Projects: Life Insurance

PROJECT FINAL REPORT ON position assembly line determine of restitution companies competitive strategies BY SUBODH GUPTA (07BS4336) SBI keep damages Comp each trammel Summer Internship Project (Batch of 2009) PROJECT TITLE Agency business molding of damages companies competitive strategies A line submitted in partial fulfillment of the exigencys of MBA program COMPANY GUIDE FACULTY GUIDE Mr. Suresh Kumar V. Prof. T. N. Ramakumar DSM, Cali deal branch ICFAI Business SchoolKOCHI SUBMITTED BY SUBODH GUPTA (07BS4336) Certificate This is to plunk for that the stomach report entitled Agency business bewilder of redress polity companies competitive strategies at SBI c areer policy Company Limited is a bonafide record of drill done by Subodh Gupta, and submitted in partial fulfillment of the requirements of MBA program of ICFAI Business School, Kochi. Prof. T. N. Ramakumar Faculty Guide IBS kochi TO WHOMSOEVER IT MAY CONCERN This is to certify that Mr.Subodh Gupta, doing MBA at ICFAI Business School, Kochi has done a see to it entitled Agency business model of damages policy companies competitive strategies at SBI Life insurance union Limited, Calicut Branch from February 22, 2008 to May 24, 2008. From SBI Life Insurance Company LTD. Mr. Suresh Kumar V. Divisional Sales Manager Calicut Branch Declaration I hereby decl be that this report on Agency business model of amends companies competitive strategies has been written and prepargond by me during the academic year 2008-2009.This project was done infra the able management and supervision of Prof. T. N. Ramakumar, Faculty, ICFAI Business School and Mr. Suresh Kumar V. , DSM, SBI Life Insurance Company Ltd. , Calicut in partial fulfillment of the requirement for the Master Of Business Ad miniskirtstration compass point fall of the ICFAI Business School. I also decl ar that this project is the result of my own swither and has not been submitted to any opposite institution for the award of any Degree or Diploma. Place Kochi Subodh Gupta 07bs4336 Ack presentlyledgementsIf words are considered to be signs of gratitude then let these words convey the very same My sincere gratitude to SBI Life for providing me with an opportunity to work with SBI Life and big(a) necessary directions on doing this project to the best of my abilities. I am passing indebted to Mr. Suresh Kumar V. , Divisional Sales Manager and caller project guide, who has domiciliated me with the necessary in tuneation and also for the support go awayed stunned to me in the completion of this report and his valuable suggestion and comments on strikeing out this report in the best way possible.I also thank Prof. T. N. Ramakumar, ICFAI, Kochi, who has sincerely supported me with the valuable insights into the completion of this project. I am grateful to all cleverness members of ICFAI, Kochi and my friends who control helped me in the successful completion of this project. I extend my hearfelt th anks to Mr. Sukumaran, territory manger, Mr. Sunil K. Menon, unit bus, and Mr. Vinod P. , unit manager, to help me during this project. Contents Sr.No. Subjects deny Pages 1. Project Proposed 9 11 1. 1 Objective of the project 1. 2 Methodology 1. Sampling 1. 4 Limitations 2. Introduction 12 16 2. 1 commentary of amends 2. 2 Functions of amends policy 2. 3 Definitions of conduct indemnification 2. 4 Role of liveliness amends 2. 5 coarseness of deportment indemnity 3. Agency business model 17 19 3. Insurance agencies 3. 2 Functions of delegation manager 3. 3 Operational work of restitution deputation 4. Indian redress manuf guessuring 20 27 4. History 4. 2 IRDA 4. 3 Changing perception of customers 4. 4 Changing face of Indian brio damages sedulousness 4. Possibilities 5. Global insurance industry 28 29 6. Functioning of insurance industry 30 36 6. 1 Insurers business model 6. 2 enthronization managemen t 6. Key ratios and terms 6. 4 Requirements of an insurance try 6. 5 mingled types of insurance outputs 7. Insurance and miserliness 37 39 8. SBI Life insurance company 40 42 9. Distribution of insurance crossway 43 46 10. Effective securities industry strategies for insurance companies 47 52 11. Competitors of SBI Life 53 62 12. parity of ULIP products 63 69 13. Questioner 70 71 14. Conclusions and findings 72 91 15. Recommendations 92 1. Project proposed Agency business model of different insurance companies- competitive strategies. Different agencies of different insurance companies are having some strategies to survive in the trade. Their strategies may be in the form of How they target their customers. How they make their advisers active. How they make their operative and sales department effective. How they promote their employees. How they handle the conflict in manner. Objective of the project Main objective of the project is t o find out the strategies of different insurance agencies and evaluate them. Project is about to penetrate the competitors of SBI life. Conclusion of this project tramp reach out an idea of strategies of different companies which may be helpful to the company. Now daylights all the insurance companies in India are trying to establish themselves in the competitive mart. They are introducing innovative selling strategies to survive in the food market.Many other private companies are looking to enter in the Indian insurance market . so it is very natural to a company to innovate their marketing strategies in terms of Recruiting their advisors To make their advisors active Well educated and capable employee in the substance merchandising of their products Deployment of their products Targeting the correct and potential customers Differentiating from other companies Future plan of the company This study consists of to find out the marketing strategies of different insuran ce companies which are the competitors of SBI Life insurance.This inquiry requires the call into question of branch managers of different insurance companies and find out their branches are working in terms of above mentioned factors. Methodology Research is totally based on primary data. Secondary data provide be used just now for the reference. Research has been done by primary data collection, and primary data has been roll up by meeting with the branch and chest of drawers manager of different insurance agencies and branches in Calicut. Data collection has been done done with(predicate) by giving organise questioner. Research has been done after 27 branch managers or agency manager.This study will be based on judgment sampling and this research is skewed to organization level. This is an exploratory type of research. And this research requisites further study also Research is a kind of pilot study. Sampling prove size has been taken by judgment sampling. Judgment sa mpling is a process in which the choice of a unit, from the population is based on the pre judgment. This research requires the survey of different insurance agencies in Calicut city. So research concent range on the branch or agency manager of different insurance companies. So the selection of unit for this research has been judged by the researcher.Sample size for this research is 27. Limitations term limitation Research has been done precisely in Calicut. Companies did not disclose their secrets data and strategies. Possibility of Error in data collection. Possibility of Error in analysis of data due to small sample size. 2. Introduction The story of insurance is probably as old as the story of mankind. Tendency of a human cosmos to secure themselves against loss and disaster has been from the starting of arena. They sought to turn away the evil consequences of fire and flood and loss of life and were free to make some sort of sacrifice in order to achieve certificat ion.Though the fantasy of insurance is largely a exploitation of the recent medieval, particularly after the industrial era past few centuries yet its arisings date support close to 6000 age as per records. Insurance business is divided into four classes Life Insurance Fire Marine Miscellaneous Insurance. Insurance provides Protection to investor. Accumulation of nest egg. Channeling these nest egg into sectors needing spacious long term investment. Functions of insurance Provide protection The primary function of insurance is to provide protection against future attempt, accidents and un induction.Insurance tailnot check the hazard of the assay, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others. Collective military capability of risk Insurance is an instrument to share the financial loss of few among many others. Insurance is a mean by which few losses are shared amo ng big number of pack. All the see contribute the premiums towards a stock certificate and out of which the persons exposed to a particular risk is stipendiary. Assessment of risk Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. risk of exposure is the basis for determining the premium rate also. Provide certainty Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain. Small seat of government to coer bigger risk Insurance relieves the businessmen from security investments, by paying small measurement of premium against larger risks and uncertainty. Contributes towards the development of industries Insurance provides development opportunity to those larger industries having more risks in their setting up.Even the financial institutions may be prepared to give impute to sick industrial units which have insured their assets inc luding plant life and machinery. Means of nest egg and investment Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insureds For the purpose of availing income-tax exemptions also, quite a little invest in insurance. Source of earning foreign exchange Insurance is an international business. The country can earn foreign exchange by way of fare of marine insurance policies and various other ways. Risk free trade Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies chthonian marine insurance cover. Life insurance Life insurance is a contract under which the insurer (Insurance Company) in Consideration of a premium paid undertakes to pay a fixed sum of money on The ending of the insured or on the expiry of a specified period of age Whichever is earlier. In case of life insurance, the payment for life insurance policy is certai n. The Event insured against is sure to happen only the time of its happening is not known. So life insurance is known as Life Assurance.The subject matter of insurance is life of human being. Life insurance provides risk reportage to the life of a person. On death of the person insurance offers protection against loss of income and compensate the title pallbearers of the policy. Roles of life insurance Life insurance as an investment Insurance products yield more than any other investment instruments and it also provides added incentives or bonus offered by insurance companies. Life insurance as risk cover Insurance is all about risk cover and protection of life. Insurance provides a unique sense of security that no other form of invest can provide. Life insurance as tax planning Insurance serves as an excellent tax saving mechanism too. Importance of life insurance- Protection against untimely death Life insurance provides protection to the dependents of the life insured an d the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured. Saving for old age After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age. Promotion of savings Life insurance encourages people to save money compulsorily. When life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him. In case of surrender of policy, the policyholder gets the surrendered value only after the expiry of distance of the policy. Initiates investments Life Insurance Corporation encourages and diffuses the public savings and canalizes the same in various investments for the economic development of the country.Life insurance is an of import tool for the mobilization and investment of small savings. Cre dit worthiness Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business. complaisant Security Life insurance is important for the society as a solely also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future. Tax Benefit nether the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C. 3.Agency business model In India insurance is sold done mainly four dribbles. through with(predicate) branch Through agency Through financial institution Through banks Independent agency system means of interchange and servicing property and hap insurance through agents who represent different companies. The agents own the records of the policies they sell. Insurance is now governed by a blend of statutes, administrative agency regulations, and court decisions. State statutes a goo d deal control premium order, prevent unfair practices by insurers, and guard against the financial insolvency of insurers to protect insureds.In most states, an administrative agency created by the state general assembly devises rules to cover procedural details that are missing from the statutory framework. To do business in a state, an insurer essential obtain a licence through a registration process. This process is usually managed by the state administrative agency. The same state agency may also be supercharged with the enforcement of insurance regulations and statutes. Administrative agency regulations are many and varied. Insurance companies must submit to the establishment activity agency yearly financial reports regarding their economic stability.This requirement allows the agency to anticipate potential insolvency and to protect the fills of insureds. Agency regulations may specify the types of insurance policies that are acceptable in the state, although many sta tes make these declarations in statutes. The administrative agency is also responsible for reviewing the competence and ethics of insurance company employees. Insurance agencies Insurance agency can be defined as a theme of insurance agents or advisor. These agents or advisors create a dispersion channel to sell the different insurance products.These advisors are the blind drunkest scattering channel for an insurance agency. An advisor or agent works as a third party or intermediate among insurance company and customers. All the advisors in an agency work as a team. Main work of insurance advisor or agent is to promote and sell different insurance products of company. Functions of agency manager a person who governs a group of insurance advisors is known as agency manager. Success of an agency manager depends on the success of their advisors. work of agency manager is to control the advisors in an high-octane way.Agency manager is ilk a creature of two wings. He has to recrui t advisors as well as to give sales to the insurance company. To recruit advisors. Make them aware of different insurance products. To give them study session. To motivate them for efficient work. To get maximum and efficient work from their advisors. Operation work of insurance agency (SBI Life) Every industry has an operational department which supports the market division. Front office partners (independent agents) Develop insurance products advance productCUSTOMERS Plan and manage company BUSINESS PARTNERS Fulfill and work product Claims Back office provider Regulatory institutions In the reference to the SBI Life insurance, development of insurance products, distribution, planning services products and claims are taken care by the head office. Back office providers are those persons who take care of the operational part of the organization and front office providers are the people who brings sell to the organization. Back office has its own hierarchy which is connected to head office, and every policy has to be processed to head office.Unit for the operations is known as processing centre, and processing centre within the city is known as mini processing centre. Proposal forms come through front office and the verification of the proposal is done by manually which is known as exam. After scrutiny the operational staff enters it in SBI Life website, which is done online. the entry of a proposal is done in a sequential order starting with scrutiny, inwards, proposal wise inwards, cashier entry, cashier entry approval, data entry and finally outwards.After finishing all these operations policy issues from the head office of the state. 4. Indian insurance industry History Life insurance came to India from England in 1818 when oriental life insurance company started in Calcutta by Europeans. After this many insurance companies had been started in India. But these companies were looking after only the needs of European community established in India. Indian people were not being insured by these companies. First Indian life insurance company came as Bombay mutual life insurance assurance. Second company was Bharat insurance company came in 1896.After this the united India in madras, national Indian and national insurance in Calcutta and the co-operative assurance in Lahore were established in 1906. To regulate Indian insurance business first insurance act came in 1912 as life insurance company act and provident fund act. These acts consist of premium rates tables and periodical valuations of companies. In the first two decade of 20th century many life insurance companies were started. So the insurance act came in 1938 to governing life and non life insurance companies and to provide strict state control. In 1956 the life insurance business in India was nationalized.In 1956 life insurance mint of India (LIC) was created to spreading life insurance much more dewy-eyedly particularly in country areas. In that year LIC had 5 zona l offices, 33 divisional offices and 212 branch offices. In 1957 the business of LIC of sum assured of 200crores, 1000crores in 1970, and 7000crores in 1986. Indian regulatory development authority In 1999, the Insurance Regulatory and maturation Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000.The tonality objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on i nsurance business to protection of policyholders interests.Role of IRDA Protecting the interests of policyholders. Establishing guidelines for the operations of insurers, and brokers. Specifying the code of conduct, qualifications, and training for insurance intermediaries and agents. Promoting efficiency in the conduct of insurance business. Regulating the investment of funds by insurance companies. Specifying the percentage of business to be written by insurers in rural sectors. Handling disputes take careween insurers and insurance intermediaries. Changing perception of Indian customersIndian Insurance consumers are like Indian Voters, they are squishy but when time is right and ripe, they demand and seek necessary changes. De-tariff of many Insurance Products are the reflection of ever-changing aspirations and growing demand of Indian consumers. For historic years, Indian consumers were at receiving end. Insurance Product was underwritten and was practically forced onto consumers on a Take-it-As-it-basis. All that got changed with passage of IRDA act in 1999. New insurance companies have come into existence tether to open competition and hence better products for customers.Indian customers have become very sensitive to Coverage / Premium as well as the Products (read Risk Solution), that is given to them. There are not ready to accept any product, no matter even if that is coming from the market leader, should that product is not serving the purpose. A case in point is ULIP Product / host Life and Credit Life in Life Insurance segment and Travel / Family Floater Health and Liability Insurance in the Non-life segment are new age Avatar. The new products are constantly being demanded by Indian consumers, which is putting huge pressures on Insurance companies (Read Risk Under-writers) and Brokers to respond.Customers are looking at Insurance for covering Pure Risk now which I have cover in my next section. Another good reason why we are seeing quic k changes in the buying style of Insurance from mere Investment to risk mitigation is the cost of Replacement of Goods (ROG) or Cost of Services (COS). Now Indian customers are aware of insurance industry and insurance products provided by companies. They have become more sensitive. They would not accept any type of insurance product unless it fulfills their requirements and needs.In historic days customers looking at insurance products as a life cover which can provide security against any unacceptable events, but now customers look at insurance products as an investment as well as life cover. So todays customers wants good return from the insurance companies. The Indian customers forms the pivot of each companys strategy. Investment of Indian household savings (as a % in different sector) believe DEPOSITS 39% CORP.BANKS 2% SHARES AND DEBENTURES 1% MUTUAL FUNDS 2% NBFCS 3% GOVT.BONDS 13% INSURANCE 13% PF/ RETIRE FUNDS 21% cash 6% Source www. vivaindia. com Changi ng face of Indian insurance industry After the Insurance Regulatory and Development Authority Act have been passed thither has been establishment of many private insurance companies in India. Previously there was a monopoly business for Life Insurance Corporation of India (L. I. C. ) who was the only life-insurance company for the people till 2000. L. I. C. still holds 71. 4% of the market share in 2006. But after the introduction of private life insurance companies there is a great competition in Indian market now.Everyone is trying to capture the fresh market here and penetrate it with aggressive marketing strategies. Today life-insurance is not only limited up to just life risk cover and maturity period bonuses but changed to greater return from the investments. With the introduction of the unit linked insurance policies these companies are investing the money in different investment instruments like shares, bonds, debentures, disposal and other securities. People are demanding for higher returns with the life risk cover and private companies are giving 30-40% fair ingathering per annum.These life-insurance companies have every kind of policies suiting every need right from financial needs of, marriage, giving birth and rearing up a child, his education, meeting daily financial needs of life, pension solutions after retirement. These companies have every aspects and needs of our life covered along with the death-benefit. In India only 25% of the population has life insurance. So Indian life-insurance market is the target market of all the companies who either want to extend or diversify their business.To tap the Indian market there has been tie-ups between the major Indian companies with other International insurance companies to start up their business. The government of India has set up rules that no foreign insurance company can set up their business individually here and they have to tie up with an Indian company and this foreign insurance company ca n have an investment of only 24% of the total start-up investment. Indian insurance industry can be featured by Low market penetration. Ever growing middle class component in population. Growth of customers interest with an increasing demand for better insurance products. Application of information technology for business. Rebate from government in the form of tax incentives to be insured. Today, the Indian life insurance industry has a dozen private players, each of which are making strides in raising awareness levels, introducing innovative products and increasing the penetration of life insurance in the vastly underinsured country. Several of private insurers have introduced attractive products to meet the needs of their target customers and in line with their business objectives. The success of their effort is that they have captured over 28% of premium income in five years.The biggest beneficiary of the competition among life insurers has been the customer. A wide range of products, customer pointed service and professional advice has become the mainstay of the industry, and the Indian customers forms the pivot of each companys strategy. Penetration of life insurance is beginning to cut across socio-economic classes and attract people who have never purchased insurance before. Life insurance is also now being regarded as a versatile financial planning tool. Apart from the traditional term and saving insurance policies, industry has seen the entry and growth of unit linked products.This provides market linked returns and is among the most ductile policies available today for investment. Now products are costd, flexible, and realistic and sustain so people in better position to understand the risk and benefits of the product and they are accepting these innovative products. So it is clear that the face of life insurance in India is changing, but with the changes come a host of challenges and it is only the credible players with a long term vision and a robust business strategy that will survive.Whatever the developments, the future and the opportunities in this industry will surely be exciting. There are 12 private players in Indian life insurance market. 6 bank owned insurers HDFC standard life, ICICI prudential, ING Vysya, MetLife, OM Kotak, SBI life. 6 independent insurers Aviva, ANP sanmar, Birla solarize life, Bajaj Allianz, Max New York life, Tata AIG. Major international insurers are- Prudential and Standard life from UK, Sun life of Canada, AIG, MetLife and New York life of the US. Increasing growth since liberalization course LIC (in bn rs. ) PRIVATE PLAYER FY03 110 10 FY04 120 20 FY05 130 40 FY06 140 60 FY07 240 160 Source Insurance Industry (ICFAI emergence book) Possibilities for insurance companies in India Further deregulation of the market. Greater concern for the customers. Newer products and services. Competition and quality consciousness. Cost effective operations. Restructuring of the pub lic sector. Consolidation of domestic insurance markets. technology driven shift in product design. Actual operations and distribution. Convergence of financial services. 5. Global insurance industry Globally, insurers increasingly are pressured by the demands of their clients. The development of world-wide insurance industry over the past few years was influenced by booming stock markets which enabled considerable capital gains to be made in non life business.Increase in insurers equity capital increased underwriting capacity, while demand did not develop at the same pace, resulting in decrease in insurance policies prices. The stock market boom of the past few years led to demand for unit linked insurance products. The global insurance industry is growing at rapid pace. Most of the markets are undergoing globalization. Lot of mergers and acquisition are taking place in the insurance world. The rapidity in the industry, scientific improvement has resulted in pressures on a f ew economic parameters. The world insurance industry is at peak of its globalization process. Global insurance market is increasing by an average of six percent per year since 1990. Insurance companies have collected $2443. billion premium world wide according to the global development of premium volume in 144 countries in 2005. $1521. 3 has been generated as life insurance premium and $922. 7 as non life insurance premium. The US accounted for 35% of global life and non life premium, Japan had global share of 21%, and UK was having 10% of global share. Influence on Indian insurance industry In this era of globalization, insurance companies face a dynamic global environment. Dramatic changes are taking place owing to the internationalization of activities, demeanor of new risk, new types of covers to match with new risk situations, and unconventional and innovative ideas on customer services.Low growth rates in developed markets, changing customers needs, and the uncertain economic conditions in the developing world are exerting pressure on insurers resources and testing their ability to survive. Now the existing insurers are facing difficulties from non-traditional competitors those are entering the retail market with new memory accesses and through new channels. India has a rapidly growing middle class and this section can afford to buy insurance products. This shows the attraction that the Indian market holds for foreign insurers who have been putting pressure on developing countries as well as on India to open up its market. Life insurance penetration as a % of GDP United kingdom 8. 9% Japan 8. 3% Korea 7. 3% United states 4. 1% Malaysia 3. 6% India 3. % China 1. 8% Brazil 1. 3% Source www. indianinsuranceresearch. com 6. Functioning of insurance industry Insurers business model Profit = earned premium + investment income incurred loss underwriting expenses Insurers make money in two ways (1) through underwriting, the processes by whi ch insurers select the risks to insure and go under how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insured.The most difficult aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurers overall motion-picture show.Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insu rers underwriting profit on that policy. An insurers underwriting performance is measured in its unite ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the companys feature ratio. The combined ratio is a reflection of the companys overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Insurance companies also earn investment profits on float. Float or available reserve is the amount of money, at hand at any given moment that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out. . Naturally, the float method is difficult to carry out in an economically depr essed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy broadly speaking means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting or insurance cycle. Finally, claims and loss handling is the materialized utility of insurance.In managing the claims-handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. Investment management Investment operations are ofttimes considered incidental to the business of insurance, and have traditionally viewed as secondary to underwriting. In the past risk management was the most important part of business, whereas today the focus has shifted to fund management. Investment income is a large component of insurance revenues, skilful and careful management of funds. Insurance is a business of large numbers and generates huge amount of funds over time.These funds arise out of policyholder funds in the case of life insurance, and technical and free reserves in the non-life segments. Time lag between the procurement of premium and the payment of claim provides an interval during which the funds can be deployed to generate income. Insurance companies are among the largest institutional investors in the world. Assets managed by insurance companies are estimated to account for over 40% of the worlds top ten asset managers. Returns on investments influence the premium rates and bonuses and hence investment income will continue to be an important component of insurance company profits. In life insurance, benefits from insurance profits accrue today to policy holders when it is passed on to him in the form of a bonus.In non life insurance the benefits are indirect and mostly by the creation of an investment portfolio. Investment income has to compensate for underwriting results which are increasingly under pressure. In the case of insurance, the difference between revenue and the expenses is known as operating surplus. Revenue =premium. Expenses =sum of claims + bang payable on procurement of business + operating expenses. Operating surplus =revenue-expenses. Net investment income includes income from trading in and holding stock market securities including government securities, special deposits with the central government, loans to several public utilities and service providers in state government.Insurance premium collected is converted in a pool of fund then divided in to four expenses. To pay the expenses of the management. To pay agency commission. To pay for the claims. Surplus money will be invested in govt. securities. Requirements of an insurance risk Insurance normally insure only pure risks . However, not all pure risk is insurable . certain requirements usually must be fulfill before a pure risk can be privately insured . From the view point of the insurer, there are ideally six requirement of an insurable risk There must be a large number of exposure units The loss must be accidental and unintentional. The loss must be determinable and measurable. The loss should not be catastrophic. The chance of loss must be calculable. The premium must be economically feasible Comparison of Insurance with other Similar Factors 1) Insurance and gambling compared Insurance is often erroneously confused with gambling . There are two important differences between them . First ,gambling creates a new speculative risk ,while insurance is a technique for handling an already existing pure risk . thus ,if you bet Rs 300 on a horse ,a new speculative technique is created ,but if you pay Rs 300 to an insurer for fire insurance ,the risk of fire is already present and is transferred to the insurer by a contract. No new risk is created by the transaction.The second difference between insurance and gambling is that gambling is socially unproductive, because the winners gain comes at the expense of the loser . In contract insurance is always socially productive, because neither the insurer nor the insured is dictated in a position where the gain of the winner comes at the expense of the loser. The insurer and the insured have a common interest in the measure of a loss. Both parties win if the loss does occur . Moreover, consistent gambling transaction generally never restore the losers to their former financial position . In contract ,insurance contracts restore the insureds financially in whole or in part if a loss occurs ) Insurance and hedging compared The pattern of hedging is to transferring the risk to the speculator through purchase of future contracts . An insurance contract, however, is not the same thing as hedging . Although both technique are similar in that risk is transferred by a contract, and no new risk is created, there are some important difference between them. First, an insurance transaction involves the transfer of insurable risks, because the requirement of an insurable risk generally can be met . However, hedging is a technique for handling risks that are typically uninsurable ,such as protection against a decline in the price agriculture products and raw materials.A second difference between insurance and hedging is that insurance and hedging is that insurance can reduce the objective risk of an insurer by application of the law of large numbers. As the number of exposure units increases, the insurers prediction of future losses improves, because the relative variation of actual loss from expected loss will decline . thus, many insurance transactions reduce objective risk. In contract, hedging typically involves only risk transfer , not risk reduction . The risk of adverse price fluctuation is transferred because of superior knowledge of market conditions . The risk is transferred, not reduced, and prediction of loss generally is not based on the law of large numbe rs. Various types of life insurance policies- Endowment policies This type of policy covers risk for a specified period, and at the end of the maturity sum assured is paid back to policyholder with the bonuses during the term of the policy. Money back policies This type of policy is for periodic payments of partial survival benefits during the term of the policy as long as the policy holder is alive. Group insurance This type of insurance offers life insurance protection under group policies to various groups such as employers-employees, professionals, co-operatives etc it also provides insurance coverage for people in certain approved occupations at the lowest possible premium cost. Term life insurance policies This type of insurance covers risk only during the selected term period.If the policy holder survives the term, risk cover comes to an end. These types of policies are for those people who are unable to pay larger premium required for endowment and whole life policies. No surrender, loan or paid up values are in such policies. Whole life insurance policies This type of policy runs as long as the policyholder is alive and is covered for the entire life of the policyholder. In this policy the insured amount and the bonus is payable only to campaigner on the death of policy holder. Joint life insurance policies These policies are similar to endowment policies in maturity benefits and risk cover, but joint life policies cover two lives simultaneously such as married couples.Sum assured is payable on the first death and again on the death of survival during the term of the policy. Pension plan a pension plan or annuity is an investment over a certain number of years but does not provide any life insurance cover. It offers a guaranteed income either for a life or certain period. Unit linked insurance plan ULIP is a kind of insurance plan which provides life cover as well as return on premium paid over a certain period of time. The investment is denote d as units and represented by the value called as net asset value (NAV). 7. Insurance and economy Indian economy is growing in reference to global market. Business of insurance with its unique features has a special place in Indian economy. It is a highly specialized technical business and customer is the most concern people in this business, therefore this business is able to spur the growth of basis and act as a catalyst in the overall development of Indian economy. The high volumes in the insurance business help spread risk wider, allowing a lowering of the rates of the premium to be charged and in turn, raising profits. When there is a bigger base, the probabilities become more predictable, and with system wide risks equilibrise out, profits improve. This explains the current scenario of mergers, acquisitions, and globalization of insurance. Insurance is a type of savings. Insurance is not only important for tax benefits, but also for savings and for providing security. It can be serving as an essential service which a welfare state must make available to its people. Insurance play a polar role in the commercial lives of nations and act as the lubricants of economic activities. Insurance firms help to spread the potentially financial consequences of risk among the large number of entities, to mobilize and distribute savings for productive use, facilitate investment, support and encourage external trade, and protect economic entities against external risk. Insurance and economic growth mutually influences each other. As the economy grows, the living standards of people increase. As a consequence, the demand for life insurance increases. As the assets of people and of business enterprises increase in the growth process, the demand for general insurance also increases.In fact, as the economy widens the demand for new types of insurance products emerges. Insurance is no longer confined to product markets they also cover service industries. It is equally true that growth itself is facilitated by insurance. A well-developed insurance sector promotes economic growth by encouraging risk-taking. Risk is inherent in all economic activities. Without some kind of cover against risk, some of these activities will not be carried out at all. Also insurance and more particularly life insurance is a mobilizer of long term savings and life insurance companies are thus able to support infrastructure projects which require long term funds.There is thus a mutually beneficial interaction between insurance and economic growth. The low income levels of the vast mass of population have been one of the factors inhibiting a faster growth of insurance in India. To some extent this is also compounded by certain attitudes to life. The economy has moved on to a higher growth path. The average rate of growth of the economy in the last three years was 8. 1 per cent. This strong growth will bring about significant changes in the insurance industry. At this poi nt, it is important to note that not all activities can be insured. If that were possible, it would all negate entrepreneurship.Professor Frank Knight in his celebrated book Risk Uncertainty and Profit emphasized that profit is a consequence of uncertainty. He made a distinction between quantifiable risk and non-quantifiable risk. According to him, it is non-quantifiable risk that leads to profit. He wrote It is a world of change in which we live, and a world of uncertainty. We live only by knowing something about the future while the problems of life or of conduct at least, arise from the fact that we know so little. This is as true of business as of other spheres of activity. The real management challenges are uninsurable risks. In the case of insurable risks, risk is avoided at a cost. 8. SBI Life insuranceSBI Life insurance is a joint venture between the State Bank of India and Cardiff SA of France. SBI Life insurance is registered with an authorized capital of Rs 500 crore and a paid up capital of Rs 350 crores. SBI owns 74% of the total capital and Cardiff the remaining 26%. State Bank of India enjoys the largest banking franchise in India. along with its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,000 branches across the country, the largest in the world. Cardiff is a wholly owned subsidiary of BNP Paribas, which is The Euro Zones leading Bank. BNP is one of the oldest foreign banks with a presence in India dating back to 1860. It has 9 branches in the metros and other major towns in the country.Cardiff is a vibrant insurance company specializing in personal lines such as long-term savings, protection products and creditor insurance. Cardiff has also been a pioneer in the art of selling insurance products through commercial banks in France and 29 more countries . In 2004, SBI Life insurance became the first company amongst private insurance players to cover 30 lakh lives. The company expects to carve a niche in the Indian insura nce market through extensive product innovation and aims to provide the highest standards of customer service through a technological interface. To facilitate this, call centres have been already installed and help lines will be installed and customers will have entrance money to their accounts through the Internet or through SBI branches.SBI Life insurance is uniquely placed as a pioneer to usher banc assurance into India. The company hopes to extensively implement the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans, personal loans and credit cards. SBIs access to over 100 million accounts provides a vibrant base to build insurance selling across every region and economic strata in the country. Under section 88 of insurance act 1961 an individual is entitled to a rabbet of 20 per cent on the annual premium payable on his/her life and life of his/her children or adult children. The rebate is deduc tible from tax payable by the individual or a Hindu Undivided Family.This rebate is can be availed up to a maximum of Rs 12,000 on payment of yearly premium of Rs 60,000. By paying Rs 60,000 a year, you can buy anything upwardly of Rs 10 lakh in sum assured. (Depending upon the age of the insured and term of the policy) This means that you get an Rs 12,000 tax benefit. The rebate is deductible from the tax payable by an individual or a Hindu Undivided Family. SBI Life Insurance is currently growing at an impressive rate of 200%. As per the modish IrDA report SBI Life ranks No. 3 amongst the private insurers. The companys market share has increased to 10% amongst the private players and is 2. 25% in the total industry. This year, the company is aiming at a growth of 150%.The new business premium of the company from beginning of the year to September 2006 is Rs 660 crores. The total business premium of the company from the beginning of the year till September 2006 is Rs 765 crores. The company aims to collect first year premium of over Rs 2,000 crores. SBI Life follow a multi distribution channel approach and expect all channels to contribute to the overall growth. Today, the agency channel contributes over 50% and banc assurance channel contributes to 40% of the business. Other channels like Credit Life and Group Corporate are also performing very well. Products of SBI Life insurance (Source www. sbilife. co. n) Unit Linked products (1) Group Employee Benefit Products position 11 Retirement Solutions Unit Pus 11 Cap Assure Gratuity Unit plus child Plan Cap Assure obsoleteness Unit Plan Elite Cap Assure Leave Encashment PensionProducts Group Immediate Annuity Horizon 11 Pension SBI Life palmy Gratuity Unit Plus 11 Pension Protection Plan Lifelong Pension Sampoorn Suraksha Pure Protection Products SBI Life Group Term Life Scheme In Lieu of EDLI Swadhan Specialized Term Insurance Shield SBI Life Keyman Insurance keyman (2) Group Loan Protect ion Products Protection cum savings products Dhanaraksha Plus Sudarshan Dhanaraksha Plus SP Scholar11 Dhanaraksha Plus LPPT Setubandhan Dhanaraksha Plus RP Money back scheme products (3) Group Savings Protection Plan Money Back Nidhi Raksha RP Sanjeevan Supreme (4) Group Micro Insurance Grameen Shakti and Super Suraksha 9. Distribution of insurance products Insurance has to be sold the world over. The Touch point with the ultimate customer is the distributor or the producer and the role played by them in insurance markets is critical. It is the distributor who makes the difference in terms of the quality of advice for choice of product, servicing of policy smirch sale and settlement of claims. In the Indian arket, with their distinct cultural and social ethics, these conditions will play a major role in shaping the distribution channels and their effectiveness. In todays scenario, insurance companies must move from selling insurance to marketing an essential financial pr oduct. The distributors have to become believe financial advisors for the clients and trusted business associates for the insurance Companies. Challenges for insurance companies and intermediaries in India- Building faith about company in the mind of clients. Building personal credibility with the clients. Different distribution channels in India- A multi-channel strategy is better suited for the Indian market. Indian insurance market is a combination of multiple markets. Each of the markets requires a different approach.Apart from geographical spread the socio-cultural and economic segmentation of the market is very wide, exhibiting different traits and needs. Different multi-distribution channels in India are as follows Agents Agents are the primary channel for distribution of insurance. The public and private sector insurance companies have their branches in almost all parts of the country and have attracted local people to become their agents. Todays insurance agent has to know which product will appeal to the customer, and also know his competitors products to be an effective salesman who can sell his company, the product, and himself to the customer.To the average customer, every new company is the same. Perceptions about the public sector companies are also cemented in his mind. So an insurance agent can play an important role to create a good image of company. Banks Banks in India are all pervasive, especially the public sector banks. Many insurance companies are selling their products through banks. Companies which are bank owned, they are selling their products through their parent bank. The public sector banks, with their vast branch networks, are helpful to insurance companies. This channel of selling insurance is known as Banc assurance. INSURANCE COMPANY ASSOCIATEBANKS ICICI prudential ICICI bank, bank of India, Citibank, Allahabad bank, Federal bank, south Indian bank, Punjab and Maharashtra cooperative bank SBI life State bank of Ind ia Birla sun life Deutsche bank, Citibank, bank of Rajasthan, Andhra bank ING Vysya bank Vysya bank Aviva life insurance ABN amro bank, canara bank HDFC standard life Union bank, Indian bank Met life Karnataka bank, j&k bank Source Hindu Business Line, January 08, 2007 Brokers Now a days different financial institution are selling insurance. These financial institutions are known as brokers. They are taking some underwriting charges from the insurance companies to sell their insurance products. Corporate agents Corporate agency is a cross selling type of channel. Insurance companies tie-up with business houses in other industries to sell insurance either to their employees or their customers.Insurance industry, during the past 2 years has witnessed a number of such strategic tie-ups and alliances. Corporate agents have become a major force to reckon with in distributing insurance products. Such as- Bajaj Allianz tied up with Maruti Udyog and Ford for auto insurance and Tata AIG life has tied up with Tata tea, khaitans Williamson major and bridge foundation for selling rural policies. Internet In this technological world internet is also a channel of selling insurance. This can be as direct marketing. 10. Effective marketing strategies Now the Indian consumer is knowledgeable and sensitive. Consumers are increasingly more aware and are actively managing their financial affairs.People are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total protection. In view of this, the insurance managers need to understand more about the details that go into the introduction of insurance products to make it attractive in this competitive market. So now days an insurance manager requires leadership, commitment, creativity, and flexibility. Every family in every village in the country should feel safe and secure. This vision alone will help to bring the new ideas to the insurance man ager. Financial, marketing and human resource polices of the corporations influence the unit mangers to make decisions. Performance of insurance company depends on the effectiveness of such policies.Insurance corporations formulate and revise these policies from time to time to ensure that the performance of the managers is best for the organization. In the competitive market, insurance companies are being forced to adopt a strictly professional approach in marketing. The insurance companies face the challenge of changing the uninspiring public image of the industry. Some of the important marketing elements are- Marketing mix. The importance of relationship. Positioning. Value addition. Segmentation. Branding. Insuring service quality. Effective pricing. Customer satisfaction research. The growth of insurance sector is governed largely by factors external to it. The following factors influence the market and demand of product- Government policies. Growth in population. Ch anging age profile. Income wise distribution of the population. Level of insurance awareness. The pricing of the policies. The economic climate of the country. The aversion to risk. Social and political features of the country. Growth scenario in the world. Different companies adopt different approaches in their marketing strategies. One approach is focus upon product quality which can give confidence in the mind of customers that they are offered by best featured products. And other approach is focusing on customers needs, which involve a heavy investment in developing relationships with policyholders.Under this approach customer can expect a range of products and service offered to him. Third approach is market segmentation under which the population can be divided into several homogeneous products and groups, the effort should be tie clients to the company by customized combination of coverage, well-off payment plans, risk management advice, and convenient and quick claim handling. An insurance product can be classified in three phases Core product In insurance industry the core product is the policy that provides protection t