Project on Insurance as an Investment Option with Special Reference to Child and Pension Plans -L I C of India

CHAPTER 1 INTRODUCTION

1.1 INTRODUCTION TO INSURANCE

Insurance: Insurance is a risk transfer mechanism. Its a method of shifting the responsibility for losses to specialists (insurance companies) who handle the risk by spreading it over a large number of people or firms.

A system of protection against loss in which a number of individuals agree to pay certain sums of money, called premiums, to create a pool of money which will use the contribution of these individual to pay the losses of the few caused by events such as fire, accident, illness, or death. History: History is important for the study of any subject. It is all the more essential in insurance because the essentials of the insurance idea are written in the pages of history. Fortunately, insurance has a rich and interesting history. Its history reflects several periods of human civilization. Its beginning was simple and development gradual. As the trade and industry developed, the need of insurance was also felt and the institution of insurance was invented, as the adage goes: Necessity is the mother of invention. Contracts, known as bottom, were used by money lenders to shift the burden of risk from owners of ships or cargoes to themselves. The loan was cancelled, if the ship or cargo was lost during a voyage. The change for the bottom loan, if the voyage was successful, was very high because it included the amount of interests and cost of risk. The contract of bottom loan in fact sowed the seed of the insurance idea. According to extant records, loans in the form of bottom were known to the merchants of Babylon during 4000-3000 B.C. It is also recorded that bottom was
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practiced by the Hindus in 6000 B.C. Even in ancient Europe, the Greeks and the Romans also adopted this commercial practice. Therefore, the origin of insurance is very old and man, somehow or the other, has continued his earnest efforts to tide over all hurdles that came in his way to make his life easy and comfortable. Although marine insurance originated in Italy, its practice gradually spread to other trade centers of Europe. In Bruges there is a record of a court judgment in an insurance dispute in 1377 A.D., while in 1435 A.D. an ordinance regulating marine insurance was issued in Barcelona. Similarly, an ordinance of Florence, dated 1523 A.D. codifies the practice of Italian insurance. By this time, with the waning importance of Mediterranean trade after the discovery of America, Antwerp became a leading insurance market, yielding place to London in later days. Marine insurance is the first category of insurance business that was developed. In England, the earliest records of marine insurance come to us from the court of Admiralty. In due course of time, insurance became international in its character. In 1563 A.D., an Antwerp merchant insured three ships on a voyage from Havre to Central America. This policy, in French, was shared by thirty seven British underwriters. This policy, in French, was shared by thirty seven British underwriters. This participation of the English underwriters confirms the rapid insurance growth in London. In 1570 A.D., Londons own bourse which was erected by Sir Thomas Gresham, was named the Royal Exchange by Queen Elizabeth I, of England. Until 1720 A.D., marine insurance was entirely in the hands of individual underwriters, whose main business was trade and commerce and insurance was a side-line. These individuals were either available in the Royal Exchange or in one of the nearby coffee houses, of which Edward Lloyds, who originally started his
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business in Tower Street in the City of London, moved later on to Lombard Street. Very soon, Lombard Street became the big centre of marine insurance. Lloyds Coffee House was the centre for sales of ships and their cargoes. In this Coffee House, businessmen would come for coffee and sit down to talk about their business and would exchange information about the movements of ships. Lloyds thought why not a short newsletter starts so that the people would have the latest information about the movements of vessels. So, he issued the newsletter. When the demand for the newsletter increased, he thought why not open a common fund in which all businessmen would participate and deposit monies according to their resources. This was the beginning of insurance. Edward Lloyds died in 1713 A.D. but the coffee house was carried on by his family. In this coffee-house, the individual insurers, or underwriters concerned with marine insurance, used to congregate to do insurance business. Gradually, a corporate spirit was developed among them. In 1772, the underwriters set up the committee of Lloyd have to govern their affairs. In 1733, the proprietor of the above coffee-house began the publication of Lloyds List, which gave the movements of ships and other matters of trading interest. Lloyds List is still published as a daily newspaper from London. In 1871, Lloyds Act was passed to incorporate the Society of Lloyds or the Corporation of Lloyds as it is now called. The students of insurance should keep this fact in mind that Lloyds does not itself grant insurance as insurance companies do. The policyholder who has a Lloyds policy is insured at Lloyds not with Lloyds. i.e. Lloyds is like a vast market-place of insurance where individual underwriters sit to accept risks of insurance. The liability to meet claims under the policy rests solely with those underwriters who are committed by any one policy, each for his own share of the risk.
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An insurance broker must be accredited to Lloyds before he can place business there and inscribe on his note-paper after his address the world and at Lloyds. Firms of Lloyds brokers may be either one-man business, partnerships, or limited companies, and at least one of the partners or directors is required to be either a member i.e. an underwriting member of, or an annual subscriber to, Lloyds. The firm must make a substantial deposit with Lloyds and it is held as security for fulfillment of the firms obligations to underwriters. At Lloyds the broker is treated in law as the agent of the proposer, but not of the underwriter. The place where Edward Lloyds Coffee house was situated, was taken over by the government as a national asset and today one reads these words on the brass plaque Lloyds Coffee House 1691-1785. Lloyds is not now an insurance company but an insurance corporation and it is said that it is the biggest insurance organization in the world and participates in the business of every insurance company of every country. In other words, where there is insurance, there is Lloyds. This organization after its establishment in 1688 made such rapid strides that, after about a century, when in 1799 a ship laden with gold and silver bullion sank; the Lloyds paid up its insured value of a million pound sterling. The biggest marine loss suffered by this organization was in 1975 when, due to the sinking of 802,502 tons of cargo and ship, it paid 122 million pounds sterling within a year.

The Earthquake fire in San Francisco in 1906 resulted in the payment by Lloyds of 25 million pounds. In 1970, one aero plane was hijacked and destroyed by fire. Lloyds paid twelve and a half million pounds.
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In 1974, a Turkish Airlines DC-10 crashed near Paris, and Lloyds paid its full insured value of one hundred million pounds. After Lloyds, hundreds of insurance companies have come into existence many of whom have worldwide reputation and standing. After the discovery of marine insurance other classes of insurance such as fire, life, motor, accident etc. appeared in the market. When the Great Fire of London occurred in 1666 A.D., no fire insurance existed. In the same way, life insurance made its debut in 1553, when the life of one William Gibbons was insured by sixteen individual underwriters in London.

1.2 INTRODUCTION TO INSURANCE IN INDIA

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 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. In India, Insurance is a national matter, in which life and general insurance is yet a booming sector with huge possibilities for different global companies, as life insurance premiums account to 2.5% and general insurance premiums account to 0.65% of India's GDP. The Indian Insurance sector has gone through several phases and changes, especially after 1999, when the Govt. of India opened up the insurance sector for private companies to solicit insurance by passing Insurance Regulatory and Development Authority (IRDA) Bill, allowing FDI up to 26%. Since then, the Insurance sector in India is considered as a flourishing market amongst global insurance companies. However, the largest life insurance company
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in India is still owned by the government. The history of Insurance in India dates back to 1818, when Oriental Life Insurance Company was established by Europeans in Kolkata to cater to their requirements. Nevertheless, there was discrimination among the life of foreigners and Indians, as higher premiums were charged from the latter. In 1870, Indians took a sigh of relief when Bombay Mutual Life Assurance Society, the first Indian insurance company covered Indian lives at normal rates. Onset of the 20th century brought a drastic change in the Insurance sector. In 1912, the Govt. of India passed two acts - the Life Insurance Companies Act, and the Provident Fund Act - to regulate the insurance business. National Insurance Company Ltd, founded in 1906, is the oldest existing insurance company in India. Earlier, the Insurance sector had only two state insurers - Life Insurers i.e. Life Insurance Corporation of India (LIC), and General Insurers i.e. General Insurance Corporation of India (GIC). In December 2000, these subsidiaries were de-linked from parent company and were declared independent insurance companies: Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited. With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). The life insurance industry in India grew by an impressive 36%, with premium income from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition from private insurers. This report, "Indian Insurance
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Industry: New Avenues for Growth 2012", finds that the market share of the state behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest the fall in its market share, as private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04. Though the total volume of LIC's business increased in the fiscal year (2004-2005) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to about 22% in a year's time. The figures for the first two months of the fiscal year 2005-06 also speak of the growing share of the private insurers. The share of LIC for this period has further come down to 75 percent, while the private players have grabbed over 24 percent. There are presently 12 general insurance companies with four public sector companies and eight private insurers and private insurance companies collectively have a 10% share of the non-life insurance market.

1.3 INTRODUCTION TO LIFE INSURANCE CORPORATION OF INDIA

Date of Establishment Total assets Address

1956 13.25 trillion (US$241.15 billion)(2010) 1st Floor,West Wing, Mumbai Do-Iv, Yogakshema, Jeevan Bima Marg, Mumbai - 400 021, India 8 Zonal Offices and 101 Divisional Offices T.S. Vijayan - Chairman D.K. Mehrotra - MD, LIC Thomas Mathew T - MD, LIC A K Dasgupta - MD, LIC Arun Ramanathan - Secretary, Financial Services, Dept. of Financial Services, Ministry of Finance, Govt of India Sindhushree Khullar - Addl. Secretary, Dept of Economic Affairs, Ministry of Finance Yogesh Lohiya - Chairman cum MD, GIC of India T.C. Venkat Subramanian - Chairman & MD, Export Import Bank of India. The largest life insurance company in India, Life Insurance Corporation is fully owned by the government. It provides individual life insurance, group insurance and pension plans. Its subsidiaries include Life Insurance Corporation of India International, LIC Nepal, LIC Lanka, LIC Housing Finance and LICHFL Care Homes. It has over 12 million policy holders and over 9 lakh agents. It has underwritten more than 120 million policies. LIC saw computers in 1964. Today the company is on the Internet and is utilizing Information Technology in servicing its clients. It has bagged various award including Loyalty Awards 2008 in Insurance Sector, NDTV Profit Business Leadership Award 2007, CNBC Awaaz
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Branches Management Team

Overview

Consumer Awards 2007 and Outlook Money NDTV Profit Awards 2007. LIC provides a rewarding career as sales agents. It offers world class training, freedom to work and unmatched financial strength.

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 sub-standard 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)
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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 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

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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 took place and large numbers of new branch offices were opened. As a result of re-organization 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-organization 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 Centers 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
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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. 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.

1.4 IMPORTANCE OF INSURANCE

Economic security is the most sought after assurance of well being in the modern age of technology. An effective instrument of ensuring security is Insurance-may it be the security of the dependants of the bread-winner or it may be the security of goods lost by the natural, accidental or circumstantial mishaps. As man developed his arsenal or weaponry for the protection of his body, he also developed means of economic and financial protection. It emerged in the shape of life and non-life insurance. The subject of life insurance is the human being and the object is to provide financial security, to the dependants of the deceased, while the subject of non-life or general insurance encompasses everything from a
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pin to a jumbo jet, all goods and property with the object of putting a person back in the same financial position of the loss as he was at the occurrence of the loss. It would, thus; be seen that insurance is the most effective equipment to protect oneself against the horrendous effects of personal or property loss due to disastrous events. The desire of all people has always been, and will always remain, to live a cleaner, healthier, comfortable and easy life. To fulfill this basic need of human beings, enterprises produce and provide goods and services and, in the process, make innovations and inventions. When you make innovations and inventions, you take big risks. An onerous responsibility devolves on the shoulders of innovators and inventors and, while doing this, they play with the lives of people. A small error or lapse can cause numerous side effects which may result in the death or disability of a large number. The notorious case of Union Carbide, commonly known as Bhopal tragedy, in India occurred in 1984, when poisonous gas escaped from the plant, killing 3,300 people and injuring 200,000. The Supreme Court of India settled this claim for an amount of US$470 million. These types of instances speak of the importance of insurance. Had insurance not been at the back of all these innovators, the world would never have progressed in all walks of our lives. Once this insecurity factor was taken care of, the entrepreneur started looking for new and more sophisticated machines, robots and gadgets. Atomic energy was harnessed for the progress of man. Booster rockets put the man on the moon. Computers enabled man to acquire answers to the most complicated problems in minutes for which an army of experts took days to solve. Deep seas were exploited and bowels of the earth were torn
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apart fearlessly to extract wealth for the progress of man. Concords and Jumbo jets were developed and the world shrank to a small size. Medical sciences made tremendous advances and most of the hydra headed diseases, dreaded by man from times immemorial, have been eradicated, expanding mans life expectancy. All this happened because of insurance support. In all spheres of a mans life, insurance is there to help and assist him, be it motor insurance, or fire or life or any other class of insurance. The helping hand of insurance is always there to protect and provide him financial security. Insurance is also an effective tool for mobilization of savings which helps both in the control of inflation and in capital formation for the development of the country. Thus, it plays a pivotal role in the economic progress of a country. In peace time, the coffers of insurance are open to trade and industry which eventually contributes towards the progress of man. Insurance is a great source of revenue to the national exchequer. In short, Insurance is among the most leading forces contributing towards economic, social and technological progress of man. In other words, progress of insurance is linked with the progress of man. During war, insurance plays its leading role as no other economic activity can. Life insurance finances war efforts, marine insurance provides funds for new ships whenever these vessels are sunk, while fire insurance makes goods the losses sustained due to fire as a result of bombing.

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Without insurance cover all industrial, economic and social activity of the world will come to a grinding halt. Major trade and commercial contracts will be abandoned, aero planes grounded and vehicular traffic withdrawn from roads. There will be an utter chaos. This shows that insurance is a synonym of human progress, prosperity and civilization.

1.5 REVIEW OF LITERATURE

While earlier studies on life insurance sector mainly focused upon LIC, it was only after reforms in this sector that certain studies covering private players have taken place. Bhattacharya (2005) advocated that bancassurance provided the best opportunities to tap the large potential in rural and semi urban areas as banks have a strong network of more than 40000 branches in these areas. He suggested that the insurers should focus on Single Premium policies, Unit Linked Insurance, Pension Market and Health Insurance. PAGE.NO.146, IJMBS VOL.1 3, SEPTEMBER, 2011 Kumar (2005) highlighted that private insurance players introduced a wider range of insurance products and set up brand promotion as part of their new strategy. These new covers had flexibility and added benefits to suit the needs of customers who were unsatisfied with the traditional and rigid plans. PAGE.NO.146, IJMBS VOL.1 3, SEPTEMBER, 2011 Kulshrestha and Kulshrestha (2006) highlighted that demand for life insurance in
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rural India was expanding at the annual rate of 18 per cent as compared to 3.9 per cent in urban areas which provided good opportunity for life insurers to perform. PAGE.NO.146, IJMBS VOL.1 3, SEPTEMBER, 2011

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CHAPTER 2 INDUSTRY PROFILE

2.1 LIFE INSURANCE

It is evident from its very name it deals with insurance of human life. Life Insurance Corporation of India a public sector undertaking has the monopoly in this sector since its nationalization.

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In our wordily life, whenever there is uncertainty, there is an involvement of risk. The instinct for security against such risk is one of the basic motivating forces determining human attitudes. As a squeal to this quest for Security, the concept of insurance must have been born. The urge to provide insurance or protection against the loss of life & property must have prompted people to make some sort of sacrifice willingly in order to achieve security through COLLECTIVE COOPERTION in this sense story of insurance is probably as old as the story of mankind. All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA). Therefore there is no risk in going in for private insurance players. In terms of being rated for financial strength like international players, only ICICI Prudential is rated by Fitch India at National Insurer Financial Strength Rating of AAA (Ind) with stable outlook indicating the highest claims paying ability rating. Life Insurance Corporation of India (LIC), the state owned behemoth, remains by far the largest player in the market. Among the private sector players, ICICI Prudential Life Insurance (JV between ICICI Bank and Prudential PLC)is the largest followed by Bajaj Allianz Life Insurance Company Limited (JV between Bajaj Group and Allianz).

The private companies are coming out with better products which are more beneficial to the customer. Among such products are the ULIPs or the Unit Linked Insurance Plans which offer both life cover as well as scope for savings or investment options as the customer desires. Further, these types of plans are subject to a minimum lock-in period of three years to prevent misuse of the
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significant tax benefits offered to such plans under the Income Tax Act. Unlike the mutual fund product that has a very simple cost structure, ULIPs carry a greater number of costs (administration and mortality), in addition to the others. So comparing ULIPs with mutual funds is erroneous.

2.2 INSURANCE MARKET (PRESENT SCENARIO)

The insurance sector was opened up for private participation a decade back. For years now, the private players are active in the liberalized environment. The insurance market has witnessed dynamic changes, which include presence of a fairly number of insurers both life, and non-life segment. Most of the private insurance companies have formed joint venture partnering well-recognized foreign players across the globe. The Indian life insurance market generated total revenues of $41.36 billion in 2007, thus representing a compound annual growth rate (CAGR) of 11.84% for the period spanning 2000-2007. Life insurance market had a growth of $22.46 billion within a period of 7 years with a growth rate of 118.24%. Estimated life premiums rose to INR 1,470,800 million ($36.77 billion) in 2006 from INR 1,301,540 million ($32.54billion) in 2005. We envisage that life premiums in 2011 will be $65.96 billion, a growth larger than they were in 2007. The performance of the market is forecast to accelerate, with an anticipated CAGR of 9.78% for the four-year period 2007-2011 expected to drive the market to a value of $65.96 billion by the end of 2011. There would be a growth of $24.6 billion i.e. 59.48% in the next 4 years. Non-life premiums in India were $6.53 billion in 2007. Gross written premium (GWP) in the Indian non-life insurance market reached a value of $5.75 billion in 2006, this representing an annual growth of 13.55% for the period spanning 20062007. Estimated non-life premiums rose from INR230 billion ($5.75 billion) in
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2006 to INR261 billion ($6.53 billion) in 2007. We anticipate that non-life premiums will grow by a CAGR of 9.40% between 2007-2011 We are looking for non-life premiums to rise by $405 million over the five years to the end of 2011 with a growth rate of 62.02%. With a huge population base and large untapped market, insurance industry is a big opportunity area in India for national as well as foreign investors. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually. This impressive growth in the market has been driven by liberalization, with new players significantly enhancing product awareness and promoting consumer education and information. The strong growth potential of the country has also made international players to look at the Indian insurance market. Moreover, saturation of insurance markets in many developed economies has made the Indian market more attractive for international insurance players, according to "Booming Insurance Market in India (2008-2011): Total life insurance premium in India is projected to grow Rs 1,230,000 crore by 2010-11. Total non-life insurance premium is expected to increase at a CAGR of 25% for the period spanning from 2008-09 to 2010-11. With the entry of several low-cost airlines, along with fleet expansion by existing ones and increasing corporate aircraft ownership, the Indian aviation insurance market is all set to boom in a big way in coming years. Home insurance segment is set to achieve a 100% growth as financial institutions have made home insurance obligatory for housing loan approvals. Health insurance is poised to become the second largest business for non21

life insurers after motor insurance in next three years. A booming life insurance market has propelled the Indian life insurance agents into the top 10 country list in terms of membership to the Million Dollar Round Table (MDRT)

CAPITAL REQUIREMENTS AND FOREIGN PARTICIPATION: Minimum capital requirement for direct life and Non-life Insurance Company is INR1000 million and that for Reinsurance Company is INR2000 million. A maximum 26% foreign equity stake is allowed in direct insurance and reinsurance companies. In the 2004-05 budgets, the Government proposed for increasing the foreign equity stake to 49%.

2.3 PRESENT STRUCTER OF INSURANCE INDUSTRY IN INDIA

Life Insurance Corporation of India Fully owned by government. Postal Life Insurance

Private players: 1. Bajaj Allianz Life Insurance Co. Ltd. 2. Birla Sun Life Insurance Co. Ltd. (BSIL) 3. HDFC Prudential Life Insurance Co. Ltd. (HDFC STANDARD LIFE)
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4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) 5. ING Vyasa Life Insurance Co. Ltd. (ING VYASA) 6. Max New York Life Insurance Co. Ltd. (MNYL) 7. Met Life India Insurance Co. Ltd. (METLIFE) 8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 9. SBI Life Insurance Co. Ltd. (SBI Life) 10. TATA AIG Life Insurance Co. Ltd. (TATA AIG) 11. AMP Sanmar Assurance Co. Ltd. (AMP SANMAR) 12. Aviva Life Insurance Co. Ltd. (AVIVA) 13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE) 14. PNB Life Insurance 15. Reliance Life Insurance 16. Bharati Axa Life Insurance

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2.4 RELATED ACTS

The insurance sector went through a full circle of phases from being unregulated to be completely regulated and now being partially deregulated. It is governed by number of acts, with the first one being the Insurance Act, 1938.
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The Insurance Act, 1938 The Insurance Act, 1938 was the first legislation governing all insurance titles to provide strict state over insurance business.

Life Insurance Corporation Act, 1956 Even though the first legislation was enacted in 1938, it was only on 19th January, 1956, that life insurance in India was completely nationalized through the Life Insurance Corporation Act, 1956. There were 245 insurance companies of both Indian and foreign origin companies in 1956. The government acquiring the companies accomplished nationalization. The Life Insurance Corporation of India was then formed on 1st September, 1956. General Insurance Business (Nationalization) ACT, 1972 The general insurance business (nationalization) Act, 1972 was enacted to nationalize the 100 odd general insurance companies by merging them to form four different companies named National Insurance, New India Assurance, Oriental Insurance and United India Insurance headquartered in each of the four metropolitan cities of India. Insurance Regulatory and Development Authority (IRDA) Act, 1999 Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and
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registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA's online service for issue and renewal of licenses to agents.

The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered.

2.5 LIFE INSURACE PRODUCTS

Life insurance products are broadly classified into two categories:

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A) Traditional products which includes: 1. 2. 3. Term loan: It provides death risk cover for a specified term only. Every policy does not result into a claim. Whole life insurance: Here the sum assured is paid on death whenever it occurs. The premium in this will be higher compared to term plan. Endowment plan: It provides for the payment of the sum assured at the end of the specified term or on early death. A money back plan, where survival benefits become payable at definite interval, is also the variant of endowment plan. 4. Annuities: They are the series of periodic payments to the annuities for life or for a specified period. Annuities can be immediate (where the payment of annuity is immediate) or deferred (where the payment of annuity commences after a specific period).

B) Non- traditional products: Due to inflexibility of life insurance products, which results into high liquation, inconvenience in sticking to premium payment regimen, lack of transparency, etc. insurance company have come out with non-traditional products mainly in the form of unit linked products, which have borrowed several beneficial features of mutual funds. Jeevan Shree-I Product summary: This is an Endowment Assurance plan offering the choice of many convenient premiums paying terms. It provides financial protection against death throughout
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the term of plan with the payment of maturity amount on survival to the end of the policy term. Premiums: Premiums are payable yearly, half-yearly, quarterly or through Salary deductions, as opted by you, throughout the premium paying term or till earlier death. Alternatively premium may be paid in one lump sum (Single premium). Guaranteed Additions: The policy provides for the Guaranteed Additions at the rate of Rs. 50/- per thousand Sum Assured for each completed year for first five years of the policy. The Guaranteed Additions are payable along with the Basic Sum Assured at the time of claim. Bonuses: The policy participates in the profits of the Corporations life insurance business from the 6th year onwards. It will get a share of the profits in the form of bonuses. Simple Reversionary Bonuses will be declared per thousand Basic Sum Assured annually at the end of each financial year. Once declared, they will form part of the guaranteed benefits of the plan.

Bima Bachat What is Bima Bachat? LICs Bima Bachat is a money-back policy which offers financial security and assurance to the policy holder and his family. Bima Bachat requires the policy
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holder to pay only one premium. The amount paid for the premium depends on the duration of the policy taken and life insurance is available till the date of maturity. Premium payment Single Premium The sample premium rates are as under: Age Annual Premium per 1000 SA 9 15 20 25 30 35 40 45 50 55 60 65 716.40 717.20 717.55 718.45 721.05 725.80 734.10 746.60 762.65 784.80 816.25 12 771.35 771.85 772.25 773.35 775.75 780.25 787.60 797.90 811.95 831.30 15 804.00 804.40 804.95 806.10 808.55 812.95 819.60 828.95 841.75 859.35 -

Market plus-I
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This is a unit linked pension plan wherein the pension is payable after a specified period. Four types of investment Funds namely Bond, Secured, Balanced and Growth Fund are offered. Though primarily a Pension product, the plan has many attractive features and options which make it an ideal Retirement solution for the future. BENEFITS A) - On Vesting: On vesting of the policy, the Fund Value will be utilized to provide a pension based on the then prevailing Annuity rates. An option to commute up to one third of the payable benefit in a lump sum is available. B) On Death: In event of the unfortunate death of the policy holder the Fund Value along with the Riders, if any, will be payable in a lump sum or as a pension. OPTIONS Three attractive benefits, viz. - Life Cover, Accident Benefit and Critical Illness Benefit are available as options or riders. Life option is available within certain limits depending on the age at entry of the life assured. The other options are available to all proposers who have opted for Life Cover. The quantum of the risk covers can also be reduced; subject to the minimum limits, once a year. A policy can be taken without any of the riders also. Bima Nivesh Features

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Bima Nivesh 2005 is a plan with compound rate of guaranteed additions and loyalty additions. This is the revised version of our popular Bima Nivesh Plan 2004 and is introduced to meet the overwhelming demand for a single premium plan from our customers. It is a single premium, ideal investment plan for those who have no regular income but good periodical income. Bima Nivesh 2005 is available for terms 5 and 10 years. The guaranteed surrender value is payable after the policy has run for at least one year. Term Assurance Rider is also available by payment of a single premium at the option of the proposer. Benefits Guaranteed Additions: Guaranteed additions at the compound rate of Rs.50 per thousand Sum Assured per annum for the policy with term of 5 years and at the compound rate of Rs.55 per thousand Sum Assured per annum for the policy with term of 10 years. Loyalty Addition: Depending upon the Corporation's experience with regard to mortality, interest and expenses and based on term of the policy, Loyalty addition, if any, may be declared by the corporation and paid on maturity. Maturity Benefit: The Basic Sum Assured along with compounded Guaranteed Additions will be payable. Loyalty addition, if any, will also be added to this benefit. Payment on death: In case of the unfortunate death of the Life Assured during the term of the policy, Sum Assured along with the accrued guaranteed additions will be payable.

31

Surrender Value: Surrender value is payable after the policy has run at least for one year. Riders: Term Assurance rider is available.

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CHAPTER 3 CHILD PLANS

3.1 CHILD INSURANCE PLANS

Investing and saving for your childrens future is considered one of the most important financial goals by parents in India in their overall financial planning. The bundle of joy brings you a lot of responsibility and if you play your cards well, your child can have a happy future. Children insurance plans in India can help you save money for your childrens future goals like education and marriage. Lets check how they work. What are child insurance plans?
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Childrens insurance plans in India are regular life insurance policies that are designed in such a way that they meet the needs of your children financially when the need arises. The need arises according to the goal based investing strategy you have adopted so make sure the maturity happens in the year the goal materializes. Such products help you save money regularly over a period of time. The money is invested to grow over a period of time and the insurers payout a lump-sum when the maturity happens. At the same time they also provide a cover on death. Note that such plans can be purchased on the life of any of the parent and you can make the child as the nominee. How do they work? The most important benefit in childrens insurance plans is a clause built in that if you, the parent were to meet with an unfortunate event, your childs needs would still be taken care of. So essentially the child insurance plan is able to provide a life cover for the financial needs of your children. In a laymans term, on death of the parent, A lum-sum money is paid out to the child. And now for the best feature of child plans in India which no other product has the child insurance plan will continue till maturity after the death of the parent and all the future premiums will be paid out by the insurance company! This unique feature is called Waiver of Premium. On maturity, a guaranteed lump-sum of money is paid out. So the payout happens at two stages once on the death of the parent and another on maturity. There are some child insurance plans that will give payouts at regular intervals as well. The idea here is to make funds available when your child needs it, be it for marriage or education.
34

What is very important to have in a childrens insurance plan is the waiver of premium rider available. Make sure you have it. In the event of death of the parent or disability, future premiums will be paid by the insurance company.

3.2 STRUCTURE Current Structure of Investment in India Regarding child investment

Traditional Insurance plans: Unit Linked plans: Children mutual funds: Diversified equity funds: (in the name of children) Direct equity: Commodities:

30% 15% 20% 10% 15% 10%

3.3 ADVANTAGES OF CHILD PLANS

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Low Expense Life insurance for children is inexpensive. Purchasing the insurance for a child at a young age ensures that she will always be able to get insurance, provided that the policy is never canceled. Even term insurance will continue throughout a child's life, even though the cost of the policy may increase substantially at the end of every term, usually around 10 years. In light of rate increases at the end of terms, if your child is in good health you should just buy a new policy at the end of the term. You can convert a child's life insurance policy into an adult life insurance policy at the appropriate time. Many insurance companies will offer this adult insurance at a discount because your child is an existing customer. Funeral Costs Even though your expenses will be lower in the event of a child's death, you will have expenses related to the child's death. Chief among these expenses is the cost of a funeral. The Federal Trade Commission warns that a basic funeral can cost as much as $6,000, with many funerals costing in excess of $10,000 as of November 2009. While the chances of your child passing away are low, you may want to cover yourself financially. This will leave you with one less thing to stress about in the event of a child's death. Counseling Costs Losing a child is one of the most traumatic events a person can experience. In the event of losing your child, you and your spouse may want to see a bereavement counselor. Bereavement counseling can be expensive, particularly over the long

36

term. A life insurance policy on your child can help cover the cost of any counseling you may need if you are unfortunate enough to lose your child.

3.4FACTORS INFLUENCING TO BUY CHILD PLANS

The degree of buying of child insurance varies from person to person. It depends upon many factors. The factors can be classified into personal, social, economic, psychological and company related variables. Social Factor Age and experience of policyholder are personal factors, while the co- education is a social factor.

Economic Factor Economic factors include occupation, income and wealth.

Psychological Factor The psychological factors consist of perception, satisfaction about the services rendered by insurance companies, the impact of advertisement and personal selling made by insurance companies on policyholders.

Company Related Variable

37

The company related variables are the promotional efforts to sell the policies to prospective buyers. These include advertisement and personal selling too.

3.5 TYPES OF CHILD PLANS

There are two types of such plans in India endowment based and ULIPs (Unit Linked Insurance Plans). The latter is called child ULIPs. Endowment plans depend largely on the insurers performance if your insurance company generated profits and gives is out for you, then your fund value grows. So here you have to depend on the bonus given out to you. As these invest in debt products, do not expect spectacular returns from child endowment plans. Child ULIPs, sold heavily in India, are instruments that take advantage of equity investment and hence carry risk with them which gets evened out if you stick with them for a longer duration. Child ULIP plans have high entry charges associated with them so the amount of your money invested is less in the initial years than in the later. There are many fund options available to the investor from conservative to aggressive. So a child ULIP plan allows you to invest your money 100% into equity to become aggressive and 100% into debt to become very conservative. You could choose any of the fund options that the insurer provides to you and even switch between these funds. Returns from such child insurance plans are always better as they take advantage of long term investing. Pick the child plan which suits your risk profile. In both types of plans, if the parent dies, the life cover value is immediately paid out by the insurer to the nominee and all future premiums are paid by the them and
38

not by the family. At the end of the policy period, the family would get an equal amount of live cover along with bonus in case of endowment plans and the final market linked fund value in case of ULIPs. At maturity, in both types of plans, the final amount if paid out to the parent and it is up to the parent to utilize this for his child.

39

CHAPTER 4 PENSION PLANS

3.1 PENSION PLANS

40

A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement. In many ways, a pension plan is a method in which an employee transfers part of his or her current income stream toward retirement income. There are two main types of pension plans: defined-benefit plans and defined-contribution plans. In a defined-benefit plan, the employer guarantees that the employee will receive a definite amount of benefit upon retirement, regardless of the performance of the underlying investment pool. In a defined-contribution plan the employer makes predefined contributions for the employee, but the final amount of benefit received by the employee depends on the investment's performance.

3.2 STRUCTURE
In keeping with the parliamentary mandate to the Insurance Regulatory and Development Authority (IRDA) to not only regulate and supervise the insurance business but to play a role in its development, the government has sought to give a similar mandate, in respect of pensions, to the proposed pension regulatory authority. This is very significant since considerable developmental work will have to be done to make the community at large understand the need and importance of self financing of old age income. The aim of any regulation and supervision is to protect the subscribers and this protection does not remain confined to ensuring the financial viability of pension arrangement. It encompasses control on costs, good value for money, rules

41

of pension arrangement, trust deed, expeditious settlement of claims and disputes and adequate choice to the subscribers as also controlling competition amongst the different providers. It is a generally accepted premise that the funding of retirement benefits should be independent of the government and that it is the employers who should generally be making arrangements for building up of retirement benefits. This is how the concept of trusteeship has been introduced for such arrangements and this has led to a structure based on this concept. The trust structure for funding of retirement benefits ensures that the contributions that are collected and invested are held in trust for the benefit of persons who have contributed or for whom the contributions are collected. In this context, what is important is to get the regulatory structure right which sets out the basic rights and obligations of the relevant parties the pension scheme members, the trustees, the employer, the service provider and the advisors. The pension regulator may have to basically deal with the following three types of pension schemes: The proposed defined contribution individual retirement account pension It is a generally accepted premise that the funding of retirement benefits should be independent of the government and that the employers should make arrangements for building up of retirement benefits. This is how the concept of trusteeship has been introduced for such arrangements and this has led to a structure based on this concept. The occupational/affinity group pension schemes which buy products from life insurers, and The occupational pension schemes which provide pension pay out as well.
42

While the profile of the occupational pension structure is well established, the structure for the proposed DC individual retirement account pension has yet to evolve. There is however a general consensus that the possible providers of the proposed pension will include insurance companies, banks and mutual fund companies with foreign participation. The possible structure of the vehicle set up by the providers could be one of the following a separate trust company which could operate just as the trustees of the occupational pensions do; a facility for pension business within the existing business with a Chinese wall separating the two businesses; or transaction of the proposed pension business within the setup for the existing business.

3.3 ADVANTAGES OF PENSION PLANS

Nowadays, when people are mostly doing private jobs, and do not get the surety of pension as like those people have, who are doing government jobs and get regular pension after their retirement, that is the reason why pension plans proves to be beneficial for after retirement sustenance. Pension plans, is the policy where a person starts investing a small amount of money before his old age, so that after a certain period he can utilize his pre-stored money in the form of pension. Moreover, pension plans are same as annuities because in the both conditions, the policy does not give any life insurance coverage but instead of this, provide a regular amount of money after the maturity of the plan. And because of high return assurance after retirement, many people are drifting towards annuity and pension an plan which is why there are many insurance companies like ICICI prudential, HDFC life insurance, Birla sun life insurance who have come up with high returns pension/annuity plans which one

43

can get by paying less premium amount. However, the mode of paying premium may differentiate in each insurance company. Basically, there are four kind of pension/annuity plans from which a person can choose, which depends upon his personal requirement. The first pension/annuity plan is guaranteed period annuity, in which the annuity holder receives a specific amount for several years after the maturity of the plan. However, in case of his natural death his nominee receives afterward installments as pension. Second one is life annuity that assures life time income on monthly basis (with higher returns) as a pension but in case of natural calamity if the annuity holder dies, than the whole amount (without any bonus) suppose to re-pay back to the nominee of the policy. Third, one is deferred annuities, in which the annuity holder gets the exemption from tax at the time when he starts investing in the plan, however, at the time of maturity when the policy holder start getting his monthly installment than the sum assured is taxable after certain figures. Fourth, one is Annuity certain, under this plan the policyholder does not get the surety of regular income till the time he is alive but instead of this, the total sum assured at the maturity of the plan suppose to paid within a certain period.

To maintain the same standard of living after retirement Whether a plan is a defined contribution plan, a defined benefit plan or a simplified pension plan (SIPP), it will nicely complement public plans. The main objective of supplemental pension plans is to provide retirement income over and above that paid by the public plans.

44

Concrete advantages for employees and employers A supplemental pension plan is part of the fringe benefits that an employer can offer his employees. Besides the financial security it offers after retirement, it is a form of deferred pay appreciated by employees. For the employer, having a plan can make it easier to attract and keep competent employees.

3.4 FACTORS INFLUENCING TO BUY PENSION PLANS

The degree of buying of Pension insurance varies from person to person. It depends upon many factors. The factors can be classified into personal, social, economic, psychological and company related variables. Social Factor Age and experience of policyholder are personal factors, while the co- education is a social factor.

Economic Factor Economic factors include occupation, income and wealth.

Psychological Factor The psychological factors consist of perception, satisfaction about the services rendered by insurance companies, the impact of advertisement and personal selling made by insurance companies on policyholders.

45

Company Related Variable The company related variables are the promotional efforts to sell the policies to prospective buyers. These include advertisement and personal selling too.

3.5 TYPES OF PENSION PLANS

Deferred Annuity Plan: Under this type of plan, the pension is not paid immediately but deferred for a time period as required by policyholder. If the policyholder survives the term of the policy, then the accumulated amount (consisting of sum assured, guaranteed additions and bonuses) is invested to generate regular income. For example, LIC has Jeevan Nidhi plan which is a deferred annuity plan. It is concluded that this option is suitable for an individual who is still working and has many more years before he/she retires. Immediate Annuity Plan: This is because this plan can be purchased for a lump sum in return for fixed payments throughout her life. Insurance companies offer various options under annuity plans. There are different categories of Immediate Annuity plans: Annuity Certain: Here the insurance company pays a fixed sum of money for a certain number of years. Guaranteed Period Annuity: Under this plan, Insurer will be paid pension for a certain number of years as stated in her plan (say 10 years) even if she does not survive this period. So, if insurer dies after 4 years of purchasing the policy, her nominee will receive the pension amount for the remaining 6 years. If she survives

46

through the 10 years then he/she will receive the pension amount throughout her life. Life Annuity: Insurer will be paid a specified amount regularly through his/her life. This plan also comes with the option of 'return of purchase price' to the beneficiary upon the policyholder's death. In case insurer opts for this plan, her/his nominee will get the maturity amount plus any bonus upon her death. For example, LIC has Jeevan Akshay annuity plan for annuity payable for 5, 10, 15 or 20 years or for the lifetime of policyholder. There is also a life annuity plan where 50 percent of the annuity is payable to the spouse in case of death of policyholder.

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CHAPTER 5 COMPANY PROFILE

48

5.1 COMPANY PROFILE

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 took place and large numbers of new branch offices were opened. As a result of re-organization 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-organization 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 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
49

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. From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business.

5.2 BUSINESS OBJECTIVES

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. 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
50

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.

5.3 MISSION/VISION OF LIC

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"

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5.4 PRODUCT SEGMENTS OF LIC

Individual Products Life Insurance Corporation realizes that not everyone has the same kind of needs. Keeping this in mind, it has a varied range of products that you can choose from to suit all your needs. These will help secure your future as well as the future of your family. These are: 1. holder. It is a unit linked Endowment plan where the premium payment term (PPT) is limited to single lump sum, or uniformly over 3, 4 or 5 years. You can choose the level of cover within the limits, which will depend on whether the policy is a Single premium or Limited premium contract, term chosen and on the level of premium you agree to pay. Four types of investment Funds are offered. Premiums paid after allocation charge will purchase units of the Fund type chosen. The Unit Fund is subject to various charges and value of units may increase or decrease, depending on the Net Asset Value (NAV). Profit Plus:

In this policy, the investment risk in investment portfolio is borne by the policy

52

Features:-

2.

Market Plus I:

In this policy, the investment risk in investment portfolio is borne by the policy holder. This is a unit linked pension plan wherein the pension is payable after a specified period. Four types of investment Funds namely Bond, Secured, Balanced and Growth Fund are offered. Though primarily a Pension product, the plan has many attractive features and options, which make it an ideal Retirement solution for the future.

53

Features:-

3.

Fortune Plus

It is a unit linked assurance plan where premium payment term (PPT) is 5 years and the premium payable in the first year will be 50% of total premium payable under the policy. The level of cover will depend on the level of premium you agree to pay. Four types of investment funds are offered. Premiums paid after allocation charge will purchase units of the Fund type chosen. The Unit Fund is subject to various charges and value of the units may increase or decrease, depending on the Net Asset Value (NAV). The plan therefore serves the purpose of insurance-cum54

investment. Features:-

4.

Money Plus-I

This is a unit linked Endowment plan with regular premium paying term, which offers investment cum insurance during the term of the policy. You can choose the level of cover within the limits, which will depend on the level of premium you agree to pay. Four types of investment Funds are offered. Premiums paid after allocation charge will purchase units of the Fund type chosen. The Unit Fund is subject to various charges and value of units may increase or decrease, depending on the Net Asset Value (NAV).

55

Features:-

5.

Child Fortune Plus

In this policy, the investment risk in investment portfolio is borne by the policy holder. 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.

56

Features:-

57

CHAPTER 6 OBJECTIVE AND SCOPE OF STUDY

58

OBJECTIVES OF THE STUDY

The objectives behind the study of the plans and policies of LIFE INSURANCE CORPORATION OF INDIA are: 1. To impart knowledge about the history and objectives of the company and also its different subsidiaries. 2. To aware the readers about the different plans and policies provided by LIC, their value and benefits to its customers. 3. To study the consumer perception towards various insurance products. 4. To identify the insurance needs of the Indian population with respect to their emotional, physical and financial conditions. 5. Comparative study of various insurance players in the market. 6. To study the varied reasons of availing life insurance plans. 7. To clearly understand the rationale behind the investment in policies of LIC and private sector insurance companies.

SCOPE OF THE STUDY

This study aims to make a performance analysis of the CHILD PLANS And PENSION PLANS of LIFE INSURANCE CORPORATION OF INDIA in the Indian context, insurance market and study the consumer perception towards various insurance products. The performance analysis is based on the empirical data collected from the MUMBAI city.
59

CHAPTER 7 RESEARCH AND METHODOLOGY

60

RESEARCH AND METHODOLOGY

To conduct the market research first of all it is necessary to create a research design. A research design is basically a blue print of how a research is to be conducted, it may include; 1. Choosing the approach 2. Determining the types of data needed. 3. Locating the source of data. 4. Choosing a method of data

TYPES OF DATA USED: Both primary and secondary data is used in the research. Data Collection Methods To conduct the market research the data is collected by two sources. SECONDARY DATA Secondary data is one which already exists and is collected from the published sources. The sources from which secondary data was collected are: Newspapers and Magazines like Economic Times, Insurance Times, and Insurance Post. Internet

PRIMARY DATA

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The primary sources of data refer to the first hand Information Primary data is collected during the survey with the help of Questionnaires.

CHAPTER 8 LIMITATIONS OF LIC AND ITS PRODUCTS

62

LIMITATIONS OF LIC AND ITS PRODUCTS

A. A Dealer is not required to obtain the sellers identification, photograph the seller, record the sellers thumbprint, or have the seller complete the Declaration of Proof of Ownership if the Dealer complies with the remaining requirements in the Administrative Rules and if: 1. The item is acquired through consignment by a Dealer from a person who lives more than 150 miles from the City of Portland and the consigned property is mailed, shipped, or sent by courier to the Dealer. 2. The item is acquired during a trade show. All items acquired during a trade show by a Dealer must be reported. At the time of the transaction, the Dealer must write on the transaction report a complete, legible and accurate description of the regulated property of sufficient detail to distinguish like objects one from the other. The Dealer must also record the name and date of the event and the address of the venue in the name, date, and address fields of the transaction report form. Items acquired during a trade show may be sold or traded during the trade show without being held. Items still in a Dealers possession at the end of the show will be subject to the hold period requirement in effect for that Dealers acquisitions of regulated property. 3. The item is acquired from a business whose acquisitions of regulated property consist exclusively of donated items and/or purchases from a 501(c) 3
63

organization. The Dealer must record the name and location address of the business in the name and address fields of the transaction report form and the date of the acquisition. 4. The item is acquired through an internet transaction. The Dealer must record on the transaction report the sellers email address or sellers identification, the name of the internet website that listed the item, and the date of the acquisition. 5. The item is acquired by the Dealer from a yard sale, garage sale, estate sale or swap meet. The Dealer must record on the transaction report the physical address of the sale location and the date of the acquisition. Items acquired under Subsection A. must be held in compliance with the hold period requirement in effect for the Dealers other acquisitions of regulated property. B. A Dealer is not required to obtain the sellers identification, photograph the seller, record the sellers thumbprint, or have the seller complete the Declaration of Proof of Ownership if the Dealer complies with the remaining requirements in the Administrative Rules and if the item is used, regulated property acquired from a licensed business. The Dealer must keep a receipt for the item from the licensed business that includes the licensed business name and a description of the item. The receipt must be retained at the Dealers business location for one year or until the item is sold, whichever is longer. The Dealer must record on the transaction report the name and location address of the business in the name and address fields of the transaction report form, and the date of the acquisition. The item does not have to be held.

64

C. A Dealer is not required to make a copy of the acceptable identification obtained from the seller, photograph the seller, or record the sellers thumbprint if the Dealer complies with the following requirements: 1. Conducts each and every acquisition of regulated property by either: a. not tendering payment to the seller for a minimum of 15 days after the regulated property is delivered to the Dealer; or b. offering in-store credit that must be used for merchandise only and not redeemed for cash; and 2. Holds each and every item of regulated property for a minimum of 15 days from the date of acquisition; and 3. Complies with the remaining requirements set forth in the Administrative Rules; and 4. Notifies the Director and the Chief of Police in writing that each and every acquisition of regulated property will be conducted by not tendering payment to the seller for a minimum of 15 days after the regulated property is delivered to the Dealer. So these are the limitation of life insurance Corporation of India. In every company has so many limitation but LIC has limitation but It is no -1 and trusty brand of India. So we can say that LIC is best service provider and trusty brand of India.

65

CHAPTER 9 ANALYSIS AND INTERPRETATION

66

CLAIM SETTLEMENT RATIO

Claim Claim Settlement Settlement Ratio Ratio 2010-11 2009-10 97.03 95.41 94.66 94.61 90.49 89.30 88.69 87.17 85.43 84.15 82.24 82.01 81.93 96.54 91.14 89.09 90.17 89.30 86.97 88.19 77.8 82.54 87.11 83.27 53.85 78.17
67

Insurer

Term Plan Amulya Jeevan Click2Protect Protector Plus iCare ING Term Life ePreferred New Risk Care II iProtect MetProtect iLife Smart Shield AnyTime

Premium charged 12,850** 5,625 7,721 6,783 12,265 5,487

LIC HDFC Life Birla Sunlife ICICI Prudential ING Vysya Kotak Life Bajaj Allianz Bharti AXA Metlife Aviva SBI Life IndiaFirst TATA AIG

4302 5,294 4,436** 7956 6162**

Reliance Life Star Union Daichi MaxNew YorkLife Canara HSBC IDBI Federal Shriram Life Sahara Aegon Religare DLF Pramerica Future Generali

81.36 80.69 77.96 71.02 64.92 55.69 53.23 52.31 51.22 50.52

89.07 58.33 65.51 38.71 49.52 39.54 63.06 48 40 38.85 iTerm Plan 4302

1) If someone is looking for high CSR, low premium, plain vanilla term plan without any distinct features, then HDFC Click2Protect stands out in this category. 2) If someone is looking for high CSR, low premium, increased sum assured options, riders, then Birla SunLife Protector Plus (includes riders) and Kotak Life ePreferred Term (without riders) stand out in this category. 3) If someones need is for some specific feature, then a term plan can be looked for accordingly with that feature. Important Tip: The proposer / applicant at the time of purchasing a term insurance plan or any other insurance plan from any life insurance company, should ensure they provide complete and correct information relating to all material facts. This will ensure that there are no problems at the time of claim settlement.

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MARKET SHARE The following table shows the market share of life and non-life insurers MARKET SHARE (%) LIFE INSURERS 1. LIC 2. ICICI Prudential 3. Bajaj Allianz 4. HDFC Standard 5. Brila Sunlife 6. 7. 8. 9. 10. Tata AIG SBI Life Max New York Aviva Kotak Mahindra Old Mutual

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
69

NON LIFE INSURERS 1. New India 21.41 2. National 17.11 3. United India 17.11 4. Oriental 17.02 5. ICICI8.04 6. 7. 8. 9. 10. 11. 12. 13. 14. Lombard Bajaj Allianz IFFCO-Tokio Tata-AIG ECGC Royal 6.15 4.00 2.89 2.50 2.17

11. ING Vysya 12. AMP Sanmar 13. Met Life 14. Sahara Life

Sundaram Cholamandala 1.22 m HDFC-Chubb 0.89 Reliance 0.75 General Agriculture --

Private total Public total Grand total Source : www.irdaindia.org

23.93 76.07 100.00

Insurance Co. Private total 27.35 Public total 72.65 Grand total 100.00

In the above table shows, the private players in the life insurance business have increased their market share to 23.93 per cent. Among them ICICI prudential is ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard. In the General Insurance sector the private players have captured 27.35 per cent. Among them ICICI-Lombard is ranked first, followed by Bajaj Allianz and IFFCO-Tokio. The healthy competition in the sector enabled the State owned insurers of our mother country to reduce its market share to 76.07 per cent and 72.65 percent in life and non-life business respectively. Moreover, private insurers have planned to increase their market share in the next five years. The public insurers have to enrich its approach to withhold its share. Information Technology Insurers are the earlier adopters of technology. Because of the Information revolution, customers are free to choose from a wide range of new and innovative products. The Insurance companies are utilizing the Information technology applications for better customer service, cost reduction, new product design and development and many more. New technology gives the policyholders / insured better, wider and faster access to products and services. The impact of Information Technology in Insurance
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business is being felt at an accelerating pace. In the initial years IT was used more to execute back office functions like maintenance of accounts, reconciling broker accounts, client processing etc. With the advent of "database concepts", these functions are better integrated in an administrative efficiency. The real evolution is however emerged out of Internet boom. The Internet has provided brand new distribution channels to the Insurers. The technology has enabled the Insurer to innovate new products, provide better customer service and deeper and wider insurance coverage to them. At present, Insurance companies are giving customers a distinct claim id to track claims on-line, entertaining on-line enrollment, eligibility review, financial reporting, and billing and electronic fund transfer to its benefit clan customers. 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. Companies will need to constantly innovate in terms of product development to meet ever-changing consumer needs. Understanding the customer better will enable Insurance companies to design appropriate products, determine price correctly and to increase profitability. Since a single policy cannot meet all the Insurance objectives, one should have a portfolio of policies covering all the needs. Product development is made possible by integrating actuarial, rating, 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.
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Distribution Network While companies have been successful in product innovation, most of them are still grappling with right mix of Distribution Channels for capturing maximum market share to build brand equity, building strong and effective customer relationships and cost effective customer service. While the traditional channel of tied up advisors or agents would be the chief distribution channel, insurer should 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 can be 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. Customer Education and Services Insurance is a unique service industry. The key industry drivers are related to life style issues in terms of perceiving insurance as a savings instrument rather than for risk cover, need based selling, quality of service and customers awareness. 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 the effective CRM system, which eventually creates sustainable competitive advantage and enables to build long lasting relationship.

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MODERN MARKETING APPROACH Marketing strategies for insurance in the emerging scenario could be understood in terms of the following steps: Having done market research and finalizing on segmentation, targeting and positioning the strategy would focus on the marketing mix namely, Product, Price Place and Promotion While determining the implementation methodology, the four characteristics viz. Intangibility, Inseparability, Perish ability and Variability gives rise to certain unique requirements that deserve careful attention while formulating the marketing strategy for insurance. After implementation, the insurers should concentrate on the effective control that would enhance their business. 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

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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. The commitments referred are:

Finding and understanding the needs of the customers. Partnering with the customers. Helping the customers to achieve his business and other objectives by the purchase of the product or service.

Believing that your products / services are a great fit with your customer's needs, and

Believing in yourself and your ability to help the customers in solving their problems.

Conclusion A consultant is willing to forego short-term gains to achieve greater long term benefit to him and to the customers he serves. He builds relationships on a foundation of trust, respect and performance. Moreover, consultants don't sell they're specialists who make recommendations to help the prospect to buy. They act as a professional and offer realworld solutions that make sense to the customer. Today, the insurers adopt this technique and thereby go on increasing their market share.

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CHAPTER 10 CONCLUSION

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CONCLUSION
After completing the project it is concluded that LIC develop its various plans and policies, flexible in nature, according to the requirements of its targeted market or customers and is thus beneficial to its customers in various ways. The most important benefit it provides to its customers is that it is a government owned company. This lead to increase in the satisfaction level of its customer that is why LIC has more than 200 million policyholders which is equal to the fourth largest country in world. Therefore it is not only beneficial but better than other insurance companies not only regarding its product but also its services. From the discussion it is evident that life insurance industry expanded tremendously from 2000 onwards in terms of number of offices, number of agents, new business policies, premium income etc. Further, many new products (like ULIPs, pension plans etc.) and riders were provided by the life insurers to suit the requirements of various customers. However, the new business of such companies was more skewed in favor of selected states and union territories. During the period of study, most of life insurance business was underwritten in the last four months of the year. Private life insurers used the new business channels of marketing to a great extent when compared with LIC. Investment pattern of LIC and private insurers also showed some differences. Solvency ratio of private life insurers was much better than LIC in spite of big losses suffered by them. Lapsation ratio of private insurers was higher than LIC and servicing of death claims was better in case of LIC as compared to private life insurers.

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CHAPTER 11 QUESTIONNAIRE

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QUESTIONNAIRE

(This questionnaire is only for the sake of some research work being done on insurance companies. Confidentiality would be maintained.)

Q1. Name (Optional):

Q2. Gender:

Male

Female

Contact no (Optional):

Q3. Age Group:

18-30

31-40

41-50

>50

Q4. Qualification:

Post Graduate

Graduate

12th

< 12th

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Q5. Occupation:

Government Service

Businessman

Private Company

Self Employed

Any Other (Please specify)

Q6. Your income range (per annum):

Below 150000

150000-250000

250000-350000

350000-450000

More than 450000

Q7. Your savings per year:

Below 10000

10000-25000

25000-50000

50000-100000

More than 100000

Q8. You would prefer savings in which form?

Bank deposits

Fixed deposits

Insurance

Post Office schemes

Any other (please specify)

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Q9. Your opinion about investment:

Tax Saving Wealth creation

Good returns

Better future post retirement

Any other (please specify)

Q10. Preferably you would like to invest in:

Mutual funds

Stocks and shares

Insurance products

Govt. Bonds &sec Any other (please specify)

Q11. Do you agree that Insurance products are susceptible to very low risk when compared to the other options for investment?

Yes

No

Dont know

Q12. Do you own an insurance policy? Yes No

Name of company______________________

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CHAPTER 12 BIBLIOGRAPHY

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BIBLIOGRAPHY
Books: 1. International Journal Of Business Management (Journal) Magazine : 1. Yogkshem Lic Magazine 2. Business today 3. Money Outlook News Paper: 1. Business standard 2. Times of India 3. Economic times 4. Hindustan times Websites: 1. http://www.licindia.com 2. http://www.irdaindia.org 3. http://www.financialexpress.com 4. http://wealth.moneycontrol.com 5. http://economictimes.indiatimes.com/Personal-Finance/Insurance/Lifeinsurance-industry

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