Analysis of Insurance Investment Decision

7/31/2019 Analysis of Insurance Investment Decision

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INSURANCE SECTOR IN INDIA

With largest number of life insurance policies in force in the world, Insurance

happens to be a mega opportunity in India.

It's a business growing at the rate of 15-20 per cent annually and presently is of theorder of Rs 450 billion.

Together with banking services, it adds about 7 per cent to the country's GDP.

Gross premium collection is nearly 2 per cent of GDP and funds available with

LIC for investments are 8 per cent of GDP.

Yet, nearly 80 per cent of Indian population is without life insurance cover while

health insurance and non-life insurance continues to be below internationalstandards. And this part of the population is also subject to weak social security

and pension systems with hardly any old age income security. This it is an

indicator that growth potential for the insurance sector is immense.

A well-developed and evolved insurance sector is needed for economic

development as it provides long term funds for infrastructure development and at

the same time strengthens the risk taking ability. It is estimated that over the next

ten years India would require investments of the order of one trillion US dollar.

The Insurance sector, to some extent, can enable investments in infrastructure

development to sustain economic growth of the country. Insurance is a federalsubject in India. There are two legislations that govern the sector- The Insurance

Act- 1938 and the IRDA Act- 1999.

In India, insurance is generally considered as a tax-saving device instead of its

other implied long term financial benefits. Indian people are prone to investing in

properties and gold followed by bank deposits. They selectively invest in shares

also but the percentage is very small. Even to this day, Life Insurance Corporation

of India dominates Indian insurance sector. With the entry of private sector players

backed by foreign expertise, Indian insurance market has become more vibrant.

PRESENT SCENARIO

The Government of India liberalized the insurance sector 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


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the market with some limits on direct foreign ownership. Under the current

guidelines, there is a 26 percent equity cap for foreign partners in an insurance

company. There is a proposal to increase this limit to 49 percent.

The opening up of the sector is likely to lead to greater spread and deepening of

insurance in India and this may also include restructuring and revitalizing of the

public sector companies. Today, there are 24 companies both in life insurance and

non-life insurance sector.

The following table shows the market share of life and non-life insurers

MARKET SHARE (in %)

LIFE INSURERS NONLIFE INSURERS

1. LIC 76.07 1. New India 21.41

2. ICICI Prudential 6.91 2. National 17.113. Bajaj Allianz 4.75 3. United India 17.11

4. HDFC Standard 2.98 4. Oriental 17.02

5. Brila Sunlife 1.72 5. ICICI- Lombard 8.04

6. Tata AIG 1.66 6. Bajaj Allianz 6.15

7. SBI Life 1.46 7. IFFCO-Tokio 4.00

8. Max New York 1.28 8. Tata-AIG 2.89

9. Aviva 1.08 9. ECGC 2.50

10. Kotak Mahindra Old Mutual 0.71 10. Royal Sundaram 2.17

11. ING Vysya 0.54 11. Cholamandala m 1.22

12. AMP Sanmar 0.46 12. HDFC-Chubb 0.89

13. Met Life 0.37 13. Reliance General 0.75

14. Sahara Life 0.03 14. Agriculture Insurance

Co.--

Private total 23.93 Private total 27.35

Public total 76.07 Public total 72.65

Grand total 100.00 Grand total 100.00

Source : www.irdaindia.org


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RECENT TRENDS IN THE INSURANCE SECTOR

MODERN MARKETING APPROACH

Marketing strategies for insurance in the emerging scenario could be understood interms of the following steps:

In India Insurance is sold and not bought. The agents / Advisors by using various

strategies sell the product by convincing the customers. Moreover, they pushPolicies with the highest premium to pocket a higher commission. The consultative

approach to selling is the modern approach, which helps customers and prospects

to buy. A consultant makes calls and sells just like any other sales person. The

difference is in their attitude, their approach and their commitment. Here, the

customer is seen as a person to be served and not a person to be sold. It helps the

purchaser to make an intelligent decision. The four-step process includes:

* Need discovery

* Selection of the product

* Need satisfaction presentation, and* Serving the sale

This approach to selling their products requires understanding of concepts and

principles borrowed from the fields of psychology, communications, and sociologyand needs a lot of personal commitments and selfdiscipline from the seller.


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PRODUCT INNOVATIONS

Insurers are continuously innovating new products based on forward-looking

models. They have developed new products addressing the new challenges insociety and products to address the hazards from new environmental issues.

Understanding the customers better has enabled Insurance companies to design

appropriate products, determine price correctly and to increase profitability.

Product development is made possible by integrating actuarial, ratings, claims and

illustration systems.

At present, the Life Insurers are concentrating on the pension schemes and the

Non-Life Insurers on many innovative schemes of various realms and thereby

enriching their market share. Moreover, with increased commoditization ofinsurance products, brand building is going to play a vital role.

CUSTOMER EDUCATION & SERVICES

In the present competitive scenario, a key differentiator is the professional

customer service in terms of quality of advice on product choice along with policy

servicing. Servicing focus is on enhancing the customer's experience and

maximizing his convenience. This calls for an effective CRM system, whicheventually creates sustainable competitive advantage and enables to build long

lasting relationship.

DISTRIBUTION NETWORK

While the traditional channel of tied up advisors or agents is the chief distribution

channel, insurers are looking to innovate and find new methods of delivering the

products to customers. Corporate agency, brokerage, Banc assurance, e-insurancecooperative societies and panchayats are some of the channels, which are being

tapped by the insurers to reach the appropriate market segments.

Now days, the urban masses are tapped with the new techniques provided by

Information Technology through Internet. Rural masses are attracted by the


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consultative approach adopted by the Insurers. Moreover, they attract thecustomers through telephone and mobile also.

OBJECTIVE OF THE STUDY

1. To determine the consumer investments patterns.

2. To determine the motives behind investment in insurance policy.

HYPOTHESES

H1: Consumers invest in life insurance policies because of the risk cover.

H2: Consumers invest in life insurance because of the returns on investment.

H3: Consumers invest in life insurance to gain tax benefits.

RESEARCH METHODOLOGY

The research is based upon primary data collected through questionnaires. Each

questionnaire consisted of 25 questions asking the respondents about their

awareness levels and investment patterns in insurance plans. This data was

analyzed through SPSS and the hypotheses were thus tested.

Population

All customers residing in the city of Mumbai were taken as the population for thestudy.

Sample Units

Individual Customers


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Sampling Method

To ensure proper coverage of the entire city, sample was drawn from all the major

localities of the city. Hence the cluster sampling method was used to draw samples.

While drawing the sample proper care was taken to have enough representation ofpopulation by covering people across varying demographics details.

Sample size

The sample size was taken as 300.

DATA PROCESSING AND ANALYSIS

The collected data was edited, coded, tabulated, grouped and organized according

to the requirement of the study. A simple and appropriate statistical tool (viz.

SPSS, statistical software package) was used by the researcher for testing thehypotheses and drawing conclusions.

The questionnaire was coded and data gathered was entered using the SPSS. The

data was then analyzed and interpreted using some basic techniques like

percentages, bar plots, pie charts and also included advanced techniques like Chi-

square test.


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OBSERVATIONS AND FINDINGS

1. Best Investment Option

This bar graph represents the response of respondents towards the above

investment options on a rating scale of 1 to 5. People, in general, believe that real

estate is the best form of investment followed by bank deposits. Insurance received

a rating of 3.1 followed by mutual funds.


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2. Best Investment OptionGender Distribution

Males and females were found to vary in their opinion towards investment

decision. Females preferred bank deposits over other options, with very

insignificant inclination towards shares or mutual funds. Males, on the other hand,

showed considerable interest in shares and mutual funds. Both gender showed

almost equal inclination towards insurance and real estate.

3. Motives Behind Insurance Investment


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The primary motive behind insurance investment was found to be risk cover.

Majority respondents quoted risk cover and investment purpose as their primary

reasons behind purchasing insurance. Tax benefit was also a substantial motive.

People in higher 40s and 50s mentioned pension as an important motive behind

investing in insurance.

4. Motives Behind Insurance InvestmentAge Distribution


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This graph shows that the strength of pension as an investment motive increasedwith increasing age group of consumers. The differences between other motives

over the various age groups were relatively small.

5. Factors Influencing Insurance Investment

Among the factors influencing insurance investment, insurance cover and high

returns on investment were considered most important by the respondents. These


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factors were followed by low amount of premium and the nature of risk involvedin the investment.

6. Awareness about IDBI Insurance Plans

Out of 300 respondents who were asked about their knowledge of IDBI products,

173 were aware about its insurance policies. Out of these 173 respondents, 43%

were aware about Wealthsurance, followed by 35% awareness about

Incomesurance.

TESTING OF HYPOTHESES


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Null Hypo 1: Consumers make investment in life insurance because of risk cover.

The p-value was found to be 0.00; since p


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insurance cover while health insurance and non-life insurance continues to bebelow international standards.

2. In India, insurance is generally considered as a tax-saving device instead of itsother implied long term financial benefits. Indian people are prone to investing in

properties and gold followed by bank deposits. They selectively invest in shares

also, but the percentage is very small. Even to this day, Life Insurance Corporation

of India dominates Indian insurance sector. This may be because of lack of

awareness or knowledge about insurance investments, or varying opinion of theconsumers regarding the safety, return, and overall suitability of the investment.

3. The investment patterns of the consumers are merely reflections of their

mindset and approach towards insurance. With the entry of private sector players

backed by foreign expertise, Indian insurance market has become more vibrant.

There are so many options available to the consumers, with various new players

offering products which are both competitive and innovative. But people are still

very apprehensive when it comes to investment in insurance.

4. Today almost 15 private life insurance companies are working in India, some inwholly owned format and some as a joint venture with foreign company or with

Indian company. Together they hold the market share of approx. 24 % in life

insurance market. Still LIC holds the kingship with almost 76 % of market share.

That's good news for the LIC on one hand, but on the other, it shows that the pace

at which the private life insurance companies are moving, they are definitely going

to give a tough fight to LIC.

5. The leadership lies not in getting the maximum out of market share but it is

there somewhere in understanding the consumers reasoning for the choice of one

product over another one.


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RECOMMENDATIONS

1. The findings of the research have suggested that consumers give mostimportance to factors like insurance cover and returns on investment while making

any decision regarding investment in insurance. Hence IDBI insurance policies

should aim to provide good insurance covers and high returns on investments.

2. The findings have also suggested that there is a limited awareness about IDBI

products among the consumers, IDBI being a new entrant in the insurance sector.

Hence effective advertising & promotion is required to increase awareness about

IDBI products.

3. Effective Distribution Network will provide better accessibility to IDBI in

different market segments. Corporate agency, brokerage, Banc assurance, e-

insurance cooperative societies and panchayats are some of the channels which can

be tapped by IDBI to reach the appropriate market segments.


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APPENDIX

A sample Questionnaire for surveying the respondents is given

here.

1. Name: __________________________________________________________________

2. Sex: Male ____

Female ____

3. Age:

Below 25 Yrs ____

25-35 Yrs ____

35-45 Yrs ____

45-55 Yrs ____

Above 55 Yrs ____

4. Address:_______________________________________________________________________

5. Telephone:

____________________________________________________________________

6. Occupation:

Business _____

Service _____

Retired _____


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7. Annual Income:

Upto Rs 1 lakh _____

Rs 1lakh2 lakh _____

Rs 2 lakh3 lakh _____

Rs 3 Lakh4 Lakh _____

Above 5 Lakh _____

8. Which one according to you is the best investment option? (5highest, 1 - lowest)

1 2 3 4 5

Shares and debentures ___ ___ ___ ___ ___

Bank deposits ___ ___ ___ ___ ___

Mutual funds ___ ___ ___ ___ ___

Insurance products ___ ___ ___ ___ ___

Post office savings ___ ___ ___ ___ ___

Real Estate ___ ___ ___ ___ ___

9. How would you plan your investment pattern for the next one year ?

0-10% 10-20% 20-30% 30-40% 40-50% Above

50%

Shares and debentures ___ ___ ___ ___ ___ ___

Bank deposits ___ ___ ___ ___ ___ ___


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Mutual funds ___ ___ ___ ___ ___ ___

Insurance products ___ ___ ___ ___ ___ ___

Post office savings ___ ___ ___ ___ ___ ___

Others ___ ___ ___ ___ ___ ___

10. Do you own an Insurance Policy?

Yes _____

No _____

11. Reasons behind taking an insurance policy?

Risk Coverage ____

Investment purpose ____

Pension schemes ____

Tax Benefit ____

Any other (Please Mention) __________________

12. Which insurance companys policy do you own?

LIC ____

ICICI Prudential ____

Bajaj Alliance ____

IDBI Fortis ____


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Bharti Axa ____

Birla Sunlife ____

Others ____

13. What are the features you consider before taking an Insurance policy?

(Most important- 5 Least important-1)

1 2 3 4 5

Insurance Coverage ___ ___ ___ ___ ___

High Returns ___ ___ ___ ___ ___

Low premium amount ___ ___ ___ ___ ___

Flexible withdrawals ___ ___ ___ ___ ___

Risk Involved ___ ___ ___ ___ ___

Others ___ ___ ___ ___ ___

14. How do you rate the features of the insurance product offered to you by the company in

which you are holding the policy? (5- Highest 1- Lowest)

1 2 3 4 5

Insurance Coverage ___ ___ ___ ___ ___

High Returns ___ ___ ___ ___ ___

Low premium amount ___ ___ ___ ___ ___

Flexible withdrawals ___ ___ ___ ___ ___

Risk Involved ___ ___ ___ ___ ___


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15. What is your preferred mode of payment?

Yearly ____

Half yearly ____

Quarterly ____

Monthly ____

16. Do you know about any of the following Insurance plans offered by IDBI Fortis?

Yes No

Wealthsurance plan ____ ____

Homesurance protection plan ____ ____

Bondsurance Plan ____ ____

Retiresurance plan ____ ____

17. Have you invested in any of these plans?

Yes ____

No ____

18. If yes, please mention the plan:___________________________________________________

19. What is the term of your investment?


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Short term ____

Medium term ____

Long Term ____

20. Your valuable feedback:

_____________________________________________________________________________


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REFRENCES

The following sources were used as references during this project work:

1. Outlook Money (magazine)

2. Insurance World (magazine)

3. South Asian Journal Of Management Vol. 16 (article)

4. Saving, Investment & Growth in India, Oxford Press (article)

5. www.google.com

6. www.idbifortis.com

7. www.indianmba.com

8. www.yahoo.com

9. www.indiatimes.com

Documents

Analysis of Insurance Investment Decision