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Analysis of Life Insurance Sector (Life Insurance Corporation)

Demographic environment
India has, according to 2001 census, 65.38%

literacy rate. The literacy rate varies across rural (59.4%) and urban (80.3%) India. These contrasts in literacy levels are significant and have important implications for insurers. Literacy and education increases employability of the person in higher earning jobs and also brings about a change in perception about need for insurance. The median age in country was 23.8 years in 2005. Increase in double income families.

Education level

Year

Number of graduates

1991
2001 2004

20.5 million
37.6 million 48.7 million

Political and legal environment


IRDA Act 1999 The Bill allowed for up to 26% foreign equity participation in the insurance sector. The minimum paid up equity capital, excluding required deposits with the RBI and any preliminary expenses in the formation of the country, requirement of an insurer would be Rs 100 crore to carry on life insurance business Insurance business in Rural Sector: After the commencement of the IRDA Act, 1999, (Malhotra committee) every insurer would have to undertake such percentage of life insurance business in the rural sector as may be specified by the IRDA in this behalf. It is mandatory for the new companies to meet the obligations relating to the rural and unorganized sector as per section 32-B.

Economic environment
Inflation rate: Inflation can also be one of the causes to change the scenario of the insurance sector. High inflation for instance, would tend to reduce the insurance business, particularly life, because the real value of the money paid back to the policyholder on maturity of the policy would go down and would, therefore, lose its attraction for the investor. Impact of income on insurance: Income level significantly affects the demand for life insurance. Life insurance becomes more affordable when income increases((Rubayah and Zaidi (2000)).

Socio-Cultural and technological environment


Decline of joint family structure has added to need

for insurance. New channels like Bancassurance, corporate agents and websites selling life insurance products are ubiquitous testaments to how the channels have grown in terms of not only selling, but also increasing awareness about life insurance. More innovative channels like a supermarket, a bank, a post office, an ATM, an internet kiosk or a departmental store could be introduced in the future. . For example MetLife India, a subsidiary of global insurance giant, entered into a strategic tie up with Viswas, a Hyderabad based retail chain, to

Company- LIC
Life

Insurance Corporation was formed as a government regulated monopoly in September 1956 by an Act of Parliament, (LIC Act 1956) with a capital contribution of Rs. 50 million. The total life insurance market can be judged on two parameters premium collected and number of new policies underwritten. It can be seen that LIC has a market share of 53% which roughly amounts to Rs. 20000000 crores out of a total market of 4.3 crore crores. The number of players in this segment have increased to 30 (15 in private sector), with Life Insurance Corporation (LIC) being the dominant player (market share of over 53%)

Objectives
When The Life Insurance Corporation of India was

set up in 1956, its primary objective was to propagate the idea and practice of life insurance in rural areas among financially backward people so that their risks were covered in the event of death. The Life Insurance Corporation of India intends to increase the mobility of individual savings to the maximum extent possible. The Life Insurance Corporation of India seeks to employ the investments of its customers in the best possible manner while at the same time prioritizing matters of national importance. The company aims at meeting the dynamic expectations of its investors by adding innovative schemes and products to its portfolio.

Culture
LIC has had many problems relating to the

efficient use of its human resources since the time it was set up. Many of these problems related to the fact that it was a public sector organization. The corporation's managers were too bureaucratic. The work culture in the organization was sloppy. Strong trade unions made it difficult for managers to get the work done. The corporation's development officers focused on their own earnings and incentives, rather than on customer satisfaction.

Product line
Schemes: money back plans, whole life plans, and

term assurance plans, several special insurance plans for children, women, physically challenged dependants, and high net-worth individuals. Pension plans - Jeevan Nidhi, Jeevan Akshay, Jeevan Dhara, and Jeevan Suraksha. The company has 3 Unit plans - Market Plus, Profit Plus, and Fortune Plus. Group schemes - Gratuity Plus, Group gratuity Scheme, and Group Leave Encashment Scheme. New plans- ULIP, health insurance In 2005-06 , LIC added as many as 100,00,000 policies to its already impressive portfolio and grew by almost 17% during the given period.

Competitors of LIC
Private players allowed in the market in 2000

Currently, close to 30 public and private firms in

India dealing in life insurance

Competitors of LIC
Market Share (Premium wise) 2007-2008 (Rs. 1.5 lakh crores)

39%
53%

LIC Bajaj Allianz ICICI Prudential Others

5% 3%
Source: IRDA annual report 2008

An overview of the competitive life insurance market in India


POTENTIAL ENTRANTS DLF PRAMERICA LIFE, STAR UNION DAI-CHI LIFE, FUTURE GENERALI LIFE, SRIRAM SUNLAM LIFE INDUSTRY COMPETITORS LIC, BAJAJ ALLIANZ, SBI LIFE, RELIANCE LIFE, HDFC STANDARD LIFE, BIRLA SUN LIFE, MAX NEW YORK LIFE, KOTAK MAHINDRA SUBSTITUTES UNIT PLUS (SBI LIFE), NEW CAPITAL GAIN (BAJAJ ALLIANZ) etc.

BUYERS SWITCHING TO DIFFERENT INVESTMENT SECTORS FOR BETTER RETURNS, UNDIFFERENTIATED PRODUCT

SUPPLIERS GROWING POWERS BANKS, CA ARE IMPORTANT CHANNELS TO REACH THE CLIENT. HIGH BARGAINING POWER

Comparisons between the trio Distribution Network


LIC

8 zonal offices, 100 divisional offices, 2048 branch offices. Agents over 10 lakhs and 26 bancassurance partners
ICICI Prudential

2100 branch offices, agents over 2.9 lakhs, 18 bancassurance partners


Bajaj Allianz

1200 branches, agents over 2.5 lakhs, tie-ups with 5 cooperative banks

Comparisons between the trio (contd)


Grievances
Grievance settlement ratio was 90% for ICICI

Prudential, 81% for Bajaj Allianz and 12% for LIC Promotion expenditure

LIC - Rs. 116 crore in 2008 Bajaj Allianz Rs. 17.7 crore in 2008 ICICI Prudential Rs. 15.4 crore in 2008

Financial comparisons with competitors


Company Parameter Year/Ratios Operating exp % of Operating premium earned Efficiency Commission exp as % of premium earned Profitability Measure Return on assets LIC ICICI Pru Bajaj Allianz 04-05 3.517 07-08 0.214

04-05 07-08 04-05 07-08 0.086 0.088 0.729 0.195

0.091

0.087 0.124

0.033

0.329

0.146

0.003

0.002 0.318

0.048 0.229

0.103 0.105

-0.35 0.245

Marketing Efficiency

Return on equity 0.553 Premium earned per agent 11.25 20.04 1.06

7.9

0.16

3.07

Bajaj Allianz S.W.O.T.


Strengths Strong promoters, all-India network, products across all lines, strong IT infrastructure Little product differentiation (premium wise and offering wise), vulnerable to risk associated with investment in the money market, high expenditure on advertising (Rs. 17.7 crores approx: ICICI Prudential Rs. 11.1 crores) Geographical expansion, differential pricing Product differentiation is difficult in current market, competition getting keener Weaknesses

Opportunities Threats

ICICI Prudential S.W.O.T.


Strengths Money power, larger network branches, large portfolio (in built fund hedge), price competitive products and low upfront charge Little product differentiation, most of the plans too complicated to understand, more centred in urban areas Insurance coverage both to the parents and children, leverage the customer base of bancassurance partner, strong distribution network Players like Bajaj Allianz with low premium for same plan, LIC offering huge surplus in life fund, product differentiation is difficult

Weaknesses

Opportunities

Threats

LIC S.W.O.T.
Strengths Brand Image, Govt. Guarantee, Claim settlement ratio, Large product portfolio Ultra-slow decision making process, typical government organizational problems Pension market, health insurance, large real estate portfolio Internal discord, new players, redtapism

Weaknesses

Opportunities Threats

Comparison of similar policy of competition


Company Policy Min/Max entry age Minimum Premium Min sum assured Liquidity years Maturity benefits

LIC

Moneybac k with Profit


CashBak

13/50

Rs. 3186 yearly

Rs. 50000

5,10,15,20

40% of sum assured + bonuses

ICICI Prudential

16/55

Rs. 6000 yearly

Rs. 75000

4,8,12,16,2 50% of 0 sum assured + bonuses 4,8,12,16,2 125% of 0 sum assured + bonuses

Bajaj Allianz

CashGain

14/50

Rs. 5000 yearly

Rs. 50000

Market Size and Growth


205.9 million households

61.4 million urban households


Rs 1.5 lakh crore premium collected (industry) in

2006-07 (19.9% growth vs 2.9% growth in world market) Life Insurance penetration 3 %

Consumer Behaviour Cultural Factors

Unnatural events Sub culture (Urban-Rural divide) Awareness, Per Capita Income Middle class for protection & savings Upper class for investment, tax benefit & savings

Social Factors
Reference group, family, status In joint families less stress on buying insurance Women factor

Personal Factors

Buyers age Stage in Life cycle Occupation Economic Circumstances Personality Life style

Income Level of Respondents


1. <150,000 10%

4. 500,000 and above 35%

2. 150,000 300,000 20%

3. 300,000 500,000 35%

Age Profile
45 and above 20%

Less than 15 years 5%

15 - 30 years 35%

30 - 45 years 40%

Occupation of the respondents


4. Self employed (for e.g CA,Lawyer) 6

3. Student

2. Business

10

1. Service

16

Consumer Behaviour
Benefit that consumer is seeking

What needs must be satisfied? 4. Asset


Protection 8% 3. Tax saving 25% 2. Investmen t 17%

1. Security 50%

Consumer Behaviour
Where are the present investments?
Where have you invested in?
Percentage of respondents

1. Real estate Series1

5.00%

3. Mutual 4. 2. Gold funds\equit Insurance y 25.00% 15.00% 30.00%

6. Other

45.00%

Factors Influencing final choice of life insurance company


6. Ease of availability 75.0% 45.0% 57.5% 80.0%

5. Promotion
4. Customer service 3. Brand Name 2. Policy scheme 1. Reliability

15.0%
72.5%

0.0% 20.0% 40.0% 60.0% 80.0%

Type of Insurance preferred by consumers


70% 60% 50% 40% 30% 20% 10% 0%

60%

25% 10%
Term Plans Endowment ULIP

5%
Not sure

Major factors influencing decision to purchase insurance

10% 7%

4%

12% advertisement agent friends and nieghbours family co workers 55% others

12%

Where do they go or look to buy life insurance 4. Other


3. Bancassura nce 7% 5%

2. Direct from company 33%

1. Agent/Broke r 55%

preference for mode of payment of premium


2% 2% 28% 8% single premium annual half yearly monthly Quaterly 60%

Major decision maker in buying the policy

1% 17% policy holder spouse 15% 67% parents children

Short term objectives


To invest an additional Rs. 4000 crore in the stock

market It would employ 11 lakh more agents to double its field workforce

Long term objectives


Spread life insurance to the rural areas and

socio-economically backward classes Maximize mobilization of peoples savings by making insurance-linked savings more attractive Involve all people working the Corporation to the best of their capability in furthering the interests of the insured public

References

www.irdaindia.org http://www.mouthshut.com/review/Life_Insurance_Corporation-129119-1.html http://www.financialexpress.com/news/lic-to-hike-advertising-spend-to-targetyouth/131089/ www.licindia.com The Marketing Whitebook 2009-2010 Marketing Management 13th Edition, Kotler, Keller, Koshy & Jha http://www.business-standard.com/india/news/insurers-miss-outrural-socialobligations/351625/ Life Insurance in India : Emerging Issues (Indira Gandhi Institute of Development Research) http://www.financialexpress.com/news/pvt-players-snuffing-life-out-of-marketleader-lic/171530/0 http://www.icmrindia.org/casestudies/catalogue/business%20strategy5/CLBS0 16.htm http://www.rediff.com/money/2005/dec/19guest1.htm http://en.wikipedia.org/wiki/Tertiary_education_in_India http://www.topnews.in/lic-invest-rs-4000-cr-stock-markets-march-20092115764

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