Tara baap ni gand

Introduction:
The Indian insurance industry after the privatization of the insurance
sector in 2000 has witnessed the entry of various private and foreign insurance companies
.Due to privatization the competition in the insurance sector has became severe and in
order to attract the customer and to retain them with the company the insurance
companies has brought a huge number of innovation in the insurance industry.

The innovation was both in the product range as well as in distribution

channel and marketing strategy. A number of new products are introduced by the
insurance companies to attract the customers which are explained in detailed in this
project further. The size of the Indian insurance market is very big as the crores and
crores of people are uninsured and the penetration of the life insurance is also very low.
With a view to increase the awareness and to provide knowledge to the potential
customers the insurance companies have also innovated various distribution and
marketing channels such as banc assurance , broker,agency,etc,which are also explained
in the project.

INSURANCE SECTOT REFORMS

In 1993, Malhotra committee, headed by former finance secretary and RBI gocverner,
R.N Malhotra was formed to evaluate the Indian insurance industry and recommended its
future direction.
The committee was set up with an objective of completing the reforms in the Indian
financial sector. The reforms was aimed at creating a more efficient and competitive
financial system suitable for the requirements of the economy keeping in mind the
structural changes currently underway and recognizing that insurance is an important part
of the overall financial system where it was necessary to address the need for similar
reforms.
PURPOSE:
a) To make recommendation for changing structure of insurance industry, for changing
general policy frame work etc.
b) To take specific suggestion regarding LIC and GIC with a view to improve functioning
of LIC and GIC.
c) To make recommendation on regulation and supervision of the insurance sector in
India.
d) To make recommendation on the role and functioning of surveyors, intermediaries,
like agent etc. in the insurance sector.
e) To make recommendation on any other matter which are relevant for the development
of the insurance industry in India?

Recommendations:
In1994, the committee submitted the report and give the following recommendations now
in the point form:
Structure:
4

Government stake in the insurance companies to be brought down to 50%.

All the insurance company should given greater freedom to operate.

Competition:
4 Private company with a minimum paid up capital of Rs 1 billon should be
allowed to enter in the industry.
4 No company should deal in life and general in single entity.
4 The insurance act should be changed.
4 An insurance regulatory board should be operate.
Customer Service:
4 LIC should pay interest on delays in payments beyond 30days.
4 Insurance companies should be encouraged to set up unit linked plan.
4 Computerization of operations and updating of technology to be carried out
in the insurance industry.
Overall the committee strongly felt that in order to improve the customer
service and increase the coverage of the insurance industry should be opened
up to competition. But at the same time, the committee felt the need to exercise
caution as any failure on the part of new players could ruin the public
confidence in the insurance industry.

PRIVITIZATION OF INSURANCE SECTOR

Insurance Services
Insurance investors developed economies, particularly from Western
Europe and the US find Indian market as having greater growth
potential than their domestic markets. Therefore, a high level of
interest exists for these companies to acquire insurance concerns.
Many international players are eyeing the vast potential of the Indian
market and are already making plans to enter.

The entry of the foreign players in the sector with more financial
resources/ better experience and lower operational costs will have an
advantage over the Indian companies involved in the business. The
bigger private players claim that opening up insurance will give
policyholders

better

products

and

service,

the

opponents

of

privatization argue that in a poor country like India insurance needs to

have social objectives and newcomers will not have that commitment.

Better experience provides them with the wherewithal to have a better

product mix and more operational flexibility. Moreover, they will
operate with a lean staff and lower operational cost. The domestic

insurance industry will as a result, have to face a greater competition.

But the resources with the foreign players are limited, as they can
invest up to 40 per-cent of the equity of their joint-venture with Indian
firms. This is a great hindrance for them to perform at their optimum
level. IRDA is working out to gradually dismantle the tariff structure.

Not much threat is perceived as to any price war since the new
companies will stress more on the non-actuarial product differentiation.
However, the Indian Insurers due to their extensive branch networking
and long-standing association with the client still have an advantage.

Further,

insurance

products

can

become

competing

investment

product vis--vis other saving, etc. Already LIC has launched Equity
linked Indexed Insurance Policies, which have been received quite well.
The new players are expected to bring in spate of such products.

Insurance is viewed as a tax saving instrument rather than protecting

one's own kith and kin from the vagaries of the future. The rush for
insurance policies to save tax bills can be seen at the end of the
financial year. With the entry of private and global players like HDFC
Standard Life, JCTCI Prudential, Kotak Mahindra Club Insurance,
Hindustan Times Commercial Union to name a few, the insurance
industry is going to provide many jobs and is going to witness

phenomenal growth.

LIBERALISATION OF INSURANCE MARKETS

Meaning:
A liberal insurance market is one in which the market, subject only to economically
justifiable government restrictions, determines; who should be allowed to sell insurance,
what product should be sold, how product should be sold, and the prices at which the
product should be sold.. In turn market access issues encompass prudential regulation.
Second and fourth items commonly deal with issues such as product, price, and market
conduct regulation. All four items subsume competition regulation.
Pre-conditions for Liberalization:
a) Sound competitive law.
b) Efficient and reliable regulation.
c) Phased-Liberalization.
d) Efficient disclose and dissemination of information to the society.
For developing countries, the regulation of insurance business in liberalization era poses
following concerns and special interest.
a) Restriction on entry, especially foreign players.
b) Suppression of price and product competition; and.
c) Control of inter-industry competition from those selling similar or complementary
products.
Insurance markets in countries like India inherently imperfection justifying
the need for competition as well as regulation. This is attributable for the following
reason:

a) Lack of knowledge on part of insured.

b) Insurance is a complicated, technical subject.
c) Intensity of price discrimination is high when there is competition.

What are Unit-Linked Insurance Plans? Unit-linked insurance plans, ULIPs,

are distinct from the more familiar with profits policies sold for decades by the Life
Insurance Corporation. With profits policies are called so because investment gains
(profits) are distributed to policyholders in the form of a bonus announced every year.
ULIPs also serve the same function of providing insurance protection against death and
provision of long-term savings, but they are structured differently. In with profits
policies, the insurance company credits the premium to a common pool called the life
fund, after setting aside funds for the risk premium on life insurance and management
expenses. Every year, the insurer calculates how much has to be paid to settle death and
maturity claims. The surplus in the life fund left after meeting these liabilities is credited
to policyholders accounts in the form of a bonus.

In a ULIP too, the insurer

deducts charges towards life insurance (mortality charges), administration charges and
fund management charges. The rest of the premium is used to invest in a fund that invests
money in stocks or bonds. The policyholders share in the fund is represented by the
number of units.

The value of the unit is determined by the total value of

all the investments made by the fund divided by the number of units. If the insurance
company offers a range of funds, the insured can direct the company to invest in the fund
of his choice. Insurers usually offer three choices an equity (growth) fund, balanced
fund and a fund which invests in bonds. In both with profits policies as well as unitlinked policies, a large part of the first year premium goes towards paying the agents

commissions
Unit-linked insurance plans, ULIPs, are distinct from the more familiar with profits
policies sold for decades by the Life Insurance Corporation. With profits policies are
called so because investment gains (profits) are distributed to policyholders in the form of
a bonus announced every year.

ULIPs also serve the same function of

providing insurance protection against death and provision of long-term savings, but they
are structured differently. In with profits policies, the insurance company credits the
premium to a common pool called the life fund, after setting aside funds for the risk
premium on life insurance and management expenses.

Every year, the

insurer calculates how much has to be paid to settle death and maturity claims. The
surplus in the life fund left after meeting these liabilities is credited to policyholders
accounts in the form of a bonus. In a ULIP too, the insurer deducts charges towards life
insurance (mortality charges), administration charges and fund management charges. The
rest of the premium is used to invest in a fund that invests money in stocks or bonds. The
policyholders share in the fund is represented by the number of units.
The value of the unit is determined by the total value of all the investments made by the
fund divided by the number of units. If the insurance company offers a range of funds,
the insured can direct the company to invest in the fund of his choice. Insurers usually
offer three choices an equity (growth) fund, balanced fundand a fund which invests in
bonds.

In both with profits policies as well as unit-linked policies, a large part

of the first year premium goes towards paying the agents commissions

Unique features

1.

Unit linked plan to give you efficient earnings in the long term.

1.

Three investment fund options: protector, builder and enhancer, with the freedom to
switch between funds any time during the policy tenure.

1.

Flexibility to make additional lump sum investments ( top ups ) to increase the savings
portion of your policy

1.

Minimum guaranteed returns of 3% pa. On your premium net of all policy fee and
charges the entire upside on the performance of the fund is passed on to you

1.

Option to make tax free withdrawal from your fund anytime after three years

1.

Loan against your policy or surrender of the policy without penalty after a policy year

1.

Vary the face amour during the premium paying period depending on your life insurance
requirements.

2.

Convenient premium payment option singe pay, short pay or regular pay

Which is better, unit-linked or with profits?

The two strong arguments in favour of unit-linked plans are that the investor
knows exactly what is happening to his money and two; it allows the investor to choose
the assets into which he wants his funds invested.

A traditional with profits, on the other hand, is a black box and

a policyholder has little knowledge of what is happening. An investor in a ULIP knows
how much he is paying towards mortality, management and administration charges.
He also knows where the insurance company has invested the money. The
investor gets exactly the same returns that the fund earns, but he also bears the investment
risk

Are ULIPs similar to mutual funds? In structure, yes; in objective, no. Because
of the high first-year charges, mutual funds are a better option if you have a five-year
horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To
explain this further a ULIP has high first-year charges towards acquisition (including
agents commissions). As a result, they find it difficult to outperform mutual funds in the
first five years. But in the long-term, ULIP managers have several advantages over
mutual fund managers. Since policyholder premiums come at regular intervals,
investments can be planned out more evenly. Mutual fund managers cannot take a similar

long-term view because they have bulk investors who can move money in and out of
schemes at short notice. The transparency makes the product more competitive. So if you
are willing to bear the investment risks in order to generate a higher return on your
retirement funds, ULIPs are for you. Traditional with profits policies too invest in the
market and generate the same returns prevailing in the market. But here the insurance
company evens out returns to ensure that policyholders do not lose money in a bad year.
In that sense they are safer. ULIPs also offer flexibility. For instance, a policyholder can
ask the insurance company to liquidate units in his account to meet the mortality charges
if he is unable to pay any premium installment. This eats into his savings, but ensures that
the policy will continue to cover his life But in the long-term, ULIP managers have
several advantages over mutual fund managers. Since policyholder premiums come at
regular intervals, investments can be planned out more evenly. Mutual fund managers
cannot take a similar long-term view because they have bulk investors who can move
money in and out of schemes at short notice.

Advantages of ULIPS to insurers:Insurers love ULIPs for several reasons. Most

important of all, insurers can sell these policies with less capital of their own than what

would be required if they sold traditional policies. In traditional with profits policies, the
insurance company bears the investment risk to the extent of the assured amount. In
ULIPs, the policyholder bears most of the investment risk.

Since ULIPs are

devised to mobilize savings, they give insurance companies an opportunity to get a large
chunk of the asset management business, which has been traditionally dominated by
mutual funds.
Most insurers in the year 2004 have started offering at least a few unit-linked plans. Unitlinked life insurance products are those where the benefits are expressed in terms of
number of units and unit price. They can be viewed as a combination of insurance and
mutual funds. The number of units, which the customer would get, would depend on the
unit price when he pays his premium. The daily unit price is based on the market value of
the underlying assets (equities, bonds, government securities etc.) and computed from the
net asset value.

The advantage of Unit linked plans:

Unit Linked plans are simple, clear, and easy to understand. Being transparent the
policyholder gets the entire upside on the performance of his fund. Besides all the
advantages they offer to the customers, unit-linked plans also lead to an efficient
utilization of capital.
Unit-linked products are exempted from tax and they provide life insurance. Investors
welcome these products as they provide capital appreciation even as the yields on

government securities have fallen below 6 per cent, which has made the insurers slash
payouts.
According to the IRDA, a company offering unit linked plans must give the investor an
option to choose among debt, balanced and equity funds. If you opt for a unit-linked
endowment policy, you can choose to invest your premiums in debt, balanced or equity
plans. If you choose a debt plan, the majority of your premiums will get invested in debt
securities like gilts and bonds. If you choose equity, then a major portion of your
premiums will be invested in the equity market. The plan you choose would depend on
your risk profile and your investment need.
The ideal time to buy a unit-linked plan is when one can expect long-term growth ahead.
This is especially so if one also believes that current market values (stock valuations) are
relatively low. So if you are opting for a plan that invests primarily in equity, the buzzing
market could lead to windfall returns. However, should the buzz die down, investors
could be left stung.
If one invests in a unit-linked pension plan early on, say 25, one can afford to take the
risk associated with equities, at least in the plan's initial stages. However, as one
approaches retirement the quantum of returns should be subordinated to capital
preservation. At this stage, investing in a plan that has an equity tilt may not be a good
idea.
Considering that unit-linked plans are relatively new launches, their short history does
not permit an assessment of how they will perform in different phases of the stock
market. Even if one views insurance as a long-term commitment, investments based on
performance over such a short time span may not be appropriate.

Ever since the insurance sector was opened up, private players have been trying to entice
the Indian customer with new and innovative policies. But is the customer ready for
innovations--such as unit-linked plans?
These plans are popular in developed and other developing
markets, but India has so far had only one such product from LIC. Stuart Purdy,
managing director, Aviv a Life Insurance India, told Narayan Krishnamurthy and
Udayan Ray that most of Avivas offerings here are unit-linked and he is betting on these
products being successful.

Can unit-linked plans actually fetch you market linked

returns?
Unit-linked insurance plans are all of a sudden much talked about, publicized and sold.
While these are not a recent phenomenon, since a number of insurance companies already
had these products as a part of their portfolio, of late these plans have seen sudden frenzy.
It is perhaps the bull phase or the lure of market-linked returns that insurance companies
have been shouting hoarse about that is responsible for these products outselling others.
Given a thought? Do these products actually provide you market linked returns? Now
before we get into the details, is that what you should be looking for from an insurance
product?
Isnt insurance in the real sense of the term meant for covering risk? And should you be
aiming at financialReturns from an insurance product since that would mean

compromising on the much more important security cover for yourself and your family?
If returns are your aim dont you think you should be opting for other investment avenues
rather than risk your risk cover.While this is not to dissuade you from purchasing unit
linked covers it would be in your interest to take a peek at the market linked returns you
can expect. And if you think that the entire premium you pay is invested in avenues
chosen by you to maximize returns you could be wrong.Expenses during the first year:
A substantial amount is deducted from your premium income by the insurance company
towards various charges reducing the investible amount considerably. In the first year
Allianz Bajaj through its Unit Gain SP Plus claims to allocate 100 percent of the single
premium you
Invest but cancels units on a monthly basis towards various charges from your fund.
Accordingly Kotak Safe Investment Plan allocates 86% and Life time of ICICI Prudential
Life allocates 80 percent for amounts less than Rs 50,000 and 82 percent for those above
Rs 50,000 towards investments.
Administration expenses:
The fund expense is the highest in the first year. ICICI Pru Life charges administration
expenses of 20 percent of the premium for amounts below Rs 50,000 and 18 percent for
amounts over Rs 50,000 in the first year while it is 7 percent for amounts upto Rs 20,000
in case of Kotak Safe Investment plan.Again there are annual administrative charges that
are as high as 1.25 percent per annum of net assets on Life Link of ICICI Pru Life and on
Unit Gain SP Plus of Allianz Bajaj Life Insurance

Will unit linked risk products continue to rule: Unit linked risk plans are doing roaring business agreed but if the recent reports are any
indication a shake up is on the cards. The mutual fund industry is all set to get aggressive
to counter competition from the insurance industrys unit linked risk products. For mutual
funds the unit linked insurance products launched by life insurance companies are an
encroachment on their territory. Consider this: Around 80 per cent of the premium
income of life insurers has come in through unit-linked plans in 2004 thanks to the boom
in the equity markets.

This means mutual fund companies are losing out on a huge market that would have
otherwise been theirs. To put an end to such a situation they are toying with the idea of
aggressively publicizing its products through celebrity endorsements which mutual funds
feel will give a never-before fillip to its unit linked schemes.

Unit linked insurance products launched have been doing brisk business and insurers
have been coming out with several such products with slight variations to suit the
changing needs of the customers. These products are investment avenues that provide
market related returns to the investor with an element of insurance thrown in. For the
customer the attraction of market related returns with insurance is an attractive option. On
the contrary though mutual fund companies also have unit-linked products what is absent
is the insurance cover.

But the grouse of mutual funds is that they have to adhere to stringent regulations that are
absent for insurance companies when the products are almost similar. While for insurance
companies it is not mandatory to disclose the various expenses related to unit linked risk
products such as expense ratio and brokerages among others, for mutual fund companies
it is mandatory. The Association of Mutual Funds will soon be setting up a committee to
work out an advertising strategy after which it plans to approach SEBI to take it from
there. But will SEBI be able to take up the matter with the insurance regulator? Should I
invest in unit-linked plans?

So have unit linked plans - the much talked about high-return offering product of late
taken your fancy? Wondering what it is all about and how unit linked plans are able to
offer a comparatively better return on your investment.

While they are not a totally new concept considering that the Indian investor is familiar
with mutual funds that have been around for some time now, as far as insurance goes,
unit linked has all of a sudden caught the fancy of the Indian customer.If you are all set to
take the plunge into buying a unit linked product it would do well to know a few things
about their working.

Combination of mutual fund and insurance cover:

Unit-linked plans are a combination of an investment fund and an insurance policy. A
major part of the premium amount received on such policies is invested in the stock

market by the insurer in select funds depending on the risk level chosen by the customer.
Mind you, this is after deducting administration charges and management expenses that
may vary from one fund to the other.
Choice of Funds:
The customer has the option of choosing from debt, balance and equity funds. If the
individual chooses a debt fund, a major part of his premia is invested in debt securities
like gilts and bonds. But if it is equity, a major portion goes towards investments in the
stock market. So depending on the risk profile the individual may choose his investment
option.

What do unit-linked products actually offer in terms of value-addition?

When you are looking at a long-term plan, there are always factors that will change from
time to time to meet any challenges. Also, plans change so that the company can offer
some amount of customization. Among other things, we offer to add the cover to the
policy, add riders when necessary, and change the investment structure. We also let
customers choose from different fund options on the investment without compromising
on the basic product.

While all these options do come with caps to follow the regulatory framework, they
definitely offer value-addition to the customer. And, with the NAV (net asset value) of the
fund calculated at the end of the day, the customer knows the value of his funds. I must
add that that in case of death, the beneficiary gets the sum assured or the NAV of the
fund, whichever is higher. So, there is no reduction in protection in these plans.
Is the investment risk left to the customer who buys unit-linked plans?

For any

investor, the idea is to maximize returns. Wise customers know that the era of guaranteed
returns is over. The fall in interest rates in the past 18 months is indication enough of
what lies ahead. What unit-linked products offer is a long-term investment option where
returns are far more real and there is no compromise in the protection that the policy
offers.
In the guaranteed returns regime, the guaranteed component was met by paying lower
interest rates to those who did not have any guarantee on their plans. Compared to this,
unit-linked plans offer greater value to the customer. Yes, to an extent the risk is in the
hands of the customer. However, the flexibility to opt for funds means that the customer
can benefit as well. And finally, the returns that these products offer are bound to be
relatively higher than what similar traditional plans offer.
In order to cater to customers with very low risk appetite we also offer a unitised, withprofit plan across our products, where the bonus rate is declared in advance for the year.
This is a conservative approach but it has its takers. With this
What has been the performance of unit-linked plans in other emerging markets?In a
country like Poland, where the markets were opened a little over a decade ago, we are
today the largest private insurance company. The demand for our unit-linked products is

high. Worldwide, the growth of these products is high when compared to traditional
products, an indication of where the market is headed.
There are a few people who view unit-linked plans as pure investment products that offer
little cover. But this is a myth and customers realize this when the benefit of these plans is
explained to them.
With investment options regulated, one has to be prudent with the money that is
contributed for the product and has to add value for the business to be successful. I feel
that both developed and developing markets understand the great value proposition that
unit-linked insurance plans offer. Another factor that tilts the balance in favour of such
products is the tax treatment that the accumulated account attracts. Its tax-free, unlike a
mutual fund or any other investment, where the gains are taxed.

Riders
Riders are the additional benefits the company offers to the customer in addition to the
life coverage. The customer has to pay additional premium to get this benefit. However
the benefit of rider is optional, the client has full power to take or leave the riders.

There are five riders normally provided by the insurance companies and they are,5 ridersterms riders, AD&D rider, critical-illness, critical illness pus or critical illness woman

rider. I can add or delete them (only after the 1 policy year) as my needs change
st

You can further customize your birla sun life insurance plan by adding riders to base plan
at a marginal extra cost.

1)

Accidental death and dismemberment benefit rider. It provides 100% of coverage in case
of death due to accident; loss of more than one limb or sight in both the eyes or in case of
loss of one limb and loss of sight in one eye 50% coverage in case of loss of one lib or
sight in one eye.

2)

Term rider: it provides additional amount of cover in the event of death of the life
insured.

3)

Critical illness rider: it provides a cover in the event of life insured being diagnosed as
suffering from any of seventeen illnesses specified under the critical illness plus rider.

4)

Critical illness woman rider: it provides a cover against several critical illness including
woman specific illnesses, pregnancy complication and congenital anomalies in a newborn
child.

5)

Waiver of premium: this rider waives payment of future premiums on the happening of
any of the unforeseen events as covered under this rider.

For rider deletion I am required to give a written intimation along with the policy
documents. For rider addition, my certificate on insurability and the receipt of payment of
rider premium will be needed (ride addition is subject to underwriting condition)

Marketing strategies: -

Birla sun life has adopted various marketing strategies to market its product. The
company has adapted to main strategies two main ways
.
1. Corporate agent:

Marketing through corporate agents is the traditional ways of marketing the

insurance products. Birla sun life also has huge number of agent spread all
over the country.

2.

Banc assurance: -

Banc assurance is also a modern method of marketing insurance product in the

market. It is done in three ways. In banc assurance is a coming together of a bank and
insurance company to market the insurance product. The banks provide its customer data
or sell the insurance product to its customer.
1)

Joint venture

2)

Corporate agent

3)

Customer base

Effective Banc assurance model

There are broadly three banc assurance models in operation globally

Distribution alliance

Joint venture between bank and insurer

Merger between banks and insurer

In joint venture bank and insurance company form a separate insurance company as in
the case on ICICI prudential life insurance?

in corporate agent module a bank act as an agent of the insurance company and sell
products to its customers . The bank gets commission for its service as in the case of LIC

and Corporation bank

in customer base the bank allow to sue its customer data and its premises to insurance
company to sell its products.

Birla sun life insurance Company has tied up with three bank to market its products
.they act as a corporate agent of the bank.

1) CITI BANK
2) IDBI BANK
3) KARUR VYSYA BANK

Among these three banks citi bank is the most active agent of the company .the company
also give various benefit to the customer of the citi bank. For e.g.:- if a normal customer
is above the age of 45 or the policy amount exceed the amount of rs15lacs then he is
required to submit FMR(FULL MEDICAL REPORT) .but for the customer of city bank
the limit is exceeded to rupees 20lacs .

Recently the company has decided to target the SME sector i.e. small-scale enterprise
To market this product. They have innovated new product. Basically for this the
company has decided to use industrial marketing strategies. The product innovated are
explained below

Mot of the partnership in India fall in to the first model, were banks have offered their

services as distribution channels for insurance products through their branch network. In
terms of present regulatory frame work banks have taken up corporate agency for
marketing insurance products for an agreed referral fee/commission.

Banc assurance in India is very much in its infancy. There are a wide variety of banks,
which are very different; both in make up, culture, geographic spread and working
practices. There are wide number of approaches and models that can be adopted for banc
assurance, many of which are dependent on this attributes, as well as the insurance
partner views and competencies, and also the nature of relationship between the bank and
insurer-whether one of equity sharing company structure, or of a profit share nature or
purely a distribution management.

The effective banc assurance model is the one, which helps, in pushing sales as well as
satisfying customer needs and helping banks to become a One stop shop. As a Banc
assurance model, if the bank is using distribution agreement model, it should, go in for an
exclusive agreement with an insurance company of repute. The reason being, while
signing up with multiple insurers you end up looking like a broker who is not committed
to brand or a product or a particular level of service, which is so vital for the growth
of Banc assurance. By signing an exclusive agreement with the insurer, the bank can put
the stamp of its own Brand on the product without actually taking any risk. The bank
will thus be identified with the product it is selling and will be able to convince the
customer in a much better way. However, if the insurance market is not mature and there

is lack of creativity and innovation, even non-exclusive agreement is workable.

Sale of insurance products by the banks offers the following benefits:

It adds to the portfolio of retail products already offered by the banks.

It helps in building and packaging the existing core banking products like adding deposit
life insurance on a pure term deposit product.

Balances the less performing products.

It is a risk management device, since the fee increase earned on the sale of insurance can
be used to offset the loss on account of bad loans.

It helps in increasing customer loyalty since they have more reason than just the banking
to continue their relationship with the bank.

It helps bank to become a one stop shop for all the financial needs of the customers
while it is banking insurance investments or state planning.

THE WORKING OF BANCASSURANCE

The distribution channel today for insurance products is widening. Increase in

distribution channels among others has also seen the concept of Banc assurance taking
roots in India, which is emerging to be a viable solution to mass selling of insurance
products. A popular concept in the West, Banc assurance put in simple terms means
selling insurance products through banks.

Wide network of branches

The Insurance Regulatory Development Authority (IRDA) has permitted banks to venture

into marketing insurance products on a risk participation basis. Banks need to possess at
least 500 crores of net worth and capital adequacy of a minimum of 10 per cent to make
an entry. Since banks have wide number of branches, distribution will be smoother.

Corporate clients

Banks can utilize their existing clientele, which includes corporate as well as retail clients
to market insurance products. Depending on the relationship with its clients it would
become easier to influence tile insurance purchase decisions of its clients. Customers too,
having banked with a particular bank for a long period repose a sense of trust and faith in
the bank.

Customer database

Customer database - raw information on the customers spending habits, investment

purchase, can prove to be a goldmine. Such information channelised in the right manner
can help work out marketing strategies and arrive at result-oriented decisions targeting
prospects.

Personalized Service

Since banks have direct contacts with customers, the service area can be tackled easily.
Customers, other than their day-to-day financial requirements can also get assistance for
premium payment, surrender, transfer of policies and many more.

Rural penetration

Penetration into the rural areas is easier for banks. Having been accustomed
to the customers' choices, banks are in a better position to understand the needs of the
customers and sell tailor made policies.

Cross-selling products

Banks in their normal course of functions lend finance in the form of loans for cars or for
buying a house. They can combine insurance products and sell as a package. In the
current scenario banks can cross sell their products along with the insurance products.

Fee based service

Insurance products can be sold as a fee based service. in which some broker charge
commission to policyholder against the insurance product , such as, selling of insurance

policy, different types of scheme ( ULIPS, endowment, personal accident, whole life,
money back policy and joint life policy ) etc.
Joint life policy is much suitable for fee based services to the insurance agents in the
insurance sectors. And now, in ULIPS are most benefited to insured persons as well as
insurers agents.

Cheaper than agents

Banc assurance may work out to be cheaper compared to companies appointing agents
for selling insurance products. This is particularly considering the banks wide network
and the reach they have compared to the agents.

"Integration of Banks and Insurance Companies is Likely to have a Longer Impact"

Insurance companies have been very slow to use the Web, for example, and their web
pages are among the poorest designed in the financial services industry in the US. France,
Canada has picked up banc assurance very fast whereas US, Japan has not. They've
lagged behind in the US for a number of reasons. Consumers don't see banks as a primary
source for insurance.

Consumers do not have a lot of confidence in banks' financial expertise outside of loans
and deposits. There are well-developed distribution channels for insurance that are

effective. Banks thought they could get "easy sales" by cross-selling insurance, forgetting
that:

4 They are not good cross-sellers,

4 The level of training required to sell insurance and the licensing requirements are far
heavier than what they're used to for selling other products, and

4 The banks have not, in most cases, put a strong emphasis on insurance

sales.

Annuities, somewhat, more than other products.

The time taken to over come the sluggishness can also because of the reason that
functioning of banks and insurance companies are different from each other.

On the other hand, this integration of banks and insurance companies is likely to have a
longer impact. Over time, they will integrate increasingly as public perceptions change
and banks put more effort behind it. The insurance companies are trying the idea of
selling banking services. Some banks and insurance companies fear that this will lead to
higher growth and revenues but for those companies, which have not opted for banc
assurance, it will be an end.

I think it will be easier for the insurance companies to offer banking services than it will
be for the banks to offer insurance products. The insurance companies are more under

threat from industry consolidation and cost pressures within their own industries than
they are from bank/insurance company combinations at this point. The dream was that
the banks' customer-bases would be "ripe for picking", but the banks' sales and marketing
teams have not figured out how to make it work.

"For Banc assurance to be successful, the savings made on the distribution may have to
be passed on to the customer. Insurance companies need to design products specifically
for distributing through banks."

On usefulness of Banc assurance: Globally, there is a trend of convergence of all

personal finance services including insurance. In this scenario, it is possible for banks
to distribute some of the insurance products to their customers. It is possible for banks
to cross-sell insurance to their customers. Thus, the existing distribution network and
the existing customer-base of the banks are utilized for selling insurance. There will
be savings in distribution cost as well as customer acquisition cost. These savings will
be passed on to insurance seekers.

4 On new pricing issues: Marketing, especially the pricing may be the key

issue. For

banc assurance to be successful, the savings made on the distribution may have to be
passed on to the customer. Insurance companies need to design products specifically
for distributing through banks. Trying to sell traditional insurance products may not
work.

4 On the success factors: The concept will succeed, as the customer is ultimately the
same. However, it may not work for traditional insurance products. It is right that the
functioning of banks and insurers is different. New products need to be designed
keeping in mind the functioning of banks and the needs of bank customers.

4 On the measures of strategies to be taken up by companies: Companies not opted for

Banc assurance could consider approaching or identifying the customers through
other channels. For example, a customer approaching a bank for home loan can be
offered Householder insurance policy through Banc assurance. However, other
insurers through a real estate developer or a real estate broker can offer the same
customer a Householder insurance policy.

4 On level of success in India: In India, the level of success could be high. Many banks
have entered the insurance sector through joint ventures and others have formed
alliances with Banks. These new companies will try to exploit the branch networks of
the banks. For example, Standard Chartered bank has already started selling personal
accident covers of Royal Sundaram Alliance Insurance Company to its credit card
holders.

4 On the competition between LIC and SBI :It is too early to comment. The strength of
LIC is their agent network. LIC is said to have over eight lakh agents. The strength of
SBI is their branch network. Traditionally, life insurance is best sold through agents,
while bank branches only supplement.

Other marketing and distribution channels

Internet
Though India is joining the fast growing breed of net users, using
net for transactions has not yet caught up. Though a few banks provide
online banking, the usage is still a small fragment. The insecurity
associated with transactions over the net is still an inhibiting factor. At
present most of the insurance companies have product information
and/or illustrative tools on the web.
We do not see the web evolving into a means for direct selling of
insurance in the current scenario.

In the Indian market, where

insurance is sold after considerable persuasion even after face-to-face

selling, the selling over the net, which must be initiated by the client,
would take some more time.
While the technology capability is there, improvements in
bandwidth and infrastructure are needed. Also needed are simpler
products where auto-underwriting is feasible. Automobile insurance,
one of the segments of insurance purchased "off the shelf" in India,
would be the ideal segment to start with. On the life side, term

assurance for

standard

lives

with

simplified

underwriting

is

possibility.
These channels by themselves will not be able to overcome the
mindset of the people, but rather can only be enablers for the human
channels.

Electronic Channels:
In the last decade, numbers of technological advances have taken
place due to immense use of EDI (Electronic Data Interchange)

LIC on Internet:

They have their own site, which is very informative. They display
information about them and its subsidiaries, the product they offer. The
addresses/e-mail Ids of their zonal offices, zonal training centers,
management development centers, overseas branches, Divisional offices

and also all Branch offices with a view to speed up the communication
process.


SMS:

SMS through mobile phone is recently new technology introduced by the

LIC to promote their product.

Advertising:
It is a paid form of non-personal communication. It is used to create
awareness and transmit information in order to gain a response from the
target market. Forms of advertising are as follows:
o News Papers and Magazines:
LIC give ads in the news papers and magazines round the year to
continue its brand image and also when new products are introduced.
Normally its ads are published in Times of India.
o Electronic media:
Insurance companies also advertise its services in the Electronic
media like:
Internet (Websites):

Companies

like

LIC

(www.licindia.com),

ICICI

(www.iciciprudential.com) all have websites from which people can get

the information about their products, prices, various schemes, and lots
of other information. People can also purchase the product through this
website.

Television:
Companies like LIC, Met Life India, advertise on television to make

people aware of their products and services.

Radio:
ICICI Prudential advertises on 92.5 red Fm.


Punch lines and logos:

It helps to create awareness about the brand among the target

audience. It also helps the company to convey its message to the

customer.

Disability Insurance.
Most of us insure our lives, effectively insuring that we will be able to provide income for
our families in event of our untimely death since we believe that we are doing something
reasonable to prevent any undue financial burden from affecting the lives of our loved
ones. Yet, most of us never insure a part of us that is much more important.
Not only can a disabled person not work but he or she has to undergo extensive medical

regimes while still incurring the daily costs of living. And health insurance is not enough
to circumvent the perils associated with permanent disability. A recent study conducted
abroad found that although 96 percent of seriously ill people had medical insurance over
a third of them lost everything that they owned and maintained owing to their disability.
After all, a disabled person still needs to eat and drink like the rest of normal human
society. Given the fact that he or she is disabled now requires extra care from the family
or paid professional help that eventually uses up the funds much beyond what they might
have earned. People may be put off by the price of disability insurance but the only
reason why the policy premiums are higher is because there is a much greater chance of
you actually needing the policy
Most of the Indian insurance policies have an in-built disability clause. So the next time
any agent tries to sell you a life insurance policy, do inquire more about the disability
clauses.
Also, check out the definition of disabled in the policy that the agent offers since you
must be insured for your chosen occupation. At times, a disability may stop you from
working at your current job but still lets you perform other activities. Do verify if there is
coverage offered for partial disability since it could be the moot point between overtaxing yourself and worsening your condition and being able to achieve the needful by
performing whatever amount of work seems prudent.
4

Also, look for a policy that holds a guarantee and is non-cancelable. Guaranteed policies
are policies where the payment stays fixed. Non-cancelable policies stay in effect
regardless of whatever that might happen and as long as the premium is paid from time to
time.

Finally, the last option to map is to calculate how much actual cover you may be having
currently or might need in the times to come. An insurance cover of Rs.1 lakh may have
been adequate when you started working and earned Rs.3000 per month. But it sure will
be insufficient now that you have risen up in the world and your salary has risen to over
Rs.20000/- month.
Keep your interests in mind while choosing the insurance policy and you will never
regret it. After all, in the materialistically inclined times where we subsist, selfcentredness is the only truly justifiable prerogative in life

Please go through this list. It is designed as the starting point to help you make the right
choice while purchasing a life insurance policy. Answer the questions with your policy in
perspective and eliminate any conflicting doubts that might arise.
4

Is your life insurance so arranged that the proceeds stand exempted from the claims of
creditors, in case you have any? Will it stand against any judgment passed by a court of
law?

If and when desired, will the cash values of the insurance policy result in the largest
possible income for yourself?

In case, you have named your children as beneficiaries, do all of them participate? In case
your children are minors, can your expenses be correctly and swiftly liquidated?

In case of an unexpected emergency, will the settlement provision prove sufficiently

flexible? Or will your benefactors interests be jeopardised?

Are all beneficiary designations correct and complete? Do your beneficiaries need to be
altered due to new family circumstances?

Is there a chance of your current life insurance policy being subject to probationary
delays or unnecessary additional expenses?

Do your grandchildren, if any obtain equal shares in your estate?

Are the beneficiary clauses formulated in a way that they perform your last wishes to
their fullest, with no violation whatsoever?

Will your spouse be guaranteed the most favourable income from the insurance proceeds?

Is the extent to which your life insurance policy providing income absolutely clear in
your mind?

Can your spouse outlive the income provided?

Is your insurance policy arranged in a manner to create an income for your childs
educational and marriage expenditure?

Shouldnt you provide a cash fund for your spouses last expenses?

Have you taken full advantage of the best possible exemptions from tax?

Is the insurance policy so arranged that your spouse will be provided with similar income
advantages as yourself, if he or she outlives you?

Is there a chance of saving more if you opt to change the frequency of the payment of
premium?

Is there a non-forfeiture option provided? Would a change in the non-forfeiture option be

beneficial?

Would the proceeds of your life insurance policy be subject to double taxation if you
predecease your spouse?

Is the plan of distribution of your life insurance coordinated with your general property?

Do you now own a substandard policy? If so, do the conditions that caused the extra
rating still exist?

Are there any "gaps" left in your "earning years"? For instance, your agent might go on
selling you short-term policies, all of them maturing between 50-55 years of age.
Eventually you will be resigned to a zero-insurance status when you actually need it the
most

There are no hard and fast rules, nor any easy formulae to help you decide how much life
insurance cover you need. However, there is a fairly straight forward approach which
each of us can follow.
Since life insurance is, first and foremost, financial security for your family, you can
judge how much money your family will need increase of your premature death and build
your insurance portfolio accordingly.

For instance, if you are contributing Rs.3,000 a month for meeting your familys needs,
you must have a life insurance cover of around Rs.3 lakhs. In case of the policy holders
death the family can invest this amount in some absolutely safe investment avenue such
as government bonds, which pay 12% interest. The annual interest of Rs.36,000.
Additionally, the insurance portfolio could also include polices specifically earmarked for
the education and marriage of your children.
Income replacement is another approach to determine how much insurance one needs.
There are ways to figure it; two are discussed below:
1.

Seventy-five percent solutions: Some observers believe that a family, particularly a young
one, needs about 75 percent of the take-home pay the insured would have received until
age sixty-five.

2.

Five times solution: A second income replacement formula is to buy insurance equal to
five times your annual income less any insurance equal to five times your annual income
less any insurance already held. Suppose your annual income is Rs.25, 000. Multiply this
by 6 and it equals Rs.1,50,000. Now if you have Rs.25,000 in-group life insurance, you
need an additional Rs.1,25,000 (Rs.1,50,000 minus Rs.25,000) of life insurance.

Business insurance:Business insurance is a type of insurance which is taken out by the business concerns.
Every business house, small or large requires security for their business. For the security
and safety of their employee & employers, they require certain type of insurance which
will help them to preserve from the uncertainties arising in the business. A business
concerns include company, partnership or sole trading concern. Every business concern
take out insurance for there employee, key person etc.This help them to protect the
interest of their employees.

Business Insurance comprises of:

4

Key Person/man Insurance

Partnership Insurance

Employer- Employee Insurance

What is Key Person Insurance?

Key man insurance is a insurance taken out by the business concern to indemnify
himself from the loss which the may suffer in the event of death or loss of skill of the key
person, it can also be defined as Insurance taken by a Business Concern on the lives of
the Key Employees / Directors / Working Partners. Their Talent and Experience account

for much for the success of the Business Who cannot be easily replaced by virtue of their
long experience.

A Key Person is:

4

Key Executive

Key Employee

Whole Time Director

Working Partner Business Concern includes:

A business concern includes:-

Company To insure key employees / directors

Partnership firm To insure working

Sole proprietor concern To insure key employees, but not the sole proprietor

partners/

Employees

The risk arising from the death of key employee is as follows:4

Reduction in value of business

Decrease in sales and production

Impaired customer and supplier confidence

Weakened credit standing of business

Forced liquidation of business

Delay or termination of projects or future plans

Reduced Brand Value

Reduction of profits Replace loss of profits

Provide funds to recruit, hire, and train suitable replacement

Assure customers, creditors and employees of the continuity of the business

Pay a death benefit to the Key Persons family

Reduction in profits

Hostile Takeovers
The benefits of key men insurance to particular business concern are as follows:

Replace loss of profits

Provide funds to recruit, hire, and train suitable replacement

Assure customers, creditors and employees of the continuity of the business

Pay a death benefit to the Key Persons family

Ensure Liquidity

Create policy cash value which accumulates and can be used for emergency business
requirement or opportunity

Key Employee retirement / disability income

As explained earlier that the key man insurance is taken out by the business concern
to indemnify himself from the loss arise due to death of the key employee of the
company, the benefit of the key men insurance is enjoyed by the company himself.
Key person insurance is taken by a business concern for its own benefit and not for
the benefit of its employee / individual. The control of the key men insurance is also
with the company as the following right are with the company himself.
Premium is paid By the Business Concern
-

It retains the right to the Policy

Is eligible to receive the policys benefits

On what basis can key person insurance be given?

Holdings

Contribution To Profits & Profile

Documents Holdings

In case of an entity, the key person should not hold;

more than 50% individually, and

more than 75% jointly with his family

(Family includes spouse and minor children when a minor becomes a major, then he/
she is not a part of the family for this purpose)

The above are more of a convention and not a rule or law.

Contribution to the Profits & Profile

Quantum of Insurance will depend on the key persons contribution to the concerns
profits keeping in mind

His Qualifications

Experience

No. of key persons in the concern

Documents - Profits & Compensation

The cover for all the key persons in the concern will be limited to the least of ;

3 Times of Average PBDT ( Profit before Depreciation

and Taxes) for the last 3 years

5 Times of Average Profit before Taxes ( PBT) - for the

last 3 years

Individual Key persons cover limit

Up to 8 times of the annual compensation of key person.

Assume that the Key mans annual compensation is Rs. 12 Lakhs and commission @ 1%
of the PAT.

3 Times of Average PBDT for the last 3 years = 280 + 250 + 200 X 3 = 730
3

5 Times of Average Profit before Taxes = 220 + 190 + 140 X 5 = 917

for the last 3 years

8 times of the annual compensation = 12 + (1% of 139.5) X 8 = 107

of key person

The cover for all the key persons in the concern will be limited to 730 lakhs&individual

Key persons cover limit will be 107 lakhs.

-

Where do you get the information on PBT & PBDT ?

Balance Sheet& P & L Statement:

-

forming a part of the Companys Annual Report

Balance Sheet:

Presents the snapshot of the companys financial

Position and reflects the sources and application of funds.

Documents Required :

Copy of Memorandum and Articles of Association

Copy of Resolution of Board authorizing such insurance

Copy of audited accounts for the last 3 years

Key person Questionnaire

I. T. returns of the Key person for the last 3 years

Plans & Policy Procedures:

Flexi Save Plus, Flexi Life Line, Classic Life and Term Plan can be given

Term and CI riders can be added

Concern being the owner of the policy, nomination is not possible.

Assignment can be made in favour of the key person, in case of the key person leaving,
can also be assigned in favour of

new employer

Tax Treatment

Business concern, being the owner, can claim the premium paid as Business expenditure
under Sec 37 of the I. T. Act. Circular No 762 dated 18th Feb 1998.

(Eligibility for deduction would depend on facts of each case and the business
concern will have to provide commercial justification to income tax authorities for
availing of Premium paid by the concern not a perquisite in the hands of the key person.

Policy proceeds received will not be exempt under Sec. 10(10D)s of the I.T. Act.

Policy proceeds received by the concern to be treated as business income and taxed under
Sec. 28 of I. T. Act.

key person insurance)

In case of Assignment in favor of key person, S.V. to be treated as perquisite. If S.V. Is

paid for by the key person, no immediate tax liability for the key person, but purchase
price to be treated as business concerns revenue and taxed accordingly.

Tax Treatment
Business concern, being the owner, can claim the premium paid as Business
expenditure under Sec 37 of the I. T. Act. Circular No 762 dated 18th Feb
1998. (Eligibility for deduction would depend on facts of each case and the
business concern will have to provide commercial justification to income tax
authorities for availing of key person insurance)

1.

Premium paid by the concern not a perquisite in the hands of the key person.

2.

Policy proceeds received will not be exempt under Sec. 10(10D)s of the I.T. Act.

3.

Policy proceeds received by the concern to be treated as business income and taxed under
Sec. 28 of I. T. Act.

Benefits of Key person policy:

Concern is indemnified in case of sudden death of the key person.

Corporate tax saving

A tool for retention of key person

Policy can be gifted to the key person as a recognition

Policy can be used as a collateral security

Withdrawals from the policy possible to meet any emergency

This is the various advantages which the company provide to its employee in
turn of

the services, given to them as a customer made by his employee. Key Man

insurance gives a chance of confidence to the company as well as to the employee, to

work hard and acquire success in the business.

PARTNERSHIP INSURANCE

According to section 4 of Parternership is The relationship between the people who

has agreed to share the profit of business carried on by all or any one of them acting
for all.Partership Insurance is their, where two or more persons come together and get
their sharing / business profit, which they acquire through trade, and invest in the
insurance as policy performance for future predictability, safety and security purpose.
In simple words it is a type of insurance taken by a partnership firm on the lives of
partners.

What is the objective?

1.

It allows predictability, safety and security to the partnership firm.

2.

It is useful to protect their business from the various factor of risk.

3.

It provides the central trust/mutual understanding from beginning process to ending

process towards partnership firm.

1.

To enable the partnership firm / remaining partners to buy the deceased partners share
without disturbing the firms financial position.

Insurable Interest:

A partnership firm has an insurable interest in the lives of its partners to the extent
of purchase money ( capital and goodwill ) required to be paid in respect of share of
each partner
Qualifying Conditions:

1.

If partners are so related that one partner is the sole legal heir of the other partner, then
partnership insurance cannot be considered

1.

All partners must be insured unless they are uninsurable on medical or age grounds

1.

The partnership deed should contain a clause that the partnership is revocable definitely
in the case of demise of a partner

Documents Required:

Normal medical requirements for individual partners

Copy of original and supplementary partnership deed

Consent letter to place an endorsement on the policy

Copy of I.T. returns for the last 3 years.

application

Copy of Audited accounts for the last 3 years.

Policy Procedures:
Policy to be endorsed stating that in case of dissolution of firm for reason
other than death of partner, the policy will either be surrendered or absolutely
assigned in favor of the insured partner. The following are the points to be
considered:
1.

Firm being the owner of policy, nomination is not possible

2.

Assignment, except in case of dissolution of firm not allowed

Tax Treatment:
4

Insurance premium paid by the firm to be treated as business expense under Sec. 37 of
Income Tax act

Policy proceeds will be treated as income of the firm

Benefits of Partnership Insurance:
Takes care of financial insecurity in the event of a partners death.
Promotes a firms life
Tax benefits to the firm
Financial stability.
Survival benefit.
Mutual understanding.

EMPLOYER-EMPLOYEE SCHEME

What is Employer Employee Insurance Scheme?

Insurance taken by an employer on the life of an employee for the benefit of the
employee. Every company takes out insurance for his employee. The insurance taken
out is in huge number and the insurance company sees the employer employee
insurance as a big market for their business and has invented this product.

What is the objective?

1.

To enable an enlightened employer to provide for insurance for the benefit of a loyal
employee.

2.

Employer has an insurable interest on the life of an employee

What are the options available?

1.

Application is completed by the employee;

- Application to be accompanied by a letter from the employer committing to pay
the premium

1.

Application is signed by the employers authorized person

-

Application to be accompanied by a letter from the employer stating the

object of insurance, restrictions imposed regarding loan, surrender, etc., and that the
policy would be immediately assigned in favour of the employee.
Tax Treatment:

Premium paid by the employer to be treated as business

expense in the employers

books
4

Premium paid by the employer to be treated as perquisite in

the hands of

employee under Sec. 17 of I. T. Act.

4

Employee can claim I. T. rebate under Sec. 88

Policy proceeds exempt under Sec.10 (10D)

Benefits of Employer Employee Insurance:

Employer earns loyalty of employee /s

Employee gets benefits of life insurance
Tax benefits to employer and employee /s
Motivation of the employee.
Mutual understanding among the employees.
Participative management.

Micro insurance:Micro insurance is one of the biggest and advance innovations in the
insurance sector of India. As the majority of the population living in the rural areas

and the majority of the population below poverty lines. The insurance company with
a view to target this section of the society, has designed the product which the poor
people will be capable to purchase.

In micro insurance the face value of the policy will be very low i.e. is
Rs25000 and the premium will be payable

on weekly basis instead of

monthly,quaterly,or yearly basis .the premium of the 25,000 on weekly will be Rs150
only which the poor people can afford. In this way the insurance will be able to cover
this section of the section which consists of the biggest part of the market. The LIC
has already introduce micro insurance in the market before 2 months

Conclusion:In the end we reach to the conclusion that the insurance industry has witnessed
a huge amount of innovation after the privatization of the insurance sector. the
privatization has facilitated the entry of foreign and private players to the industry,

due to which the competition in the insurance market has became very severe and in
order to attract the customer and to retain the customer the insurance company has
introduce various new product. Again the majority of the potential customers are
unaware of the insurance companies and with a view to increase the aware the
insurance companies has innovated the new marketing channels.
Again the e need of the customer in the present world has increase a lot due to
increasing uncertainty in the present world. And to meet their requirement of the
insurance the companies are designing multi benefit products.

CONTENT