“STUDY ON EFFECTIVENESS OF AGENCY CHANNEL IN GENERAL INSURANCE MARKETING” With reference to FUTURE GENERALI INDIA INSURANCE COMPANY LIMITED, VISAKHAPATNAM
A Project Report submitted in partial fulfillment of the requirement for the award of POST GRADUATE DIPLOMA in RISK & INSURANCE MANAGEMENT By A. Sai Rama Shanker (Roll No: 1225111401) Under the Guidance of Prof. K. Ashok
GITAM INSTITUTE OF MANAGEMENT GITAM UNIVERSITY VISAKHAPATNAM (2011-2013)
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Certificate by the company on their letter head
This is to certify that _______________, MBA student (Enrollment No 1225109322), GITAM Institute of Management, GITAM University has done the project from 02 May 2012 to 12 June 2012 on ―___________________‖ in our Organization for submission in partial fulfillment for the award of Post Graduate Degree of Master of Business Administration by GITAM University and his/her work has been satisfactory.
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DECLARATION
I, A Sai Rama Shanker a student of Masters of Business Administration (MBA), GITAM Institute of Management (GIM), GITAM University, hereby declare that the project work entitled ―Study on Effectiveness of Agency Channel In General Insurance Marketing‖ initiated on 3rd May 2012 at Future Generali India Insurance Company Limited, Visakhapatnam is a genuine work done by me in partial fulfillment for the requirement of the degree of Masters of Business Administration. I confirm this has not been published or submitted elsewhere for the award of any degree in part or in full.
A Sai Rama Shankar Date:
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CERTIFICATE
This is to certify that the project Report titled ―Study on Effectiveness of Agency Channel In General Insurance Marketing‖ is an original work carried out by Mr. A Sai Rama Shankar (Enrollment No 1225111401), under my guidance and supervision, in partial fulfillment for the award of the degree of Masters of Business Administration, GITAM Institute of Management, GITAM University, Visakhapatnam, during the Academic year 2011-2013. This report has not been submitted to any other University or Institution for the award of any Degree/Diploma/Certificate.
Signature of Guide Prof. K. Ashok Chairperson Student affairs, GITAM Institute of Management Visakhapatnam
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ACKNOWLEDGEMENT
It is my pleasure to acknowledge and express my gratitude to all those who helped me throughout in the successful completion of this project. I am very thankful to Mr. N. Vinay Kumar Branch Head, of Future Generali India Insurance Company Limited, Visakhapatnam, for extending support throughout the project. I am thankful to Mr. P. Venkat Ramesh, Sales Manager, of Future Generali India Insurance Company Limited, Visakhapatnam, for guiding me in completing the project. I am thankful to Mr. Ajith Kumar, Underwriter, of Future Generali India Insurance Company Limited, Visakhapatnam, for teaching me the various concepts of insurance and working of an insurance company. I wish to express my gratitude to Prof K Siva Rama Krishna, Dean & Principal, GITAM Institute of Management, GITAM University, Visakhapatnam, for giving me this valuable opportunity to experience the work culture in an organization. I am grateful to Dr. K. Ashok, Senior Professor and Chair Person Student Affairs, GITAM Institute of Management, GITAM University, Visakhapatnam for his continuous guidance to accomplish this project work, successfully. I would like to express my sincere thanks to Mrs. K. Uma Devi, Program Coordinator, MBA, GITAM Institute of Management, GITAM University, Visakhapatnam for giving me this opportunity. I would like to express my sincere thanks to my class coordinator Mrs. G. Arti, Associate Professor, GITAM Institute of Management, GITAM University, Visakhapatnam for encouraging me in my endeavor. A Sai Rama Shanker Roll. No; 1225111401
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Contents Page No. 1. Abstract
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2. Chapter I: Introduction to Insurance
08 - 30
a.) Insurance
09 - 29
b) Review of literature
30
2. Chapter II: Organisational Profile
31 - 36
i) Industry profile
32
ii) Company Profile
33
3. Chapter III: Methodology
37 -38
i) Need of Study
38
ii) Objectives of Study
38
iii) Scope of Study
38
iv) Research Design
38
v) Limitations
38
4. Chapter IV: Data Analysis and Interpretation
39 - 47
5. Chapter V:
48 - 49
i) Findings
49
ii) Suggestion
49
iii) Conclusion
49
6. List of Tables, Charts & Figures
50
7. Bibliography
51
8. Annexure
52
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Abstract
Purpose: The purpose of the project is to understand the importance and effectiveness of the agency distribution channel in marketing and sales of general insurance products and services. Methodology: Data is collected through distributing Questionnaires to the agency in charge, branch head or sales manager of the 16 general insurance companies operating in Visakhapatnam. Findings: The agency distribution channel of the 16 general insurance companies contributes an average of 21% business to the company‘s whole business. Discount given on polices is the major problem faced by the agency channel.
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Chapter-I: Introduction to Insurance
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Insurance The insurance sector in India has come to a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. The insurance sector in India is growing at a speedy rate of 15-20% and together with banking services insurance services add about 7% to the country‘s GDP. In the last completed financial year of 2011-2012 the insurance sector has shown a growth rate of 23%. Today Insurance Companies in India have grown manifold. The insurance sector in India has shown immense growth potential. Even today a giant share of Indian population nearly 80% is not under life insurance coverage, let alone health and non-life insurance policies. This clearly indicates the potential for insurance companies to grow their market in India. In simple terms it is a contract between the person who buys Insurance and an Insurance company who sold the Policy. By entering into contract the Insurance Company agrees to pay the Policy holder or his family members a predetermined sum of money in case of any unfortunate event for a predetermined fixed sum payable which is in normal term called Insurance Premiums. Insurance is basically a protection against a financial loss which can arise on the occurrence of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event.
Definition of insurance: In laymen‘s term insurance can be defined as: “A transfer of the risk of a loss, from insured (person taking insurance) to the insurer (the company) in exchange for a payment of certain sum of money (premium)." In financial sense insurance can be defined as: “A social device providing financiasl compensation to the insured for the consequences of adversities and the payment is paid by the insurer from the accumulated contributions (premiums) of all the parties participating in the arrangement. The essence of insurance is collective bearing of all risks or pooling of risk.” In legal sense insurance can be defined as: “A contract under which the insurer (the company) in consideration of a certain sum of money paid (premium) by the insured (the person whose risk is insured) agrees to: Make good of the loss suffered by the insured against a specific risk. To pay a prefixed amount to the insured or his/her beneficiaries o the happening of a specific event.
Brief History of Insurance In India insurance has a deep-rooted history. It can be found mentioned in the writings like Manusmrithi, Dharmasastra and Arthasastra. These writings talks about pooling of resources and re-distributed of them in times of calamities such as fire, floods, epidemics and famine 9
and this can be considered as probable pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers‘ contracts. The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are: 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are: 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business. 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four company‘s viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company. In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were 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. Thereafter many changes have taken place in the insurance sector. Insurance sector in India was liberalized in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. There is a 26% equity cap for foreign partners in an insurance company. There is a proposal 10
to increase this limit to 49%. The opening up of the insurance sector has led to rapid growth of the sector. Presently, there are 16 life insurance companies and 15 non-life insurance companies in the market. The potential for growth of insurance industry in India is immense as nearly 80% of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards. Furthermore, over the medium and long term, India‘s insurance market will continue to experience major changes as its operating environment increasingly deregulates. On the one hand, a mix of new products, new delivery systems and a greater awareness of risk will generate growth. On the other hand, competition will remain intense as private sector insurers and those about to enter India seek to win market share from the more established public sector entities.
Benefits of Insurance 1. Tax relief: Under section 88 of income tax act, a portion of premiums paid for life insurance policies are deducted from tax liability. Similarly, exemption is available for health insurance policy premiums. Money paid as claim including bonus under a life policy is exempted from payment of income tax. However annuities received under certain pension plans are taxable. 2. Encourages savings: An insurance scheme encourages thrift among individuals. It inculcates the habit of saving compulsory, unlike other saving instruments, wherein the saved money can be easily withdrawn. 3. The beneficiaries to an insurance claim amount are protected from the claims of creditors by affecting a valid assignment. 4. For a policy taken under the MWP act 1874, (married women‘s property act), a trust is created for wife and children as beneficiaries. 5. Life policies are accepted as a security for a loan. They can also be surrendered for meeting unexpected emergencies. 6. Based on the concept of sharing of losses, the society will benefit as catastrophic losses are spread globally.
Necessity of Insurance: The question contains the answer within itself. After all, life is fraught with tensions and apprehensions regarding the future and what it holds for the individual. Despite all the planning and preparation one might make no one can accurately guarantee or predict how or when death might result and the circumstances that might ensue in its aftermath. We are not saying that life and existence are constantly fraught with danger and uncertainty. But then it is essential that you plan for the future. The changes for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds. People generally regard insurance as a scheme when and where you have to lose a lot to gain a little. Nevertheless, insurance is still the most reliable tool an individual can use to plan for his future.
Purpose and Need of Insurance: 11
Assets are insured, because they are likely to be destroyed, through accidental occurrences. Such possible occurrences are called perils. Fire, flood, breakdown, lightening, earthquake, etc. are perils. If such perils can cause damage to the assets, we say that the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages. The risk to owner of a building, because of the peril of earthquake, may be a few crores of rupees, depending on the cost of the building and the contents in it. The risk only means that there is a possibility of loss or damage. The damage may or may not happen. Insurance is done against the contingency that it may happen. There has to be an uncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is no uncertainty about occurrence of an event, it cannot be insured against. In case of human being death is certain, but the time of death is uncertain. In case of a person who is terminally ill, the time of death is not uncertain, though not exactly known. He cannot be insured. Insurance does not protect the asset. It does not prevent its loss due to the peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided, through better safety and damage control management. Insurance only tries to reduce the impact of risk on the owner of the asset and those who depend on that asset. It only compensates the losses-and that too, not fully. Only economic consequences can be insured. If the loss is not financial, insurance may not be possible. Examples of noneconomic losses are love and affection of parents, leadership of managers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.
Functions of Insurance Insurance services through its various activities perform various functions in the economy which can be classified as follows. Primary Functions Secondary Functions Other Functions Primary functions of insurance: Providing protection: The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others. Collective risk bearing: Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid. Evaluating risk: Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well. Provide Certainty: Insurance is a device, which assists in changing uncertainty to certainty.
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Secondary functions of insurance Preventing losses: Insurance warns individuals and businessmen to embrace appropriate device to prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc. Covering larger risks with small capital: Insurance assuages the businessmen from security investments. This is done by paying small amount of premium against larger risks and dubiety. Helps in the development of larger industries: Insurance provides an opportunity to develop to those larger industries which have more risks in their setting up. Other functions of insurance Is a savings and investment tool – Insurance is the best savings and investment option, restricting unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option. Medium of earning foreign exchange – Being an international business, any country can earn foreign exchange by way of issue of marine insurance policies and a different other ways. Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free with the help of different types of policies under marine insurance cover. Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster. There are different types of insurance policies under the sun cover almost anything that one might think of. There are loads of companies who are providing such customized insurance policies.
Regulation of Insurance in India & IRDA In India the regulation and development of the insurance industry is carried down by Insurance Regulatory and Development Authority of India (IRDA). IRDA was established by government of India through Insurance Regulatory and Development Authority (IRDA) Bill in 1999. IRDA was set up as an independent regulatory authority, which has put in place regulations in line with global norms. IRDA has been framing regulations and registering the private sector insurance companies. It launched the IRDA online service for issue and renewal of licenses to agents. So far, there are 24 life insurance companies and 27 general insurance companies. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Committee. Powers, Duties & Functions of IRDA The IRDA Act, 1999 lays down the duties, powers and functions of IRDA. The Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. The powers and functions of the Authority shall include: a) Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
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b) Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; c) Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; d) Specifying the code of conduct for surveyors and loss assessors; e) Promoting efficiency in the conduct of insurance business. f) Promoting and regulating professional organisations connected with the insurance and re-insurance business. g) Levying fees and other charges. h) Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business. i) Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee. j) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries. k) Regulating investment of funds by insurance companies. l) Regulating maintenance of margin of solvency. m) Adjudication of disputes between insurers and intermediaries or insurance intermediaries. n) Supervising the functioning of the Tariff Advisory Committee. o) Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations engaged in insurance and reinsurance business. p) Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. q) Exercising such other powers as may be prescribed. IRDA’s Cell for redressal of grievances of Policyholders The IRDA has a cell that receives and looks into complaints from policyholders—Life and Non-life grievances are handled separately. The Cell plays a facilitative role by taking up such complaints with the respective insurers. Cases of delay/non-response: Cases of delay/non-response in matters relating to policies and claims are taken up with the insurers for speedy disposal. Claims/policy contracts in dispute: Complaints relating to these are analysed and insurers are advised to examine the same. If required, their attention is called to specific issues for examination/re-examination. However, if the insurer does not change its stand even after examination/re-examination, the complainant is informed of the same. The Authority does not carry out any adjudicaton. For this, the complainant would have to approach the appropriate judicial channel.
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List of Insurance Companies in India IRDA has provided till today registration for 27 general insurance companies including the Export Credit Guarantee Corporation of India and Agriculture Insurance Corporation of India and 24 life insurance companies. In the registered companies 23 companies are private life insurance companies and 21 are private general insurance companies. General Insurance Corporation has been sanctioned as the "Indian reinsurer" for underwriting only reinsurance business. The following are the insurance companies performing function in India. Table 1: List of Insurance Companies operating in India registered with IRDA LIFE INSURERS Public Sector Life Insurance Corporation of India Ltd. Private Sector Bajaj Allianz Life Insurance Company Ltd. Birla Sun-Life Insurance Company Ltd. HDFC Standard Life Insurance Company Ltd. ICICI Prudential Life Insurance Company Ltd. ING Vysya Life Insurance Company Ltd. Max New York Life Insurance Company Ltd. MetLife Insurance Company Ltd. Kotak Mahindra Old Mutual Life Insurance Company Ltd. SBI Life Insurance Company Ltd. TATA AIG Life Insurance Company Ltd. Reliance Life Insurance Company Ltd. Aviva Life Insurance Company India Ltd. Sahara India Life Insurance Company Ltd. Shriram Life Insurance Company Ltd. Bharti AXA Life Insurance Company Ltd. Future Generali India Life Insurance Company Ltd. IDBI Federal Life Insurance Company Ltd. Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd. AEGON Religare Life Insurance Company Ltd. DLF Pramerica Life Insurance Company Ltd. Star Union Dai-ichi Life Insurance Company Ltd. IndiaFirst Life Insurance Company Ltd. Edelweiss Tokio Life Insurance Company Ltd. GENERAL INSURERS Public Sector National Insurance Company Ltd. New India Assurance Company Ltd.
Websites www.licindia.com www.bajajallianz.com www.birlasunlife.com www.hdfclife.com www.iciciprulife.com www.inglife.co.in www.maxnewyorklife.com www.metlife.com www.insurance.kotak.com www.sbilife.co.in www.tata-aig.com www.reliancelife.com www.avivaindia.com www.saharalife.com www.shriramlife.com www.bharti-axalife.com www.futuregenerali.in www.idbifederal.com www.canarahsbclife.com www.aegonreligare.com www.dlfpramericalife.com www.sudlife.in www.indiafirstlife.com www.edelweisstokio.in
www.nationalinsuranceindia.com www.newindia.co.in 15
Oriental Insurance Company Ltd. United India Insurance Company Ltd. Agriculture Insurance Company of India Ltd. Private Sector Bajaj Allianz General Insurance Company Ltd. ICICI Lombard General Insurance Company Ltd. IFFCO Tokio General Insurance Company Ltd. Reliance General Insurance Company Ltd. Royal Sundaram Alliance Insurance Company Ltd Tata AIG General Insurance Company Ltd. Cholamandalam MS General Insurance Company Ltd. HDFC ERGO General Insurance Company Ltd. Future Generali India Insurance Company Ltd. Universal Sompo General Insurance Company Ltd. Shriram General Insurance Company Ltd. Bharti AXA General Insurance Company Ltd. Raheja QBE General Insurance Company Ltd. SBI General Insurance Company Ltd. L&T General Insurance Company Ltd. Magma HDI General Insurance Company Ltd. Liberty Videocon General Insurance Company Ltd. Stand Alone Health Insurers Star Health and Allied Insurance Company Ltd. Max Bupa Health Insurance Company Ltd. Religare Health Insurance Company Ltd. Apollo Munich Health Insurance Company Ltd. Export Credit Insurers Export Credit Guarantee Corporation of India Ltd. REINSURER General Insurance Corporation of India
www.orientalinsurance.org.in www.uiic.co.in www.aicofindia.com www.bajajallianz.com www.icicilombard.com www.iffcotokio.co.in www.reliancegeneral.co.in www.royalsundaram.in www.tataaiginsurance.in www.cholainsurance.com www.hdfcergo.com www.futuregenerali.in www.universalsompo.com www.shriramgi.com www.bharti-axagi.co.in www.rahejaqbe.com www.sbigeneral.in www.ltinsurance.com www.magma-hdi.co.in
www.starhealth.in www.maxbupa.com www.religarehealth.com www.apollomunichinsurance.com www.ecgc.in www.gicofindia.com
Insurance Business Insurance business is classified into two classes: 1) Life insurance 2) Non-Life or General Insurance Life insurers transact life insurance business, general insurers transact the rest. No composites are permitted as per law. Life Insurance: ―Life insurance is a contract between two parties whereby one party agrees to pay to the other party, a certain amount of money as premium to make good the loss of life arising out of an uncertain event of death in which the insured has interest‖. 16
Though Human life cannot be valued, a monetary sum could be determined which is based on loss of income in future years. Hence in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a ‗benefit‘ in the case of life insurance. Non-Life/General Insurance: ―General insurance is a contract between two parties whereby one party agrees to pay to the other party, a certain amount of money as premium to make good the loss of property arising out of an uncertain event of accident, natural calamity, theft etc. in which the insured has interest‖. As the property of a person is quantifiable and can be valued and losses can be calculated, a monetary sum could be determined to cover the losses. Hence in general insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is a ‗compensation‘ to make good of the loss. Non-Life/General Insurance can be further classified into five different classes: 1. Marine Insurance: Marine insurance can be defined as a contract whereby the insurer undertakes to indemnify the insured in a manner and to the extent thereby agreed upon against marine losses or maritime perils. Marine insurance has two branches: Ocean Marine Insurance. Inland Marine Insurance. Ocean marine insurance covers the perils of the sea whereas inland marine insurance is related to the inland risks on the land. The perils and losses covered under marine insurance are losses caused by seawater, stranding, cyclone, storm, lightning, fog, rough weather, collision with other ship, striking upon a sunken rock or icebergs, war, pirates and rovers, jettisons and barratry 2. Fire Insurance: It is the insurance which covers losses and damages to the property caused by fire. Fire insurance is a specialized form of insurance which is designed to cover the cost of replacement, reconstruction or repair beyond what is covered by the property insurance policy. Policies cover damage to the building itself, and may also cover damage to nearby structures, personal property and expenses associated with not being able to live in or use the property if it is damaged. The losses covered in fire insurance are losses due to fire caused by earthquake, lightning, invasion, act of foreign enemy, hostilities or war, civil strife, riots, mutiny, martial law, military rising or rebellion or insurrection, underground fire, explosion and implosion. Loss caused by burning of property by order of any public authority. Loss caused by loss by theft during or after the occurrence of fire. 3. Motor Vehicle Insurance: It covers risk towards the owner and vehicle from an accident but also covers the financial liability which may arise from the accident injuring a third party along with the damage to the. In the absence of insurance a person has to pay large amount of money to the other party as repair costs of their vehicle besides spending on own vehicle. If there is any hospitalization is there then 17
the expenses go higher too. Thus, motor vehicle insurance becomes essential in today‘s world. 4. Health Insurance: It providing cover for financial losses associated with illness, injuries and hospitalisation and expenses incurred for the use of health related services. The extent of cover depends on the specifics of the policy and cover is provided as either direct payment or reimbursements for the expenses associated. 5. Miscellaneous Insurance: The term miscellaneous insurance covers a large variety losses and damages arisen from various reasons and is designed to meet the peculiar requirements of the insured. Some of the miscellaneous insurance policies are: Fidelity Guarantee insurance: Insurance providing cover to the employer against losses arising through fraud or embezzlement from employee. Earthquake Insurance: As the name itself suggests it is the insurance providing cover to the property against losses arisen due to earthquake. Flood Insurance: Insurance providing coverage against losses and damages arisen from floods. Burglary Insurance: Insurance providing coverage against losses and damages of household goods and properties and personal effects due to theft, robbery, larceny, housebreaking and such similar acts. Engineering Insurance: Insurance providing cover for damage to mechanical and electrical equipment or machinery. It also covers losses/damages suffered by contractors and civil engineering projects. Cattle Insurance: Insurance policies covering the losses arisen due to death of animals like bulls, cows, buffaloes and heifers. Permanent total disability of the animals is also covered under the policy for extra payment of premium. Crop Insurance: Insurance policy covering the losses of crop suffered by farmers due to natural disasters like drought, hail and floods or due to decline in prices of agricultural commodities.
Principles of Insurance The insurance business is guided by set of guidelines for proper, smooth and transparent working. These guidelines help both the insured and insurer to form the insurance contract as well as to understand the basis of insurance. These guidelines are considered as the fundamental principles of insurance and are enumerated as follow: 1. Principle of Insurable Interest The person getting an insurance policy must have an insurable interest in the property or life insured. A person is said to have an insurable interest in the property if he is benefited by its existence and be prejudiced by its destruction. The presence of insurable interest is a legal requirement and without insurable interest the insurance contract is void. The object of this principle is to prevent insurance from becoming a gambling contract. The ownership of a 18
property is not necessary for establishing insurable interest. A banker has an insurable interest in the property mortgaged to it against a loan. An employer can insure the lives of his employees because of his pecuniary interest in them. In the same way, a creditor can insure the life of his debtor. A person cannot insure the property of a third party, because he does not have an insurable interest in it. In case of fire insurance, insurable interest must exist both at the time of contract and at the time of loss. In marine insurance, however, insurable interest must exist at the time of loss. It may or may not exist at the time of contract. In case of life insurance, the persons taking up a policy should have insurable interest in the life of insured person at the time of taking up the policy. It is not necessary that he should have insurable interest at the time of maturity also. Suppose a person gets an insurance policy on the life of his wife. Later on the wife is divorced. The policy will not become void because the husband ceases to have an insurable interest. Insurable interest in different polices can be explained as follows: Life Insurance Following persons have insurable interest in life insurance contract:
An employer in the life of an employee during the course of employment. A partner is the life of other partners in case of partnership. Husband in the life of his wife or vice-versa. A creditor in the life of his debtor to the limit of the amount of his debt. A son in the life of his father on whom he is dependent. A dependent to the extent of support he is getting. A surety in the life of his principal to the extent of his guarantee.
Fire and Marine Insurance Under these contracts, following persons have insurable interest;
Mortgagee to the extent of amount of loan he has given. Owner of the property in his property. Wife and husband in each other‘s property. An agent in the goods of his principal.
2. Principle of Utmost Good Faith This is the primary principle of insurance. According to this principle, the insurance contract must be signed by both parties (insurer and insured) in an absolute good faith or belief or trust. It is obligatory on the part of both the parties in the contract to must disclose all material facts for the benefit of each other. False information or non-disclosure of any important fact makes the contract avoidable at the discretion of the insurer. The amount of premium is fixed on the basis of all the facts supplied to the insurance company. If some facts are withheld, then the amount of premium will not be properly 19
settled. The insurer should also disclose the facts of the policy to the proposer. So, utmost good faith on the part of both the parties is a must. 3. Principle of Indemnity The principle of indemnity is applicable to all types of insurance policies except life insurance. Indemnity means security, protection and compensation given against damage, loss or injury. The insurer promises to help the insured in restoring the position before loss. Whenever there is a loss of property, the loss is compensated. The compensation payable and the loss suffered should be measurable in term of money. The insured will be compensated only up to the amount of loss suffered by him. He/She will not earn profit from the contractor. The maximum amount of compensation will be up to the value of the policy which is fixed at the time of contract. The insured will be compensated only up to the amount of loss suffered by him/her. H/She will not earn profit from the contractor. The maximum amount of compensation will be up to the value of the policy. The value of the policy undertaken is fixed at the time of contract. The actual amount of loss suffered is compensated and the value of policy is only the maximum limit. 4. Principle of Subrogation The principle subrogation is corollary to the principle of indemnity. The principle of subrogation is applicable to all insurances other than the life insurance. According to it when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer. If the insured party gets a compensation for the loss suffered by him, he/she cannot claim the same amount of loss from any other party. The rights of claiming the loss are shifted to the insurer (Insurance Company), for example, a gets his house insured for Rs. 50,000 with an insurance company. The house is intentionally destroyed by B. A claims the loss from the insurance company. A cannot sue B for getting the compensation because he has already been compensated by the insurance company. Now, insurance company can sue B on behalf of A because of making good the loss suffered by A, the insurance company steps into the shoes of A. 5. Principle of Contribution Sometimes a property is insured with more than one company. The insured cannot claim more than total loss from all the companies put together. He cannot claim the same loss from different companies. In this case he will be benefited by the insurance which runs counter to the principle of indemnity. A person cannot be restored to a better position than before the loss occurred. The total loss suffered by the insured will be contributed by different companies in the ratio of the value of policies issued by them. So companies make a contribution to restore the previous position of the insured. For example, A has a property of one lakh rupees. He gets an insurance policy for Rs. 50,000 from R & C. and Rs. 50,000 from S & Co. Because of fire, property is destroyed to the extent of Rs. 40,000. A cannot claim a total sum of Rs. 40,000 from either of companies from both companies to the extent of Rs.
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20,000 from each. In case he claims Rs. 40,000 from R & Co. then S & Co. will pay Rs. 20,000 to R & Co. So this is known as the principle of contribution. 8. Principle of Causa Proxima Principle of Proximate Cause means when a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer. This principle is found very useful when the loss occurred due to series of events. However, in case of life insurance, the principle of Proximate Cause does not apply. Whatever may be the reason of death the insurer is liable to pay the amount of insurance. 7. Principle of Mitigation of Loss According to this principle insured must always try his level best to minimize the loss of his insured property, in case of sudden events like fire etc. The insured must take all necessary steps to control and reduce the losses and to save what is left. This principle makes the insured more careful in respect of this insured property.
Legislations Governing Insurance The insurance sector in India has gone through a full 360 degree in phases of being unregulated to completely regulated and currently being partly deregulated. The insurance business is governed by various legislations and acts directly or indirectly which are required to define the boundaries as well as to regulate the insurance business. These acts and legislations are important for the smooth transaction of the insurance business and to protect both the insured and insurer. The various acts which govern the Insurance business are as follows: The Indian Contract Act, 1872: It is the law regulating and governing the formation, performance and termination of contracts and agency in India. As insurance is a contract between the insurer and insured as well as the insurer uses agency as a channel of business this act plays an important role in insurance business. The Insurance Act, 1938: It is the first legislation passed regulating and governing all forms of insurance and the insurance business in India providing strict control to state. The salient features of the act are
Constituting a Department of Insurance to supervise and control insurance business. Compulsory registration of insurance companies & submission of annual financial returns. Provision for initial deposits to allow only serious players in the field. Compulsory investment of life fund to the extent of 55% in Government approved securities.
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Prohibiting rebating, restriction on payment of commission and licensing of agents were other important provisions to bring in a sort of professionalism in to this business. Periodical Valuation was made compulsory to assess financial viability of the insurance companies. Provision was made for policyholders‘ director in the Board. Policy formats were standardized and premium tables were to be certified by an Actuary.
The Life Insurance Corporation Act, 1956: This act was passed to nationalise the life insurance business in India by transferring all such businesses to a corporation established for such purpose and to provide regulation and control of the business of the corporation. This act regulates all the life insurance business in India and lays the ground rules for the business. The General Insurance Business Act, 1972: This act was passed to make provision for the acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers in order to serve better the needs of the economy by securing the development of general insurance business in the best interests of the community and to ensure that the operation of the economic system does not result in the concentration of wealth to the common detriment, for the regulation and control of such business and for matters connected. The Maritime Insurance Act, 1963: This act was brought to codify the law relating the marine insurance and to regulate and set guidelines for initiation, performance and termination of marine insurance contract and to describe the perils and kind of cargo as well as vessels to be covered. The Consumer Protection Act, 1986: This act is designed to protect the interests of consumers by providing easy, prompt and economical redressal to the consumer‘s grievances and related matters. The Motor Vehicle Act, 1988: This act was enacted to safeguard the financial interests of people who get injured or killed or suffer damages due to negligence of motorist and/or other risks associated with usage of motor vehicle. According to this act it is mandatory for a motorist to insure against the risk of liability to the third parties.
General Insuance Products: Non –life Policies can be broadly classified into: Plans for Corporate/ Business Plans for Individuals Plans for Agriculturist
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Insurance
Agricultural Insurance
Plans for Corporate‘s
Plans for Individuals
Cattle & Crop
Home
Employee
Motor
Accident
Specialty Contingency Property
Office
Travel
Health
Figure 1: Classification of general insurance products. Corporate Policies Specialty: These are the policies catered to meet special needs or needs of specific industries. Some of them are
Aviation Insurance Marine Hull Insurance Freight Forwarders Insurance Port Liabilities Film Insurance, Credit Insurance, Event Insurance Jewelers Block Policy Bankers Indemnity Policy Shopkeepers Policy Marine Cargo Policy Multi Peril Policy for L.P.G. Dealers
Employee policies Various policies available for employer to take care of employees or to meet legal obligations.
Group Personal Accident Group critical illness Group Travel 23
Workmen's Compensation Keyman Insurance Overseas Travel insurance
Policies for Office /manufacturing units: For protection of business, industrial units from contingencies
Fidelity Guarantee Insurance Policy Special Contingency Policy Plate Glass Insurance Neon Sign Insurance Fire Policy Burglary Policy Machinery Breakdown Policy Electronics Equipment Policy Consequential Loss Policy Contractors All Risk Policy Advanced Loss of Profit / Delay in Startup Policy Contractor Plant and Machinery Policy Mega Package Policies Marine cum Erection / Storage cum Erection Policy
Health Insurance:
Group Personal Accident Policy Mediclaim Policy Overseas Mediclaim Insurance- Business &Holiday Overseas Mediclaim Insurance- Frequent Corporate travelers Overseas Mediclaim Insurance- Employment & Studies Personal Accident Policy
Policies for Individuals
Home Travel Motor Accident Health
Home Insurance: There are wide range of policies and packages available. They cover more than you’re your home and its contents. Some of the perils covered are:
Fire Explosion/Implosion 24
Burglary Riot, Strike, Malicious Damage cover Damages due to Impact by rail / road vehicle or animal Bursting and / or overflowing of water tanks, apparatus and pipes Missile Testing operations Leakage from Automatic Sprinkler Installations Lightning Loss caused by Storm, Cyclone, Hurricane, Tornado, Flood and Inundation Destruction by subsidence of part of the site on which the property stands or landslide Bush Fire
Earthquakes and Terrorism are usually provided as add-ons due to the increase in frequency. The other perils included in some feature rich policies are:
Rent for alternative accommodation Loan repayment for home/car Public liability Baggage Insurance Home Appliances cover Personal Accident Loss of cash in transit
Travel Insurance: There are various policies which cover International travel, domestic train travel, student‘s overseas travel, travel to specific countries. Auto Insurance Policies: They cover:
Repair / replacement of the parts of the vehicle Payment for the market value of the vehicle in case of a total loss, provided that the loss occurs due to an accident, theft, earthquake, flood, riot, strike and malicious acts. It covers the legal liability of insured towards third party personal injury and property damage arising out of an accident involving the insured vehicle.
Health Insurance Policies: Health Insurance Policies may provide cover for:
Expensive medical care including pre & post hospitalisation expenses. Provide a daily allowance for each day of hospitalization. Protection against the major life threatening illness like Cancer, Heart Attack, Paralysis, Kidney failure, Stroke, etc Accidental death Permanent disability Hospital confinement allowance 25
Other Insurance Policies
Baggage Insurance Mobile Phone Insurance Executive Travel Insurance Directors’ and officers’ Liability insurance Professional Indemnity Insurance Portable Equipment Insurance
Agricultural Insurance: The insurance policies covering agricultural losses like crop loss or cattle loss.
Cattle Insurance: Insurance policies covering the losses arisen due to death of animals like bulls, cows, buffaloes and heifers. Permanent total disability of the animals is also covered under the policy for extra payment of premium. The cover is provided for in case where death caused by: o Accident which may be result of fire, lightning, flood, inundation, storm, hurricane, earthquake, cyclone, tornado, tempest and famine o Diseases cropping up or contracted during the period of policy o Surgical operations o Strikes and riots Crop Insurance: Insurance policy covering the losses of crop suffered by farmers due to natural disasters like drought, hail and floods or due to decline in prices of agricultural commodities.
Marketing of Insurance Marketing is so basic that it cannot be considered as a separate function. It is whole business seen from the point of view of its final result that is from the customer point of view business success is not determined by the producers but by the customers. The above statement clearly puts forth the importance and insensibility of marketing to the overall functioning of the organization. Marketing can be identified as a business function that identifies unsatisfied needs and wants, defines and measures their magnitude, determines which target markets the organization can best serve, decide as an appropriate product, services and programs to serve these markets and calls of everyone in the organization to ―Think and serve the customers‖. To achieve the desired objectives in marketing a set of marketing tool are utilized by marketers, marketing mix is the set of marketing tools that firm uses to pursue its marketing objectives in the target markets. Marketing mix consists of everything the form can be collected in to group of variables known as 4 ‗p‘ s as proposed by M.C.Carthy ‗product, price, place, and promotion‘ for a product in case of services additional 3 ‗P‘s are added ‗people, process, physical evidence‘.
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Marketing of Insurance in India Insurance is in a manner of speaking the last frontier in the financial sector to open. It is also a sector, which leads to benefits across the full spectrum, from the individual who now have wider choices, to the economy, which see increased savings, to the infrastructure sector, which can look forward to long term funding being available. In an under-insured economy, newer channels of distribution have to be utilized to intensify the reach of insurance both in urban and rural markets. This will create huge employment opportunities not only within insurance companies but also as agents and consultants of insurance companies. Channels of Distribution of Insurance As insurance being a service there are various channels are used for its distribution and selling of the insurance products i.e. policies. Some of the channels used are: 1. 2. 3. 4. 5. 6. 7.
Company ---------------------------------- Customer (Direct Marketing) Company ------------- Agent ------------ Customer Company ------------ Broker ------------ Customer Company ----------- Third Party Administrator ----------- Customer Company ------------ Banker ----------- Customer Company ------------ Corporate Agent --------- Customer Company ------------ Auto-tie Up ------------ Customer
Direct Marketing: Insurance Company will accept the insurance proposal from the persons approached to the branch offices or division offices directly. In branch office or at division office, frontline employee provide necessary services in fulfillment of policy issue process, such as serve application, accept filled application with necessary documents along cash or cheque against premium account. Now a day‘s companies are also using internet to issue online policies as well as telesales to get the business directly. Third Party Administrator (TPA): Insurance Companies use another distribution channel known as third party administrator. The TPA is to maintain databases of policyholders and issue them identity cards with unique identification numbers and handle all the post policy issue including claim statements. In terms of infrastructure, the TPA run a 24 hour toll free number which can be accessed from anywhere in the country. They will have full time medical practitioners under their employment who will immediately take the decision on whether the ailment is covered under the policy. TPA license can be granted to any company registered under the Company‘ Act 1956. IRDA licenses and regulates the TPA‘s, by way of rigid entry norms and supervision Bancassurance: The provision of insurance and banking products and services through a common distribution channel or to a common client base is referred to as Bancassurance. The concept of Bancassurance was evolved in Europe in 1980‘s. In India the Bancassurance came into focus only after the privatization of insurance sector. Public have immense faith in banks and they reached to household and enjoy considerable goodwill and access in the rural areas. Hence, both the public and private sector insurance companies in India are using banks for the distribution of their products. 27
Corporate Agent: A corporate agent is an intermediary in the insurance distribution channel. The corporate financial institution gets the license from the IRDA to act as a corporate agent to any insurance company in India. A corporate agent may be specialized in any one of the insurance product or all of the insurance products such as motor, health, travel, household, marine, fire, burglary and personnel accident insurance. A corporate agent has backup support team of handling claims efficiently along with toll free claim service activation helpline. Broker: An independent agent is the person who represents the buyer, rather than the insurance company, and tries to find the buyer the best policy by comparison shopping. A broker sells, solicits, or negotiates insurance for compensation. The broker and the brokerage is registered and regulated by the IRDA. There are about 300 brokerages are there in India registered by IRDA. Auto-tie Up: It is tie up between the automobile dealers and the insurance companies; whenever the automobile dealer makes sales the insurance cover is provided along with it. Agent/Agency: An Insurance Agent is a state-licensed professional who represents an insurance company in selling and servicing policies. Agent is the most prominent and oldest intermediary channel of insurance services. The agency and appointment of agent is done under Indian Contract act 1872. The agent has to register himself/herself with the IRDA and get license which is issued for 3 years. The insurance agent creates mutual trust between policy holders and the insurance company and renders continuous service to the policy holders. Insurance company recruits agents based on the norms and conditions of IRDA. The company provides induction training to the recruited agents through special training centers located in various parts of the country. The training objective of the company is to provide sufficient knowledge on various policies of the company before the agents venture into the market. The company offers commission to the agents on their business. Procedure to become an agent of the company The following are the required conditions to become an agent of the company based on IRDA guidelines The person should be of 18 years at least. The person must have a minimum qualification of 12th standard or equivalent in urban areas otherwise a pass in 10th standard or equivalent in rural areas. Practical training of 50 hours at an IRDA approved training centers and 75 hours of training in case of composite insurance agency
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Market Share Of Non-Life Insurance Players
Market Share 2010-11 (In %) Universal Sompo, 0.7 Future Generali, 1.41 HDFC Ergo, 3.01
Raheja QBE, 0.01AXA, 1.3 Bharti
SBI General, 0.1 L&T General, 0.04
Shriram, 1.83
Cholamandalam, 2.27 National, 14.61
Bajaj Allianz, 6.74
ICICI Lombard, 9.99
New India, 16.67
TATA AIG, 2.76 IFFCO Tokio, 4.19 Oriental, 12.82 Reliance, 3.89
United, 14.98
Royal Sundaram, 2.69
Chart 1: Pie chart showing the market share of general insurance companies in India for the financial year 2010-2011 based on the percentage of premium collected by each company.
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Review of Literature Chiang Ku Fan and Shu Wen Cheng in their study entitled "An efficiency comparison of direct and indirect channels in Taiwan insurance marketing" published in Direct Marketing: An International Journal, 3 (4), 2009, 343-359, made a comparative study of the efficiency of direct marketing channel and indirect marketing channel in Tiwan's insurance sector. They used Charnes, Cooper, and Rhodes (CCR) model to measure the decision-making units‘ (DMU) operating efficiency. They reported that the efficiency score of a direct marketing channel is significantly higher than that of a comparable indirect marketing channel. The efficiency relationship between the indirect marketing channel and the direct marketing channel is independent.
Tor Wallin Andreassen (1997) in their study entitled "The principal‘s and agents contribution to customer loyalty within an integrated service distribution channel, An external perspective" published in European Journal of Marketing, 31(7), 1997, 487-503., made a study about the agents role played by the agents in maintenance of customer loyalty using structural equation modeling (LISREL, ML). He reported that Headquarters contribution to customer loyalty through the delivery channel is higher than the contribution of the regional sales force. There is a significantly higher impact of image channel on customer loyalty than delivery channel.
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Chapter-II: Future Generali Insurance India Co. Ltd. Profile
31
Indian Insurance Industry Profile The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. With such a large population and the untapped market area of this population Insurance happens to be a very big opportunity in India. Today it stands as a business growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the country‘s GDP .In spite of all this growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without Life insurance cover and the Health insurance and increasing number of motor vehicles, growth of international trade, wealth formation, infrastructure development, and uncertainty of natural calamities all these show the scope of general insurance. This is an indicator that growth potential for the insurance sector is immense in India. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation ―Malhotra Committee‖ was constituted by the government in 1993 to examine the various aspects of the industry. The key element of the reform process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive financial system suitable for the requirements of the economy was the main idea behind this reform. Since then the insurance industry has gone through many sea changes .The competition LIC started facing from these companies were threatening to the existence of LIC. Similar is the case of the four non-life insurance companies of public sector National Insurance Company Ltd., New India Assurance Company Ltd., Oriental Insurance Company Ltd., United India Insurance Company Ltd. Since the liberalization of the industry the insurance industry has never looked back and today stand as the one of the most competitive and exploring industry in India. The entry of the private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run. India is ranked 9th in life insurance business and ranked 19th in general insurance business among the 156 countries for which data are published by Swiss Re. during 2010-11. The estimated life insurance premium in India grew by 4.2 per cent in the year 2010 where as the in non-life insurance sector it is 8.1 per cent. With a huge population base and large untapped market, insurance industry is a big opportunity area in India for national as well as foreign investors. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually. This impressive growth in the market has been driven by liberalization, with new players significantly enhancing product awareness and promoting consumer education and information. The strong growth potential of the country has also made international players to look at the Indian insurance market. Moreover, saturation of insurance markets in many developed economies has made the Indian market more attractive for international insurance players.
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Profile of Future Generali India Insurance Company Limited Future Generali is a joint venture between the India-based Future Group and the Italy-based Generali Group. Future Generali is present in India in both the Life and Non-Life businesses as Future Generali India Life Insurance Co. Ltd. and Future Generali India Insurance Co. Ltd. FUTURE GROUP Future Group, led by its founder and Group CEO, Mr. Kishore Biyani, is one of India‘s leading business houses with multiple businesses spanning across the consumption space. While retail forms the core business activity of Future Group, group subsidiaries are present in consumer finance, capital, insurance, leisure and entertainment, brand development, retail real estate development, retail media and logistics. Led by its flagship enterprise, Pantaloon Retail, the group operates over 12 million square feet of retail space in 71 cities and towns and 65 rural locations across India. Headquartered in Mumbai (Bombay), Pantaloon Retail employs around 30,000 people and is listed on the Indian stock exchanges. The company follows a multi-format retail strategy that captures almost the entire consumption basket of Indian customers. In the lifestyle segment, the group operates Pantaloons, a fashion retail chain and Central, a chain of seamless malls. In the value segment, its marquee brand, Big Bazaar is a hypermarket format that combines the look, touch and feel of Indian bazaars with the choice and convenience of modern retail. The group‘s specialty retail formats include sportswear retailer, Planet Sports, electronics retailer, eZone, home improvement chain, Home Town and rural retail chain, Aadhaar, among others. It also operates popular shopping portal, www.futurebazaar.com. Future Capital Holdings, the group‘s financial arm, provides investment advisory to assets worth over $1 billion that are being invested in consumer brands and companies, real estate, hotels and logistics. It also operates a consumer finance arm with branches in 150 locations. Other group companies include, Future Generali, the group‘s insurance venture in partnership with Italy‘s Generali Group, Future Brands, a brand development and IPR company, Future Logistics, providing logistics and distribution solutions to group companies and business partners and Future Media, a retail media initiative. The group‘s presence in Leisure & Entertainment segment is led through, Mumbai-based listed company Galaxy Entertainment Limited. Galaxy leading leisure chains, Sports Bar and Bowling Co. and family entertainment centres, F123. Through its partner company, Blue Foods the group operates around 100 restaurants and food courts through brands like Bombay Blues, Spaghetti Kitchen, Noodle Bar, The Spoon, Copper Chimney and Gelato. Future Group‘s joint venture partners include, US-based stationery products retailers, Staples and Middle East-based Axiom Communications.Future Group believes in developing strong insights on Indian consumers and building businesses based on Indian ideas, as espoused in the group‘s core value of ‗Indianness.‘ The group‘s corporate credo is, ‗Rewrite rules, Retain values.‘
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THE GENERALI GROUP The Generali Group is a leading player in the global insurance and financial markets. Established in Trieste in 1831, today the Group is one of Europe‘s largest insurance providers and the European biggest Life insurer. It is also one of the world‘s top asset managers with assets totalling more than € 400 billion. With an employed sales force of more than 100,000 people serving 70 million clients in 68 countries, the Group occupies a leadership position in Western Europe and an increasingly important place in Eastern Europe and Asia. The Group strategy aims to consolidate Generali‘s pre-eminence on its key markets and achieve a premier position on markets with high growth potential, establishing its leadership in profitability. Identity Card Since its establishment, the Generali Group has always held a reputation for its capital and financial strength. Its solidity derives from prudent investment management and a focus on achieving a correct match between risk and medium/long-term profitability. Generali Group is one of the leading insurance groups in Europe, with a 2009 total premium income of more than € 70 billion. It is present in 68 countries It has 70 million clients worldwide It has 85,322 employees (15,956 in Italy) It has over € 400 billion of assets under management High rating assigned by the international rating agencies: A.M. BEST: A+ STABLE Standard & Poor‘s: AA- STABLE Fitch Ibca: AA- NEGATIVE Moody‘s: Aa3 STABLE
Vision Statement: "Pledged to provide financial security to all people & enterprises through total insurance solutions"
Values: Respect: for all our stakeholders- employees, customers, for all rules and regulations both internal and external. Indianess: We understand India in all its diversity and different facets and will use for our local understanding to respond to our specific markets, design our products and craft our processes. Nimbleness: A combination of speed and quality, and ability to overcome all obstacles which come in the way of the achievement of our vision. "Can Do": An attitude which demonstrates our passion, entrepreneurship, and positive thinking.
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Board of Directors
1 2 3 4 5 6 7 8 9 10
Name of the Directors Mr. G N Bajpai Mr. Sergio Balbinot Mr. Kishore Biyani Mr. Vijay Biyani Mr. Krishan Kant Rathi Mr. Roberto Gasso Dr. Kim Chai Ooi Dr. Devi Singh Dr. Rajan Saxena Mr. K.G. Krishnamoorthy Rao
Designation Chairman Director Director Director Director Director Director Additional Director Additional Director Managing Director & Chief Executive Officer
Registered Office Address 001, Delta Plaza, Ground Floor, 414, Veer Savarkar Marg , Prabhadevi, Mumbai 400 025. Auditors Singhi & Co FRN 3020 49E Chartered Accountants 101, Turf Estate, Dr E. Moses Road, Mahalaxmi, Mumbai 400011.
G M Kapadia & Co FRN 104767W Chartered Accountants 36 B, Tamarind House, Tamarind Lane, Fort Mumbai 400001.
Bankers HDFC Bank Ltd, ICICI Bank Ltd, AXIS Bank Ltd. Financial Highlights The highlights of financial results of the Company for the financial years 2010-11 and 200910 are as under: For the year ended 31st March For the year ended 31st March Particulars 2011, (Amount Rs '000) 2010, (Amount Rs '000) Gross written premium 61,19,571 38,59,291 Retrocession from Pool 4,86,372 3,21,437 Net written Premium 40,39,523 24,64,736 Net earned Premium 32,91,168 18,74,752 Net Incurred Claims 27,82,697 16,93,931 Net Commissions‘ -1,33,281 -1,72,561 Management Expenses 19,36,801 14,34,808 Underwriting Results -12,95,049 1,081,426) Income from Investment 3,99,850 1,84,386 35
Profit /Loss Before Tax Profit /Loss After Tax Number of Policies Issued Number of employees
-8,95,199 -8,95,199 6,81,940 982
36
-8,97,041 -8,97,041 5,54,117 805
Chapter-III: Methodology
37
Need of the Study Development of various other distribution channels in insurance sector like third party administrators, banks, direct selling through telesales, the traditional and the oldest channel of distribution i.e. the agency and agents somehow loosing the significance. Agents are the one who represents the company to the existing and prospective customers and create a mutual trust towards the company. Even though they are the face of the insurance company and contribute a major share in the company‘s business they are facing internal competition from within the company‘s other channels. This study is to understand the effectiveness and significance of agency channel as well as the role played by the agents in the insurance company‘s business i.e. sales as well as marketing. Objectives: The objective of this report is: 1. To first investigate the effectiveness of the agency channel in general insurance companies in marketing their products. 2. To make a comparative study among the companies taking premium collected and share of the business given by the agency channel in consideration as measuring parameters. 3. To study the challenges and problem faced by the agency channel from agents as well as from within the company. 4. To study and measure the effectiveness of the agency channel of Future Generali India Insurance Company Limited, Visakhapatnam sin comparison to other general insurance companies in Visakhapatnam. Scope: As agency channel and agents are important part of the insurance business, this report will address the effectiveness of the channel and put forward some points to address their problems. Research Design: Selection of Sample: All the general insurance companies operating in Visakhapatnam, public sector and private sector both are considered for the study and data is collected from them. Data Collection method: The primary data for this project has been collected through the Questionnaire. The Questionnaire has been properly prepared in order to cover all the Information required for the study. The primary data has been obtained by interaction with the branch managers or sales managers of the various general insurance companies through distribution of questionnaire to them and asking few questions to them. Limitations of the Study: There was a time restriction of 45 days and the numbers of general insurance companies present in Visakhapatnam are only 15 public sector and private sector. Getting appointment and meeting the person from whom the data has to be taken was very difficult as most of the time they are in the field for business purpose. Some of the participants in the study are reluctant to give the data or needed much persuasion to comply.
38
Chapter-IV: Data Analysis
39
DATA ANALYSIS AND INTERPRETATION The data is collected from all the sixteen general insurance companies operating in Visakhapatnam public and private sector through questionnaires and analysed using the M.S Excel 2007 software package. 1. Number of agents working under the agency in charge?
Agents Working in Agency Channel 160 136
140
Number of Agents
120 100 74
80
40
60
54
60 30
40
35 25
25
25
20
15
20
22
0 Nati onal Insur ance Co. Ltd No. of Agents 30
New India Assu ranc e Co. Ltd
Orie ntal Insur ance Co. Ltd
Unit ed India Insur ance Co. Ltd
35
25
54
Bajaj Allia nz GI Co. Ltd*
ICICI Lom bard GI Co. Ltd
IFFC O Toki o GI Co. Ltd
136
25
20
Roya Relia l nce Sund GI aram Co. Co. Ltd Ltd 60
15
14
10
Tata AIG GI Co. Ltd
Chol ama ndal am MS GI Co. Ltd
HDF C ERG O GI Co. Ltd
Futu re Gen erali India Insur ance Co. Ltd
25
22
10
40
Univ Bhar ersal SBI Som ti AXA GI po GI Co. GI Co. Ltd* Co. Ltd* Ltd * 14
74
Chart 2: Number of agents working for the Agency channel of the companies. * In case of Bajaj Allianz General insurance co. Ltd and SBI General Insurance Co. Ltd agents working outside Visakhapatnam and Ankapalli are also included. ** Universal Sompo General Insurance Co. Ltd. didn‘t provided any data. By seeing the above graph it is clearly understood that an average of 30 agents are working for the agency channel of all the general insurance companies operating in Visakhapatnam and Ankapalli region. In the case of Bajaj Allianz General Insurance Co. Ltd. and SBI General Insurance Co. Ltd which are operating in Vijayanagaram, Srikakulam, Tunni, upto East and West Godavari region. The sales force used by the companies to sell their products only tells the importance of the agents in the insurance service. In comparison to other
40
companies Future Generali has 40 agents working for it in Visakhapatnam area and stand at 5th position.
2. Premium collected by the agency channel for the financial year 2011-2012?
Premium Collected (2010-2011) 10.00
8.91
9.00
Crore Rs.
8.00 7.00 6.00 5.00
4.10
4.00
3.50
3.23
2.68
3.00 2.00 1.00 0.00
2.00 1.20 1.40
1.20 0.54
0.40
0.80
0.38
0.76
0.39
Unit New Nati Orie ed Roy Chol Baja IFFC HDF Futu SBI Indi ICICI Bhar onal ntal Indi al ama a Tata j O Reli C re Gen Insu Insu a Sun ndal Lom ti Allia Toki ance ERG Gen eral Assu AIG bard AXA ranc ranc Insu dara am nz* o O erali ** ranc e e ranc m MS e e
Univ ersal Som po* **
Premium Collected 1.20 1.40 0.40 3.23 8.91 1.20 0.54 4.10 0.80 2.68 0.38 2.00 3.50 0.76 0.39
Chart 3: Premium Collected by the Agency channel of the companies. * In case of Bajaj Allianz General insurance co. Ltd and SBI General Insurance Co. Ltd premium collected outside Visakhapatnam and Ankapalli are also included. ** SBI General Insurance Co. Ltd. Has started its operations in Visakhapatnam in the year 2011 *** Universal Sompo General Insurance Co. Ltd. didn‘t provide any data. By seeing the above graph it is clearly understood that the average premium collected by the agency channels of all the companies except Bajaj Allianz and SBI General is Rs. 1.7 crores and if we include the both it becomes Rs. 2.1 crores. This tells the reach and penetration of the agents in a city like Visakhapatnam. The premium collected by the agency channel of Future Generali is Rs 3.5 crore third in the whole Visakhapatnam next to Bajaj Allianz Rs 8.19 crores and Reliance General insurance Rs 4.1 Crore.
41
3. Percentage contribution of the channel to the business of the branch/division?
Business Provided to the Branch/Division 90 80 80 70
Percentage
70 60 50 40 30
25 20
20
18
22
25
24 15
26
22
20
20
15 7
10 0
Unit New Nati Orie ed Roy Chol Baja IFFC HDF Futu SBI Indi ICICI Reli al Bha onal ntal Indi ama a Tata j O C re Gen Insu Insu a ndal Lom anc Sun rti Allia Toki ERG Gen eral Ass AIG bard e dara AXA ranc ranc Insu am nz* o O erali ** uran e e ranc m MS ce e
Business Provided to the 25 branch/Division
20
18
22
24
15
15
25
22
70
20
80
26
20
Univ ersa l Som po* **
7
Chart 4: Percentage of business provided by the agency channel to the branch/division of the companies. * In case of Bajaj Allianz General insurance co. Ltd and SBI General Insurance Co. Ltd business from outside Visakhapatnam and Ankapalli are also included. ** SBI General Insurance Co. Ltd. Has started its operations in Visakhapatnam in the year 2011 *** Universal Sompo General Insurance Co. Ltd. didn‘t provide any data. By seeing the above graph it is clearly understood that the average contribution of the agency channel to the business of the insurance companies is 21 percent. This is a major portion of the business when there are other channels are operating for the company. This indicates the importance of the agency channel. In the case of HDFC Ergo and TATA AIG the contribution is 70 & 80 percent respectively. The percentage of business contributed by the agency channel of Future Generali is 26% it more than quarter of company‘s business and third among the other companies.
42
4. Business mix of the agency channel (Motor to Non-motor ratio of policies sold)?
Business Mix of the Agency 90
Percentage
70 60
80
75
80
55
70
70
60
60
50 32 68
30 45
40
50 40
60 30
25
10 0
50
40
40
20
55
40
45
50
50
60
65
45
55 30
20
35
Unit New Nati Orie ed Roy Chol Baja IFFC HDF Futu SBI Indi ICICI Reli al Bha onal ntal Indi ama a Tata j O C re Gen Insu Insu a ndal Lom anc Sun rti Allia Toki ERG Gen eral Assu AIG bard e dara AXA ranc ranc Insu am nz* o O erali ** ranc e e ranc m MS e e
Motor Insurance
55
60
75
32
70
80
40
60
55
50
50
40
45
70
65
Non-Motor Insurance
45
40
25
68
30
20
60
40
45
50
50
60
55
30
35
Univ ersa l Som po* **
Chart 5: Business mix of the agency channel * In case of Bajaj Allianz General insurance co. Ltd and SBI General Insurance Co. Ltd business from outside Visakhapatnam and Ankapalli are also included. ** SBI General Insurance Co. Ltd. Has started its operations in Visakhapatnam in the year 2011 *** Universal Sompo General Insurance Co. Ltd. didn‘t provide any data. From the above graph the ratio of motor to non-motor (i.e. health, personal accident, fire and miscellaneous) policies sold by the agency channel of each company can be clearly understood. Even though presence of auto-tie ups the agents are very successful in selling motor insurance and in some cases it is the major contributor to the agency‘s business. The average ratio is 56% motor to 44% not motor. The Non-motor insurance policies includes health, personal accident, fire, marine and other miscellaneous policies but health and personal accident are the most sold one, which employees get through their employers still agents have a good success in selling them. In the case of future Genrali the ratio is 45% Motor and 55% Non-motor
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5. Problems and Challenges faced by the agency channel a. Discount given on policy Table 2: Respondents considering discount as a major problem. Response No. Of Respondents Percentage of Respondents
Yes* 15 94
No 0 0
No response 1 6
Percentage of Companies Considering Discount as a Problem 0%
6% Yes No No response 94%
Chart 6: Percentage of companies considering discount as a problem. In the survey conducted the agency channel of all the companies agreed that discount given on the policies is the major problem for them while getting the business. The difference in the percentage of discount given on the policy premium by the other channels of the same company on same policy causes the loss of business for the agency channel.
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b. Commission Table 3: Respondents considering commission as a problem. Response No. Of Respondents Percentage of Respondents
Yes* 10 63
No 5 31
No response 1 6
Percentage of Companies Considering Commission as a Problem 6% Yes No No response
31% 63%
Chart 7: Percentage of companies considering commission as a problem. In the survey conducted the 63 % of the companies said that commission is a problem for them where as 31% are didn‘t agree to it. The income of the agents depends on the commission they get on the number of policies they sell. Hence the percentage of commission plays a role on the performance of agents and agency.
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c. Agents working for more than one company Table 4: Respondents considering agents working for more than one agency as a problem. Response No. Of Respondents Percentage of Respondents
Yes 12 75
No 2 12.5
No response 2 12.5
Percentage of Companies Considering Agents Working for more than One Agency as a Problem.
12.5% Yes
12.5%
No
75%
No response
Chart 8: Percentage of companies considering agents working for more than one agency as a problem. In the survey conducted the 75 % of the agencies of the companies said that agents working for more than one company‘s agency is a problem for them where as 12% didn‘t agree to it. The income of the agents depends on the commission and to earn more agents work for more than one company by taking up agency on any relative‘s name. This affects the working of the agency and the revenue generated.
46
d. Lack of professionalism training Table 5: Respondents considering lack of professionalism in the agents. Response No. Of Respondents Percentage of Respondents
Yes 6 38
No 9 56
No response 1 6
Percentage of Companies Considering lack of Professionalism as a Problem 6% 38%
Yes
No No response 56%
Chart 9: Percentage of companies considering lack of professionalism in agents as a Problem In the survey conducted the 38 % of the companies said that lack of professionalism in agents is a problem for them where as 56% didn‘t agree to it. The attitude of the agent and his/her behaviour towards the company as well as towards existing and prospective customer impacts a lot to the number of sales made and revenue generation.
47
CHAPTER- V
48
Findings
From the data analysis it has been found that the agency channel of all the insurance companies operating in vizag contribute an average 21% of business with an yearly average premium collection of Rs. 1.7 crores. These figures are a very good for any agency channel. The motor to non-motor policies ratio is also an indicator of how effective the agency channel is in presence of the other channels. There is a lack of communication between the agency channel and other channels of a company which is giving rise to the problem of discounting factor. As well as commission on the policy sold is thought to be low, this is why some agents work for more than two companies. Some companies believe that even though the agents are technically proficient they lack professionalism which is stopping them to reach their full potential which in turn affects the channel and the business.
Suggestions
Developing a system to pass information to agents about the discount rates given by the other distribution channels of the company. Personality development programs along with technical training should be given to the agents. Online tools to report the daily work, as well as to report claims and renewals. Giving holiday offers or gifts on collecting specific target premiums. Developing a healthy competition among the agents and rewarding them on monthly, quarterly or half yearly basis.
Conclusion From the project it can be inferred that the agency channel of distribution is one of the most reliable channel for sales and marketing of the insurance products and services. It‘s is the agent with whom the customer is always be in touch. The agency channel contributes a major portion of the total business of the companies. Lack of proper communication between the channels and professionalism is a hindrance to the business which can be over come easily by little effort.
49
List of Tables, Charts and Figures
Table/Chart/Figure
Page No.
Table 1: List of Insurance Companies operating in India registered with IRDA
15
Figure 1: Classification of general insurance products.
23
Chart 1: Pie chart showing the market share of general insurance companies in India for the financial year 2010-2011 based on the percentage of premium collected by each company.
39
Chart 2: Number of agents working for the Agency channel of the companies.
40
Chart 3: Premium Collected by the Agency channel of the companies.
41
Chart 4: Percentage of business provided by the agency channel to the branch/division of the
42
Chart 5: Business mix of the agency channel
43
Chart 6: Percentage of companies considering discount as a problem.
44
Chart 7: Percentage of companies considering commission as a problem.
45
Chart 8: Percentage of companies considering agents working for more than one agency as a problem.
46
Chart 9: Percentage of companies considering lack of professionalism in agents as a Problem
47
Table 2: Respondents considering discount as a major problem.
44
Table 3: Respondents considering commission as a problem.
45
Table 4: Respondents considering agents working for more than one agency as a problem.
46
Table 5: Respondents considering lack of professionalism in the agents as a problem.
47
50
Bibliography Books: Jyotsna Seth & Nishwan Bhatia, 2007 Elements of Banking and Insurance, PHI Learning Private Limited C. R. Kothari, 2010 Research Methodology Methods and techniques, New Agw International Publishers S.C. Sahoo & S.C. Das, 2009 Insurance Management Text and Cases, Himalaya Publishing House Articles:
Chiang Ku Fan and Shu Wen Cheng, An efficiency comparison of direct and indirect channels in Taiwan insurance marketing. Direct Marketing: An International Journal, 3 (4), 2009, 343-359 Tor Wallin Andreassen, The principal‘s and agents contribution to customer loyalty within an integrated service distribution channel, An external perspective. European Journal of Marketing, 31(7), 487-503. Future Generali India Insurance Company Limited- Annula Report-2010-2011 IRDA Annula report -2010 2011 Websites: www.irda.gov.in www.indiankanoon.org www.investorwords.com Search engines: www.google.com www.ask.com
Annexure 51
A Study on Effectiveness of Agency Channel of Distribution in Promotion of General Insurance Products 1. Company Name: ____________________________ 2. Name: _______________________________ 3. Designation: _____________________________
4. Experience: _____ Years 5. Number of Agents Working for the Agency channel: ______ 6. Area Covered by Agents Visalkhapatnam
Vijaynagram
Srikakulam
Ankapali
Other (specify) _________ 7. Premium collected through agency in financial year 2011-12: ______ Rs. 8. Percentage contribution of agency to the company‘s business: _______ 9. Is any assistance given to the agents: Yes
No
10. If yes so what kind: ____________________ 11.Business mix: Motor Insurance _____% Non-Motor Insurance _____% 12.Challenges/Problem faced by the agency channel a. Discount given on policy:
Yes
No
b. Commission on policy sold: Yes
No
c. Agents working for more than one company: Yes d. Lack of professionalism Yes
No
No
Date: ________
Signature: ___________
Place: ___________
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