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LIFE INSURANCE ±DEFINITION & MEANING:

Life insurance or ÷ife assurance is a contract between the policy owner and
the insurer, where the insurer agrees to pay a designated beneficiary a sum of
money upon the occurrence of the insured individual's or individuals' death
or other event, such as terminal illness or critical illness. In return, the policy
owner agrees to pay a stipulated amount at regular intervals or in lump sums.
There may be designs in some countries where bills and death expenses plus
catering for after funeral expenses should be included in Policy Premium. In
the United States, the predominant form simply specifies a lump sum to be
paid on the insured's demise.

Meaning:

Life insurance is a contract between the assurer and assured, whereby the
assurer agrees to compensate to the assured a certain agreed sum on the
expiry of a certain period, or on death, whichever is earlier, for a
consideration that is premium. Life insurance is a very popular form of
insurance. The two main principles of life insurance are utmost good faith
and insurable interest. It not only gives protection but also is a method of
compulsory saving. In India, the business of life insurance has been
nationalized since 1956. The benefits of life insurance are:

y It gives monetary protection to the policyholder and its family

members in case of premature death.
y It reduces tension and provides peaceful life to the policyholders.
y icts as a social security measure.





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y It serves as a provision for old age.

y It is an ideal method of compulsory saving for old age.
y It offers benefits of profitable investment.
y Protection and safety to policyholders.
y Raises the rate of capital formation and economic development.





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ORIGIN OF INSURANCE

[e live in exciting times with changes and upheavals all around. New
technologies, new inventions and changes in the economic and financial
scenario, all have thrown up new insurance needs; needs never felt or heard
before. This type of evolutionary process, in the last few decades, has given
hope to new types of need-based insurance covers; public liability insurance,
product liability insurance, indemnity for medical practitioners for
negligence, indemnity for chartered accountants and auditors for professional
lapses, etc. Further, covers are engineering insurance, erection insurance,
loss of profit, cover against atomic radiation and space travel and contracting
iIDS.

iround 6000 years ago, Babylonians, whose home in the Tigris ± Euphrates
valley lay at the crossroads of early world traffic, had developed business
practices to a high degree. Babylon had become the clearinghouse of trade as
all the important land trade routes converged in that territory. From irmenia
in the north, China and India in the east, Egypt in the west, caravans came
laden with merchandise. Though Babylon built up a great commercial
system, and her people were the first to enjoy the fruits of political economy,
their territory was surrounded by huge tracts of desert.

The travelers by land were exposed to the risk of robbery, which then was
considered not so abominable a means of livelihood and the same view held
good for the piracy on the high seas. Besides, during those days, the ships
were entirely at the mercy of the winds. Under such conditions, till the goods





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reached their destination, the consignor was constantly worried about its
safety.

In fact, many traders could not meet the obligations of the principals and, as
per their contracts, were forced to become slaves along with their families.
Human ingenuity was set to work and, in course of time, a practice
developed that debt of the trader, both principal and interest, should be
absolved if certain specified contingencies occur.
Research scholars claim that insurance was known and practiced in India
even during the ancient Vedic times. Manu the ancient scholar and lawgiver
enjoined that a special change be made on goods carried from one place to
another to ensure their safe carriage, until it was finally handed over to the
consignee at the destination.

Recorded evidences testify that ancient India was a prominent maritime

power. There were busy seaports on the west coast at Broach, at
Kaveripumpatnam in the south and Banga in the east. Traders expressed
difficulties in realizing money for the goods sent abroad. Loans were
advanced to traders at specified rates of interest depending on the risk run
and the duration of time for which money was required. Men skilled in sea
voyages worked out risk premium rates.

On successful conclusion of the voyage, the borrower returned the loan

along with interest, when the eventuality insured against did not materialize
but it often happened that he was unable to deliver the goods in sound
condition at the time and place specified or if he was robbed, he was
absolved of his liability.




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If the cargo was lost due to the negligence of the crew, the loss was to be
borne by all the crewmembers, but when loss was caused by God, the
members of the crew were not held responsible. i carrier who failed to reach
the destination, could not claim freight, but was exempted from
responsibility if loss was occasioned by an act of God. If the loss was due to
Piracy, the cashier was not protected.

[e have had bizarre insurance covers. Lizza Minnelli the singing sensation
had insured her voice and so have Boy George and Michael Jackson. Marine
Dietrich and Betty Grable, Hollywoodµs leading ladies have insured their
legs. i well-known comedian in the USi had a policy insuring those in his
audience, against anyone dying of laughter after hearing his Jokes!

The business of insurance started with marine business traders, who

used to gather in the Lloyds coffee house in London agreed to share the
losses to their goods while being carried by ships. The losses occurred
due to pirates robbing the goods or perils of the sea. The first insurance
po÷icy was issued in 1583 in Eng÷and. In India, insurance began with
life insurance being transacted by an English company- the European
and the ilbert. The first Indian insurance company was the Bombay
Mutual issurance Society ltd., formed in 1870. This was followed by
the Oriental life issurance in 1874, the Bharat in 1896 and the Empire
of India in 1897.





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Later the Hindustan Cooperative was formed in Calcutta, the United

India in Madras, The Bombay Life in Bombay, The National in
Calcutta, The New India in Bombay, The Jupiter in Bombay and the
Lakshmi in New Delhi. These were all Indian companies started as a
result of the swadeshi movement in the early 1900µs. By the year 1956,
when the Life insurance business was nationalized and the Life
Insurance Corporation of India (LIC) was formed on 1st September
1956, there were 170 companies and 75 provident fund societies
transacting life insurance business in India. ifter the amendment to the
relevant laws in 1999, the LIC did not have the exclusive privilege of
doing life insurance business in India. By 31st march 2002, eleven new
insurance companies had been registered and began to transact life
insurance business in India.





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IMPORTANCE OF LIFE INSURANCE:

Life insurance protects and safeguards the interests of individual . It gives

them safety and creates confidence in their minds. Indirectly it enables an
individual to live his or her life with a sense of security.

y It promotes rate of savings and investments and lead to capital

formation in the economy.
y It provides a sense of safety to individuals.
y It creates a sense of security and confidence among all the
sections of the society.
y Insurance companies act as underwriters, guarantors,
subscribers and financiers of industrial concerns. They help and
support their clients in different ways and in different areas.
y It gives proper investment security and create proper investment
climate in the country.
y It accelerates the process of industrialization by rendering
various services. This suggests the role of insurance in society as
well as in development of national economy.





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PRINCIPLES APPLICABLE TO LIFE INSURANCE

1. Utmost good faith:

Both the parties -insured and the insurer must have utmost good
faith towards each other, in respect of insurance contract. The insured must
provide to the insurer complete correct and clear information of the subject
matter of insurance. The insurer can avoid his liability to pay compensation,
if certain material facts were not disclosed by the insured at the time of
taking the policy. Similarly the insurer must provide complete correct and
clear information regarding the terms and conditions of contract. Failure to
provide complete and correct material facts regarding the mode and amount
of premium and other details, makes the contract of insurance void at the
discretion of the insured. This princip÷e is app÷icab÷e to a÷÷ contracts of
insurance- ÷ife, fire and marine.

2. Insurab÷e interest:

The insured must have an insurable interest in the subject matter of

insurance. Insurable interest means some pecuniary or financial interest in
the subject matter. [hen insurable interest must be present?

y In life insurance, the insurable interest refers to the life insured.

The insurable interest must exist at the time of taking a life
insurance policy.
y In marine insurance, it is enough if insurable interest exists only
at the time of occurrence of the loss.





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y In case of fire and general insurance, the insurable interest must

be present at the time of taking the policy and also at time of
occurrence of the loss.
The principle of insurable interest is applicable to all contracts of
insurance.

3. Princip÷e of contribution:

This principle is a µcorollary¶ of the principle of
indemnity. It is applicable to all contracts of indemnity, where the insured
has taken out more than one policy on the matter. Thus, if the insured
claims the full amount of compensation from one insurer, then he cannot
claim from other insurer and make a profit. igain, if one insurance
company pays the full compensation, then it can recover the proportionate
contribution from the other insurance company. This principle is, however,
not applicable to life insurance contract.





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NEED FOR LIFE INSURANCE

The business of insurance is related to protection of the economic values of

the assets. Every asset is of some value and is expected to last for a certain
period of time during which it will deliver that value. In case the asset is
destroyed it ceases to provide the value to the owner thus leading to an
unpleasant situation. Insurance is a mechanism to reduce the affect of such
unpleasant situation. Vuman ÷ife is considered to be a va÷ue generating
asset and is also subject to risks.

issets are insured because there if a possibility that perhaps they might get
destroyed, through accidental occurrences. Such possible occurrences are
called peri÷s. If such perils can cause damage to the asset we say that the
asset is exposed to risk. To be more précised Perils are the events and risks
are the consequential losses or damages. The risk only means that there is a
possibility of a loss or damage, the loss may or may not happen. Insurance is
done against the contingency that it might happen. Insurance is relevant only
if there are uncertainties. If there is no uncertainty about the occurrence of an
event, it cannot be insured against. In case of human beings death is certain;
however the time of death is uncertain.

Insurance doesnµt protect the asset. It doesnµt prevent the loss due to its peril.
The perils can sometime be avoided by ensuring better safety and damage
control management. Insurance only tries to reduce the impact of the risk on
the owner of the asset and those who depend on that asset. Only economic
consequences can be insured. If the loss is not financial, insurance may not
be possible.





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Moreover insurance is backed up with many economic benefits which can be

enlisted as follows:

y Life insurance provides financial security to the family in case of

untimely or premature death.
y Life insurance is also a potent instrument for saving.
y Life insurance provides financial independence in old age.
Organizations or individuals, who are in credit business, can ensure
for themselves recovery of loan in case their debtor dies.
y i partnership firm can insure partners to the extent of capital invested
by each in the business.
y Under µÎey man¶ insurance, an organization can insure the lives of
their executives, whose expertise greatly contributes to their profits.
y Organizations can purchase group insurance policies as a part of their
employee- welfare program.
y Life insurance also provides tax benefits to the holder.
y Life insurance policies create an estate.





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[ORKING OF LIFE-INSURANCE BUSINESS

There are thee primary methods to avoid risk viz.

A) AVOID

B) REDUCE

C) TRANSFER

Insurance deals with transfer of risk from the consumer to the provider.
Insurance works on a fundamental principle of pooling of risk. People who
are exposed to the same risk come together and agree that, if any one of them
suffers a loss, the others will share the loss and make good the person who
has suffered the loss. The manner in which the loss is to be shared can be
determined before hand. It may be proportional to the risk that each person is
exposed to. This would be indicative of the benefit he would receive if the
peril befell him.

Insurance companies collect the share in the form of premiums and create a
fund from which losses are paid; this fund is known as the ÷ife fund. The
insurance company pays the losses to the members of that group. The
insurance company also invests the funds in governmental ant private
organizations.

Ex. LIC has lent a capital of Rs.215million to NiBiRD for its rural
financing activities.





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INSURER¶S BUSINESS MODEL

Insurers make money in two ways:

yThrough underwriting, the process by which insurers select the risks

to insure and decide how much in premiums to charge for
accepting those risks.
yBy investing the premiums they collect from insured¶s.

The most difficult aspect of the insurance business is the underwriting of

policies. Using a wide assortment of data, insurers predict the likelihood that
a claim will be made against their policies and price products accordingly.
To this end, insurers use actuarial science to quantify the risks they are
willing to assume and the premium they will charge to assume them. Data is
analyzed to fairly accurately project the rate of future claims based on a
given risk. ictuarial science uses statistics and probability to analyze the
risks associated with the range of perils covered, and these scientific
principles are used to determine an insurer's overall exposure. Upon
termination of a given policy, the amount of premium collected and the
investment gains thereon minus the amount paid out in claims is the insurer's
underwriting profit on that policy. Of course, from the insurer's perspective,
some policies are winners (i.e., the insurer pays out less in claims and
expenses than it receives in premiums and investment income) and some are
losers (i.e., the insurer pays out more in claims and expenses than it receives
in premiums and investment income). in insurer's underwriting performance
is measured in its combined ratio. The loss ratio (incurred losses and loss-
adjustment expenses divided by net earned premium) is added to the expense
ratio (underwriting expenses divided by net premium written) to determine





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the company's combined ratio. The combined ratio is a reflection of the

company's overall underwriting profitability. i combined ratio of less than
100 percent indicates underwriting profitability, while anything over 100
indicates an underwriting loss.

Property and casualty insurers currently make the most money from their
auto insurance line of business. Generally better statistics are available on
auto losses and underwriting on this line of business has benefited greatly
from advances in computing.

Finally, claims and loss handling is the materialized utility of insurance. In

managing the claims-handling function, insurers seek to balance the
elements of customer satisfaction, administrative handling expenses, and
claims overpayment leakages. is part of this balancing act, fraudulent
insurance practices are a major business risk that must be managed and
overcome.

The business model can be reduced to a simple equation:

Œ
 
     
  


    





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LIFE INSURANCE MIX

The identification of the seven Pµs of marketing mix helps a firm to form
better marketing strategies and also to serve the customers in a more efficient
manner.

1. Product Mix

The best way to get and Îeep customers is to constant÷y figure out how
to give them more for ÷ess.

i product mix is the set of all products and items that a particular seller
offers for sale. In case of insurance sector, the product mix comprises of Life
and Non ± life insurance policies that are offered to the customer by the
company. i companyµs product mix has certain width, length, depth and
consistency.

The length of a product mix refers to the total number of items in the mix.

In case of insurance sector, the following is the length of product mix:

y [hole Life Policy

y Limited Payment Life

y Convertible [hole Life Policy

y Joint Life Endowment Policy

y Double Endowment Policy

y Jeevan Saathi

y Money Back Policy





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y innuity Plans

y Group Insurance Policy

y Bima Sandesh

y [ith or [ithout Profit Policy

A. Product Differentiation

Product differentiation may be referred to as the points or the qualities that a

firm has in its product, which makes the product different from its
competitorsµ product.

The product differentiation as far as the insurance sector and LIC in

particular is concerned are as follows----

y Bonus- insurance companies issue bonus to their policyholders when

they make a substantial amount of profit. If a company issues a high
amount of bonus, it delights the customer and creates a good image in
the eyes of the customer.
y Past records- the differentiation can be done on the basis of past
records. Customers choose to take policy from that company which
has well past records in terms of claim settling periods, premium
collection intervals etc.
y MarÎet reputation- a company with a good market reputation and
goodwill is perceived to deliver the best of the service quality and
customer satisfaction





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y Techno÷ogy- technology plays an important part in product

differentiation. For e.g.: - LIC was the first company in the insurance
sector to introduce use of I.T and Computers. This makes customers
feel that the company is not lagging behind the world and is capable of
making the full use of technology to satisfy the customers.
y FeedbacÎ- feedback from customers also is an important tool with
which product of the company can be differentiated. If effective steps
are been taken on the feedback of the customers, it leaves a long
lasting impression on the minds of the customers.

2. Price Mix.
Price is one element in the marketing mix that produces revenue; all the
other elements produce costs. Prices are easiest marketing mix elements to
adjust; product features, channels and even promotion take more time. Price
also communicates to the market the companyµs intended value positioning
of its product or brand.

The price in case of insurance sector refers to the premium charged on the
policy. The Tariff advisory committee fixes the price for each policy. The
price for the same policy is different for different companies.

The company must set its price in relation to the value delivered and
perceived by the customer. If, the price is higher than the value received, the
customer will not be willing to pay so high and the company will loose
potential profits. If the price is less than the value received then, the
company will fail to receive the profit that it deserves for providing a good
service.





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In case of life insurance, the premium amount tends to be different for

different customers. This differentiation is on the basis of age, medical
history of a person.

3. P÷ace Mix
³Today you have to run faster to stay in the same place´

Place mix can be defined as the ʊPhysical distribution i.e. the delivery of
goods/ services at the right time at the right place to the customers. Place
decisions involve building relationships with the wholesalers, retailers and
through these intermediaries building relationships with the customers.
Products and services must be at the right place, at the right time in order to
be consumed. Probably the best way to perceive place is to think of the flow
of products from manufacturer through intermediaries to the consumer or
user. This flow can be thought of as a channel used to move goods and
services.

Channels: iccording to Philip Kotler,

$Channe÷s are sets of interdependent organizations invo÷ved in the

process of maÎing the product or service avai÷ab÷e for use or
consumption.´

Marketing channel decisions are among the most critical decisions facing
the management. The channels chosen intimately affect all the other
marketing decisions.





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In case of insurance sector, the following channel of distribution is

followed according to the target market.

CVANNELS
Direct selling yigents
yFinancial advisors
yCall centers
Electronic channels yBanc assurance
yPostal department
ySelling through corporate
yLIC on internet
yInformation kiosks
ySMS





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å. Promotion Mix.

³The best advertising is done by an augmented customer.´

Promotion is a descriptive term for the mix of communication activities,

which a service organization carries out in order to influence the public on
whom their sales depend. It is an element in an organizationµs marketing mix
that serves to inform, persuade, or/ and remind people about an organization
or individual goods, service, image, ideas, community involvement or impact
on the society. It is used in hopes of influencing the recipients feeling, belief
or behavior through any form of communication.

Steps to create a favorable awareness amongst the target audience:

STEP 1: Identification of Target MarÎet

STEP 2: Determination and Setting Objectives

STEP 3: Message deve÷opment for right communication effect

STEP å: Se÷ection of communication mix





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5. Peop÷e Mix.

³It is no longer enough to satisfy the customers, you must delight them.´

A. Emp÷oyees
The various employees involved in providing service to the customer in
insurance sector are:

y ›ustomer service representatives They, process insurance policy

applications, changes, and cancellations. They review applications for
completeness, compile data on policy changes, and verify the accuracy
of insurance company records.
y jarketing and sales managers These employees sell insurance
products, work with clients, and supervise staff. Other managers who
work in their companies' home offices are in charge of functions such
as actuarial calculations, policy issuance, accounting, and investments.
y ›laims adjusters, appraisers, examiners, and investigators decide
whether claims are covered by the customerµs policy, confirm
payment, and, when necessary, investigate the circumstances
surrounding a claim. Claims adjusters work for property and liability
insurance carriers or for independent adjusting firms. They inspect
property damage, estimate how much it will cost to repair, and
determine the extent of the insurance companyµs liability; in some
cases, they may help the claimant receive assistance quickly in order
to prevent further damage and begin repairs. idjusters plan and
schedule the work required to process claims, which may include
interviewing the claimant and witnesses and consulting police and
hospital records. In some property-casualty companies, claims





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adjusters are called claims examiners, but in other companies, a claims

examinerµs primary job is to review claims to ensure that proper
guidelines have been followed. Only occasionally²especially when
disasters suddenly increase the volume of claims²do these examiners
aid adjusters with complicated claims.
y ánderwriters Underwriting is another important management and
business and financial occupation in insurance. Underwriters evaluate
insurance applications to determine the risk involved in issuing a
policy. They decide whether to accept or reject an application, and
they determine the appropriate premium for each policy.
y Insurance sales agents ibout 15 percent of wage and salary
employees in the industry are sales workers, selling policies to
individuals and businesses. Through regular contact with clients,
agents are able to update coverage, assist with claims, ensure customer
satisfaction, and obtain referrals.

B. Customers
People mix not only includes employees but also customers. The customers
are to be treated with respect and courtesy.
LIC (India) ltd. provides following facilities to keep the customers happy
and satisfied.

y The birth dates of the policyholders are recorded and on the day of the
birthday, the policyholder is given a ʊhappy birthday call by the
company.





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y The customers are reminded to pay their premium on time through

sms.

è. Physica÷ Evidence.

Companies try to demonstrate their service quality through physical evidence

and presentation. However, in case of insurance sector, the customer rarely
visits the insurance company. The customer comes mostly only in contact
with the service provider hence the service provider (insurance agent)
should.

y Look presentable.

y Have a pleasant personality.

y Have good communication skills.

The physical evidence factor is directly proportional to the level of faith of

customers as well as the employees in the organization. Physical evidence
goes way beyond an individual. It includes the companyµs advertisements,
public relation, employees, and branches.





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†. Process Mix.

³It is more important to do what is strategically right than what is

immediately profitable - Philip Kotler´

In case of insurance sector, the process mix includes the various interactions
that take place between the insurance agent and the customer in the process
of selling the policy to the customer till the settlement of claims.

The following process mix is followed by insurance companies in case of

life insurance:

1) The insurance agent calls up the customer and informs him about the
different policies offered by the company and the price mix of all the
policies. If, the customer seems interested in taking the policy then,
he fixes an appointment with the customer.

2) The insurance agent meets the customer and gives him some
information about the insurance company and also about the benefits
of the policy.

3) The customer is then asked to fill a financial review form (FRF) and
the agent is asked to find out the standard of living of the customer so
that the insurance company gets a clear picture about the financial
condition of the customer and what kind of policy he can afford

4) The insurance company offers various policies but they might not be
suitable for the customer hence, on the basis of his requirements and





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financial status, the insurance agent suggests two or three policies to

the customer, which will be suitable for him.

5) The insurance agent explains the different policy plans in detail to the
customer i.e. the amount of premium to be paid, the time interval at
which the premium is to be paid, the benefits of each of the policy
etc. i brochure is also provided to the customer wherein the entire
description of all the policies is given.

6) Then, the insurance agent provides a feedback form to the customer
and asks him to give his feedback regarding the policies that he has
been informed about. This feedback is taken in order to find out
whether the customer is satisfied with the plans of the policy or
whether the company needs to make the policy plans more attractive
so that it may appeal to its future customers.

7) Then, the next appointment is fixed by the insurance agent with the
customer and in this meeting; the customer selects the policy plan,
which appeals to him. The customer is then asked to fill up the
proposal form which contains various details of the payment and he is
asked to make the first premium payment.

8) Then, the insurance agent submits the duly filled and signed form in
the insurance office along with the other necessary documents. E.g.:
Medical Reports in case of Life Insurance. Submission of ige Proof
is essential as the rate of premium payable on a life insurance policy




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generally varies with age, and therefore age is one of the most
important factors in determining the rate of premium payable in an
individual case.

9) The customer must get himself examined from the approved doctor of
LIC. The medical examination is necessary to determine the physical
fitness of the customer. If the medical report is favorable, then only
LIC will issue the policy.

10)in average twelve days time is taken by the company to verify the
submitted documents. ifter the twelve days period, the insurance
agent meets the customer to provide him a policy document, which
consists of the terms and conditions of the policy. This is because
terms and conditions of the policy differ for different customers due
to differences in medical conditions of customers in case of life
insurance and due to differences in nature of goods and mode of
transportation in case of marine and fire insurance.

11)Then, a reconfirmation is taken by the agent from the customer that

he agrees with the terms and conditions of the policy.

12)The insurance agent then regularly collects the premium from the
customer whenever the premium becomes due.





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CLAIM SETTLING PROCESS OF LIFE INSURANCE

1) C÷aim by maturity/ Insta÷÷ment Payment: The Company strives to

settle maturity claims and make periodic payments, as in case of
Money Back Policies, on date itself. The office which services the
policy sends out an intimation regarding the payment along with the
necessary discharge voucher for the execution by the assured
approximately two months before the due date of such payment.

2) Death C÷aim:

y Intimation of Death: In the event of the death of the policy holder, the
claimant or the nominee should immediately intimate the branch
office where the policy is serviced, the fact of such death, along with
the following particulars: (a) Policy number, (b) name of the life
assured, (c) Date of death and (d) claimantµs relationship with the
assured.

y ›laim Forms: Soon after the receipt of the intimation of death, the
branch office will send the necessary claim forms for completion
along with instructions regarding the procedure to be followed by the
claimant.

y 2vidence of Title: The claim is usually payable to the nominee as the

case may be. However, if the deceased policy holder has not
nominated or hasnµt made a suitable provision regarding the policy
money by the way of will, the claim is payable to the holder of a




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succession certificate or some such evidence of title from a court of

law.

y Payment of ›laim: The Company then makes payment to the rightful

recipient.





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LIFE INSURANCE MARKETING TRIANGLE.

The concept of services marketing triangle is as follows:-

The above diagram explains the services triangle with its three constituents,
namely, the company, the provider and the consumer. Each of them have
been explained as follows:-

The Company :
The company makes various promises to its customers through external
marketing. The way and means of marketing will be covered it the
marketing mix.





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The Provider:
The agents and the development officers act as the front-line staff and
they are in direct contact with the potential or existing customers. They
are the ones who keep or satisfy the promises made by the company.
The marketing of insurance basically comes under concept selling. The
agents are thus given various incentives, rewards, commissions and all
the necessary training required.
is regards incentive, they receive PLI (Productivity Linked Incentive),
which is based on the increase in premium amount and the sums assured
by the agent. They are also given extra commissions in case of policies,
which are of high value. There are normal promotions for any good
work done on a regular basis. The agents generally work under the
training and guidance of their respective development officers.

The Consumers :

The consumers are the policyholders. ipart from the routine life insurance
policies other services like housing finance, mutual funds, pension and group
insurance. Thus the range of consumers is far and wide.





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LIFE INSURANCE FLO[ER OF SERVICES

Flower of services refer to a well-formed package of total services with

all the supplementary services being well formulated along with the core
services. The various petals of the flower are:

y Information:
i marketer needs to provide adequate information to his employees and
his customers. This information is general information provided through
various communication channels.
In the insurance industry information is provided to the customers with
the help of:
 igents
 Seminars
 [eb sites
 Print media
 Radio
 Television, etc.

y Consu÷tancy:
This is additional customized information provided to the potential
customers by the service provider. In the insurance industry it is
provided by companyµs staff and agents.

y Order taÎing:
Order taking should be done without mistakes. In LIC order taking is
generally done by:





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 By igents

 On [eb site

 By issistant sales manager directly in the office.

y Vospita÷ity:
Hospitality is a very pretty petal, reflecting pleasure at meeting new
customers and greeting old ones when they return. Hospitality finds its
full expression in face-to-face encounters.

y Safe Îeeping:
It is in the process and procedures used by marketers to safe guard and
to maintain secrecy. In LIC the data of the customers is very
important. They feed the data of the customers in their Front and
ipplication Program Software which is connected with all the
branches of LIC. The data is only available with the sales people and
not shown to any person

y Exceptiona÷:
Exceptional service means service over and above customerµs
expectations. LIC has the fastest claim settlement in the world thereby
providing exceptional service. LIC also solves complains of the
customers within 7days.





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y Payment:
The payment of premium is normally through cheques. Customer can
make payment in LIC through:

 igents
 Loans
 [eb sites





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å I¶S FOR LIFE INSURANCE

Life insurance has four major characteristics that greatly affect the marketing
programs.

 Intangibi÷ity

 Inconsistency

 Inseparabi÷ity

 Inventory

Detai÷s :

1. Intangibi÷ity:
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 ʊtangibilize the intangible to communicate service nature
and quality. This can be done through:

y Environment

y Uniforms

y Paperwork

y Brochures





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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.

-. 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.

3. Inseparabi÷ity:
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.





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å. Inventory:
No inventory can be maintained for services. Inventory carrying costs are
more subjective and lead to idle production capacity. [hen 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.





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COMPLAINT VANDLING.

In a vast Organization like LIC, catering to the various needs and aspirations
of millions of policyholders, grievances of customers do arise occasionally.
In order to redress these grievances LIC has established elaborate Grievance
Rederessal Machinery and the details are as under.

1) Grievance Redressa÷ Officers:

Grievance Redressal Officers have been designated at all levels of the

Organization: it the Branch level: The Sr/Branch Manager it the
Divisional level: The Marketing Manager it the Zonal level: The
Regional Manager (Marketing) in case of Ordinary policies. The
Regional Manager (Pension and Group Schemes) in case of P&GS.

At the Centra÷ ÷eve÷:

The iddl. Executive Director/Chief (Marketing/Customer Services) in case
of Ordinary policies. Chief (Pension and Group Schemes) in case of P &
GS policies. Policyholders can personally contact these designated Officials
and seek redressal of their grievances. The respective Grievance Redressal
Officers are available at their Offices for personal interviews with the
customers on all Mondays between 2.30 p.m. to å.30 p.m. without prior
appointment.
Customers can meet the Grievance Redressal Officers on other days also
with prior appointment. The names of the Grievance Redressal Officers are
displayed in the respective Offices and are periodically published in the
local.





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2) Comp÷aint Ce÷÷s:

For those customers who are not in a position to meet the Grievance
Redressal Officers in person, a Complaint Cell is functioning at the
Central, Zonal and Divisional Offices. They can send their written
complaints to these Offices. Such complaints are registered and
monitored with the respective servicing units for proper redressal.

3) C÷aims Review Committee:

In a few cases of death claims, LIC is put to the necessity of
repudiating them to safeguard the interest of the genuine
policyholders. Claimants who are dissatisfied with the decision of
repudiation of claim can approach the Claims Review Committees set
up at all the seven Zonal Offices and at the Central Office. These
Committees comprise of senior Officials of the Corporation and also
retired High Court/District Judges and they review the claims
objectively and dispassionately to rule out any miscarriage of justice
to the claimant.

å) Comp÷aints received through the Government:

Some of the aggrieved policyholders write directly to the Government
of India seeking redressal of their grievances. Such grievances are
attended to on a top priority basis. For this purpose, a special cell has
been set up at the Central Office level for monitoring and for
satisfactory redresses.





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5) Po÷icyho÷der Counci÷s and Zona÷ Advisory Boards:

In all the 100 Divisional Centers, Policyholders' Councils have been
established. Three policyholders of the area represent the interest of the
policyholders and interact with the Divisional Management on consumer
concerns. Similarly, at all the seven Zonal Centers, Zonal idvisory Boards
are functioning. Many consumer-activists are inducted as Members to these
Forums to protect the rights of the consumers.

è) Consumer Affairs Committee:

This Committee looks into various areas of consumer interests and
advises the Corporation.





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LIFE INSURERS IN INDIA.

is an answer to globalization of economy and the increasing pressure of the

[TO regulations, the govt. appointed the Malhotra Committee. ifter
considering all aspects, the government ultimately enacted Insurance
Regulatory and development authority and vested the authority to formulate
regulations for insurance industry. IRDi and the LIC allowed the entry of
foreign investors on a condition that they enter in collaboration with a local
company.

PUBLIC SECTOR PRIVATE SECTOR

Life Insurance Corporation of 1) Birla sun life insurance Co Ltd

India(LIC) 2) HDFC Standard Life Insurace
Co Ltd
3) ICICI prudential Life Insurance
Co Ltd
4) Reliance Life Insurance Co Ltd
5) ING Vysya Life Insurance
6) Max New York Life Insurance
Co Ltd
7) Met Life Insurance Co Ltd
8) OM Kotak Mahindra Life
Insurance Co Ltd.





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PERFORMANCE OF TVE INDUSTRY

Post-Privatization, the life insurance industry grows by leaps and bounds.

The attitude of people towards life insurance itself is changing. People are
becoming more and more aware of the advantages of the Life insurance
policies. Generally performance in life is measured in terms of first year
premium collection and no. of lives covered.

In 2003-04 Life Industry grew by 10.5% in terms of first year premium. It is

showing steady growth rate in the current financial year as well. The sector
witnessed a growth of over 50% for the month of ipril 2004, vis-à-vis ipril
2003. The premium In comparison, LIC underwrote premium of
Rs.72,304.62 lakh i.e., a market share of 82.33%. In terms of policies
Underwritten, the market share of the private players was 17.88% as against
82.17% of LIC. The premium underwritten by the private players for
individual policies stood at Rs.12,107.63 lakh, towards 89,918 policies with
group premium accounting for Rs.3,411.30 lakh towards 84 schemes.

The number of lives covered under group schemes was 1,01,392. ICICI
Prudential continued to lead amongst the private players with premium at
6.15% and policies at 4.85%. In terms of number of lives covered, OM
Kotak led with 21,325 lives viz., 5.83% of the total lives covered. Premium
underwritten by LIC under Varishtha Bima Yojana during the month of
ipril, 2004 was Rs.26, 734.25 lakh towards 13899 policies of which
29.60%, in terms of both premium and policies, was underwritten in the rural
sector.





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The number of policies issued by the LIC of India since 1995-96 is a clear
indication of the popularity gained by life insurance.

NO.OF POLICIES NO.OF POLICIES

YEAR
(TOTAL) (RURAL)
1.10 crore
1995-96 52.57 lacs
1.23 crore
1996-97 60.33 lacs
1.33 crore
1997-98 68.40 lacs
1.48 crore
1998-99 81.23 lacs
1.70 crore
1999-2000 97.04 lacs
2.42 crore
2002-2003 45.23 lacs

(Source: 46th annual report of LIC of India for the year 2002-03)

Form the above table it is eminent that the importance of life insurance has
grown
gradually over a period of time not only in metro areas but also in rural
areas.

is there has been a dramatic increase in the importance of life insurance, the
number of policies issued per annum has also increased, thus leading to a
great change in the total premium amount collected. The total amount
mobilized by LIC during the past few yearsµ stands witness to the growing
importance of insurance.





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Tota÷ amount uti÷ized 1998-99 2002-03

Total premium income Rs. 2280.50 54602.37
Income from investments Rs. 13183.82 25030.50
(Rs. In Crores) (Source: 46th annual report of LIC of India for the year 2002-03.)

Trough life insurance, people could save more than Rs. 50,000 crore in just
two years. By investing peopleµs savings, LIC could generate investment
income of nearly Rs. 30,000 crore in the last two years. Life insurance thus
proved to be very potent instrument of public savings, so much necessary for
developing a country like India.

Over the past 48 years, LIC of India provided financial security to millions
of families as the following figures for past five years indicate.

YEAR NO.OF CLAIMS PAID

1995-96 41.67
1996-97 49.49
1997-98 56.52
1998-99 59.83
1999-2000 66.42
2002-03 96.53
(Source: 46th annual report of LIC of India for the year 2002-03)





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PRESENT MARKET STRUCTURE

The insurance sector in India has come a full circle from being an open
competitive market to nationalization and now back to a liberalized market
again.
ifter privatization LIC is no longer a monopoly. Insurance sector was
converted into Oligopoly.

The marÎet share of private p÷ayers is as under.





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Tota÷ marÎet share of LIC as compared to other private

p÷ayers.

From the above figure it is eminent that LIC has the largest market share in the
life insurance industry till date





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TRAITS OF LIFE INSURANCE SECTOR AS OLIGOPOLY

ARE AS FOLLO[S:

Presence of few se÷÷ers:

ifter liberalization the no. of sellers increased from 1 to 13 as on date, like
LIC, ICICI Prudentia÷, VDFC Standard, Bir÷a Sun ÷ife, Om KotaÎ, SBI
Life, ING Vysya, and MAX New YorÎ Life etc.

1. Regu÷ator
IRDi (Insurance Regulatory Development iuthority) regulates the
Insurance industry. License to the new comer is granted by it only. ill
products, premiums, Tariffs require its approval.

2. Price Giver:

Price of the policy i.e. premium is calculated by the actuaries of the
respective companies depending upon the nature of risks covered, coverage
of the policy and many other probability calculations. But premium as well
as the product needs to be approved by IRDi.

3. Entry or Exit Barrier:

There is no free entry into this sector as already outlined New entrants has to
satisfy certain condition before entering into this industry. Exit is even
tougher since all the contracts are long term so there are very strict
regulations for exit from the industry by IRDi.





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å. Product Differentiation:

There are no homogenous products. There are wide varieties of products
available in the market. Each seller can introduce
any new policy depending on the efficiency of its product development team
within the broad guidelines of IRDi.

5. Advertisement:
Sellers spend huge amount of their yearly budget on advertisement to
educate the consumers about their products and their company. IRDi
ensures that advertisement does not mislead people. The IRDi has made it
mandatory that every advertisement carries the line, ʊInsurance is matter of
solicitation so that people know that they are reading an advertisement.

è. Investment Po÷icy:

Investment of life fund upto 75% in government securities is mandatory as
per IRDi. 89% of the total surplus to be distributed to policyholder as bonus
every year.





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Case study

1. Life Insurance Corporation of India (LIC):

A.Introduction

The Life Insurance Corporation of India (LIC) is the largest life insurance
company in India and also the country's largest investor. It is fully owned by
the Government of India. The company began operations with 5 zonal
offices, 33 divisional offices and 212 branch offices. It also funds close to
24.6% of the Indian Government's expenses. It was founded in 1956.
Headquartered in Mumbai, which is considered the financial capital of India,
the Life Insurance Corporation of India currently has 8 zonal Offices and
101 divisional offices located in different parts of India, at least 2048
branches located in different cities and towns of India along with satellite
Offices attached to about some 50 Branches, and has a network of around
one million and 200 thousand agents for soliciting life insurance business
from the public.

B. Products of LIC:

1. Childrens plan:

y Jeevan inurag





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yCDi Endowment Vesting it 21

2. Plans for handicapped dependents:

yJeevan iadhar
yJeevan Vishwas

3. Money back plan:

yThe Money Back Policy-20 Years

yThe Money Back Policy-25 Years

4. [hole life plan:

y The [hole Life Policy

y Jeevan inand
y Jeevan Tarang

5. Pension plans:

y Jeevan Nidhi
y New Jeevan Dhara-I
y New Jeevan Suraksha-I

6. Social security scheme:

y JanaShree Bima Yojana (JBY)

y Shiksha Sahayog Yojana





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C.Current status:

Over its existence of around 50 years, Life Insurance Corporation of India,

which commanded a monopoly of soliciting and selling life insurance in
India, created huge surpluses, and contributed around 7 % of India's GDP in
2006.

The Corporation, which started its business with around 300 offices, 5.6
million policies and a corpus of INR 459 million, has grown to 25000
servicing around 180 million policies and a corpus of over INR 3.4 trillion.
The recent Economic Times Brand Equity Survey rated LIC as the No. 1
Service Brand of the Country.

D. S[OT ana÷ysis of LIC:

(a) Strength:

y Brand Image
y Govt Guarantee
y Claims settlement
y Large product portfolio

(b) [eakness:

y Lethargic staff
y Large scale Corruption in Main Office
y Ultra-Slow decision making process
y Internal problems between Top Management and lower
cadre Employees





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(c ) Opportunities :

yPension Market
yHealth Insurance
yLarge Real Estate portfolio

(d) Threats:

Internal discord

yNew players
yRed-tapism





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ICICI Lombard Life Insurance:

(A) Introduction:

ICICI Lombard is a 74:26 joint venture between ICICI Bank

Limited, India's second largest bank with $79 billion in assets and Fairfax
Financial Holdings Limited, a Canada based $26 billion diversified financial
services company engaged in general insurance, reinsurance, insurance
claims management and investment management. ICICI Lombard is now the
largest private sector general insurance company in India with a Gross
[ritten Premium (G[P) of Rs 17,266 million for the half year ended
September 30, 2007 with a market share of 12% and compounded annual
growth rate of over 45% in the last two years. ICICI Lombard was awarded
the 'General Insurance Company of the Year' at the 11th isia Insurance
Industry iwards. More to its credit, it has the Gold Shield for "Excellence in
Financial Reporting" by the ICiI (Institute of Chartered iccountants of
India) for the year ended March 31, 2006. The company has been assigned a
domestic rating of iiii by ICRi (an associate of Moody's Investors
Service) for highest claim paying ability and a fundamentally strong
position. The prospect of meeting policyholders' obligation is the best.
The company presently has 5,150 employees in 245 offices spread across
190 locations. In the financial year ended March 31, 2007, the company
issued over 3.14 million policies across India and serviced over 642,000
claims. The company has a claim disposal ratio of 96% (percentage of claims
settled against claims reported) as on March 31, 2007.





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(B) Products:
y Health insurances
y Home insurances
y Motor insurances
y Travel insurance.
y Parents' Overseas Travel Insurance policy
y [orkmens Compensation Policy
y Educational Institution Package Policy
y Group Health Insurance
y Group Personal iccident Policy
y Petrol Station Package Policy
y Shop Insurance

(C) S[OT inalysis of ICICI Lombard:

(a) Strength:
y Pioneer in introducing innovative concepts in the Indian
health Insurance sector
y Robust online system in place for buying and renewing
policies.
y Offers various plans





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(b)[eekness:
yCharge a high premium amount compared to other players
in the market
yPoor customer care service
yNo proper service

(c )Opportunities:
y Target youth
y Provide NRI Services
y Use a multi channel approach

(d) Threats:
y Insecure system of buying insurance online
y Major competition from LIC
y Excessive use of telesales.





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The interview

Methodology
Topic : Life insurance
Design of research: Qualitative analysis
Source of sample: Mr. Nikhil Kapadia
Discussion:
Keeping the topic of life insurance in mind, & considering the future of the
latter, I interviewed Mr. Nikhil Kapadia for getting a more clear perception
of the same.





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Future of the ÷ife Insurance Sector - A hypothesis based on the study.

Considering various facts regarding the concept of life insurance and its
relative attributes, my perception regarding the future of life insurance
industry in India became clearer. There were certain aspects which I tried to
cover with the help of this interview namely-

y How could it contribute more to the social infrastructure, apart from

providing financial security?
y [hat changes are anticipated with advancement of technological
infrastructure in upcoming future?
y How would the future insurance industry be beneficial for the
economy as a whole?

To this , my source Mr. Nikhil Kapadia answered by throwing light on

certain facts, such as -
[age and salary employment in the insurance industry is projected to
increase 8 percent between 2002 and 2012, more slowly than the 16 percent
average for all industries combined. [hile demand for insurance is expected
to rise, downsizing, productivity increases due to new technology, and a
trend toward direct mail, telephone, and Internet sales will limit job growth.
However, some job growth will result from the industryµs expansion into the
broader financial services field, and employment in the medical service and
health insurance areas is anticipated to grow.





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But due to advancement in techno÷ogy

many successful insurance companies will recognize the Internetµs potential

as a powerful marketing tool. Not only might this reduce costs for insurance
companies, but it also could enable many clients to turn to the Internet first
to get information on their policies, obtain quotes, or submit claims. is
insurance companies begin to offer more information and services on the
Internet, some occupations, such as insurance sales agent, could experience
slower employment growth.

And as far as economic viabi÷ity is concerned

There could be a huge inflow of funds into the country. Given the industry's
huge requirement of start-up capital, the initial years after opening up are
bound to see a strong inflow of foreign capital. Moreover, given that the
break-even, typically, comes much later than in the case of other sectors,
odds is that the first remittance of dividend will not happen before a good
10-15 years.

Conc÷usion:

So, by scrutinizing various facts extracted from the immensely knowledge

full interview of Mr. Nilkhil Kapadia I hereby conclude my hypothesis by
saying that: on an overall basis, life insurance sector would contribute
effectively to the economy in the future through increased employment and
financial security but advancement in technology could provide a better





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substitute of sales agents and promoters with the help of internet, which
could hamper employment opportunities in life insurance marketing
organizations.

Conc÷uding summary.

Life Insurance in India has a long way to go in terms of percentage of

population covered by life insurance companies if we compare ourselves to
most of the developed and developing nations and in terms of customer
service.

Some of the statistics that further gives evidence of the immense scope of
Life Insurance industry in India

y The global life insurance market stands at $1,521.2 billion while the
non-life insurance market is placed at $922.4 billion.
y The United States itself accounts for about one-third of the $2443.6
billion global insurance market and Japan stands next with a 20.62%
share.
y India takes 23rd position with US $9.933 billion annual premium
collections and a meager 0.41% share.
y Out of one billion people in India, only 35 million people are covered
by life insurance.
y India's life insurance premium as a percentage of GDP is just 1.77 %.
y Indian insurance market is set to touch $25 billion by 2010, on the
assumption of a 7 % real annual growth in GDP.





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Planning of various reforms in this industry are in the process like

privatization of pension funds, increase in the FDI in this sector,
increasing automation and better customer service.
But the biggest barriers in the growth of Life Insurance Industry is in
terms of the attitude of people towards life insurance and certain bad
practices existing in the market as a result of prolonged monopoly of
public sector. Some People still think that it is an investment product
where we get low return or a simple tax saving device u/s 88 or
Sec10CCC.iwareness regarding the insurance is not merely an
investment but it covers your life risk as well; is required and new
private players have already started the job of enlightening people.
The problem of lack of knowledge of the product among the
distributors has already been solved by IRDi by making the 100 hrs
training compulsory for all the distributors. More and more stress
should be given on customer service and prompt payment of claim.





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Bib÷iography

Reference BooÎs:

y Innovations in Banking and insurance- Romeo S. Mascarenhas

y Insurance Fundamentals, Environment & Procedures, - B.S Bodla,
M.C Garg, K.P Singh.
y Insurance Management-inand Gangly-New ige International Pvt
Ltd.
y Life insurance IC-33.

Magazines/Journa÷s:

y IRDi Journal, March 2007 Volume V No. 4

y IRDi Journal, ipril 2007 Volume V No. 5

[ebsites:

y http://www.insurancejournal.com
y http://www.insuremagic.com/Content/general_home.asp
y http://www.policydeal.in/category/ulip
y www.icfai.com