SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

SECTION I: KNOWLEDGE OF THE INSURANCE INDUSTRY

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

nationalisation and back to a liberalized market again. Tracing the developments in the Indian
insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.

A BRIEF HISTORY OF THE INSURANCE SECTOR

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

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical
information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.

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

Some of the important milestones in the general insurance business in India are:

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

1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins and
the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general
insurance business in India with effect from 1 st January 1973. 107 insurers amalgamated and
grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

STRUCTURE OF THE INSURANCE INDUSTRY

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

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

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

BASIC FUNCTIONS OF THE INSURANCE INDUSTRY

1. Risk Perception and Evaluation:

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

2. Designing the Insurance Product:

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

3. Marketing of the Product:

SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

The core function of the marketing force of an insurance company is to generate

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

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

4. Selling of the Products:

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

5. Management of Portfolio:

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

INSURANCE INDUSTRY: CLASSIFICATION

INSURANCE

LIFE INSURANCE GENERAL INSURANCE

Fire Insurance Marine Insurance Mediclaim Motor Vehicle

SOME PLAYERS IN THE INDUSTRY:

Life Insurance General Insurance

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

INSURANCE SERVICE: ITS USERS

USERS OF INSURANCE SERIVCE

INDIVIDUAL INSTITUTIONAL

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

An individual or an institution, a person or a group of people availing the services is termed to

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

The need and requirement can’t remain static. The business environmental conditions influence
the process of change. The professionals engaged in servicing the insurance organizations bear
the responsibility of understanding the changing level of expectations of the different categories.
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

SECTION II

INSURANCE POLICY: THE TOTAL PRODUCT CONCEPT

 SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

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

 LEVEL 1:

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

 LEVEL 2:

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

1. Brand:
In order to distinguish itself from the competitors, the Insurance Company gives a brand name to
its policy. This brand name gives an identity to the product (policy) offered by the insurance
company.
Thus ICICI Prudential Life Insurance has brands viz ICICI Pru Smart Kid, ICICI Pru Save ‘n’
Protect, ICICI Pru LifeLink, etc.

2. Attributes:
Just giving a brand name to the policy may not be enough for the insurance company to distinguish
its offerings. The product offering must also have attributes that will attract the consumers to take
the policy. The attributes must suit and satisfy the needs wants and desires of the various types of
consumers that the company is targeting at.
Thus ICICI’s investment plans suit the consumers who want to secure their family through
insurance or invest money for growth. And its retirement plans suit the ones who want to enjoy
their fruits of labor after retirement or want to go for a dream vacation.

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

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

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

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

Customer education and training:

The customer education and training is very important for the insurance company. The
agents play a vital role in this context. The customer can be educated on various benefits that
can be accrued in his future life by taking a policy. This is where the agents’ communication
skills come into the picture. The insurance company has to play an active role in enabling the
agents to impart the best customer education through appropriate training given to the agents.

Customer complaint management:

Customer complaints management with regards to delay in discharge of claims must be
effectively handled by the insurance company to have competitive edge over its competitors.
The complaint management will help the company to get the consumers closer to the
organization as the consumers feel that their grievances are taken care of.
Thus LIC has an online feedback system where the consumers of the policy can register their
grievances.

Payment options:
The insurance company can offer payment options to the consumers with regards to payment
of premium – the mode of payment and the period within which the premium amount has to
be paid.
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

SECTION III: WORKING OF THE INSURANCE INDUSTRY

INSURANCE INDUSTRY: THE PHILOSOPHICAL GOAL.

Channelising
INSURANCE COMPANY Command
Economy

A B C D

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

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

The main risk faced by the insurance company is when all the insurers claim for the
reimbursement at the same time. This situation is very rare to occur, and is one of the major threat
that the insurance company faces in its business operations.
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SECTION IV: MARKETING MIXES IN THE INSURANCE INDUSTRY

PRODUCT MIX

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

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

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

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

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

The partially tapped or totally untapped profitable segments of the future should be identified and
tapping the potentials optimally is also important.

A sound product portfolio is the need of the hour and therefore the regulatory barriers or
constraints in activating the innovation process should be minimised.
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Product Planning & Development

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

Thus the product planning and development should:

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

PROMOTION MIX

With the advent of private players in the insurance, companies resort to rampant promotion.
Promotion mix for this sector is as follows:

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

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

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

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

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

Word of Mouth Promoting.

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

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

World Wide Web

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

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

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

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

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

 Making possible cost of effectiveness

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

PLACE

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

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

Another important dimension to the Place Mix is related to the location of the insurance branches.
While locating branches, the branch manager needs to consider a number of factors, such as
smooth accessibility, availability of infrastructural facilities and the management of branch offices
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

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

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

PEOPLE

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

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

PHYSICAL EVIDENCE

Physical evidence includes facility design, equipment, signage, employee dress, tangibles, reports
& statements.

 Signage:
Signage personifies the insurance company. It gives an identity by which users recognize the
company. A signage depicts the company’s philosophy & policy.
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

Following are the some of the examples

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

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

PROCESS

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

Standardization: The proposal/claim forms and other formalities are standardized in case of
each branch of an organization. Standardization here implies procedural standardization. But
the processing may differ from case to case in case of claims.

Customization: As stated earlier, each case has its own peculiarities. Hence amount of
premium, proceedings of a claim etc. are quite subjective.

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

Simplicity: Use the national language/regional language, customer friendly forms and
instruction manuals, segregation of various department into counter etc has made entire process
quite simple.

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

Customer Involvement: Customers involvement in case of insurance organization is quite

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

ICICI PRUDENTIAL LIFE INSURANCE LTD.

ICICI Prudential Life Insurance was established in 2000 with a commitment to expand and reshape
the life insurance industry in India. The company was amongst the first private sector insurance
companies to begin operations after receiving approval from Insurance Regulatory Development
Authority (IRDA), and in the time since, has taken several steps towards its realizing its goal.

The company's wide range of products, distribution strengths and powerful brand has driven its
growth across a cross-section of people and cities. On June 30, 2002, the company crossed the
150,000 policies milestone with a premium income of over Rs. 165 crores and a total sum assured
in excess of Rs. 4,100 crore to establish itself as the No. 1 private life insurer in the country.

VISION
The vision is to make ICICI Prudential Life Insurance Company the dominant new insurer in the
life insurance industry. This it hopes to achieve through our commitment to excellence, focus on
service, speed and innovation, and leveraging our technological expertise. The success of this
organization will be founded on its strong focus on values and clarity of purpose. These include:
• Understanding the needs of customers and offering them superior products and service
• Leveraging technology to service customers quickly, efficiently and conveniently
• Developing and implementing superior risk management and investment strategies to offer
stable returns to their policyholders
• Providing an enabling environment to foster growth and learning for their employees
• And above all building transparency in all its dealings.

PRODUCTS OFFERED

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

PROTECTION PLAN
• ICICI Pru LifeGuard - a low cost-high protection plan that offers protection over a
specified period.
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

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

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

INVESTMENT PLAN

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

Each of these policies cater to different segments of the consumers who take the policy to satisfy
the needs, wants and desires that are different from each other.

BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED

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

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

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

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

PRODUCTS

Tariff Products
• Fire Insurance
• Consequential Loss (Fire) Insurance
• Industrial All Risk
• Motor (includes private cars, two wheelers and commercial vehicles)
• Workmen’s Compensation
• Engineering (includes Contractors Plant and Machinery, Electronic equipment, Machinery
Loss of Profits, Machinery, Boiler Explosion, Machinery Breakdown, Deterioration of
stock)

Non-Tariff products
• Health Guard
• Personal Accident
• Burglary
• Money
• Plate Glass
• Public Liability
• House Holders
• Overseas Travel
• Hospital Cash
• Office Package

Risk Management Services

The gamut of risk management services includes:
• Risk Analysis, Grading & Control.
• Accident Investigations
• Hazard and Operability Studies
• Safety Audit
• Disaster Management Planning
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE

SECTION VI: RECENT TRENDS & OPPURTUNITIES

IN THE INSURANCE INDUSTRY

NEW RISK HORIZONS

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

However, rapid changes in the global economy, development of technology and e- business
already gathered momentum. Increased dependency on technology has originated new risks that
have resulted in well-published incidents.

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

Corporate insurance/risk managers, under the circumstances, have to demand increasingly

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

In the changing times, adoption of e- commerce into business models, the integration of web –
based communication and data transfer capabilities into the business operations, and leveraging of
advanced network and technology architecture for maximum benefit are the new horizons of the
risks. For the corporate insurance/risks manager, these new exposures – cyber – risks – can lead to
cyber losses, widening the interpretation of what constitutes insure property damage, particularly
as it relates to information technology and data.

All the while, organizations are under tremendous pressure to reduce expenses and increase profit
margin, and cannot afford to suffer a property loss of business interruption due to any cause (risk).
How a company identifies, quantifies, qualifies and manages these new risks exposures, in
addition to the well – known traditional risks, is becoming an important factor in creating
SERVICE SECTOR MANAGEMENT FINANCIAL SERVICES - INSURANCE
shareholders value. This often means changing the way. Everyone in the organization have to think
about risk.

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

The good news for insurance managers is that as the economy evolves, insurers are increasingly
matching that evaluation with new products, service and capabilities due to opening up the
insurance market to the private players.

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

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

LOOKING AHEAD

There is presently building in India an upsurge in consumer awareness, putting immense and
unavoidable pressure on the insurance industry. A lifting of the bar on composite insurance, where
companies are allowed to do only life or non-life business today, can also be expected. Instead of
categorizing insurance by class, the focus may shift more to the period for which the cover was
offered and the risk underwritten. Already there is demand for permitting the industry to
underwrite pure risk and leaving investment decisions to policyholders.

With the entry of competition, the rules of the game are set to change. The market is already
beginning to witness a wide array of products from players whose number is set to grow. In such a
scenario, the differentiators among the different players are the products, pricing, and service.
Meanwhile, the profile of the Indian consumer is also evolving. Consumers are increasingly more
aware and are actively managing their financial affairs. Today, while boundaries between various
financial products are blurring, people are increasingly looking not just at products, but also at
integrated financial solutions that can offer stability of returns along with total protection.

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

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

family system, consumers are now concerning themselves with the need to provide for a
comfortable retirement.

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

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

RURAL-URBAN MIX

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

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

CONCLUSION

Competition will surely cause the market to grow beyond current rates, create a bigger "pie," and
offer additional consumer choices through the introduction of new products, services, and price
options. Yet, at the same time, public and private sector companies will be working together to
ensure healthy growth and development of the sector. Challenges such as developing a common
industry code of conduct, contributing to a common catastrophe reserve fund, and chalking out
agreements between insurers to settle claims to the benefit of the consumer will require concerted
effort from both sectors.
The market is now in an evolving phase where one can expect a lot of actions in coming days. The
current impediments for foreign participation – like 26% equity cap on foreign partner, ill defined
regulatory role of IRDA (Insurance Regulatory development Authority- the watchdog of the
industry) in pension business etc.—are expected to be removed in near future. The early-adopters
will then have a clear advantage compared to laggards in gaining the market share and market
leadership. The will need to make sure right now that all their infrastructure is in place so that they
can reap the benefit of an "unlimited potential."