A PROJECT REPORT ON LAPSATION RATE IN

Submitted by Suresh Chandra Panda

In the partial fulfillment of the 4Th Semester of Master of Business Administration (PT) Session 2009-12

Under the Guidance of: Prof. Sandeep Ghosh Department of management INSTITUTE OF MANAGEMENT AND INFORMATION TECHNOLOGY, CUTTACK
(An Institution of Govt. of Orissa)

Candidate's Declaration
I, Suresh Chandra Panda, do hereby declare that the work done by me is original and has not been submitted earlier to Biju Pattanaik University of Technology, Orissa for fulfillment of Master of Business Administration (PT), to the best of my knowledge and belief.

Date.

SURESH CHANDRA PANDA REGD. NO. 09P6102015 MBA (PT) IMIT, CUTTACK

CERTIFICATE OF APPROVAL

This Project titled Lapsed Life Insurance Policies ( I n c l u d i n g Surrendered Policies): A Causal Study in Cuttack. Is here by approved as a credible study of business management carried out by Suresh Chandra Panda student of MBA 4th semester is satisfactory manner to warrant its acceptance as a prerequisite to the 4th semester of MBA(PT) for which it has been submitted.

Internal

External

CERTIFICATE OF GUIDE

This is to certify that Suresh Chandra Panda(2MBA/4025/11) is a student of MBA 4th semester had made project under my guidance. This project is bonafide work of student and has not been submitted elsewhere.

Prof. Sandeep Ghosh

PREFACE
At the dawn of the new century, the world is witnessing a series of radical changes. All these changes are going to have far reaching implications on both mankind and organizations. The socio-economic and political environment is today much more dynamic and vibrant. Changing environment is posing more threats and exerting many forces on the business organizations insurance sector has been under continued pressure for the less than one decade. The change in the government p ol i ci e s , deciding to open up the insurance sector and ushering in of the new era of liberalization has put forth a serious challenge for the Indian Insurance Sector. The Government of I n d i a has already passed the IRDA Bill and the Act has come into force. The finance minister has already i n i t i a t e d actions for constitution a functioning of the full body of the IRDA. It has begun its functioning and i s regulating insurance business. Licenses are issued to both domestic and foreign multinational operators from the private sector. The following years witnessed fierce competition in both life and general insurance sectors. Besides creating a niche for themselves, the mighty multinationals are trying to snatch as much large a market share as possible from LIC. It has to strive hard to bring its lapse ratio and conserve its existing policies by taking measures to avoid surrenders of policies. In view of these factors, it becomes imperative to undertake measures to avoid lapses and surrenders by rendering the best possible services to the customers. Earning c l i e n t loyalty w i l l be a key consideration for L.I.C. All these have promoted the researcher to undertake a causal study of lapses and surrenders of li fe insurance policies issued by L.I.C. of I nd i a .

Acknowledgement

I take this opportunity to express my deep gratitude to all those who helped me the completion of this project. This work is the result of direct or indirect cooperation of various person to whom, I wish to express my appreciation and gratitude. I would also like to thanks Prof. Sandeep Ghosh, faculty member of the institute and my friends for their advice and guidance along inspiration to face the difficulties encountered the course of this work and to create this project report. I would also like to express my sincere thanks and a sense of gratitude to special people for their valuable guidance and for their kind support throughout the project that I cant forget for the whole life. I also thank to my batch mates for providing constant encouragement support and valuable suggestion during the development of the project.

Suresh Chandra Panda IMIT, Cuttack

Preface..5 Acknowledgement6 TABLE OF CONTENTS CHAPTER -1

1.1

Introduction

Introduction to Life Insurance Business...8 Introduction to Life Insurance Corporation of India9

1.2

CHAPTER - 2 Project Profile

2.1 2.2 2.3 2.4 2.5 2.6 2.7

Title of The study..19 Objectives of The study...20 Justification of the study..20 Significance of the study.21 Research Methodology22 Scope of the study23 Limitations of the study23. Facts and Findings.25 Analysis and Interpretations35 Conclusions: Causes & Identifications38 Suggestions & Recommendations.41

CHAPTER - 3 CHAPTER - 4 CHAPTER 5 CHAPTER-6

Bibliography..44

Chapter- 1
Introduction
Introduction to Life Insurance Business

Introduction to Life Insurance Corporation of India

1.1

Introduction to Life Insurance Business

Risk:
To understand the of the term The business "Risk". results element the of The of flowing Risk Life term from must of Insurance, "Risk" any exist may it be is important as It a arises to the out

understand possibility of is

defined has There those

adverse

occurrence. which loss. with

uncertainty. risk, which

probability are risks and some that the

between Zero to One. Since the purpose is to relate risk to insurance, it entails possibility is in financial elements of Risk in every aspect of human endeavor. Some of these have financial Risk that can consequences. be broadly Insurance distinguished of loss there of or is concerned two no involve financial loss. categories: The pure Risk in speculative risk. The term pure Risk is used to designate those situations involve a the with chance loss. Speculative of gain. losses contrast is out not of describes concerned situation where possibility Insurance arising

protection

individuals

against

speculative risks. Only pure risks are insurable.

The Insurance Device:

There are a number of methods of dealing with risk. Risk Management is a developed activity. Insurance Insurance is a is one of the In approaches simple terms, in it risk has management. complex mechanism.

two fundamental characteristics: (a) (b) Transferring or shifting of a risk from one individual to a group. Sharing losses on some equitable basis by all members of the group.

From which cost insured

an (the

individual the that premium) The with

point for a

of

view, can have of

insurance substitute to be a

is

an small loss if

economic relatively (the

device definite

whereby against)

individual would

large

uncertain

financial borne is

contingency was not the counter method is

insurance creation Device to an is

available. connected of loss

primary the

function

insurance

balance for risk, which is security. It reduces the extent of financial loss contingency. What would Basically be a Insurance devastating a distribution. individual

spread in an equitable manner all members of the group. The society and the national economy draw substantial benefits from the operation of the insurance pension difficulties the period mechanism. provide arising relief from to On the premature the one members death of of hand, of a the bread and life insurance from on serving of and financial to society earner

old age and on the other hand large sums of money become available for between payment premium payment claims. These sums can be invested in such a manner that the economy develops for benefits of the society. Insurance Ombudsman: Recently the institution of an Insurance Ombudsman has been established in LIC the Insurance Ombudsman is appointed in each of the head quarters of the ones of the LIC of India. The appointment on act, of 1938. the The insurance by Central Ombudsman Government is has been sec. to done 114 receive by of a the and notification Insurance (a) (b)
(c)

11-11-1998

under

Ombudsman

empowered

consider complaints under: Any partial or total repudiation of claims. Any dispute in regard to premium paid or payable in terms of the policy. Any dispute on the legal construction of the p o l i ci e s in so far as such dispute Delay in settlement of claims. Non-issue of any insurance document to customer after receipt of premium.

relates to claim. (d) (e)

The

Ombudsman

has

quasi-judicial

authority

and

his

decision

is

binding

on both the insurer and the insured or the claimant. It can be contested only through a court of law.

The Insurance Regulation and Development Authority Act, 1999

The nationalization of life India expected Indian savings, investing Insurance was the part public The the such of sector especially a Insurance in 1956 and the formation of LIC of the to to manner also Nehru occupy of rural of as the economic philosophy, heights" of yield an in werespreading which the life "commanding

economy. widely, ensuring funds in

objectives conduct

nationalization areas, business to obtain

mobilization with maximum to put

people's economy, to the end

utmost

policy holders consistent with safety and rendering prompt and efficient services to the policyholders. Nationalization sought to malpractices in some of the private companies. As a part of the economic reforms, liberation decontrolled which started in 1991, it was felt that the insurance industry should also be brought on par with the other structural changes that were taking place in the financial sector. On recommendations decided to of the a Amphora strong and Committee, effective the body Central called the Government establish

Insurance Regulatory Authority (IRA) on line of SEBI. In the the budget of 1998 to the and Financial up the Minister insurance announced sector. the decision 1999" of the was

Government

open

Subsequently, Bill,

"Insurance

Regulation

Development

Authority

passed in December 1999. It has since become the IRDA Act, 1999 after getting the assent of the President on 6th January 2000.The IRDA has now statutory status for regulating, promoting and ensuring the orderly growth of insurance business in India.

The are the and

opening likely to

up foreign be It is

of joint

the

insurance as of and that

industry almost all

is

expected the with for

to

bring

in

considerable organizations.

investment, ventures hoped rates also

prospective foreign will the

entrants insurance bring in

Indian the better

promoters foreign services in

companies

competitive wide

premium of

policyholders. rates, better

The competition that is likely to be is generated is expected to offer new choice products, reduction premium technology and above a l l much better services to the policyholders.

1.2
Life

Introduction to Life Insurance Corporation of India

insurance (U.K.) in its in present the Calcutta an form in extra an came of a to India British by 15% from firm other to which the Oriental companies 20% United Life in

Kingdom Insurance various mutual

with

establishment 1818

Company and

followed of

big cities Life

of India. Prior to charged Society,

1871, Indian

Indians lives were treated as Bombay into Insurer, came

sub-standard

premium

Insurance

existence in 1871, was the first to cover Indian lives at normal rates. The Indian Indian to Life Insurance life Companies collect Companies Act was Act, 1912 in was the to life first in statutory 1928, enable and the the

measure

regulate to

insurance statistical

business information

India. inter

Later, alia,

Insurance

enacted,

Government

about

both

non-life

insurance business transacted in India by Indian and foreign insurers. Comprehensive the enactment arrangements of Insurance were, Act, however, The brought Act was into further effect Amended with in

1938.

1950, making far-reaching changes.Byl956, 154 Indian Insurance Companies, 16 NonIndian insures and 75 provident fund societies were carrying on life insurance business in India. the life On 19th business insurance January, of 229 business 1956, insurers of 16 the and nonmanagement provident Indian of the then entire societies life and insurance insurance

companies

operating

In

India,

was on

taken this

over 1st

by

the

Central 1956,

Government the Life

and

then

nationalized

September

when

Insurance

Corporation of India came into existence. At present, only the following organizations are transacting life insurance business in India: 1. 2. 3. All prevented Life Insurance Corporation of India Postal Life Insurance by the Department of Posts and Telegraph Insurance Department of Some State Governments others who from were doing transacting so by the life insurance business Act, 1956 in India all were their Nationalization and

business was taken over by the LIC. Today, LIC is operating not only in India but also in U.K., Mauritius, Fiji and Bahrain. The 15 members Board of LIC of India is appointed by the Central Government. One of the members is also appointed by the Central Government as the chairman. LIC has a four-tier structure, the central office at Mumbai, 7 zonal offices, 100 divisional offices and nearly 2000 branch offices in India. Foreign branches of U.K., Mauritius, Fiji and Bahrain report directly to the central office. Almost 90% of the activities relating to policyholders are done at the level of the branch offices. Investments are usually done at the central office.

Recent Developments and the Emerging Horizon:

The the the virtually insurance insurance from of trend in worldwide and trend towards has and India and the provides both are deregulation triggered of AIDS, investment going to a and globalization change of in and

financial industry. other interest of India

markets savings rates in

structural inflationary

Incidence

trends, reaching the and the World

competition declining Keeping

instruments have of far

impacts on the life insurance business. view of sector these has (IRDA) private changes passed bill. It insurers globalization Insurance for domestic and economy, up of Government Development insurance Regulation foreign.

Authority for

opening

players are likely to enter the business by the end of the year 2000.

The

emerging in Life

competition India

has

prompted the use

LIC of IT

to in

initiate 1995. of large

organizational Also, it is up of jobs

changes to meet the future challenges. It has been one of the pioneering institutions continuously gradation date, LIC contract has a introducing for term business large exercising Insurance of long relevant and of appropriate handling transactions, on the technology volumes repetitive

involves number

and varied customers etc. worldwide website www.licinida.com Internet. Through this website interested people from anywhere in the world can have access to LIC and its subsidiaries viz. LIC (International) EC, LIC Mutual Fund, LIC Housing Finance Ltd., and its products.

LIC's Investment Growth at a Glance (Rs. in Crores)

S. No Type of Investment Up to 31.3.2004 Up to Up to 31.3.2005 31.3.2006

1 2.

Central Government Security State Government and Other

37,330 8,906

45,876 10,471

56,185 12,928

Government Guaranteed Marketable Securities 3. 4. 5. 6. 7.

8.

Electricity Housing Water Supply & Sewerage State Road Transport Corporation Loan to Industrial Estate Loan to Sugar Cooperative

8,214 10,967 2,028 540 45 37 1 -

9,153 12,242 2,264 55l 45 37 1 25 276

10,591 14,207 2,508 671 45 37 1 25 801

9. Development Authorities
10. 11.

Roadways Power Generation (Pvt. Sector)

12. Municipalities

One

of

the

objectives

of

nationalization

of

Life

Insurance

Industry

was

channel sing of is a fund for the benefit of the community at large. In pursuance of is a fund of its objectives, LIC has over the years, been investing a major part of its funds primarily in the socially oriented sectors. As at 31 s t March 2005, 84.49% of its total investments were in the public sector, 1.84% was in the co-operative sector and 13.67% were in the private sector. The funds of the corporation are deployed to the best advantage of the policyholder as well as the community as a whole, while investing these, which are held in trust. The corporation has to keep in view the national priorities and obligations of reasonable returns. The life fund has accumulated to Rs. 1,27,389/- Crores as at 31.3.2005 after meeting liabilities towards claims, management: and other expenses, registering an increase of Rs. 21,556 Crores during the year 1998-99. The investment invested Loans sectors and total in for of the corporations funds is governed State in Power, social by sec. 27 A of the Insurance Act, 1938. Not less than 75% of LIC's accretion to the fund is Central approved Road made Government Marketable purposes Transport by LIC securities, such and in the upto as Government the socially Water Housing, Industrial and oriented Securities. oriented Supply The including to Rs. Guaranteed Sewerage, investment in Securities, loans

Cooperative

Estate.

sectors

investment Guaranteed 98.003 crores. Housing finance The social groups, is

Central/State

Government

Securities 31.3.2005

Government

Marketable

Securities

amounted

the

one a

of

the

basic place

necessities in LIC's assistance rural

of to

human state

being.

Housing for

occupies housing

prime for

socio-purposive weaker sections, Besides,

investments. low-income the HDFC,

corporation

provides schemes

financial and

governments

economically

middle-income

groups

population.

HUDCO, NHB etc.

In a

the new

year housing

1989, activities

with further, the to

a take

view over the

to decided

accelerating to promote housing

individual

corporation

housing

finance

company

individual

portfolios of the corporation. Accordingly, LIC HFL was formed with equity participation by the public. The corporation extends financial assistance to HC HFL for its lending operations. The of corporation Rs. 45 and scale level sector was helps has Industrial industries financial in Rs. the boost so industrial far been growth in the to to makes and by way made by It IDBI, short way of country. helps IFCI, -term of An amount Industrial and and the to to upto ICICI in loans crores advanced help Co-operative

Estates medium state corporate 31.3.2005

Development through form 6,615 of corporations. It long,

Corporations. also

small

financial

investments

medium

companies/corporations.

The

total

investment and

loans

crore

subscriptions

share/debentures was Rs. 20,242 crore. All these make a distinct contribution towards growth in industrialization and generation of employment.

Types of ordinal Life Assurance Permanent type of Contracts:

Typical Permanent type policies are whole life policy and endowment policy. These policies are regarded as savings instruments.

Whole Life Assurance:

The sum assured is payable on the death of the assured whenever is occurs. Premiums are payable throughout the life of the assured or more, normally until retirement of the assured at 60 or 65 . The policy remains enforce even after premium paying term chosen as the outset and the policy would provide the benefits for the dependents on the death of the policyholder as and when it occurs.

Endowment Assurance:
The endowment assurance policy is taken for a certain number of years; say 15,20,25, or 30 years. The sum assured is payable in the event of death within Endowment certain with agreed the term or of the Money of the on full be policy. However, the Back sum full in Policies assured sums the will will event be be of sum assured under payable payable with the the will also which at on an the be payable if the life insured survives the stipulated term, There are Anticipated proportion bonuses the would

interval of three, four or five years and the remaining sum assured along the accrued date. till date the sum payable maturity bonuses Further, assured together accrued

policyholder

dying during the currency of the policy.

Assurance for children:

Children's deferred assurance if affected on the life of a parent with an 'option' date, normally coinciding with the child's eighteenth or twentyfirst birthdays. The child has the option to continue the policy in his own name from then on, as either an endowment or whole life assurance or a lump sum may be taken on the option date, In the event of the parent dying before the option date, the policy is continued, without payment of premiums.

Joint Life Assurances:

Life assurance may be issued on two or more lives such that the sum assured would be payable on death of one or more lives insured. The Joint Life Policy also provides payment on the death of each of the two joint lives like in Jevons Saatchi Policy.

Chapter- 2
Project Profile
Title of the study Objectives of the study Justification of the study Significance of the study Research Methodology Scope of the study Limitations of the study

2.1 Title of the study

Under the partial fulfillment of MBA(PT) program of Biju Pattnaik University of

technology, Orissa. The researcher conducted the study on "Lapsed Life Insurance P olic ie s ( I n c l u d i n g Surrendered Policies): A Causal Study in Cuttack.

2.2 Objectives of the study

The study was conducted to achieve the following objectives: 1. 2. Identifying Developing the a underlying reasons behind the for lapsation taking and surrenders of life corrective measures insurance policies (Under selected schemes). suggestive mechanism to reduce such mortalities of policies.

2.3

Justification of t h e study:

Conservation of the existing business on books of any insurance company is of c r i ti c a l impatience as it is associated with the future streams of earnings by way of renewal premiums. In our country, endowment type of policies is more popular in comparison to annually renewable term-assurance contracts. Endowment client. The Government's decision to open up the insurance sector for private' operators is going to break the monopoly of LIC. Reducing lapsation would thus mean increased client loyalty. From the futuristic point of view, stiff competition is inevitable. Conservation of existing business will place LIC in a better position for competition. Mate of lapsation of li fe insurance policies is considerable high. In one of the branches under Jaipur Division, it has been found that as many as 1,594 policies were either lapsed or surrendered against 6,555 issues of newpol ici es during a given financial year. plans are long-term agreements and thus currencies of the policies are in the interest of both the insurer company as well as the insured

The Government of India has already passed the IRDA Bill and on the 19th July 2000, The IRDA is has (Licensing now under public. notified of the the Agents) statutory on the "Insurance control pan of Regulation 2000." of the and The IRDA. Development insurance the Authority regulations

business of the

Appointment of Insurance Ombudsman has also paved way for safeguarding interests insured Lapses the insurance companies and its agents are going to attract penalties. Role of insurance agent is going to be more accountable. On many occasions, poor service standards of agents and insurance offices have been cited as reasons for lapsation. With the multinational companies striving hard to enter this sector, it becomes very pertinent to identify the causes of lapsation and take corrective actions to lower the lapse ratio.

2.4

Significance of the Study;

Since any research project involves expenditure in terms of cost, efforts and time, it must have justification in terms of contribution to the researcher, LIC cl ien ts (insured public) and other interest groups like the IRDA and the Insurance Institute of I n d i a who may have professional and academic interest in this project.

For the Researcher:

The study has helped the researcher to understand and identify the various causes of lapsation of a large proportion of policies. It has also assisted the researcher in applying the tools and techniques learnt in Research Methodology of the MBA curriculum.

For LIC of India:

The researcher is of the opinion that the study has contributed significantly towards LIC. The various lessons identified during the course of the study will help LIC to i n i t i a t e corrective measures. It also will help in reformulation of its products and marketing practices.

For other interest groups:

The study is going to be of interest and to organization interests like the IRDA the and individual having professional academic viz. agent,

development officials and the employees of LIC.

2.5 Research Methodology

The following research methodology was deployed: Problem Definition; This research undertaken involved causal analysis of lapsation of life insurance policies including surrenders of policies. Research Design: The research was exploratory in nature. Large volume of secondary data of 1C was scanned and a l i s t of lapsed policies was generated for various types of p o l i c i e s . Out of a very large list, sample was extracted on a proportionate b a s i s for main types of policies. Although all round efforts were made to give maximum p ol i c i e s . Detailed interviews were conducted with the respondents using a schedule. The duration of study was two months in which in the i n i ti a l month pilot. Survey and data collection was carried out. Data pertaining to 200 existing policyholders was gathered and statistically tabulated. In the second month data analysis and interpretation was done. In some cases, questions beyond the schedule were also asked to gather some extra information, which was recorded appropriately to interpret views and ideas of respondents in the report. coverage, method of convenience sampling was used. Cases selected for study of surrendered policies included in force as well as lapsed

Data Analysis:
Once the filled up schedules were received, it was followed by data analysis and interpretation as reported in chapter IV & V of t h i s project report.

2.6 Scope of t h e study: The study has been conducted at the Jaipur Divisional Head Quarter of LIC. Secondary Data pertaining to the entire division of Jaipur has been referred. However, the actual study has been conducted in the Jaipur City. The duration of the study has been 2 months from Jan2006 to Feb.2006 in the first month data was c o l l e c t e d , followed by data a n a l y s i s and interpretation in the next month.

2.7 Limitations of the study

The study is subject to certain limitations, which are as under: Time and Money Constraints: Time and money were the major-constraints during the study. The study is therefore based on a limited representative of policyholders of LIC at Jaipur. Response with had the a Bias: agents, role Because the to bias play. of Also, personal in in some relationship to the cases, of the respondents questionnaire or the sample, which was taken to be

factor

responding

major

husband

father of the actual policyholder made responses.

Inductive of causes, Hence

Generalization: the

Since of

a were

sample limited study the

survey to is the not

was

used city

instead only. LIC for

respondents generalization

Jaipur possible

inductive

all over the country. The researcher's inexperience might have been a constraint, which

might have led to interpretational errors.

Chapter- 3

FACTS AND FINDINGS

FACTS AND FINDINGS

The concerned literature revealed the following about the terms lapsation and surrender of policies. Lapsation of Insurance Policies: A life insurance policy is said to be lapsed if premium is not paid within the grace period. A grace period of one month but not less than 30 days is allowed for payment of yearly, half yearly and quarterly premium. If death occurs within t h i s period and before the payment of the premium then, due, the p o l i c y remains s ti l l v a l i d and sum assured is paid after deduction of the said premium as also the unpaid premium falling due before the next anniversary of the policy. Revival of Lapsed Policy: The lapsed policy can be revived during the lifetime of the live assured from the date of unpaid premium and before the date of maturity, on submission of proof of continued insurability to the satisfaction of LIC and the payment of all the arrears of premium together with interest. LIC, however, reserves the right to decline the revival of a discontinued policy. Surrender Value (SV): a) Guaranteed surrender value: The policy can be surrendered for cash after the premiums have been paid for at least three years. The Minimum S V allowed under this clause is equal to 30 % of the total amount of the within mentioned premiums paid excluding the premiums for the first year and all extra premiums. b) Special surrender value: LIC however offers a more liberal SV known and special SV. Higher of the above two is paid along with the cash value of any e x i s t i n g vested bonus additions. Awareness Level of sample policyholders: During the course of personal interviews conducted with the sample policyholders, awareness level among these sample policyholders was found to be very low. Insurance being a service product with a distinctive abstract nature, knowledge of respondents was feeble.

Benefit package is of key importance in case of life insurance products. Respondent policyholders frankly accepted that they knew very less about the product sold to them. Most popular type of plan turned out to be the MONEY BACK PLANS. Risk cover, as a benefit in specific terms was not much known to the respondents. Consequences of lapsation were known only to a low percentage of respondents. Rules regarding continuance of Risk were not known to most of them. Surrender of policies: A good number of surrendered policies were also covered under the study. Both in force and lapsed policies were found surrendered. In case of in force policies, the general notion among the surrender value claimants was that they had received a fairly low amount against their expectation. Some of the respondents openly complained for having received an amount far less than what they had actually paid. The following information was revealed on scanning the secondary data of the Cuttack Divisional Office. Total number of policies issued by Cuttack division of LIC in the Financial year 2004-2005 is 1,03,384 Number of lapses out of these as on 3 1.01.2004 is 28,823

Proportion of important type of policies out of the total number of 1, 03 ,384 policies sold in 2002-2003 was as under:

2
3

4. 5.

Type Number of policies Money Back 55780 Endowment 21158 Jevan Mitra, Jeevan Griha, 10933 Bima Sandesh, Bima Kiran &Jeevan Saathi etc. Whole life 84 1 Others 15429
1

Percentage 53.95% 20.46% 10.57% .08% 14.94%

Findings based on secondary data on 200 respondents in the city of Cuttack are summarized below:

# (a)

Socio-Economic and Demographic Profile of Respondents:

Age wise distribution: shows the age wise distribution of sample respondent

policyholders. Table 3.1

Age group >30 years 30-40years 40-50years 50-60years Above 60

[b)

Number 43 74 55 23 5

Percentage 21.5% 37% 27.5% 11.5% 2.5%

Qualification: Educational profile or respondents are as under. Table 3.2

Qualification Under graduates Graduates Post Graduates

Number 53 98 49

Percentage 26.5% 49% 24.5%

(a)

Income groups income wise distribution of respondents is as under: Table 3.3

Income Upto 3000 3001-6000 6001-9000 9001- 12000 12001-15000 Above 15000

Number 59 78 41 12 8 2

Percentage 29.5% 39% 20.5% 6% 4% 1%

(d)

Policy Type: Money Back Policies are the main type sold to the respondents. Table 3.4

Type Money Back Policy Endowment Policy Joint Life (High Risk Plan) etc. Children's Plan Jeevan Shree Other Plans

Number 112 49 22 5 5 7

Percentage 56% 24.5% 11% 2.5% 2.5% 3.5%

Source of information at the time of purchase

Agents and Development officers are the main source of information in majority of cases. Source of information is tabulated below:

Table 3.5 Source of information Agent or D O Fiends/Peers Newspapers/Magazines Other Sources Number 139 43 2 16 Percentage 69.5% 21.5% 1.8% 8%

# Influencer at the time of purchase: Various influence groups are tabulated below: Table 3.6 Influencer Self Agent/DO Friends/Tax Consultant Father/Husband Number 46 107 38 9 Percentage 23% 53.5% 19% 4.5%

# Purpose at the time of buying: The purposes at the time of buying are tabulated below. Saving is the main purpose in majority of cases.

Table 3.7 Purpose Savings Risk Cover I T Savings Others Number 149 111 48 14 Percentage 74.5% 55.5% 24% 7%

M u l t i p l e responses have been received. More than one purpose is present in many cases.

# Cause of lapsation: In response to this question, multiple responses have been received. The responses are classified and grouped together in the following Table. Table 3.8

Reasons Funds paucity Own Negligence Agents Negligence Dishonest Agent Any other

Number 73 59 43 5 53

Percentage 36.5% 29.5% 21.5% 2.5% 37%

# Causes of surrenders: 36 cases of surrendered policies have also been detected. Various causes of surrenders are tabulated below: Table 3.9 Causes Requirement of money P o l i c y not revive able Dissatisfied with agent N umber 15 11 4 Percentage 41.67% 30.55% 11.12% 8.33%o 8.33%o

Dissatisfied with office

Other reasons

# Receipt of lapse notice/premium notice: The following responses have been received. Table 3.10 Responses Yes No Can't say Number umber 97 66 15 Percentage 48.5% 33% 18.5%

# Revival of Lapsed policies: F o l l o w i n g responses were received when asked whether they want to revive their policy. Table 3.11 Responses Yes NO Can't be revived Can't say Number 67 71 21 41 Percentage 33.5% 35.5% 10.5% 20.5%

29

# Method of premium deposit: People deposited premium directly as well as through agents. Table 3.12
-----------------------------------------~J--------------------------------------------------------------

Responses Direct to the branch Through agents By post

Number 99 105 12

Percentage 49.5% 52.5% 6%

Modifications in policy:

Following responses, were received when asked if they wanted modifications in policies Table 3.13 Responses Yes No Can't say Number 19 53 128 Percentage 9.5% 26.5% 64%

# Type of modifications suggested: The 19 respondents who said yes modifications. Table 3.14 Modifications suggested Loans should be granted in all policies Yield should be more P ol i cy term should not by very long

suggested

the

following

Number 12 5 2

30

Respondent policyholder's visit to branch offices: 129 respondents said 'yes' they visit their servicing branch.

Table 3.15 Responses Yes No Number 129 71 Percentage 64.5% 35.5%

# Rating of servicing branch: The responses received are tabulated below on a scale ranging from Poor to Excellent on various counts of performance. Table 3.16 Performance count No. of respondents Poor Fair 0 9 0 0 2 0 0 0 Good 76 62 59 50 14 V. Good Excellent 31 0 38 35 36 4 2 0 0 0

Punctuality Courteousness Information deliver)'

Efficiency/Effectiveness 2 Complaints Handling 2

Some respondents could not comment.

31

Special Remarks about Agents:

A large number (71 out of200) of respondents made their remarks. These are summarized below after clubbing their si m i l a r statements.

Table 3.18
S No 1 Remarks Agents try to sell new policies for t h e i r own benefits without assessing the actual needs and paying capacity of prospects. Sometimes they persuade too much and sell poli cie s per force because of personal relations. Professionalism of agents must be ensured by LIC. They must be trustworthy. Agent's do not pay attentions and never turn back after selling the policy. Few respondents said that their 1 agent was not even worthy for comment. Their dissatisfaction level was very high. Some respondents were found very happy and satisfied with their agents. No. Of respondents 19

28

14 5

32

Chapter-4

Analysis and Interpretations

33

Following is the analysis of study on the basis of fact and findings: !.

Socio-Economic and Demographic profile of the policyholders:

(a) Highest percentage (37%) of respondents belongs to 30 to 40 years. Age group. (b) Educational background of 49% of policyholders is graduates. Only 24.5% are Post graduates or professionally qualified. (c) Monthly income of 39%.respondents is between 10000 and 15000 per month.

2.

reveals agent.
3.

I n i t i a l source of information in 69.5% cases is the agent. The study that the influencer in majority of cases (53.5%) is also the

The main purpose at the time of purchase of the policy in 74.5% cases is savings; however, risk cover is also a consideration in as high as 55.5% cases. Income Tax Rebate is and added purpose in 24$ cases. 4. Cause of l a p s a t i o n against purpose of purchase: Causes of l a p s a ti o n can be grouped into three main categories. These are: # Lapsation due to own reasons: # Reasons of l a p s a t i o n attributed to agents. # Reasons of lapsation attributed to LIC offices. As per table 3.8 in 66% cases, funds paucity and own negligence forced savings perceive insurance. Over insurance not matched to the paying capacity leads to lapsation. Over enthusiasm of agents fail to recognize the need matched to the paying capacity of the prospects. The concept of marketing is absent in insurance salesmanship. Identification of needs in marketing terms is missing. In 24% cases, agent's services are the reasons of lapsation. In 21.5% cases, agent's slackness and negligence is the cause of lapsation. During interview, t h e respondents revealed that agents vigorously pursue at the time of s e ll i n g insurance policies, but they do not pay requisite attention later on. The respondents are of the view the LIC must go for direct selling methods. It will help in safeguarding the policyholders from m i s l e a d i n g information and unnecessary influence of agents. In 37% cases, other reasons such as transfer from the place and LIC offices arc h e l d responsible. A total of 74 respondents have been found dissatisfied with "the product, while other reasons are non-receipt of premium notices/lapse notices and product drawback that lead to lapsation.
34

5. Causes of Surrender: In 41.67% cases, urgent money needs are the cause of surrender of policies. In 30.57% cases, it has been found that policies are surrendered because they were lying lapsed for a very long period (over 5 years) and was thus not revivable as per rules. The policyholders decided to get back their money. Dissatisfaction with agents is the cause of surrender in 11.1% cases. Dissatisfaction with office and others reasons are the cause in 8.33% cases each.

Causes of surrender 11% 0% 42% 31%

Requirement of money 42% Policy not revive able 31% Dissatisfied with agent 8% Dissatisfied with office 11% Other reasons 8%

8% 8%

6.

Revival of lapsed Policies: 35.5% respondents do not want to revive t h e i r policies. Inab ility to pay arrears of premium is the main reason. However, indifference towards insurance and lack of perceived need are also reasons in a good number of cases. In 33.5% cases, the policyholders desire revival. Commencement of risk cover and Tax concessions are the main reasons. 20.5% are not sure about revival. The underlying reason might be low awareness level, indifference and less importance given to risk cover and savings. Respondent frankly admitted that they bought policies under personal obligations and influence in majority of cases. Personal relationship with the agent forced them to buy the product. Such sales lead to lapsation in later course of time. 10.5% policies are found to be t o t a l l y lapsed and not revivable as per LIC rules.

35

Chapter 5
Conclusion
5.1 Cause Identification

36

Conclusions
The researcher has drawn the following conclusions from the study: LIC has so far enjoyed a monopoly in the As a result, policyholder: have limited choices available. life insurance business.

In majority of cases, the ability and willingness to buy the policy did not back insurance. Ability to pay is of vital importance in formulating and marketing of any product. Most of the policies lapse due to lack of genuine desire and ability to pay the premium. Insurance policies are being delivered through an established field force. It is a direct face-to-face selling. The study reveals that the agents are selling the products in much of their own interest. Forced selling leads to lapsation in a large proportion. Awareness level of policyholders is considerable low. Knowledge about return rates and other benefits is absent in majority of lapsation cases. Though LIC advertises its products, yet the advertising copy lacks in full details. Financial services require a detailed advertising copy. Insurance advertising in India has so far failed to update customer knowledge through explicit information delivery. Tough competition is inevitable in a very recent future, multinational and private insurance companies will be entering the market backed with state of the art technologies and unmatched service standards. LIC must also go in for large-scale up gradation of its technology. E-commerce is going to revolutionize the entire marketing gamut. It is converting web sites into virtual shopping malls. This type of selling operation is bound to hit the insurance industry too. LIC can think on these lines to avoid sales through agents. The interned is going to become an important distribution channel for various insurance products over the next years. This can be used to advertise, help customers select appropriate products, disseminate information to customers and sell policies.

37

The lines of distinction between banks and insurance companies are likely to get blurred. Some leading banks of India such as SBI, ICICI have already entered into joint ventures with multinational insurers. The customer will have a number of insurance organizations and products to choose form. LIC must therefore exploit the electronic showcases in the form awareness about its products and services. new technologies and of interned portals to develop increase

5.1

Cause identification

On the basis of information gathered from the secondary data the following causes of lapsation have been identified: Funds paucity of sample lapsation of life insurance policies. policyholders is the main cause of

Sample policyholder's own slackness, are another main reason of lapsation. Agent's negligence of the main reasons. Discontentment of cases. with is services, after sell

negligence

and

indifference

of

the

policy

is

also

one

the

product

is

also

reason

in

good

number

Non-receipt of premium notices due to office as well as due shifting of residence of the sample policyholder also contributes lapsation of a good number of policies. Misguidance integrity is policies. and also

to to

false-presentation by agents and their financial a cause in some cases leading to lapsation of

Policies lapsed for more than five these are surrendered in a majority of cases. An emergency money surrenders of policies. requirement

years

are

not

revive

able

and

is

also

big

cause

of

38

Chapter 6
6.1 Suggestions 6.2 Recommendations

39

6.1

Suggestions

During the course of study the sample policyholders were interviewed. Their views and suggestions are presented in the following section. Suggestions offered by the sample policyholders: .Agents should and persuasion. not sale policies per force due to personal relations

Agents must assess the paying genuine need for an insurance policy.

capacity

of

the

prospect

and

his

Agents should not be concerned interest at the time of selling the policy. After sales services by agents they receive commission on policyholders. Agent's professional monitored by LIC and

only

with

their

own

vested

must be ensured by the LIC because the renewal premiums paid by the integrity must be seriously

financial

Loans should be granted on all policies urgent need of money, the policy need not be surrendered. Prompt LIC dispatch of notices and lapse notices

because

in

times

of

must

be

ensured

by

Yield on policies is low. It must be more. Suggestions put for the by the researcher On the basis of the study conducted, the following suggestions are being made: Needs of the prospect must be matched with his paying capacity. At the time of commencing the policy, income certificated in some form must be called for along with proposal papers. LIC must ensure that the in the conduct of their business. agents act with utmost professionalism

Recruitment of agents must b e made more stringent. During the courses of Study, it has come to notice that anybody who wishes gets appointed as agent. The recruitment of agents must be on selective basis. Agents must be imparted proper training.
40

6.2

Recommendations
must forecast be must revamped be given by due

Marketing concepts and techniques LIC, Needs identification and demands priority.

In the wake of opening up of reformulation must be exercised keeping fierce competition

insurance in view

sector, product the forthcoming

Direct sales methods through agent involve personal contract. It facilities full control but it is expensive, Also, it becomes difficult to control and handle a very lager sales force. It not handled carefully this could lead to drop in morale; LIC must therefore try to find out other distribution channels. Recruitment of agents should be on selective basis, Also, their professional skill be upgraded by imparting extensive classroom and field training specially prospecting. Not only regarding the product or sales but also in interpersonal relations and traits. Communication, positive leadership, motivation and other behavioral aspects must be taken care of in the training. Financial underwriting must be given due obviate fraudulent claims and will help in to unattached paying capacity. weight reducing age. It lapsation will due

Independent machinery within the organization investigate the proponents financial credentials. possible in all cases but can be undertaken on periodic evaluation of quality of sales.

is It a

developed might not regular basis

to be for

41

Bibliography
Gupta S.P., Statistical Methods, Sultan Chan & Sons ,2002. Principles of Life Assurance: Bombay, 2000. Practice of Life Bombay,2000. Life Assurance Bombay,2000. Assurance; Management; Insurance I ns t i t u t e of I n d i a Publication, Insurance Insurance Institute Institute of India, of India,

Yogakshem; House Magazine of LIC of India. Manual for Agents: LIC of India, Central Office, Bombay. LIC's Investments-Some Highlights; Annual Report for 1999 LIC of India. Insurance Regulatory and Development Authority Act, 1999, Taxmann Allied Services(P) Ltd.

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