The Life Insurance Industry in India is on the rise. With less than 40% of the insurable population being insured, the potential for growth for this industry is inevitable. With increased number of private players currently in the market, the going will be tough, but surely it will be rewarding for those who can align their products with consumers expectation. This paper makes an attempt to identify the gap between available and desired features in terms of existing products and services in life insurance. This paper also gauges general awareness about life insurance, investigates reasons for buying life insurance and finds preferred tenure and age cut off for entering into a life insurance.
Introduction
Insurance is a contract between two parties whereby one party, called insurer, undertakes in exchange for a fixed sum called premiums, to pay the other party, called insured, a fixed amount of money on the event of any mishap or a calamity. In other words, insurance is a protection against financial loss arising from the unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insured and the insurance companies act as trustees to the amount collected.1 A well-developed life insurance industry is a reflection of a well organized and sophisticated economy, with a great portion of risks faced by individuals being properly handled. Life insurance products (or policies) are used not only as a means to mitigate the financial impact of death, disability, diseases and accidents, but also takes care of longevity. Since liberalization in 2000, the Indian insurance sector has become a buyers market, where the customer has the choice to select from a variety of products, services and service providers. With the regulators (i.e., IRDA) giving licenses to many private players, many companies have entered the insurance market leading to a fierce competition for market share. Multinationals are now collaborating with Indian companies who can help them with local requirements. Table 1 shows the market share of leading insurance companies in India (Pitalwalla, 2006). In this competitive market, the insurance companies need to understand the needs of people and should design products accordingly.
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1
Faculty Member, The Icfai Business School, Kolkata, India. E-mail: subhasisr@ibsindia.org Student, Class of 2008, The Icfai Business School, E-mail: shahid.7983@gmail.com http://www.bimaonline.com/cgi-bin/ind/basics.asp, last accessed on September 25, 2007.
2008 The Icfai University Press. Expectation All Rights Reserved. Gap Analysis Between Customers and Current Provisions of Indian Life Insurance Industry
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Methodology
Literature/Internet Survey
The study started with the literature survey of journals and magazines that helped to comprehend the various facets
Data Collection
Interpretation of Results
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The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008
of the insurance industry2 (Ray and Pathak, 2007). Also, the Internet survey was conducted to understand the latest occurrences in the industry. These sources provided the basic knowledge about the industry, key players apart from LIC like ICICI Prudential, Bajaj Allianz, Birla Sunlife, TATA AIG, etc., their performance, key communication mediums, product features, etc., which facilitated the designing of questionnaire and hence analysis3 (Levin and Rubin, 1995; and Pitalwalla, 2006).
Design of Questionnaire
The questionnaire was designed based upon the objectives of the study. The questionnaire consisted of mainly closed questions. It was divided into three parts, viz., (1) understanding awareness of insurance and its drivers; (2) finding out feedbacks on existing features and assessing needs for additional ones for current plans; and (3) knowing customers choice on after sales services. Major rules and regulations mandated by Insurance Regulatory and Development Authority (IRDA) were also considered while preparing the questionnaire. The questionnaire is attached in Appendix I.
Data Tabulation/Validation
After the data collection, the data was tabulated in a Microsoft Excel sheet and the data was edited, coded and verified for validity. During the survey, 300 respondents were interviewed from the target group. Out of this, no record was rejected due to inconsistencies or incompleteness.
www.tata-aig-life.com; www.myiris.com/insurance/index.php Taxhounds Sniff Money in ULIP Fees, 2007, http://www.m oneycontrol.com /m ccode/news/article/ news_article.php?autono=282803, last accessed on September 25, 2007; Life Insurance Industry Grows 38% in A pril-Oc tober, 2005, htt p: / /personal financ e. m oneycont rol .c om / m c c ode/ new s/ art ic le/ news_article.php?autono=194338, last accessed on September 25, 2007; Market Share of Private Life Insurers at 25.7% , 2006, htt p:/ /news. m oneyc ontrol. com /m c code/news/artic le/ new s_arti cle.php? autono=197524, last accessed on September 25, 2007; http://www.bimaonline.com/cgi-bin/ind/basics/ basics.asp, last accessed on September 25, 2007.
Gap Analysis Between Customers Expectation and Current Provisions of Indian Life Insurance Industry
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Data Analysis
General Awareness and Generic Needs
In this section, four questions were taken into consideration. The first question deals with the peoples awareness of various investment/savings channels. As per Figure 2, out of the 300 respondents, majority of the people knew about banks, insurance, post office deposits, shares and fixed deposits. It is to be seen that 246 out of 300 respondents knew that life insurance is an investment channel to protect the future. Even though the figures are inflated due to mostly urban respondents, this augurs well for the insurance industry, demonstrating a lot of potential to grow.
Respondents
Insurance
Gold
Debent
NSC
Real Est.
Post Off.
Comm. Shares
FDs
Govt. Bond
PPF
The next question was targeted to understand the main driving reasons behind purchasing an insurance. The results are shown in Figure 3.
4.84
Response
Forced Savings
Here the respondents were asked to rate the importance of various factors (on a scale of 1 to 7 with 1 being the highest and 7 being the lowest) when they invest in life insurance.
36 The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008
As shown in Figure 3, the most important driver for life insurance is Risk coverage against death/accident with an average rating of 2.7. The next factor that came out was that the people take an insurance policy to meet Post-retirement needs. The next most important factor is tax planning and the fact that it is being looked upon as an attractive investment scheme. This may be influenced again by the selection of respondents who are mostly from the city of Kolkata. Still, the figures are encouraging for the life insurance industry, since this is perceived as an attractive investment channel with the additional benefit of tax saving. The next investigation was related to finding out preferred age limit for people to buy a life insurance product. The options for minimum age were 50, 55, 60, 65 years and also no limit. The data is tabulated in Figure 4.
163
Respondents
As many as 163 out of 300 respondents voted for having no age limit for entering into life insurance which is understandable. If a regulatory framework does not allow implementing this, the next best option is 55 years which has attracted 28% of the responses. The next question was to find out the preferred tenure of investment in life insurance policies. The basic motivation was to see the total number of years people like to remain invested in a policy. The result is shown in Figure 5. A total of 111 respondents (37%) out of 300 responded that the tenure should be 15 or more number of years. This was followed by 93 respondents (31%) who want it to be between 6 and 10 years. The respondents are divided between long-term and short-term plans. This can be explained if we look at various types of life insurance products, e.g., Term Plan and Endowment Plan. Term plans purely cover the risk of the policyholder
Gap Analysis Between Customers Expectation and Current Provisions of Indian Life Insurance Industry 37
111
Respondents
without having any saving benefit in the future, whereas Endowment plans gives life cover to the policyholder and also pays the maturity benefit. The endowment products can be further sub-divided into two categories: 1. Participatory plans 2. Non-participatory plans/Unit Linked Products Participatory plans are those plans which enjoy the benefit of bonuses earned by the company in a particular financial year whereas Non-participatory plans/Unit linked products enjoy returns from the stock market. People voting for long-term tenures are generally buyers of term plan or participatory plan whose main aim is to cover risk against death, etc., and meet post-retirement expenses. On the other hand, people opting for small-term tenures prefer unit linked products who want the flexibility to time the share market and look at insurance more from a wealth accumulation perspective.
https://iciciprulife.com/public/Life-plans/Plans.htm
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The observed Table 2: Cross-Tabulation of Risk and Return chi-square value is 88.13. The tabulated Return Low Moderate High Risk chi- square value for four Low 39 52 32 degrees of freedom at 5% level of significance Moderate 2 32 86 is 9.488. Since the High 0 12 45 observed chi-square value is greater than the tabulated value, H0 should be rejected. This shows that the question was unambiguously understood by the respondents. A closer look at Table 2 reveals that people expect moderate to high return at a low to moderate risk. The next question was related to money back policy seeking to know preferred pattern of returns. The options for getting money back were (a) annually after completion of first seven years; (b) gap of three years; and (c) gap of five years. The result is shown in Figure 6.
139 94 68
Respondents
120 100 80 60 40 20 0
It is seen that 139 of the 300 respondents (46%) preferred three yearly returns. The next choice was to get returns annually after completion of first seven years. Most of the existing policies do not conform to any of these choicesso it is imperative that companies design products accordingly. The next plan was the pension plan. There were two basic reasons for analysis, firstly, to find out (a) what is the preferred age when a person wants to receive pension; and (b) what kind of equity exposure should the pension fund be exposed to. It is found from Figure 7 that 126 of the 300 respondents wanted pension from the age of 50 years followed by 55 years. These two groups include 79% of the total respondents.
Gap Analysis Between Customers Expectation and Current Provisions of Indian Life Insurance Industry 39
Companies disbursing pension before the age of 45 or after the age of 55 may like to revisit their pension plans.
140 120
126
112
Respondents
Time of Return
The respondents were asked to mark the kind of equity exposure that the unit linked pension funds should be having. Figure 8 shows an overwhelming 76% of respondents voting for balanced funds, as expected. This is slightly different from Table 2 as people tend to be less adventurous with respect to pension plan which essentially meets post retirement needs.
Figure 8: Preference for Equity Exposure of Pension Funds Equity Exposure for Pension Funds
17 (6%) 55 (18%) Low High Balanced
228 (76%)
The last plan was related to childrens plan. The analysis was aimed at finding out whether the return should be lump sum on maturity of the policy or it should be regular periodic return. In the analysis it is seen that 56% of the total sample respondents have preferred to receive the lump sum return whereas only 44% of the respondents have preferred regular periodic returns.
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2.6
2.5 1.7
2.3
Rating
Here it is seen that the most important service is to get the reminder of the dates for premium payment. Secondly, it is the fund statement which the people need, followed by information on switching of funds to new products. So it is a good reminder for the companies that they should now make arrangements for providing customers with information on switching of funds. As per this survey, SMS came out to be the most preferred mode of communication (see Figure 10). This is followed by phone calls and e-mails. It should also be noted that company representatives have got the last preference, which means most people do not want company representatives to come and approach them. However, one must admit that the finding is influenced by urban respondents who are more exposed to mobile and internet technology. The last part of the analysis was to find out the frequency of receiving the fund statement. The options were the company should send account statements (a) quarterly; (b) half-yearly; or (c) annually. The findings are shown in Figure 11.
Gap Analysis Between Customers Expectation and Current Provisions of Indian Life Insurance Industry 41
Responses
SMS
Phone Calls
E-mails
Letters
Co. Rep.
Co. Bro./Mag.
Preference of Communication
Out of 300 respondents, 183 people (61%) want the fund statement to be sent once in a quarter. Half-yearly and annual statements follow this with 24% and 15% respectively. Even though this (i.e., sending fund statements quarterly) requires an extra cost, the companies should try to satisfy its customers. Cheaper options can be through SMS, online with the consent of the customer.
61%
Conclusion
From the study, it can be concluded: People have good knowledge about different investment/savings channels including banks, post office, share market and also insurance. Life insurance nowadays has become an attractive investment channel along with providing risk coverage against death/accident, tax savings and also for meeting post-retirement needs, etc. Insurance companies should try to come up with a product where there should be no entry limit on age. But in order to do so, the company should follow the IRDA rules and directives. The next best option is at least 55 years.
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Traditionally, people tend to invest in life insurance for a long-term period say 15 years and above. But there is a polarization as a good proportion of people are coming up who want it to be short-termbetween 6-15 years. Life insurance companies may come up with a term policy that earns bonus, however, this needs further probing since term plan is specifically designed for covering the risk. People prefer balanced equity fund for their pension to grow and the pension should start at the age of 50 years. People like to receive quarterly statement. Companies should also inform people about premium payment, its new products and also about switching of funds. The preferred media of communication is SMS, phone call and e-mail at least for the urban population. Sending representative may not work that well with the population in urban areas. A lot of companies give a lump sum return in its child policies, which is what most people want. But since there is not much of a difference (of proportions) between the two, it would be beneficial for a company if it starts giving regular periodic returns too, as it will enable the company to maximize its market share among the sections of the people who want regular periodic returns.
Future Study
The sample consisted of respondents within the age group of 18-65 years in central Kolkata. Even though the study included a large spectrum of age dimension, this study can further be conducted in different segments of population, e.g., rural, semi-urban, etc. Income level can be a good differentiator. In this sample, some of the respondents were not insured. So it is wiser to get feedback from people on general as well as specific plans from customers and non-customers.
Finally, this study should be treated as a first step and can provide stimulus for more in-depth research. q
References
1. Levin Richard I and Rubin David S (1995), Statistics for Management, 6th Edition, Prentice-Hall of India Private Limited. 2. Pitalwalla Yasir A (2006), Gasping for Capital, Businessworld , February 13, pp. 34-35. 3. Ray S and Pathak A (2006), Strategizing the Exposure Mix in Various Communication Channels for Enhancing Visibility in the Indian Insurance Industry, Icfaian Journal of Management Research, Vol. 5, No. 10, pp. 7-17. 4. Ray S and Pathak A (2007), Strategizing Brand Positioning in the Context on Indian Insurance Industry, Icfai Journal of Brand Management, Vol. 4, No. 1. 5. www.bajajallianzlife.co.in/lifeinsurance/products/individual.asp 6. www.birlasunlife.com/BirlaSunLife/Insurance/BSLI_MP/index5.aspx
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Appendix
Questionnaire
Initial Information Name: Address: Telephone: Age: Total no. of family members: No. of earning members: Mobile: Profession: No. of dependents: Gross annual income:
Q1) Which among these are you aware of as a savings/investment channel? Banks Insurance Gold Debentures NSC Real Estate Post Office Commodities Shares Fixed Deposits Govt. Bonds PPF
Q2) What according to you are the reason/s to buy a Life Insurance product? please rate it on scale of 1 to 7, 1 the highest and 7 the lowest. Reason Tax Planning Risk Cover against Death/Accident Childrens Marriage/Education Post-Retirement Needs Attractive Investment Schemes Freeing the Flat from Mortgage/Debt Forced Savings Q3) Do you think there should be an age limit for an individual to buy a Life Insurance policy? 50 yrs 55 yrs 60 yrs 65 yrs No such limit (Contd...) Rating
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Appendix
Questionnaire
Q4) Your investment in Life Insurance should be of 0-5 yrs Term Plan Q5) Would you like to buy a Life Insurance product which earns bonus? Strongly Disagree Agree Unit Linked Insurance Plan Q6) The feature of capital guarantee adds safety to the investment Strongly Disagree Agree Disagree Strongly Agree Disagree Strongly Agree 6-10 yrs 11-15 yrs Above 15 yrs
(...contd)
Q7) Your investment in a Unit Linked Insurance plan should perform as: Return Risk Low Moderate High Money Back Policy Q8) When do you want your money back in a Money Back plan? Annually After every 3 years After every 5 years Low Moderate High
(After completion of first 7 years) Pension Plan Q9) Your Pension plan should start giving you return from the age of: 45 50 55 60
Q10) What type of equity exposure should your Unit Link Pension plan have? High Children Plan Q11) Children plan should give you: Regular Periodic Returns Lump Sum Return (Contd...)
Gap Analysis Between Customers Expectation and Current Provisions of Indian Life Insurance Industry 45
Balanced
Low
Appendix
Questionnaire
Q12)
(...contd)
Please rate the following notifications from your life insurance company on a scale of 1 to 5, where 1 is the highest and 5 is the lowest. New product information Dates for the renewal of premium Information about the switching of funds Fund statements
Q 13) Please rate communication modes on a scale of 1 to 5, 1 being the highest and 5 being the lowest SMS Phone Calls E-mails Company representatives
Letters in self addressed envelopes Company brochures/magazines Q14) The frequency of the fund statement should be Quarterly Half -yearly
Yearly
Reference # 46J2008090301
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