INSURANCE SECTOR IN INDIA

With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. It's a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the country's GDP. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP. Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This it is an indicator that growth potential for the insurance sector is immense. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion US dollar. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain economic growth of the country. Insurance is a federal subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. In India, insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant. PRESENT SCENARIO The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter

the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. Today, there are 24 companies both in life insurance and non-life insurance sector. The following table shows the market share of life and non-life insurers MARKET SHARE (in %) LIFE INSURERS 1. LIC 2. ICICI Prudential 3. Bajaj Allianz 4. HDFC Standard 5. Brila Sunlife 6. Tata AIG 7. SBI Life 8. Max New York 9. Aviva 10. Kotak Mahindra Old Mutual 11. ING Vysya 12. AMP Sanmar 13. Met Life 14. Sahara Life Private total Public total Grand total Source : www.irdaindia.org NON LIFE INSURERS 1. New India 2. National 3. United India 4. Oriental 5. ICICI- Lombard 6. Bajaj Allianz 7. IFFCO-Tokio 8. Tata-AIG 9. ECGC 10. Royal Sundaram 11. Cholamandala m 12. HDFC-Chubb 13. Reliance General 14. Agriculture Insurance Co. Private total Public total Grand total

76.07 6.91 4.75 2.98 1.72 1.66 1.46 1.28 1.08 0.71 0.54 0.46 0.37 0.03 23.93 76.07 100.00

21.41 17.11 17.11 17.02 8.04 6.15 4.00 2.89 2.50 2.17 1.22 0.89 0.75 -27.35 72.65 100.00

RECENT TRENDS IN THE INSURANCE SECTOR

MODERN MARKETING APPROACH Marketing strategies for insurance in the emerging scenario could be understood in terms of the following steps: In India Insurance is sold and not bought. The agents / Advisors by using various strategies sell the product by convincing the customers. Moreover, they push Policies with the highest premium to pocket a higher commission. The consultative approach to selling is the modern approach, which helps customers and prospects to buy. A consultant makes calls and sells just like any other sales person. The difference is in their attitude, their approach and their commitment. Here, the customer is seen as a person to be served and not a person to be sold. It helps the purchaser to make an intelligent decision. The four-step process includes: * Need discovery * Selection of the product * Need satisfaction presentation, and * Serving the sale This approach to selling their products requires understanding of concepts and principles borrowed from the fields of psychology, communications, and sociology and needs a lot of personal commitments and self discipline from the seller.

PRODUCT INNOVATIONS Insurers are continuously innovating new products based on forward-looking models. They have developed new products addressing the new challenges in society and products to address the hazards from new environmental issues. Understanding the customers better has enabled Insurance companies to design appropriate products, determine price correctly and to increase profitability. Product development is made possible by integrating actuarial, ratings, claims and illustration systems. At present, the Life Insurers are concentrating on the pension schemes and the Non-Life Insurers on many innovative schemes of various realms and thereby enriching their market share. Moreover, with increased commoditization of insurance products, brand building is going to play a vital role.

CUSTOMER EDUCATION & SERVICES In the present competitive scenario, a key differentiator is the professional customer service in terms of quality of advice on product choice along with policy servicing. Servicing focus is on enhancing the customer's experience and maximizing his convenience. This calls for an effective CRM system, which eventually creates sustainable competitive advantage and enables to build long lasting relationship.

DISTRIBUTION NETWORK While the traditional channel of tied up advisors or agents is the chief distribution channel, insurers are looking to innovate and find new methods of delivering the products to customers. Corporate agency, brokerage, Banc assurance, e-insurance cooperative societies and panchayats are some of the channels, which are being tapped by the insurers to reach the appropriate market segments. Now days, the urban masses are tapped with the new techniques provided by Information Technology through Internet. Rural masses are attracted by the

consultative approach adopted by the Insurers. Moreover, they attract the customers through telephone and mobile also.

OBJECTIVE OF THE STUDY

1. To determine the consumer investments patterns. 2. To determine the motives behind investment in insurance policy.

HYPOTHESES
H1: Consumers invest in life insurance policies because of the risk cover. H2: Consumers invest in life insurance because of the returns on investment. H3: Consumers invest in life insurance to gain tax benefits.

RESEARCH METHODOLOGY
The research is based upon primary data collected through questionnaires. Each questionnaire consisted of 25 questions asking the respondents about their awareness levels and investment patterns in insurance plans. This data was analyzed through SPSS and the hypotheses were thus tested. Population All customers residing in the city of Mumbai were taken as the population for the study. Sample Units Individual Customers

Sampling Method To ensure proper coverage of the entire city, sample was drawn from all the major localities of the city. Hence the cluster sampling method was used to draw samples. While drawing the sample proper care was taken to have enough representation of population by covering people across varying demographics details. Sample size The sample size was taken as 300.

DATA PROCESSING AND ANALYSIS

The collected data was edited, coded, tabulated, grouped and organized according to the requirement of the study. A simple and appropriate statistical tool (viz. SPSS, statistical software package) was used by the researcher for testing the hypotheses and drawing conclusions. The questionnaire was coded and data gathered was entered using the SPSS. The data was then analyzed and interpreted using some basic techniques like percentages, bar plots, pie charts and also included advanced techniques like Chisquare test.

OBSERVATIONS AND FINDINGS

1. Best Investment Option

This bar graph represents the response of respondents towards the above investment options on a rating scale of 1 to 5. People, in general, believe that real estate is the best form of investment followed by bank deposits. Insurance received a rating of 3.1 followed by mutual funds.

2. Best Investment Option Gender Distribution

Males and females were found to vary in their opinion towards investment decision. Females preferred bank deposits over other options, with very insignificant inclination towards shares or mutual funds. Males, on the other hand, showed considerable interest in shares and mutual funds. Both gender showed almost equal inclination towards insurance and real estate.

3. Motives Behind Insurance Investment

The primary motive behind insurance investment was found to be risk cover. Majority respondents quoted risk cover and investment purpose as their primary reasons behind purchasing insurance. Tax benefit was also a substantial motive. People in higher 40s and 50s mentioned pension as an important motive behind investing in insurance.

4. Motives Behind Insurance Investment Age Distribution

This graph shows that the strength of pension as an investment motive increased with increasing age group of consumers. The differences between other motives over the various age groups were relatively small.

5. Factors Influencing Insurance Investment

Among the factors influencing insurance investment, insurance cover and high returns on investment were considered most important by the respondents. These

factors were followed by low amount of premium and the nature of risk involved in the investment.

6. Awareness about IDBI Insurance Plans

Out of 300 respondents who were asked about their knowledge of IDBI products, 173 were aware about its insurance policies. Out of these 173 respondents, 43% were aware about Wealthsurance, followed by 35% awareness about Incomesurance.

TESTING OF HYPOTHESES

Null Hypo 1: Consumers make investment in life insurance because of risk cover. The p-value was found to be 0.00; since p<0.05 it is highly significant that H0 is accepted resulting into the acceptance of null hypothesis i.e. consumers invest in life insurance because of life cover.

Null Hypo 2: Consumers make investment in life insurance because of the returns on investment. Here p<0.05, in fact p value is 0.00 so it is highly significant and H0 is accepted. As a result, null hypothesis is accepted i.e. consumers invest in life insurance because of the returns on investment.

Null Hypo 3: Consumers make investment in life insurance because of tax benefits. The p-value was found to be 0.01; since p<0.05 it is highly significant that Ho is accepted resulting into the acceptance of null hypothesis i.e. consumers invest in life insurance because of tax benefits.

CONCLUSION
1. With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. It's a business growing at the rate of 1520 per cent annually and presently is of the order of Rs 450 billion, according to RBI survey 2008. Yet, nearly 80 per cent of Indian population is without life

insurance cover while health insurance and non-life insurance continues to be below international standards.

2. In India, insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also, but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. This may be because of lack of awareness or knowledge about insurance investments, or varying opinion of the consumers regarding the safety, return, and overall suitability of the investment.

3. The investment patterns of the consumers are merely reflections of their mindset and approach towards insurance. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant. There are so many options available to the consumers, with various new players offering products which are both competitive and innovative. But people are still very apprehensive when it comes to investment in insurance.

4. Today almost 15 private life insurance companies are working in India, some in wholly owned format and some as a joint venture with foreign company or with Indian company. Together they hold the market share of approx. 24 % in life insurance market. Still LIC holds the kingship with almost 76 % of market share. That's good news for the LIC on one hand, but on the other, it shows that the pace at which the private life insurance companies are moving, they are definitely going to give a tough fight to LIC. 5. The leadership lies not in getting the maximum out of market share but it is there somewhere in understanding the consumers reasoning for the choice of one product over another one.

RECOMMENDATIONS
1. The findings of the research have suggested that consumers give most importance to factors like insurance cover and returns on investment while making any decision regarding investment in insurance. Hence IDBI insurance policies should aim to provide good insurance covers and high returns on investments.

2. The findings have also suggested that there is a limited awareness about IDBI products among the consumers, IDBI being a new entrant in the insurance sector. Hence effective advertising & promotion is required to increase awareness about IDBI products.

3. Effective Distribution Network will provide better accessibility to IDBI in different market segments. Corporate agency, brokerage, Banc assurance, einsurance cooperative societies and panchayats are some of the channels which can be tapped by IDBI to reach the appropriate market segments.

APPENDIX
A sample Questionnaire for surveying the respondents is given here. 1. Name: __________________________________________________________________

2. Sex:

Male

____

Female ____ 3. Age: Below 25 Yrs 25-35 Yrs 35-45 Yrs 45-55 Yrs Above 55 Yrs ____ ____ ____ ____ ____

4. Address: _______________________________________________________________________

5. Telephone: ____________________________________________________________________

6. Occupation:

Business Service Retired

_____ _____ _____

7. Annual Income:

Upto Rs 1 lakh Rs 1lakh 2 lakh Rs 2 lakh 3 lakh Rs 3 Lakh 4 Lakh Above 5 Lakh

_____ _____ _____ _____ _____

8. Which one according to you is the best investment option? (5 highest, 1 - lowest) 1 Shares and debentures Bank deposits Mutual funds Insurance products Post office savings Real Estate ___ ___ ___ ___ ___ ___ 2 ___ ___ ___ ___ ___ 3 ___ ___ ___ ___ ___ ___ 4 ___ ___ ___ ___ ___ ___ ___ 5 ___ ___ ___ ___ ___ ___

9. How would you plan your investment pattern for the next one year ?

0-10% 50% Shares and debentures Bank deposits ___ ___

10-20%

20-30%

30-40%

40-50%

Above

___ ___

___ ___

___ ___

___ ___

___ ___

Mutual funds Insurance products Post office savings Others

___ ___ ___ ___

___ ___ ___ ___

___ ___ ___ ___

___ ___ ___ ___

___ ___ ___ ___

___ ___ ___ ___

10. Do you own an Insurance Policy?

Yes No

_____ _____

11. Reasons behind taking an insurance policy?

Risk Coverage Investment purpose Pension schemes Tax Benefit

____ ____ ____ ____

Any other (Please Mention) __________________

12. Which insurance companys policy do you own?

LIC ICICI Prudential Bajaj Alliance IDBI Fortis

____ ____ ____ ____

Bharti Axa Birla Sunlife Others

____ ____ ____

13. What are the features you consider before taking an Insurance policy? (Most important- 5 Least important-1) 1 Insurance Coverage High Returns Low premium amount Flexible withdrawals Risk Involved Others ___ ___ ___ ___ ___ ___ 2 ___ ___ ___ ___ ___ ___ 3 ___ ___ ___ ___ ___ ___ 4 ___ ___ ___ ___ ___ ___ 5 ___ ___ ___ ___ ___ ___

14. How do you rate the features of the insurance product offered to you by the company in which you are holding the policy? (5- Highest 1- Lowest) 1 Insurance Coverage High Returns Low premium amount Flexible withdrawals Risk Involved ___ ___ ___ ___ ___ 2 ___ ___ ___ ___ ___ 3 ___ ___ ___ ___ ___ 4 ___ ___ ___ ___ ___ 5 ___ ___ ___ ___ ___

15. What is your preferred mode of payment? Yearly Half yearly Quarterly Monthly ____ ____ ____ ____

16. Do you know about any of the following Insurance plans offered by IDBI Fortis? Yes No

Wealthsurance plan Homesurance protection plan Bondsurance Plan Retiresurance plan

____ ____ ____ ____

____ ____ ____ ____

17. Have you invested in any of these plans?

Yes No

____ ____

18. If yes, please mention the plan: ___________________________________________________

19. What is the term of your investment?

Short term Medium term Long Term

____ ____ ____

20. Your valuable feedback: _____________________________________________________________________________

REFRENCES
The following sources were used as references during this project work: 1. Outlook Money (magazine) 2. Insurance World (magazine) 3. South Asian Journal Of Management Vol. 16 (article) 4. Saving, Investment & Growth in India, Oxford Press (article) 5. www.google.com 6. www.idbifortis.com 7. www.indianmba.com 8. www.yahoo.com 9. www.indiatimes.com