Marketing of Financial Services Part 2

Amity Business School
MARKETING OF FINANCIAL SERVICES

Module II Insurance
Ramesh Bagla
Introduction
Insurance is pooling of risks. In a contract of Insurance, the Insurer (insurance company) agress/undertakes, in consideration of a sum of money (premium), to make good the loss suffered by the insured against a specified risk such as fire or compensate the insured/beneficiaries on the happening of a specified event such as accident or death.
Introduction
Two parties to an insurance contract:
I. Insurer/assurer/underwriter II. Insured/assured/beneficiary
The document laying down the terms of the contract is called Insurance Policy The property which is insured is called the subject matter of insurance The interest that the insured has in the subject matter is called insurable interest
Advantages of Insurance
Providing Security Spreading Risk Promotes Savings Source for Capital Formation Tax Savings
Nature of Insurance
Risk sharing and risk transfer Co-operative device Risk assessment in advance Compensation at the occurrence of contingency Amount of payment depends upon the actual loss Huge no. of Insured persons It is very different from charity or gambling
Types of Insurance
Life Insurance
Term Policy Whole Life Policy Endowment Annuities Unit Linked Policy Group Life Insurance
Meaning of Life Insurance

The life branch of insurance includes insurance that pays benefits on a persons: - Death - Living a certain length of time - incapacity - injury or incurring a disease
Basic elements of a life Insurance Policy

Risk Cover benefit payable in the event of death/incapacity Saving benefit payable in the event of survival.
Term Life Insurance Plans

It gives protection for a limited number of years at the end of which the policy expires, meaning it terminates with no maturity value. The face value of the policy is payable only if the insureds death occurs during the policy period. Such policies can be issued for as less as 1 year, but conventionally are being issued for a number of years. Types of Term Insurance
Level Term Insurance Decreasing Term Insurance Increasing Term Insurance Renewable Term Insurance Convertible Term Insurance Term Insurance with Return of Premium
Whole Life Insurance Plans

The risk is covered for the entire life, no policy term is specified The sum assured is paid to the nominee only on the death of the insured Premiums have to be paid throughout the life of the insured or for a shorter period as per the terms of the conract There is no survival benefit
Endowment Insurance Plans

Pure endowment insurance is a plan in which the benefit is payable to the insured only on survival after the specified term. Endowment policies which combine the features of pure endowment and term insurance, pay the assured sum either on the death of the assured or after a fixed term. Thus, claims under an endowment policy may arise either on death or on maturity
Annuities
Annuity is a form of pension in which an insurance co. makes a series of periodic payments to a person(annuitant)/his dependents over a number of years (term)in return of a payment either in lumpsum or in instalments Types of annuities
Immediate Annuity Deferred Annuity
Unit Linked Insurance Policy(ULIP)

ULIP combines the benefits of insurance protection and return on investment in managed fund Each premium paid by the insured is split in 2 parts
Premium for insurance cover Investment in mutual funds units
Group Life Insurance Products

Group Insurance covers a similar/ homogeneous group of individuals under a single Master Policy It is normally taken by an employer, a labour union or a voluntary association Individuals covered in the Group Insurance Scheme are not parties to the Insurance Contract
Types of Insurance
Non Life/General Insurance
Fire Marine Motor/Accident Health/Medical Liability
Features of General insurance

Policy cover for absolute value Normally annual contracts Insurable interest is of prime importance Insurance can be taken for self or thirdparty The sum assured is the actual/assessed value
Fire Insurance
Fire Insurance provides for financial loss due to fire and other specified hazards Examples of property covered under Fire Insurance
Buildings & their contents Goods in the open Dwellings & their contents Furniture/fixtures/fittings Pipelines located inside/outside buildings/compounds
Fire Insurance
Examples of fire hazards covered under a typical fire insurance policy
Fire Explosion/implosion Aircraft Damage Lightening Riots,Strikes,malicious and terrorism damage Impact damage Subsidence & lanslide incl road slides Missile testing operations Flood, earthquake, storm, tempest, tornado,cyclones Bursting of water tanks, apparatus and pipes
Marine Insurance
Two broad components
Hull Insurance provides insurance of the carrier of goods Cargo Insurance provides cover for losses that could occur to goods in transit on sea, rail road and air
Marine Insurance Act (MIA) 1963, provides the legal framework i.e. details of the conditions of the marine insurance policy
Motor/Accident Insurance
Statutorily mandated under the Motor Vehicles Act, to take care of those who may get injured in an accident. The insurance of damage to the vehicle is not mandatory Liabilities normally covered are
Any liability arising in respect of death/bodily injury to any person incl. the owner of the vehicle Any liability arising in respect of damage to any property of a third party Any liability arising in respect of death/bodily injury of any passenger of a public vehicle Any liability arising under workmens compensation act for injury to a paid driver/conductor
Health/Medical Insurance
It covers mainly two types of benefits
Reimbursement of medical expenses related to specific diseases Hospitalisation
Types of Policies available

Individual Mediclaim Policy Group Mediclaim Policy Cancer Insurance by ICS & CPAA Overseas Medical cover
Liability Insurance
Liability Insurance covers
Employee liabilities Employee state insurance liability Non industrial risks Professional liabilities Product liabilities
Micro Insurance
Micro-insurance is the insurance for the lowincome groups It is different from insurance in general inasmuch as it is a low value product (involving modest premium and benefit package) which requires different design and distribution strategies such as premium based on community risk rating (as opposed to individual risk rating),
Micro Insurance
There is an active involvement of an intermediate agency representing the target community Micro Insurance is fast emerging as an important risk covering tool for the lowincome people engaged in wide variety of income generation activities, and who remain exposed to variety of risks mainly because of absence of cost-effective risk hedging instruments.
Miscellaneous Insurance
Loss of profit Engineering construction all risk, industrial all risk, machinery breakdown etc. Apart from standard covers, General Insurance Companies also offer customized or tailor-made policies based on the personal requirements of a customer.
Legal Framework for Insurance Sector

The main acts governing insurance are
The Insurance Act 1935 IRDA Act 1999 IRDA (micro- insurance) Regulations 2005
IRDA
Insurance Development & Regulatory Authority(IRDA) was constituted under IRDA Act 1999, with the following objectives: To protect the interests of the policyholders To regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.
Composition of IRDA
The Authority is a ten member team consisting of A Chairman Five whole-time members Four part-time members - all appointed by the Government of
India
Duties, Powers and Functions of IRDA

(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; (b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; (c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;

(d) specifying the code of conduct for
surveyors and loss assessors; (e) promoting efficiency in the conduct of insurance business; (f) promoting and regulating professional organisations connected with the insurance and re-insurance business; (g) levying fees and other charges for carrying out the purposes of the IRDA Act;

(h)calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business; (i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);

(j) specifying the form and manner in which books of
account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; (k) regulating investment of funds by insurance companies; (l) regulating maintenance of margin of solvency; (m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;

(n) supervising the functioning of the Tariff Advisory Committee; (o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f); (p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and (q) exercising such other powers as may be prescribed.
Insurance Ombudsman
The position of Insurance Ombudsman was created by a Government of India Notification in November 1998. The main function of the Ombudsman is to quickly dispose of the grievances of insured customers and lessen the problems involved in redressing complaints. This institution is vital and relevant to protect the interests of policyholders and also shape their belief in the system. The existence of an Insurance Ombudsman has helped generate and sustain faith and confidence amongst both consumers and insurers alike.
Insurance Ombudsman
Ombudsmen are chosen from various fields such as the Civil Services, Insurance Industry and Judicial Services. They are appointed for a term of three years or till they turn sixty-five years of age. Currently there are twelve Insurance Ombudsmen appointed in different parts of the country. They all have defined jurisdictions.
Risk management
At the most general level, risk is used to describe any situation where there is uncertainty about what outcome may occur. Risk can be thought of as : - Expected Risk - Unexpected Risk.
Risk Management
Risk may be defined as the possibility that a future occurrence may cause harm or losses Risk may also provide opportunities. By taking risks, companies sometimes achieve considerable gains. However, companies need Risk management to analyze possible risks in order to balance potential gains against potential losses and avoid expensive mistakes. Risk management is best used as a preventive measure rather than as a reactive measure. Companies benefit most from considering their risks when they are performing well and when markets are growing in order to sustain growth and profitability.
Types of Risks
Material Risk- Building, Plant & Machinery,Furniture,Fixtures,fittings,Stocks. Consequential Risk- Loss of production, Loss of profit, Loss of market, Good will. Social Risk Loss of reputation/Social Status Legal Risk- Product liability, Public liability. Political Risk- Subsidies, Sanctions etc.
Types of Risk facing Business

Business Risk
Price Risk
Credit Risk
Pure Risk
Commodity price risk
Exchange rate risk
Interest risk
Damage to assets
Legal Liability
Worker injury
Employee benefits
Types of Risk facing individuals

Personal Risk
Earnings
Medical expenses
Liability
Physical assets
Financial Assets
Longevity
Risk Management
Risk management process: 1. Establish the context and Identify the risks 2. Evaluate the potential frequency and severity/magnitude of loss 3. Develop and select methods for managing the risks 4. Implement the chosen methods 5. Monitor the performance of chosen methods and develop strategies on an ongoing basis.
Marketing Mix Strategy for Insurance

Product
Scan Existing Products/services offered by domestic & international Insurance Cos. Identify Segments & Services not covered rural & unorganised sector Design innovative products having strong USPs for the needs of target segment complying with environmental and regulatory conditions Strong product positioning

Price
In the insurance business, the pricing decisions are concerned with:
Premium Interest for default in premium payment Commission payable to intermediaries
Pricing to take care of the nature of risk coverage, paying capacity of the target segment and commercial viability

Place
Location of the insurance branches should ensure:
Coverage of target segment Smooth accessibility Availability of infrastructural facilities Safety and security
Personal selling is the most effective way for selling of insurance products. An insurance agent should have:
Local orientation Thorough knowledge of products and services Never say die attitude High level of motivation and service aptitude Personal selling is the most effective way for selling of insurance products

Promotion
Advertisement
Choice of media print/television/radio/internet Visuals & Copy effective communication of USP to the target audience Cost effectiveness Support to product positioning
Publicity
Focus on target segment Projecting the image of socially responsible customer caring organisation Organisation of camps & events Demonstration/articulation of product benefits

Promotion
Word of mouth
Influencing the opinion leaders Aiming for customer delight for positive word of mouth Strong service recovery mechanism to check negative word of mouth Happy channel partners do make a difference
Sales promotion
Thoughtful Freebies to customers & agents Rebates/discounts/bonus Free add-on features in policies

Process
Well defined processes and service standards for underwriting, processing & settlement of claims Strong process orientation of Agents and staff at all levels Regular mapping of service delivery against the service standards to identify and rectify the service quality gaps Continuous technology upgradation for process revamping and better service delivery

People
Most important component of marketing mix for the insurance industry Behavioral profiling at the time of recruitment to ensure that front line staff and agents have strong service aptitude and customer orientation Regular training and knowledge updation of insurance personnel to ensure that they understand the changing levels of customer expectations

Physical evidence
Company logo and signage should personify and convey the company policy and ethos Product information brochures must furnish all important information in easy and lucid language and should contain answers to FAQs Office interiors and staff disposition must create a warm and customer friendly environment
Marketing Channels in the Insurance Sector in India

In today's scenario, insurance companies have moved from selling insurance to marketing an essential financial product. The distributors have to become trusted financial advisors for the clients and trusted business associates for the insurance companies. This has been the result of : - enhanced customer exposure - increased competition - evolution of newer channels of distribution

The distinction of channels is based on: - personal distribution systems - direct response systems Personal Distribution Systems agents, brokers,
corporate agents such as bancassurance, and worksite marketing channels
Direct response systems channels wherein

customer purchases insurance directly. These channels utilize media channels like Internet, telemarketing, direct mail, call centers, etc

Traditionally tied agents have been the primary channels. However, with growing impact of IRDA and competition, alternative channels are not only being considered but also heavily focused upon.
Agents
An insurance agent solicits/procures insurance business for an insurer in consideration for a commission A license must be obtained from IRDA to act as an insurance agent Today's insurance agent has to know which product will appeal to the customer, and also know his competitor's products in the same space to be an effective salesman who can sell his company, the product, and himself to the customer
Brokers
An insurance broker is an independent insurance agent who works with many insurance companies to find the best available policies for his/her clients. A typical insurance agent works for one specific company, and chooses from within that company's policies for clients. An insurance broker is different from the typical agent in this regard, the two are otherwise similar. Both structure policies, settle claims, and usually work on a commission basis. The main eligibility criteria to become a direct insurance broker is minimum a bachelors degree and a capital of Rs.50lac
Brokers
Functions of a Broker
obtaining detailed information of the client's business and risk management philosophy rendering advice on appropriate insurance cover and terms maintaining detailed information base of available insurance products providing requisite underwriting information as required by an insurer in assessing the risk to decide pricing terms and conditions for cover submitting quotation received from insurer/s for consideration of a client
Brokers
providing services related to insurance consultancy and risk management assisting in the negotiation of the claims maintaining proper records of claims
Bancassurance
'Bancassurance', is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products Bank staff and tellers, rather than an insurance salesperson, become the point of sale/point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training. Both the bank and insurance company share the commission. Insurance policies are processed and administered by the insurance company.
Internet and call centers

Insurance companies have portals and call centres to sell insurance on the Net These channels are predominantly used for selling personal insurance products However, these channels have had only limited success in India The variety and complexity of the insurance product does not make it easily amenable to on-line sale The commercial/industrial client require the services of an intermediary.It is also increasingly being realised that technology can be used only for policy servicing and not for actual sales.
Internet and call centers

In India, the levels of penetration are not high at the moment Even all those who have access to the Internet have not started transacting on the Net for fear of security breaches
Marketing Strategies in Indian Insurance Sector

Value For Money
Sea change in the way the basic insurance products are packaged Insurance products are innovatively tailor made to provide a bundle of desired benefits to the customers This is done through the introduction of riders, which have added value to the risk cover at minimal cost. Riders are nothing but add-ons coming along with the base policies for a slightly additional premium

Tapping the Niche Markets
Private insurers are concentrating on designing attractive products by investing heavily on research - studying life expectancy and health statistics across age groups, income levels, professionals and regions on their own instead of relying on data with state insurers The products are designed with a technical team of actuaries and a product development team working closely together to target the niche market. The innovations for the niche markets are abound

The segments, which have attracted almost all the players, are the women and the children segments. Though the State insurer has had these products sufficiently for a longer time, it faces stiff competition from the private players in these segments.

Tata AIG has offered a specialized life insurance package where the insured and the employers of the insured have a say in it . Termed as Worksite Marketing, AIG, which has adopted this practice in different places across the world, is spreading the concept in India too. Worksite Marketing is a distribution method used to offer voluntary insurance products (employee benefits) to employees at their place of work with the sponsorship or backing of their employer, traditionally done on a deduction from the payroll. The policyholder carries the policy with himself throughout his life, even if it happens to change the organizations.

Tata AIG General Insurance, for the first time in the country, has also launched a specialized product for Accountants after the success with specialized products such as Directors and Officers policy in India, in its bid to segment the market for professional indemnity policies The policy has been designed with the assistance from Bombay Chartered Accountants Society. This policy covers claims pertaining to professional mistakes committed in the performance of duties. It also provides for coverage of all legal expenses incurred in defending such claims

Thrust to the rural markets
Towards ensuring equitable distribution of insurance policies in every corner of the country, IRDA stipulates the rural obligations to be met by the players over the years. The rural obligation on part of the new private insurance companies is incremental in nature. It goes from 5% to 15% over the period of 5 years for life insurance and from 2% to 5% in case of general insurance. IRDA has also defined what it meant by rural 1. The place should have a population of less than 5000 2. Secondly, the density of the population should be less than 400 persons per square kilometer. 3. 75% of the male population should be engaged in agricultural pursuit.

Tapping unconventional distribution channels
All the players depend heavily on their agents force to reach out - LIC has reached a figure of 8,50,000 agents and planned to increase it to 1 million Now they are trying out other distribution channels also, like corporate agents such as banks, internet and call centers for direct marketing

Marketing of Financial Services Part 2

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Marketing of Financial Services Part 2

Uploaded by

Copyright:

Available Formats

Amity Business School