prefer to see them before making a purchase. A
recent survey states that the biggest barriers to using the Internet is
product complexity (62%), followed by need for paper signatures
and regulatory restrictions (both 38%), security risks (32%), and
cost of online development and integrating legacy systems (both
29%).

The lead in selling insurance on the Internet appears to be coming

from America, where start-up companies that cover the whole
‘quote-to-claim’ insurance process online now exist. For example,
eCoverage.com is now writing motor business in 2 US states
(backed by Japanese venture capital from Softbank) &
GeneraLife.com is selling life assurance on the net. However
European companies are following suit, such as ineas.com which
has become the first European insurer to sell its products
exclusively via the Internet, already operating in the Netherlands,
France, Belgium and Germany.

One way of analyzing the new business models suggests there are
currently three emerging types of web site through which insurance
business can be sold.

1. “Shop Fronts" - These are the insurance companies own

websites, e.g. Direct Line. They are likely to have a short-term
prominence but are expected to reduce in importance over time as
customer requirements for price comparisons increase
E.g. – www.icicilombard.com

2. “Product Aggregators" - These are brokerages which offer a

range of comparable products. The website will aim to offer the

28
best price/value combination to consumers. Therefore, insurers
quoting competitive premium rates are likely to acquire most
business through this channel. Product Aggregators are expected to
increase in importance in the long term because of the speed at
which the consumer can get comparative quotes and the costs of
advertising shop fronts.
E.g. – www.bimaonline.com

3. “Portals” - These are websites that host content from multiple

websites. They package content from third party providers,
organize it to suit their target audience, and make their money via
advertisement or commission On such a web site, an insurer may
have to compete against other companies if it is not the only one
advertising insurance. To get round this, portals may be developed
by the larger insurers with brand and customer ownership as the
major drivers. Overall, portals are expected to grow rapidly for the
same reasons as product aggregators. E.g. www.bimaonline.com

THE INDIAN OPPORTUNITY

There are 38.5 million Indians online as of now and this number is
set to grow to 100 million by 2007-08. Sky-rocketing at a CAGR
of 125%, the online travel industry is expected to become a $2-
billion industry by 2008.

The number of heavy internet users in India, the persons who

spend long hours on the web, has grown to 38 per cent this year, as
against barely 16 per cent in 2002.
These heavy users are spending an average 8.2 hours per week on
the internet, I-Cube 2007 report said.
Their numbers are increasingly rising over the past few years: from
16 per cent in 2002 to 20 per cent in 2005 and to 38 per cent the
total internet users in 2007 - resulting in a jump of 20 per cent over
a 5-year period.
In contrast, the number of 'light' users has dropped from 63 per
cent in 2002 to a 28 per cent in 2007, which shows the older
population spend more time on internet as against the younger lot
who are considered to be more net-savvy. While, the school going
children spend an average of 322.3 minutes a week on the internet,
the college going students spend an average of 433.2 minutes per
week and the older men spend an average of 580.5 minutes a week.

29
Working women spend 535.3 minutes per week while women non-
working women spend an average of 334.5 minutes each week.
There will be 50 million internet users by March 2007. At present 25% of
the internet users in India are from small towns and this figure is estimated to
increase further.
32 per cent active users of the Internet in India use it for sourcing information
and research. Back in 2001, only 20 per cent used the Internet for searching
information. E-mail as a killer application is on the downslide with only 46 per
cent of subscribers using the Internet for e-mail, compared to 64 per cent in
2001.

The Factors considered by E-consumer while purchasing

Insurance are.

All e-consumers, whether corporate entities or individuals, will

continue to select insurance based on the following four criteria:

“Price” - This is usually the foremost consideration and is the

principal driver behind shopping around.

“Trust” - Here there are two elements.

1. Is it ‘secure’ to buy on the web / a particular website and

2. Buying from a “trusted” name may mean customers are happy

not to research alternatives.

“Convenience” - Although the customer retains his power to

choose who to buy from, the pressures of the modem world will
mean convenience buying becomes a threat to a “value” offering.
i.e. a company’s

“Service” - Service is particularly important when a product is

purchased and when a claim is made.

There is evidence from research performed by Forrester in the US

that of these four criteria, price is predominant. According to their
research, price has approximately 77% more impact on consumers’
insurance purchase decisions than brand. Price overshadowed all
other purchasing criteria, including physical presence.

The Advantages of E insurance:

* Low cost:

30
The internet is made up of electrons, so there is not really anything
physically to grab hold of like in a brick and mortar business. This
considerably reduces the costs as you don't really need any
materials or buildings, Just a computer with World Wide Web
capabilities. Internet channel is the lowest cost distribution
compared to others which are prevalent in insurance industry.

* Very fast:

It's made up of electrons so it's VERY fast. Click a link, and you
could be looking at an Australian website, click another one and
you could be in America. If you wanted to get information any
other way from these countries, you may end up having to go there.
The World Wide Web eliminates the need for this. Similarly it
works in distribution you do not have to visit the insurer or call an
agent for purchasing insurance while it is just a click away.

* Global reach:

For an insurer it means, you don't have to set up shop somewhere

and sell to the locals. You can set up an online shop, and sell to
anyone in the world. This means a huge increase in potential
revenues and a fraction of the cost it would take for you to set up
shops all over the world. In U.S.A. there are virtual insurers who
don’t have the branch network.

* Expenses:

A major advantage to the insurer of selling through the new

electronic channels is the scope for greater automation. Under the
new channels, it is the customer who enters personal details
directly onto the ‘web’, through computer, to obtain a quotation. If
the customer accepts it, his data will be fed automatically to the
insurer’s mainframe - using an updated version of the process
called “Electronic Data Interchange (EDI)”. All administration
such as sending out policy documents and setting up direct debits
can then be processed electronically. As data is entered only once
(and by the customer) there is a huge potential for reducing initial
administration expenses. Expense savings will arise not just at the
front end but also throughout the life of each policy and
particularly when a claim is made. The level of savings will be
dependent on the degree of each customer’s appetite for electronic

31
fulfillment. Savings and improvements in service will also follow
from B2B initiatives as insurers increasingly empower distributors
with end-to-end web enabled communication and processes.
Commission is also expected to reduce through the use of B2B
applications for commoditized products and move from being
premium based to transaction and/or service based.

Examples of the comparative level of savings expected are

illustrated below:

Estimated Policy Origination Cost

32
Estimated Policy Administration Cost

PROBLEMS OF INTERNET MARKETING IN INDIA

In India Internet marketing faces a lot of problems. We can divide

them into four categories. They are:-

33
1] LEGAL & REGULATION PROBLEMS: - The first set of
problems emanate from the absence of legal and regulatory
framework for e-commerce.
E-documentation not yet legally admissible. Most of developed
countries have embraced e-documentation as legal tender .In India
it is not legally admissible. Current Indian laws does not provide
for digital signatures, digital certification, electronic payment
system and on line filing of statutory documents of now a physical
signature is necessary for approving of an online order.
Internet marketing also needs effective and trusted mechanisms for
privacy and security. This has several dimensions like
confidentiality, authentication, non-repudiation and certification.

2] ABSENCE OF TAXATION LAW: - In India, the government is yet

to come up with taxation laws for e-commerce systems.

3] INFRASTRUCTURAL PROBLEMS: - India does not have the

infrastructure needed for effective Internet marketing. The basic
infrastructural problems are :-

LOW DENSITY OF TELEPHONE, PC’s, and INTERNET: - In India,

the telephone density, PC population and density of Internet access
are too low to support viable e-business. The one who has access to
Internet face a difficulty in logging onto the Internet because of
poor quality of last mile connection.
• NETWORK LIMITATION: - In India many companies do not
have network of their own.
• INFRASTRUCTURAL BOTTLENECKS: - Infrastructural
bottlenecks at the delivery end will also hamper Internet marketing
in India, delivery is not easy in India within 24 or 48 hours because
of Indian roads and airways.

4] COMMERCIAL PROBLEMS: - Payment problem is one of the

significant problems in India .there is low density of credit cards,
debit cards, and smart cards in India and those who have cards they
cannot pay to international sellers due to some regulations.

TELCASSURANCE (M-COMMERCE)

M-commerce or “mobile commerce” per se, is basically about

buying and selling products and services through wireless handheld

34
telecom devices such as mobile phones and PDAs. It is an entirely
new sales and promotion channel, which is seen as the enabler for
an entire range of mobile Internet services, supporting payments
for telecom, information, media and entertainment services that are
available anywhere, anytime.

Touted as the next-generation of e-commerce, m-commerce

enables users to access the Internet without needing to find a place
to plug in. It is one of the fastest growing e-business markets and
will involve the development and design of a host of new
applications, services, business models and technological solutions.
In fact, it is seen as a complementary service option to both B2B
and B2C e-commerce.

According to market reports, the term m-commerce has recently

not only achieved widespread recognition but is also becoming a
highly visible symbol in the contemporary language of the
information technology culture that has brought significant changes
in the consumer era, along with profound changes in the
terminology and technology of e-commerce. However, as content
delivery over wireless devices becomes faster, more secure, and
scalable, there is wide speculation that m-commerce will surpass
wireline e-commerce as the method of choice for digital commerce
transactions.

The industries affected by m-commerce include financial services

(insurance), involving mobile banking (when customers use their
handheld devices to access their accounts and pay their bills) as
well as brokerage services, in which stock quotes can be displayed
and trading conducted from the same handheld device;
telecommunications, in which service changes, bill payment and
account reviews can all be conducted from the same handheld
device; service or retail, as consumers are given the ability to place
and pay for orders on-the-fly; and information services, which
include the delivery of financial news, sports figures and traffic
updates to a single mobile device.

In late 90’s before the explosion in the prepaid package and

reduction in tariffs, a very few part of the population owned a
mobile phone. Latest surveys shows that a significant and growing
number of people prefer to use a mobile phone in preference to a
fixed line telephone. People find a mobile phone more convenient
and flexible, and are able to control their usage through prepaid

35
vouchers. Over 97% of the UK population has access to either a
fixed or mobile phone. 2.3m people live in homes without a fixed
phone and of the members of the public without a fixed line, 55%
use a mobile phone.”
Since they have such a widespread use, mobile phones should be
taken seriously as a new method of selling insurance. Indeed, some
goods and services have already been purchased using them.

Growth drivers for m-commerce

Over the past few years, the mobile and wireless market has been
one of the fastest growing markets in India where the mobile
infrastructure is comparatively much better than the fixed-line
infrastructure.

The growth of underlying infrastructure is a large reason why we

are seeing interest in m-commerce. There is a critical mass of
people who are ready to embrace m-commerce, but the strong
reason which could fuel the growth would be the organized retail
industry which is showing positive signs and could be termed as
the primary reason as to why we think m-commerce could be huge.

Growth in the telecom sector makes the addressable market for m-

commerce large at over 210 million. With the mobile subscriber
base predicted to be over 500 million by 2010, m-commerce is an
industry looking for exponential growth. As a personal device a
mobile phone is constantly with the consumer. This is another
important factor increasing the opportunity to transact. With a
mobile phone, the issues of physical presence at an outlet, access to
the Internet, amongst others are eliminated, giving the consumer
the opportunity to transact anytime, anywhere.

Mobile phones have greater penetration than the Internet in India.

SMS has almost universal reach. Consumers are already
comfortable using the mobile phone for services other than voice.
The mobile phone, unlike a PC, is not required to have a live
electrical connection to function. The natural progression of these
trends leads to commerce via a device that is connected, on the
person and offers convenience unmatched by any other channel.

The future of m-commerce

36
Experts believe that m-commerce in India will reduce the friction
in transactions associated with time, space and security. All
products and services that are standardized or with a shared
understanding can use m-commerce to greatly improve customer
convenience and business volumes. It would also be driven by
organized retail, entertainment, P2P transactions and trading.
Besides, it would thrive on the backdrop of targeted marketing,
coupons and comparative purchasing.

There are all the reasons to believe that m-commerce would

takeover Internet commerce in terms of the number of transactions.
The number of m-commerce users would definitely outnumber
Internet users and I predict more than 60 percent of the mobile
users being involved with m-commerce in one way or the other
over the next five years. We would also see lot of synergy between
Internet and mobile commerce over coming days especially around
banking and Internet based purchases.

There is no doubt that in the coming years, m-commerce would be

a significant channel. More than m-commerce, “m-payments”
would have evolved. It would be interesting to watch whether it is
the banks or the mobile operators who gain ground here.

37
 THE CASE OF BHARATI AXA LIFE
INSURANCE

Bharti AXA Life Insurance Company, the private life insurance

joint venture between Bharti Enterprises and AXA Group launch of
its first 'Telcassurance' initiative by establishing presence in around
50 exclusive Airtel Relationship Centres (ARCs) covering
Mumbai, Bangalore, Chennai, Kolkata and Hyderabad, including
20 ARCs in New Delhi. Says Mr Nitin Chopra, CEO, Bharti AXA
Life Insurance, "We have launched 'Telcassurance' as a distribution
channel to tap the vast potential that the 40 million Airtel customer
base offers to our mass market business strategy. Our first initiative
for this channel introduces to Bharti Airtel customers visiting
ARCs, a range of life insurance services and access to quality
advice on financial protection.

The fact that these services are offered by a group company of their
trusted telecom services provider will, I believe, encourage this
vast and fast expanding consumer group to buy life insurance. This
will help us achieve the dual benefit of extending life insurance to
a potential and growing customer base while contributing to the
overall penetration of insurance in the country."

The company plans to establish its presence in around 250 ARCs

by December 2007 to target the rapidly growing customer base of
Bharti Airtel. "We aim to expand this coverage to 600-650 ARCs
in the country by next year," adds Mr. Chopra. Bharti AXA Life's
initiative at the ARCs covers branding, access to product literature
and dedicated financial advisors, with the objective of lead
generation and providing access to quality financial advice.

38
BANCASSURANCE

Bancassurance symbolizes the convergence of banking and

insurance. The term has its origins in France and involves
distribution of insurance products through a bank's branch network.
While bancassurance has developed into a tremendous success
story in Europe, it is a relatively new concept in Australia and
Asia.

Most new insurers have entered into memorandum of

understanding with banks to use their branches as outlets for
marketing standard products. State Bank of India, Vysya Bank and
J&K Bank already has joint ventures in life insurance. Vijaya Bank
and Punjab National Bank are in the midst of finalizing life and
non-life venture.

The Insurance Act allows only those companies registered under

the Companies Act to become corporate agents. This gives the new
generation and the old private sector banks a head start over Public
sector banks, which are technically not eligible to IRDA; IBA &
RBI are in discussions to iron out the various issues, as public
sector banks will play a key role in the distribution of products.

In terms of Regulations issued by the Insurance Regulatory and

Development Authority (IRDA) agent for insurance companies
have to obtain licenses. Such licenses may be issued to individuals
or to corporate bodies, like banks, firms, co- operative societies,
etc. In case of corporate agents the license will be issued to person
who is designated by the corporate bodies as ‘Corporate Insurance
Executives’. In addition to corporate agent may avail the services
of the ‘specified persons’, who will have to obtain certificates. This
supplement is written for the benefit of those who are working in
banks and seek to qualify for the licenses and certificates.

The supplement is to be studied along with the main course, which

is the basis of the training and examination for the individual
agents. So far, there is no such supplement for other corporate
agents in uniform manner. In the case of banks however there is

39
likely to be such common issues. That is justified for special
supplement.
Meaning & Definition
There are many definitions of bancassurance and, in essence it does
depend upon the model used, and the stage of development.
However, the definition of a fully developed model that is most
commonly used is:

'Manufacturing and distributing cost effectively banking and

insurance products to a common customer base’

In its full holistic form it realises the full potential of the customer
database of the bank to develop an excellent customer focused
service for consumers, and the highest value on returns for the
bank and insurer. It is not just about selling insurance products to
bank customers but exploits the true synergies between, and
respective strengths of the bank and insurer.

Bancassurance is the term used to describe the sale of investment

products in a bank. The word is a combination of "banc" and
"assurance" signifying that both banking and insurance is provided
by the same corporate entity. The usage of the word picked up as
banks and insurance companies merged and banks sought to
provide insurance, especially in markets that have been liberalised
recently. It is a controversial idea, and many feely that it gives the
banks too great control over the financial industry. It is no longer
prohibited in USA after passage of Glass Stegalle Act in USA.
Gramm-Leach-Bliley (GLB) Act further codified this.

Bancassurance is a word coined in western world, when banks

began to get involved in marketing of insurance business. The
involvement took different forms in different countries. In some
countries, the same institution would offer both banking and
insurance products, seperately or together as customers may need,
managing both in businesses themselves. This was possible when
the institution is allowed to transact both insurance and banking
businesses. This was permitted to certain countries. The product or
services offered to the customer was the product of the bank and
had in it, some elements of insurance. This was strictly banned in
insurance.

40
 In practice, however, there are variations. One variation was that
banks may offer both services combined, but having done the
business, pass on the insurance part of funds to an insurance
company, with whom it had an alliance or a business arrangement.
Both of them may be under the same industrial group.

For example when Unit Trust Of India offered Unit Linked Life
Insurance Policies, it had an arrangement with Life Insurance
Corporation to the extent of the term insurance component. The
Peerless used to offer its account holder insurance cover on
accidental death. This was done by the arrangement with general
insurance company. Although marketed as one product, it was
done under different business entities. The funds were accounted
for and managed seperately by separate institution.

The pattern of developing in India is that the bank markets the

insurance product for fee. None of the banks services are modified
or enhanced by the insurance service. Also the benefits offered are
not in any manner modified or enhanced with the association of the
bank. The product in no way is different from what any other agent
of insurer may offer. The bank is also an agent of the insurer.

Relevance of Bancassurance in the Indian financial sector

I. Integration of the financial service industry in terms of

banking, securities business and insurance is a growing worldwide
phenomenon. The Universal Banking concept is evolving on these
lines in India.

II. Banks are the key pillars of India’s financial system.

Public have immense faith in banks.

III. Share of bank deposits in the total financial assets of

households has been steadily rising (presently at about 40%).

IV. Indian Banks have immense reach to households.

Total of 65700 branches of commercial banks, each branch serving
an average of 15,000 people.

V. Banks enjoy considerable goodwill and access in the

rural regions.

41
 – There are 32600 branches in rural India (about 50% of
total), and 14400 semi-urban branches, where insurance growth has
been most buoyant.
– 196 exclusive Regional Rural Banks in deep
hinterland.

VI. Banks have enormous retail customer base.

– Total of 406 million accounts with aggregate deposits
of Rs.700, 000 crore as at Sept 2000.
– Share of `individuals’ as a category in bank accounts
is steadily increasing.
– Rural and semi-urban bank accounts constitute close
to 60% in terms of number of accounts, indicating the number of
potential lives that could be covered by insurance with the upfront
involvement of banks.

VII. Banks world over have realized that offering value-

added services such as insurance, helps to meet client expectations.
– Competition in the Personal Financial Services area is
getting `hot’ in India.
– Banks seek to retain customer loyalty by offering
them a vastly expanded and more sophisticated range of products.

VIII. Insurance distribution helps to increase the fee-based

earnings of banks to a considerable extent.
Internationally, insurance activities contribute significantly to
banks’ total domestic retail revenues.

IX. Fee-based selling helps to enhance the levels of staff

productivity in banks.
– This is vitally important to bring higher motivation
levels in banks in India.

X. Banks can put their energies into the ‘small-

commission customers’ that insurance agents would tend to avoid.
– Banks’ entry in distribution helps to enlarge the
insurance customer base rapidly. This helps to popularize insurance
as an important financial protection product.

XI. Bancassurance helps to lower the distribution costs of

insurers.
– Acquisition cost of insurance customer through banks
is low. Selling insurance to existing mass market banking

42
 customers is far less expensive than selling to a group of unknown
customers.
– Experience in Europe has shown that bancassurance
firms have a lower expense ratio. This benefit could go to the
insured public by way of lower premiums.

XII. Banks have an important role to play in the pension

sector when deregulated.
– Low cost of collecting pension contributions is the key
element in the success of developing the pension sector. Money
transfer costs in Indian banking are low by international standards.
– Portability of pension accounts is a vital requirement,
which banks can fulfill, in a credible framework.

THE INDIAN SCENARIO

In India, no company is allowed to transact both insurance and
banking business. They are kept separate. In fact, even a company
registered as an insurer has to choose between a life and non-life
business. It cannot do both. Therefore the banks in India Cannot
have the advantages which are available in the European Context.

There are joint ventures in India between banks and foreign

insurers. State Bank Of India, HDFC, ICICI, and Vysya Bank are
examples. But apart from a greater willingness to help each other,
the joint venture will not give either party a greater advantage in
oher;s business. The joint venture is an entirely independent unit
operation, with separate personnel and funds and subject to
different regulations.

The only way in which the bank can be associated with insurance
business in india by becoming a corporate agent, for a
remuneration. The bank can do so for a paricular lifr insurer. The
bank cannot develop any insurance products. It can ofcourse make
suggestions on the basis of its intimate contacts with the customers.
Since 2000 many banks and isures have to agreed to arrangements
for mutual benefit. The LIC has tied with more than one bank, so
also have other Insurers.

For more than a hundered years insurance business had been sold
through insurance agents and their supervisors. This sytem had not

43
been very satisfactory. The LIC inherited this system. The efforts
to make the agents more professional had not yield very
satisfactory results, despite incentives and training programmes.
Manyof them continued to treat the agency busiess casually, as just
source of additional income. The turn over had been high and the
effort of replenishing the strength, costly. The banks have skilled
staff, to whom procurement of insurance can be assigned as a duty.

Opportunities and Challenges

An endeavor is made to identify and deliberate upon some key

opportunities and challenges relevant to the emergence of
bancassurance in India. It is proposed to consider each of the
opportunities and associated challenges together to give a
perspective to the subject under discussion.

The biggest opportunity perceived by all players in the field is vast

untapped an undeserved population. It is the fact that the
penetration of the insurance sector in the rural and the semi-urban
areas is low. The challenge of tapping this vast market is in
inculcating savings habit as a provision for the future. Looking at
the level of poverty, the availability of surplus funds for investing
for future economic security and the propensity to save are very
nominal. Success lies in evolving novel products and schemes and
linking them to the existing relationship of the customers with the
banks.

Wide coverage of geographical areas and availability of banking

services through branch network, especially of the PSBs, is another
potential source of great opportunity to sell insurance products
through banks. However it is observed that there is a faster
growing awareness and demand among bank customers for prompt
and cost effective service and also remote access to their accounts.
In spite of the hype created total branch mechanization (TBM) and
full computerization of branches, this is mostly in metro and urban
centers.

The rural and semi- urban branches still functioning using manual
operation systems. Complete integration of branch network and
operations using the communication infrastructure and maintaining
it through appropriate software, the difficulty of hiring of
professionals from both the sectors with a high comfort level in hi-
tech environment and establishing call centers. In the mean time

44
the challenge lies in setting up distribution procedures consistent
with the manual systems in most banks.

The opportunity to augment fee-based income is another alluring

factor, which has impetus to the concept of bancassurance in India,
especially in a regime of falling interest rates and low levels of
credit off-take. Banks need to take a careful assessment of all costs
involved, including hidden and creeping costs to arrive at the net
benefit. Initial infrastructure set up cost training and orientation
costs, communication and lead conversion costs, employee
productivity and breakeven level of business and such other issues
need to be gone into thoroughly. In short, an in-depth analysis of
the value chain should be done in order to draw valid inferences
and assure oneself of the real income through fee/ commission in
selling insurance products.

The insurers see leverage of existing assets of banks, mainly vast

and valuable customer database as a great opportunity. While this
is true to some extent, the existing database is not available to the
insurers in a ready to use form. There was never a conscious effort
made by the bankers towards effective client segmentation,
evolving of neither proactive customer acquisition policy nor
creation of an institutionalized information pool.
Most of information on customers and cultivation of relationship
with clients has been at a personal level. Thus immediate challenge
posed is to recast the available database and create customer-
centric access records for efficient exploitation of this opportunity.
Another area that could be of interest for bankers to sell insurance
is exploiting the corporate customers and tying up for insurance of
the employees of corporate clients, which could be an avenue with
the easy access.

In most cases of corporate accounts bank take up an activity of

salary disbursement of employees, offering of personal loan
facilities. Where employee base of the corporate client is quite
sizeable, the economics work out favorably to open extension
counters at the factories and work place and these would be better
equipped to sell insurance because of the exclusivity of its
operations, good relationship with the employees and close the
liaison with the top management.

Leveraging the availability of large pool of professional in banks

presents itself as an opportunity to insurers in selling their products

45
through banks. However it has been the experience elsewhere in
the world that there is need felt for adequate training of the
employees in view of vast differences in work culture. Reluctance
to learn on one hand and inability to sell complex insurance
products on the other two are important aspects of challenge from
the human resource angle.

Bringing relevance, motivation and skill development at a

operational level at a bank branches is a key challenge that needs
considerable attention to ensure the success of bancassurance. One
irritant in respect of utilizing the existing bank staff is
remuneration and compensation schemes. A rational, transparent,
well defined and productivity linked package has to be agreed upon
and put it in place with quantitative distribution of amount payable
to all persons involved in the chain.

While the above points are from the macro level view, there are
some micro aspects that need to be focused upon. Many banks
have seized the opportunity to partner with insurers seeing the
apparent benefits, but to translate into reality the challenge is
creating an environment of top- level involvement of bank
managements. There is a lot of fanfare and media coverage while
entering into partnerships, but the same enthusiasm and direction
from top to sustain the tempo may be lacking.

Resolving possible conflicts of interest, establishing credible

service level agreements between the banks and the insurer,
parking of funds and their management, and other similar kinks
need to be straightened to ensure mutually enriching relationships.

PROS AND CONS OF BANCASSURANCE

The reforms in the insurance sector leading finally to the opening
of the insurance sector for private participation have brought in its
wake major changes not only in the design of the products
available in the market but also the manner in which they are
marketed. We have today a host of products coupled with a large
number of intermediaries who market them.

The emergence and spread of bancassurance has been one of the

most significant developments in the retail financial services sector
in India. Many banking institutions and insurance companies have

46
found bancassurance to be an attractive - and often profitable -
complement to their core businesses. While less than two per cent
of total premiums are generated through this channel, there are
expectations that bancassurance will grow to register a dominant
share in the widening insurance market during this decade.

World over, while both life and non-life companies seek to engage
bank branches, non-life products have featured less prominently in
bancassurance distribution. The major reason is the complementary
nature of life insurance and banking products. Both are in the
nature of savings accumulation, one short-term and the other long-
term. The enormous trust that the banks command in the minds of
public is an important reason why insurance companies seek to
enter into wide ranging banking partnerships. The banks, in turn,
find that the customers appreciate the provision of integrated
financial services at the bank’s branches, which in turn builds
better customer loyalty and retention levels.

The insurance companies and the banks together find that their
collaboration at providing a package of financial services not only
benefits customers but also maximizes their profits.

The early bancassurance distribution arrangements in India are

taking off under two categories:-

Distribution alliances by way of corporate agency and insurance

broking relationships, and referral arrangements. Pure distribution
arrangements provide both banks and insurance companies with
additional sales potential with minimum of investment.

The referral form of distribution is an arrangement, whereby the

bank passes on business leads to career agents of the insurance
company with which it has a tie-up. Unlike the referral
arrangement, an agency relationship has the merit of grooming the
bank staff to sell insurance products after receiving proper training
in accordance with the syllabus prescribed for the purpose. The
regulations restrict banks to enter into corporate agency
arrangement with only one life insurer and one non-life insurer.
Banks becoming a corporate agent need to designate a senior
executive to be the nodal point with responsibility to account for
adherence to the terms of the insurance regulation. From a
regulatory perspective, we would prefer that insurance companies

47
go in for a more formal corporate agency model rather than the
referral model.
In India, there are 75 branches per million inhabitants and banks
have expertise on the financial needs, saving patterns and life
stages of the customers they serve. Clearly, that's something
insurance companies -- both private and state-owned -- would find
nearly impossible to achieve on their own. Banks also have much
lower distribution costs than insurance companies and thus are
emerging as the ideal distribution channel. Tying up with banks is
the logical route for insurers to take for achieving extensive
geographical spread and countrywide customer access at minimum
cost.

Until the entry of private insurers, state-owned insurance entities

relied solely on the tied agency force and their own employees. But
agents and employees have their limitations. After a while, the less
aggressive ones see their sources and contacts dry up, and growth
in the sale of new policies decreases. Distances handicap even
those with a sales drive. Here banks excel. They have a captive and
growing customer base they can exploit to cross-sell products. The
concept of universal banking-- one stop financial services
supermarket -- which originated in Europe is slowly beginning to
evolve in the Indian scenario by offering the prospect of low-cost
one-stop shopping for all of a business's financial services. To
sellers there's the prospect of scale economies and cross marketing.

Bancassurance will help cut overlapping costs and try to gain

economies of scale and scope and, thereby, driving down unit costs
in the fashion of the vertically integrated 20th century corporation.
With a low-cost structure, the banks can leverage on a cost-
effective bundle of business financial services, including cash
management, lending, capital markets, risk management,
retirement savings, and all types of commercial and personal lines
of insurance.

Bancassurance has the potential to be an effective distribution

channel in India, especially because of extensive network, built
over the years. Insurance companies have to take advantage of the
customers’ long-term trust and relationships with banks. The
association is a mutually profitable one, where the bank can widen
its range of products on offer to customers and earn more, while
the insurance company gains by getting constant visibility at the

48
bank branches, and also the security of receiving premium
payments on time.

The advent of the e-economy has also radically challenged

traditional principles of corporate strategy, including how value is
created and the basis of competition. Today, creating value is about
scale in the formation and management of strategic alliances. A
bundled package of commercial financial services from a financial
conglomerate, for example, is likely to benefit small and middle-
market businesses most. Large corporations already enjoy
enormous buying power and can afford at least some internal staff
that is experts in each of the intricate areas of financial services.

The products that are likely to sell through bancassurance are

simple vanilla products. There is an element of complementarily in
banking and insurance products. The various schemes for
disbursing credit are likely to generate a demand for insurance
cover, and availability of insurance cover in turn will facilitate
disbursement of credit in risk prone activities. The insurance
companies need to introduce simple products that can be sold over-
the-counter at the banks. Both Banks and insurance companies
have rural and social obligations to meet as prescribed by their
respective regulators. The Banks and insurance companies can
work together in this area and it is possible that the banks while
meeting their obligations in terms of lending requirements to the
rural and social sectors can complement the efforts of the insurers
in meeting the latter’s obligations too. Such relationships will also
help in synergizing the strengths and capabilities of every insurer
and the banks, which with their network in the rural areas offer a
perfect opportunity.

The bancassurance model also addresses the problems of

individuals and small and medium sized establishments by
providing a variety of financial services under one roof. The
convergence of financial services reduces the operational costs of
the banks and insurers, which can be passed on to the customer
without materially affecting their own margins.
However large customers continue to value diverse and objective
advice, and use different banks, payroll companies, insurance
companies, and tax and legal firms. This enables gaining fresh
perspectives from all of them because they fear that with a bundled
package their interests would be subordinated to those of the

49
provider. This category of customers is bound to be outside the
scope of bancassurance.
Financial services and information technology have undergone
rapid and massive changes in all aspects of their business: product
and services, sectoral structure, market segmentation, competitive
environment. Today Information Technology has changed the
nature of financial markets and financial transactions. The pace and
reach of change are unlikely to slowdown in the foreseeable future.
While the Banks and capital markets have adapted to these
changes, can insurance companies cope with this change? By and
large, insurance companies have been conservative users, putting
heavy emphasis on proven reliability and toughness of IT
applications. Major applications decisions and development
processes are often ponderous and time-consuming. While
insurance companies accept the significance of information
technology in their business, they remain undecided in their
attitude towards it: is at a tactical tool or strategic lever? Is it a core
business? Does technology offer sustainable competitive
advantage? Is it a means of differentiation among between banks
and insurance companies?

On the other hand, bancassurance is a network business, whose

value increases with the number of users and wider reach, which
implies at least some degree of inter-operability. Hence the need
for co-operative systems and networks: financial institutions have
been remarkably successful in developing and managing such
systems and networks. There is no denying that there are
significant issues relating to software and systems integration for
bancassurers. The transition from closed legacy systems to open
new technology is not complete, and integration of parallel legacy
systems is complex. The existing institutions are adapting to the
new environment while the new entrants are coming up with the
state of art technology and hence will have no difficulty in
adopting the bancassurance model.

The emergence of banks as promoters of insurance companies and

the distribution of insurance products through corporate agency
model by the promoter banks also raises concerns about the
potential concentration of economic power and the ability of the
regulators to manage risk. A more ubiquitous concern in future is
the potential for "systemic risk" in the economy. This is an area
that requires constant monitoring by the regulators.

50
Social, environmental and ethical concerns are increasingly
recognised as a source of both risk and opportunity. Clear
procedures need to be established to include such concerns as part
of the review process of the insurers while examining
bancassurance partnerships. Banks also need to have clear and
detailed procedures to protect the integrity of their customer’s data
and to give customers the choice as to the level of privacy they
wish to enjoy.
As intermediaries, insurers are taking on new financial risks.
Insurers investing in credit derivatives effectively take on bank
credit risks. Insurers, who underwrite professional indemnity
policies for bank directors and officers, effectively assume banks'
operational risks. Insurance company managers must keep abreast
of these developments. They must understand how their
companies' risk profiles have changed, and how new activities can
have opposing effects on both sides of the balance sheet. All
insurance industry professionals need to become more astute a
assessing risks, and competency needs to be upgraded at all levels
in the company.

Regulators must also keep pace. In supervising individual insurers,

regulators need to look beyond insurance risks and protecting
policyholders. From a broader systemic perspective, greater
engagement of insurers in financial markets raises important
questions concerning their impact on financial stability. How well
are insurers managing this new portfolio of risks? These are issues
that will continue to engage the attention of the regulator.

In addition to the larger issues raised about the conglomerates,

there are also a number of operational issues that have to be
addressed for a successful experiment in bancassurance. While
banking is a short-term business, life insurance is a long-term
relationship with the client. The insurers and bankers have to
understand and appreciate each other’s prospective and work
together to make a success of the business of selling insurance.
Unless the operational details are worked out and the Bank staff
trained adequately, it would be difficult to ensure a coordinated
action at the field level. It is not enough that there is commitment
to the model at the higher management level. It should percolate to
the lower levels.

51
The large untapped potential for insurance exists in the rural areas
and the branch network in those areas is primarily under public
sector management. The success of the model would, therefore,
largely depend on the attitude of the employees of the public sector
undertakings. Are they likely to look at it as an opportunity or as
an imposition? What should be done to motivate them to sell
insurance products? How do we devise a system of incentives for
those who participate in this programme? The effectiveness of the
programme will depend upon how successfully this issue is
addressed.
The credibility of the model comes into question if there is mis-
selling. A cordial banker-customer relationship that has developed
over the years would turn hostile if due to ignorance or oversight
the full implications of an insurance policy are not fully explained
by the banker or understood by the customer. There is, therefore,
need for great caution in selecting the products for sale through this
medium. In addition, those in charge of sales should be trained
adequately to avoid any miscommunication.
As indicated earlier, the number of policies sold through
bancassurance model is modest as of now. I have no doubt that it
has the potential to be an effective distribution channel because of
the extensive network, vast customer base and the desire to
maximize revenues from other sources to make up for soft interest
regime. I am equally confident that bankers and insurers would
together address and overcome the difficulties that arise in this
partnership and serve the interests of their institutions while
extending the benefits of insurance to the large sections of
population which need this facility and but are presently outside its
reach.

COOPERATIVES
(NGO’S, SHG & MFI’S)
For large companies to tap vast markets at the bottom of the
pyramid (BOP), quality products and services have to be specially
designed and developed or selectively altered and made available
at a lower cost. Serving BOP customers is a profitable opportunity
for corporations. It is also as a social imperative as two-thirds of
the human population belongs to bottom of the economic pyramid.

The Insurers have targeted only customers at the upper end of the
economic pyramid and have ignored BOP customers assuming that
they are inaccessible and unprofitable. Now they are viewing BOP

52
markets as an unexploited opportunity and take proactive
initiatives to fulfill the needs and wants of low income consumers.
Moreover, through this Insurers can curtail poverty and improve
the living conditions of the world’s poorest population.
Also in India all insurers have to achieve their specified business
from rural sector. These are known as social norms and IRDA is
very watchful on this. Recently IRDA has announced that the
percentage of business from rural area has to be increased, hence it
is likely that target of social norms will be revised upward soon.

In such a scenario cooperatives (as a distribution channel) can be

very successful. We have witnessed the interest of insurers is
increasing in bottom of pyramid.

Advantages of a co-operative/mutual insurance

Organisations in the social economy such as co-operatives, mutuals
and voluntary associations may be formed because the state does
not provide sufficient quality or quantity of a particular service
such as health, care and education. Consumer co-operatives
generally emerge when existing services either are not accessible
or not available. Consumer co-operatives, such as an insurance co-
operative, are considered as an extension to the individual
members’ household economy. They aim to improve the
conditions for the consumer and the economy of the household
(which includes time, knowledge, self-sufficiency and money). The
consumer co-operative will assist the households to organise and
solve their problems through education, dialogue and improved
access to services and products available.

Identifying the needs of the poor

Co-operative and mutual insurers are in a better position to identify

the needs of their customers and community due to the closer links
through trade unions, credit unions, agricultural and consumer co-
operatives. The resulting increased awareness and understanding
enables a more personalised, flexible and appropriate service. Co-
operative insurance companies operate for the benefit of their
members and provide affordable premiums, fast and efficient
service and responsive product development.

They offer stability through a clear community-minded mission

and facilitate member involvement in distribution, promotion and

53
product development to the benefit of all consumers in the
community. The cooperatives can take a long term, sustainable
approach to management of the insurance scheme in the best
interest of the member without needing to satisfy the short-term
return requirements of shareholders, as the owners and members
are the same.

Stock companies are faced with a conflict of interest when the

customer’s requirements do not provide sufficient profits or return
on investments, which is one of the reasons why established
insurers steer away from high-risk low-income communities and
concentrate on the middle/high class customers demanding ‘off the
shelf ’ products. Co-operative insurers dedicate substantial
resources to research, health promotion and loss prevention as the
policyholders’ best interest is served by preventing losses. There is
an obligation to focus on all potential customers and not just the
profitable ones, they have a duty to provide where there is a need,
and the need for protection is the greatest by the poorest.

Trust
In an environment where regulation is weak and corruption is high
there is very little trust in any institution. This is more of a
problem in the informal sector where the poor have no rights at all
and are constantly manipulated. Co-operatives are more
trustworthy, less likely to engage in opportunistic behaviour and
exploit the consumer. The co-operative structure makes it easier to
win the trust of the members, particular in the face of market
failure and it is better placed to tap into member’s know-how,
loyalty and ideas. The strong community relationship, good user
networks, member involvement and democratic process encourage
a growing feeling of trust and building of social capital to develop
a better society. Trust is a major advantage of the co-operative and
it encourages a greater number of transactions and commitment
from the members to act in the best interest of their organisation
and improve its economic efficiency.

Morale hazard, adverse selection and fraud

Mutual insurance policies are participating policies, where
policyholders share the profits or losses earned by the insurer. This
reduces the risks borne by the insurer and decreases motivation for
morale hazard and fraud by the policyholder. Peer pressure from
within established social groups can encourage members to avoid

54
morally hazardous behaviour, particularly in small groupings and
communities. In community-based schemes, each policyholder is
an owner of the scheme and elects a group of policyholders to
manage the operations, usually on a volunteer basis. This enables
poor households to retain control and ownership.

Due to lack of credible information in developing countries,

particularly in the informal sector there is a need and reliance on
local knowledge to underwrite policies correctly and verify claims.
Insurance provided through an established co-operative body
means that risks are considerably reduced as each society has close
knowledge and supervision of the member and his/her risks. This
existing trusted relationships and solidarity with members provides
the opportunity to build a stable policyholder base. This is
important when incomes of participants grow at different rates and
richer participants who find they are giving more tend to leave the
group. Membership-based organisation thrive when the members
come from a specific loyalty or occupation as fear of future
exclusion from the scheme and the accompanying social network
keeps participation high.

Co-operative insurers are less likely to manipulate the poor and

participate in underhand selling tactics such as over-pricing,
misleading advertisements and excessive management costs. There
is less likelihood of the manager taking advantage of asymmetric
information and failing to enforce obligations as the policyholder is
the owner and henceforth the employer of the manager. The
ownership of co-operatives by consumers, workers or suppliers
means that it is easier for them to monitor the performance of the
company and its employees on a regular basis. Co-operatives
involve their members not only in corporate governance but also in
the day to day running of the scheme.

Education

Co-operatives and mutuals have a long-standing affiliation with the

poor and have the expertise and means of communicating the needs
and benefits of insurance. The nature of insurance is based on the
concept of mutuality, risks is shared by the many to protect the
few, the poor are used to this concept as they are familiar with
traditional mutual self-help mechanisms. As members are owners
of the scheme and ultimate beneficiaries of its success they have a

55
strong incentive to educate themselves and learn about their own
business.

Empowerment

Co-operatives empower individuals by providing them with the

opportunity to participate in decisions that impact their livelihoods.
It gives the poor a voice, gives them a choice, and a chance to find
solutions to their specific social and economic needs. Policyholders
have representations on special advisory committees dealing with
company performance, products and claims, enabling members to
take direct control over decision making and on the quality, type
and delivery of service.

The co-operative structure allows the poor to have more bargaining

power, benefit from economies of scale and negotiate better deals
for themselves. Success of the insurance scheme would enable the
co-operative to reduce the inequality and disadvantage of members,
staff and the wider community.

Costs and price

Co-operatives do not operate under a profit motive, surpluses are

reinvested or paid back to members, keeping costs and premiums
down. Community involvement reduces the costs of labour and
resources needed for information collecting, educating, marketing
and monitoring policyholders. The Co-operative structure enables
lower costs by offering insurance to large affiliated groups, many
farmers in developing countries belong to at least one co-operative
society that provides them with credit, marketing, equipment or
farming methods. These societies are a natural and cost-effective
distribution channel for insurance particularly in remote areas and
lower income groups in towns and cities.

Co-operatives make more effective use of the resources of their

members and the economic-efficiency of the organisation as
surpluses are returned to the members in the form of dividends,
lower premiums, loss prevention activities or additional coverage.

56
Weaknesses in the co-operative structure
Capital

Mutuals principally rely on retained earnings to expand their

capital base, they are unable to raise capital by issuing equity. This
restricts their ability to undertake large and long term investments,
preventing them from entering into new lines of business, regions
or making acquisitions. At or near the subsistence level, the poor
have little available for saving and whilst these can be mobilised,
to depend on them to provide the required capital is unrealistic in
the short term.

Accountability

Offering insurance through co-operatives or credit unions as

member benefit schemes surpasses regulatory requirements.
Without the legal requirement of audited financial statements and
performance reports, there is a greater need for internal
mechanisms and transparency to ensure sufficient controls and
checks are in place. Additionally, without the incentive of stock
options to guide managers’ objectives and insufficient board
control and expertise there is a greater possibility of fraudulent
activity by company officers.

Lack of control on managers also leads to members needs being

ignored in product development and a lack of motivation to open
membership to other groups. The co-operative can become an
inward looking and stagnant organisation, it can also become a tool
for government manipulation and propaganda. Access to services
requires permission from group leaders, who may abuse their
privileged position to favour certain parties, be tempted to steal
funds and exclude the poorest in the community. Mutuals,
therefore, tend to concentrate more on lines of business that require
limited management discretion and with less underwriting risks
which may be to the detriment of the needs of the policyholder.

Technical expertise

Group leaders are not insurance professionals or managers and are

unable to manage the scheme effectively and efficiently.

57
Managerial salaries in co-operatives tend to be lower than in the
private sector and therefore cannot attract qualified personnel and
modern technology. Limited experience in collecting and
analysing data makes it difficult to design suitable coverage,
establish premiums and set up adequate claims reserves. There is
an overwhelming need by co-operatives in developing countries for
technical assistance and financial support to enable them to manage
their insurance schemes.

Size

As the organisation grows it tends to lose its co-operative identity

and also its closeness with its members needs. Conversely, the
organisation can also become inward looking and become an
exclusive group, which prohibits new members and stifles
innovation and progress.

Delivering insurance to the poor

An insurance scheme for the poor which is affordable, adequate

and sustainable is difficult to achieve due to lack of financial
capital, technical resources, adequate numbers, trusts, regulatory
requirements, transparency and accountability. The road to
achieving a comprehensive insurance scheme is full of pitfalls and
must be undertaken cautiously and carefully with good corporate
governance at the heart of each step. The appropriate form for
servicing the poor and one that has been used for centuries is that
of a co-operative. A good co-operative will serve the needs of
members, providing flexible, affordable and appropriate products.
As the scheme belongs to the poor it will minimise fraud and moral
hazard, and encourage participation.

There are generally four models of distribution of insurance in rural

areas.

1. Partner Agent Model

2. Community Based Model
3. Full Service Model
4. Provider Model.

58
1. The Partner-agent model of insurance distribution

Partner Agent

Product
sales
Product
Policy
holder
Manufacturing

Product
servicing

Service
provider

• Commercial or public insurers together with

MFIs or NGOs Collaboratively develop the product.
• The insurer absorbs the risk
• MFI/NGO markets the product through its
established distribution network.
• Lowers the cost of distribution and thus
promotes affordability.
• Agent can be any one of NGO, SHG or MFI.

• Win-win situation: the distribution potential of

the MFI with the institutional capacity of an established insurer.

59
60
2. COMMUNITY BASED MODEL

Local communities, MFIs, NGOs and/or cooperatives

Develop and distribute the product, manage the risk pool and absorb the
risk.

Similarly to insurance cooperatives, there is no involvement on the

part of commercial insurers.

THE CASE OF VIMO SEWA

Vimo SEWA is one of the most famous CHIs in India. However, it

cannot be said to be representative of CHIs in India for various
reasons. For one, it is much larger than most of the CHIs in India.
Secondly it is more professionally managed as compared to other
CHIs that are dependent on volunteers.

Due to the large size of its membership, direct participation of the

members in the management of the scheme is not possible.
However, Vimo SEWA is committed to ensuring that the needs
and interests of members guide the scheme design and
implementation.

Community participation in Vimo SEWA governance occurs in

two ways. First, the governing body is made up of representatives
of the member community (including insurance members). Major
decisions such as premium and coverage amounts and expansion of
the scheme to new geographic areas are taken in consultation with,
and after approval by, the elected representatives. Second,
members of the insurance programme actively express their
feedback and their needs vis à vis the scheme to the workers who
market and service the scheme. These inputs are incorporated into
the design of the scheme to the extent possible.

Yet another mechanism for community participation in the scheme

is the Claims Committee which scrutinizes and approves claims
that are submitted. The med claim committee, which scrutinizes
and decides on each health insurance claim submitted, is made up
of SEWA aagewans representing different trades practiced by
SEWA members. This mechanism ensures community
participation and transparency in the claims decisions.

61
Vimo SEWA has been offering an integrated insurance package to
its members since 1992. The primary aim of the insurance, viz, to
protect SEWA’s members from risky events and associated
financial losses, has stayed the same over the years. The
operational aspects of the scheme have changed with time, always
in response to the needs of the members.

For instance, Vimo SEWA de-linked from the insurance companies

for a few years because members were not being satisfactorily
served by the insurance companies. However, once it was able to
negotiate better servicing, it linked up again with the insurance
companies, thus shifting the risk from the member-based union to
the insurance company.

In terms of risks covered, the package has enlarged its coverage to

the husbands and children of members because that is what the
member demanded. Coverage amounts have also been increased to
offer better protection to SEWA’s members; this has been possible
in part due to the improvement of SEWA’s negotiating power vis a
vis the insurance companies.

3. FULL SERVICE MODEL

• Commercial or public insurers provide the full

range of insurance services.
- Product development
- Product distribution
- Risk absorption
E.g.- TATA-AIG sells micro insurance with this model.

DISADVANTAGES OF FULL SERVICE MODEL

• Reduces processing time and allows for strong

controls throughout the system
• Lack of sparring
• Distribution, particularly in rural areas may be
cost-ineffective
• Disadvantage of the ‘power balance’: the small client versus
the big firm.

62
4. PROVIDER MODEL

The service provider and insurer are same.

Like hospitals provide policy to individuals.

This model is not much practiced in India hence not discussed.

In India Partner agent model and Full service model are of

primarily used by insurers to reach rural customer.

63
 OBJECTIVES OF STUDY:
This study has following objectives:

 To know the distribution pattern among investors.

 To know how e-commerce can influence the investor’s of

insurance.

 To know the features the investors look for in insurance

product.

 To know the distribution preference of investors.

64
 RESEARCH METHODOLOGY

1. GEOGRAPHICAL AREA OF RESEARCH:

GHAZIABAD NOIDA

2. SAMPLE UNIT:
Satisfaction level measurement of customers at service station.

3. SAMPLE SIZE:
sample size for the survey is 45 respondents

4. CRITERIA:
all kind of persons

5. METHODOLOGY INTERVIEW:
Intercept followed by face-to-face.

Research Design:

It is the plan, structure of investigation conceived so as to obtain answer

to research question and to control variance. It is the specification of
methods and procedures for acquiring the information needed.

It is concerned with:

 Overall operational pattern

 Framework of the project

 Stipulates what information is needed

The first step that undertakes in the report was the selection of research. The
research design, which was adopted for the study, was exploratory and
descriptive in nature. At first exploratory research was conducted to define
know the problem well and the descriptive research was conducted.

The two types of research are as follows:

65
 Exploratory research -It is to generate new ideas. In this
respondent should be given sufficient freedom to express themselves.
Eg: - In a business where sales have been declining for the past few
months, the cases exploratory research used to be conducted.

 Descriptive research: They are well structured. It can be complex,

a high degree of scientific skill on the part of the demanding a high

degree of scientific skill on the part of the researcher. It can be
taken in certain circumstances. When the researcher is interested in
knowing the characteristics of certain groups such as age, sex,
educational level, occupation or income, a descriptive study may be
necessary.

 Cross-sectional studies: It is concerned with a sample of

elements from a given population. Data on a number of
characteristics from the sample elements are collected and
analyzed.
• It has a wider scope.
• Detailed information can be obtained.
• It is economical.
• It takes less time.

 Data collection

66
 Primary data
 Secondary data

Primary data

 Observation method, and

 Questionnaire
 Unstructured interview

Secondary data

 Fact sheet of particular fund

 Internet
 Newspaper
 Magazines
 Others

67
PRIMARY DATA:

Observation method: -
This is one of the most reliable sources of collecting primary
information. During two months summer internship program, I have
collected too much information from customers about the product. Most
of the customers rely on 100% insurance based product, and the rest are
looking for debt as well as government security based product.
Whereas, I have told the person about the insurance those who are
looking for equity-based product from conservative point of view. It is
sure that insurance is the subject to market risk. But risks are diversified
in the insurance; the customers are shown the asset allocation and the
performance of the particular fund so that they can understand that risk is
less than the shareholders.

Questionnaire
For this study data are collected with the help of questionnaire. For that
perpose research is conducted between 100 respondents.

Unstructured interview
For this study an unstructured interview is also done with bank managers
of Punjab National Bank, Vijaya Bank and Indian Overseas Bank.

68
 ANALYSIS OF DATA
List of Graphs:-
 Type of Policy

 Source

 Persons having Bank A/C

 Kind of Computer

 Internet Connection

 Factors for purchasing Insurance

 Grid Analysis

69
Q.1. What kind of insurance policy do you have?

70 70

60
50
40 life
35
30 general
both
20
15
10
0
life genral both

Q.2.From where do you purchase it?

retail outlets
ngo\m fi
3%
6%

bank
18% agent
40%

cellphone
4%

internet
15%
broker
14%

agent broker internet

cellphone bank ngo\mfi
retail outlets

70
Q.3. Do You have a bank account?

100 95
90
80
70
60 yes
50 no
40
30
20
10 5
0
yes no

Q.4. Do you have a) personal computer b) laptop c) PDA?

45 45

40
35
30
25 25 pc
20 20 laptop
15 pda

10
5
0
pc laptop pda

71
Q.5. Do you have internet connection?

53 53

52
51
50
49
YES
48
NO
47 47

46
45
44
YES NO

Q.6. Which is the foremost factor in your consideration when you choose
the channel for purchasing insurance?
a) Trust c) Affordability
b) Convenience d) speed

spped 85

affordability 56

convenience 45
Q.7. Grid
analysis.
trust 68

0 20 40 60 80 100

72
 70
65 65
60
54
50
45
40
35
30 30
25
20 20
15 15
10 10
8 7
5 5
0 0 0 0
A B C D

agent broker internet cellphone

bank ngo\mfi retail outlet

FINDINGS:
For new distribution channels to develop, changes in legislation
would be needed:

A. amendment of s.6 of the Banking Act to allow banks to

distribute insurance

B. amendment of Insurance Act to permit entry of insurance

brokers and corporate agents

C. promulgation of e- commerce laws for internet to be used for

insurance sales rather than only for promotion.

The guiding principle should be that it is only in cases where

market forces, self regulation, and interaction with customer bodies
are likely to be insufficient that rules, regulations, and legal
measures should be adopted.

73
 LIMITATIONS OF STUDY

This study has following limitation with it:

• Sample size is limited to 100 educated agents and insurance

holders.
• Sample size may not adequately represent the national market.
• Overall scenario cannot be predicted due to recent changes in IT
sectors due to rupee appreciation.
• Since insurance is very big market in India due to that many laws
related to insurance are remain untouched in this study.

74
 CONCLUSION AND
RECOMMENDATIONS

The new electronic market place will increase competition and

hence force changes in the way that insurance business is
conducted. The fact that consumers will be able to easily compare
quotes from different companies will mean that insurers will have
to differentiate their products and introduce brand names that
capture the customer’s imagination.

The expense savings brought about through greater automation will

be passed onto the consumer in the form of lower prices. However,
consumers will not buy on price alone, they will also buy on
convenience and from trusted names. Trust may be developed
through the improving levels of service possible in the new e-world
such as 24 hour call centre assistance.

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Advances in data collection techniques such as data mining may
mean better risk assessment and hence that less capital is required
to back insurance companies. This could lead to the set up of
virtual insurers by venture capitalists and affinity groups. Advances
in data collection will also mean that actuarial modelling becomes
increasingly sophisticated with it covering will need to be more
forward looking customer behavior as well as profitability.

Actuarial education in light of these developments. Se which

organisations will succeed? Will it be those who invest in the latest
technology or those who build their own entry barriers for other
players? Which will be more important, commercial intent and
positioning or customer service and management attitude? For
answers to these questions, we will need to wait and see.

A. integrity- the information which is given to a client at any stage

should be complete, accurate, and comprehensive so that the
potential customer can make a well informed, balanced decision

B. competence- ability of the company and its representatives to

explain the product/ service

C. confidentiality- of client information

D. complaints handling- in an expeditious and fair manner

E. compliance- ensuring that the company lives by the rules it has

set for itself

F. Self regulations- there should be a set of industry rules and

regulations that ensure enforcement

G. fair competition- a level playing field which ensures that all

companies follow the above norms

I believe that these norms should govern all the interactions, which
take place between the customer and the insurance company
irrespective of the manner of distribution.

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“IN FUTURE INSURANCE WILL BE BOUGHT NOT SOLD”

77
78
 SURVEY QUESTIONNAIRE
Name: ____________________

Age: ________
Occupation: ________________________________
Address:___________________________________________
__________________________________________________
Contact no. ____________________

Q.1 What kind of insurance policy do you have?

a) ……………………………………………………….
b) ……………………………………………………….

Q.2. From where do you purchase it? Tick the right choice.
a) Agent ……. b) bank…….
c) Broker …….. d) Internet ………
e) Retail outlet……. f) cell phone…….
g) Cooperatives ……..

Q.3. Do you have a bank account?

Yes\No ……………

Q.4. Do you have a) personal computer b) laptop c) PDA?

…………………………………………………………

Q.5. Do you have internet connection?

YES \ NO ……………………..

Q.6. Which is the foremost factor in your consideration when

you choose the channel for purchasing insurance?

a) Trust ……………… c) Affordability …………

b) Convenience ……… d) Speed ………………...

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Q.7. Mark the answer in appropriate field?

channel Not currently I will consider I would

I currently Use this if it is never buy
purchase channel but available through this
through this would do so channel
channel happily

Agent
Broker
Internet
Cell phone
Bank
NGO\MFI\
SHG
Retail
outlets

SIGN. _________________
DATE _________________

80
 BIBLIOGRAPHY
BOOKS:-

 coughlan T. Anne- SALES CHANNELS – (Prentice Hall

Publication)

 Bodla, B.S- Insurance fund, environment & procedure –(Deep &

Deep Publication)

 Gupta, P.K- Fundamentals of insurance – (Himalaya Publication

House)

MAGAZINES/ JOURNALS:-

 Insurance Post

 Asia insurance review

 IRDA journal – JUNE 2007

 Papers of Dr. Rowland T. Moriarty

 Economic Times

WEBSITES:-

 www.bimaonline.com

 www.irdaindia.com

 www.bajajallianz.com

 www.icicilombard.com

 www.moneycontrol.com

 www.microfinancegateway.com

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