Chapter -1 INTRODUCTION

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1.1 Overview of the Insurance 1.1.1 Insurance

Everyone is exposed to various risks. Future is very uncertain, but there is way to protect ones family and make ones childrens future safe. Life Insurance companies help us to ensure that our familys future is not just secure but also prosperous. The business of insurance is done by insurance companies, which are called Insurers and they bring together persons with common interests, called Insured to share the risks. So, Insurance, in law and economics, is defined as a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance may also be defined as a contract between two parties, wherein one party (the insurer) agrees to pay to the other party (the insured) or the beneficiary, a certain sum of money as a premium, upon a given contingency (the risk) against which insurance is required. Insurer collects the share of contribution, called premium from insured in advance and then pay out compensation, called claims to insured.

1.1.2 Need and purpose of insurance

All assets have a specified lifetime and have some economic value attached to them, which is likely to be destroyed or made non-functional before the expected life-time, through accidental occurrences like fire, floods, breakdowns, lightning, earthquakes etc, called perils. Perils are unavoidable events which can cause damage to the asset, thereby causing financial loss to the owner and here lies the need of Insurance, as it compensates the financial losses. Human being is an income generating asset. Income can be lost in various ways:

It can be lost due to early death It can become non functional due to disability and sickness It can be lost due to living too long It can be lost due to unemployment.

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Insurance is needed because of following reasons: 1. Social Security Tool Insurance acts as an important tool providing a sense of security to the society on a whole. It is the right of every human-being to have basic amenities like food, clothing, housing, medical care, standard of living necessary for his personal and family's well being, and right to security in case of unemployment, disability, sickness or any other circumstances out of his control. 2. Uncertainty The basic need of insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is protected against risks or its exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in value due to such risk, the insurance company bears the loss and compensates the insured by making payment to him. 3. Economic Development The premium paid by people to the insurance companies is a part of their savings. Insurance, thus, acts as a useful instrument in promoting savings and investments, particularly within the lower-income and middle-income families. These savings are ultimately used as investments fuelling economic growth The purpose of Insurance is to replace the uncertainty of loss with certainty of compensation. Below is the figure depicting the need and purpose of insurance

PERIL

ASSET

DAMAGE/FIN ANCIAL LOSS Page | 3

CANNOT BE PREVENTED

RISK CAN BE INSURED AGAINST

1.1.3 Brief history of Insurance

The concept of insurance has been prevalent in India since ancient times amongst Hindus. However, the development and growth of the insurance industry in India has gone through three distinct stages. Stage 1:-Formation of the Insurance Industry in India Insurance law in India had its origins in the United Kingdom with the establishment of a British firm, the Oriental Life Insurance Company in 1818 in Calcutta, followed by the Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874. However, till the establishment of the Bombay Mutual Life Assurance Society in 1871, Indians were charged an extra premium of up to 20% as compared to the British. The first statutory measure in India to regulate the life insurance business was in 1912 with the passing of the Indian Life Assurance Companies Act, 1912. Later in the year 1938, the insurance act was passed which continues till date to be the definitive piece of legislation on insurance and controls both life insurance and general insurance. STAGE 2:-Nationalization of insurance business in India

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On 19th January 1956, the management of the entire life insurance business of 229 Indian insurers & provident insurance societies & the Indian life insurance business of 16 nonIndian life insurance companies then operating in India, was taken over by the central govt. & then nationalized on 1st September 1956 when Life Insurance Corporation came into existence. Since 1956, with the nationalization of insurance industry, the LIC held the monopoly in India's life insurance sector. From 1991 onwards, the Indian Government introduced various reforms in the financial sector paving the way for the liberalization of the Indian economy. It was a matter of time before this liberalization affected the insurance sector.

STAGE 3: Insurance Regulatory and Development Authority Act, 1999 The Government of India introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies into the insurance. Further, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies. Regulations for Indian insurers To protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry, Insurance Regulatory and Development Authority (IRDA) was established. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956 The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company The Companys sole purpose is to carry on life insurance business or general insurance business or reinsurance business.

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 The minimum paid up equity capital for life or general insurance business is 100crores The minimum paid up equity capital for carrying on reinsurance business has been prescribed as 200 crores Role and functions of IRDA: Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA. (1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. (2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, (A) Issue to the applicant a certificate of registration, renews, modify, withdraw, suspend or cancel such registration (B) Protection of the interests of the policy holders in matters concerning assigning of Policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance (C) Specifying requisite qualifications, code of conduct and practical training for Intermediary or insurance intermediaries and agents (D) Specifying the code of conduct for surveyors and loss assessors (E) Promoting efficiency in the conduct of insurance business (F) Promoting and regulating professional organizations connected with the insurance and re-insurance business (G) Levying fees and other charges for carrying out the purposes of this Act (H) Calling for information from, undertaking inspection of, conducting enquiries and Investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; (I) Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and

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regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938) (J) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries (K) Regulating investment of funds by insurance companies; (L) Regulating maintenance of margin of solvency; (M) Adjudication of disputes between insurers and intermediaries or insurance Intermediaries (N) Supervising the functioning of the Tariff Advisory Committee (O) Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations. (P) Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector (Q) Exercising such other powers as may be prescribed.

1.1.4 Life insurance business:

Under Section 2(11), Insurance Act, 1938: Life Insurance Business means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) and the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include (a) The granting of disability and double or triple indemnity accident benefits, if so provided in the contract of Insurance; (b) The granting of annuities upon human life; and (c) The granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the Dependents of such persons.

1.1.5 Life insurance products:

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Life insurance products are usually referred to as plans of insurance. These plans have two basic elements, one is the Death Cover providing for the benefit being paid on the death of the insured person within a specified period and the other is the Survival benefit providing for the benefit being paid on survival of a specified period. The various types of life insurance products are:1. Term assurance plans:The plans of insurance that provide only death cover are called Term assurance plans. Term assurance policies are only for a limited time, claim for which is paid to the family of the assured only when he dies. In case the assured survives the term of policy, no claim is paid to the assured.
2. Pure Endowment and Endowment Assurance plans

The plans of insurance that provide only survival benefits are called Pure Endowment plans. A term assurance plan along with a pure endowment plan when offered as a single product is called an Endowment Assurance plan. In case of endowment assurance plan, the term of policy is defined for a specified period say 15, 20, 25 or 30 years. The insurance company pays the claim to the family of assured in an event of his death within the policy's term or in an event of the assured surviving the policy's term. 3. Whole Life Plan A term assurance plan with an unspecified period is called a Whole Life Plan. In whole life plan, insurance company collects premium from the insured for whole life or till the time of his retirement and pays claim to the family of the insured only after his death. It is suitable for those who want to leave estate for their children. 4. Annuity Annuities are just opposite to life insurance. A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by installments) to the insurer. The insurer in return promises to pay the insured a series of payments until insured's death. Generally, life annuity is opted by a person having surplus wealth and wants to use this

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money after his retirement. No underwriting is required in annuities, as the risk of living too long is covered under annuities. There are two types of annuities, namely:
a. Immediate Annuity: In an immediate annuity, the insured pays a lump sum

amount (known as purchase price) and in return the insurer promises to pay him in installments a specified sum on a monthly/quarterly/half-yearly/yearly basis.
b. Deferred Annuity: A deferred annuity can be purchased by paying a single

premium or by way of installments. The insured starts receiving annuity payment after a lapse of a selected period (also known as Deferment period). 5. Children plans Insurance can be taken on the lives of children, who are minors. The proposal will have to be made by a parent or a guardian. In this plans, risk on the life of the insured will begin only when the child attains a specified age.
a. Child's Deferred Assurance: Under this policy, claim by insurance company is

paid on the option date which is calculated to coincide with the child's eighteenth or twenty first birthdays. In case the parent survives till option date, policy may either be continued or payment may be claimed on the same date. However, if the parent dies before the option date, the policy remains continued until the option date without any need for payment of premiums. If the child dies before the option date, the parent receives back all premiums paid to the insurance company.
b. School fee policy: School fee policy can be availed by affecting an endowment

policy, on the life of the parent with the sum assured, payable in installments over the schooling period. 6. Money back policy Money back policy is a policy opted by people who want periodical payments. A money back policy is generally issued for a particular period, and the sum assured is paid through periodical payments to the insured, spread over this time period. In case of death of the insured within the term of the policy, full sum assured along with bonus accruing on it is payable by the insurance company to the nominee of the deceased. 7. Joint Life Policy

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In this policy two or more lives can be covered. Such policies usually cover married couples or partners. The sum assured is paid on the death of any of the insured persons during the term or at the end of the term. Some plans also provide payment of sum assured on the death of one life and the policy is continued to cover the second life till maturity, without payment of further premium. 8. Convertible plans Convertible plans of assurance are plans, which provide, in its terms and conditions, that it can be changed to another plan after, or within, a certain period after commencement. For example, a convertible plan can be converted into a whole life policy or an endowment policy, within a period specified in the original plan.

1.1.6 Traditional products of Insurance

Traditional life insurance plans are a combination of term assurance plan and pure endowment plans. Traditional Plans have the following features, by making changes in the said features, or adding and combining some of them, any number of plans can be developed. Who can be insured? The various possibilities are i. ii. iii.

Individual adults Children (minors) Two or more persons jointly under one policy

What can be the Sum Assured? Some plans stimulate a minimum SA(Sum assured). There can be maximum limits also for SA as well as certain benefits, like Accidental benefits.

In what contingency the Sum Assured is payable? Could be on death or on survival How and when the Sum Assured is payable? Could be in one lump sum or in installments, and on the contingency happening or some other dates

What can be the duration of the policy?

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This determines the period during which the specified event should occur for the SA to be payable. Some plans provide for benefits even beyond the term. Are there additional benefits? These are also called supplementary benefits and may be provided by way of riders, in addition to the basic covers.

1.1.7 Unit linked Insurance Plans(ULIP)

Unit Linked Insurance Plans [ULIP] was first offered in the United States in 1976, [after being developed and sold successfully in The Netherlands, England, and Canada] in the name of Variable Life Insurance. Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). The policy value at any time varies according to the value of the underlying assets at the time. ULIP provides multiple benefits to the consumer as listed below: Life protection Investment and Savings Flexibility Adjustable Life Cover Investment Options Transparency Options to take additional cover against Death due to accident, Disability, Critical Illness, Surgeries. Liquidity Tax planning

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Thus ULIP has addressed and overcome several concerns that customers had about life insurance - liquidity, flexibility and transparency. Traditionally, the savings element of insurance has been opaque, giving policyholders no control over asset allocation, no transparency, no flexibility to match one's lifestyle, inexplicable returns and an expensive, complicated exit. ULIPs, by separating the two parts within the same product, and managing them independently, offer insurance buyers a product mix that satisfies the dual needs of protection and investment with higher flexibility and transparency. In short, ULIPs are structured such that the protection (insurance) element and the savings element (capital appreciation) can be distinguished and hence managed according to one's specific needs.

1.2. Recent changes in the ULIP structure and their implications for investors
The new IRDA guidelines on ULIPs are implemented from 1st September, 2010.

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Features

ULIP Avatar ULIP (Before Sept.(After Sept. 01,Implications 01, 2010) 2010)

1. Minimum 5 times of the10 times of theIt will enhance the risk cover for the policyholder Sum Assured www.irda.gov.in premiumbut it will lead to increase in mortality charges as Source: annual premiumannual amount amount well 2. Agents No disclosure ofCompulsorily Commission disclosure will help policyholders to Commission agents disclosure ofget information about how much of his premium commissions agents commissionamount will be contributed towards payment of in benefitagents commission illustration of a policy 3. Guaranteed Returns Nil Guaranteed returnsThe minimum guarantee rate certainly holds on unit-linkedeconomic sense. However, this may actually make pension plans @it costlier (in terms of the premium paid) for the 4.5% buyers of such products. Moreover, actuaries at life insurance companies may find it difficult to manage long-term guarantees because there are not many long-term investment options available. Presently, the longest maturity government bond has tenure of 30 years. Moreover, the guaranteed rate is very low as compared to other fixed income instruments like PPF, Bank FDs which will fetch higher returns

4. Upfront High in initial 3Evenly distributedIRDA has eliminated high front-ending of the Charges years of theover the initial 5expenses, which were as high as 60%. The policy and 4thyears (lock-inregulator has also mandated that expenses should year onwardsperiod) be evenly distributed during the lock-in period (5gradually years) which will reduce the overall charges for reduces the whole policy term 5. Surrender No limit.IRDA has set aThis will help those investors who wish to exit Charges * Companies canrange of surrenderULIP after the 5-year lock-in as they would not charge as percharges from 2.5%suffer any additional surrender charges over and their discretion to 12.5% forabove the expenses mandated by the IRDA policies of less than 10 year term and 2.5% to 15% for policies of more than 10 year term 6. Overall No limit Charges Companies canIRDA has taken this move in favour of investors, charge maximumwhich will thus result in overall higher returns due upto 3% and 2.5%to lower charges for policy of 10 year term and 15 year term respectively

7. Top-up

No compulsoryTop-ups will beThis step will have mix impact on the life cover treated as singlepolicyholders. On the one side, they can get Page | 13 premium policiesincreased insurance cover without entering into a and will attractnew policy agreement. But, on the other hand, it mandatory will increase overall cost due to higher mortality

1.3 Company Profile

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1.3.1 About Aviva Life Insurance

Aviva Life Insurance Company India Ltd. is a private insurance company, formed by a joint venture between the Aviva insurance group of UK and the Dabur group of India. In reference to the government regulations, Aviva holds 26 percent stake and the Dabur group holds the balance 74 percent share in the joint venture. Aviva is known as the fifth largest insurance group in the world. Since 1834, Aviva is ensuring the lives of Indians. At the time of nationalization, Aviva was the largest foreign insurer in India in terms of the compensation paid by the Government of India. Aviva Life Insurance Company established the concept of Bancassurance in India, and has leveraged its global expertise in Bancassurance successfully here. With a strong sales force of over 30,000 Financial Planning Advisers (FPAs), they have initiated and pioneered many innovative sales approaches, including the concept of Bancassurance and Financial Health Check services. They were among the first companies to introduce the contemporary unit-linked products.

1.3.2 Promoters
The promoters of Aviva life insurance are the Dabur Group and Aviva Group. Dabur Group is one of India's oldest and largest group of companies, with a consolidated annual turnover in excess of Rs 2,834 crores. It is the country's leading producer of traditional healthcare products. On the other hand, Aviva Group is the UKs largest and one of the biggest Insurance groups worldwide. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. With a history dating back to 1696, Aviva Group has a 50 million customer base worldwide

1.3.3 Vision of Aviva Life Insurance

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The vision is to be amongst Indias leading life insurers with a quality business model, focused on sustainable growth. They seek to build a robust product portfolio meeting all customer lifecycle needs related to Savings, Retirement, Investments and Protection.

1.3.4 Distribution network

The company has 223 branches in India, and nearly 40 Bancassurance partnerships. They are spread across nearly 3,000 towns and cities in India, supporting its vast distribution network.

1.3.5 Corporate responsibility

Corporate Responsibility is deeply embedded in the culture at Aviva and reflects our social conscience and commitment to the society. The belief at Aviva is Education is Insurance, ie they recognize that education is insurance for a better future. In line with this thought, they have started a new, international charity partnership programme known as Aviva Street to School, which aims to improve the lives of thousands of street children and young people around the world by helping them develop their full potential. In India, they have partnered with CRY (Child Rights and You) and Save the Children to facilitate education (including other related factors that could prevent a child from attending school) for over 50,000 children by 2012. In the first year, Aviva will be reaching out to 20,000 children across 9 projects in 5 states. Source:- www.avivaindia.com

1.3.6 Organisation Structure of Aviva Life Insurance

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The organization structure of Aviva Life Insurance is depicted below: National Director [ND]

Regional Director [RD]

Zonal Manager [ZM]

Cluster Manager [CM] Branch Head/Manager [BH/ BM]

Assistant Branch Manager [ABM]

Development Centre [DC]

Senior Sales Manager [SSM]

Sales Manager [SM]

Assistant Sales Manager [ASM]

Agents

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1.3.7 Avivas Product Portfolio

The product portfolio of Aviva Life insurance is depicted in the table below:

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Products of Aviva Life Insurance

Type

Features

Secure Pension Plus

Traditional

Guaranteed additions to the sum assured in the first three policy years. Attractive returns by participation in the companys profits and an additional terminal bonus on maturity The option to deposit any amount of premium and at any point of time into deposit account Option to withdraw money from the account after 3 policy years High life cover; equal to 10 times the first premium A life cover that doesnt lapse even if subsequent premiums are missed Guaranteed returns: Guaranteed Additions @7% of Life Cover for each completed policy year till maturity Limited premium payment: Premiums are not required to be paid during the last five years of the policy Additional protection: Rebate for high Sum Assured: Rebate on basic premium is allowed if Sum Assured is Rs. 1 Lac or higher Payment of life cover to the family in the event of death Additional protection against accidental permanent total disability Return of the money paid towards the base premium on the survival at the end of the policy term Provision of selecting a rider for additional protection against permanent total disability and 18 critical illnesses Rebate on premium depending on the sum assured Life cover (sum assured) plus fund value as death benefit Flexible life cover and an in-built accidental death cover Provision of selecting a rider for additional protection 8 fund options with option of Systematic Transfer Plan (rupee cost averaging) Option to pay top-up premiums to Page increase the savings element along with|a19 nominal life cover A percentage of the Life Cover is paid out, depending on the policy term, at the

Aviva Dhan Sanchay Traditional

Aviva Dhan Vriddhi

Traditional

Aviva Life Shield advantage

Traditional

Aviva Life Saver Advantage

ULIPS

[Note:- Some of the products of Aviva Life Insurance were banned after the new IRDA guidelines on ULIPs, which are not considered.]

1.4 Theoretical Framework

Insurance is a form of risk management, which means it is an attempt to identify and manage threats that could severely impact or bring down the organization. The insurance sector face risk in different forms, this range from volatile investment conditions, increases in longevity and mortality risks through to terrorism threats and climate change. As a consequence, stakeholder focus on these risks and the way in which they are managed has also sharpened. It is, therefore, increasingly important that insurers fully understand the risks to which they are exposed. There are various types of risk. They are:1. Market Risk: The risk associated in any market is termed as market risk. (Effect

of Marketability of product) Examples Equity, Debt, Forex, etc. are the various markets one can invest in.
2. Liquidity Risk: The risk involved with concerns related to liquidity. (Stuck with

a stock) Example If one have a crore worth of land near the highway and is in an urgent need for Rs. 2 Lac will this property get the required liquidity.
3. Interest Rate Risk: The risk associated with the change in Interest Rate.

(Fluctuations in Rate) If interest rise, savers make more money but borrowers lose money, if interest rate goes up price of bond with lower rate fall resulting into loss.
4. Inflation Rate Risk: The rise in inflation could surpass the returns earned or

accrued and thus hamper the Financial Goals. (Increase of Oil prices) Inflation reduces the purchasing power of money hence the effective rate of return will go down. Example FD rate at 9% with inflation at 7%
5. Business Risk: The risk involved with any particular Business is called a

Business risk. Example Pager Black n white TV, Sectoral) Sectors like cement, banking, Pharma etc

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6. Credit Risk: The risk involved with the default of payment. (Payment default

risk) What if the investment tool is not able to pay the interest or does not declare dividend when expected or your debtor goes bankrupt
7. Currency Risk: The risk involved with currency movements. (Exchange rate) If

dollar exchange rate comes down importers will have to pay less where as exporters will get less money for the same amount of dollar payment.
8. Political Risk: The risk involved with Political developments. (Political

Instability)

1.4.1 Indian Financial Market

Financial market is a place where one lends and other borrows in form of financial instruments. Financial instruments are bought and sold in the financial market. Bank, mutual funds, insurance companies, stock exchanges are financial shops and constitute the financial market place. The financial market consists of two parts
i.

Money Market- is the market for trading short term instruments which mature in less than 1 year. These instruments are:a) Cash- refers to money in the physical form of currency, such as banknotes

and coins b) Call Money- is the money borrowed by banks from other banks or from financial institutions for one night. c) Notice Money- is the money borrowed by banks from other banks or from financial institutions for less than 15 days. d) Term Money- is the money lent for 15 days or more but for less than 365 days. e) Fixed Deposits maturing in less than 1 year- They remain with a bank for duration of less than 1 year. Commercial papers are issued by corporate to fund their working capital requirement for periods ranging from 7 days to a year.

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f) Treasury Bills- are issued by Reserve Bank of India. These bonds are for 2 durations of 91 days or 364 days.
ii.

Capital Market- Financial instruments having maturity of one year or more form the capital market instruments. These include debt instruments which promise to repay a borrowed amount.

Components of Capital Market:

a) Equity: Shares are issued by companies to raise money from the market. The

%age of shares held by the shareholder reflects the ownership of shareholder in that company. The shareholder earn returns by way of:

Capital Appreciation: E.g.: Rs 100 share becomes Rs.200 Dividend: the company divides a certain percentage of its profits as reward to the shareholders. Dividend is declared upon the face Value of share i.e at the original rate of the share at which they were issued and not the Market Price.

b) Debt Market- It is an agreement to pay a certain sum of money to the lender after

a stipulated period of time and the rate of interest is fixed. The various instruments under debt market are:

Fixed deposits: are issued by a bank/corporate and can be secured or unsecured depending upon the amount and the issuer. Debentures: are issued by a bank/corporate and can be secured or unsecured depending upon the amount and the issuer. They are secured loans with a fixed rate of interest.

Convertible Debentures: are that get converted into equity at a discounted value at a later stage. Government Securities: These are fully secured instruments issued by the Government of India and have a fixed tenure and a coupon rate. Bonds: These are secured loans with fixed coupon (interest) rates. In most of the bonds the coupon is paid at regular intervals except in the case of a zero-coupon bond.

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1.4.2 HOW DOES A ULIP WORK?

ULIP working can be explained with the help of an example. E.G:-A pays a Premium of Rs.10, 000. Sum Assured=Rs.1, 00,000 Allocation Charges: Upfront Charges called Allocation Charges are deducted as a percentage of premiums. For eg: If the Product says that Allocation Charges are 20%.In this case Rs.2000 shall be deducted from Rs 10000.Rs 8000 shall be invested in the market. It is called as Investible Premium. The customer shall be allotted units at a price called Net Asset Value (NAV). Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. If the Current NAV is Rs.10: No. of Units= Investible Amount / NAV The customer shall be allotted Units= 8,000/10=800 units Mortality Charges: These are the Charges that are deducted by the company for providing risk Cover. For eg: Rs 50 are to be deducted. Then the company shall deduct these charges by way of cancellation of Units. In this case Rs.50 is to be deducted and each unit is of Rs.10, then the company shall cancel 5 units. Policy Administration Charges: Suppose the Policy administration charges are Rs.40 per month. Then 4 more units shall be deducted by cancellation of units. Remaining Units = 80054=791 units.

1.4.3 TYPES OF FUNDS OFFERED BY ULIPS

Most insurers offer a wide range of funds to suit ones investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund. The various types of funds are:I.

Equity Funds: In this type of fund, sometimes also called Growth funds, there would be more investments in equities which are shares/ stocks traded in the stock market.

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II.

Debt Funds: In this type of fund, also called Bond funds, the investments are primarily in Government and government guaranteed securities and such safe debts and other high investment grade corporate bonds.

III.

Money Market Funds: In this type of fund, sometimes also called Liquid funds, the investment may be more in short term money market instruments such as treasury bills, commercial papers etc.

IV.

Balanced Funds: In this type of funds, the investments are in both equity as well as debts.

The following are the risk characteristics of the funds General Description Equity Funds Nature of Investments Primarily invested in company stocks with the general aim of capital appreciation Invested in corporate bonds, government securities and other fixed income instruments Risk Category Medium to High

Debt Funds

Medium

Money Market Funds Balanced Funds

Sometimes known as Money Market Low Funds invested in cash, bank deposits and money market instruments

Combining equity investment with fixed Medium interest instruments Source: www.irda.gov.in

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Chapter -2 Literature Review

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LITERATURE STUDY
Till today a lot of research has been done on the Indian insurance industry especially the life insurance sector. The material for this study was collected from various internet sites, journals and books by various authors. A lot of groundwork has also been done by studying the vast range insurance products before taking up this research. According to Swiss Res annual study of world insurance markets on an inflation-adjusted basis, global insurance premiums contracted by 1.1% to $4.06 trillion in 2009, which is an improvement over 2008 when global premiums shrank 3.6%. In most countries (66%), insurance grew faster than GDP, which shows the robustness of the industry. Swiss Re said in its World Insurance 2009 report said that for the year 2010, it is expected that the overall premium growth in the industry will turn positive and profitability and balance sheets will continue to improve. A research has been carried out by Sathak Mohanty who worked on the risk profile of ULIPs and analyzed insurance as an investment option. He says that Life Insurance Corporation of India (LIC) is still the undisputed leader in the Indian context. According to Anita Gupta-director, marketing and communication, ING Vysa Life insurance ULIPs are suitable for all types of customers, right from the lower class to the premium class. Also according to the Financial express (Dated 12th April, 2009) ULIPs are flexible to the core. In the IRDA journal of May 2009 said, J.Harinarayana said that (Life) Insurance was being sold as a tax planning device some time ago, it is being sold as an investment option now and some day, we hope (life) insurance will be sold as insurance.

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2.1 SEBI Vs IRDA

In a significant order on 10th of April, 2010, market regulator SEBI after the closing of the financial market, banned issuance of ULIPs, to 14 life insurance companies including market leaders like SBI Life, ICICI Prudential Life and Reliance Life Insurance, which did not cover state-owned insurance major LIC. According to SEBI, the lapse ratios have gone up from 5 per cent in 2002-03 to 17 per cent in 2008-09, and this rise was chiefly due to lapse of ULIPs, which are a combination of an investment in units and an insurance policy. SEBI said that whenever the investor sells their ULIPs, they lose the embodied life insurance, and insurance companies pocket the premium they had paid as a part of the price of ULIPs. So the life insurance part of ULIPs is of little benefit to investors and the premium that forms part of the cost of ULIPs is a tax on investors. Hence, the ban on ULIPs is thoroughly desirable. On the other hand, IRDA, which runs a cartel of insurance companies, immediately, rose in their defense, and told SEBI that it has no right to ban ULIPs. SEBI saw ULIPs as investment products and hence asserted its right to regulate those products, while IRDA treats them as insurance instruments. According to Sanjay Nirupam, Lok Sabha MP "Since ULIP investments go into the capital market, these should be regulated by SEBI. Joint regulation of such hybrid products is a good idea." On the other hand, S.B. Mathur, Secy-General, Life Insurance Council says Due to large amounts of money flowing into insurance, it seems to have become an issue or else why would SEBI wake up after 10 years?" The issue between SEBI and IRDA finally came to an end, when the ministry of finance placed the ball in the Insurance Regulatory Development Authoritys (IRDAs)

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hand, making IRDA the sole regulator for unit linked insurance plans (ULIPs). In a circular issued on June 28, 2010, the regulator notified a number of changes to the structure and framework of ULIPs and the new guidelines on ULIPs will be effective from September 1 this year. (This story was published in Business world Issue Dated 26-04-2010)

2.2 Pre-Implementation Stage

The Economic times, in the month of July published an article in which IRDAs chairman, J Harinarayana, said that the profitability of the insurance companies will be highly impacted after the implementation of the new guidelines and so they have to reduce their expenses to maintain their bottom line in the long run. J.Harinarayana also said that my concern for the insurance industry is not what is going to happen in 2010--11. The concern is that the industry must remain healthy, be able to grow and be sustainable. Furthermore, ULIP sales will also be adversely affected as agents may be unwilling to sell products at lower commissions, notes the Economic Times. While, The Hindu Business line, in the month of July published an article in which the industry officials said that the new guidelines issued by IRDA for unit liked plans will impact the profitability of insurers and will bring down the sales of ULIP. According to them, the capping of surrender charges and the even distribution of charges over the lock-in period of five years will adversely impact the profitability of insurers. ULIP sales will also be adversely affected as agents may be unwilling to sell products at lower commissions. The MD and CEO of Future Generali India Life Insurance, Mr Deepak Sood, said that the new guidelines of lock in period being increased to 5 years will give rise to new business strain and higher capital requirement, thus impacting the profitability of insurers. On the other hand, the Chief Operating Officer of Kotak Life Insurance, Mr G. Murlidhar,

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thought that the insurers profitability will reduce due to even distribution of charges over 5 years. IRDA says that the Insurance companies will have to make a choice between taking the hit on the margins themselves and passing the burden to the distributors in terms of lower commissions. While, Mr Sanjiv Bajaj, Joint MD, Bajaj Capital, a distributor, said that if the companies reduce commissions, it will impact volumes.

2.2.1 INDUSTRY PERSONS CONCERN

According to Thomas Matthew, managing director of LIC, said that the public sector life insurance company cannot plan its equity investments for this year as the sale of ULIPs will get impacted post September 1, as their equity investments depends on the flow of premium through ULIPs. The product has gone through many changes in past one year and the premium income might get affected. On the other hand the private life insurance companies saw turbulent times in 2009-10, in which the equity investments dropped around 10 per cent year-on-year. The uncertainty in the equity markets affected investors decision to invest in Ulips. Prasun Gajri, chief investment officer of HDFC Standard Life Insurance Company, said, The first four months of the present financial year (April-July 2010) were good and we saw around 60 per cent rise in equity investments over last year. But from September 1, there is uncertainty on how sale of ULIPs will be affected and how much will be the total equity investment for the year. Bajaj Capitals managing director, Sanjeev Bajaj have intimated that commission on ULIPs will almost go up by 100 per cent after the new guidelines are in place, as the regulator has given a clear message that insurance companies can now make money only the right way. While G.V Nageswara Rao, chief executive officer (CEO) and MD of IDBI Fortis said that under the new guidelines, commission on renewal will go up to encourage persistency, as companies will recover charges only when the policy is in force, and the acquisition cost will be recovered only if the policies are retained longer.

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India First Life Insurance MD and CEO, P Nandagopal., also agreed with the CEO and MD of IDBI Fortis, that increasing commission on renewal premium is the only way of increasing persistency. Vishakha Mulye, managing director & CEO, ICICI Venture is of the opinion that insurance will become an important tool for investment in the coming days and private equity will be a great asset class from a long-term perspective. On the other hand, Star Union Daiichi Life Insurances chief executive officer, K Sahay, is of the opinion that there will be a slump in business during the coming months as it is easy to push policies we are accustomed to sell, and it will take time to convince policyholders about the newly-approved products. A senior SBI Life executive, said that in the new era, pension will become less attractive and the insurance companies which have been selling products that will become less attractive after upcoming changes. SB Mathur, secretary general of Life Insurance Council, said investors should have more options to choose from instead of forcing them to buy products with higher cover. as everyone has different needs and they buy Ulips accordingly. We cannot have one-fit for all sizes, Mathur added. Gorakhnath Agarwal, chief actuary of Future Generali India Life Insurance, agreed with Mathur, and said that the customers should have the choice. Agarwal said Future Generali Life Insurances average cover is 10.14 times the annual premium. Aegon Religare Life Insurance offers an average cover of 10 times to Ulip customers, while Aviva Life Insurance said it is roughly between 8.5 and 10 times. A Bajaj Allianz Life spokesperson said, that as per peoples need, we often add term riders to our policies for higher cover. The insurer are also worried about the workforce as they expect workforce to shrink by 20% on revised norms. HDFC Standard Life said that in the runup to meet the September 1 deadline of the new Ulip guidelines rolled out by Irda, we are currently assessing its impact on our product range, cost structure and incentives/commissions. So far, we have not undertaken any step on rationalising our workforce. As an organisation, we continue to monitor under-performers/poor performers, which is a regular exercise carried out by the organisation, irrespective of the market condition. On the other hand,Rajesh Relan, managing director,of Metlife India. said that the recent IRDA circular would not lead to an incremental change but to a fundamental change in the way we do business. He thinks that there will be a 20%

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workforce reduction in the insurance market over the next 6-10 months, he also added that while the customer is the clear winner, insurance companies will have to cut operating expenses drastically to be able to provide for the stipulated yield to the customer. This would require companies to cut costs at all levels, including investments for growth, current sales models would need to be reoriented. It will also lead to dramatic reduction in commissions and put many small agents out of business. In an interview Jeffrey Liew, Senior Director, of Fitch Ratings talked to Sunaina Vasudev on the new ULIP norms, its likely impact on the life insurers and oppurtunities for the investors. Jeffrey Liew said that the new IRDA regulations will tighten up several policy loopholes and will definitely benefit policyholders. However, it will impact earnings of life insurance companies, as a lot of Indian life insurers depend on ULIP (Unit linked insurance plan) policy sales to expand market shares because ULIPs were easier to sell. The lock-in period is now more constrained and people may hesitate to buy these policies. Therefore, the agency force will have to be more competent and trained to sell such policies. He also added that the increase in lock-in period (from 3 years to 5years), will also enable people compare this product with alternative investments, which he thinks will impact sales and also change the way in which Indian life insurers continue to sell ULIP policies, and also the longer lock-in period allows a wider range of investments other than pure equity, and definitely more bonds with maturity of 5 years or more. The agents commission will be reduced from 35-40% to 15-17% which will affect the earnings of the insurers. He said that the insurers will now have to control selling and new business expenses including agent commissions, and especially bank commissions. Also, charges on surrenders are capped by the new regulations which were a source of revenue for life insurers. The IRDA regulations emphasize higher coverage (life or health etc) and making ULIPs a more insurancelike product compared to a part investment product earlier, where the insurance component was lower than the investment component. The insurance component will increase so people have more coverage. However, Jeffrey Liew, thinks, that volumes will come down because of this as people who already have an insurance

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policy when offered a ULIP may consider other alternate investment routes. It is still very early to say that the regulations will dramatically change proportion of business from ULIPs but obviously it will impact volumes. Going ahead, one can expect to see the balance between traditional policies and ULIPs normalizing, as compared to very high proportion of ULIPs in new business premium seen so far especially for private life insurers. Prior to these regulations, the thrust on ULIPs was basically because they were easier to sell with the volume gains boosting market share. ULIPs are also profitable faster, as future premium is collected at the outset (front-loaded premium), which is an immediate capitalization of profit for life insurers and also helps them pay for new business. However, now, with charges being spread over 5 years, there is lower incentive to sell ULIP policies and they will become comparable to selling traditional policies. The MD and CEO of Future Generali India Life Insurance, Mr Deepak Sood, also agreed and said that at this stage, selling a traditional product will be more attractive for an agent than selling a ULIP. (This article was published in The Hindu Business Line on July 30, 2010)

2.3 Post Implementation Stage

The new guidelines on ULIPs became effective from September 1. According to an article published in Business World, Unit-linked insurance plans (ULIPs), as a product category, has become more complicated than, a fixed deposit or even a stock or a mutual fund, and the reason is that it is an investment and a protection product kneaded into one. The complicated matters in ULIPs are guarantees, additional payouts, differential loading of costs, exit loads and other features. So, it becomes impossible for the average investor to figure how his money will flow through the plumbing and how much will come out of the other end.

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According to Uco Vegter, chief marketing and strategy officer, ULIPs have been getting standardized. While according to ING Life Insurance Company, the difference in product design has come down drastically. As a result, there is far more transparency in ULIPs for customers. According to Kapil Mehta, Managing director and chief executive officer of DLF Pramerica Life only two types of insurers will emergesmall but focused players on long-term protection and large players focused on investment aspects. According to an article published in Outlook Money, the 5 common features in new ULIPs are being discussed. They are:

Mortality rates: These are outside the IRDA cost cap & have been hiked by many companies Limited Premium Payment: Several policies have started offering the limited premium payment option for 5 years Minimum Premium: Now raised. For some policies, its as high as 50,000 now. Earlier, the average was lower Further guarantees on NAV-based products: Apart from the highest NAV, more guarantees now on offer Loans against ULIPS: Earlier, it was allowed only for traditional plans.

The outlook money discussed the randomly picked up ULIPs of different genres- type I, type II, pension plans, childrens plans and highest NAV guaranteed plans. In Type I ULIPs they discussed the product of Aviva Life Insurance Freedom Life Advantage, in type II they have discussed ICICI Prudential Life Insurances Life Time Premier and Kotak Life Insurances Wealth Insurance, which is their favoured version, in NAV guaranteed plans there is HDFC standard Life Insurances Crest and SBI Life Insurances Smart Performer, in Childrens ULIPs there is Max New York Life Insurance Shiksha Plus II, in Pension Plus category there is LICs PENSION plus. According to Rajiv Gupta, Executive director (Marketing), SBI Life Insurance , NAV guaranteed products are for those who arent happy to invest their entire amount in the stock market and want to play safe. According to G. Murlidhar, Chief

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operating officer, of Kotak Life Insurance firms will invest more in better equipped intermediaries; customers can look forward to far better product and service experience. According to IRDA chairman, J. Hari Narayan agency network was unprofessional, and the part time nature of their job and low business per agent were making the entire agency force costly to maintain. So, it is essential that the companies professionalise the agency force by a suitable filtration process. According to Kamesh Goyal, CEO, of Bajaj Allianz Life Insurance, ULIPs have become customer-friendly. He added that the present model of large distribution network and low productivity will be changed and it will be difficult to retain the agents at a very low commission. It has arrived at the stage that the traditional products of insurance have become comparable to ULIPs. According to Abizer Diwanji, executive director at KPMG, there will be more strategic tie-us such as the one between Axis Bank and Max New York Life Insurance, where insurance companies dilute their stake in favour of the banks. According to Madhivanan Balakrishnan, executive director of ICICI Prudential Life Insurance, insurance companies plans to bring down the concentration of ULIPs in their product mix from 80-90 per cent now to 55-65 per cent, and the distributors, too, will have to adjust to the emerging trends of lower commissions. The balanced portfolio mix between traditional products and ULIPs is required at this stage. (This article was published in Outlook Money, 6 October, 2010)

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CHAPTER-3 RESEARCH METHODOLOGY

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This chapter deals with the research methodology adopted.

3.1 Title of the Project

A comparative study of ULIPs Vs traditional products of insurance A case study of Aviva Life Insurance

3.2 Need of the studyThe study is done on the insurance sector with special reference to Aviva Life Insurance Company, to undertake a comparative analysis between traditional products of insurance and ULIPs. The study is also aimed to study the impact of the new IRDA guidelines, on the consumers, the agents and the sale of ULIPs versus traditional products in Aviva Life Insurance Company in the North-East Region. 1) This study will help us understand the consumers needs and perception in general, towards traditional products and ULIPs. 2) This study will help Aviva Life Insurance to customize the service and product, according to consumers need.

3.3 Scope of the studyThis study is limited to the consumers within the limit of Guwahati city. The agents data are collected from the various branches of Aviva Life Insurance in the north-eastern region. The study will be able to reveal the preferences, needs and perception of the customers regarding the traditional life insurance products and ULIPs. The study also reveals the impact of the new IRDA guidelines on ULIPs on the agents as well as on the sale of traditional products and ULIPs in the month of September and October.

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3.4 Objective of the study

1. To do a comparative study of the features of traditional products of insurance and ULIPs of Aviva Life Insurance. 2. To study the portfolio management of funds of Aviva Life Insurance 3. To study the need, perception and awareness of consumers towards traditional products of insurance and ULIPs.
4. To study the rise and fall in demand for various products offered by Aviva Life

Insurance since 2008 till the month of October in the year, 2010. 5. To study the impact of the new IRDA guidelines on ULIPs with respect to i. ii. Sales volume of Aviva life insurance in the NE Region Agency network

3.5 Research design:

A research design is a basic plan, which guides the researcher in the collection and analysis of data required for practicing the research. It constitutes the Blue Print for the collection, measurement and analysis of the data. The study was initially an extensive exploratory research to gain insight into the general nature of the objectives, the possible decisions alternatives and the relevant variables that need to be considered while designing the research method and the questionnaires. Along the line of this exploratory research, the research objectives were refined and the questionnaire was designed. With the help of the questionnaire a descriptive crosssectional survey was conducted on the following. I. The study is carried out to understand the consumer need and perception about traditional life insurance products and ULIPs in the city of Guwahati with the

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help of a structured questionnaire. This research covers 100 consumers in Guwahati city, belonging to various age groups.
II.

The study also aims to know the impact of the new IRDA guidelines on ULIPs on the agency network of Aviva Life Insurance Company. This research covers 80 agents of various branches of Aviva Life Insurance Company in the North-East Region.

III.

The study also aims to know the impact of the new IRDA guidelines on the sales volume of Aviva Life Insurance. This research covers 50 sales managers of various branches of Aviva Life Insurance Company in the North-East Region.

3.6 Sources of Data

There were collected from two sources of data - Primary and Secondary. 3.6.1 Primary Data Primary data was collected by administering a survey questionnaire and conducting open-ended face-to-face, telephonic and e-mail interviews of the employees of various branches in North-East Region. The questionnaire contained both closed and open ended questions which were mainly formulated for the consumer and the agents. The number of consumers were 100, the number of agents were 80, and the sales managers were 50. 3.6.2 Secondary Data The secondary data was collected directly from the companies and their websites and internet surveys. A lot of research studies, journals, daily newspaper and standard textbook have also been referred to.

3.7 Research Instrument:

The main research instrument used for this study was: Field work:

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An interview-schedule and well-structured questionnaire is administered to the respondents to collect primary data (Copy of questionnaire is attached in the appendix). Open and close-ended questions are used in the questionnaire. The orders of the questions are in such a manner that they begin with simple questions and lead on the questions that needed more involvement from respondents. The secondary data are collected from periodicals, magazines, journals and Internet.

3.8 Sample Design:

The process of drawing a sample from a large population is called sampling. Population refers to the total of items about which information is defined. 3.8.1 Sampling Unit: The sample unit of this survey was the customers having traditional life insurance policies or ULIPs in the city of Guwahati and the agents of various branches of Aviva Life Insurance Company in the North-East Region. 3.8.2 Sample Size: The sample size was 100 consumers of different life insurance companies, from Guwahati city, the sample size of the agents were 80 and the sales managers were 50 of Aviva Life Insurance Company in the North-East Region. 3.8.3 Sampling Technique Adopted: The process employed for the sample was Random sampling. Random sampling is the sampling in which every unit in the population has an equal opportunity of being selected in the sample. The method is more representative of the population as there are no personal biases. 3.8.4 Analysis Techniques The data has been presented with the help of graphical method like pie charts, bar diagrams etc., using Microsoft Excel for convenience in understanding the results and

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their interpretations. The Statistical package for social science (SPSS) Package17.0 was also used to do the frequency analysis.

3.9 Limitations of the StudyEvery study or research is conducted under some limits and there are some restrictions which have some impact on the project. Limitations of the project were: 1. Reluctance of the respondents to provide information in some cases. 2. A portion of the study has been done on the basis of the various secondary data as such there is possibility of inaccuracy information in the report.
3. The agents of all the branches were not covered for the survey.

4. The survey of the consumer is limited within the city of Guwahati. 5. The study is confined only to a small segment of the entire population and is confined to the north-eastern region only. 6. To study the impact analysis of the new IRDA guidelines on ULIPs, September and Octobers data is insufficient.

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CHAPTER-4 ANALYSIS AND FINDINGS

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4.1 Analysis 1:-To do a comparative study of the features of traditional products of

insurance and ULIPs of Aviva Life Insurance. Comparative analysis of the features of traditional products of insurance and ULIPs can be interpreted from the following table:

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4.1.1 Interpretation:
From the above table, it can be interpreted that there is very low product differentiation among the traditional plans and ULIPs. As ULIPs can be compared to Product Product of Aviva Life Shield Advantage Death Benefit Surviv al Benefit Loss Investment Flexibility Transparent

Term Assuran ce

Pure Aviva Endowm Dhan ent Sanchay Endowm Aviva ent Dhan Assuran Vriddhi ce Plan Whole Life Plan Annuity Aviva Life Line

Secure Pension plus Aviva Freedom Life Advantage

ULIPs

Endowment plan, if not withdrawn till maturity Pension plan by withdrawing every month after retirement. Whole Life plan by not withdrawing at all, till 70 or 80 years of age.

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4.1.2 Findings:
From the above table, it is found that the important differences between traditional plans and ULIPs are:ULIPs Traditional Plans The premiums, in excess of risk cover, All the premiums go into a common fund are invested by the policyholder, which and means it is flexible. The investment return may are invested at the insurers discretion, which is not flexible. vary There are two categories of benefitsand risk. non-guaranteed. However For non-

depending on the market movements and guaranteed the policyholder investment

the investment risk is borne entirely by guaranteed benefits the insurer bears the guaranteed benefits such as bonuses, depend on the performance of the insurer. Withdrawals are allowed. Loss if any, Surrenders are allowed but at a loss. depends on NAV loans are not allowed Loans may be provided. There are no bonuses, except loyalty For participating policies, bonuses are bonus in some cases payable The amount of the premium used for The premium amount used for insurance insurance coverage, other charges and the coverage, other charges and investment purchase of units are unbundled and are bundled-up and not known, and so transparent Benefits are variable Loss is likely Gains likely depending movements they are not transparent. Benefits are Pre-determined Loss is un-likely market Gains un-likely except through bonuses

on

4.2 Analysis 2:- To study the portfolio management of funds of Aviva Life Insurance

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The 9 ULIP funds of Aviva Life Insurance is studied. The different funds are:-

Life Unit Linked Bond Fund

The investment objective of the debt fund is to provide progressive capital growth with relatively lower investment risks. Portfolio Return, as on June 30, 2010 Since Inception Portfolio Return Benchmark 8.7% 4.4% Last 2 Years 10.5% 7.4% Last 1 Year 5.5% 3.9% As

observed from the above graph, it can be interpreted that the bond fund has always given portfolio return greater than the benchmark return in the last three years. Asset Allocation Pattern Government and other Debt Securities 60%-100% Cash and Money Market 0%-40% ASSET MIX PORTFOLIO Central Govt. Securities Corporate Bonds Cash and Money Market Asset % 18.81 53.65 27.54

Life Unit Linked Secure Fund

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The investment objective of the fund is to provide progressive returns on the investment and carry capital guarantee. Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market 60-100% 0-20% 0-40%

ASSET MIX ASSETS PORTFOLIO % Equities 7.33 Central Govt. Securities 27.3 Corporate Bonds 52.21 Cash and money market 13.16 Portfolio Return, As on June 30, 2010 Sin ce Inc ept ion Por tfol io Ret urn Be nch ma rk 6.0 % 7.0 7.2 6.5 9.2 6.4 % % % % % 8.4 % La st 5 Ye ars La st 4 Ye ars La st 3 Ye ars La st 2 Ye ars La st 1 Ye ar

8.7 9.0 8.9 11. 6.7 % % % 2% %

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As observed from the above graph, it can be interpreted that the secure fund since its inception has given portfolio return greater than the benchmark return, but in the last one year the portfolio return has nearly touched the benchmark return.

Life Unit Linked Protector Fund

The objective of this fund is to give progressive return on the investment by investing majority portion in debt securities, with a minimum exposure to equities. Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market ASSET MIX PORTFOLIO Equities Central Govt. Securities Corporate Bonds Cash and money market ASSETS% 4.37 27.02 44.12 24.49 60-100% 0-20% 0-40%

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Portfolio Return, As on June 30, 2010 Since Inception 7.1% 7.3% Last 3 years 7.3% 6.6% Last 2 years 9.0% 9.2% Last 1 year 5.3% 6.4%

Portfolio return Benchmark

As observed from the above graph, it can be interpreted that the protector fund since its inception has given portfolio return nearly equal to the benchmark return, but in the last one year the protector funds portfolio return is below the benchmark return.

Life Unit Linked Balanced Fund

The fund is designed to provide long-term cumulative capital growth while controlling risk, by availing opportunities in debt and equity markets. Portfolio Return, As on June 30, 2010 Since Portfolio return Benchmark Inception 18.4% 12.4% Last 5 years 12.4% 10.5% Last 4 years 11.0% 9.4% Last 3 years 8.0% 6.8% Last 2 years 13.2% 10.5% Last 1 year 10.7% 10.9%

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As observed from the above graph, it can be interpreted that the balanced fund since its inception has given portfolio return greater than the benchmark return, but in the last one year the balanced funds portfolio return has nearly touched the benchmark return. Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market PORTFOLIO Equities Central Govt. Securities Corporate Bonds Cash and money market ASSETS % 32.6 21.84 35.66 9.9 50-90% 0-45% 0-40%

Life Unit Linked Growth Fund

The fund is designed to provide long-term cumulative capital growth while managing the risk of a relatively high exposure to equity markets. The policy holder gets the full benefit of a rise in the market.

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Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market 0-50% 30-85% 0-40%

Asset Mix PORTFOLIO Equities Cash and money market ASSETS % 93.41 6.59

Portfolio Return

As on June 30, 2010

Since Portfolio return Benchmark Inception 21.3% 15.9% Last 5 years 17.3% 17.1% Last 4 years 13.7% 13.3% Last 3 years 7.1% 8.2% Last 2 years 14.9% 14.3% Last 1 year 17.0% 19.1%

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As observed from the above graph, it can be interpreted that the growth fund since its inception has given portfolio return nearly equal to the benchmark return, but in the last one year the growth funds performance was below the benchmark return.

Life Unit Linked Index Fund

The investment objective of this fund is to generate returns in line with the stock market index NIFTY. Asset Allocation Pattern Equity Debt Securities Incl. Money Market 80%-100% 0%-20%

Asset Mix
PORTFOLIO EQUITIES CASH AND MONEY MARKET Since Portfolio return Benchmark Inception -4.7% -5.5% Last 2 years 15.4% 14.7% ASSETS% 98.81 Portfolio Return 1.18

As on June 30, 2010

Last 1 year 24.4% 23.6%

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As observed from the above graph, it can be interpreted that the growth fund since its inception has given portfolio return nearly equal to the benchmark return.

Life Unitised with Profit Fund

An investment option that provides a guarantee that selling price of the units will never fall. The unit value of this fund is increased by crediting bonuses at regular intervals which are reset every year depending on market conditions. It seeks to smooth out volatility by paying out an annual pre-determined bonus. Investment pattern The majority of the fund will be invested in Government of India bonds and other similar high rated securities.

Asset Allocation Pattern Government and other Debt Securities 70-100% Equity 0-20% Cash & Money Market 0-40% Bonus Rate: 4.75% (until September 30, 2010) ASSETS PORTFOLIO Equities Corporate Bonds Cash and money market % 0.67 22.28 77.05

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Life Unit Linked PSU Fund

The objective of this fund is to give progressive return on the investment by investing majority portion in debt securities, with a minimum exposure to equities. Asset Allocation Pattern Cash & Money Market Equity 0-40% 60-100%

ASSET MIX
PORTFOLIO Equities Cash and money market ASSETS % 87.77 12.23

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Life Unit Linked Infra Fund

The objective of this fund is to give return on the investment by investing majority portion in equities, with a minimum exposure to cash and money market.

Asset Allocation Pattern

Cash & Money Market Equity 0-40% 60-100%

ASSET MIX
PORTFOLIO Equities Cash and money market 5.67 ASSETS % 94.33

4.2.1 Findings
As observed from the portfolio return of the different funds, it can be found that almost all the funds are following the benchmark return, except growth fund and protector fund which has performed below the benchmark return in the last one year.

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From the analysis of the asset allocation pattern of the different funds of Aviva Life Insurance, it can be found that FUNDS CENTRAL GOVT SECURITIES(%) BOND FUND SECURE FUND PROTECTOR FUND BALANCED FUND GROWTH FUND INDEX FUND PROFIT FUND P.S.U FUND INFRA FUND 18.81 27.3 27.02 21.84 0 0 0 0 0 53.65 52.21 44.12 35.66 0 0 22.28 0 0 CORPORATE CASH AND BONDS(%) MONEY MARKET (%) 27.54 13.16 24.49 9.9 6.59 1.18 77.05 12.23 5.67 0 7.33 4.37 32.6 93.41 98.81 0.67 87.77 94.33 EQUITIES (%)

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From the above graph, it can be found that the growth fund, index fund, P..S.U. fund and infra fund are similar funds with its maximum exposure to equities and minimum exposure to cash and money market. SL NO 1 2 3 4 5 6 7 8 FUND BOND FUND SECURE FUND PROTECTOR FUND BALANCED FUND GROWTH FUND INDEX FUND P.S.U FUND INFRA FUND SINCE INCEPTION 8.7 8.4 7.1 18.4 21.3 -4.7 LAST YERS N.A 8.7 7.3 12.4 17.3 N.A. 5 LAST 2YEARS 10.5% 11.2% 9.0 13.2 14.9 15.4 LAST YEAR 5.5% 6.7% 5.3% 10.7 17.0 24.4 1

The study is done using the historical NAV (Net Asset Value) of ULIP funds of Aviva Life Insurance. To understand the Portfolio performance of ULIPs of Aviva Life Insurance, the funds of the Aviva Life Insurance Company are selected and the historical NAVs are obtained for a period since inception of the fund. The returns of each fund were found out for each year. To calculate the return, the following formula was usedReturn = Rj Ri / Ri * 100, Where, Ri = Return for the initial year Rj = Return for the final year Period of study: 30 June 2008 30 June 2010. The returns thus obtained were used to evaluate the performance of the ULIP funds. For ULIPs risk-return, the historical NAVs of the funds for 2 years were taken. The funds of both were divided into different categories. The funds with more than 55%

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exposure in equity are considered as Equity category for ULIPs And funds with less than 55% in exposure in debt are considered as Debt category.

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In the debt category, 4 ULIP funds were considered to compare the risk-return. The funds were selected arbitrarily. Similarly, 4 ULIP funds standard deviation was calculated using the formula: Standard Deviation () = , were selected to be compared in the equity category. To find out the risk of the selected funds, the

where Xi = return of the fund in period i (i= 1, 2, 3n) X bar = arithmetic return n = number of periods To find out the return, the formula used was: Return = Rj Ri / Ri * 100, where Ri = Return for the initial year Rj = Return for the final year. FINDINGS
For a short period [last 1 year], index fund and growth fund has given a

highest return, as stock markets of India has revived from the slowdown. But in long duration the return is very slow. All the balanced funds, like Balanced and growth fund were able to give a higher return over the long term. Among all the funds in the one to five year period, the Growth Fund gave the highest return.

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 For the period of three years, some funds did exceptionally better than other

funds namely, eg- Growth Fund, Balanced Fund, . These funds have given an exceptionally higher return over all the ULIP products of Aviva Life. The balanced fund like ULIP Balanced Fund has again done well in the period of three years. Balanced funds are continuously ranked among the funds giving higher returns in the longer term. For the period of three years, Growth Fund has outperformed all the other funds. All Bond Funds for the period of three years were able to give very good returns. For short term of 1 to 2 year Index fund is performing well, but for a long time for 5 years index fund performance is very poor. The risk involved in the index fund is higher than the growth fund ,but the return in long term is quite different from each other. During the period of one year the funds which gave the higher return are Bond Fund, Balanced Fund, Growth Fund and Index Fund have performed better than all the others in the one year period. Index Fund has again outperformed all the funds for the one year period. In fact, the fund has been giving the highest return from its inception. Balanced funds were able to give a return of over 13% for the period of five years. An investor who wants to invest for a period of five years should consider these funds.

RISK RETURN ANALYSIS OF ULIP FUNDS Risk:

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Although there is a difference in the specific definitions of risk and uncertainty, for our purpose and in most financial literature, the two terms are used interchangeably. In fact, one way to define risk is the uncertainty of future outcomes. An alternative definition might be the probability of an adverse outcome. One of the best-known measures of risk is the variance, or standard deviation of expected returns. It is a statistical measure of the dispersion of returns around the expected value whereby a larger variance or standard deviation indicates greater dispersion. The idea is that the more disperse the expected returns, the greater the uncertainty of future returns. Another measure of risk is the range of returns. It is assumed that a larger range of expected returns, from the lowest to the highest return, means greater uncertainty and risk regarding future expected returns. The variance, or standard deviation, is a measure of the variation of possible rates of return from the expected rate of return. To find out the risk of the selected funds, the standard deviation was calculated using the formula:

Standard Deviation () = Where, Xi = return of the fund in period i (i= 1, 2, 3n) , X bar = arithmetic return n = number of periods 2 The risk is calculated using the standard deviation of all the NAVs of the Funds for the period 30th June 2008 to 30th June 2010.

Return: Return is the primary motivation force that drives investment. It represents the reward for undertaking investment. Since the game investment is about return (after allowing for risk), measurement of realized (historical) return is necessary to access how well the Fund has done. In addition, historical returns are often used as an important input in estimating future (prospective) returns. In ULIPs the return is the increase or decrease in

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the unit of the ULIPs. And the NAV of the ULIP is considered to ascertain the return that has been earned by the investor. To calculate the return, the following formula was usedReturn = Rj Ri / Ri * 100, Where, Ri = Return for the initial year Rj = Return for the final year

Allocatio n

Fund NAME (Fund allocation in %)

RISK

RETURN

EQUITY

GROWTH FUND INDEX FUND P.S.U FUND INFRA FUND BOND FUND SECURE FUND BALANCED FUND PROFIT FUND

ULIPS High Very High mediu m High Low Low Mediu m mediu m

ULIPS 14.9 15.4 14.4 12.8 10.5% 11.2% 9.0 14.4

DEBT

Findings Among the equity based ULIPs, Growth and index fund,the difference in risk is just 0.45 where index is having more risk, but the difference in the returns is

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3.50%,growth is having better return than the index fund. So, taking only risk and return it can be said that its better to invest in Growth Fund. Among the equity based ULIP Funds, growth and index fund is given retun of 1415% with high degree of risk 16.41 %whereas PSU Fund gives are turn of 14.4% but with a very low risk of 8.47. So, considering risk and return parameters PSU Fund should be chosen over Growth and index fund as the firm gives more return with less risk. In the Debt Category, the scenario is different with ULIPs taking more risk than the Mutual funds. And ULIPs are able to give a higher return then the mutual funds. Among the Debt based ULIP funds three funds are considered, Bond, secured , balanced and profit Funds are considered. And the secure fund gives a return of 11.20% and with a risk of 1.27, Bond fund gives a slightly less return of 10.50% but with a risk of 1.24 and the balance Fund gives a return of 9% and with the higher risk of 3.12. From the above three funds bond fund or secure fund should be chosen. Although the risk is high the return is more than the excess risk which the investor may take. By taking a risk of 0.03 more the investor may increase his return by 0.60%. secure bond should be chosen among the ULIP debt funds.

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4.3 Consumer Analysis 4.3 Analysis 3: - The objective of this analysis is to have an overview of the need,
perception and awareness of the consumer towards ULIPs Vs traditional products of insurance.

4.3.1 Sample collected:-The sample size was of 100 consumers, which was selected
from the city of Guwahati.

4.3.2 Tools and Techniques:- The data has been presented with the help of
graphical method like pie charts, bar diagrams etc., for convenience in understanding the results and their interpretations. The Statistical package for social science (SPSS) Package17.0 was also used to do the frequency analysis. The chi-square test and the paired sample t-test is being conducted with the help of Statistical package for social science (SPSS) Package17.0.

4.3.3 Primary Data Analysis

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A detailed survey in Guwahati city is conducted to understand and study the consumers responses. The primary data was collected through questionnaires. This questionnaire was mainly formulated to target the common man to see his perception and awareness of various investment options available. The sample size of the survey was 100.Out of these 64% was male and 36% were female. about towards primary The the analysis mindset of of Vs these people ULIPs. through questionnaires gives us an insight regarding various investments and traditional data Following is the analysis of the collected questionnaires. (Please refer to annexure I) The sample included respondents from all the age groups out of which 28 % of people are in the age group of 20-30, 44% are in the age-group of 31-40, 12% are in the age group of 41-50 and 16% are in the age-group of > 50. The sample of respondents was heterogeneous with people of various educational qualifications right 12 th pass to ones who were post graduate. Out of these 24% are 12th pass, 32% people are graduate and 44% people are post graduate. Out of 100 consumers, 26% of the consumer were in the income range of below 1,50,000 per annum, 22% of the consumer were in the income range of

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1500001-250000, 16% were in the income range of 250001-350000, 14% were in the income range of 350001-450000 and 22% were in the income range of more than 450000.

Out of 100 consumers, 45% of the people people invest invest their their money money in in insurance for Tax saving, 41% of the insurance for saving, 8% invest their money in insurance for returns, 4% invest their money in insurance for liquidity and the rest 2% invest their money in insurance for other reasons. Out of 100 consumers, 41% of the consumers save their money for future security, 18% of the consumer save their money for their childrens education, 17% of the consumer wants to buy house/ vehicle, 16% of the consumers save their money for their childrens marriage and the rest 8 % of them save money for other reasons.

Analysis for ULIP Policy

Out of 100 consumers only 32 % of the consumers have heard about ULIPs and 68 % of the consumers have not heard about ULIPs.

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Out of the 32% consumers only 27% of them say they have taken a ULIP policy, and 73% of them have not taken ULIP policy. Only 28% of the consumer were aware of the new IRDA guidelines on ULIPs and 72% of the consumer are not aware.

Out

of

the 28 consumers who were aware of the changes, 82% of them were satisfied with the new changes, and 18% of them were not satisfied with the new IRDA guidelines on ULIPs.

Analysis to know the reasons for taking ULIPs and Traditional Policy
In this analysis effort was made to know the reasons for taking ULIPs and Traditional Policy from the consumers side. In this question the respondent were asked about the most important and the least important reason for taking ULIPs and Traditional policy. The various reasons were to be ranked from 1 to 7. The following table shows the no.of respondents making a particular factor as per their prefernce.

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Rank Traditional ULIPs Returns Liquidity Flexibility Tax Planning Life protection Transparenc y Safety
4 6 5 3 1 7 2 1 4 2 5 7 3 6

The above table and graph shows that Life protection is the most preferred reason for taking a Traditional policy while its the least preferred reason in a ULIP policy, safety is important in taking a traditional policy whereas this reason is not that important for the consumer to take a ULIP policy. Transparency is one of the important reason for taking a ULIP policy, whereas this reason is not that important for the consumer to take a traditional policy. In the other reasons like returns, liquidity, flexibility and tax planning, consumers have almost the same preference level.

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4.3.3.1 Hypothesis Testing

4.3.4.1 Hypothesis 1:- There is no significant relationship between the age of the consumers and their reasons for saving money. The chi-square test is conducted at confidence level 95% and significance level 0.05%
Chi-Square Tests Asymp. Sig. (2Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 53.750a 62.717 .595 100 df 12 12 1 sided) .000 .000 .441

From the Chi-square test, it has been found that the null hypothesis has been rejected as the calculated value i.e. 0.000 is less than the significance level i.e. 0.05. This means that there is a significant relationship between the age of the consumers and their reasons for saving money.

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Age * Reasons for savings Cross tabulation

Reasons for savings Supporting Buying Future Security house/vehicle Age 20-30 31-40 41-50 > 50 Total 12 14 2 14 42 10 8 0 0 18 Daughter/son's marriage 0 10 8 0 18 education of children 6 6 2 0 14 Others 0 6 0 2 8
Total

28 44 12 16 100

From the test it is evident that out of 100 consumers, 42 consumers save their money for future security. This means future security is the main reason for the consumers of all age groups to save their money. Out of 100 consumers, 28 consumers belongs to the agegroup of 20-30, and out of 28 consumers, 10 consumers save their money for buying house/ vehicle. Out of 100 consumers, 12 consumers belongs to the age-group of 41-50, and out of 12 consumers, 8 consumers save their money for daughter/sons marriage. So, it can be concluded that the consumers of different age-groups have different needs and so they save their money according to their need.

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4.3.3.2 Hypothesis 2:- There is no significant relationship between the income of the consumers and their reasons for investing money. The chi-square test is conducted at confidence level 95% and significance level 0.05%

Chi-Square Tests

Asymp. Sig. (2Value Pearson Chi-Square Likelihood Ratio 68.180a 80.507 df 16 16 1 sided) .000 .000 .062

Linear-by-Linear Association 3.478 N of Valid Cases 100

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From the Chi-square test, it has been found that the null hypothesis has been rejected as the calculated value i.e. 0.000 is less than the significance level i.e. 0.05. This means that there is a significant relationship between the income of the consumers and their reasons for investing money.

Income Range * Major reasons for investment Cross tabulation

Major reasons for investment Return Liquidity Saving Tax Saving Other Income Range Below 150000 150001-250000 250001-350000 350001-450000 More than 450000 Total 8 2 41 45 4 100 0 3 2 3 0 0 0 0 0 2 24 10 2 2 3 0 7 12 9 17 2 2 0 0 0 Total 26 22 16 14 22

From the result of the test, it was found that out of 100 consumers, 26 co nsumers

fall in the income-

range of below 1, 50,000 and out of 26 consumers, 24 consumers invest their money for saving. Out of 22 consumers belonging to the income range of 150001-250000, 7 consumers invest their money for tax- saving which is evident from the above table. It can be clearly seen from the above table that with the increase in the income-range, the consumers mainly invest their money for tax-saving. In the income range of more than 4, 50,000, out of 22 consumers, 17 consumers invest their money for saving tax.

4.3.4 Findings
From the consumer survey it is found that most of the people buy insurance policy for getting tax benefits, so it means tax saving is the main reason for investing their money in insurance.
From the consumer survey it is found that, future security is the main reason for

saving the money.

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 The awareness level of ULIPs can be termed as poor, as only 32% of the

consumers have heard about ULIPs, and out of 32% consumers only 27 % of the consumers have taken a ULIP policy, and only 28% of the consumers knows about the new IRDA guidelines on ULIPs.
Life protection is the most important reason for taking a traditional policy

whereas it is the least important reason for taking a ULIP policy. The main reason behind taking a ULIP is Transparency, whereas it is not important in traditional policy.
Consumers of different age-groups have different needs and they save their

money according to their need, ie there is a strong relationship between the age of the consumers and their reasons for saving money. Future security is found as the main reason for saving their money which is the most important need of the consumers irrespective of the age.

There is a significant relationship between the income of the consumers and their

reasons for investing money, as with the increase in the income-range, tax saving becomes the main reason for investing their money.

4.4 Analysis 4:-To study the rise and fall in demand for various products offered by
Aviva Life Insurance since 2008 till the month of October in the year, 2010. a. To know the peak season and slack season of Aviva Life Insurance Company b. To study the impact of the new IRDA guidelines on ULIPs on the sales volume in the month of September and October as compared to the sales in the year 2008 and 2009. Tools and Techniques:- The data has been presented with the help of graphical method like line diagram, for convenience in understanding the results and their interpretations.

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The analysis is done by collecting the data with the help of the structured questionnaires for the agents and the sales managers, and with the help of an interviewing technique with the branch managers of Aviva Life Insurance Company. ( please refer to Annexure I and II) The various products sale in terms of annual premium (APE) of all the branches of Aviva Life Insurance Company from the year 2008 till the month of October, 2010 is shown with the help of a line-diagram below. I. Agartala Branch Mr. Mridul Dey, Asst. branch manager, Agartala Branch Mr. Partho Pratim Mukherjee, Sales Manager, Agartala Data sheet:BRANCH AGARTALA (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC Graphical Analysis APE IN 2008 1,316,000 1,060,000 3,958,600 823,000 1,740,600 1,770,500 1,340,600 2,581,000 2,822,700 2,364,000 1,817,800 1,814,000 APE IN 2009 1,017,1 50 607,451 1,290,188 94,670 356,442 741,069 1,070,426 1,167,375 987,0 00 1,039,878 1,438,328 0 APE IN 2010 715, 754 922,645 2,791,064 730,040 1,080,046 851,360 1,318,597 1,565,227 823, 163 678543 Primary Data collected- Mr. Abhijit Sarkar, Branch Manager of Agartala Branch

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Interpretation:-From the above graph it can be interpreted that in the year 2008, the premium collected amount is higher than 2010 followed by 2009. These shows an impact of bear run of Indias share market on ULIP performance and return. The decreased pattern of sale from 2007 has been reduced to minimum 2009 again developing it continuously from 2009 mid onwards till date. If by analyzing the monthly pattern, it can be seen that March, the year ending month of a financial year shows maximum performance, which implies insurance products are being marketed as a tax-deduction instrument and companys get success to generate highest amount of revenue during this period. There is also a significant sales observed in the month of August and December.

II.

Dibrugarh Branch

Primary Data collected- Mr. Raktim Baurah, Branch Manager of Dibrugarh Branch

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Mr. Rajeev Goswami, Asst. branch manager, Dibrugarh Branch Mr. Partho Pratim Mukherjee, Sales Manager, Dibrugarh Branch Data sheet:BRANCH DIBRUGARH (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC Graphical Analysis: APE IN 2008 317,900 702,000 2,385,000 149,500 757,000 383,000 934,700 304,200 933,400 516,927 1,234,400 866,400 APE IN 2009 318,1 50 217,645 604,937 104,180 209,928 482,688 327,221 678,666 920,4 14 723,159 1,119,250 1,082,937 APE IN 2010 435, 112 909,260 2,465,407 154,591 964,522 1,009,881 974,158 1,501,304 600, 810 456764

Interpretation:-From the above graph it can be interpreted that in the year 2010 and 2008, the premium collected amount is equal [app 25,00,000] which is far more higher than 2009. The decreased pattern of sale from 2007 has been reduced to minimum in 2009 but revived again in 2010 and reached to the similar performance like 2008.

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If by analyzing the monthly pattern, it can be seen that March, the year ending month of a financial year shows maximum performance. September month is showing medium income due to midyear closing of accounts and tax payable. After the implementation of the new IRDA guidelines, a significant drop in the sales of September and October is observed. III. Guwahati A unit

Primary Data collected- Mr. Munin Saikia, Branch Manager of Guwahati A unit Mr. Bijay Choudhury, Asst. branch manager, Guwahati A unit Mrs. Devika Ghosh, Sales Manager, Guwahati A unit Data Sheet APE IN APE IN APE IN 2008 2009 2010 2,472,000 95,250 736,056 1,139,200 84,100 989,795 1,608,100 38,640 1,966,467 130,000 0 200,137 55,000 25,000 656,271 0 0 1,024,911 58,000 0 610,808 56,500 326,000 1,584,886 135,000 300,873 487,477 234,000 395,234 567452 500,997 762,128 609,900 1,180,804

BRANCH GUWAHATI A UNIT

MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

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Graphical Analysis

From the above graph, it can be interpreted that as compared to the year 2009 the annual premium collected in the year 2010 has increased. In the year 2010 and 2008 the APE collected is high in the month of March. In the year 2008, the APE collected is highest in the month of January. In the year 2010, in the month of August also, a significantly high APE is collected. After the implementation of the new IRDA guidelines, a significant drop in the sales of September and October is observed.

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IV.

Guwahati G.S.Road Primary Data Mr. Shantanu Sharma, Branch Manager of Guwahati G.S.Road Mr.Mukut Bharali,Asst.Branch manager,Guwahati G.S.Road Mr. Ratul Borah, Sales Manager, Guwahati G.S.Road

Data Sheet APE IN 2008 2,733,796 3,467,008 8,235,182 1,633,800 4,072,819 2,269,168 2,119,000 2,132,404 2,790,354 1,759,971 1,333,949 2,069,446 APE IN APE IN 2009 2010 524, 1,250,32 323 1 574,154 1,477,251 922,718 2,863,280 138,833 203,964 532,625 552,555 399,412 1,099,909 540,403 1,275,994 834,028 2,351,333 1,022, 392,97 426 6 703,642 245673 824,480 1,261,61 0

BRANCH GUWAHATI G S ROAD

MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

Graphical Analysis

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From the above graph, it can be interpreted that in the year 2008, 2009 and 2010, the APE collected is highest in the month of March. A significant sale is observed in the month of May, September and December in the year 2010. As compared to the year 2009, the APE collected in the year 2008 and 2010 is good. After the implementation of the new IRDA guidelines, a significant drop in the sales of September and October is observed. V. Guwahati Panbazar

Primary Data Mr.Deep Baruah , Branch Manager of Guwahati Panbazar Mr.Sanjay Gupta,Asst.Branch manager,Guwahati panbazar Mr.Suman Dutta, Sales Manager, Guwahati panbazar Data sheet APE IN 2009 16 4,200 71,600 89,491 0 14,400 57,500 251,53 3 521,00 0 37 7,000 629,21 3 550,34 0

BRANCH GUWAHATI PANBAZAR (SB)

MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV

APE IN 2008 71,000 596,000 550,000 212,000 1,648,300 731,200 953,665 884,200 1,373,804 871,179 590,000

APE IN 2010 208, 477 794,439 1,457,826 468,462 405,499 680,300 976,712 925,718 628, 808 646789

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DEC Graphical Analysis

995,200

593,90 7

From the above graph it can be interpreted that the Guwahati Panbazar branch, the sale pattern is very fluctuating. The performance of this branch is high in the year 2008, as compared to the year 2009 and 2010, but in the month of March the performance is high in the year 2010, as compared to 2008. In the month of august, VI. Jorhat Mr. Apurva Baruah , Branch Manager of Jorhat Mr.Sanjay Debnath,Asst.Branch manager, Jorhat Ms.Indrani Das, Sales Manager, Jorhat Data sheet APE IN 2008 742,000 1,073,00 0 2,958,00 0 581,000 1,122,00 APE IN APE IN 2009 2010 357, 425, 569 394 489,009 956,459

Primary Data

BRANCH JORHAT (SB)

MONTHS JAN FEB MAR APR MAY

757,655 1,523,816 63,832 113,102 199,778 383,711

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JUN JUL AUG SEPT OCT NOV DEC Graphical Analysis

0 945,900 807,000 980,200 1,262,76 4 947,505 791,880 1,199,60 0

375,143 823,114 508,595 497,418 331,376 1,167,977 632, 715, 940 891 672,555 876,543 731,176 1,244,16 2

From the above graph it can be interpreted that in all the years in this branch March is the significant month and the highest amount of premium is collected in this month. In the month of June, august and December also an observable amount of premium is collected. The year 2009s performance is very low in comparison to the year 2008 and 2010. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. VII. Sibsagar Mr. Ashiq Agarwalla , Branch Manager of Sibsagar Mr.Mrinal Jyoti Hazarika,Asst.Branch manager, Sibsagar Ms.Juri Moni Baruah., Sales Manager, Sibsagar Data Sheet

Primary Data

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BRANCH SIBSAGAR (SB)

MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

APE IN 2008 1,316,00 0 1,060,00 0 3,958,60 0 823,000 1,740,60 0 1,770,50 0 1,340,60 0 2,581,00 0 2,822,70 0 2,364,00 0 1,817,80 0 1,814,00 0

APE IN APE IN 2009 2010 763,2 984, 00 337 774,285 1,149,523 285,272 556,098 644,100 930,316 1,279,484 1,662,0 26 1,731,624 1,452,779 2,286,946 1,687,244 4,330,447 594,782 1,307,185 1,687,324 1,080,543 1,831,048 685, 114 765,432

Graphical Analysis

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From the above graph it can be interpreted that the highest amount of premium is collected in the month of March in all the years. The performance of this branch in the year 2009 is low in comparison to the other years which may be due to recession. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. VII. Silchar Mr. P.Kalita, Branch Manager of Silchar Mr. Sandeep Sarma,Asst.Branch manager, Silchar Mr.Manoj Kumar Sarma, Sales Manager, Silchar BRANCH SILCHAR (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC APE IN 2008 298,000 192,000 909,400 635,500 888,000 903,000 610,640 2,092,000 1,581,800 1,498,000 940,992 1,624,900 APE IN APE IN 2009 2010 57,07 634,43 0 0 295,454 742,233 521,265 2,062,044 78,376 288,822 304,599 824,397 511,482 1,144,178 353,552 640,768 812,102 561,805 720,51 529,28 8 0 576,083 654,321 820,000 691,003

Primary Data

Graphical Analysis

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From the above graph it can be interpreted that the premium collection in the month of March, August and December is high in the year 2008, and compared to the year 2009 and 2010, 2008 performance is high. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. VIII. Tezpur Mr.Sanjib Bhattacharjee, Branch Manager of Tezpur Mr. Ram Sarma,Asst.Branch manager, Tezpur Mr. Moonjyoti Saikia, Sales Manager, Tezpur Data Sheet APE IN 2008 449,000 482,500 478,700 75,000 318,700 520,600 380,200 402,200 1,630,80 8 720,200 900,700 564,390 APE IN APE IN 2009 2010 249,8 575,3 28 01 93,928 1,284,151 704,277 3,410,106 14,000 950,448 279,303 1,951,129 165,312 2,310,700 356,417 1,747,580 160,846 2,456,897 288,8 517,7 35 38 568,754 576,435 390,207 518,868

Primary Data

BRANCH TEZPUR (SB)

MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

Graphical

Analysis

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From the above graph it can be interpreted that in the Tezpur branchs performance in the year 2010, is good as compared to the year 2008 and 2009. A significant amount of premium is collected in the month of June and august. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. IX. Tinsukia Primary Data Mr.Kailash Talukdar, Branch Manager of Tinsukia Mr.Debojit Sarma,Asst.Branch manager, Tinsukia Mr.Manas Goswami, Sales Manager, Tinsukia BRANCH TINSUKIA (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT APE IN 2008 6,000 51,000 1,180,00 0 374,500 797,000 593,000 710,600 983,900 1,769,40 0 1,470,60 APE IN APE IN 2009 2010 302,17 575, 6 301 496,246 1,284,151 1,068,586 292,754 514,827 603,427 622,317 940,951 1,525,24 0 1,386,800 3,410,106 950,448 1,951,129 2,310,700 1,747,580 2,435,867 517, 738 432,567

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NOV DEC Graphical Analysis

0 1,943,90 0 1,521,40 0

2,210,130 1,844,076

From the above graph, it can be interpreted that Tinsukia branchs performance in the year 2010, is much higher as compared to the performance in the year 2008 and 2009. In the month of March, the premium collection is high which is observed in the 3 years data. A significant premium is collected in the month of August and September of the year 2008 and 2009. As compared to the year 2008 and 2009, the premium collection of the year 2010, in the month of September and October has reduced significantly which may be due to the implementation of the new IRDA guidelines.

Findings
Mont hs Premi um collec tion Medi um Low High est Low Low Med ium Low High Med ium Low Low High Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

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In the insurance sector, the whole financial year is divided into four quarters, ie from January to March, April to June, July to September and October to December and the employees of the company are given the quarter targets. i. January- In the month of January, there is medium sale of policies, as due to Bihu, most of the employees are in leave, and to achieve the companys target of December, most of the policies are being done in December, so in comparison to December, the sale in January is low.
ii.

February- As most of the policies are being sold in March, to avail the tax benefits under section, as per Section 80 C and Section 10(10D) of the Income Tax Act, 1961. So , there is a drop in the sales in the month of February

iii.

March- As per Section 80 C and Section 10(10D) of the Income Tax Act, 1961, the individual gets tax benefits by taking an insurance policy. In this month the sale of policies is the highest, which is the most significant month for the insurance sector.(For further details of the tax benefits, please refer to ANNEXURE-IV)

iv.

April- In the month of April, there is a drop in the sale of policies as most of the people buy the policies in the month of March to avail tax benefits. The agents start the steps of selling the product.

v.

May- In the month of May, as compared to April, there is a rise in the sale of policies, so as to meet the target of the quarter ending June.

vi.

June- In the month of May, as compared to April, there is a rise in the sale of policies, so as to meet the target of the quarter ending June.

vii.

July- In the month of July, the sale of policies is very low.

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viii.

August- In the month of August, various sales promotion schemes are introduced to motivate the agents, like foreign trips, gifts, awards like the best agent award etc. if they achieve their target.

ix.

September- As it is the time to collect the half-yearly premium, and the government employees are also given the bonus, so they invest their money in insurance. On 15th of September Income tax returns has to be submitted, so to avail the tax benefit, they invest the money in insurance.

x.

October- In this month the sale is very low, as most of the employees are on leave due to Durga Puja, and also the people dont buy the insurance policy during puja, as they buy clothes for the puja and spend money for their household items.

xi.

November- In the month of November, due to diwali and other puja, sale as compared to October is high but compared to December is low, as it is the quarter end.

xii.

December- In this month, the sale is high, as the employees are given targets, and their performance is assessed in this month and based upon this performance, they are given promotions.

After analyzing the sales of all the months from 2008 to 2010 in various branches

of Aviva Life Insurance Company, a similar trend is observed, ie, March, August and December are identified as the most significant months for Aviva Life Insurance Company and is the peak season, and April, July, October are the slack seasons in Aviva Life Insurance Company
In all the branches, premium collection in the year 2009 was significantly low,

due to the market slowdown; people had no belief in the stock market related products. From the graphs it has been observe that the ULIPs sale the year 2009 is greatly impacted by the bear run of stock market.

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 Due to the implementation of the new IRDA guidelines on ULIPs in the year 2010, the premium collected in the month of September and October is drastically low.

4.5 Analysis 5 4.5.1Analysis 5 (i):i.

To study the impact of the new IRDA guidelines on ULIPs with respect to sales volume of various products of Aviva life insurance in the NE Region

Analysis of data:- The analysis is done by colleting the data from the agents, sales managers and branch managers of various branches of the north-east region. The technique adopted is the interviewing technique with the help of unstructured questionnaires for the sales managers and branch managers and with the help of structured questionnaire for the agents. The analysis is mainly done to see the impact of the new IRDA guidelines on the sales of ULIPs and traditional products of insurance. The data is collected from the various branches of Aviva Life Insurance in the north-east region. The most selling products of Aviva Life Insurance Company are taken for the purpose of analysis.

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PRODUCTS Pension Plus Aviva Dhan Sanchay Aviva Dhan Vriddhi Aviva SaveGuard Aviva Sachin Century Plan Aviva Freedom Life Advantage

Type Traditional Traditional Traditional ULIPs ULIPs ULIPs

The sales data in terms of policy, of the year 2010, from the month of January to August are collected and presented with the help of table and graph below: PRODUCTS Pension Plus Aviva Dhan Sanchay Aviva Dhan Vriddhi Aviva SaveGuard Aviva Sachin Century Plan Aviva Freedom Life Advantage POL-Policy JAN- AUG 362 163 278 1133 916 1423 POL PRODUCT% 8.47% 3.81% 6.50% 26.50% 21.43% 33.29%

From the above graph, it can be interpreted that the contribution of Aviva Freedom Life plan is the highest, ie 33%, followed by Aviva Saveguard, ie 27%, and Aviva Sachin Century Plan, ie 21%, and the contribution of Aviva Dhan Vridhi, Aviva Dhan Sanchay and Pension Plus is very low in comparison to these products. After the implementation of the new IRDA guidelines on ULIPs, some products like Aviva dhan vridhi, with additional features became new Aviva Dhan Vridhi from September 1st, likewise Aviva Freedom Life Plan became Aviva Freedom Life Advantage, Aviva Saveguard became Aviva Life Saver Plus.

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The sales in terms of policy, for the month of September and October can be presented with the help of a table and a graph below: PRODUCTS Pension Plus Aviva Dhan Sanchay New Aviva Dhan Vriddhi Aviva Life Saver Plus Aviva Sachin Century Plan Aviva Freedom Life Advantage SEPT OCT 24 110 120 18 1 25 POL PRODUCT % 8.05% 36.91% 40.27% 6.04% 0.34% 8.39%

From the graph it can be interpreted that the contribution of the products like Aviva Freedom Life advantage, Aviva Life Saver Plus, and Aviva Sachin Century Plan, has dropped down significantly after the implementation of the new IRDA guidelines on ULIPS and the contribution of Aviva Dhan Vridhi, Aviva Dhan Sanchay and Pension Plus which was low from January to August has significantly increased, with New Aviva Dhan vridhi contributing 40 %, followed by Aviva Dhan Sanchay ie 37%. So, we see that before the implementation of the new IRDA guidelines, ie from January to August the ULIPs contributed 81% to the sales and traditional products contributed 19% to the sales, which can be seen with the help of a graph below:

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After the implementation of the new IRDA guidelines on ULIPs, the ULIPs contributed 15 % to the sales in the month of September and October while traditional products contributed 85 % to the sales. So, we can compare the traditional products and ULIPs before and after the implementation of the IRDA guidelines on ULIPs with the help of the histogram.

So, from the graph it can be clearly seen that the sale of traditional products of insurance increased after the implementation of the guidelines and the ULIPs sale dropped significantly.

Findings
It has been found that before the implementation of the IRDA guidelines on

ULIPs, the ULIPs contributed 81 % to the sales, and traditional contributed 19%, but after the implementation of the IRDA guidelines, ULIPs contributed 15% to the sales, while traditional contributed 85 % to the sales. It means that the new IRDA guidelines on ULIPs have a direct impact on the sales of ULIPs.

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4.5.2 Analysis 5 (ii):ii. To study the impact of the new IRDA guidelines on ULIPs with respect to agency network Sample collected:-The sample size was of 80 agents, which was collected from all the branches of Aviva Life Insurance In the North-East region. Tools and Techniques:- The data has been presented with the help of graphical method like pie charts, bar diagrams etc., for convenience in understanding the results and their interpretations. The Statistical package for social science (SPSS) Package17.0 was also used to do the frequency analysis. The chi-square test and the paired sample t-test is being conducted with the help of Statistical package for social science (SPSS) Package17.0.

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Primary Data Analysis A detailed survey is conducted to understand and study the impact of the new IRDA guidelines on ULIPs with respect to agency network. The primary data was collected through questionnaires. The sample size of the survey was 80 agents. The following is the analysis of the primary data collected through questionnaires. (Please refer to annexure II) In the questionnaire the agents were asked their reasons for joining the insurance sector.(refer to question no.2 of annexure II) Out of 80 agents, 65% of the agents said that they joined the insurance sector for earnings, 15% of the agents joined the insurance sector for recognition, 8% for opportunities, 7 % for rewards and 5% of them joined for some other reason.

To know the impact of the new IRDA guidelines on sale of policies, Question No.6 was asked in the questionnaire. Out of 80 agents, 73% of the agents said that there is a decrease in the number of policies and annual premium after the implementation of the new guidelines, and 27% of the agents said that there is an increase in the number of policies and annual premium after the implementation of the new guidelines.

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Factor affecting the sales An analysis is done to know the most important factor which affects the sales of ULIPs. The agents were asked to rate this factor on a scale of 1 to 5 , with 1 as least important and 5 as most important. Factors Lock in period Min S.A Agents commission Even distribution of charges Partial withdraw period Guarantee Return Mean 3.1 2.9 4.2 4.3 2.7 4.5

From the above graph it can be interpreted that guarantee returns with the highest mean value of 4.5 is the most important factor which affects the sales as the customers wants a guaranteed return in the policy. Even distribution of charges is also an important factor, as earlier the policies were front-loaded, resulting in high policy charges during the initial years, due to even distribution of charges, aggressive selling by agents may come down. The agents commission is also an important factor, as the agents commission has fallen drastically after the new IRDA guidelines, which de-motivates the agents to sell ULIPs. Tools and Techniques:- The paired sample t-test is being conducted with the help of Statistical package for social science (SPSS) Package17.0.

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Sample size- The sample selected to perform this test is 30 agents, as this test is performed for the sample size of less than or equal to 30. Comparison in selling the ULIPs and traditional products before and after September 1, 2010 The products which are taken for the analysis are: Type Traditional Product before September Aviva Dhan Vridhi Product after September New Aviva dhan Vridhi (same product with added features) Aviva Dhan Sanchay Money Back Aviva Freedom Life advantage (same product with added features) Aviva Life Saver Plus (same product with added features)

Traditional Traditional ULIPs

Aviva Dhan Sanchay Money Back Aviva Freedom Life Plan

ULIPs

Aviva Saveguard

All the products offered by Aviva Life insurance is not taken for the analysis, only the top most selling products are considered for the analysis. This analysis is done to draw a comparison between ULIPs and traditional products of insurance and to know the impact of the new IRDA guidelines on the selling of the products. In the questionnaire, the agents were asked to rate the products on a difficulty level of 1 to 5 with 1 as difficult and 5 as easy. The mean of the agents responses is shown below in table and graph

Mean Before Sept 2.8276 2.9655 3.5517 4.1379 4.2759 After Sept 4.6552 4.7931 3.4828 3.0690 2.5862
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Aviva Dhan Vridhi Aviva Dhan Sanchay Money Back Policy Aviva Freedom Life Plan Aviva Safeguard

From the above graph it can be interpreted that before the implementation of the IRDA guidelines on ULIPs the agents faced difficulty in selling the traditional products and selling ULIPs was easy for the agents. But after the implementation of the new IRDA guidelines on ULIPs the agents faced difficulty in selling ULIPs, on the other hand selling traditional plans became easier. Findings From the agents survey, it has been found that the most important reason which attracts the agents to join the insurance sector is earnings. From the agents survey, it has been found that the new IRDA guidelines on ULIPs has created a huge impact on the sales of policy as it has fallen drastically after September 1, 2010. From the agents survey, it has been found that the guaranteed return, even distribution of charges and the agents commission are the main factors which affect the sales. As most of the agents join the insurance sector for earnings, so low agents commission becomes one of the main reasons for the drop in sales.

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 There was difficulty in selling the traditional products before September 1 st, 2010,

and ULIPs was easy to sell but after September 1st, ULIPs became a difficult product to sell, and selling a traditional policy became easy. It means that people now prefer traditional policies over ULIPs

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4.6 Major Findings

There is very low product differentiation between traditional products and ULIPs,

and now after the new IRDA guidelines ULIPs have become more standardized and comparable to traditional plans.
For a short period [last 1 year], index fund and growth fund has given a highest

return, as stock markets of India has revived from the slowdown. But in long duration the return is very slow. All the balanced funds, like Balanced and growth fund were able to give a higher return over the long term. Among all the funds in the one to five year period, the Growth Fund gave the highest return.
For the period of three years, some funds did exceptionally better than other funds

namely, eg- Growth Fund,

Balanced Fund, . These funds have given an

exceptionally higher return over all the ULIP products of Aviva Life. The balanced fund like ULIP Balanced Fund has again done well in the period of three years. Balanced funds are continuously ranked among the funds giving higher returns in the longer term. For the period of three years, Growth Fund has outperformed all the other funds. All Bond Funds for the period of three years were able to give very good returns.

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 For short term of 1 to 2 year Index fund is performing well, but for a long time for 5 years index fund performance is very poor. The risk involved in the index fund is higher than the growth fund ,but the return in long term is quite different from each other. During the period of one year the funds which gave the higher return are Bond Fund, Balanced Fund, Growth Fund and Index Fund have performed better than all the others in the one year period. Index Fund has again outperformed all the funds for the one year period. In fact, the fund has been giving the highest return from its inception. Balanced funds were able to give a return of over 13% for the period of five years. An investor who wants to invest for a period of five years should consider these funds. From the consumer survey it is found that most of the people buy insurance policy for getting tax benefits, so it means tax saving is the main reason for investing their money in insurance.
From the consumer survey it is found that, future security is the main reason for

saving the money. The awareness level of ULIPs can be termed as poor, as only 32% of the consumers have heard about ULIPs, and out of 32% consumers only 27 % of the consumers have taken a ULIP policy, and only 28% of the consumers knows about the new IRDA guidelines on ULIPs. Life protection is the most important reason for taking a traditional policy whereas it is the least important reason for taking a ULIP policy. The main reason behind taking a ULIP is Transparency, whereas it is not important in traditional policy.

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 Consumers of different age-groups have different needs and they save their money according to their need, ie there is a strong relationship between the age of the consumers and their reasons for saving money. Future security is found as the main reason for saving their money which is the most important need of the consumers irrespective of the age.

There is a significant relationship between the income of the consumers and their

reasons for investing money, as with the increase in the income-range, tax saving becomes the main reason for investing their money.

March is the most important month in Aviva Life Insurance company as

insurance sale have a direct relation with the tax benefits as per Section 80 C and Section 10(10D) of the IT Act, 1961. For further details please refer to annexure IV.
In the month of April, also premium collection is high due to various sales

promotion schemes are introduced to motivate the agents, like foreign trips, gifts, awards like the best agent award etc. if they achieve their target.
In the month of December, the employees performances are assessed and are

given promotions. In all the branches of Aviva Life Insurance Company, premium collection in the year 2009 was significantly low, due to the market slowdown; people had no belief in the stock market related products. From the graphs it has been observe that the ULIPs sale the year 2009 is greatly impacted by the bear run of stock market. Due to the implementation of the new IRDA guidelines on ULIPs in the year 2010, the premium collected in the month of September and October is drastically low.

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 It has been found that before the implementation of the IRDA guidelines on

ULIPs, the ULIPs contributed 81 % to the sales, and traditional contributed 19%, but after the implementation of the IRDA guidelines, ULIPs contributed 15% to the sales, while traditional contributed 85 % to the sales. It means that the new IRDA guidelines on ULIPs have a direct impact on the sales of ULIPs. From the agents survey, it has been found that the most important reason which attracts the agents to join the insurance sector is earnings. From the agents survey, it has been found that the new IRDA guidelines on ULIPs has created a huge impact on the sales of policy as it has fallen drastically after September 1, 2010. From the agents survey, it has been found that the guaranteed return, even distribution of charges and the agents commission are the main factors which affect the sales. As most of the agents join the insurance sector for earnings, so low agents commission becomes one of the main reasons for the drop in sales.
There was difficulty in selling the traditional products before September 1 st, 2010,

and ULIPs was easy to sell but after September 1st, ULIPs became a difficult product to sell, and selling a traditional policy became easy. This may be due to the following reasons
i.

ULIPs was earlier used as a short term instrument, but now with the increase in the lock- in period from 3 years to 5 years the customer may be unwilling to buy ULIPs. They will prefer traditional policies for long term instrument.

ii.

Due to the drop in commissions of the agents, aggressive selling by the agents has come down, which has reduced the sales of ULIPs. As from the above findings, it is evident that most of the agents join the insurance sector for earnings, and low commission is one of the main reasons for the drop in sales.

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Chapter- 5 Recommendations and Conclusion

5.1Recommendations 5.1.1Recommendations for Aviva Life Insurance Company

People are not aware of ULIPs. So awareness campaign should be run with the help of media like newspapers, TV etc to make them aware. The company should adopt effective promotional strategies to increase the awareness level about ULIPs among the people. Company can use recent bomb blast scenario and terrorist attacks in Assam to create the awareness amongst people to insure themselves and protect their family.

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 As with the implementation of the new IRDA guidelines, the sale has been

adversely affected, so the company should focus more on rural area, where the large untapped market is present.
Market surveys should be conducted regularly so that to know about customer

demands and changing needs: The Company should know about the customers changing needs and demands by conducting market surveys which are helpful in introducing a product which suits the customers requirements. Insurance companies should try to adopt different strategies to market their products or plan. Companies should not primarily focus on the agents for their business, as agents may be unwilling to perform with low commissions. Insurance policies should not just be considered as a tax-saving, but should be considered as a long-term investment plan. The company should make the people aware of the benefits of taking an insurance policy.

5.1.2 Recommendations for Agents and Sales managers

The agents to generate more policies should follow these six steps. THE SIX STEPS FOR THE SALE OF PRODUCT The following six guidelines for effective selling every salesperson has to follow for getting good results i. ii. iii. Prospecting and Qualifying Pre-approach Presentation and demonstration

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iv. v. vi.

Overcoming objections Closing Follow-up and maintenance i. PROSPECTIVE AND QUALIFYING

The first step in selling is to identify and qualify prospects. The company can qualify the leads by contacting them by mail or phone to assess their level of interest and financial capacity. The leads can be categorized, with hot prospects turned over to the field sales force and warm prospect turned over to the telemarketing unit for follow-up. ii. PREAPPROACH The salesperson needs to learn as much as possible about the prospect company (what it needs, who is involved in the purchase decision) and its buyers (personal characteristics and buying sales).The salesperson should set call objectives: to qualify the prospect, gather information. He can make personal visit, a phone call. As a salesperson of Aviva Life Insurance Company, one should understand the above prospects very well. iii. PRESENTATION AND DEMONSTRATION The salesperson should tell the product story to the buyer, following AIDA formula of gaining attention, holding interest, arousing desire and obtaining action. The salesperson uses a features, advantages, benefits, and value approach. To get the good result salesperson should stress on benefit and value i.e. a customer orientation not more on future of the product, i.e. product orientation. Due to the lack of understanding the needs of the customer, mis-selling occurs, so salespeople should properly understand the needs of the customer to solve the problem of mis-selling

iv. OVERCOMING OBJECTIONS Customers typically pose objections during presentations. These objections can be handled by the salesperson by maintaining a positive approach and clarifying their objections, and by turning their objections in to reasons for buying.

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v. CLOSING Salespeople need to know how to recognize closing signs from the buyer, including physical actions, statements or comments and questions. Salesperson of Aviva Life Insurance Company should use techniques like asking for directly premium or started filling forms or asking for their documents. vi. FOLLOW- UP AND MAINTAINANCE The follow-up and maintenance is necessary if the salesperson wants to ensure customer satisfaction and repeat business. The salesperson should ensure that whether policy logins has been reached to the customer and he should call the customer whether he is happy with the purchasing and any objection if he has, salesperson should clarify it as one satisfied customer provides more customers.

5.1.3 Recommendations for consumers

The consumers should be careful while purchasing the product. The steps

followed by customer should be:

The consumers should communicate their need properly to the agent, in the first meeting with the agent. The consumer should gain knowledge of industry and products, so that you can cross-check when the agents talk to you about the product. The consumers should fill up the form by themselves, so that they are aware of the policy details and mis-selling doesnt occur. The consumers should retain their existing policies, as agents may try to convince the customers for a new policy, as new policies always fetch an agent greater commission.

5.2 Conclusion
An Insurance policy is an investment oriented plan. As compared to other investment plans, the investment portfolio of the Insurance Policy functions like a mutual fund and other investment. It is invested in a portfolio of debt and equity instruments, in

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conformity with the announced investment policy. Hence it grows or erodes in line with the performance of that portfolio. From this study it reveals that the consumers have different needs and preferences. A 5 years before the consumers and the general public were not interested to take an Insurance Policy but now days there are many options and choices in front of the customers. They are interested to take high return policies in order to secure their lives. Some, people are aware of all the benefits and returns of insurance policies, but still most of the people are unaware of ULIPs and the new IRDA guidelines on ULIPs. Due to the intense competition in the life insurance market, the Aviva Life insurance Company should adopt better strategies to attract more customers and also to cope with the new changes brought in by IRDA. The company should introduce new products by properly assessing the needs of the consumer. Only a few portion of Indian population is insured, so the rural market gives a challenging opportunity to the company to tap this segment. Lastly, a well-functioning insurance market plays an important role in economic development and financial stability of developing economies such as Indias. First, it inculcates and encourages the habit of saving. Second, it provides a safety net to rural and urban enterprise and productive individuals.

GLOSSARY

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Investment: It is current commitment of rupees for a time period to derive benefits in future. The future benefits are known as return (nominal return). Return may be in the form of income, capital appreciation or combination of both. Inflation adjusted returns are known as real return/net return Risk: It refers to the probability that the actual return on an investment will differ from the expected return. When the assets return has no variability, its called risk free asset. Credit Risk refers to the Risk of default Volatility: Movement in capital value of investment Primary Market: Its a process by which a company raises its initial capital from the public through IPO and obtains listing on the stock exchange Equity: Its an investment by which investors become part owner in the issuing company and share profits (its any) through dividends Liquidity: It is ease of marketability Capital Gain: The positive difference between the cost price & sales price of an asset held by investor Hedging: It is protection against risk Security: A legally enforceable document which can be traded Riders- are add-on benefits that can be attached to the basic policies. It is just like buying a helmet with a motorcycle for extra security .They are relatively cheap and are most effective for enhancing the coverage under the basic policy. Premiums for the riders are low, but there are no maturity / surrender benefits under the rider scheme. Capital Market: A place where all type of securities are traded

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Fund Manager- The person(s) responsible for implementing a fund's investing strategy and managing its portfolio trading activities Sum Assured- is the minimum amount payable to the assured or his/her dependants on the death of the life assured Lock-in-period- Its the period during which an investment may not be sold. Bank assurance- It means selling insurance through bank branches Administrative charges: These are charges that are levied for the administration of the policy and the related cost of administration of the insurance company, itself. They are more related to the cost like IT, operational, etc cost of continuing the policy. Fund management charges: These are the charges for buying and selling debt and equity. These are the charges are adjusted in NAV itself. Mortality charges: This covers the cost of providing life protection for the insured and may be paid once at the start of the policy for a recurrent manner for example this charges levied to provide the insurance cover under the plan . normally these charges are one year charges as per the age of the holder. Rider charges: Rider charges are similar in nature to the mortality charges as they are levied to pay for the other protection benefits that the policy holder has chosen for- like the critical illness benefit or the accident benefited. Surrender charges: When the policy holder decides to surrender the policy or partially withdraw some of the units for cash, a surrender charge may be apply. Surrender charges are used to cover initial expenses that have been incurred by the company but not yet recovered from the policyholder yet. Mis-selling- The ethically questionable practice of a salesperson misrepresenting or misleading an investor about the characteristics of a product or service

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ABBREVIATIONS
1. ULIP- Unit Linked Insurance Plans 2. APE- Annual Premium 3. NAV- Net Asset Value 4. CAGR- Compounded Annual Growth Rate 5. POL- Policies 6. S.A- Sum Assured 7. SEBI- Securities and Exchange Board of India 8. IRDA- Insurance Regulatory and Development Authority 9. DTC- Direct Tax Code 10. B.S.E- Bombay Stock Exchange 11. N.S.E- National Stock Exchange

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Bibliography

Books
1. Dr. Singh, Avtar, Principles of Insurance Law, S Chand & Sons, Delhi, 2003.

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2. Insurance Principles and Practices-M.N. Mishra 3. Principles of Insurance-Motihar 4. IC-33

Magazines and Newspapers

1. Outlook Money 2. Business World 3. Financial Chronicle 4. Economic Times 5. Hindu Business Line 6. Assam Tribune

Websites visited
1. www.avivaindia.com 2. www.irda.gov.in 3. www.insuranceguru.com 4. www.scribd.com 5. www.economywatch.com 6. www.indianmba.com 7. www.moneycontrol.com 8. www.marketsmonitor.com 9. www.financialexpress.com 10. www.investopedia.com 11. http://www.indianembassy.org/enews/econews(dec99).pdf-

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12. http://www.fido.gov.au/asic/pdflib.nsf/LookupByFileName/YourMoneyStarter_I

nsurance-FactSheet1.pdf/$file/YourMoneyStarter_Insurance-FactSheet1.pdf13. http://icpr.itam.mx/papers/Sinha2020.pdf14. http://indiabudget.nic.in/es2001-02/chapt2002/chap411.pdf-

http://pdf.usaid.gov/pdf_docs/PNADG470.pdf15. http://www.acadjournal.com/2008/V22/part7/p2/16. http://www.nishithdesai.com/Research-Papers/Insurance.pdf17. http://www.articlesbase.com/insurance-articles/financial-and-insurance-sector-in-

india-468408.html18. http://www.ibef.org/industry/insurance_industry.aspx 19. http://www.ibef.org/artdisplay.aspx?cat_id=802&art_id=26201&arc=show20. http://www.ibef.org/artdisplay.aspx?cat_id=802&art_id=26184&arc=show21. http://www.ibef.org/download/Insurance_060710.pdf22. http://www.nottingham.ac.uk/business/cris/papers/2005-3.pdf23. http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan002873.pdf-

unpan002873
24. http://www.scribd.com/doc/24411988/Project-Report-on-Insurance25. http://www.scribd.com/doc/25011370/Insurance-Project-Report 26. http://www.scribd.com/doc/28601591/Insurance-Project27. http://www.scribd.com/doc/30042666/Project-Report-on-Insurance-Industries 28. http://www.scribd.com/doc/24179171/project-on-insurance 29. http://www.scribd.com/doc/7060410/Insurance-

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30. http://www.appuonline.com/insurance/insurance-types.html31. http://www.appuonline.com/insurance/insurance-need.html32. http://www.appuonline.com/insurance/life.html33. http://www.appuonline.com/insurance/life.html#education34. http://www.appuonline.com/insurance/life.html#wealth35. http://www.appuonline.com/insurance/life.html#premium36. http://www.appuonline.com/insurance/life.html#protection37. http://www.appuonline.com/insurance/general.html38. http://www.appuonline.com/insurance/choose-insurance.html39. http://www.irdaindia.org/FAQs/faq_ulips221007.pdf40. http://www.irdaindia.org/ulips/CIRCULAR_ULIP%2028062010.pdf41. http://argus-research.in/ULIP.pdf 42. http://www.thehindubusinessline.com/2010/09/28/stories/2010092850051100.ht

m
43. http://smartinvestor.in/market/advice-33819-advicedet-

Scope_to_compare_ULIPs_with_alternative_products.htm44. http://www.schoolofinsurance.in/ann2.jsp 45. http://www.icrier.org/pdf/wp108.pdf 46. http://www.simpletaxindia.org/2010/07/20-insurance-policy-per-year-

mandatory.html
47. http://www.icrier.org/pdf/WP116.PDF

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48. http://www.lifeinscouncil.org/media-centre/latest-news/506-new-ulips-to-change-

industry-irda-image49. http://www.scribd.com/doc/4996143/OVERVIEW-OF-INSURANCE-SECTOR-

INDIA50. http://www.monstersandcritics.com/news/business/news/article_1163869.php/Ind

ia_s_insurance_sector_to_see_500_per_cent_growth_by_2010_Study-

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ANNEXURES

ANNEXURE-I Questionnaire for consumers

Sir/Madam I am a PGDBM 2nd year participant of Assam Institute of Management. As per the requirement of the course curriculum I am doing a comparative study of ULIPs vs traditional products of insurance- A case study of Aviva Life Insurance. I will be thankful if you spare a few minutes of your valuable time to answer the questions which will help me to attain my objective. Thanking you in anticipation,

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Muskan Verma. Your Name: _______________ 1. Gender: a. Male 2. Age: a. 20-30 yrs old old b. 31-40 yrs old c. 41-50 yrs old d. >50 yrs b. Female

3. Educational Qualification: a. 12th pass b. Graduate c. Post Graduate

4. Your income range (per annum)

a. Below 150000 350000

b.150001-250000

c. 250001-

d. 350001-450000 5. Your way of Investment:

e. More than 450000

-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------6. Major reason for investment in Insurance option : (Please tick one) a. Return d. Tax saving b. Liquidity e. Other c. Saving

7. Your savings is directed towards which option? a. Future security c. Daughter/Sons marriage b. Buying house/ vehicle d. supporting education of children

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e. Others 8. Do you have an insurance policy? a. Yes 9. Have you heard about ULIP? a. Yes heard b. Not Heard b. No

10.Have you taken any ULIP Policy? a. Yes

b. No

11. What are the reasons to invest in ULIPs? Please rank this attributes from 1 to 7. Attributes Rank Returns Liquidity Flexibility Tax planning Life Protection Transparency Safety 12.What are the reasons for taking Traditional plans? Please rank this attributes from 1 to 7. Attributes Returns Liquidity Flexibility Tax planning Life Protection Transparency Safety Rank

13.Are you aware of the changes made by IRDA in ULIP? a. Yes b. No

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14.Are you satisfied with the changes made by IRDA in ULIP? a. Yes 15. Give your suggestions/ complaints if any. b. No

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ANNEXURE-II Questionnaire for Agents

Sir/Madam I am a PGDBM 2nd year participant of Assam Institute of Management. As per the requirement of the course curriculum I am doing a comparative study of ULIPs vs traditional products of insurance- A case study of Aviva Life Insurance. I will be thankful if you spare a few minutes of your valuable time to answer the questions which will help me to attain my objective. Thanking you in anticipation, Muskan Verma. NAME: AGE: BRANCH:SEX:-

1) How many years you have been working with Aviva Life insurance? a) 0-2 b) 3-5 c)6-8 d) 8 and above

2) Why did you join the Insurance sector? [Please tick any one] a) Earnings b) Rewards c)Recognition

d) Opportunities e) other reason If other reason, please specify? ------------------------------------------------------------------------------------------------3) What number of policies and monthly premium averagely you business before Sept-1, 2010?(approximately) Month Sept Oct 200 200 Nov 200 Dec 200 Jan 201 Feb 201 Mar 201 Apr 201 Ma y Jun e July 201 Aug 201

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9 No of policy Averag e monthl y premiu m

201 0

201 0

4) Please rate which attributes is most important in attracting the customer for buying these products on a scale of 1 to 5 (1- least important, 5- most important) Category Types of plans in Aviva life insurance Death Tax benefit Benefit Investment Risk Returns

ULIPs Traditional 5) Are you aware of the present changes in insurance sector due to the new IRDA guidelines? [Please tick] a) Yes b) No

6) Is there a increase/decrease in the number of policies as well as average premium receive after the new IRDA guidelines? [Please tick] a) Yes- increased b) No-decreased

7) Have you found any change in No of policies and monthly premium averagely after Sept 1, 2010? Sept 2010 No of policy Average monthly premium Oct 2010

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8) In your view, how much sales have been affected after Sept 1st? Please rate on a scale of 1 to 5.( 1 as highly decreased..3 as not at all affected..5 as highly increased). Please tick any one. 1..2..3..4.5

9) How much these factors effect the sales after Sept 1st? Please rate these factors on a scale of 1 to 5? (1- least important, 5- most important) i. ii. iii. iv. v. vi. Lock In Period Minimum sum assured Low Agents commission Even Distribution of charges Partial withdraw period Guarantee return 1.23.4.5 1.23.4.5 1.23.4.5 1.23.4.5 1.23.4.5 1.23.4.5

10) Please rate the difficulty level on a scale of 1 to 5, the difficulty in selling the following products of insurance before September 1? (1- difficult, 5- easy). Please tick it. i. ii. iii. iv. v. Aviva Dhan Vridhi Aviva Dhan Sanchay Money Back Aviva Freedom Life Plan Aviva Safeguard 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5

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11) Please rate the difficulty level on a scale of 1 to 5, the difficulty in selling the following products of insurance after September 1? ( 1- difficult,5- easy) i. ii. iii. iv. v. New Aviva Dhan Vridhi Aviva Dhan Sanchay Money Back 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5

Aviva Freedom Life Advantage 1-----------2----------3----------4----------5 Aviva Life Saver Plus 1-----------2----------3----------4----------5

12) Please rate on a scale of 1 to 5, the change in your commissions after the new IRDA guidelines? ( 1 increase, 2- small increment, 3- no change, 4- small decrement, 5- decreased) Tick any one. 1 2...............3.....................4..5 13) Give reasons for continue/ discontinue in the insurance sector.

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ANNEXURE-III Questionnaire for Sales Manager

Sir/Madam I am a PGDBM 2nd year participant of Assam Institute of Management. As per the requirement of the course curriculum I am doing a comparative study of ULIPs vs traditional products of insurance- A case study of Aviva Life Insurance. I will be thankful if you spare a few minutes of your valuable time to answer the questions which will help me to attain my objective. Thanking you in anticipation, Muskan Verma. NAME: AGE: BRANCH:SEX:-

1) How many years you have been working with Aviva Life insurance? b) 0-2 b) 3-5 c)6-8 d) 8 and above

2) Why did you join the Insurance sector? [Please tick any one] b) Employment b) Rewards c)Recognition

d) Opportunities e) other reasons If other reason, please specify? -----------------------------------------------------------------------------------------------. 3) Which product was sold the most before September 1st, 2010? Please rank it from 1 to 10. (1 as least sold and 10 as the most sold)

PRODUCTS
Pension Plus Aviva Dhan Sanchay

% OF CONTRIBUTION

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Aviva Dhan Vriddhi Aviva Saveguard Aviva Sachin Century Plan Aviva Freedom Life Plan

4) What number of policies and monthly premium averagely you business before Sept-1, 2010?(approximately) Mont Sep h t09 Oct09 Nov Dec 09 09 Jan 10 Feb 10 Mar Apr 10 10 May 10 Jun e 10 Ju Aug ly 10 10

No of polic y Avg mont hly prem ium

5) Do you find any seasonal variation in sales of insurances in Aviva? (Please Tick) a. YES b. NO

6) Is there a increase/decrease in the number of policies as well as average premium receive after the new IRDA guidelines? [Please tick] b) Yes- increased b) No-decreased

7) Have you found any change in No of policies and monthly premium averagely after Sept 1, 2010? Sept 2010 Oct 2010

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No of policy Average monthly premium

8) Which products are sold the most after September 1st?

PRODUCTS
Pension Plus Aviva Dhan Sanchay New Aviva Dhan Vriddhi Aviva Life Saver Plus Aviva Sachin Century Plan Aviva Freedom Life Advantage

% OF CONTRIBUTION

9) In your view, how much sales have been affected after Sept 1st? Please rate on a scale of 1 to 5.( 1 as highly decreased..3 as not at all affected..5 as highly increased). Please tick any one. 1..2..3..4.5 10) Give reasons for continue/ discontinue in the insurance sector. ..

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ANNEXURE-IV

Income Tax Rates for A.Y:2010-11 Taxable income slab (Rs) Up to 1,60,000 Up to 1,90,000 (Resident Women) Up to 2,40,000( Resident Age 65 & above) Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Deductions under Section-80C Deduction is allowed on the following amount :Rate % Nil

10 20 30

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1. Life insurance premium on life of himself, spouse, children and any member of HUF subject to a maximum of 20 percent of sum assured. 2. Contribution by employee to Statutory or Recognized Provident Fund. 3. Contribution by any person to public provident fund subject to a maximum of Rs. 70,000. 4. Repayment of loan taken from Central/State Govt./any other bank/LIC/ National Housing Bank where employer is statutory corporation or, public company or university or college or local authority or a co-operative society for purchase or construction of a residential house property.
5. Tuition fees (excluding donation or development fees etc) at the time of

admission for full time education of any two children of such individual to any University, college, school or other educational institution situated in India. 6. Fixed deposit with schedule Bank for not less than five Years.

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Section 80CCC Investment in Pension Fund Persons entitled Individual Quantum of deduction Amount paid or Rs 1,00,000 whichever is less Payment Regarding Annuity plan of Life Insurance Corporation of India or any other insurer for receiving annuity or pension from a fund referred to in section 10(23AAB). Note: If assessee or nominee receives any pension or other amount on surrender of which deduction has been allowed, then such amount shall be taxable in the previous year in which the amount is received.

Sections under 80 D Medical Insurance Premium 1 Persons Entitled (a) Individual (b) H.U.F 2 Payment Rearding Medical Insurance premium for a) Self spouse, dependent parents, dependent children b) Any member of H.U.F An assessee shall be allowed deduction of a) Rs. 15,000 (Rs. 20,000 for insurance of senior citizen) or b) Amount paid, whichever is less. Payment can be made by any mode other than cash and it is to be paid out of the income chargeable to tax.

Quantum of deduction

Conditions for deduction

Income Tax at different levels of income in the case of individuals Levels of income Up to 1,60,000 Till 3,00,000 Rate % Nil 10 Rs 3,00,000 Nil Rs 14000 Rs 5,00,000 Nil Rs 14000 Rs 10,50,000 Nil Rs 14000

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3,00,0015,00,000 5,00,001 onwards Secondary & higher education Cess Total tax

20 30 3

Rs 420

Rs 40000 Rs 1,620

Rs 40000 Rs 1,65,000 Rs 6,570

Rs 14420

Rs 55,620

Rs 2,25,570

Income Tax at different levels of income in the case of women below 65 years of age Levels of income Up to 1,90,000 Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Secondary & higher education Cess Total tax Rate % Nil 10 20 30 3 Rs 3,00,000 Nil Rs 11000 Rs 330 Rs 5,00,000 Nil Rs 11000 Rs 40000 Rs 1,530 Rs 10,50,000 Nil Rs 11000 Rs 40000 Rs 1,65,000 Rs 6,480

Rs 11330

Rs 52,530

Rs 2,22,480

Income Tax at different levels of income in the case of women below 65 years of age Levels of income Up to 2,40,000 Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Secondary & higher education Cess Total tax Rate % Nil 10 20 30 3 Rs 3,00,000 Nil Rs 6000 Rs 180 Rs 5,00,000 Nil Rs 6000 Rs 40000 Rs 1,380 Rs 10,50,000 Nil Rs 6000 Rs 40000 Rs 1,65,000 Rs 6,330

Rs 6180

Rs 47,380

Rs 2,17,330

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Income Tax at different levels of income in the case of individuals after availing DeductionsIf the policy is taken on the health of senior citizen Levels of income Maximum Deductions:(a) Deductions u/s 80C (b) Deductions u/s 80D - For Self, Spouse and children, if any - Additional for Parents Rate % Rs 3,00,000 Rs 5,00,000 Rs 10,50,000

Rs 1,00,000

Rs 1,00,000

Rs 1,00,000

Rs 20,000

Rs 20,000

Rs 20,000

Revised levels of income after availing deductions Up to 1,60,000 Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Secondary & higher education Cess Total tax Income Tax if deductions are not availed Net savings in Tax due to deductions Under section 80C and 80 D

Rs 20,000 Rs 1,60,000 Nil 10 20 30 3 Nil Nil Nil Rs 14,420 Rs 14,420

Rs 20,000 Rs 3,60,000 Nil Rs 14000 Rs 12,000 Rs 780 Rs 26,780 Rs 55,620 Rs 28,840

Rs 20,000 Rs 9,10,000 Nil Rs 14,000 Rs 40,000 Rs 1,23,000 Rs 5,310 Rs 1,82,310 Rs 2,25,570 Rs 43,260

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