Introduction to financial products:

Financial products are the products that are used as tools of investment for parking excess funds. A financial product includes any of the following: interests in a managed investment scheme, derivatives, general insurance, life insurance, superannuation, basic deposit products and retirement savings accounts. For some purposes shares and debentures are also classified as financial products.

There are thousands of financial products. Over 700 Mutual Fund schemes, more than 2500 stock scrips to choose from, over 300 Insurance schemes, plenty of Debt/Bond products (Government:NSC, KVP, Corporate Bonds)

There are lakhs of financial advisors and they are a very fragmented group. Most of them have limited knowledge of personal finance. To my knowledge, less than 1% of this huge number are certified financial planners having a holistic view of your personal finance decisions. Rest of them sell selected products without having much knowledge of the other products available.

As individuals, we have to take the blame for being lousy with our personal finance decisions. We need to do a bit of research and find out the best suited products for ourselves.

Types of products

Bank Fixed Deposits, Recurring Deposits, Debt Instruments, National Savings Certificate, Provident Fund, Kisan Vikas Patrika, Equity and Derivates (Demat a/c), Mutual fund, Systematic Investment Plan, Equity Linked Savings Scheme, Insurance products.

Banking

Banks in India have traditionally offered mass banking products. Most common deposit products being Savings Bank, Current Account, Term deposit Account and lending products being Cash Credit and Term Loans. Due to Reserve Bank of India guidelines, Banks have had little to do besides accepting deposits at rates fixed by Reserve Bank of India and lend amount arrived by the formula stipulated by Reserve Bank of India at rates prescribed by the latter. PLR (Prime lending rate) was the benchmark for interest on the lending products. But PLR itself was, more often than not, dictated by RBI. Further, remittance products were limited to issuance of Drafts, Telegraphic Transfers, Bankers Cheque and Internal Transfer of funds.

In view of several developments in the 1990s, the entire banking products structure has undergone a major change. As part of the economic reforms, banking industry has been deregulated and made competitive. New players have added to the competition. IT revolution has made it possible to provide ease and flexibility in operations to customers. Rapid strides in information technology have, in fact, redefined the role and structure of banking in India. Further, due to 2

exposure to global trends after Information explosion led by Internet, customers - both Individuals and Corporates - are now demanding better services with more products from their banks. Financial market has turned into a buyer's market. Banks are also changing with time and are trying to become one-stop financial supermarkets. Market focus is shifting from mass banking products to class banking with introduction of value added and customised products.

A few foreign & private sector banks have already introduced customised banking products like Investment Advisory Services, SGL II accounts, Photo-credit cards, Cash Management services, Investment products and Tax Advisory services. A few banks have gone in to market mutual fund schemes. Eventually, the Banks plan to market bonds and debentures, when allowed. Insurance peddling by Banks will be a reality soon. The recent Credit Policy of RBI announced on 27.4.2000 has further facilitated the entry of banks in this sector. Banks also offer advisory services termed as 'private banking' - to "high relationship - value" clients.

The bank of the future has to be essentially a marketing organisation that also sells banking products. New distribution channels are being used; more & more banks are outsourcing services like disbursement and servicing of consumer loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go out and sell their products. They make house calls to get the application form filled in properly and also take your passport-sized photo. Home banking has already become common, where you can order a draft or cash over

phone/internet and have it delivered home. ICICI bank was the first among the new private banks to launch its net banking service, called Infinity. It allows the user to access account information over a secure line, request cheque books and stop payment, and even transfer funds between ICICI Bank accounts. Citibank has been offering net banking to its Suvidha program to customers.

Products like debit cards, flexi deposits, ATM cards, personal loans including consumer loans, housing loans and vehicle loans have been introduced by a number of banks.

Corporates are also deriving benefit from the increased variety of products and competition among the banks. Certificates of deposit, Commercial papers, Non-convertible Debentures (NCDs) that can be traded in the secondary market are gaining popularity. Recently, market has also seen major developments in treasury advisory services. With the introduction of Rupee floating rates for deposits as well as advances, products like interest rate swaps and forward rate agreements for foreign exchange, risk management products like forward contract, option contract, currency swap are offered by almost every authorised dealer bank in the market. The list is growing.

Public Sector Banks like SBI have also started focusing on this area. SBI plans to open 100 new branches called Personal Banking Branches (PBB) this year. The PBBs will also market SBI's entire spectrum of loan products: housing loans, car loans, personal loans, consumer durable loans, education loans, loans against share, financing against gold.

Mutual Funds In India

Mutual Funds In India are financial instruments. These funds are collective investments which gather money from different investors to invest in stocks, short-term money market financial instruments, bonds and other securities and distribute the proceeds as dividends.

The Mutual Funds in India are handled by Fund Managers, also referred as the portfolio managers. The Securities Exchange Board of India regulates the Mutual Funds In India. The share value of the Mutual Funds in India is known as net asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds in India, by dividing it with the number of shares issued and outstanding shares on daily basis. Mutual Funds In India - Advantages The Mutual Funds in India offer flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans. These funds are available in small units, so they are affordable to the small investors. The fees charged for to the custodial, brokerage and others services are very low in case of Mutual Funds in India. These funds have the option of redeeming or withdrawing money at any point of time. The Mutual Funds in India have low risk as it is managed professionally. 5

Life Insurance A brief:

Life insurance in India made its debut well over 100 years ago.In our country, which is one of the most populated in the world, the prominence of insurance is not as widely understood, as it ought to be. What follows is an attempt to acquaint readers with some of the concepts of life insurance, with special reference to LIC. It should, however, be clearly understood that the following content is by no means an exhaustive description of the terms and conditions of an LIC policy or its benefits or privileges. For more details, please contact our branch or divisional office. Any LIC Agent will be glad to help you choose the life insurance plan to meet your needs and render policy servicing.

What Is Life Insurance? Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against. The contract is valid for payment of the insured amount during: The date of maturity, or Specified dates at periodic intervals, or Unfortunate death, if it occurs earlier.

Among other things, the contract also provides for the payment of premium periodically to the Corporation by the policyholder. Life insurance is universally acknowledged to be an institution, which eliminates 'risk', substituting certainty for

uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner. By and large, life insurance is civilisation's partial solution to the problems caused by death. Life insurance, in short, is concerned with two hazards that stand across the life-path of every person:

That of dying prematurely leaving a dependent family to fend for itself. That of living till old age without visible means of support. Life Insurance Vs. Other Savings

Contract Of Insurance: A contract of insurance is a contract of utmost good faith technically known as uberrima fides. The doctrine of disclosing all material facts is embodied in this important principle, which applies to all forms of insurance. At the time of taking a policy, policyholder should ensure that all questions in the proposal form are correctly answered. Any misrepresentation, non-disclosure or fraud in any document leading to the acceptance of the risk would render the insurance contract null and void.

Protection: Savings through life insurance guarantee full protection against risk of death of the saver. Also, in case of demise, life insurance assures payment of the entire amount assured (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.

Aid To Thrift:

Life insurance encourages 'thrift'. It allows long-term savings since payments can be made effortlessly because of the 'easy installment' facility built into the scheme. (Premium payment for insurance is monthly, quarterly, half yearly or yearly). For example: The Salary Saving Scheme popularly known as SSS, provides a convenient method of paying premium each month by deduction from one's salary. In this case the employer directly pays the deducted premium to LIC. The Salary Saving Scheme is ideal for any institution or establishment subject to specified terms and conditions.

Liquidity: In case of insurance, it is easy to acquire loans on the sole security of any policy that has acquired loan value. Besides, a life insurance policy is also generally accepted as security, even for a commercial loan.

Tax Relief: Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax. This is available for amounts paid by way of premium for life insurance subject to income tax rates in force. Assessees can also avail of provisions in the law for tax relief. In such cases the assured in effect pays a lower premium for insurance than otherwise.

Money When You Need It: A policy that has a suitable insurance plan or a combination of different plans can be effectively used to meet certain monetary needs that may arise from time-to-time. Children's education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time can be less stressful with the help of these policies. Alternatively, policy money can be made available at the time of one's retirement from service and used for any specific purpose, such as, purchase of a house or for other 8

investments. Also, loans are granted to policyholders for house building or for purchase of flats (subject to certain conditions).

Who Can Buy A Policy?

Any person who has attained majority and is eligible to enter into a valid contract can insure himself/herself and those in whom he/she has insurable interest. Policies can also be taken, subject to certain conditions, on the life of one's spouse or children. While underwriting proposals, certain factors such as the policyholders state of health, the proponent's income and other relevant factors are considered by the Corporation.

Insurance For Women

Prior to nationalisation (1956), many private insurance companies would offer insurance to female lives with some extra premium or on restrictive conditions. However, after nationalisation of life insurance, the terms under which life insurance is granted to female lives have been reviewed from time-to-time. At present, women who work and earn an income are treated at par with men. In other cases, a restrictive clause is imposed, only if the age of the female is up to 30 years and if she does not have an income attracting Income Tax.

Medical And Non-Medical Schemes

Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also to avoid inconvenience, LIC has been extending insurance cover without any medical examination, subject to certain conditions.

With Profit And Without Profit Plans

An insurance policy can be 'with' or 'without' profit. In the former, bonuses disclosed, if any, after periodical valuations are allotted to the policy and are payable along with the contracted amount. In 'without' profit plan the contracted amount is paid without any addition. The premium rate charged for a 'with' profit policy is therefore higher than for a 'without' profit policy.

Keyman Insurance

Keyman insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman.

Brief History Of Insurance

The story of insurance is probably as old as the story of mankind. The same instinct that prompts modern businessmen today to secure themselves against loss and disaster existed in primitive men also. They too sought to

10

avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era past few centuries yet its beginnings date back almost 6000 years.

Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. All the insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as substandard lives and heavy extra premiums were being charged on them. Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. Starting as Indian enterprise with highly patriotic motives, insurance companies came into existence to carry the message of insurance and social security through insurance to various sectors of society. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies established during the same period. Prior to 1912 India had no legislation to regulate insurance business. In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act

11

discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance business. From 44 companies with total business-in-force as Rs.22.44 crore, it rose to 176 companies with total business-in-force as Rs.298 crore in 1938. During the mushrooming of insurance companies many financially unsound concerns were also floated which failed miserably. The Insurance Act 1938 was the first legislation governing not only life insurance but also non-life insurance to provide strict state control over insurance business. The demand for nationalization of life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However, it was much later on the 19th of January, 1956, that life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization. Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office in the year 1956. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services need was felt in the later years to expand the operations and place a branch office at each district headquarter. re-organization of LIC

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took place and large numbers of new branch offices were opened. As a result of re-organisation servicing functions were transferred to the branches, and branches were made accounting units. It worked wonders with the performance of the corporation. It may be seen that from about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crore mark of new business. But with re-organisation happening in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on new policies.

Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the Corporate office. LICs Wide Area Network covers 100 divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities. LICs ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centres have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, LIC has launched its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future.

LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year. It has crossed the milestone of issuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67% over the corresponding period of the previous year.

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From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business. The same motives which inspired our forefathers to bring insurance into existence in this country inspire us at LIC to take this message of protection to light the lamps of security in as many homes as possible and to help the people in providing security to their families.

Some of the important milestones in the life insurance business in India are: 1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

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The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

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The product chosen by me is one of the most challenging to sell i.e. Life Insurance. It comes with a set of completely new challenges as the market for life insurance is very dynamic owing to the changes in the market structure after the entry of private players. The competition has become so cut throat that even the sleeping giant, LIC, was forced to wake up and change itself dramatically.

The penetration levels of life insurance in India are way below the levels of the developed countries and since India is such a diverse country having markets within the market, there is a great potential for life insurance products to be sold.

Consumers are now realising the importance of mitigating risks in these uncertain times. As is rightly said, Death is certain, but the timing is uncertain. Life insurance is now being increasingly viewed as an important risk mitigating tool that helps avoid nasty shocks in times of uncertainity.

Quoting excerpts from MAKING A DIFFERENCE by Len Warwick:

It was a very satisfying, if sad, moment when a widow said to me: If my husband had not met you and if you had not sold him a life assurance policy, I do not know where my children and I would be now. Yes I have had every reason to see the difference that protection can bring because life assurance, critical illness, permanent health insurance, death in service cover, and waiver of premium all protection costs make an enormous difference. For instance, a claim of GBP * 200,000 paid to a company on the death of a key man. Our firms commission was GBP * 269. I do not call commission of less than 1% of the sums paid out as excessive! My sale has

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guaranteed job security in the company. If we fail to persuade, to influence a prospective client to protect themselves, their families and their businesses, then we have failed them we have left them financially vulnerable.

What is INSURANCE?

The business of insurance is related to the protection of the economic value of assets. Every asset has a value. The asset would have been created through the efforts of the owner, in the expectation that, either through the income generated there or from some other output, some of his needs would be met. In case of a factory, the production is sold and income is generated. In case of a motor car, it provides comfort and convenience in transportation. There is no direct income. There is a normally expected lifetime for the asset during which time it is expected to perform. The owner, aware of this, can hence manage his affairs such that by the end of that lifetime, a substitute is made available to ensure that the value or income is not lost. However, if the asset gets lost earlier, being destroyed or made non-functional through an accident or other unfortunate event, the owner and those deriving benefits from it will suffer. INSURANCE is a mechanism that helps to reduce such adverse consequences.

Conceptually, the mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of the members suffers a loss, the others will share the loss and make good to the person who has lost. For example, all people who send goods by ship are exposed to the same risks like water damage, ship sinking, piracy etc. Those owning factories are exposed to different kinds of risks like fire, earthquakes, lightning, burglary etc. Like this, different kinds of risks can be identified and separate groups can be made, including those exposed to such risks. By this method, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all.

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IRDA
Composition of Authority under IRDA Act, 1999

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority The Authority is a ten member team consisting of (a) (b) (c) a Chairman; five whole-time members; four part-time members,

(all appointed by the Government of India)

Duties,Powers and Functions of IRDA

Section 14 of IRDA Act, 1999 laysdown the duties,powers and functions of IRDA..(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. (2) Without prejudice to the generality of the provisions

contained in sub-section (1), the powers and functions of the Authority shall include, -

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(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; (b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; (c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; (d) specifying the code of conduct for surveyors and loss assessors; (e) promoting efficiency in the conduct of insurance business; (f) promoting and regulating professional organisations connected with the insurance and re-insurance business; (g) levying fees and other charges for carrying out the purposes of this Act; (h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business; (i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938); (j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;

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(k) regulating investment of funds by insurance companies; (l) regulating maintenance of margin of solvency; (m) adjudication of disputes between insurers and intermediaries or insurance intermediaries; (n) supervising the functioning of the Tariff Advisory Committee; (o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f); (p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and (q) exercising such other powers as may be prescribed

TYPES OF INSURANCE:
1. 2. Life Insurance General Insurance

LIFE INSURANCE:
Life insurance is a protection against the loss of income that would result if the insured passed away. The named beneficiary receives the

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proceeds and is thereby safeguarded from the financial impact of the death of the insured.

GENERAL INSURANCE:
General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance.

Insurance Overview Insurance is something that almost all of us will need sometime, and it is worth understanding it before buying it.

Various types of insurance include motor insurance, which includes automobile, motorcycle, and boat insurance, health insurance, life insurance, home insurance, travel insurance, personal property insurance, keyman insurance, dental insurance, rental insurance, and more.

Often, insurance is required - especially in the cases of motor insurance. Other times, it is a safeguard.

Insurance is a form of risk-management which spreads risk of many people in exchange for small payments from each. Specifically, insurance transfers some type of risk (accident, theft, natural disaster, illness, etc) from one person or group to a more financially-sound entity in exchange for a payment (also known as a premium). Premiums are often annual or monthly, but depending on the type of insurance they can be at other intervals.

For example, a consumer can pay a certain amount to an insurer such as Motley Fool each year to insure that person's car. This sum represents the

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insurance company's assessment of the likelihood that the car will be damaged or wrecked. These data are normally taken from historical figures relating to the age, sex, profession, driving record, and accident history of the insured, as well as statistics concerning make and model of the car and its accident record, as well as the engine size, number of passengers, and even color of the vehicle.

Statistically, if the make and model of the vehicle in question, and/or its driver have been in numerous accidents, the insurance company will charge a higher premium in order to hedge expected losses. As the risk increases, so too do the premiums. In fact, sometimes, insurance companies will not even insure certain people and/or vehicles as the chance of them having to make a payout (in the event of an accident) will be almost guaranteed.

Types of Insurance

1.Motor insurance

This includes automobile, truck, motorcycle, aircraft, boat, or any other form of motorized transportation. It is perhaps the most common type of insurance, and is required by law in many countries.

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Motor insurance covers the insured party against financial loss that he may incur to repair his vehicle or a third partys in the event of an accident. In return for annual or semi-annual premiums, the insurance company is bound to pay any losses as described in the policy. Such a policy may include property, liability or third party, and medical coverage.

Property coverage insures damage to or theft of a vehicle; liability covers bodily injury or property damage that may occur as a result of the insureds actions, and medical coverage pays any fees necessary for bodily injuries, rehabilitation and in some cases foregone wages and funeral costs.

In many countries, all of these types of automovile insurance are required of vehicle owners. In some countries, or states, only third party is required. However, in the case of new vehicles, any banks which may be financing the vehicle may require full insurance as a condition of financing.

2.Health insurance

Most developed nations have government-funded health care which means that most or all citizens have access to medical facilities and treatment, as well as health insurance.

For example, the National health Service (NHS) in the United Kingdom pays for citizens medical needs. However, in the US, there is no governmentfunded health policy - whether for insurance or treatment. As a result, US

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citizens and residents must be insured or risk facing astronomical medical bills, garnishing of wages, and bankruptcy. Often, medical insurance (both health and dental) is included in employee benefit packages in the US and other countries. Nevertheless, the issue of affordable health insurance and treatment in the US is one of the most controversial and heated topics, as many cannot afford either. If you live in a country without comprehensive national health care, then low cost health insurance is a vital requirement.

3.Disability insurance This form of insurance protects workers from injuries and illnesses which prevent them from doing their jobs. It can pay for existing commitments the policyholders may have such as outstanding bills, mortgages, utilities, and more. Workers compensation is common in the US, and pays a worker his wages and medical expenses in the event of an injury on the job.

Permanent disability which prevents a worker from ever working again is covered by total permanent disability insurance. This provides the disabled employee with benefits for the rest of his or her life, or according to the terms specified in the policy. Companies can purchase a similar type of insurance, called, disability overhead insurance. This pays for ongoing overhead costs of a business while the owners are not able to work. 4.Property insurance

This type of insurance typically covers things like homes, machinery, crops, valuable goods, shipped cargo, rented property (homes or apartments), and more.

It can cover damages as a result of various activities including acts of God (earthquakes, floods, storms, hurricanes, etc), vandalism, terrorism, fraud, and more.

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5.Liability insurance This covers negligent acts of an insured party with reference to a vehicle or a home. It protects the insured against legal claims and indemnification.

There are various types of liability insurance such as professional indemnity insurance Environmental liability insurance and Prize indemnity insurance .

Professional indemnity insurance protects employees from malpractice suits (as in the medical profession), errors and omissions (by appraisers, home inspectors, realtors, insurance agents, notaries, and others), and other acts of unintentional workplace negligence.

6.Credit insurance

This is taken by lenders who need coverage against the people that have credit with them (borrow money). In the event of their inability to pay it back (usually due to unemployment, disability, or death), this insurance protects the lender.

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There are many other kinds of insuance, and even each of the major categories mentioned above has dozens of variations and types. They differ depending on the markets, the understanding of risk and availability of historical data, government regulation and law, cultural perceptions and expectations, and more.

Market segmentation
A good segmentation schema offers insurance providers an

unparalleled tool for optimizing the who, what, when and how of effective marketing. This tool can help you target the right consumers at the right time, which can increase your efficiency and give you an edge over the competition. Evidence shows that the company that does the best job of segmenting their markets and personalizing their products and marketing programs to each segment stands to recognize substantial gains.

An accurate, efficient and actionable market segmentation tool will help you start accruing substantial gains today.

PersonicX,

Acxioms

premier

household-level

segmentation

and

visualization system, has successfully provided insurance marketers with just this tool PersonicX Insurance. Powered by InfoBase-X, the consumer database known for the most accurate and complete coverage of household elements in the market as well as insurance-specific consumer survey data from Mediamark Research & Intelligence LLC., PersonicX Insurance classifies the 70 PersonicX Classic clusters into 13 groups by similar insurance assets, intentions and behaviors. Now not only can you view the multi-dimensional aspects of your customers, leads and prospects by similar socio-economic and demographic characteristics, but you can also view them by insurancerelated characteristics.

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With seven proven predictors of consumer behavior and over 120 insurance-specific elements leveraged in this solution, PersonicX Insurance assures you a robust, stable and powerful segmentation for your marketing needs. Personalize your marketing

In addition to Mediamark Research, PersonicX Insurance utilizes nationally renowned syndicated survey sources such as Scarborough Research, to give you a personalized view of your consumers that only primary research can do. You will have access to detailed demographic snapshots for each cluster within your PersonicX Insurance target group as well as national distributions and counts. And you will have access to critical information including attitudes on health and fitness, media preferences, attitudes toward advertising, interests and expenditures both nationally and at a local market level. Its that personalized portrait that allows you to craft just the right message and deliver it in just the right way to your target market.In addition to Mediamark Research, PersonicX Insurance utilizes nationally renowned syndicated survey sources such as Scarborough Research

Case Study

When PersonicX was applied to a top insurance providers customer base the applicability of the new insurance segments was immediately

27

apparent as 16 out of the top 17 PersonicX segments were classified into one of three insurance industry market segments, indicating similar insurance purchasing tendencies. The target market for this client was now readily apparent for them to focus on and realize improved return on their marketing investments.

Composition of Authority under IRDA Act, 1999

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority

The Authority is a ten member team consisting of

(a) (b) (c)

a Chairman; five whole-time members; four part-time members,

(all appointed by the Government of India)

TYPES OF LIFE INSURANCE:

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LIFE INSURANCE

TERM POLICY

ENDOWMENT POLICY

ULIP

1.

Term policy:

This is the most common type of policy and the cheapest in terms of premium cost. As the name suggests, this policy is taken for a particular term (Max till age 60/65). The insurance cover is valid only for the term specified and will give no returns at maturity. Term insurance policies cover only the risk of life and do not offer any riders attached to them. For example Tata AIG offers term insurance policies like Raksha, Term till age 50, Term till age 55 etc. Eg: Under the Raksha plan from Tata-AIG Life Insurance Co. Ltd., a person of age 25 can insure himself for Rs. 100,000 for a period of 25 years by paying a premium of only Rs.221 per year. This means that if a person pays Rs. 221 per year till age 50, incase of his death, the beneficiaries will get Rs. 1

2.

Endowment policy:

29

An endowment policy is an extension to a term policy. An endowment policy covers the risk of life and gives returns as well. The term of insurance cover is specified and returns are given on death / maturity of policy whichever is earlier.

Endowment policies also offer riders like Accidental Death & Dismemberment, Permanent Disability, Waiver of premium, Critical Illness, Term Rider etc.

Eg: Under the Mahalife plan from Tata-AIG Life Insurance Co. Ltd., a person of age 25 can insure himself for Rs. 100,000 till age 100 by paying a premium of Rs.7350 for 12 years. After paying premium for 12 years, the person will get a minimum of 5% of the sum assured (Rs. 5000 in this case) + certain non-guaranteed bonuses per year till age 100.

30

3.

ULIP (Unit Linked Insurance Policy):

Unit-linked insurance plans, ULIPs, are distinct from the more familiar with profits policies sold for decades by the Life Insurance Corporation. With profits policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. ULIPs also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently.

In with profits policies, the insurance company credits the premium to a common pool called the life fund, after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders accounts in the form of a bonus.

In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges. The rest of the premium is used to invest in a fund that invests money in stocks or bonds.

The policyholders share in the fund is represented by the number of units. The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units.

If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices an equity (growth) fund, balanced fund and a fund which invests in bonds.

31

In both with profits policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents commissions and other policy related charges. Eg: Tata-AIG offers ULIP products like Invest Assure, Invest Assure Plus and Invest Assure Gold. CURRENT PLAYERS IN THE MARKET List of Life Insurers Sr . No. 1 2 3 4 5 6 7 8 9 10 11

Name of the Company Bajaj Allianz Life Insurance Company Limited Birla Sun Life Insurance Co. Ltd HDFC Standard Life Insurance Co. Ltd ICICI Prudential Life Insurance Co. Ltd. ING Vysya Life Insurance Company Ltd. Life Insurance Corporation of India Max New York Life Insurance Co. Ltd Met Life India Insurance Company Pvt. Ltd. Kotak Mahindra Old Mutual Life Insurance Limited SBI Life Insurance Co. Ltd Tata AIG Life Insurance Company Limited

12

Reliance Life Insurance Company Limited.

13

Aviva Life Insurance Co. India Pvt. Ltd.

32

14

Sahara India Life Insurance Co, Ltd.

15

Shriram Life Insurance Co, Ltd.

16

Bharti AXA Life Insurance Company Ltd.

17

Future Generali Life Insurance Company Ltd.

18

IDBI Fortis Life Insurance Company Ltd. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd AEGON Religare Life Insurance Limited. DLF Pramerica Life Insurance Co. Ltd. Source: IRDA Company

19

20

21

LIC remains the market leader with 74.87% followed by ICICI Prudential with 7.53% and Bajaj Allianz with 4.18

LIFE INSURANCE MARKET TODAY:

Private life insurers have been operating in the Indian life market for six years, and have recently begun to make significant inroads into the Life Insurance Corporation of India's (LIC) market share. Figures from the Insurance Regulatory and Development Authority (IRDA) for the year ending

33

March 2005 show that the LIC's market share of new business has fallen from 87% in 2004 to 78% in 2005. ICICI Prudential is the leading private insurer with approximately 6.25% of the life new business market for the year ended March 2005.

Overall life insurance business has grown at a CAGR of 25% between 2001 2005

R 25.5% iums - CAG m Total Pre

Source : Insurance Market Report India Life & Benefits AXCO, Insurance Report India Swiss Re

10/1/2007

As seen from the above graph, the overall life insurance business has grown at a CAGR of 25% between 2001 and 2005. Life Insurance business constitutes majority (82.6% in 2005) of total insurance business in India. Individual business constituted 91% of total life business; group business was only 9% (2005) which indicates how much potential group insurance business has in a developing country like India. The life market has grown from a total of INR 360.7bn (USD 7.6bn) in 2001 to INR 828.55bn (USD 18.79bn) in 2005. In the year ended March 2006, the private insurers had a market share of nearly 22%. Total premium written underwritten by LIC grew by 23.08% in the period 2006-06, compared to a growth rate for the private sector of 82.94%. These figures should be considered in the context of LIC's original monopoly position and still very

34

large share of the Indian life insurance market. Although the growth of the private sector has been spectacular in terms of annual percentage growth, it should be remembered that it started from a zero base only six years ago. It would never have been possible in practice for LIC to match the private sector's annual growth rates throughout this period, especially bearing in mind its solvency constraints. It should also be noted that the entire market grew by nearly 25% from 2004 to 2005, in which context LIC's growth performance, satisfactory. in comparison with the private sector, was relatively

The major determinant factor affecting the growth of the market as a whole has been the sale of unit-linked products, which are proving to be very popular with the public at present. This factor was the dominant reason for the growth of the private sector in 2004 and 2005. By contrast LIC proved to be slow in responding to the popularity of unit-linked products, but it did respond in 2005 and 2006 by promoting its existing unit-linked products much more aggressively than previously.

The Indian life sector has always been considered to have great potential, with a target market of around 250 million people. The new regulations allowing banks to distribute insurance products have resulted in insurers making alliances with both regional and national banks in order to develop their bancassurance distribution channels, as distribution is regarded as vital in order to maximise the potential of the market. This will enable insurers to develop a network and achieve the requirement to sell a percentage of their business in the rural sector during their first five years in operation.

As part of their licence application, the private insurers are obliged to offer health products and these are slowly being developed. Life insurers do not feel that the health market is very profitable at the moment, so the pace

35

at which new health products are introduced is not proving to be very rapid. Nevertheless the potential of the health market is very substantial.

The first six years of the deregulated life market have seen many changes as the IRDA has introduced new regulations and amended them as the market matures. Changes in both the distribution of life business and the product ranges on offer will continue to have a major impact, although insurers still need to educate the population as to the benefits of protection, as an additional benefit to the traditional savings products that have been the mainstay of the life insurance industry in the past. This is particularly important in the context of the current, potentially temporary popularity of unit-linked products, supported by an exceptionally fast growing economy and booming stock market.

There are 21 life insurers active in the market, and a majority are joint ventures between Indian companies and multinational insurance partners. Under the Insurance Regulatory and Development Authority Act, 1999 foreign companies are able to hold a maximum of 26% of shareholdings in these new companies. The same legislation also stipulates that the maximum shareholding of any Indian company's partner must reduce in a stepped fashion to 26% after the company has been in operation for 10 years. The Indian partners and the foreign companies are lobbying for the foreign investors' maximum limit to be increased to 49%, but as yet there have been no legislative moves by the government.

Selling Tactics Unique To This Product

36

Success begins with profiling your clients, offering them value, partnering with other professionals andabove alldeveloping a passion for your product.

This is one of the most important things that an insurance advisor has to keep in mind while selling insurance products. It is only when they develop a passion for the product they are selling will they be able to convince the customer that he should buy the specific companys product.

Companies and advisors now-a-days use different and unique ways to induce customers into buying the specific companys product. The main focus of all the advertisements of life insurance companies in the recent years after privatization has been the focus on the emotional aspect of financial planning and complying with their social objective of giving their families a secure future. The companies are trying to tap the Indian psyche of the Indian consumer of having a secure financial future. This has increased the levels of awareness regarding life insurance as it is now not only viewed as a product that gives you benefits on death, but also as one which reaps rich dividends while a person is alive allowing him to enjoy the fruits of his meticulous financial planning.

HDFC Sar utha ke jiyo

ICICI Prudential Hum hain na

Sahara India Gabbar campaign

The above taglines are classic examples of major players in the market using the emotional aspect and enticing customers to understand the importance of financial planning instead of just promoting it as life insurance.

37

Customised solutions
Companies now provide advisors with premium calculators that help the advisors on the field to calculate the premium on the spot and customize it as per the customers preference. This helps the advisor respond to the customers requirements swiftly and gives the customers lesser time to think about the alternatives. This avoids impulse decision / mood swings as keeps the focus on the particular company.

Eg: TATA-AIG continuous basis.

has

their

premium

calculators

called

SIS

(Sales

Illustration System). These are given to all advisors and are updated on a

Value added services

Advisors now provide a variety of value added services like portfolio management, financial planning, tax planning and filing of IT returns. This gives the advisors their personal USP and customers, as a matter of convenience, tend to prefer advisors who act as one stop comprehensive solution providers.

Strategies adopted by companies Case Study

38

The 10 important aspects in life insurance are as follows:

Aggressively mine for referrals and profile your current clientele. Learn to manage the indecisiveness of your clients and

prospects.

Capture every opportunity. Increase your client retention. Dont forsake the middle market. Focus on value selling. Partner with other advisors. Specialize. Sell the client what he needs. Above all have a passion for what you sell

BAJAJ SUPER AGENT Bajaj Allianz has come out with a concept of Super Agent, an agent who is a one stop solution provider for all financial planning. They are doing this at a company level in order to train their workforce to be conversant with the customers needs and provide comprehensive solutions.

ICICI Prudential life insurance The leader among private sector life insurers, it is one of the most aggressive players in the market which has had the first mover advantage in many areas coming out with new products before competition and leveraging their banking network to act as a distribution channel. This has helped the company grow by leaps and bounds while keeping the costs low due to their existing setup.

39

Distribution of life insurance products :

40

A majority of the current business is transacted by individual agents. They account for nearly 90% of the entire life insurance business transacted. Most private insurers have formed an alliance with banks for distribution of insurance and the share of banks in distribution has increased since they are an effective distribution channel due to high cost of training of individual agents & issues related to agent retention. Also banks have

41

existing customer database who they can contact for insurance sales & cross selling. But recent trends indicate that the share of individual agents will come down as insurance companies look at alternative means of distribution.

Mission "Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development." Vision "A trans-nationally competitive financial conglomerate of significance to societies and Pride of India

OBJECTIVES OF LIC :
Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. Maximize mobilization of people's savings by making insurance-linked savings adequately attractive. Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders.

42

Act as trustees of the insured public in their individual and collective capacities. Meet the various life insurance needs of the community that would arise in the changing social and economic environment. Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy. Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective

Challenges and difficulties in selling

1.

Plethora of products

There is a very wide range of products available in the market which makes it difficult for agents and consumers alike to choose between products. Agents have to be conversant with their own companys latest products in the market as also that of the competitors while for the consumers, they have to make a choice between the many products that are available.

2.

Lack of assured income for advisors

Insurance selling is a commission based industry and insurance advisors are not assured of any income. This leads to dissatisfaction at initial stages as getting into the groove of selling is very difficult as conversion of leads to sales closure is hard to come by. 3. Varying commission for different products

Since commissions for the different products vary, advisors generally tend to push the sales of the high commission based products. This has led to

43

a sense of doubt among customers and they are more often than not inquisitive about the commission of the product being sold to them. 4. Lack of financial discipline among customers

One common grouse that insurance advisors have is consumers give little or very less importance to financial discipline which often leaves them in I dont have enough money to pay my premiums situations. Ideally, the sum assured for an individual should be 20 times the annual salary to take care of the contingencies post death and also keep the inflationary trends in mind. But according to a few agents that we spoke to, the general standard that they follow is 8-10 times the annual salary Life insurance: A brief.

5.

Misconceptions about insurance

Though improving, a majority of customers refuse to buy life insurance at the first go saying I do not derive any benefits when alive. This has changed with the introduction of new products and changing advertising strategies of companies.

44

Growth potential and opportunities in this sector

1.

Low penetration

OVERALL INSURANCE IS STILL UNDERPENETRATED

... But still remains # 19 in insurance terms...
Premium income ($ Bn)
1

... with some product categories nascent Pension scheme Annuity scheme Health insurance Disability and critical illness insurance Professional liability Crop insurance

11 19

Income protection Credit insurance

45

The overall insurance market is still under penetrated as there is 25% penetration in urban areas and 4% penetration in the rural areas. India today ranks 19th in the world in terms of premium income with a majority of the products like pension, annuity, health insurance, crop insurance and credit insurance at its nascent stage.

46

2. Increased awareness and changing demographic profile

% of ageing population aged 60+will increase in the future leading to increase in demand for retirement & life insurance products

Source : EIU, US Bureau of Census

10/1/2007

15

% of population aged 60+ will increase in future leading to an increase in demand for retirement and life insurance products

3. High savings level These figures are low but are expected to grow in the years to come. India, like the rest of Asia, is a savings-oriented economy. Currently, gross savings represent 26% of GDP and are expected to grow to 30% by 2015 with the expansion of the economy. Along with savings growth, the proportion of financial assets in savings is also expected to increase from the current 60% to 72% over the same period. Specifically, life insurance, which represents 9% of savings at present, is projected to rise to 14% of savings by 2015. At present only 19% of the 400 million-strong middle class (the insurable population) are estimated to have life insurance cover .

47

Consumer savings as a % of GDP has grown in the past and is expected to stabilize in future

Indias tax laws are favorable to the life insurance sector. Under Section 88 of the income tax laws, amounts paid towards premiums (including contributions made toward unit-linked products) for life insurance policies qualify for a tax rebate, subject to the stipulation that the premium amount does not exceed 20% of the sum assured. Death and maturity benefits also apply to insurance products under Section 10(10D). All death benefits are tax-free in the hands of the nominees and all maturity benefits are tax-free if the sum assured is at least 5x the annual premium.

4.

Rising importance of alternative distribution channels

CURRENTLY RURAL MARKET UNDERSERVED Improved Reach Will Be An Avenue For Growth

Urban India Penetration : ~25% pop Premium : 2.6% of GDP Rs 1800 per cap Reach : ~ 1 agent / 1,000 pop

Rural Penetration : ~4% pop Premium : 0.7% of GDP Rs 60 per cap Reach : ~ 0.25 agent / 1,000 pop

Alternative channels Banks Commercial (rural branches) Regional Rural Banks District Cooperative Banks Post offices Co-operative societies

Effectiveness

Reach

Village internet kiosks NGOs / Self Help Groups ...

48

Private sector entry has brought with it a transformation not only in product choice but also in the way life insurance is distributed. Previously, agents provided the primary method of acquiring new policies in India as they originated almost all of the LICs business. This trend is an Asia-wide phenomenon as almost 96% of the business of life insurers in Asia is originated by agents; according to Swiss Re. Currently there are over 1.2 million agents in India, of which LIC alone has over one million. For the private sector, training a new agency force to match that of the LIC will require much time and investment as luring existing agents is not a straightforward matter.

LIC PLANS
As individuals it is inherent to differ. Each individuals insurance needs and requirements are different from that of the others. LIC?s Insurance Plans are policies that talk to you individually and give you the most suitable options that can fit your requirement.

CHILDREN PLANS
1. Jeevan ANURAG
LICs Jeevan ANURAG is a with profits plan specifically designed to take care of the educational needs of children. The plan can be taken by a parent on his or her own life. Benefits under the plan are payable at prespecified durations irrespective of whether the Life Assured survives to the end of the policy term or dies during the term of the policy. In addition, this plan also provides for an immediate payment of Basic Sum Assured amount on death of the Life Assured during the term of the policy.

Assured Benefit
Payment of 20% of the Basic Sum Assured at the start of every year during last 3 policy years before maturity. At maturity, 40% of the Basic Sum Assured along with reversionary bonuses declared from time to time on full Sum Assured for the full term and the Terminal bonus, if any shall be payable. For example, if term of the policy is 20

49

years, 20% of the Sum assured will be payable at the end of the 17th,18th, 19th year and 40% of the Sum Assured along with the reversionary bonuses and the terminal bonus, if any, at the end of the 20th year.

Death Benefit
Payment of an amount equal to Sum Assured under the basic plan immediately on the death of the life assured.

2. CDA Endowment Vesting At 21 Product Summary:

This is an Endowment Assurance plan designed to enable a parent or a legal guardian or any near relative of the child (called proposer) to provide insurance cover on the life of the child (called life assured). The plan has two stages, one covering the period from the date of commencement of policy to the Deferred Date (called deferment period) and the other covering the period from the Deferred Date to the date of maturity. The insurance cover on the childs life starts from the Deferred Date and is available during the latter period. The Deferred Date in case of Plan No 41 is the policy anniversary date coinciding with or next following the date on which the child completes 21 years of age. In case of Plan No 50 it is the policy anniversary date coinciding with or next following the 18th birthday
Premiums:

of

the

child.

Premiums are payable yearly, half-yearly, quarterly or monthly and this shall cease on the death of the life assured . Premiums are waived on death of Proposer

50

provided

this

benefit

is

availed.

Bonuses:
This is a with-profits plan and participates in the profits of the Corporations life insurance business after the deferred date. It gets a share of the profits in the form of bonuses. Simple Reversionary Bonuses are declared per thousand Sum Assured annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan.

3. CDA Endowment Vesting At 18 Product Summary:

This is an Endowment Assurance plan designed to enable a parent or a legal guardian or any near relative of the child (called proposer) to provide insurance cover on the life of the child (called life assured). The plan has two stages, one covering the period from the date of commencement of policy to the Deferred Date (called deferment period) and the other covering the period from the Deferred Date to the date of maturity. The insurance cover on the childs life starts from the Deferred Date and is available during the latter period. The Deferred Date in case of Plan No 41 is the policy anniversary date coinciding with or next following the date on which the child completes 21 years of age. In case of Plan No 50 it is the policy anniversary date coinciding with or next following the 18th birthday of the child.

Premiums:
Premiums are payable yearly, half-yearly, quarterly or monthly and this shall cease on the death of the life assured . Premiums are waived on death of Proposer provided this benefit is availed.

Bonuses:
This is a with-profits plan and participates in the profits of the Corporations life

51

insurance business after the deferred date. It gets a share of the profits in the form of bonuses. Simple Reversionary Bonuses are declared per thousand Sum Assured annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan.

4. Jeevan Kishore Product summary:

This is an Endowment Assurance Plan available for children of less than 12 years of age. The policy may be purchased by any of the parent/grand parent.

Commencement of risk cover:

The risk commences either after 2 years from the date of commencement of policy or from the policy anniversary immediately following the completion of 7 years of age of child, whichever is later.

Premiums:
Premiums are payable yearly, half-yearly, quarterly or monthly throughout the term of the policy or till earlier death of child.

Bonuses:
This is a with-profits plan and participates in the profits of the Corporations life insurance business. It gets a share of the profits in the form of bonuses. Simple Reversionary Bonuses are declared per thousand Sum Assured annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan. A Final (Additional) Bonus may also be payable provided policy has run for certain minimum period.

5. Child Career Plan Introduction:

This plan is specially designed to meet the increasing educational and other needs of growing children. It provides the risk cover on the life of child not only during the policy term but also during the extended term (i.e. 7 years after the expiry of policy

52

term). A number of Survival benefits are payable on surviving by the life assured to the end of the specified durations.

Options:
You may choose Sum Assured (S.A.), Maturity Age, Policy Term, Mode of Premium payment and Premium Waiver Benefit.

Payment of Premiums:
You may pay the premiums regularly at yearly, half-yearly, quarterly or through Salary deductions over the term of policy. Premiums may be paid either for 6 years or upto 5 years before the policy term.

Sample Premium Rates:

Following are some of the sample premium rates per Rs. 1000/- S.A.: Age 0 4 8 12 For 6 years Premium paying term Maturity Age 23 24 25 26 111.25 107.25 103.35 99.60 128.35 123.80 119.35 115.05 148.15 143.05 138.05 133.20 170.20 164.55 159.05 153.65

27 95.95 110.90 128.50 148.40

Age 0 4 8 12

For 6 years Premium paying term Maturity Age 23 24 25 26 111.25 107.25 103.35 99.60 128.35 123.80 119.35 115.05 148.15 143.05 138.05 133.20 170.20 164.55 159.05 153.65

27 95.95 110.90 128.50 148.40

53

Mode and High S.A. Rebates:

Mode Rebate:
Yearly mode Half-yearly mode Quarterly & Salary deduction - 2% of Tabular Premium - 1% of the tabular premium - NIL

Sum Assured Rebate:

Sum Assured 1,00,000 to 2,99,999 3,00,000 to 4,99,999 5,00,000 and above - Rebate (Rs.) - Nil 1.5 %o S.A. - 2 %o S.A.

6. Child Fortune Plus

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICY HOLDER

Introduction:
All of us wish to ensure the best possible future for our children. With the cost of education sky rocketing, it is all the more important that an early provision is made to ensure that your loved ones get a good head start in life. LICs Child Fortune Plus is a total solution to their education and other needs. The plan is a unit linked one offering the prospects of long term capital appreciation.

Benefits:

54

On Maturity:
The maturity benefit will be payable on the earlier of; either the child attaining 25 years of age or the life assured attaining 75 years. On the date of maturity, an amount equal to the policy holder`s fund value is payable.

On Death:
In the unfortunate event of death of the policy holder, the nominee child will be paid the Sum Assured under the policy. Further all future premiums will be waived and units equivalent thereof shall be credited to the policy fund account at the applicable unit price.
Am I eligible?

A parent, with a child aged 17 years or less can go in for Child Fortune Plus. The policy will cover the life of the parent.

Choice of Investment Options:

The plan offers a choice of four investment options: Bond Fund, Secured Fund, Balanced Fund, and Growth Fund; each tailored to different levels of risk and return.

Partial Withdrawal/Surrender:
A Policyholder can partially withdraw the units at any time after the third policy anniversary subject to certain conditions. There will be no bid offer spread i.e. the sale and purchase price of units will be the same. The NAV shall be declared on day to day basis.

Premium Payment options:

The policy can be taken under the lump sum option or the regular premium option. ECS payment is also available.

Revival:
In case the policy is lapsed, it can be revived within a period of 2 years (Revival Period), from the date of First Unpaid Premium. If the premiums have been paid for a

55

minimum period of three years, the Life cover will continue during the Revival Period. A unique feature of the plan is that a policyholder can opt for continuation of cover even beyond the Revival Period, without reviving the policy or paying any further premiums by exercising the option at least one month prior to the completion of the Revival Period. The policy cover continues by deduction of relevant charges from the policy fund till the fund value reaches one annualized premium.

Other Features:
The plan has other highlights like payment of additional amounts(top ups), attractive Fund Management/other charges and liberalized conditions for continuance of the policy in event of causation. The minimum Sum Assured is five times the annualized premium and the maximum Sum Assured can go up to 25 times the annualized premium, depending on age at entry. Premium can be paid in yearly, half yearly, quarterly or monthly( ECS ) modes and the minimum annualized premium is Rs.10,000/-. The plan offers up to four switches free of charge every year, between the different types of funds. With many attractive features, Child Fortune Plus is an ideal solution to meet the financial requirements arising at various stages like higher education and start up in life, etc.

7. Komal Jeevan Product Summary:

This is a Children's Money Back Plan that provides financial protection against death during the term of plan with periodic payments on survival at specified durations. This plan can be purchased by any of the parent or grand parent for a child aged 0 to 10 years.

Commencement of risk cover:

The risk commences either after 2 years from the date of commencement of

56

policy or from the policy anniversary immediately following the completion of 7 years of age of child, whichever is later.

Premiums:
Premiums are payable yearly, half-yearly, quarterly, monthly or through Salary deductions, as opted by you, up to the policy anniversary immediately after the life assured (child) attains 18 years of age or till the earlier death of the life assured. Alternatively, the premium may be paid in one lump sum (Single premium).

Guaranteed Additions:
The policy provides for the Guaranteed Additions at the rate of Rs.75 per thousand Sum Assured for each completed year. The Guaranteed Additions are payable at the end of the term of the policy or earlier death of the Life Assured.

Loyalty Additions:
This is a with-profit plan and participates in the profits of the Corporations life insurance business. It gets a share of the profits in the form of loyalty additions which are terminal bonuses payable along with death or maturity benefit. Loyalty addition may be payable depending on the experience of the Corporation.

8.Marriage Endowment Or Educational Annuity Plan Product summary:

This is an Endowment Assurance plan that provides for benefits on or from the selected maturity date to meet the Marriage/Educational expenses of the named child.

Premiums:
Premiums are payable yearly, half-yearly, quarterly, monthly or through Salary deductions, as opted by you, throughout the term of the policy or earlier death.

Bonuses:
This is a with-profit plan and participates in the profits of the Corporations life insurance business. It gets a share of the profits in the form of bonuses. Simple Reversionary Bonuses are declared per thousand Sum Assured annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan.

57

Such bonuses are to be added till maturity even if the life assured dies before the maturity date. Final (Additional) Bonus may also be payable provided a policy is of a certain minimum term.

9. Jeevan Chhaya Product summary:

This is an Endowment Assurance plan that provides financial protection against death throughout the term of the plan. Besides payment of Sum Assured immediately on death, one-fourth of Sum Assured is payable at the end of each of last four years of policy term whether the life assured dies or survives the term of the policy.

Premiums:
Premiums are payable yearly, half-yearly, quarterly, monthly or through salary deductions as opted by you throughout the term of the policy or till the earlier death.

Bonuses:
This is a with-profits plan and participates in the profits of the Corporations life insurance business. It gets a share of profits in the form of bonuses. Simple Reversionary Bonuses are declared per thousand Sum Assured annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan. Bonuses for full term on the full Sum assured are paid at the end of the term even if death occurs during policy term. Final (Additional) Bonus may also be payable provided policy has run for certain minimum period.

10. Child Future Plan Introduction:

This plan is specially designed to meet the increasing educational, marriage and other needs of growing children. It provides the risk cover on the life of child not only during the policy term but also during the extended term (i.e. 7 years after the expiry of policy term). A number of Survival benefits are payable on surviving by the life assured to the end of the specified durations. 58

Options:
You may choose Sum Assured (S.A.), Maturity Age, Policy Term, Mode of Premium payment and Premium Waiver Benefit.

Payment of Premiums:
You may pay the premiums regularly at yearly, half-yearly, quarterly or through Salary deductions over the term of policy. Premiums may be paid either for 6 years or upto 5 years before the policy term.

Sample Premium Rates:

Following are some of the sample premium rates per Rs. 1000/- S.A.: Age 0 4 8 12 For 6 years Premium paying term Maturity Age 23 24 25 26 112.55 108.00 103.65 99.45 132.35 127.00 121.85 116.90 156.20 149.90 143.85 138.05 184.20 176.85 169.75 162.95

27 95.45 112.15 132.45 156.40

For Premium paying term = Policy Term less 5 years Age Maturity Age 23 24 25 26 27 0 53.10 49.45 46.20 43.25 40.60 4 71.80 66.90 61.65 57.00 52.95 8 107.80 96.30 86.75 78.75 71.90 12 184.20 155.40 133.90 117.25 108.05

Mode and High S.A. Rebates: Mode Rebate:

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Yearly mode Half-yearly mode Quarterly & Salary deduction

- 2% of Tabular Premium - 1% of the tabular premium - NIL

Sum Assured Rebate:

Sum Assured 1,00,000 to 2,99,999 3,00,000 to 4,99,999 5,00,000 and above - Rebate (Rs.) - Nil 1.5 %o S.A. - 2 %o S.A.

Marketing of Insurance Products in the Indian Context

During the nineteenth century during the freedom struggle, British insurance companies dominating the market serving mostly large urban centers. After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000). The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and Development Authority bill was passed to protect the interest of the policyholders from private and foreign players. The private insurance joint ventures have collected the premium of Rs.1019.09 Crore with the investment of just Rs.3,000 Crore in three years of liberalization. The private insurance players have significantly improving their market share when compared to 50 years Old Corporation (i.e., LIC). The industry is divided into life and non-life. The main driver of growth in the life segment is the Unit Linked products; In the case of non-life insurance, the motor and health insurance portfolios have been expanding rapidly. Inspite of an impressive growth in the life premium, there has been a decline of 8% in the number of policies issued. The

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decline is primarily attributable to the drop in the number of policies issued by the LIC though it registered a 22% increase in premium. The reasons for this decline in policies require to be examined in detail. In the case of general insurance, out of a total increase in premium of Rs. l900 crores in 2004 - 05 over last year, motor and health account for Rs. 1500 crores. In view of the large increases in these portfolios a proper management of the portfolios is critical to sustain the level of growth. The expanding market demands a large agency force.

The insurers have, therefore, been recruiting agency force on a continuous basis. As the end of March 2005, there are 20 lakh individual agents and 4711 Corporate Agents. A significant development during 2004 was the arrangements entered into between the insurers and Commercial Banks for marketing the contracts either as Corporate Agents or on referral basis providing database to the insurers. As per the figures compiled by IRDA, the Life Insurance Industry recorded a total premium underwritten of Rs. 10,707.96 Crore for the period under review. Of this, private players contributed to Rs. 1,019.09 Crore, accounting for 10 percent. Life Insurance Corporation of India (LIC), the public sector giant, continued to lead with a premium collection of Rs. 9,688.87 Crore, translating into a market share of 90 per cent. In terms of number of policies and schemes sold, private sector accounted for only 3.77 per cent as compared to 96.23 per cent share of LIC (The Economic Times, 21 March, 2004). The ICICI Prudential topped among the private players in terms of premium collection. It recorded a premium of Rs. 364.9 Crore and a market share of 25 per cent, followed by Birla Sun Life with a premium under - written Rs. 170 Crore and a market share of 15 percent, HDFC Standard with 132.7 Crore and Max New York Life with Rs. 76.8 Crore with a market share of approximately 15 per cent each. Unlike their counterpart in the life insurance business, private non-life insurance companies have not yet started addressing the retail market.

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Insurance sector is a major contributor to the financial savings of the household sector in the country, which are further channelized into various investment avenues. As per the Annual Report 2003-04 of IRDA, contribution of insurance funds to the financial savings was 14.9 per cent in 2003-04, viz., 2.2 per cent of the GDP at current market price. The premium underwritten has grown from Rs. 45,677.57 Crore in 2000-01 to Rs. 83,645.11 Crore in 2003-04 After liberalization of insurance sector, insurers have introduced innovative product and tailor made products which are absolutely sit to rural population. Efforts at increasing consumer awareness and putting the regulatory framework for protection of policyholder's interest have been made both the industry and regulatory level.

Global market conditions have also resulted in driving down premium rates/charges in respect of certain products and in improving the quality of services offered by the insurer. While estimating the potential of the Indian insurance market we often tempt to look at it from the perspective of macro - economic variables such as the ratio of premium to GDP, which is indeed comparatively low in India. For example, India's life insurance premium as a percentage of GDP is 1.77% against 4.48% in the US, 12.71% in the UK or 9.89% in South Korea. But the fact is that the large part of the India's (the number of potential buyers of insurance) is certainly attractive. However, this ignores the difficulties of approaching this population. Much of the demand may not be accessible because of poor distribution, large distances or high costs relative to returns. The reforms in the insurance sector leading finally to the opening of the insurance sector for private participation have brought in its wake major changes not only in the design of the products available in the market but also the manner in which they are marketed. We have today a host of products coupled with a large number of intermediaries who market them. The post-liberalized insurance industry panorama in India is witnessing dramatic changes in terms of a slew of latest products and services, new channels of distribution, greater use of I.T. as a service facilitator etc. There is also

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the phenomenon of noticeable shifts in consumer preferences impacting the product mix being offered by insurers. Greater attention is also being bestowed on the areas like Agricultural Insurance and risk coverage of export - import trade. Then there is impact of visible socio-economic changes like greater urbanization, greater job mobility, growth of the services industry, weakening of traditional family structure, impact of globalization, etc. All in all, interesting things are happening in the Indian insurance scene. Insurance underwent rapid and massive changes in all aspects of their business: product and services, sect oral structure, market segmentation, competitive environment. It is believed that the information sharing has not taken its expected shape in the insurance industry for the purposes of practices, research and education.

Manpower India today released the Manpower Employment Outlook Survey for the first quarter of 2006 revealing sustained positive hiring intentions of employers in India. India continues to lead all 23 countries surveyed this quarter, with a positive overall Net Employment Outlook of +27%. Even though this figure represents a decrease of 13 percentage points from the fourth quarter of 2005, the employment outlook remains extremely healthy. For the first time since the Survey was launched in India, the Finance, Insurance and Retail industry sector emerged as the most optimistic sector for a quarter with a Net Employment Outlook of +32%, surpassing the Services sector. Privatization of insurance sector has allowed insurance companies to work in the market by depositing Rs.100 Crores in the reserve of government. This has encouraged many overseas insurance companies, having a required amount in their reserve, to open their branch in our country. There is no doubt that the potential market for the buyers of insurance is significant in India and offers a great scope of growth. According to Nitin Tanted, the new entrants in order to obtain volumes in the market have to follow certain guidelines. They can introduce innovative products offering a right mix of flexibility / risk / return depending which will suit the appetite of the customers.

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They can target specific niches, which are poorly served or are not served at all. Being the agrarian economy again there are immense opportunities for the new entrants to provide the liability and risks associated in this sector like weather insurance, rainfall insurance, cyclone insurance, crop insurance, etc. The financial sector is aggressively targeting retail investors. Housing finance, auto finance, credit cards and consumer loans all offer an opportunity for insurance companies to introduce new products like creditor insurance etc. Similarly, organized sector sales of TVs, refrigerators, washing machines and audio systems. Only a negligible portion of these purchases is insured. Potential buyers for most of this insurance lie in the middle class. This may be huge market for new private entrants. The lack of a comprehensive social security system combined with a willingness to save in India will lead to a large demand for pension products. However, current penetration is poor. Making pension products into attractive saving instruments would require only simple innovations already prevalent in other markets. For example, their returns might be tied to index-linked funds or a specific basket of equities. Buyers could be allowed to switch funds before the annuities begin and to invest different amounts at different times. Health insurance is another segment with great potential because existing Indian products are insufficient. By the end of the GIC's Mediclaim scheme covered only 2.5 million people. Indian products do not cover disability arising out of illness or disability for over 100 weeks due to accident. Neither do they cover a potential loss of earnings through disability. The challenges before the Indian insurance companies whether in public or private is that the market is conservative and complex. Even the person with high net worth is not interested in getting insurance due to low awareness. Personal selling is extremely labor intensive but is the best form as far as insurance is concerned, dealing with one customer at a time. This will help in allaying fears over any issues on this subject. Advertising deals with hundreds, thousands, or millions of customers at a time, reducing the cost per customer to mere pennies. In fact, advertising costs are determined in part using a formula to determine not cost per potential customer, but cost per thousand potential customers. Even though Personal

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selling is the best measure to reach the customers, it is often the advertising that initiates the response from the clients when faced with uncertainties. Some of the major players in Kerala have seemed to opt only for personal selling via financial advisors and agents. Only LIC, ICICI Prudential and MetLife are seen in the advertising hemisphere. The state of Kerala for example covers 1.2% the area of India and is home to 3.1% of the population. The Physical Quality of Life indices in Kerala are much higher than the national averages and indeed the highest in the developing world. Hence it is important to reach the market with prudent insights. In Kerala, Onam marks the beginning of a new season. The season of joy and celebrations. When the educated, fast paced Malayalees go on a shopping spree for weeks on end. And to catch the market savvy Malayalees in the best of their spirits, there is no better way than Malayala Manorama Onam Annual. Packed with articles, features and literary pieces, this collector's edition has long become an indispensable part of Malayalee's Onam feast. So, put Malayala Manorama Onam Annual in your media plan. And relish the taste of Onam with millions of Keralites.Little wonder then, that the World Bank has titled Kerala as 'The Model for Human Development' in the third world which puts onerous task for the sales people in insurance at large. Some of the other strategies planned include that of Aviva which is an Indian partnership between Aviva and Dabur, is opening the 13 new branches across India in major cities including Delhi and Mumbai. The company has also launched a new unit linked, single premium investment cum protection plan, Life Bond Plus, which offers investment in three unit linked funds - balanced, secure and growth. The Life Bond Plus product offers flexibility on premium allocation within these funds, as well as allowing lump sum investments to be made. Bajaj Allianz sponsored the India-Pakistan Cricket Series, named the Allianz Cup. TBWA, its agency has designed the trophy. When it began advertising, Tata AIG deliberately stayed away from the `trust' platform most other financial companies took and touted its innovative schemes instead. Tata AIG and ICICI-Prudential also have an arrangement with rediff.com by which one can e-mail a request for a visit by company agents. In a special campaign, Tata

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AIG sent out direct mailers about a personal accident insurance plan (It has used the HSBC database for addresses). Those calling in are told the they won't have to go through any verification because, a pleasant voice informs them, ''we have approached you and not the other way around.'' Premiums can be paid by credit card or the company can even arrange a free courier pick up. The pleasant voice also makes a follow up call. Some of the following facts reveal the importance of creating promotion and awareness on insurance: -General insurance companies were the third largest spenders (after housing/construction loans and personal/professional loans) on TV advertising in 2005 - they spent Rs. 10.66 Crore compared to Rs. 2.25 Crore in 2004. Banks, the fifth biggest spenders (after auto loans), spent Rs. 8.31 Crore.

Mutual Funds were the highest spenders with Rs. 38.66 Crore in the print media in 2005. Banks came third, spending Rs. 6.6 Crore, following Chairmen's speeches (Rs 6.8 Crore). Fire, travel and agriculture insurance together accounted for Rs. 1.6 Crore spends in print in 2005. In conclusion, the possibility of Mergers and Acquisitions looming large on the Indian insurance sector given its potential, there needs to be immediate activity on the marketing front by all those who have stake in it. In its report titled 'Run for Cover?' KPMG has said 81% of large insurers - with a premium of over $500m - are actively seeking acquisitions. The drive for this growth is being fuelled by insurance companies' expectations of increasing competition and new entrants. Until now, for the past three years, acquisition strategy has been driven by increasing profit and top line growth. The report also points out that with some markets such as Australia losing momentum, companies there are looking at expanding in high-growth markets such as India. The Insurance Australia Group is one such company looking at India among other Asian countries. Recently, the Indian market came close to witnessing one of these possible scenarios with UK insurer Aviva making a bid for Prudential. Global consolidation is good for Indian consumers, as operations of foreign insurers are not significant enough to 66

result in monopolistic power post-acquisition. At the same time, a merger would result in better product range/services being made available to consumers and better market reach for the foreign acquirer. In such an event, then every player in the Indian insurance sector has to offer the best - tune their marketing strategies.

Conclusion:
The fact that life insurance has grown exponentially due to the several factors is proved beyond doubt. But it is also very important to sustain this momentum of growth and ensure that the market expands i.e. growth of the private players does not happen at the expense of LIC. People still need to be

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made aware of the importance and benefits of life insurance. Hence, education of the agents and consumers alike is the key. As regards to sales, it is going to be a fiercely competitive and challenging race to grab the huge untapped market, especially the bottom of the pyramid as said by C. K. Prahalad. Companies have to be ready to brace the challenges that are going to be unique to India owing to its diverse market structure and demographics. With the global financial meltdown, situations are uncertain and major shifts in economies are abound. How companies face this challenging environment and come up with unique India specific strategy will be the key differentiating factor that will separate the leaders from the followers.

Bibliography:

1. 2.
3.

Making a Difference by Len Warwick CBE; British Council Library Market Analysis India Swiss RE
IRDA basics manual

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4. 5.

www.tata-aig.com www.enam .com

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