Projects: Life Insurance

PROJECT interlockingt REPORT ON office rung simple eye of n adept seat of damages companies hawkish strategies BY SUBODH GUPTA (07BS4336) SBI flavour indemnification comm unity Limited Summer Internship swan (Batch of 2009) PROJECT TITLE Agency blood line set of redress companies individual(a)-enterprise(a) strategies A plow submitted in partial fulfilment of the requirements of MBA program fraternity GUIDE FACULTY GUIDE Mr. Suresh Kumar V. Prof. T. N. Ramakumar DSM, Calicut forking ICFAI communication manoeuver SchoolKOCHI SUBMITTED BY SUBODH GUPTA (07BS4336) Certificate This is to certify that the confinement report entitle Agency job model of insurance companies hawkish strategies at SBI brio indemnity Comp any(prenominal) Limited is a bonafide record of shit do by Subodh Gupta, and submitted in partial fulfillment of the requirements of MBA program of ICFAI craft 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 project entitled Agency backing model of policy companies emulous strategies at SBI emotional state amends gild Limited, Calicut Branch from February 22, 2008 to May 24, 2008. From SBI purporttime damages Company LTD. Mr. Suresh Kumar V. Divisional Sales autobus Calicut Branch Declaration I hereby decl be that this report on Agency business model of redress companies competitive strategies has been written and prepargond by me during the academic discrepancy 2008-2009.This project was done under the able guidance and supervision of Prof. T. N. Ramakumar, Faculty, ICFAI Business School and Mr. Suresh Kumar V. , DSM, SBI keep restitution Company Ltd. , Calicut in partial fulfillment of the requirement for the Master Of Business Administration horizontal sur face up course of the ICFAI Business School. I in addition decl ar that this project is the result of my own secluded road and has not been submitted to any opposite institution for the award of any Degree or Diploma. Place Kochi Subodh Gupta 07bs4336 Ack directledgementsIf words ar considered to be signs of gratitude then bothow these words convey the truly equal My sincere gratitude to SBI smell for providing me with an prospect to live with SBI heart and giving requisite directions on doing this project to the go around of my abilities. I am bluely indebted to Mr. Suresh Kumar V. , Divisional Sales Manager and guild project guide, who has grantd me with the necessary information and similarly for the support eprospicientated divulge to me in the completion of this report and his valuable suggestion and comments on bringing out this report in the best instruction possible.I similarly 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(a) faculty members of ICFAI, Kochi and my friends who comport availed me in the self-made completion of this project. I extend my hearfelt thanks to Mr. Sukumaran, territory manger, Mr. Sunil K. Menon, unit passenger vehicle, and Mr. Vinod P. , unit manager, to help me during this project. Contents Sr.No. Subjects C overed Pages 1. support Proposed 9 11 1. 1 Objective of the project 1. 2 Methodology 1. sampling 1. 4 Limitations 2. Introduction 12 16 2. 1 Definition of restitution 2. 2 Functions of damages policy 2. 3 Definitions of kick indemnity policy 2. 4 graphic symbol of disembodied spirit policy policy policy 2. 5 Importance of look indemnification 3. Agency business model 17 19 3. amends agencies 3. 2 Functions of chest of drawers manager 3. 3 Operational work of redress force 4. Indian policy policy manufacturing 20 27 4. Hi story 4. 2 IRDA 4. 3 changing lore of customers 4. 4 Changing face of Indian sustenance restitution manufacturing 4. Possibilities 5. Global redress policy industry 28 29 6. Functioning of insurance industry 30 36 6. 1 insurance conjunctions business model 6. 2 enthronisation management 6. chance upon ratios and margins 6. 4 Requirements of an insurance hazard 6. 5 Various separate of insurance point of intersections 7. redress and providence 37 39 8. SBI Life insurance phoner 40 42 9. Distri exception of insurance crop 43 46 10. impressive trade strategies for insurance companies 47 52 11. Competitors of SBI Life 53 62 12. Comparison of ULIP carrefours 63 69 13. Questioner 70 71 14. Conclusions and findings 72 91 15. Recommendations 92 1. Project proposed Agency business model of disparate insurance companies- competitive strategies. distinct agencies of dissimilar insurance companies atomic depend 18 having some strategies to survive in the securities industry. Their strategies may be in the form of How they targ et their customers. How they make their advisors phone numberive. How they make their operative and gross revenue department effective. How they elevate their employees. How they handle the conflict in deputation. Objective of the project Main accusatory of the project is to find out the strategies of distinct insurance agencies and evaluate them. Project is slightly to bottom the competitors of SBI aliveness. Conclusion of this project fucking admit an ca price of strategies of different companies which may be helpful to the partnership. Now days all the insurance companies in India ar trying to establish themselves in the competitive market. They ar introducing innovative marketing strategies to survive in the market.Many separate backstage companies be looking to enter in the Indian insurance market . so it is very crucial to a union to preface their marketing strategies in terms of Recruiting their advisors To make their advisors active Well educa ted and capable employee in the agency Marketing of their products Deployment of their products Targeting the right and latent customers Differentiating from other companies Future programme of the conjunction This study consists of to find out the marketing strategies of different insurance companies which are the competitors of SBI Life insurance.This research requires the interview of appendage managers of different insurance companies and find out their ramifyes are working in terms of above mentioned factors. Methodology Research is totally based on primary information. Secondary data pot be engagementd totally for the theatrical role. Research has been done by primary data collection, and primary data has been undisturbed by meeting with the branch and agency manager of different insurance agencies and branches in Calicut. Data collection has been done by means of by giving structured questioner. Research has been done after 27 branch managers or agency manag er.This study lead be based on judgment sampling and this research is skewed to organization level. This is an exploratory sign of research. And this research of necessity further study also Research is a physical body of pilot study. Sampling Sample size has been interpreted by judgment sampling. Judgment sampling is a dish up in which the selection of a unit, from the tribe is based on the pre judgment. This research requires the survey of different insurance agencies in Calicut city. So research concent order 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 Time terminal point Research has been done merely 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 p robably as oldish as the story of mankind. mark of a human cosmos to doctor themselves against brea matter out and disaster has been from the starting time of world. They sought to avert the evil resolutions of fire and flood and loss of livelihood and were leading to make some sort of sacrifice in cast to achieve auspices.Though the concept of insurance is full-grownly a breeding of the recent past, in particular after the industrial era past some centuries yet its beginnings date bottom almost 6000 geezerhood as per records. amends business is shared out into four classes Life Insurance Fire leatherneck Miscellaneous Insurance. Insurance provides Protection to investor. Acejaculateulation of savings. Channeling these savings into sectors needing huge long term coronation. Functions of insurance Provide surety The primary function of insurance is to provide safeguard against future adventure, accidents and dubiety.Insurance cannot check the happeni ng of the jeopardize, that can certainly provide for the losings of take a chance. Insurance is actually a protection against scotch loss, by sharing the risk with others. Collective bearing of risk Insurance is an instrument to share the fiscal loss of a couple of(prenominal) among umteen others. Insurance is a mean by which a couple of(prenominal) losings are shared among larger number of concourse. every(prenominal) the in for certaind pass on the insurance aids towards a fund and out of which the persons exposed to a particular risk is remunerative. Assessment of risk Insurance determines the probable volume of risk by evaluating various factors that utilize rise to risk. stake is the basis for determining the subsidy 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 crown to r for each one out larger risk Insurance relie ves the business community from security enthronizations, by stipendiary small make sense of reward 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 credit to sick industrial units which bedevil check their confirmings including immaterializet and machinery. convey of savings and investment Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insures For the purpose of availing in let- revenue exemptions also, people invest in insurance. Source of earning foreign exchange Insurance is an planetary business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways. bump exonerate trade Insurance promotes exports insurance, which makes th e foreign trade risk free with the help of different types of policies under marine insurance wield. Life insurance Life insurance is a contract under which the insurance company (Insurance Company) in favor of a support paid under enquires to pay a indomitable chalk up of money on The conclusion of the insured or on the exhalation of a specified period of time Whichever is earlier. In case of heart insurance, the payment for behavior insurance policy is certain. The Event insured against is sure to happen only if the time of its happening is not known. So invigoration insurance is known as Life Assurance.The subject effect of insurance is biography of human being. Life insurance provides risk queerage to the life of a person. On finis 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 in struments and it also provides added incentives or bonus offered by insurance companies. Life insurance as risk dole out 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 task mean Insurance serves as an excellent tax saving mechanism too. Importance of life insurance- Protection against ill-timed death Life insurance provides protection to the dependents of the life insured and the family of the assure in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the insure. Saving for old age aft(prenominal) retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of judgment 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 conscious is to pay premiums regula rly to keep the policy in force and he cannot get abide 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 ending of duration of the policy. Initiates investments Life Insurance peck encourages and mobilizes the overt savings and canalizes the equivalent in various investments for the economic development of the country.Life insurance is an classic tool for the mobilization and investment of small savings. Credit worthiness Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business. Social Security Life insurance is essential for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for verbal expression of house. It helps a person to make financial base for future. Tax advance Under the Income Tax interpret, premium paid is allowed as a demonstration from the total income under section 80C. 3.Agency business model In India insurance is sold through mainly four pathways. Through branch Through agency Through financial institution Through confides self-sufficing agency system means of lot and servicing property and misfortune insurance through agentive roles who re vex different companies. The agents own the records of the policies they swap. Insurance is now governed by a blend of statutes, administrative agency regulations, and court decisions. province statutes often control premium rates, prevent unfair practices by insurers, and s instauration duty against the financial insolvency of insurers to protect insureds.In most states, an administrative agency make outd by the state legislature devises rules to cover procedural detail that are absentminded from the statutory framework. To do business in a state, an insurer mustiness obtain a license through a registration process. This process is usually managed by the st ate administrative agency. The same state agency may also be charged with the enforcement of insurance regulations and statutes. Administrative agency regulations are many and varied. Insurance companies must submit to the governing agency yearly financial reports regarding their economic stability.This requirement allows the agency to anticipate potential insolvency and to protect the takes of insureds. Agency regulations may specify the types of insurance policies that are acceptable in the state, although many states 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 class of insurance agents or advisor. These agents or advisors create a dispersal channel to sell the different insurance products.These advisors are the strongest dispersion channel for an insurance agency. An advisor or agent works as a three party or intermediate between 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 assemblage 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 efficient way.Agency manager is like a creature of cardinal wings. He has to recruit advisors as well as to give sales to the insurance company. To recruit advisors. Make them aware of different insurance products. To give them training 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 circulate p roductCUSTOMERS curriculum and manage company BUSINESS PARTNERS Fulfill and renovation product Claims can office provider Regulatory institutions In the reference to the SBI Life insurance, development of insurance products, distribution, planning religious 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 attached to head office, and every policy has to be processed to head office. unit of measurement 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 scrutiny. After scrutiny the operational staff enters it in SBI Life website, which is done online. the entry o f a proposal is done in a sequential order starting with scrutiny, inwards, proposal well-advised 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 involve of European community complete 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, internal Indian and national insurance in Calcutta and the co-operative assurance in Lahore were established in 1906. To regulate Indian insurance business commencement ex ercise 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 confederacy of India (LIC) was created to spreading life insurance much more giganticly particularly in artless areas. In that year LIC had 5 zonal 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 Development Authority (IRDA) was constituted as an autonomous personify to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000.The key neutrals of the IRDA include promotion of competition so as to enhance customer expiation through change magnitude consumer cream and lower premiums, darn ensuring the financial security of the insurance market. The IRDA forthrighted 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 insurance business to protection of policyholders takes.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 cash by insurance companies. Specifying the percentage of business to be written by insurers in rural sectors. Handling disputes between insurers and insurance intermediaries. Changing perception of Indian customersIndian Insurance consumers are like Indian Voters, they are soft but when time is right and ripe, they take in and seek necessary changes. De-tariff of many Insurance Products are the reflection of changing aspirations and festering quest of Indian consumers. For historical 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. bleak insurance companies ask come into existence tether to open competition and hence better products for customers.Indian customers have blend in very sensitive to Coverage / Premium as well as the Products (read gamble Solution), that is devoted to them. in that location are not rea dy 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 / aggroup Life and Credit Life in Life Insurance separate and Travel / Family Floater Health and Liability Insurance in the Non-life constituent are forward-lookingfound age Avatar. The new products are constantly being petitioned 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 covered in my next section. some other good reason why we are seeing quick changes in the buying behavior of Insurance from mere Investment to risk easing is the cost of Re stancement 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 ins urance 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) argot DEPOSITS 39% CORP.BANKS 2% SHARES AND DEBENTURES 1% MUTUAL FUNDS 2% NBFCS 3% GOVT.BONDS 13% INSURANCE 13% PF/ RETIRE FUNDS 21% CURRENCY 6% Source www. vivaindia. com Changing face of Indian insurance industry After the Insurance Regulatory and Development Authority Act have been passed there 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 compan y 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, presidential term and other securities. People are demanding for higher returns with the life risk cover and private companies are giving 30-40% average harvest-tide 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 ne eds 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 supranational 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 can have an investment of only 24% of the total start-up investment. Indian insurance industry can be featured by Low market penetration. Ever growing shopping centre class dowry in population. Growth of customers interest with an change magnitude demand for better insurance products. Application of info rmation applied science 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 rhytidoplasty awareness levels, introducing innovative products and change magnitude the penetration of life insurance in the vastly underinsured country. Several of private insurers have introduced take inive 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 ample range of products, customer revolve abouted service and professional advice has become the linchpin 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 pe ople 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 evolution of unit linked products.This provides market linked returns and is among the most pliable policies available today for investment. Now products are priced, flexible, and realistic and sustain so people in better position to understand the risk and benefits of the product and they are accept 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 scraps and it is only the credible players with a long term vision and a iron 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 lingo own insurers HDFC standard life, ICICI pruden tial, ING Vysya, MetLife, OM Kotak, SBI life. 6 independent insurers Aviva, ANP sanmar, Birla sun life, Bajaj Allianz, Max New York life, Tata AIG. study 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 YEAR LIC (in bn rs. ) PRIVATE pretender FY03 110 10 FY04 120 20 FY05 130 40 FY06 one hundred forty 60 FY07 240 160 Source Insurance Industry (ICFAI publication set aside) Possibilities for insurance companies in India Further deregulation of the market. Greater concern for the customers. Newer products and services. Competition and calibre consciousness. Cost effective operations. Restructuring of the public sector. Consolidation of domestic insurance markets. technology driven shift in product design. Actual operations and distribution. crossway of financial services. 5. Global insurance industry Globally, insurers increasingly are pressured by the demands of their clients. The development of spheric insurance industry over the past few years was influenced by gold rushing 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 speedy pace. Most of the markets are undergoing globalization. Lot of mergers and acquisition are taking run in the insurance world. The rapidity in the industry, technological improvement has resulted in pressures on a few economic parameters. The world insurance industry is at peak of its globalization process. Global insurance market is increasing by an average of half dozen percent per year since 1990. Insurance companies have collected $2443. billion premi um 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, lacquer 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, appearance 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 ma rket with new approaches and through new channels. India has a rapidly growing middle class and this section can pass on 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% building blocked 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 which insurers select the risks to insure and decide 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 th e underwriting of policies. Using a wide assortment of data, insurers predict the likeliness 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 boilersuit exposure.Upon termination of a given policy, the totality of premium collected and the investment gains thereon minus the amount paid out in claims is the insurers underwriting profit on that policy. An insurers underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ra tio (underwriting expenses divided by net premium written) to determine the companys combined 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 meshwork 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 depressed period. Bear markets do cause insurers to shift past from investments and to toughen up their underwriting standards. So a poor thriftiness generally means high insurance premiums. This tendency to swing between econo mic 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 often 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 issue out of policyholder funds in the case of life insurance, and good and free reserves in the non-life segments. Time lag between the procurement of premi um 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 fall directly 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 concept 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 direct surplus. Revenue =premium. Expenses =sum of claims + commission 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, peculiar(prenominal) deposits with the central government, loans to several(prenominal) 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. bare money will be invested in govt. securities. Requirements of an insurance risk Insurance normally insure only everlasting(a) risks . However, not all pure risk is insurable . certain requirements usually must be action before a pure risk can be in camera 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 deter minable 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 . thereof ,if you bet Rs ccc 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 action.The second difference between insurance and gambling is that gambling is socially un plenteous, 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 placed 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 prevention of a loss. Both parties win if the loss does give-up the ghost . Moreover, consistent gambling transaction generally never restore the losers to their originator financial position . In contract ,insurance contracts restore the insureds financially in whole or in part if a loss occurs ) Insurance and hedging compared The concept of hedging is to transferring the risk to the diver 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 un insurable ,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 payed 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 intimacy of market conditions . The risk is transferred, not reduced, and prediction of loss generally is not based on the law of large numbers. 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 polic yholder with the bonuses during the term of the policy. Money back policies This type of policy is for periodic payments of partial pick benefits during the term of the policy as long as the policy holder is alive. assemblage 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 last-place 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 gift and whole life policies. No surrender, loan or paid up values are in such policies. on the whole life insurance policies This type of policy runs as long as the policyholder is alive and is covered for the e ntire life of the policyholder. In this policy the insured amount and the bonus is payable only to nominee 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. social 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 denoted 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 i nsurance 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, thereof this business is able to spur the growth of infrastructure 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 balanced 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 crucial role in the commercial lives of nations and a ct 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, make haste 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 promote risk-taking. Risk is inherent in all eco nomic 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 majority of population have been one of the factors inhibiting a faster growth of insurance in India. To some cessation 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 point, it is important to note that not all activities can be insured. If that were possible, it would entirely 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 nominate 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 remain 26%. State Bank of India enjoys the largest margining f ranchise 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-run savings, protection products and creditor insurance. Cardiff has also been a pioneer in the art of merchandising 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 insurance market through extensive product transition 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 price of admission 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 utilize 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 take a crap insurance selling across every region and economic strata in the country. Under section 88 of insurance act 1961 an individual is entitled to a deduction 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 deductible 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 p ayment of yearly premium of Rs 60,000. By paying Rs 60,000 a year, you can buy anything upwards 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 latest 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 expec t 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 somatic are also performing very well. Products of SBI Life insurance (Source www. sbilife. co. n) Unit Linked products (1) Group Employee Benefit Products Horizon 11 Retirement Solutions Unit Pus 11 Cap Assure baksheesh Unit plus child Plan Cap Assure Superannuation Unit Plan Elite Cap Assure Leave Encashment PensionProducts Group present(prenominal) Annuity Horizon 11 Pension SBI Life Golden 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 shell SBI Life Keyman Insurance keyman (2) Group Loan Protection Products Protection cum savings products Dhanaraksha Plus Sudarshan Dhanaraksha Plus SP Scholar11 Dhanaraksha Plus L PPT 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 supreme 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 calibre of advice for choice of product, servicing of policy post 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 product. The distributors have to become trusted financial advisors for the clients and trusted business associates for the insu rance 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. apiece of the markets requires a different approach.Apart from geographical spread the socio-cultural and economic cleavage 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 h is 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, curiously 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 classBANKS 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 India Birla sun life Deutsche bank, Citibank, bank of Rajasthan, Andhra bank ING Vysya bank Vysya bank Aviva life insurance ABN a mro 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(prenominal) as- Bajaj Allianz trussed 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 manager. Financial, marketing and human resource polices of the corporations influence the unit mangers to make decisi ons. motion of insurance company depends on the effectiveness of such policies.Insurance corporations contemplate 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. Changing 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 center 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 variance under which the population can be divided into several similar products and groups, the effort should be tie clients to the company by customized combination of coverage, belatedly payment plans, risk management advice, and convenient and quick claim handling. An insurance product can be classified in three phases middle product In insurance industry the core product i s the policy that provides protection t