ICICI

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY
CHAPTER - 1
INTRODUCTION
S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT
Introduction
Since the evolution of mankind, the need for biological and physical fulfillment has emerged. Over the long span of development of mankind there is a very high advancement in technological and industrial growth. In the beginning of 20th century, world has faced two major revolutionary wars: World War -I and World War - II. These have changed the world into global village gradually. Due to advancement and growth in population has simultaneously increased the demand of physical need. Availability of options has increased competition among people. These have led to need of proper financial planning. Emergence of investment option is mainly driven by peoples social and demographic variables as described below: Needs are generally classified into protection needs and investment needs. Protection needs refers to the needs that have to be primarily taken care of, to protect the living standard, current requirements and survival requirements of investors. Need for regular income, need for retirement income and need for insurance cover are protection need. Investment needs are additional financial needs that have to be served through saving and investment. These are needs for childrens education, housing and childrens professional growth, etc.
1.1 OBJECTIVE OF THE INVESTOR The investor has various alternative avenues of investment for his savings to flow into accordance with his preference. Savings flow into investment for a return, but savings kept as cash are barter and do not earn anything. Savings are invested in asset depending on their risk and return characteristics. But a minimum amount of cash is always kept in hand for transaction and contingencies. Any rational investor knows that money is losing its value by the extent of the rise in prices. If money lent cannot earn value as much as the rise in prices or inflation, the real rate of return is negative. Thus, if inflation is at an average annul rate of 6.5% then the return should be 6.5 or above to induce savings to flow into investment. As the risk of loss of money is almost negligible in such cases, this can be called a risk-free return. All investment s involve some risk or uncertainty. The objective of the investor is to minimize the risk involved in investment and maximize the return.
GDP - Decadal growth rates

7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Annual growth
5.6% 3.9% 3.7% 3.2%
5.8%
1960-61
1970-71 1980-81 1990-91 Decade ending
2000-01
LUXURY/ NECESSITY Items Color T.V necessity Telephone necessity Washing Machine luxury Microwave luxury Two-Wheeler - necessity 1987 (Year) No No No No No 1997(Year) Yes Yes Yes Yes Yes
From the above graph which shows growth rate of GDP over 40 years from 1960. With this GDP growth, rate of inflation has also increased and in future this trend is expected to be continued. On this assumption we can expect the rise in the price as follows: COST OF LIVING Items Colgate Toothpaste ( (100 gm tube) Hamam Soap Masala Dosa Petrol (per litre) L.P.G. Cylinder 1987(yr) Rs. 8.05 3.05 3.50 7.99 56.15 1997 (yr) Rs. 18.90 7.85 14.00 25.48 137.85 % increase 8.91 9.92 14.87 12.30 9.40 2017 (yr) Rs. 104 52 224 259.12 830.85
(Source: Readers Digest-Nov.1997) From the above table, we can infer that to fulfill the basic needs, we have to increase our income to compensate for price increase. Thus, investment is better option to create wealth.
1.2.1 LIFE CYCLE AND WEALTH CYCLE STAGES: Financial goals and plans depend to a large extent of the income, expenses and cash flow requirement of individuals. The age of the investor is the important determinant of financial goal. Life cycle can be broadly divided into phases: birth and education, earning years and retirement. On an average, the first stage lasts for 22 years, the second for 38 years and last for 25 to 30 years. The earning years is when incomes and expenses are highest. The retirement stage is when incomes are low and expenses are high. Segmentation of investors According to certain stage in their life cycle as follows: Life Cycle Stage Financial Needs Childhood Stage Young Unmarried Young Married Stage Taken care of by parents Immediate and short term Short and intermediate term Housing & insurance needs Consumer financial needs Medium to long term needs Childrens education Holidays & consumer finance Housing Medium term needs for childrens education & marriage. Need for pension, insurance & medical cover higher. Short to medium term Ability to Invest Investment of gifts Choice of Investment Product Long term
Young Married with Children
Married with Older Children
Retired Stage
Limited due to higher Liquid plans & short spending term investment. Some exposure to equity & pension products Limited due to higher Medium to long term spending. Cash flow investments. Ability to requirements are also take risks. Fixed income, limited. insurance & equity products Limited. Financial Medium to long term planning needs are investments. Ability to higher at this stage is take risks. Portfolio of ideal for disciplining products, for growth and spending & saving long term regularly Higher saving ratios Medium term recommended. investment with high Requirement for liquidity needs. Portfolio intermittent cash of products including flows higher equity, debt & pension plans Lower saving ratios. Medium term Higher requirements investment. Preference for regular cash flows for liquid and income generating products. Low appetite for risky 5
1.2.2 WEALTH CYCLE CLASSIFICATION OF INVESTORS: Wealth cycle based categorization of investors financial needs refer to using, a generalized approach to saving and investment as a basis of classification, rather than age or life stage. The following table illustrates this: Stage Accumulation Stage Transition Stage Reaping Stage Inter-generational Transfer Sudden wealth surge Financial Needs Investing for long term identified financial goals Near term needs for funds as pre-specified needs draw closer. Higher liquidity requirements Long term investment of inheritance Medium to long term Investment preference Growth options & long term products. High risk appetite. Liquid and medium term investment. Lower risk appetite. Liquid and medium term investment. Preference for income and debt products. Low liquidity needs. Ability to take risk and invest for long term Wealth preservation. Preference for low risk products.
INVESTMENT PRODUCTS A. Physical Assets and Financial Assets. B. Equity and debt. C. Government securities and non-Government securities. OTHER INVESTMENT INSTRUMENTS A. B. C. D. PPF (Public Provident Fund) RBI Relief Bonds Mutual Fund Insurance
1.2 REASON FOR SELECTION OF INSURANCE SECTOR FOR RESEARCH Life insurance sector acts as a backbone of any economy. This sector pools large funds from masses and then invests in the infrastructure projects as well as other long term projects, which will generate a regular income flow in the coming years. Traditionally life insurance was taken just as a security product but now it is gaining importance as an investment product. Hence, now if you want to sell life insurance product to anyone, you have to analyze his /her life stage, risk preference, priorities and then suggest the appropriate product to that investor. The insurance sector needs a great deal of financial planning, knowledge, as well as knowledge about other financial products and their current markets so that we can compare those products with the insurance product and convince the client. Insurance companies also have to manage their investment in such a way that the principal amount should not erode, and the investor should get assured returns which the company has promised. This involves a great deal of knowledge about portfolio management and hedging of risk. Thus this would give us great exposure to financial markets as well as the intricacies of different financial institutions, how they work and what difficulties they face. 1.3 THE IDEA OF LIFE INSURANCE The business of insurance is related to the protection of the economic life of assets. Every asset has a value. It is an instrument that reduces risk in case of any future Unfortunate happening. Insurance pools in the investments of the people who fall in the same risk bracket. And reduces the risk faced by an individual by distributing it over the entire bracket. But, after liberalization a number of companies entered into the arena of life insurance leading to expansion of market and new innovations in the policies. Today, insurance is widely accepted as one of the most attractive financial instruments in an individuals portfolio,that provides an assurance of security with attractive returns. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 7
1.3.1 Role of insurance in development of the Economy Insurance is one of the major instruments to gather huge sums from people especially middle and low class, which are channeled into investments for economic growth. Analyzing the investment patterns of insurance companies it can be seen their major investments are in debentures , equity shares that strengthens the industrial sector followed by certificate deposits and government securities that are used for infrastructure development. It relieves those insuring from the worry and anxiety they may have about how they or their family would meet the cost of certain events, such as the marriage of the children, the premature death of the main income provider or maintaining the regular income for their retirement. If an individual is free from those worries, he can perform better in his job, which helps the economy, insurance also helps direct people savings. The insurer invest these funds in various business enterprises, government bonds and loans to public and private projects including infrastructure and socially oriented projects. Thus the insurance premium provides the much-needed funds for the development of nations economy. These savings also act as an anti-inflationary force in the nations financial
structure. Inflation happens when the prices of goods goes up. One of the causes is when a lot of buying takes place due to the spending of a major portion of income by people. Saving in insurance reduce buying as people are left with less money to spend. Any progressive state is expected to take care of the well being of its people. The economic needs of people include food, clothing, housing, education, medical care and security in the event of unemployment, sickness etc.Within the financial resources available the government has extended the concept of social security to the masses by opening up the insurance industry. A part of the premium income earned by the insurance companies is invested in government security, which further contributes to the funds used for infrastructure development in India. In this context the importance of life insurance as a security tool is being recognized. Without life insurance, the economic condition of the family where the bread winner dies is adversely affected, pushing it down in the society. Life insurance in the sense serves a social purpose. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 8
1.3.2 FUNDAMENTAL PRINCIPLES OF INSURANCE
Contract of Life Insurance:

Insurance is subject of general principles of Law as in any other commercial activity. There are special legal principles which apply to insurance and many are based upon the law of contract. Insurance is a contract governed by The Contract Act -1872.In simple terms, a lift insurance contract is an agreement wherein one party (The insurer) pays a sum of money, called the sum insured; on the happening of a specified event, either the death of an individual or the survival of an individual to the end of a specific term. In return, the individual (the insured) pays an immediate smaller payment or a series of regular smaller payments called premiums. The fundamental principles of life insurance are: Utmost good faith: A positive duty of the proposer to voluntarily disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not. This means that the insurance needs to be aware of all the details of the health, family, history, habits and other facts about the proposer. As these facts would be relevant for the assessment of risk, there is an inherent duty, laid down by law, on the proposer to disclose and furnish all relevant information (material facts) to the insurer. Thus it is important that the proposer declares all the facts properly and in utmost good faith.
Insurable Interest: A person is said to have an insurable interest in anothers life , if he or she can reasonably expect to suffer financially from that persons death. For example, when a wife depends upon her husbands income and benefits from his living, she suffers financial loss in the event of his death. The wife in this case, is said to have insurable interest in the life of her husband. It is not necessary that insurable interest should arise from a family . A person who has lent money as an insurable interest in the life of the person to whom he has lent the money because he stands to loose money lent, should the debtor die before paying back the money borrowed. Here, the insurable interest is restricted to the amount of debt plus a reasonable amount of interest.
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CHAPTER 2
Research Methodology
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2.1 The topic of Study

A STUDY ON THE ALTERNATIVE CHANNELS FOR DISTRIBUTION OF LIFE INSURANCE IN INDIA WITH SPECIAL REFERENCE TO AGENCY RECRUITMENT AND BANCASSURANCE
2.2 Objectives of the study

1 To evaluate the current scenario of the insurance industry in India. 2 To study the bancassurance channel in detail. 3 To study the alternative channels of distribution in insurance 4 To recruit career agents at ICICI Prudential Life Insurance Company 2.3 Research design I followed exploratory research design since bancassurance is an emerging area and the company wanted to evaluate effectiveness of the various alternative channels of distribution. There are three steps in case of exploratory research. They are 1 Literature review. 2 Contacting knowledgeable people. 3 Case study. Here ICICI Prudential was taken as a case for the purpose of my study. 2.3.1 Data sources 1 The field being new a large portion of data was collected from the company archives, periodicals etc 2 Also an extensive use of net has been done as there is a lack of availability of books on bancassurance.
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3 Journals related to the insurance industry were also referred. 4 The primary data was collected by talking to the people in the organization and the bank, tapping their experiences and memories.
2.4 Research instrument

The report being a qualitative study it was dependent on face to face conversation and in-depth interview. Below given is a list of the aspects covered. 1 The channels of distribution at ICICI Prudential. 2 The different intermediaries in the bancassurance channel. 3 The working of the different channel intermediaries. Also some of the observations were made by me at ICICI Prudential. They are commented at the end of this report.
2.5 Sampling plan and contact methods

In order to collect the data pertaining to the analysis a sample is requiredfrom which the information can be extracted. Below given is the sampling plan. 2.5.1 Sampling unit The employees of ICICI Prudential and ICICI bank. Executives of ICICI Prudential Mr. Jignesh Bhatt (Sales Manager) Mr. Dinesh Kumar( Asst. Sales Manager) Mr. Manoj Desani (Unit Manager) Mr. Mitesh Makwana (Unit Manager) 2.5.2 Sample size 8 Employees of ICICI Prudential. 3 Employees of ICICI Bank. 2.5.3 Sampling procedure
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Since the study involved talking to the employees of the bank and organization I preferred convenience sampling. I interviewed those people who had ideas on the subject and were cooperative. I contacted through Personal interview and telephonic conversation. 2.6 Limitations of the study 1. Confidential information is not shared due to business secrecy and lack of trust. 2. Exposure to only a specific company of one industry. 3. Due to time constraints the executives of the company are not able to allot time to the trainees. PART-A AGENCY RECRUITMENT TIED AGENCY: THE DISTRIBUTION CHANNEL The hierarchy of Tied channel 1 Agents/Career agents This is the traditional means of selling insurance. Still it is in practice.The agents are recruited by the Unit Managers. There are altogether more than 32,000 agents in India selling and promoting the products of ICICI Prudential. As per the IRDA Guide lines agents have to pass the insurance examination of the IRDA to be an insurance advisor. ROLE OF A UNIT MANAGER 1 2 3 4 5 Recruit Manage & Motivate Advisors (Agent) Sales team Managing the Prospect base of advisors Develop advisors quality through on the job training Lead Management Achieving targets through Advisors
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ROLE OF AN ADVISOR The insurance advisors are the interface between the customers and the insurance company. The advisors should be able to accomplish the following to improve service: 1 2 3 4 5 Accessing and analyzing the clients risk profile. Providing him the best product. Negotiating the best deal. Continuity of service through out period of insurance. Claims advisory service. In tied agency the agent has a very important role to play. It becomes his duty to give best services and perfect investment advice to his customer. once that is done a customer is satisfied and this is a longer period is bound to bring in more business. RECRUITMENT PROCESS To become an insurance advisor, one has to fulfill the following criteria according to Insurance Regulatory and development authority of India. 1 2 3 The individual must be 12 th pass or should have completed a 10+3 Diploma course. He should complete 100 hour training required by IRDA. After training, he has to get through in a preliminary examination.
As advisors are main stream to generate business, the company is very careful about appointing right person at the right place. Advisors can be recruited by targeting different markets. These markets can be classified into three main sections. 1. Natural Market 1 2 Family and Relatives Friends and their families
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2. Reference market 1 2 3 4 5 6 1 2 3 4 5 6 7 8 9 References from family and friends Neighbors Ex- Colleagues Classmates Clients of present job Present team HNI Customers People having good contacts/groups Investment consultants or CAs Financial Advisors/Other companies agents/Post office agents General Insurance Agents Yellow pages/Telecom CD/Local Directories NGOs/Other associations Businessmen Carrier Counselors/Placement Consultants
3. Open Market
10 Housewives 11 Post graduate Students 12 Cyber cafes and Book sellers 13 Share Brokers and government Employees 14 Teachers HOW TO APPROACH THEM 1 2 3 4 5 6 7 Appointments References Mailers Cold Calls Seminars Road Shows Group Presentations
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8 Once the client is convinced that it is beneficial for him to become an advisor, then there is a fixed process which has to be followed. 1. Documentation: A form has to be filled by the person who intends to take up the agency, stating his educational qualifications and job details with references of two people. He also signs the IRDA contract wherein he promises to abide by the norms set down by IRDA. He also submits documents related to 1 Age proof School Leaving certificate Birth certificate Driving License Education Proof Mark sheet of last Examination passed Graduation Certificate Residential Proof Electricity Bill Telephone Bill Ration Card Driving License Rental Agreement (If lives in rented house) 2. Training Once the form is filled up and necessary documents are submitted according to IRDA guidelines, the individual has to undergo a 50 hours IRDA training and another 50 hours of Product training of that company. Thus the individual undergoes the total 100 hours training which is mandatory according to IRDA norms.
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3. IRDA exam and license Once the training has been imparted, even then the individual can not start working until he clears the IRDA exam taken by institutes authorized by IRDA. The individual can appear for an exam either in classroom or online. On clearing the exam, the individual gets the license to work as an advisor of the company. 4. Benefit to an advisor in ICICI Prudential 1 2 3 4 5 6 7 8 9 World class training/Environment(In house training and on field support by professionals) Chance to work with the company with global expertise and which also understands local market. No Boss (Independence) Clear Career Path (Opportunities are unlimited) Unlimited Income Regular Income (Renewal Commission) Special incentives for performers(MDRT) Contributing to the peoples welfare/Family security/Financial Independence Noble business(Win-Win for all) 10 Nation Building (Funds are invested into Government Securities) 11 Self dependent 12 Best uses of contacts 13 Very huge potential market(uninsured /under insured) 14 Chance to become an integral part of company(Employee) 15 Innovative products/ infrastructure support 16 Excellent services
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5. Facilities provided by the company The company provides 100% management support to an advisor. 1 2 3 4 An advisor can do unlimited phone calls and also use other peripherals like Xerox machine, fax, computer and printer without any restrictions. Company provides broachers , pamphlets and other material free of cost In the initial period, Unit managers accompany advisors on calls to provide them practical knowledge of marketing. The Unit managers are always ready to help any advisor whenever they feel uncomfortable in a call or are not able to achieve targets. LIMITATIONS IN THE RECRUITMENT PROCESS 1 2 3 4 5 1 2 3 CAs , share brokers and businessmen are reluctant to take 100 hours of training. LIC and post office agents are not ready to work with private companies. Majority of the population still do not trust private companies. People prefer doing salaried jobs compared to commission based jobs. Reluctant to pay the fees. Still there is a potential market of people who are not aware of this financial This opportunity is providing good earnings and requires less investment of People are getting more interested in insurance and want to invest for returns and not for security.
FINDINGS opportunity. time.
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SWOT ANALYSIS OF ICICI PRUDENTIAL STRENGTHS Flexible Products Partners have experience in different markets of the world Synergy in their existing operations Expertise in their field of insurance Good customer service Professional management of funds to provide high returns Existing brand name WEAKNESS Yet to build a strong distribution network Still to enter into rural market Not reached at Break even Point OPPOURTUNITY Untapped market Banks ready to tie-up for ready made distribution network for a small fees Increasing awareness about private companies Increasing awareness of insurance as an investment product THREATS Large distribution network of LIC Decades of Experience and Brand name of LIC 5% Service tax on investments Increasing number of insurance companies
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PART-B CHANNEL MANAGEMENT DISTRIBUTION CHANNELS IN INSURANCE At present the distribution channels that are being utilized are: Direct selling Corporate agents i.e. pushing the insurance product through the directors or partners of a company Group selling Worksite marketing Brokers and cooperative societies
To this list can be added the number of alternate delivery channels 1. Bancassurance Bancassurance in its simplest form is the distribution of insurance products through a bank's distribution channels. In concrete terms bancassurance, which is also known as Allfinanz - describes a package of financial services that can fulfill both banking and insurance needs at the same time. 2. Selling through employees or authorized officials of a corporate Selling through employees can also be a lucrative prospect. But the full potential of this channel has not yet been utilized since selling is now permitted only through directors or partners of the company. Worksite marketing is inexpensive and provides the opportunity to market products to large groups of people simultaneously. 3. Call centres Call centres can be utilized for generating leads. As the market keeps expanding, call centres have the potential of becoming an important medium for customer relationship management (CRM) and up selling to the customers.
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4.Co-operative societies and Brokers Cooperative societies and brokers offer immense support to insurance companies to widen their reach. Private companies that are already appointing corporate agents and non-banking financial corporations (NBFCs) with a sound retail network are in demand. 5. Marketing through mailers etc Direct marketing through mailers, pamphlets etc. require customized simple products that can be purchased through the Internet. Though the unavailability of good databases in India, and the high expenses to reach the target audience through direct mailers is a cause for concern, it is definitely a problem that can be solved through better management of resources, data collection etc. To sum up, it is apparent that multiple distribution channels will help an insurance company to offer a range of contact points to the customer, thereby increasing the chances of success. BANCASSURANCE Bancassurance in its simplest form is the distribution of insurance products through a bank's distribution channels. In concrete terms bancassurance, which is also known as Allfinanz - describes a package of financial services that can fulfill both banking and insurance needs at the same time. It takes various forms in various countries depending upon the demography and economic and legislative climate of that country. Demographic profile of the country decides the kind of products bancassurance shall be dealing in with. Economic situation will determine the trend in terms of turnover, market share, etc... Legislative climate will decide the periphery within which the bancassurance has to operate.
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Why bancassurance? India has a high Savings rate of 22% of GDP- a massive insurable Banks are major players in the Indian Financial system. Command 65% of household investments Extensive coverage 66,700 branches Enormous retail account base of over 400 million deposit accounts Deposit base of Rs. 821000 Cr The above statistics reveal the immense potential for the bancassurance channel in India. market.
Banc assurance opportunity
Indian Investment Industry 2003 -2004 (US$328 bln Funds Under Management)
Retirement Funds US$45 bln 14% Life Insurance US$45 bln 14%
Bank Savings Accounts US$110 bln 33%
Mutual Funds US$23 bln 7%
Bank TermDeposits US$105 bln 32%
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Advantages to banks Productivity of the employees increases. By providing customers with both the services under one roof, they can improve overall customer satisfaction resulting in higher customer retention levels. Increase in return on assets by building fee income through the sale of insurance products. Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products. Banks can cross sell insurance products e.g. Term insurance products with loans. Advantages to insurers Insurers can exploit the banks' wide network of branches for distribution of products. The penetration of banks' branches into the rural areas can be utilized to sell products in those areas. Customer database like customers' financial standing, spending habits, investment accordingly. Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily. Advantages to consumers Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc. Enhanced convenience on the part of the insured Innovative and better product ranges and purchase capability can be used to customize products and sell
Win- Win Relationship S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 24
Bank Customer retention Satisfaction of more financial needs under the same roof Revenue diversification More profitable resource utilization Enriched work environment
Insurance Company Revenue and channel diversification Quality customer access Quicker geographical reach Creation of brand equity Leverage service synergies with
Bank Establish sales orientated culture Establish a low cost acquisition channel Entering into bancassurance Bancassurance in India is a very new concept, but is fast gaining ground. In India, the banking and insurance sectors are regulated by two different entities (banking by RBI and insurance by IRDA) and bancassurance being the combinations of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector. Highlights of the guidelines are reproduced below: RBI guideline for banks entering into insurance sector provides three options for banks. They are: Joint ventures will be allowed for financially strong banks wishing to undertake insurance business with risk participation; For banks which are not eligible for this joint-venture option, an investment option of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is available; Finally, any commercial bank will be allowed to undertake insurance business as agent of insurance companies. This will be on a fee basis with no-risk participation. The Insurance Regulatory and Development Authority (IRDA) guidelines for the bancassurance are:
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Each bank that sells insurance must have a chief insurance executive to handle all the insurance activities. All the people involved in selling should under-go mandatory training at the an
institute accredited by IRDA and pass the examination conducted by authority.
Commercial banks, including cooperative banks and regional rural banks, may become corporate agents for one insurance company. Banks cannot become insurance brokers.
Distribution Models Bancassurers have developed three basic distribution models: Integrative, Specialist and Financial Planning model. Integrative / Generalist Model The integrative model distributes products through existing bank channels, and in its most well-known European version, branch bankers themselves sell insurance products to customers. Theoretically, this offers One Stop Banking and requires extensive training to branch staff. Bank staff is supposed to know the details of all the insurance products on offer. Telemarketing and direct mail are also examples of integrative approaches. Specialist Model The specialist model distributes investment or other complex insurance products through product experts who are generally employees or representatives of the insurance company. Platform bankers help identify prospects who are then contacted by an insurance professional. This process requires less training bur requires higher compensation to support the referral process. This model may not meet all of customers needs since it lengthens the process of sale of even a simple insurance product which can otherwise be sold across the counter. Financial Planning Model The financial planning model is the only team approach. This method offers each customer and prospect a full financial planning package addressing all of S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 26
the individual's financial concerns, risk tolerances and location in the cycle of life. This process is beneficial for the customer, the bank and the insurer, as the customer is viewed outside the numbers. Bancassurers convey the message that they want to know all about the customer in relation to their current and future financial needs and want to assist them on all those aspects of their life. The Banks in India follow the Financial Planning Model Marketing and Distribution channels in bancassurance One of the most significant changes in the financial services sector over the past few years has been the growth and development of bancassurance. Banking institutions and insurance companies have found bancassurance to be an attractive and profitable complement to their existing activities. The successes demonstrated by various bancassurance operations particularly in west have triggered an avalanche of mergers and acquisitions across continents and efforts are on to replicate the early success of bancassurance in other parts of the world as well. Distribution is the key issue in bancassurance and is closely linked to the regulatory climate of the country. Over the years, regulatory barriers between banking and insurance have diminished and have created a climate increasingly friendly to bancassurance. The passage IRDA Bill in India in 2000 has stimulated the growth of bancassurance by allowing use of multiple distribution channels by banks and insurance companies. Many banks and insurers are looking with great interest at building new revenue through bancassurance - including large, traditional companies that wouldn't have considered such an approach about a decade ago.
The Channels of Distribution in Bancassurance
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Traditionally, insurance products were promoted and sold principally through agency systems India. With new developments in consumers behaviors, evolution of technology and deregulation, new distribution channels have been developed successfully and rapidly in recent years. Bancassurers make use of various distribution channels: Career Agents Special Advisors Salaried Agents Bank Employees / Platform Banking Corporate Agencies and Brokerage Firms Direct Response Internet e-Brokerage Outside Lead Generating Techniques
The main characteristics of each of these channels are: Career Agents Career Agents are full-time commissioned sales personnel holding an agency contract. They are generally considered to be independent contractors. Consequently an insurance company can exercise control only over the activities of the agent which are specified in his contract. Despite this limitation on control, career agents with suitable training, supervision and motivation can be highly productive and cost effective. Moreover their level of customer service is usually very high due to the renewal commissions, policy persistency bonuses, or other customer service-related awards paid to them. Many bancassurers, however avoid this channel, believing that agents might oversell out of their interest in quantity and not quality. Such problems with career agents usually arise, not due to the nature of this channel, but rather due to the use S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 28
of improperly designed remuneration and/or incentive packages. Special Advisors Special Advisors are highly trained employees usually belonging to the insurance partner, who distribute insurance products to the bank's corporate clients. Banks refer complex insurance requirements to these advisors. The Clients mostly include affluent population who require personalized and high quality service. Usually Special advisors are paid on a salary basis and they receive incentive compensation based on their sales. Salaried Agents Having Salaried Agents has the advantages of them being fully under the control and supervision of bancassurers. These agents share the mission and objectives of the bancassurers. Salaried Agents in bancassurance are similar to their counterparts in traditional insurance companies and have the same characteristics as career agents. The only difference in terms of their remuneration is that they are paid on a salary basis and career agents receive incentive compensation based on their sales. Some bancassurers, concerned at the bad publicity which they have received as a result of their career agents concentrating heavily on sales at the expense of customer service, have changed their sales forces to salaried agent status. Platform Bankers Platform Bankers are bank employees who spot the leads in the banks and gently suggest the customer to walk over and speak with appropriate representative within the bank. The platform banker may be a teller or a personal loan assistant and the representative being referred to may be a trained bank employee or a representative from the partner insurance company. Platform Bankers can usually sell simple products. However, the time which they can devote to insurance sales is limited, e.g. due to limited opening hours and to the need S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 29
to perform other banking duties. A further restriction on the effectiveness of bank employees in generating insurance business is that they have a limited target market, i.e. those customers who actually visit the branch during the opening hours. In many set-ups, the bank employees are assisted by the bank's financial advisors. In both cases, the bank employee establishes the contact to the client and usually sells the simple product whilst the more affluent clients are attended by the financial advisors of the bank which are in a position to sell the more complex products. The financial advisors either sell in the branch but some banks have also established mobile sales forces. If bank employees only act as "passive" insurance sales staff (or do not actively generate leads), then the bancassurer's potential can be severely impeded. However, if bank employees are used as "active" centres of influence to refer warm leads to salaried agents, career agents or special advisors, production volumes can be very high and profitable to bancassurers. Set-up / Acquisition of agencies or brokerage firms The advantage of such arrangements is the availability of specialists needed for complex insurance matters and -in the case of brokerage firms - the opportunity for the bank clients to receive offers not only from one insurance company but from a variety of companies. In addition, these sales channels are more conceived to serve the affluent bank client.
Direct Response In this channel no salesperson visits the customer to induce a sale and no S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 30
face-to-face contact between consumer and seller occurs. The consumer purchases products directly from the bancassurer by responding to the company's advertisement, mailing or telephone offers. This channel can be used for simple packaged products which can be easily understood by the consumer without explanation. Internet Internet banking is already securely established as an effective and profitable basis for conducting banking operations. The reasonable expectation is that personal banking services will increasingly be delivered by Internet banking. Bancassurers can also feel confident that Internet banking will also prove an efficient vehicle for cross selling of insurance savings and protection products. It seems likely that a growing proportion of the affluent population, everyone's target market, will find banks with household name brands and proven skills in e-business a very acceptable source of non-banking products. There is now the Internet, which looms large as an effective source of information for financial product sales. Banks are well advised to make their new websites as interactive as possible, providing more than mere standard bank data and current rates. Functions requiring user input (check ordering, what-if calculations, and credit and account applications) should be immediately added with links to the insurer. Such an arrangement can also provide a vehicle for insurance sales, service and leads. E-Brokerage Banks can open or acquire an e-Brokerage arm and sell insurance products from multiple insurers. The changed legislative climate across the world should help migration of bancassurance in this direction. The advantage of this medium is scale of operation, strong brands, easy distribution and excellent synergy with the internet capabilities. Bancassurance in India - A SWOT Analysis Even though, banks and insurance companies in India are yet to exchange S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 31
their wedding rings, bancassurance as a means of distribution of insurance products is already in force in some form or the other. Banks are selling Personal Accident and Baggage Insurance directly to their Credit Card members as a value addition to their products. Banks also participate in the distribution of mortgage linked insurance products like fire, motor or cattle insurance to their customers. Banks can straightaway leverage their existing capabilities in terms of database and face to face contact to market insurance products to generate some income for themselves which hitherto was not thought of. Once bancassurance is embraced in India with full force, a lot will be at stake. Huge capital investment will be required to create infrastructure particularly in IT and telecommunications, a call center will have to be created, top professionals of both industries will have to be hired, an R & D cell will need to be created to generate new ideas and products. It is therefore essential to have a SWOT analysis done in the context of bancassurance experiment in India. Strengths A huge pool of skilled professionals whether it is banks or insurance companies who may be easily relocated for any bancassurance venture. minimal in the LIC and GIC both have a good range of personal line products already lined up;therefore R & D efforts to create new products will be beginning. Additionally, GIC with 4200 operating offices and LIC with 2048 branch offices are almost already omnipresent, which is so essential for the development of any bancassurance project.
Weaknesses The IT culture is unfortunately missing completely in all of the future collaborators e.g. banks, GIC & LIC. Elementary IT requirement like S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 32
networking (LAN) is not in lace even in the headquarters of these institutions, when the need today is of Wide Area Network (WAN) and Vast Area Network (VAN). Internet connection is not available even to the mangers of operating offices. Another drawback is the inflexibility of the products i.e. it can not be tailor made to the requirements of the customer. For a bancassurance venture to succeed it is extremely essential to have built flexibility so as to make the product attractive to the customer. Opportunities Banks' database is enormous which can tapped for investment in bancassurance. This database has to be dissected variously and various homogeneous groups are to be churned out in order to position the bancassurance products. With a good IT infrastructure, this can really do wonders. There is already an atmosphere created in the country for liberalization and there appears to be a political consensus also on the subject. Therefore, RBI or IRDA should have no hesitation in allowing the marriage of the two to take place. This can take the form of merger or acquisition or setting up a joint venture or creating a subsidiary by either party or just the working collaboration between banks and insurance companies. Threats Non-response from the target customers. The investors in the capital may turn their face off in case the rate of return on capital falls short of the existing rate of return on capital. Since banks and insurance companies have major portion of their income coming from the investments, the return from bancassurance must at least match those returns. Also if the unholy alliances are allowed to take place there will be fierce competition in the market resulting in lower prices and the bancassurance venture may never break-even. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 33 n-
Obstacles and success factors Even insurers and banks that seem ideally suited for a bancassurance partnership can run into problems during implementation. The most common obstacles to success are poor manpower management lack of a sales culture within the bank no involvement by the branch manager insufficient product promotions, failure to integrate marketing plans marginal database expertise poor sales channel linkages inadequate incentives resistance to change negative attitudes toward insurance and unwieldy marketing strategy
Conversely, bancassurance ventures that succeed tend to have certain things in common. Factors that appear to be critical to success include 1 2 3 4 5 6 7 8 Strategies consistent with the bank's vision, knowledge of target customers' needs, defined sales process for introducing insurance services simple yet complete product offerings strong service delivery mechanism quality administration synchronized planning across all business lines and subsidiaries complete integration of insurance with other bank products and services extensive and high-quality training Sales management tracking system for reporting on agents' time and results of bank referrals and relevant and flexible database systems. 5.13 Distribution at ICICI Prudential
34
ICICI Prudential has one of the largest distribution networks amongst private life insurers in India, having commenced operations in 58 cities and towns in India. These are: Agra, Ahmedabad, Ajmer, Allahabad, Amritsar, Aurangabad, Bangalore, Bhatinda, Bhopal, Bhubhaneshwar, Calicut, Chandigarh, Chennai, Coimbatore, Dehradun, Goa, Guntur, Gurgaon, Hyderabad, Hubli, Indore, Jaipur, Jalandhar, Jamnagar, Jamshedpur, Jodhpur, Kanpur, Karnal, Kochi, Kolkata, Kota, Kolhapur, Kottayam, Lucknow, Ludhiana, Madurai, Mangalore, Meerut, Mumbai, Nagpur, Nasik, Noida, New Delhi, Patiala, Pune, Raipur, Rajkot, Ranchi, Surat, Thane, Thrissur, Trichy, Trivandrum, Udaipur, Vadodara, Vashi, Vijayawada and Vizag. The company has eleven bancassurance tie-ups, having agreements with ICICI Bank, Federal Bank, South Indian Bank, Bank of India, Lord Krishna Bank, and Punjab & Maharashtra Co-operative Bank, Goa State Co-operative Bank, Indoor Paraspar Sahakari Bank, Manipal State Co-operative Bank, Shamrao Vithal Co-operative Bank and Jalgaon People''s Co-operative Bank, as well as some corporate agents. It has also tied up with organisations like Dhan for distribution of Salaam Zindagi, a policy for the socially and economically underprivileged sections of society. ICICI Prudential has recruited and trained over 50,000insurance advisors to interface and advise customers. Further, it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers. The channels of distribution at ICICI Channels of distribution play a very important role in the reach of insurance to the hinterland. They are the heart and soul of selling insurance products. They are given as follows.
Agents/Career agents This is the traditional means of selling insurance. Still it is in practice. The agents are recruited by the Unit Managers. There are altogether more than S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 35
50,000agents in India selling and promoting the products of ICICI Prudential. As per the IRDA Guide lines agents have to pass the insurance examination of the IRDA to be an insurance advisor. Direct Marketing Leads (DM Leads)/Direct response These are the leads generated by the call centre. These are then transferred to the region from where the inquiries have come. The FSC in-charge of the DM leads then takes care of it Non direct marketing leads (Non DM leads)/Internet These are the incoming inquiries generated through the advertisements and internet. The process is the same as DM Leads. Work site marketing It is the area within the radius of 100 Km of the insurance company branch. This area is called the source able area of the branch for selling insurance. In order to do worksite marketing the Agent/FSC has take a permission from the higher authorities of his company and also the worksite. After this the Agent/FSC can carry out the activities at the work site. Bancassurance and Alliances/Special Advisors Intermediaries targeted at different segments. Below given are some of the intermediaries active in Bancassurance channel. This channel has gained immense recognition in the recent times. Here the insurance companies tie up with banks to sell insurance. An FSC in-charge of the alliances has to maintain relation with the corporate agencies and generate business from them.
India Post It is one of the most important channels of distribution. ICICI Prudential has tied with India Post for selling of Only Retirement solution. The possible reasons to S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 36
choose post as a distribution channels are as follows. 1 2 3 4 5 1,50,000 post offices in India 1,38,000 offices located in rural areas. 1,40,000 delivery post offices 5,58,659 letter boxes Services in 6,34,000 villages and 4,689 towns across India
The following statistics gives a reason to smile for the insurance players. The Indian post boasts of the largest network in the world. It has the maximum penetration in the rural area. This can be tapped by the insurances players through post. But in Gujarat only the Ahemdabad branch is active. The reason behind it is that, Post themselves have their own savings plan like National savings certificate (NSC)/Kisan Vikas Patra (KVP) which give guaranteed returns, whereas on the other side the pension plans of ICICI Prudential does not assure guaranteed return. So individuals are reluctant to purchase the pension plans. This is the reason why the business in less in case of post. The effectiveness of the alternatives channels of distribution The effectiveness of the various channels involved in the distribution of insurance was measured on the parameters listed in the comparison table given below. Parameters for measuring effectiveness Education Recruitment Knowledge of product Customer Service Commission Agents 10+2 Indiscriminate Very little or poor Unsatisfactory Very high (40%-80% of first premium) Distribution cost Very high Bancassurance Graduate/post graduate Professional Very high Provide Value for Money Passed on to the customers in the form of low premium Less (banks make use of the existing distribution
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Promotion of product Market tapped
Tax saving tool Affluent class
channels) Exclusive financial service product Middle and lower middle class and also affluent class Local and regional Follow the principles of marketing Savings are passed on to the customer by way of cheaper products Customized Unlimited
Reputation Approach to customers Savings achieved by the company Products sold Geographic presence
Only in local community Word of mouth Nil
Traditional Limited
The tied agents are still the primary channel for distribution of insurance and this is the main reason for under developed insurance market in India. The reasons are as follows. 1 2 3 Most of the agents recruited are 10+2 so they lack the maturity to sell insurance. Before the IRDA regulations the agents were recruited indiscriminately. The result was that the agents had little or poor knowledge of the product. The recruited agents are hardly the elite sales person of the company. They are still the neighborhood gooders-the post man, the shop keeper, the school teacher who know the people and themselves are recognised in their community. Thus insurance is sold only to those persons who come in the purview of these agents. 4 5 6 Today also agents are sought by word of mouth and as a result the large portion of the society is untapped. The agents sold the products only to the affluent class of people in lieu of high commissions. As a result the middle market still remains untapped. Thanks to the agent that till date insurance is recognized as tax saving tool and not as a protection cover. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 38
Also the agency system is still the most expensive form of distribution. Commission rates ranging from 40% - 80%of the first year premium for a regular premium saving contract are very high.
Moreover the insurance products were designed to suit the commission structure of agents. This has resulted in high premium pays.
There is other side of the coin too agents provided the last mile touch point for the sale of insurance products. Old habits die hard- companies still do believe in agents but with the increasing competition in the market the companies will have to adopt stringent measures in recruitment of agents and training. 1 Sustaining huge sales force is a costly affair especially when low cost electronic distribution channels are available. In such case alternative channels are not burdened by the geographic limitation of maintaining a physical presence. 2 Also alternate channels help to cut cost and enhance customer service thereby giving service edge. The Bancassurance channels are emerging as forerunner in insurance distribution. The reasons for it are as follows. 3 A lot savings is achieved through utilization of the banks existing distribution channels. At some point of time in bancassurance operation, the marginal cost of adding one more customer becomes negligible. 4 Also with bancassurance cost of agent recruitment, selection and conservation are reduced. The saving can be passed on to the consumers through lower premiums. 5 6 More over the banks database can be tapped for middle-market warm leads, the segment which was not tapped by the agents. Banks can leverage their name recognition and reputation at both local and regional levels.
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With this also come the challenges to be faced by insurance companies and banks. They are as follows. Challenges faced by the insurance companies, post and Banks Of the insurance sector with its alternative channels of distribution does promise a tremendous growth opportunity. But with it comes the challenges of the new millennium. They are as follows. Public sector companies (Life Insurance Corporation of India) 1 2 3 4 5 6 Identity is well established, but the perception of poor service providers is a stigma. Products are not attractive and flexible enough but expensive. Retain and attract good intermediaries. To retain the creamy layer of clientele who are most likely to be lured by the new companies. Match the aura created by the new companies in the in the urban market. High premiums
Private sector companies 1 2 3 4 5 Brand equity is not high especially in the case of insurance sector. Remove the perception that any thing that looks good is expensive. Attract intermediaries especially agents with the requisite qualification and attributes who can market the company and the product. Work against people mindset that they are not here for long term. Risk of tapping an already insured market.
India Post 1 2 3 To educate the traditional work force. Computerization and Networking of all the post offices in India. Post works on the principle of High Risk High Returns. Other mechanism becomes necessary to develop.
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4 5 6 7
To establish a proper work environment. Up-gradation of the post offices situated in the rural areas. Removal of subsidies offered in various products. Post at present gives guaranteed returns, but once it comes under the purview of IRDA it will not be able to give guaranteed returns. In this case it will have to come out with flexible products different from the traditional one.
To balance the sale of the post products vis--vis the product of other insurance companies with which the post has tied up.
Banks 1 2 3 4 5 1 2 3 4 Customer retention in the face of competition- commoditization of basic banking products Squeeze on margins of fund based revenue Staff retention and motivation Universal Banking- approach to provide all financial product under one roof ; a broader relationship approach Optimum utilization of infrastructure and resources- maximize revenue. Economic viability for the banks to take up as bancassurance is a volume business. Training of people and lack of vision and awareness. Useful for selling only certain lines of products. Initial investment in systems and processes and people training. Disadvantages of bancassurance are
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CHAPTER 3
INDUSTRY PROFILE
3.1 HISTORY/DEVELOPMENT OF INSURANCE IN INDIA The business of life insurance in India started in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the
42
important milestones in the life insurance business in India are: 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. Earlier LIC and GIC used to rule the market with a Lions share. LIC with its pure monopoly and virtual prerogative in establishing premiums, evolved as a monolith. With over more than eight lakh agents allover India it has created an enviable brand name, particularly among the rural population of India. It boasts of $40 billion life fund and a strong financial player in the financial sector. Despite all these the insurance market is currently underdeveloped in India. This is mainly because of the following reasons; 1 2 The large-scale of operations, public sector bureaucracies and cumbersome procedures. The highest paid employees of the nationalized insurance companies are characterized by abysmal productivity, utter ignorance of the basic principles of the insurance business, endemic corruption, gross indiscipline and sheer laziness. 3 Dominating the inevitably weak management of the nationalized insurance companies, the militant and strongly unionized employees of the nationalized monopoly insurance companies have transformed Indian insurance from volume-driven into class-based business. This is because the agents targeted the
43
affluent class of people and neglected the middle class segment. 4 Similar is the case with pensions. The lack of a comprehensive social security system combined with a willingness to save, means that Indian demand for pension products will be large. However, current penetration is very poor. By March 1998, LICs pension premium was only $22 Million. ICICI today boasts of it as the largest player in pension market. (PRDA-Pension regulatory Development Authority) This resulted in the insurance sector reforms initiated by The Malhotra Committee Report.
The Malhotra committee report In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms".In 1994, the committee submitted the report and some of the key recommendations included:
Structure 1 Government stake in the insurance Companies to be brought down to 50% 2 Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations
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3 All the insurance companies should be given greater freedom to operate Competition 4 Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry 5 No Company should deal in both Life and General Insurance through a single entity 6 Foreign companies may be allowed to enter the industry in collaboration with the domestic companies 7 Postal Life Insurance should be allowed to operate in the rural market 8 Only One State Level Life Insurance Company should be allowed to operate in each state Regulatory Body 9 The Insurance Act should be changed 10 An Insurance Regulatory body should be set up 11 Controller of Insurance (Currently a part from the Finance Ministry) should be made independent Investments 12 Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50% 13 GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time) 14 Customer Service
15 LIC should pay interest on delays in payments beyond 30 days 16 Insurance companies must be encouraged to set up unit linked pension plans 17 Computerization of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the
45
customer services and increase the coverage of the insurance industry should be opened up to competition.
But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body. Also The Rakesh Mohan report (mid 1990) stressed that 85% of the funds for infrastructure development had to come from the domestic industry. Also India needed $100 billion in the nest 5years to meet its infrastructure needs and insurance was the answer to it since it can provide for long term investible funds. The result was that IRDA passed IRDA Authority Bill on December 2, 1999 in line with LPG (liberalization/Privatization/globalization).
3.2 Regulatory Issues The bill allows foreign equity stake in domestic private insurance companies to a maximum of 26 per cent of the total paid-up capital and seeks to provide statutory status to the insurance regulator. The insurance business in India is pegged S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 46
at $ 6.6 Billion whereas industry leaders feel privatization will increase it to $ 40 Billion within next 3-5 years. (Sigma report on insurance 2004) The IRDA Bill lays down that the Indian promoter must dilute the stake in the private insurance firms from 74 per cent to 26 per cent in ten years. The bill stipulates tough solvency margins - Rs. 500 million for life insurance firms, Rs 500 million or a sum equivalent to 20 per cent of net premium income for general insurance and Rs 1 billion for reinsurance business. The insurer has to maintain separate accounts relating to fund of shareholders and policyholders. The funds of policyholders should be retained within the country but does not cover repatriation of profits and dividends. Insurance companies under the new regime will have to have exposure to rural and social sectors. Foreign investment in insurance, as the bill states, is crucial to financing infrastructure and better insurance cover. This bill led to revolution in the Indian Insurance Industry. Private players flooded the Indian market with joint ventures.
BENEFITS OF INSURANCE Insurance is the instrument of Security, saving and peace of mind. It provide several benefits by paying a small amount of premium to an insurance company as: 1 Safeguards oneself and one's family for future requirements.
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2 3 4 5 6 7
Peace of mind-in case of financial loss. Encourage saving. Tax rebate. Protection from the claim made by creditors. Security against a personal loan, housing loan or other types of loan. Provide a protection cover to industries, agriculture, women and child.
INDIA AT A GLANCE Population: 1.3 Billion Economy: 5th largest in the world in terms of Purchasing Power Parity (PPP) Premium as a percentage of GDP: Savings Rate: Around 30% of GDP Estimated middle class population: 300 Million Insured population: 70 million only Estimated business (2008): $6.6 Billion 1.77 % GDP growth Rate: Over 7.5% per year on an average for the last decade
Also the following data shows the immense potential of life insurance sector in India.
PREMIUM INCOME AS A PERCENTAGE OF GDP (2004-05)
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1.1% 1.8% 1.5%
0.6% 0.8 10%
South korea Taiwan Hong Kong Singapore Malaysia
2.6% 3.3%
India Thailand China 6.5 % Phillipines Indonesia
3.4%
INSURANCE LAWS
Requirement as to capital No insurer carrying on the business of life insurance, general insurance, or reinsurance in India on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall be registered unless he has :1. A paid-up equity capital of rupees one hundred crores, in case of a person carrying on the business of life insurance or general insurance; or 2. a paid-up equity capital of rupees two hundred crores, in case of a person carrying on exclusively the business as a reinsurer:
In determining the paid-up equity capital specified under clause (i) or clause (ii), the deposit to be made under section 7 and any preliminary expenses incurred in the formation and registration of the company shall be excluded: An insurer carrying on business of life insurance, general insurance or re-insurance in India before the commencement of the Insurance Regulatory and Development Authority Act, 1999 and who is required to be registered under this Act, shall have a paid-up equity capital in accordance with clause (i) and clause (ii), as the case may
49
be, within six months of the commencement of that Act. 5. Where, the nominal value of the shares intended to be transferred by any individual, firm, group, constituents of a group, or body corporate under the same management, jointly or severally exceeds one per cent. of paid up capital of the insurer, previous approval of the Authority must be obtained for the transfer. Explanation.-For the purpose of this sub-clause, the expressions "group" and "same management", shall have the same meanings respectively assigned to them in the Monopolies and Restrictive Trade Practices Act, 1969. 6. The following sections have been inserted :6.1 Manner of divesting excess share holding by promoter in certain cases. No promoter shall at any time hold more than twenty-six per cent. or such other percentage as may be prescribed, of the paid up capital in an Indian Insurance company:Provided that in a case where an Indian insurance company begins the business of life insurance, general insurance or reinsurance in which the promoters hold more than twenty-six per cent of the paid up capital or such other excess percentage as may be prescribed, the promoters shall divest in a phased manner the share capital in excess of the twenty-six per cent. of the paid up capital or the such excess paid up capital as may be prescribed, after a period of ten years from the date of commencement of the said business by such Indian insurance company or within such period as may be prescribed by the Central Government.
Explanation-For the removal of doubts it is hereby declared that nothing contained in the above proviso shall apply to the promoters being foreign company, foreign institutional investor, non-resident Indian and overseas body corporate referred to in clause b of the definition of Indian Insurance Company. The manner and procedure for divesting the excess share capital shall be
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specified by regulations made by the Authority. Every insurer, on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999, in respect of insurance business transacted by him and in respect of his shareholders' funds, shall at the expiration of each financial year prepare with reference to that year, a balance sheet, a profit and loss account, a separate account of receipts and payments, a revenue account in accordance with the regulations made by the Authority. Every insurer shall keep separate accounts relating to funds of share holders and policy holders.
Provisions of investment of funds outside India No insurer shall directly or indirectly invest outside India, the funds of the policy holders.
Manner
and
conditions
of
investment by
The Authority may, in the interests of the policy holders, specify
regulations made by the Authority, the time, manner and other conditions of investment of assets to be held by an insurer for the purposes of this Act. The Authority may, after taking into account the nature of business and to protect the interests of the policy holders, issue to an insurer the directions relating to the time, manner, and other conditions of investment of assets to be held by him. However, no directions shall be issued unless the insurer concerned has been given a reasonable opportunity of being heard.
Insurance business in rural or social sector Every insurer shall, after the commencement of the Insurance Regulatory and Development Authority Act, 1999, undertake such percentages of life insurance business and general insurance business in the rural or social sector, as may be specified, in the Official Gazette by the Authority, in this behalf. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 51
Reasons for Private Players entrance: The reasons for private players to enter are given as below. Push factors 1 Saturated home markets. 2 Slow growth in their home markets. Pull factors 1 Only 22 % of population is insured. (Sigma report on global insurance). 2 Low penetration of insurance. 3 High per-capita income. 4 A small share of a large and growing market can be profitable. 5 The economies of the insurance market.
ADVANTAGES TO PRIVATE PLAYERS 1 2 3 4 5 6 7 8 Private entrants expect to score in the areas of customer service, speed and flexibility. Better products and choice for the consumer. Targeting the niche markets and middle markets which are untapped till now. Transparency. Market linked plans. Use of alternative distribution channels. The brand equity of the domestic player. High end technology.
MARKET BREAK-UP
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MARKET BREAK-UP OF ALL PRIVATE PLAYERS
568.38 286.08 235.38 219.74 ICICI-PRU BIRLA SUN BAJAJ ALNZ SBI LIFE LIC
8005.75
FOUR REASONS FOR BUYING INSURANCE Ask individuals wanting to buy life insurance, about how they do their tax planning and the first reply will be - insurance policy. Such is the nature of life insurance. It is bought by almost everyone right from the bigwigs of the business world to small retail investors. And most buy it for one core reason - to save tax. But should this be the only reason to buy a life insurance policy? Here, are some guiding principles for individuals who are contemplating taking life insurance. 1) PREMATURE DEATH One is never sure about life. We often come across people claiming that nothing is going to happen to them; that they are too young to pass away. But do they really know what the future holds for them? We can assure you they don't, because the question `What if?' has probably never crossed their minds. We only have to read newspaper headlines about the recent Tsunami, the earthquake that took place not so long ago and such other natural calamities to understand how the future can be unpredictable.
Individuals need to insure themselves to secure the future of those who are dependent on them; especially so if they happen to be the sole breadwinners. You
53
wouldn't want them to go through hardships or rely on others/relatives, etc. This, in fact, is the prime reason why one should buy an insurance policy. 2) LIVING TOO LONG
Advances in the field of medicine have grown by leaps and bounds over the past few decades. Due to this, life expectancies have gone up. This poses another problem for individuals. It is generally observed that individuals who tend to live way beyond their earning years like say, till the age of 85 or 90, usually face a problem coming to terms with increasing costs of living. And that is not taking into account the manifold increase in medical expenses of course. This takes place largely due to imprudent financial planning by individuals during their earning years. Insurance, if bought at the right time for the right amount, acts as a saviour in such times. Individuals could opt for a pension plan offered by insurance companies, which suits their profile in terms of income, proposed retirement age and proposed expenses post-retirement. Such plans provide an annuity, which means that individuals keep getting a fixed sum every month/year after they have retired. 3) PAINFUL EXISTENCE Maybe an individual has planned well during his earning years to secure himself financially. He has also designed his financial portfolio in such a way that he is drawing a comfortable monthly income to support his family expenditure. But what if an individual were to have a health problem afflicting him or his spouse? What if the remedy to this ailment were to cost him a sum beyond his financial capacity? Here again, life insurance can act as the saving grace in two ways. One, by way of a medical rider like the accidental death benefit rider, permanent disability benefit rider, critical illness benefit rider. These riders are taken along with the life insurance plan and help cover the medical expenses.
And Secondly by allowing the individual to surrender the insurance policy. Of course this should be done only in case of an urgent need like a serious health problem and even then, after all other sources have been exhausted. Surrendering
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the policy will help in the generation of a lump sum amount that can be used for covering the high cost of medical expenses. 4) TAX BENEFITS Traditionally, life insurance has always been bought more for tax benefits than for what it is actually purported to do; i.e. insure human life. But the role of life insurance in an individual's tax planning cannot, in any way, be undermined. Under the new regime, individuals can now invest up to Rs 100,000 in insurance premium to avail of a deduction from taxable income. The tax sops provided on insurance help `increase' the individual's disposable income and make him consider taking a life insurance plan which he otherwise may not have done.
IMPACT OF BUDGET IN INSURANCE The 2005-06 Budget has dampened the spirit of insurance companies. Hardly any changes have been made in the general insurance sector. The change in the tax structure may have some impact on the life insurers. With the removal of the Section 88 relief there is not much for the insurance players to cheer for. FDI hike in insurance sector: The Finance Minister commended on the growth in the insurance sector, there was no mention of the steps being taken for increasing FDI in insurance sector. There is a dire need to attract more foreign capital in the sector. However it seems that the Union Finance Ministry is looking at proposals to delink the FDI limit from the Insurance Act, when it is amended. This move would empower any future government to increase the FDI limit through an executive order without taking the issue to the Parliament. Removal of Sec 88 tax relief: With the removal of the Section 88 tax relief on life insurance products there would be a sever blow on the life insurance companies. Removal of tax relief will have an adverse impact on the flow of investments into life insurance products. Continuation of Sec 10(10) (d): The continuations of this section S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 55
create sever blow for the insurance players. Here by the life insurance companies for availing the optimum benefit under this section need to change their strategy. Till now, life insurers were selling life insurance products mostly on tax-benefit grounds. However, now they will have to sell products with an investment pitch. The investment limit in pension plans is unaltered at Rs 10,000 so these plans may not enjoy the luxury of the expanded limit of Rs 1 lakh allowed for investments/expenditures that could be claimed as a deduction from income. This is likely to have an adverse impact on the overall growth of the sector. Pension plans are the only Investment Avenue where specific limits continue to apply.
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CHAPTER 4 COMPANY PROFILE
4.1. ABOUT THE ORGANIZATION
57
REASON FOR SELECTION OF ICICI PRUDENTIAL FOR THE RESEARCH ICICI Prudential ranks as number one amongst the private life insurance players. There is a vast potential for this company in Indian market. ICICI Prudential is moving really fast to capture untapped market. and it is expanding its operations in different regions in India. The company not only stands at No. 1 but also treats its employees as No.1. No other company provides rewards and recognition to their employees and advisors as done by ICICI Prudential. The culture of ICICI Prudential is like a Hindu Undivided Family. It works on the fundamental of building relations. As we look as current performance and future targets laid down by ICICI Prudential, it brings in our mind the words of the great poet : ROBERT FROST The woods are lovely dark and deep. And miles to go before I sleep Hence we firmly believe we could not get better exposure to life insurance if we would not have joined ICICI Prudential. ICICI Prudential life insurance life insurance company Ltd is one of the leading insurance companies in the private sector. Also it was the first private sector company in India to enter the business of insurance.
4.1.1 ICICI Prudential Life Insurance Company Limited S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 58
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). ICICI Prudentials equity base stands at Rs. 925 crore with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. In the year ended March 31, 2004, the company had issued over 4,30,000 policies, for a total sum assured of over Rs 8,000 crore and premium income in excess of Rs. 980 crore. Today the company is the number one private life insurers in the country. Company Partnership ICICI 74% Prudential 26%
DISTRIBUTION ICICI Prudential is one of the largest distribution networks amongst life insurers in India, having commenced operations in 69 cities and towns in India. these are Agra, Ahmedabad , Allahabad, Amritsar, Aurangabad, Bangalore, Bareilli, Bhatinda, Bhopal, Bhubhaneshwar, Calicut , Chandigarh, Chennai, Coimbatore, Dehradun, Durgapur, Faridabad, Goa, Guntur, Gurgaon, Guwahati, Gwalior, Hyderabad , Hubli, Indore, Jaipur, Jalandhar, Jamnagar, Jamshedpur, Jodhpur, Kanpur , Karnal, Kochi, Kolkata, Kolhapur, Kota, Kottayam, Lucknow, Ludhiana, Madurai, Mangalore, Meerut, Mumbai, Mysore, Nagpur, Nasik, Noida, New Delhi, Patiala, Pune, Raipur, Rajkot, Ranchi, Rourkela, Salem, Siliguri,Surat, Thane, Thrissur, Trichy, Trivandrum.Udaipur, Vadodara, Vapi, Varanasi, Vashi, Vijaywada and Vizag. The company has seven bancassurance tie ups having aggrements with
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ICICI Bank,Federal bank, South Indian Bank, Bank of India Lord Krishna Bank and some co-operative banks as well as over 160 corporate agents and brokers. It has also tied up with organizations like Dhan for distribution of Salaam Zindagi, a policy for the socially and economically under privileged sections of the society. ICICI Prudential has recruited and trained about 50,000 insurance advisors to interface with and advise customers. Further, it leverages its state-of -art IT infrastructure to provide superior quality of service to customers. 4.1.2 Vision and Mission 1 2 To make ICICI Prudential Life Insurance Company the dominant new insurer in the life insurance industry. To gain sustainable competitive advantage in this business by striving to provide world class service levels through constant innovation in products, distribution channels and technology based delivery. 3 4 Achieve it through their commitment to excellence, focus on service, speed and innovation, and leveraging our technological expertise. Strong focus on values and clarity of purpose.
Includes 1 2 3 4 Understanding the needs of customers and offering them superior products and service. Building long lasting relationships with their partners. Providing an enabling environment to foster growth and learning for their employees. And above all building transparency in all our dealings.
4.1.3 Foreign Partner S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 60
Prudential plc is the foreign partner of ICICI Prudential with a stake of 26%. Given below are its details.
4.1.4 Prudential plc Established in 1848, Prudential plc. of U.K. has grown to be the largest life insurance and mutual fund company in U.K. Prudential plc. has its presence in Asia for the past 75 years catering to over 1 million customers across 11 Asian countries. Prudential is the largest life insurance company in the United Kingdom ICICI and Prudential came together in 1993 to provide mutual fund products in India and today are the largest private sector mutual fund company in India. Their latest venture ICICI Prudential Life plans to take care of the insurance needs at various stages of life.
4.1.5 Sponsors ICICI Ltd was established in 1955 by the World Bank, the Government of India and the Indian Industry, to promote industrial development of India by providing project and corporate finance to Indian industry. Since inception, ICICI has grown from a development bank to a financial conglomerate and has become one of the largest public financial institutions in India. ICICI has financed all major sectors of the economy, covering 6,848 companies and 16,851 projects. In the fiscal year 2000-2001, ICICI had disbursed a total of Rs 319.65 billion. ICICI has now developed a whole range of activities to become a Universal Bank. Some of ICICI's spectrums of activities include: 1 2 3 4 Commercial Banking - ICICI Bank, India's first internet bank. Information Technology - ICICI InfoTech, transaction processing, software development. Investment Banking - ICICI Securities, one of the key players in the Indian Capital Markets. Mutual Fund - Prudential ICICI AMC, leading private sector mutual fund
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player in India. 5 6 7 Venture Capital - ICICI Venture, leading private equity investor with focus on IT and HealthCare. Retail Services - ICICI PFS, Marketing and Distribution of Retail Asset Products Distribution - ICICI Capital, Distribution and Servicing of Retail Liability Products. ICICI is listed on the Indian Stock Exchanges and on the New York Stock Exchange (NYSE). On September 22, 1999, it became the first Indian company to be listed on the NYSE (symbol: IC and IC.D). This has been followed by the listing of ICICI Bank on NYSE (symbol: IBN) on March 28, 2000. 4.1.5 Partners ICICI Bank (NYSE:IBN) is Indias second largest bank with an asset base of Rs. 106812 crore. ICICI Bank provides a broad spectrum of financial services to individuals and companies. This includes mortgages, car and personal loans, credit and debit cards, corporate and agricultural finance. The Bank services a growing customer base of more than 7 million customer accounts and 5 million bond holders accounts through a multi-channel access network. This includes about 450 branches and extension counters, 1675 ATMs, call centres and Internet banking (www.icicibank.com). ICICI Bank posted a net profit of Rs.1, 206 crore for the year ended March 31, 2003. ICICI Bank is the only Indian company to be rated above the country rating by the international rating agency Moodys and the only Indian company to be awarded an investment grade international credit rating. The Bank enjoys the highest AAA (or equivalent) rating from all leading Indian rating agencies.
4.1.6 Management ICICI Prudential is well known for its management. Below is a list of the team
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that drives ICICI Prudential. 4.1.6.1 Board of Directors The ICICI Prudential Life Insurance Company Limited Board comprises reputed people from the finance industry both from India and abroad. Shri K.V. Kamath, Chairman Mr. Mark Tucker Smt. Lalita D. Gupte Mr. Danny Bardin Mrs. Kalpana Morparia Shri M.P. Modi Mr. John Caouette Shri S.P.Subhedar, (Alternate Director to Mr. Danny Bardin) Mr. Derek Stott, (Alternate Director to Mr. Mark Tucker) Smt. Shikha Sharma, Managing Director 4.1.6.2 Management Team Ms. Shikha Sharma, Managing Director Mr. Kevin Wright, Executive Vice President - Sales & Distribution Ms. Madhavi Soman, Chief - Strategic Initiatives Mr. V. Rajagopalan, Appointed Actuary Mr. Sandeep Batara, Chief Financial Officer & Company Secretary Mr. Saugata Gupta, Chief - Marketing & Service Mr. Shubhro J. Mitra, Chief - Human Resources
4.1.6.3 Corporate Office
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ICCI Prulife Towers, 1089, Appasahab Marathe Marg, Prabhadevi, Mumbai 400 025. Telephone Number: 022-462 1600 Website: http:://www.iciciprulife.com/ 4.2 THE PRODUCTS ICICI Prudential Life Insurance offers a range of innovative, customer-centric products that meet the needs of customers at every life stage. Its 17 products can be enhanced with up to 6 riders, to create a customized solution for each policyholder. 4.2.1 Savings Solutions 4.2.1.1 Secure Plus is a transparent and feature-packed savings plan that offers 3 levels of protection. 4.2.1.2 Cash Plus is a transparent, feature-packed savings plan that offers 3 levels of protection as well as liquidity options. 4.2.1.3 Save n Protect is a traditional endowment savings plan that offers life protection along with adequate returns. 4.2.1.4 Cash Back is an anticipated endowment policy ideal for meeting milestone expenses like a childs marriage, expenses for a childs higher education or purchase of an asset.
4.2.2 Protection Solutions 4.2.2.1 Life Guard is a protection plan, which offers life cover at very low cost. It is available in 3 options - level term assurance, level term assurance with return of
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premium and single premium. 4.2.3 Child Solutions 4.2.3.1 Smart Kid child plans provide guaranteed educational benefits to a child along with life insurance cover for the parent who purchases the policy. The policy is designed to provide money at important milestones in the childs life. Smart-Kid child plan are also available with in unit-linked form - both single premium and regular premium. 4.2.4 Market-linked Solutions 4.2.4.1 Life Link II is a single premium Market Linked Insurance Plan which combines life insurance cover with the opportunity to stay invested in the stock market. 4.2.4.2 Life Time II offers customers the flexibility and control to customize the policy to meet the changing needs at different life stages. It offers 3 investment options - Growth Plan, Income Plan and Balanced Plan. 4.2.5 Retirement Solutions 4.2.5.1 Forever Life is a retirement product targeted at individuals in their thirties. 4.2.5.2 Secure Plus Pension is a flexible pension plan that allows one to select between 3 levels of cover.
4.2.6 Market-linked retirement products 4.2.6.1 Life Time Pension II is a regular premium market-linked pension plan. 4.2.6.2 Life Link Pension II is a single premium market-linked pension plan. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 65
ICICI Prudential also launched ''Salaam Zindagi'', a social sector group insurance policy targeted at the economically underprivileged sections of the society. 4.2.7 Group Insurance Solutions ICICI Prudential also offers Group Insurance Solutions for companies seeking to enhance benefits to their employees. 4.2.7.1 Group Gratuity Plan ICICI Prudentials group gratuity plan helps employers fund their statutory gratuity obligation in a scientific manner. The plan can also be customized to structure schemes that can provide benefits beyond the statutory obligations. 4.2.7.2 Group Superannuation Plan ICICI Prudential offers a flexible defined contribution superannuation scheme to provide a retirement kitty for each member of the group. Employees have the option of choosing from various annuity options or opting for a partial commutation of the annuity at the time of retirement. 4.2.7.3 Group Term Plan ICICI Prudentials flexible group term solution helps provide affordable cover to members of a group. The cover could be uniform or based on designation/rank or a multiple of salary. The benefit under the policy is paid to the beneficiary nominated by the member on his/her death. 4.2.8 Flexible Rider Options ICICI Prudential Life offers flexible riders, which can be added to the basic policy at a marginal cost, depending on the specific needs of the customer. 4.2.8.1 Accident & disability benefit If death occurs as the result of an accident during the term of the policy, the beneficiary receives an additional amount equal to the sum assured under the policy. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 66
If the death occurs while traveling in an authorized mass transport vehicle, the beneficiary will be entitled to twice the sum assured as additional benefit. 4.2.8.2 Accident benefit This rider option pays the sum assured under the rider on death due to accident. 4.2.8.3 Critical Illness Benefit Protects the insured against financial loss in the event of 9 specified critical illnesses. Benefits are payable to the insured for medical expenses prior to death. 4.2.8.4 Major Surgical Assistance Benefit Provides financial support in the event of medical emergencies, ensuring that benefits are payable to the life assured for medical expenses incurred for surgical procedures. Cover is offered against 43 different surgical procedures. 4.2.8.5 Income Benefit This rider pays the 10% of the sum assured to the nominee every year, till maturity, in the event of the death of the life assured. It is available on Smart Kid, Secure Plus and Cash Plus. 4.2.8.6 Waiver of Premium In case of total and permanent disability due to an accident, the premiums are waived till maturity. This rider is available with Secure Plus and Cash Plus.
Tax Benefits on Insurance and Pension Life insurance and retirement plans are effective ways of saving taxes. The tax breaks that are available under our various insurance and pension policies are S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 67
described below: 80C.
1 Our life insurance plans are eligible for deduction under Sec. 3 Our 4 The proceeds or
2 Our Pension plans are eligible for a deduction under Sec. 80CCC.
health riders are eligible for deduction under Sec. 80D. norms prescribed in that section.
withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to
Tax Rates for Individuals The rates of income-tax for FY 2005-06 are as follows: Total Income (Rs.) Rate of Tax Senior Citizen Women below 65 years Others Upto Rs 1,00,000/- Nil Nil Nil Above Rs 100,000/- to 125,000/- Nil Nil 10% Above Rs 125,000/- to 150,000/- Nil 10% 10% Above Rs 150,000 to Rs 250,000 20% 20% 20% Above Rs 2,50,000/- 30% 30% 30% Surcharge on Income Tax: In case where the Total Income exceeds Rs 10,00,000, there would be a surcharge @ 10%. Education Cess on Income Tax Edcuation Cess @2% will be payable on the amount of income tax (including surcharge). Premiums paid for Life insurance - Deduction under Section 80C 1 2 Category of assesses allowed deduction : Individual assessee and Hindu Eligible Savings : Premiums paid or deposited by assessee to effect or to keep 3 In case of individual assessee - Himself/Herself, spouse, children of In case of HUF assessee - any member Undivided Family assessee. in force insurance on the life of following persons: such individual 20% limit : If the amount of premium paid in a financial year for a policy is in
excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums upto 20% of the sum assured. 4 Limit on amount of deduction : Deduction will be restricted to investments of upto Rs 100,000 in savings specified under Section 80C (including life insurance premiums). If any investments have been made under Section 80CCC and 80CCD, then the qualifying amount under Section 80C will stand reduced to that extent. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 68
Deduction limit : The amount of deduction will be equal to the amount by
which the income tax payable on such total income is in excess of the amount by which the total income exceeds 100,000. Premiums paid for Pension plans - Section 80CCC 1 Permitted Deduction : Section 80CCC allows for deduction of premiums paid under a pension plan. As per this Section, premiums paid upto Rs 10,000 by an individual is allowed as deduction from his total income. 2 3 Disallowance : This benefit will be reversed if the policy lapses / is cancelled. Limit : It may be noted that from FY2005-06, the limit of deduction under
Section 80CCC will be part of the overall limit prescribed under Section 80CCE. Premiums paid for medical insurance - Section 80D 1) Category of assesses allowed deduction : Individual assessee and Hindu Undivided Family assessee . 2 )Eligible premiums : Premiums paid by assessee by cheque out of his taxable income to effect or to keep in force an insurance on the health of following persons: In case of individual assessee - Himself/herself, spouse, dependant children and dependant parents. In case of HUF assessee - any member of HUF 3) Deduction and upper limit : The qualifying amounts under Section 80D is upto Rs 10,000/-. However, a higher amount of upto Rs 15,000/- is permitted if the person, for whose health insurance the premium was paid, was aged 65 years or more at any time during the financial year in which the premium was paid. Such amounts of premium paid would be allowed as deduction from the total income of the assessee. Overall deduction limit - Section 80CCE A new Section 80CCE is proposed to be inserted from FY2005-06. As per this section, the maximum amount of deduction that an assessee can claim under Sections 80C, 80CCC and 80CCD will be limited to Rs 100,000. Benefits under insurance policy - Section 10(10D) As per Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 69
However, this rule does not apply to following amounts: sum received under Section 80DD(3), or any sum received under a Keyman Insurance Policy, or any sum received other than as death benefit under an insurance policy which
has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured. Rebate in respect of Securities Transaction Tax (STT) paid 1 Section 88E has been introduced by Finance Act (No 2) of 2004. 2 As per the provisions, where total income of an assessee includes any income under the head Profits and Gains from Business or Profession arising from taxable securities transactions, he shall be entitled to a deduction from the income tax on such income. 3 Amount of deduction : Amount of STT paid in respect of taxable securities transactions entered into in the course of business during that previous year. 4 The deduction will be allowed if proof of payment of STT is furnished alongwith the return. The proof has to be furnished as per the format prescribed by Income Tax. 5 Maximum deduction shall be equal to the amount of income tax on above income. The above information is to give a general overview of the current relevant tax laws, and is not and neither intended to be a tax advice. The above information is based on prevailing tax laws and is subject to change with the change in tax laws. Company is not liable to inform change in the above to any person. The above provisions may apply differently as per the specific situation of any person. Income-tax rates and provisions of Section 80C and 80CCE as described above are as per the proposals in the Finance Bill 2005, and have not yet become a law (as of April 21, 2005).
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CHAPTER 5
THEORITICAL ASPECT OF STUDY
Theoretical aspects of study In order to understand the industry I undertook the environment analyses. S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 71
The PEST analysis where the political, environmental social and technological aspects are looked into the major analysis. 5.1 PESTEL Frame work Now, in a particular geographic region, the environment there affects the industry in the region in various ways. I have studied the effects under the following heads: 1. 2. 3. 4. 5. Political factors Economic factors Social factors Technological factors environmental factors
(1) Political factors Marketing are strongly affected by the development in political & legal environment with the effect of globalization & more and more MNCs have served Indian business arena through joint ventures govt. uses act known as IRDA (insurance regulatory and development authority) sometimes these laws also create new opportunity for business for extra introducing a IRDA rule in 2000 give opportunity to the other 12 companies to the open up the market (2) Economic Factors Market requires purchasing power as well as people. The available purchasing power in an economy depends on current income, prices, saving, debt & credit availability ICICI prudential pay close attention to master trends in income & consumer spending patterns.
(3) Social culture In the social culture arena, marketers must understand peoples view of themselves the demographic trends life stage patterns of the society that a retailer interested to server decide the insurance & strategy ICICI prudential S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 72
market products that correctional to societys needs of different subculture within society. (4) Technological culture One of the most dramatic forces shaping peoples behaviors is technology in the technology arena ICICI prudential take care of the acceleration pace of technological chance opportunity for innovation varying R&D and increase govt. regulation. (5) Environmental Factors The distortional of the natural environment is a major global concern in mans world is air, water, pollution have increased at dangerous level but ICICI not demises the environment..
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CHAPTER - 6
RESEARCH FINDING & CONCLUSION
Conclusion
Every thing in this world lies at the two extremes Leo Tolstoy S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 74
The case is also true with the insurance companies. The insurance companies also have witnessed the two extremes of nationalization and privatization. Let us look at it with respect to the below discussed points. Insurance sector in India Though the insurance sector does have a great potential ($6.6 Billion by 2008) in India according to the estimates, but the objectives set for the insurance industry were not achieved by the Public Sector companies. Also with the large population of India business in insurance is sure to happen, but till date a considerable slice of the Indian population is hardly able to make both ends meet. In this case it will be difficult for the new insurance companies to approximate the estimations. In addition to the above majority of the Indian population has low disposable income meaning that every penny won will be after a lot of persuasion and the expected value for money will be high. This will require an aggressive sales force. The case is not different in the rural areas. With the IRDA definition of the rural area the companies are moving to the rural areas but still there is a lack of professionals who really can move in the rural areas. Also with the deregulation of the insurance sector many foreign companies have entered the insurance market of India and .many foreign and Indian companies have arranged anticipatory alliances. The threat of new players taking over the market has over played. While nationalized players will continue to hold strong market share position, there will be enough business for new entrants to be profitable.
Opening of the sector will surely mean new products, better packaging and improved customer services. Both new and existing players will have to explore new distribution and marketing channels. Potential buyers for most of this insurance lie in the middle class. New insurers will have to segment the market carefully to arrive at appropriate products and pricing.
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Bancassurance channel Bancassurance is emerging as a major channel of distribution of insurance. The reasons are. 1 2 3 4 It provides face-to-face interaction with the customers. Since customer prefer to deal with bank which are nearby chances of business are more. Also with frequent visits, the customer forms bondage with bank employees so brand loyalty from the customers is high. Also with banks leveraging their existing technology and distribution channels the cost of distribution is less and high savings are achieved by the insurance companies. Conversely there is lack of products in line with the bank and insurance companies. The situation today is that the banks are just selling insurance products of the insurance companies. Banks have yet not tied up with the insurance companies to develop products. If business has to be generated from bank then the banks will have to provide a customized solution which includes fixed deposits and insurance. Also there is lack of sales culture in the bank. There is lot of friction at the level of bank employees and life insurance salespeople due to different philosophies towards selling. Banks are traditionally demand-driven organizations with a reactive selling philosophy and Life insurance organizations are usually need-driven and have an aggressive selling philosophy. Also The bank employees fear cannibalization of deposits i.e. The bank employee fears that sales person
encourages withdrawal of deposits. As a result team spirit is dampened. Thus there is a need to develop a single mission with shared values both for the bank and insurance employees. But this will require a strong commitment from the top officials of the bank and insurance companies. Also with bancassurance comes the challenge of Customer Relationship Management (CRM). Since it will involve collaboration with various entities whose
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demands and powers of negotiation are varied, it will require delicate skills on the part of the insurance companies to manage these relationships. Alternative channels of distribution The tied agent concept lacks the necessary competence and skills to sell insurance. So if the companies have to follow this model then they will have to redefine their strategy with respect to the recruitment of agents. Also with many distribution channels the companies will have to decide a different marketing strategy. In case of internet and direct mail to succeed there is need of simple products which need not be explained. The customers directly walk in and purchase the product and on the spot get the policy. This will require a synergy between the sales person, the under writers, product development personnel etc. Selling and promotion of insurance products Insurance is still sold as a tax planning tool in India. Companies will have to struggle hard to eliminate this mental block. The companies will have to market insurance as an exclusive financial service product if they want to eat the market pie. Agents used to tell and sell the product. In the current situation professional will have to ask and sell. Means that consultative selling has to be done. Commenting on salesmanship whatever written will always be less unless one has a real life experience of it. There are generally three types of people in this world. Those who make things happen. Those who watch things happen And those who wonder what happened! Star professional salesperson throughout the world make things happen. Once in the field sales persons will have to be aggressive because every time sales will be closed he will be capturing a slice of the market share. Pressure is bound to be there. People often say that you have to pay the price of success but in sales we have to pay the price of failure. If we achieve the targets then sky is the limit other S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 77
wise one can afford to enjoy a vacation at Panama. Also as products become more saleable and awareness increases, they become off the shelf, commodity products. The seller moves to remote channels such as telephone and direct mail. In this case simple products with low premiums have to be developed. Till now a top-down product development approach existed (companies create products with features attractive to agents). The focus should change from the above approach to bottom-up approach. The new approach will be a customer and channel driven strategy. A customer and channel driven strategy capitalizes on the existing relationship of trust and familiarity between the banker and branch customer found in bank branches. Also proper segmentation of the market is required. For life insurance mainly two segments can be considered. They are corporate an individuals. The table given below can be a probable segmentation. Benefit Area Protection Term Assurance
Customer segment Individuals
Investment
Savings
Pensions
Single premium Endowment / Pensions plans, bonds/ unit linked policies Money Back annuities Gratuity Superannuation
Corporate
Group term Insurance
Talking about the social feature, there is respect for age in Indian society and a belief that an older person knows better. Thus a young up-market agent who is a sales man may not appeal to a large segment of the middle class. In this context it will good if companies recruit some older people (taken VRS from banks etc) to sell some line of products like pension plans and annuities. Considering the gender differences in the rural areas more and more women should be recruited to address the issues of insurance to women in rural areas.
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Talking about the distribution of insurance in India it is still in flux. On one side the public and private sector companies are still following the traditional agency model and on the other they are resorting to alternative channels of distribution. Well there is no right or wrong in the above. The success of the distribution channel will depend on how well the insurance companies understand the social and cultural needs of the target population, and match the market with suitable intermediary segment. All the intermediaries cant sell all lines of business profitably in all markets. There should be clear demarcation in the marketing strategies of the company from this perspective. Clients should receive price differentials for using different channels. If distribution has to succeed in insurance then the strategy has to be focused on middle and lower-middle segments exclusively. Insurers will have to thinks continuously about the new types of distribution, underwriting, administration, policy issues and delivery, premium collection procedures, customer service strategy and sales approaches. Products will have to be developed which can be offered at the point of sale with coverage. This will require harnessing technology, if the above objectives are to be achieved. Life insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time. A well-regulated life insurance industry which moves with the times by offering its customers tailor-made products to satisfy their financial needs is, therefore, essential if we desire to progress towards a worry-free future.
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Bibliography
Books Denny Richard, Selling to Win, edition 2002, Kogan page India Private Ltd, Page 1620,102- 109.
Web References 1 http:://www.iciciprulife.com/index.html 2 http:://www.iciciprulife.com/Products.html S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT 80
3 http:://einsuranceprofessional.com/Development_of_ insurance_in_India.htm 4 http:://www.mib.com/kd/html/India_Insurance_Market.html 5 http:://indiainfoline.com/Alternative_channels_of_Insurance _distribution.html 6 http:://www.bimaonline.com/ articles/bancassurance.html 7 http:://indiainfoline.com/ distribution models.htm 8 http:://www.einsuranceprofessional.com/artsing.htm 9 http:://insureprofessional.com/strategy_for_bancassurance.html 10 http:://www.iciciprulife.com/ipru/vision.jsp
Other References 11 2004 Life Convention Birmingham 12 Sigma Report, 2000 13 Economic times, August 27th 2004 14 IRDA Journal 2002 15 IRDA journal May 2004 16 Aviva Life insurance 17 Financial Daily from THE HINDU group of publications Thursday, Jul 03, 2003 18 U.S. Department of State FY 2004 Country Commercial Guide: India
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AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

GDP - Decadal growth rates

5.6% 3.9% 3.7% 3.2%

1970-71 1980-81 1990-91 Decade ending

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

Young Married with Children

Married with Older Children

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

1.3.2 FUNDAMENTAL PRINCIPLES OF INSURANCE

Contract of Life Insurance:

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

2.1 The topic of Study

2.2 Objectives of the study

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

2.4 Research instrument

2.5 Sampling plan and contact methods

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AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

FINDINGS opportunity. time.

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

S.K.PATEL INSTITUE OF COMPUTER & MANAGEMENT

AGENCY RECRUITMENT AND CHANNEL MANAGEMENT OF INSURANCE INDUSTRY

Banc assurance opportunity

Bank Savings Accounts US$110 bln 33%

Mutual Funds US$23 bln 7%