A REPORT

ON NEW PRODUCT DEVELOPMENT AT HDFC SLIC (DEHRADUN)

BY: DINKER GANGWAR ( 05BS1041 )

HDFC STANDARD LIFE INSURANCE COMPANY LTD. (DEHRADUN)

A REPORT
ON NEW PRODUCT DEVELOPMENT AT HDFC SLIC (DEHRADUN) A PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF MBA PROGRAM OF DOON BUSINESS SCHOOL (DEHRADUN) BY: FAIZAN AHMAD ( ROLLNO 27 )

DISTRIBUTION LIST:

MR. PRADEEP KUMAR PROF. RAJNISH MEHRA

( COMPANY GUIDE ) ( FACULTY GUIDE)

TABLE OF CONTENTS

ACKNOWLEDGMENTS ABSTRACT INTRODUCTION MAIN TEXT CONCLUSION REFERENCES ANNEXURE

ACKNOWLEDGMENT
When walking down the path of life, remember its true that every man must feel the thorns that grow along the way and every soul will stumble for every man is weak and the road of life uncertain and its prospects often bleak. But always give a helping hand to help the soul beside you walk across each weary mile. I hereby express my profound gratitude to all those respected people who supported me in the completion of this project. I would like to thank my my center head Prof. Loveraj Takru, company guide, Mr. Pradeep Kumar, my faculty guide Mr. Rajnish Mehra, my parents and all the staff members of HDFC-SLIC for their cooperation and support. I am extremely thankful to my company guide, Mr. Pradeep Kumar for always pushing me forward to work more and more and for showing me the right path. I hereby also like to thank Mr. Hitesh and Mr. Manoj for their support throughout this project. I am really thankful to all of them for their immense support and valuable guidance in the completion of this project.

ABSTRACT

As the project assigned was about new product development at HDFC SLIC, Dehradun, and this project report contains the work done on the project.

This report contains an introduction about insurance, who are the major players in the life insurance sector, complete introduction about HDFC SLIC. As the competitive pressures have increased in life insurance sector with more and more players coming up in the market, the project will help a lot to company to handle that pressure from its competitors by innovation of new products and with the modification of the existing products. At every stage of life, a different plan may be required to cater to changing financial needs and liabilities and this project will accomplish the task of identifying the needs the customers and thus modifying the existing ones to help the company offer the best service to its customers and thus increasing its customer base and ultimately contributing to the profitability of the company. After going through this report the reader will also get to know the new product that has been developed and the results of the survey conducted.

INTRODUCTION

INTRODUCTION TO INSURANCE

WHAT IS INSURANCE?

Insurance is a method of spreading and transfer of risks. Losses of unfortunate few are shared by and spread over to many exposed to the same risk.

Assets created by the owner in expectation of future needs/benefits have a value.

Loss of assets for any reason deprives the owner of the expected benefit.

Insurance in this context is a mechanism that helps to reduce the adverse consequences due to loss of assets.

PURPOSE AND NEED FOR INSURANCE:

Assets are likely to be destroyed or made non-functional due to any natural calamity.

Risks means possibility of loss or damage, which may or may not happen.

Insurance becomes relevant only if there are uncertainties of occurrence of event leading to loss.

No uncertainty, no insurance.

Insurance does not protect the assets but only compensates the economic or financial loss.

CONCEPT OF INSURANCE:

The concept of insurance is that people exposed to the same risk come together and loss suffered by a few is shared by all.

 The insurance companies play the role of implementing the said concept, collect in advance the shares in the shape of premiums and create a fund out of which the losses are paid.

Life insurance provides relief to the family members in the event of death/retirement of the earner of the family.

Insurance covers the risks of dying too early or living too long.

Variable needs for life insurance can be: - Protection of the interest of the family members. - Provision for education, marriage of children. - Post retirement income for self and dependents. - Special needs like medical expenses. INSURANCE AS A SOCIAL SECURITY TOOL:

United Nations Declaration of Human Rights 1948 provides-: Everyone has a right to a standard of living adequate for health and well being of himself and his family, including food, clothing, housing and medical care and necessary social services and the right to security in the event of unemployment, sickness, disability, widowhood, or other lack of livelihood in circumstances beyond his control.

 Where the main earner of the family dies, familys income stops to that extent, affecting the economic condition.

Life insurance helps in restoration of the adverse economic conditions so caused. INSURANCE IN INDIA

Insurance companies in India have a deep-rooted history. It all began in 1818 when Oriental Life Insurance Company in Calcutta was established. From then on, insurance was scattered across the country. It was an unorganized sector. Then in 1950, the entire insurance segment was nationalized.

After achieving freedom, the insurance sector gained momentum. In 1956 the government of India consolidated 240 private life insurers and provident societies and this was how LIC came to life. The justification to the nationalization of the life insurers was that the government would reap the necessary funds that were required for industrialization.

LIC adds about 7 percent to the countrys GDP. With IRDAs regulation not less than 15 percent of funds from the insurance companies are said to fill the coffers of infrastructure and social sectors, thus providing vital funds to the countrys growth. Infrastructure of the country bears risks that are of a long-term character.

They include political instability, geological hindrances, gestation period and illiteracy. The long tem funds provided by Life Insurance of India not only cover these risks but also help securing a brighter future for the country. Besides infrastructure, the insurance companies in India are vital for ones saving purpose. In the beginning, insurance was looked at as a tax-benefit investment.

Slowly, however the mindset of the common man is changing. Life insurance is now looked on as an investment vehicle. With the introduction of private players in the sector, there has been more transparency . Better services, individual attention and pure transparency have given the private sector an upper hand. But with a huge unorganized market in India yet to tap the insurance companies in India have a voluminous market to explore.

Insurance business is divided into four classes: 1)Life insurance business

2)Fire

3)Marine

4)Miscellaneous insurance

Life Insurers transact life insurance business; the rest is transacted by General Insurers. No composites are permitted.

The business of Insurance essentially means defraying risks attached to any activity over time (including life) and sharing the risks between various entities, both persons and organizations. Insurance companies (ICs) are important players in financial markets as they collect and invest large amounts of premium.

Insurance products are multi purpose and offer the following benefits: 1.Protection to investors

2.Accumulate savings

3.Chanellise savings into sectors needing huge long term investments.

ICs receive, without much default, a steady cash stream of premium or contributions to pension plans. Various actuary studies and models enable them to predict, relatively accurately, their expected cash outflows. Liabilities of ICs being long-term or contingent in nature, liquidity is excellent and their investments are also long-term in nature. Since they offer more than the return on savings in the shape of life-cover to the investors, the rate of return guaranteed in their insurance policies is relatively low.

Consequently, the need to seek high rates of returns on their investments is also low. The risk-return trade off is heavily tilted in favor of risk. As a combined result of all this, investments of insurance companies have been largely in bonds floated by GOI, PSUs, state governments, local bodies, corporate bodies and mortgages of long term nature.

Lately ICs have ventured into pension schemes and mutual funds also. However, life insurance constitutes the major share of insurance business. Life Insurance depends upon the laws of mortality and there lies the difference between life and general insurance businesses. Life has to extinguish sooner or later and the claim in respect of life is certain.

In case of general insurance, however, there may never be a claim and the amount can never be ascertained in advance. Hence, Life Insurance includes, besides covering the risk of early happening of an event, an element of savings also for the beneficiaries.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY ACT, 1999 (IRDA) To permit private companies to enter the insurance market, the government has enacted the Insurance Regulatory & Development Authority Act,1999. IRDA was constituted by an act of parliament. The Authority is a ten member team consisting of: (a) a Chairman (b) five whole-time members (c) four part-time members (1) Subject to the provisions of Section 14 of IRDA Act, 1999 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 reinsurance business. (2) Without prejudice to the generality of the provisions contained in subsection (1), the powers and functions of the Authority shall include, (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 organizations 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 organizations connected with the insurance business.

(i) Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938). (j) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other

insurance intermediaries. (k) Regulating investment of funds by insurance companies. (l) Regulating maintenance of margin of solvency. (m) Adjudication of disputes between insurers and intermediaries or insurance intermediaries. (n) Supervising the functioning of the Tariff Advisory Committee.

(o) Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations 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. As the project finally resulted in the formulation of new product for the company. New product development is crucial to the future of a company. Without the right people, and an organization-wide commitment to pursue a new product development strategy, companies will be left with a few good ideas, a lot of good ad-vice, and no way to proceed into the new products. There has been a great competition of private players in life insurance sector providing a wide range of innovative products, services and customized

solutions. A new product is primarily a response to the recognition of the latent needs of the consumers. Todays consumer goes for pure term insurance and plans, which give him insurance-cum-investment as compared to endowment, and money-back plans. In business New Product Development is the complete process of bringing a new product to market. There are two parallel aspects to this process: one involves product engineering; the other marketing analysis. Marketers see new product development as the first stage in product life cycle management, engineers as part of Product Lifecycle Management. Success rests upon creating an environment that is conducive to taking risks and supportive of the individuals who take them. There are several types of new products. Some are new to the market, some are new to the firm, and some are new to both. Some are minor modifications of existing products while some are completely innovative.

Various limitations that I have faced while working on the project assigned to me, which is of new product development, are as follows:

 As the younger generation which is exposed to the outside world, demands products and services which are at par with what is available in the advanced countries. This is the biggest challenge in the new product development. Sometimes it becomes difficult to cater the need of each and every customer and develop a plan which can serve the public in general. Incorrect feedback by the customers can act as hurdle in the new product development. Lack of organizational support can also be one of the limitations.

MAIN TEXT

WELL-DESIGNED INNOVATION PROCESSES ATTRACT AND INSPIRE PEOPLE TO INNOVATE -CIO MAGAZINE NOVEMBER 2005 How does your organization instill a climate of innovation? ideas + competition = accelerated imagination

There are several stages in the new product development process: 1. Idea Generation
o

Ideas for new products obtained from customers, the R&D department, competitors, employees, or trade shows Formal idea generating techniques include attribute listing, forced relationships, brainstorming, and problem analysis.

2. Idea Screening
o o

Eliminate unsound concepts Must ask three questions:

Will the target market benefit from the product Is it technically feasible to manufacture the product Will the product be profitable

3. Concept Development and Testing

o

Develop the marketing and engineering details

Who is the target market What benefits will the product provide How will consumers react to the product How will the product be produced What will it cost to produce it

Test the concept by asking a sample of prospective customers what they think of the idea

4. Business Analysis
o o

Estimate sales volume Estimate profitability Produce a physical prototype or mock-up Test the product in typical usage situations Make adjustments where necessary Produce an initial run of the product and sell it in a test market area to determine customer acceptance

5. Beta Testing and Market Testing

o o o o

6. Commercialization
o o

Launch the product Produce and place advertisements and other promotions

As the company aims to be the top new life insurance company in the market this project will help a lot to company to identify how new products

can be developed and also how modifications in the existing products can lead to profitability for the company. Creating a supportive environment for new products is important for success. There are five management factors that heavily influence the success of a new product development strategy:

Organization, structure, and teams Accountability Skills mix Leadership sharing Top-management commitment

Product Designer Workbench enables insurance companies to bring new products to market faster and quickly re-launch existing products with new features. Product Designer Workbench (PDW) is a software package developed by TCS specifically for the insurance industry. It allows users to rapidly and easily define new insurance products, make changes to existing products, and establish rules that govern the product's behavior. It also serves as a repository of data relating to a company's insurance products.

Key components:

Product specification component

This component deals with the setting up of the product using data present in 'master tables'

External interface component (EIC)-APIs

This provides a rich set of APIs to access the product data that is generated and maintained using the 'Infrex Rule Base Engine Component'. External systems, such as the policy administration system, can make use of the APIs to access product data. This component is the dividing line between external systems and the PDW database.

Rule base engine component (RBE)

The RBE component generates APIs of the external interface component by taking a set of parameters from the product database and generating 'if-thenelse' statements in C++ or Java.

Key benefits:
Accelerated product development and launch Competitive advantage from reduced time to market

 Flexible and easy-to-use tool that allows the user to specify and manage product changes Componentized architecture allows integration with legacy insurance systems

Technology:
PDW has been designed and developed using an object-oriented design methodology. Master Craft, an integrated development environment product from TCS, was used as the development platform. The entire business model is defined in Master Craft, and a model-based generation methodology used to define as generic client-server architecture. The model can then be used to generate code that can be deployed on any platform

Operational views:
PDW provides two distinct but interrelated views of an insurance product

Product Development View

This view can be used by the product design team to define the product attributes and its rating structures. PDW provides a logical product-definition process. A product is designed by defining its concepts, attributes, rate tables and rating processes.

In the product development view, PDW supports the designing of all the variants of conventional life products such as Term Life, Whole of Life and

Unit Linked Life, and of new products like Universal Life and Variable Universal Life. All products, concepts, attributes and relationships are organized as libraries that are viewable as a tree structure. A simple and friendly user interface incorporating business semantics enables actuaries and underwriters to change products and rules. A simple point-and-click on any element in the tree structure invokes a search screen for that particular product or concept, from where all existing instances can be retrieved or new instances defined. The user can view details of any selected concept and modify or clone it into a new instance.

Systems Execution View

This view can be used to understand the product attributes and rating structures that are required to execute processes within systems. The execution view of PDW is seen by the systems that need to use the product attributes, relationships and rating algorithms to execute their processes. Different parts of a life policy administration system need to use various attributes of the product. The rating engine and the product database are available in this view. PDW provides generic APIs grouped under the external interface component for this purpose. Services are available for product data validation and for performing product-specific calculations.

As the project is about new product development at HDFC SLIC, Dehradun, so before moving forward with more about new product

development it is important to give an introduction about the company itself its various products and the products of various leading life insurance players. HDFC STANDARD LIFE INSURANCE COMPANY LTD.

THE PARTNERSHIP HDFC and Standard Life first came together for a possible joint venture, to enter the Life Insurance market, in January 1995. It was clear from the outset that both companies shared similar values and beliefs and a strong relationship quickly formed. In October 1995 the companies signed a 3 year joint venture agreement. Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the relationship. The next three years were filled with uncertainty, due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passed in parliament. Despite this, both companies remained firmly committed to the venture. In October 1998, the joint venture agreement was renewed and additional resource made available. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC). Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India.

Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. Therefore, in January 2000 an expert team from the UK joined a hand picked team from HDFC to form the core project team, based in Mumbai. Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank. In a further development Standard Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was launched on 20th July 2000.

INCORPORATION OF HDFC STANDARD LIFE INSURANCE CO. LTD The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited. Its ambition from as far back as October 1995, was to be the first private company to re-enter the life insurance market in India. On the 23rd of October 2000, this ambition was realized when HDFC Standard Life was the only life company to be granted a certificate of registration.

HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while Standard Life owns 18.6%. Given Standard Life's existing investment in the

HDFC Group, this is the maximum investment allowed under current regulations. HDFC and Standard Life have a long and close relationship built upon shared values and trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance companies in India are measured. MISSION The company aims to be the top new life insurance company in the market. This does not just mean being the largest or the most productive company in the market, rather it is a combination of several things like

Customer service of the highest order Value for money for customers Professionalism in carrying out business Innovative products to cater to different needs of different customers Use of technology to improve service standards Increasing market share

VALUES

SECURITY: Providing long term financial security to policyholders will be the constant endeavor. The company will also do this by offering life insurance and pension products.

TRUST: the company appreciates the trust placed by their policyholders in them. Hence, the company aims to manage its investments very carefully and live up to this trust.

INNOVATION: Recognizing the different needs of its customers, the company will be offering a range of innovative products to meet these needs.

The mission is to be the best new life insurance company in India and these are the values that will guide the company in this. There are various main plans which are offered by the company some of the basic plans of the company available are as follows:

SINGLE PREMIUM WHOLE OF LIFE PLAN:

Single Premium Whole of Life Insurance Plan is well suited to meet customers long term investment needs. This participating (with profits) plan offers following benefits:

Whole of life plan aimed at providing long term real growth of customers money

Single premium investment plan

Predetermined exit options occurring throughout customers life time

In case of unfortunate demise during the policy term, this participating customers (With family Profits) the Sum insurance Assured plan and will pay compound

Reversionary Bonuses, which are usually added annually. An additional Terminal Bonus may be paid depending on the performance of the underlying investments

On exercising exit option the company will pay the Sum Assured and compound Reversionary Bonuses, which are usually added annually. An additional Terminal Bonus may be paid depending on the performance of the underlying investments

UNIT LINKED PENSION PLAN

The HDFC Unit Linked Pension Plan is an insurance policy that is designed to provide a retirement income for life with the freedom to maximizes investment returns by providing a choice of thoroughly researched and selected investments. Customer can choose his premium and the investment fund or funds. The company then invest customers premium, net of charges in his chosen funds in the proportion he specify. At the end of the policy term, he will receive the accumulated value of his funds, which will be used to provide customers pension income. In the event of customers unfortunate demise during the policy term, his spouse will receive a cash lump sum to help him or her manage their retirement years.

The HDFC Unit Linked Pension Plan is an insurance policy, which benefits in the following ways: Provides a post retirement income for life

Gives flexibility to plan retirement date Gives freedom to invest premiums as per preference Offers potentially higher market linked returns Give tax benefits on premiums and on receiving the lump sum

UNIT LINKED YOUNG STAR PLAN

The HDFC Unit Linked Young Star Plan gives: An outstanding investment opportunity by providing a choice of thoroughly researched and selected investments Valuable protection in case of the insured parents unfortunate demise Very flexible benefit combinations and payment options Flexible additional benefit options such as critical illness cover A customer can choose his premium and the investment fund or funds. The company then invests his premium, net of charges in his chosen funds in the proportion he specify. At the end of the policy term, he will receive the accumulated value of his funds. In case of customers unfortunate demise during the policy term, HDFC Standard Life will continue the policy AND continue to pay the original premiums he had chosen. His family will receive the Sum Assured he had

chosen* plus the fund built up by him and HDFC Standard Lifes contributions.

UNIT LINKED ENDOWMENT PLAN

The HDFC Unit Linked Endowment Plan gives: An outstanding investment opportunity by providing a choice of thoroughly researched and selected investments Valuable protection in case of the insured lifes unfortunate death Flexible benefit combinations and payment options Flexible additional benefit options such as critical illness cover

Access to accumulated fund before maturity

One can choose his premium and the investment fund or funds. The company then invests his premium, net of charges in his chosen funds in the proportion he specify. At the end of the policy term, he receives the accumulated value of his funds. In case of his unfortunate demise during the policy term, the company will pay the greater of his Sum Assured (less any withdrawals he have made) and his total fund value to his family.

PERSONAL PENSION PLAN:

The HDFC Personal Pension Plan is an insurance policy, which can benefit in the following ways:

Provides a post retirement income in golden years Gives the flexibility to plan retirement date Gives tax benefits on premiums

The plan receives simple Reversionary Bonuses, which are usually added annually. At the end of the term an additional Terminal Bonus may be paid depending on the performance of the underlying investment.

MONEY BACK PLAN:

The HDFC Money Back Plan is a With Profit Plan that gives:

A proportion of the basic Sum Assured as cash lump sums at regular 5-year intervals within the policy term (see the table given below) an ideal way to secure long- term as well as short-term financial goals

A lump sum payment on survival up to maturity date

Valuable protection to family by way of lump sum payment in case of customers unfortunate death within the policy term. This is over and above any earlier payouts

CHILDREN'S PLAN

The HDFC Children's Plan gives:

Invaluable financial support to child Helps customize an ideal plan for child Provides multiple options for multiple benefits

The HDFC Childrens Plan is designed to secure ones childs future by giving his child (the beneficiary) a guaranteed lump sum, on maturity or in case of his unfortunate demise, early in the policy term. The premiums, paid by him, are invested by the company to give him good long-term returns.

ENDOWMENT ASSURANCE PLAN

The HDFCSL Endowment Assurance Plan gives:

An ideal way to secure long-term financial goals Valuable protection to ones family by way of lump sum payment in case of his unfortunate death within policy term

Provides lump sum payment (basic Sum Assured plus any bonus additions) on survival up to maturity date Very flexible benefit options and payment options

In case of customers unfortunate demise during the policy term, this participating (With Profits) insurance plan will pay his family the Sum Assured (together with the attached bonuses) he had chosen.

The plan receives simple Reversionary Bonuses, which are usually added annually. At the end of the term an additional Terminal Bonus may be paid depending on the performance of the underlying investment.

TERM ASSURANCE PLAN

A protection plan to secure higher protection needed for ones family at economical rates

Optional riders for enhanced protection

Unique joint life option to cover spouse under the same plan

Single / regular premium payment options

Other leading life insurance companies in India are as follows: Life Insurance Corporation of India

 Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited