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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