CHAPTER. 1. INSURANCE AT A GLANCE 1.1.

INTRODUCTION
According to the U.S. Life Office Management Association Inc. (LOMA), life insurance is defined as follows: Life insurance provides some of money if the person who is insured dies whilst the policy is in effect. Anybody who has knowledge about life insurance will be tempted to say yes BUT In other words, surly this is far too brief an explanation for a financial service that provides a very sophisticated range of savings and investment products, as well as mere compensation for death. Insurance is basically a sharing device. The losses to assets resulting from natural calamities like fire, flood, earthquake; accidents, etc. which are beyond the human control are mate out of the common pool contributed by large number of person who is exposed to similar risks. This contribution of many is used to pay the losses suffered by unfortunate few. Human life is a unique image-generating asset. Unlike the physical assets, which decrease in value with passage of time, the individual becomes more experienced and more matured as he advances in age. This raises his earning capacity and the purpose of life insurance is to protect the income in the event of his premature death. The individual himself also needs financial security for the old age or on his becoming permanently disabled when his income will stop. Insurance also has an element of savings in certain cases. The business of insurance company called insurer is to bring together persons who are exposed to similar risks, collect contribution (premium) from them on some equitable basis and pay the losses (claim) to the unfortunate few who suffer.

1.2. INSURANCE IN INDIA

Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of LIC of India's corporate headquarters, is derived from the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans. Bombay Mutual Assurance Society, first Indian life assurance society, was formed in 1870. Other companies like Oriental, Bharat and Empire of India were also set up in 1870-90s. It was during swadeshi movement in the early 20th century that insurance witnessed a big boom in India with several more companies being set up. As companies grew, government began to exercise control on them. Insurance Act was passed in 1912, followed by detailed and amended Insurance Act of 1938 that looked into investments, expenditure and management of these companies' funds. By mid-1950s, there were around 170 companies and 80 PF societies in country's life insurance scene. In absence of regulatory systems, scams and irregularities were almost a way of life at most of companies. As a result, government decided nationalizes life assurance business in India. LIC of India was set up in 1956 to take over around 250 life companies. For years thereafter, insurance remained a monopoly of public sector. It was only after 7 years of deliberation and debate - after report of 1994 became first serious document calling for the re-opening up of insurance sector to private players -- that the sector was finally opened up to private players in 2001. IRDA, an autonomous insurance regulator set up in 2000, has extensive powers to oversee the insurance business and regulate in manner that will safeguard interests of insured. Insurance sector in India has become full circle from being an open competitive market to nationalization and back to liberalized market again.

1.3. NEED FOR LIFE INSURANCE:

These capture the original, basic, and intention of life insurance: i.e. to provide for ones family and perhaps others in event of death, especially premature death. As life insurance becomes more established, it realized what a useful tool it is for number of situation including:- Temporary needs/ threats, Regular Savings, Investment , Retirement

BENEFITS FROM LIFE INSURANCE:

It is superior to a traditional saving vehicles : - In event of untimely death, of say main earner in family, the policy will pay out of the guaranteed sum assured, which is likely to be significant more than the total premiums paid. It encourages saving and forces thrift : - Once an insurance contract has been entered into, the insured has an obligation to continue paying premiums, until the end of term of the policy, otherwise the policy will lapse. It provides easy settlement and protection against creditors : - Once a person is appointed for receiving the benefits (nomination) or a transfer of rights is made, a claim under the life insurance contract can be settled easily. It helps to achieve the purpose of the Life Assured : - If someone receives a large sum of money, they may spend money unwisely or in a speculative way. To overcome this, people taking policy instruct insurer that claim amount is given in installments. It can be enchased and facilitates borrowing : - Some contracts allow policy can be surrendered for cash amount, if a policyholder is not in a position to pay premium. A loan, against policies, can be taken to tide over difficulty; some lending institutions accept insurance policy as collateral for a loan. Tax Relief : - The policyholders obtain Income Tax rebates by paying the insurance premium.

1.4. COMPARISON OF LIFE INSURANCE TO OTHER SAVING INSTRUMENT:1. Protection:-Savings through life insurance guaranteed full protection against risk of saver. In life insurance full sum assured is payable with bonus whenever applicable whereas in other savings schemes, only amount saved with interest is payable. 2. Liquidity: Saving can be made in a relatively painless manner because of the easy installment facility built into the scheme. 3. Tax relief: Tax relief in Life insurance is available to the insurer for amount paid by way of premium for life insurance subject to it rates in force. 4. Money when you need it: A suitable insurance plan a combination of different plans can be taken out of meet. Specific needs are likely to arise in future say Childrens education.

(SOURCE: Planed P.S and Shah R.S; Insurance in India, 2003)

CHAPTER. 2. RESEARCH METHODOLOGY

2.1 TYPE OF RESEARCH:
The type of research used in this project is a Descriptive research design. The major purpose of descriptive research is a description of the state of the affairs, as it exists at present. Thus a Descriptive study is a fact-finding investigation with adequate interpretation. It is the simplest type of research. It focuses on particular aspects or dimensions of the problem studied. It is so designed that it gathers descriptive information and provides information for formulating more sophisticated studies. There is a cause effective relationship. The criteria for selecting this particular design are that, the problem of the project must be described and not arguable. The data collected is amenable to statistical analysis and has accuracy and significance. It is possible to develop valid standards of comparison. It lends itself to the verifiable procedure of collection and analysis of data. Descriptive study objectives aim at identifying the various characteristics of a company problem under study. It can reveal potential relationships between variables with exploratory research.

2.2 SAMPLING TECHNIQUE:

The sampling technique used is convenient sampling. It is also called as purposive sampling or non-probability sampling. This sampling method involves purposive or deliberate selection of particular units of the universe for constituting the sample, which represents the universe. When population elements are selected for inclusion in the sample based on the ease of access, it can be called as convenient sampling. Empirical field studies required collection of first hand information and data pertaining to the units of study from the field.

2.3. SOURCES OF DATA COLLECTION

Data collection technique for this research report is primary as well as secondary collection.

PRIMARY SOURCES:
The data was collected by using questionnaire and structured direct interviews, which were separately conducted to know the market awareness and market potential.

SECONDARY SOURCES
I have done exploratory research and for that purpose had used secondary data. We had collected this secondary data from various published materials like newspapers, magazines, books etc and from Internet web sites. From these various information and data we had done qualitative and quantitative analysis to find out impact of various forces, effect of macro environmental factors, major trends and future of the industry.

CHAPTER.3. ROLE & FUNCTION OF LIFE INSURANCE 3.1. ROLE OF LIFE INSURANCE:
Risks and uncertainties are part of life's great adventure -- accident, illness, theft, natural disaster - they're all built into the working of Universe, waiting to happen.

3.1.1. ROLE 1 : - LIFE INSURANCE AS "INVESTMENT":

Insurance is an attractive option for investment. While most people recognize the risk hedging and tax saving potential of insurance. Insurance products yield more compared to regular investment options. In fact, premium paid for an insurance policy is an investment against risk. Thus, before comparing with other schemes, a part of total amount invested in life insurance goes towards providing for risk cover, while rest is used for savings. In life insurance, unlike non-life products, you get maturity benefits on survival at the end of term. If you invest in PPF, your money grows over a year. But here access to your funds is limited. One can withdraw 50% of initial deposit only after 4 years. The same amount can give you an insurance cover and amount can become immediately available to nominee of policyholder on death. Thus insurance is a unique investment avenue that delivers sound returns in addition to protection.

3.1.2. ROLE 2 : - LIFE INSURANCE AS "RISK COVER:

First and foremost, insurance is about risk cover and protection - financial protection, to be more precise - to help outlast life's unpredictable losses. Designed to safeguard against losses suffered on account of any unforeseen event, insurance provides with that unique sense of security that no other form of investment provides.

3.1.3. ROLE 3 : - LIFE INSURANCE AS "TAX PLANNING":

Insurance serves as an excellent tax saving mechanism too. The Government of India has offered tax incentives to life insurance products in order to facilitate the flow of funds into productive assets. An individual is entitled to a rebate of 20% on annual premium payable on life of children. Rebate is deductible from tax payable by individual or Hindu Undivided Family. This means that gives Rs 12,000 tax benefit. 6

3.2. EMERGENCE OF IRDA

3.2.1. INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY:
Reforms in Insurance sector were initiated with passage of IRDA Bill in Parliament in 1999. IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering private insurance companies. The other decisions taken simultaneously to provide supporting systems to insurance sector were launch of IRDAs online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body IRDA has put in a framework of globally compatible regulations.

3.2.2. INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) ACT:

The IRDA Act was introduced to end the monopoly of State-owned companies and to invest in the IRA power to control the insurance sector.

3.3. DUTIES, POWER AND FUNCTIONS OF IRDA:

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA. 1. Subject to provisions of this Act and any other law for time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in sub section. The powers and functions of the Authority shall include. Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; 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;. Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents. Promoting efficiency in the conduct of insurance business. Promoting and regulating professional organizations connected with insurance business. 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; Regulating investment of funds by insurance companies; Adjudication intermediaries; Supervising the functioning of the Tariff Advisory Committee; Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause; Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and Exercising such other powers as may be prescribed. 8 of disputes between insurers, intermediaries or insurance

REGULATORY ISSUES:
The IRDA Bill lies down that Indian promoter must dilute the stake in private insurance firms from 74% to 26% in 10 years. The bill stipulates tough solvency margins -- Rs 500mn for life insurance firms for reinsurance business. The insurer has to maintain separate accounts relating to fund of shareholders and policyholders. The funds of policyholders should be retained within the country but does not cover repatriation of profits and dividends. Insurance companies under the new regime will have to have exposure to rural and social sectors. Foreign investment in insurance, the bill states, is crucial to financing infrastructure and better insurance cover. The key to success in opening up insurance sector in India is regulation. An example of how poor regulation can destroy market is mutual fund industry. A combination of improper marketing practice has resulted in a loss of investor faith in that industry. Incidentally, the insurance industry in India itself has gone through the same phase. One of the reasons for nationalization of the insurance industry (LIC in 1956 and GIC in 1973) was mismanagement and malpractice of erstwhile private players. But if the statements of IRA officials are anything to go by, new regulations are expected to be on the right track. IRA has already indicated that it will have tough norms for new participants. This is most compelling reason why private sector (and foreign) companies, which will spread the insurance habit, are urgently required in this vital sector of the economy. With the nation's infrastructure in a state of imminent collapse, India couldn't have afforded to be lumbered with sub-optimally performing monopoly insurance companies and therefore the passage of the IRDA Bill in 1999 where stakes are high for all parties concerned. For Govt. of India, (FDI) must pour in as anticipated; for foreign insurers, investments must start yielding returns and for domestic insurance industry - their market penetration should remain intact. On fringe, the customer is pondering whether all hype created on liberalization will actually benefit him.

(SOURCES: Renu Sobti, 2003. Banking and Insurance Services In India By New
Century Publication )

CHAPTER. 4. MORE ABOUT INSURANCE 4.1. INSURANCE SECTOR REFORMS IN INDIA:

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. Committee was set up with objective of complementing reforms initiated in financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the requirements of 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 The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could run the public confidence in the industry. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.

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4.2. ECONOMIC LIBERALIZATION AND ITS IMPLICATIONS

Economic liberalizations in brief refers to efforts taken by state toward faster economic development by adopting changes in existing economic policy, rules and Regulations and bringing flexibility in administrative control and procedures economic liberalization encourage the use of new technology and improve knowledge in the production process by global participation and marketing.

Need for Global Integration:

Recent economic liberalization few years ago have started bringing in new investments from global giants and government was hard pressed to facilitate global integration by lowering trade barriers for free flow of technology, intellectual and financial capital. Additionally, reforms are essential if Indian economy is to achieve and sustain a growth rate of 7 to 8% per annum. Thus liberalization of insurance creates an environment for generation of long-term contractual funds for infrastructural investment. In India, there is much more room to grow and one can expect entering market to enhance infrastructure. Insurance is definitely going to be one area that will assist in mobilization of these funds.

Multinationals' interest:
Multinational insurers indeed keenly interested in emerging insurance because their home markets are saturated while emerging countries have low insurance penetrations and high growth rates. International insurers derive significant part from multinational operations. Impact of global operations on their business may be large, typically foreign insurers take small share of an individual countrys market. In China, a large and complex market like India, private insurers have not made much headway. Yet, new entrants find attractive as even small share of large and growing market can be profitable. In India multinational insurers will be restricted to minority shareholding in companies. The other reason MNCs are interested in India is economies of insurance market which survive on principle of spreading of risk. Insurance companies, being long-term players, also have to avoid sudden dips in earnings to 11

inspire confidence among investors to invest long-term funds. This can be achieved by spreading their operations over a wide geographical area. Moreover, for them, big is not just beautiful, but essential for survival. Which brings us to the avenues for growth?

4.2.3. Privatization: Start Up Strategy:

Potential private entrants therefore expect to score in the areas of customer service, speed and flexibility. They point out that their entry will mean better products and choice for consumer. Critics counter that the benefit will be slim, because new players will concentrate on affluent, urban customers as foreign banks did until recently. This might seem a logical strategy from the point of view of new players. However, in long run 'middle-market' offers greatest potential in terms of its second largest market in the world. This may still be an urban market but goes beyond the affluent segment. Insurance, even more than banking, is a volume game. A very exclusive approach is unlikely to provide meaningful numbers. Therefore, private insurers would be best served by a middlemarket approach, targeting customer segments that are currently untapped.

4.2.4. Repositioning by Nationalized Sector:

Floodgates of competition opened up by the privatization of insurance industry did throw a challenge to well-protected nationalized sector and it seems they have picked up the gauntlet. LIC and GIC, both are trying to reposition themselves by having re-engineering done on the structure and operations of their respective organizations. LIC is at present going through presentations from top management consultants by narrating their experiences in countries where insurance sector has been opened up for private competition so that the public sector player can draw lessons. Based on these, LIC will appoint a consultant which can provide them broad terms of reference on what changes are required to tackle the impending competition. GIC has already identified areas that need to be activated and given a shape through subsidiary companies. Other areas that GIC is looking at are savings-linked insurance products and use of alternate distribution channels including banc assurance. Also in progress is co-ordination of all foreign operations of the group. Reinsurance Consultants Association is planning to convert

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itself into Insurance Brokers Association of India in anticipation of laws being amended to allow insurance broking.

4.2.5. Cross Border Experience:

Cross-country experience shows that nowhere in the world have the entry of foreign firms threatened the position of domestic companies. Whether it is Malaysia, where the insurance sector has been open for more than 50 years and foreign companies account for about 10% of market penetration or it is Indonesia, Thailand, China or the Philippines, where the market has been opened more recently, the total market share of foreign companies is less. Closer home, we have the experience of banking sector where despite the presence of 42 foreign banks, their share in total banking assets is less than 10 per cent. Today hardly 20% of population in India is insured and insurance premium account. Consequently, the fear that new companies will displace public companies is misplaced. There is room for more for not only the existing companies but also for any number of competitors. The various implications can group into as: 1. Positive implication:The liberalization of life insurance will benefit industry in the following ways: It helps transfer of technology in the field of life insurance. New techniques and methods can be used for assessment of risk, fixation of reasonable premium and provide new investment opportunities. This will help in expansion and development of business. It helps in adopting a flexible price policy on new life insurance policies developed and introduce now onward. It will make available in all countries of the world the service of efficient management and financial experts. It can help in development of knowledge of insurance business. Many educational and training institution stand fast functioning this lead to availability of professional managers. It will enlarge the scope of insurance. It will help spread it in rural and small villages also. The life insurance market will become global. The productivity as well as the efficiency also increases. The international competition in the field itself will play an important roll in this direction. Competing ability will increase due to liberalization. All categories of employees serving in life insurance sector will get more satisfaction through good opportunity for training, higher opening in jobs and higher income. 13

Public and employee will also be benefited from liberalization of life insurance sector: When there is large number of insurer, the insurers have better choice for selection. Good employment opportunity in the life insurance sector. Knowledge can be gain about new method of functioning through education and training and development with opportunity for job promotion and other benefits. Working with professional manager benefit employee in learning new technique in work situation. The employee will get motivation and their moral will be higher. 2. Negative implication: Cut throat competition liberalization create acute competition in life insurance market, which is not in interest of industry, customers or country which may sometime leads to insolvency of LICs and thereby policy holders face consequences. The experience of banking sector in our own country testifies to this effect that despite presence of 42 foreign banks, balance is not distributed. But the impact of the competition has increased the size of market. Dominance of outside companies: foreign companies capture the life insurance sectors as a whole under their dominance, because they possess more efficient insurance techniques, knowledge. As such Indian companies cannot survive before these foreign companies. Neglect the rural lives:- the people who are against the concept of liberalization of insurance sector believe that the domestic as well as foreign private companies neglect the rural areas, by giving more attention in getting people insured from urban areas. This because of the average cost incurred on policies is less in urban areas. Difficulty in utilizing physical resources completely as result of privatization business of LIC shall be affected negatively. As a result vast resources shall not be utilized fully. Attraction for its employees from out side sources there is a possibility of drainage of expert employees from the two corporations to the private companies. This is because the private companies offer more lucrative salaries and packages to their employees. Keeping this in mind, the IRDA has come out with regulations for high cadre employees that they cant leave the corporation easily, to join other places. 14

4.2. GLOBAL SCENARIO

Life insurance does not play an important role in national economy but also in international economy. Indian life insurer operates in more than 30 countries through agencies, branches, associates companies. These operations earn foreign exchange. The insurance business is concerned with North America, Western Europe, Japan and Oceania. Together these regions accounts for about 91 % of the world annul premium.

India and the world market: The progress achieved by LIC in India, it compares
unfavorably not just with developed, but also with developing world.

MAJOR PLAYER IN LIFE INSURANCE

About the various player of life insurance sector:
Since being set up as an independent statutory body IRDA has put in framework of globally compatible regulations. In private sector 12 life insurance and 6 general insurance companies have been registered than after remaining companies are registered.

Private Player in Life Insurance industry:

Sr.No 1 2 3 4 5 6 7 8 9 10 11 12 13 Registration No. 101 104 105 107 109 110 111 114 116 117 121 122 127 Date of Reg. 23.10.2000 15.11.2000 24.11.2000 10.01.2001 31.01.2001 12.02.2001 30.03.2001 02.08.2001 03.08.2001 06.08.2001 03.01.2002 14.05.2002 06.02.2004 Name of the Company HDFC Standard Life Insurance Company Ltd. Max New York Life Insurance Co. Ltd. ICICI Prudential Life Insurance Company Ltd. OM Kotak Mahindra Life Insurance Co. Ltd. Birla Sun Life Insurance Company Ltd. Tata AIG Life Insurance Company Ltd. SBI Life Insurance Company Limited. ING Vysya Life Insurance Company Private Ltd Allianz Bajaj Life Insurance Company Ltd. MetLife India Insurance Company Pvt. Ltd. AMP SANMAR Assurance Company Ltd. Aviva Life Insurance Co. India Pvt. Ltd. Sahara India Insurance Company Ltd.

While LICs market share declined from 90% for the period ended July 2003, all new life insurers increased their market share, over the corresponding previous year numbers.

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FUTURE POSSIBILITIES (NEXT 5-10 YEARS)

Job opportunities are likely to increase manifold. The number of people working in insurance sector in India is roughly same as in UK and US has nearly 4 times the number. In emerging markets, the picture is no less encouraging. The liberalization of insurance sector promises several new jobs opportunities for those Let us look into the type of jobs that will be created once the private players come on employed in finance sector that are equipped with degrees in finance. the scene. Certainly, it won't be far different from the traditional streams in any other industry. There will be demand for marketing specialists, finance experts, human resource professionals, engineers from diverse streams like the petrochemical and power sectors, systems professionals, statisticians and even medical professionals. Apart from this, there will be high demand for professionals in the streams like Underwriting and claims management and actuarial sciences. Apart from pure re-insurance activities, which is providing insurance protection, a revolution will come in service related fields like training, seminars, workshops, etc. Also, with more players in market, there will be significant increase in advertising, brand building, and keen pricing this will benefit lot of ancillary industries. As products become simpler and awareness increases, they become off-the-shelf, commodity products. Sellers move to remote channels such as telephone or direct mail. Various intermediaries, not necessarily insurance companies, sell insurance. In the UK for example, retailer Marks & Spencer now sells insurance products. In some countries like Netherlands and Japan, insurance is marketed using post office's distribution channels. At this point, buyers look for low price. In India too, banks hope to maximize expensive existing networks by selling a range of products. Various seminars and conferences on banc assurance are taking place and many bankers have clearly shown their inclination to enter insurance market by leveraging their strengths in areas of brand image, distribution network, and face to face contact with clients and telemarketing coupled with advanced IT systems. Worldwide interest in E-commerce and India's predominant position in information technology and software development is also likely to be a major factor in the marketing of insurance products in the immediate future. The Internet account is increasing in arithmetic progression and the trend has already been set by some of the leading insurers and insurance brokers worldwide. 16

4.3. MARKETING PERSPECTIVE

4.5.1. Distribution perspective (The key differentiator): It has been over two years since Indian insurance market has opened up, and new entrants in market have set up shop in every major city. Public sector companies have already established themselves in market and face multiple challenges of which two are critical: Designing of products suiting market. Using the right distribution channels to reach the customer. While companies have been quite successful in dealing with these challenges using and technical know-how of partners, most are still grappling with right channel mix for reaching potential customers. distribution channel from the prospective of socio-cultural Ethos of market and channels fit into it, where the various companies face challenges and bottlenecks. Whenever any debate arises about intermediaries and distribution channels, discussion veers to: technology and its impact on distribution. It is the distributor who makes difference in terms of quality of advice for choice of product, settlement of claims. In Asian markets, with distinct cultural and social ethos, these conditions play major role in shaping distribution channels and effectiveness. In todays scenario, insurance companies must move from selling insurance to marketing an essential financial product. The distributors have to become trusted financial advisors for clients and trusted business associates for insurance companies. This calls for leveraging multiple distribution channels in customer friendly manner. Distinction of channels in developed markets is: personal distribution systems include all channels like agencies of different models and brokerages, banc assurance, and work site marketing. Direct response distribution systems are the method whereby the client purchases the insurance directly. This segment, which utilizes various media such as internet, telemarketing, direct mail, call centers, etc., is beginning to grow.

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4.5.2. Distribution Scenario in the Indian Market: In todays Indian life insurance market, the challenge to insurers and intermediaries is two pronged: Building faith about company in the mind of client. Intermediaries being able to build personal credibility with clients.

Traditionally, tied agents have been the primary channels for insurance distribution in the Indian market; the public sector insurance companies have their branches in almost all parts of country and have attracted local people to become their agents. The agents are from various segments in society and collectively cover entire spectrum of society. A person who has lived in the locality for many years sells products of insurance with a local branch nearby. This ensures last mile touch point being closer to customer. Profile of people who acted as agents suggests they may not have been sufficiently knowledgeable about different products, and sold best possible product to client. Nonetheless, customer trusted agent and company. In todays scenario agents continue as prime channel for insurance distribution in India, as is the case in most market, supported by call centers to a small extent. Almost all new players follow this model primarily because regulation for other channels are yet to be put in place. However, theres great excitement over impending brokers regulations and companies are planning possible channels in their enthusiasm to increase volumes. The beliefs that all these channels will grow and seamlessly integrate to bring in business seem a fallacy. What have emerged are a much more difficult and evolving market scene with exiting players, more new players coming in, and global practices and ideas being tested. But none of this has changed the fundamental character of market.

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4.6. RISK MANAGEMENT IN LIFE INSURANCE SECTOR

SOURCES OF RISK:
Designing any strategy to manage future risks of any organization need the understanding of the risk and their Origin and direction linked to our environment, which is quite dynamic. World changes so fast that neither information system nor management practices are able to capture the potential trend and the direction of the change. This leads to uncertainty and inability to initiate proactive measures. Changes have made the Law of Averages, which has been traditionally used by LIC to discount impact of risks, has become nearly redundant and therefore, there is a search for a new model methodology and Management strategies to face challenges of various types of risks that are being confronted by LIC. As we proceed to discuss strategy, let us examine the import types of risks.

TYPES OF RISKS:
It is virtually impossible to provide a list of risks in life insurance operation basically due to the fact that risks are associated with multidimensional changes associated with the factors mentioned above. However, the major focuses of risks of insurance business are related to macro-economic factors, pricing, claims, credit, spreads, and investment risks which can be classified in two ways: one from the actuarial point of view and the other from the financial market point of view.

MEASURING RISK:
Risk management however, calls for risk identification and risk measures. A number of methods have been in use to measure the risks in an insurance company, though there is no single best measure yet like VAR (Value at Risk), which is widely used for banking industry. Most widely used measures in life insurance companies are: Scenario Analysis :- liabilities and assets of a portfolio is examined under different Macro-economic assumption Stress Testing:- out extraordinary losses arising out of a particular widely used to examine the whether asset in matching the liabilities of a portfolio

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4.7. RISK MANAGEMENT PRACTICES

Like Risk management methods there are a variety of techniques used by the LIC to manage risks. According to Babbel and Santomero of Wharton School, it appears that a common practice has evolved such that elements have become key steps to implementing broad based risk management system.

RISK INSURANCE:
Diversification of Assets Diversification of Liabilities Selective underwriting Continual Process Improvement Hedging via Capital Market Stochastic Pricing Risk Adjusted Pricing Targets. Risk limits set the maximum exposure to risk factors and risk tolerance of the Management. Reinsurance allows risk transfer to another party through a reinsurance agreement. Diversification of assets minimizes the impact of unsystematic risks on the portfolio while diversification of liabilities is achieved by offering diverse products. Hedging in capital markets is aimed at reducing the adverse impact of interest rate fluctuation achieved through derivatives, futures, forward trading, options and swaps. It may be mentioned here that insurance supervision, to strengthen the risk management practices, focuses more and more on the capital of an insurance company against the benchmark of assured risks in addition to the statutory solvency margin. In the US, the risk based capital laws now in effect in all states require commissioners to take specified actions when a firms risk based capital ratio, defined as the ratio of actual ratio to risk based capital, falls below a certain threshold (Cumming, Philips and Smith 1997). Even in Europe, the solvency project is centered on the risk based capital model: In a capital based solvency system, risk bearing business will be linked to more risk capital.

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4.8. RISK MANAGEMENT SCENARIO IN INDIA:

So far in India, very scanty attention has been given to risk management in LICs. Neither is any systematic and structured risk management practice followed in insurance companies nor have any specific guidelines on risk standards, techniques and risk management been developed. Of course IRDA guidelines on Investment Management and Asset, Liabilities and Solvency margin of insurers indirectly deal with Risk Management. The risk management prevailing in Indian companies is of a very rudimentary type. Indian financial markets, particularly during the post-liberalized era have witnessed significant understanding. Global intervention, changes in interest rate etc. have increased the risk exposure. It is therefore necessary to create awareness about the necessity of risk management as well as to develop expertise in this discipline. However, risk management practices can be successfully implemented through

institutionalization of the risk management culture and creating a necessity for adopting it. In view of the poor state of the risk management practices in India, the following steps are urgently required.

RISK STANDARDS:
A uniform practice of risk management needs to be introduced through the life insurance industry. This calls for introduction of Insurance Industry Risk Standard (IIRS) incorporating the entire gamut of risk management and risk oversight. Hence there is need for adequate education and training, which also may preferably be uniform industry wide.

OVERSIGHT:
Independent review of risk management practices and risk measurements are required at frequent interval. This review should include analyzing policy compliance, monitoring investment guidelines, investment strategies, risk limits, and evaluation of investment models. If required, revision redesigning of models, strategies, risk limits may be done within the overall guidelines.

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(SOURCES: Ruddar Datt & K.P.M.Sundharam. Indian Economy, By S.C& Co.)

CHAPTER. 5. PEST ANALYSIS

5.1. POLITICAL FACTORS AFFECTING LIFE INSURANCE INDUSTRY:
Within India political ambitions and rise of communalism, fissiparous tendencies are on the rise and may well continue for quite some time to time. Therefore, it expected that the insurance companies might consider offering political risk coverage also. The only area where Indian insurers consider giving cover is with regard to customs duty change under certain conditions. Certain type of political risk at international level has serious implications for exporters. Term political risk has wider connotation than understood or assumed. It covers events arising not just from politics, but also course of international transactions. Prohibition for Investment: -The funds of policyholders are prohibited from being directly / indirectly invested outside India. Manner and conditions of investment: -Subject to the above provisions, the IRDA may, o In the interest of the policyholders, specify the time, manner and other conditions of investment by insurer. o Give specific directions applicable to all insurers for the time, manner and other conditions subject to which the policyholders funds should be invested in the infrastructure and social sectors. Insurance business in rural / social sector: - All insurers are required to undertake such insurance business, in rural social sector. They should discharge obligations to providing policies residing in rural sector or to vulnerable classes and other categories. Power to investigation or inspection: - The IRDA may, at any time, order in writing a person as investigating authority to investigate the affairs of any insurer and report to it. Government has power to change the tax policy against life insurance industry.

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Role of the government: - As insurance is an important service sector, hence it is highly regulated by government. Since 1956 insurance sector was highly regulated by government of India. In 1999, Indian cabinet approve on IRA Bills that was designed to liberalize insurance sector. Two governments in India have fallen over the issue of liberalization of the insurance sector (which was nationalized in 1971) announcement was made in 1998. BODIES THAT REGULATE THE SECTOR: For better regulation purpose of the insurance sector the government has established following bodies; 1. IRA: Insurance Regulatory Authority. 2. IRDA: Insurance Regulatory and Development Authority. 3. TAC: Tariff Advisory Committee.

1. IRA: INSURANCE REGULATORY AUTHORITY:

The IRA was set-up in 1996. The IRA Bill has to be passed by parliament to make the IRA a statutory body. Comprehensive legislation aimed at reviewing the insurance Act of 1938 and repealing the LI Act of 1956 have to be passed. The IRA is also preparing an internal rating system to screen all applications, as entry will be in phases. The joint venture status of life insurance companies (with majority holding of the domestic partner) is likely to be approved by the parliament. The IRA has stipulated a minimum rural presence for all companies. The exhaustive guidelines have been issued for the appointment of intermediaries (brokers, agents, surveyors and actuaries). Government pronouncement: 1. IRA will be sole Authority, which will be responsible for awarding of, licenses i.e. little or no government or political interference in licensing process. 2. No restriction on the number of licenses. 3. No composite license for life insurance business. 4. Licensing to be only on national basis (no city by city approach) IRA proposals: 23

1. 2. 3. 4.

New player should start their business within 15-18 months. Trafficking of licenses not to be permitted. IRA to seek business plan with 5-year protection for all applicants. A system of direct brokers to be introduced.

2. IRDA: INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY:IRDA, constituted under IRDA Act, 1999, provide for establishment of an authority to protect interest policyholders, to regulate, promote and ensure orderly growth of the life insurance industry. Business Requirement:A company will not be issued a license unless the IRDA is satisfied with the sound financial condition, the general character of management, the volume of business, the capital structure, earning prospects for the insurers and that the interests of the general public will be served if registration is granted to the insurer. The IRDA may in the interest of the policyholders directions relation the time, manner and other conditions and investments of assets to be held by an insurer. The IRDA may also direct the insurer to realize the investment, if it sees the investments to be unsuitable or undesirable. The Act prohibits an insurer from directly or indirectly investing policyholder funds outside India. In order to maintain transparency in its dealings, insurers would have to keep separate account relating to funds of shareholders and policyholders. Consequences of non-compliance: A company failing to comply with act shall be liable for panel action and may lead to cancellation of license. Further, IRDA is empowered to investigate into affairs of company. Also, if the IRDA has reason to believe that a company is doing business in a manner likely to be prejudicial to the interest of policyholders, it is required to report to central government. The central government may base on the report, appoint an administrator to manage the affairs of the company. This would act as a further assurance to the consumers, as their interests would

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at all times be a priority and that in the event that the company acts in the manner prejudicial to their interests, than an administrator would be appointed to serve their needs.

3. TARIFF ADVISORY COMMITTEE: The tariff advisory committee established under the Act is empowered to control and regulate the rates, terms, and etc. that may be offered by insurers in respect of any risk or of any category of risks. It is provided that in fixing, amending or modifying such rates etc. the committee shall try to ensure as far as possible that there is no unfair discrimination between risk of essentially same hazard and also that consideration is given to past and prospective loss experience. Every insurer is required to make payment to the TAC of prescribed annual fees. TAX POLICY AND INSURANCE SECTOR:

Another factor, which affects the insurance sector, is tax policy. The tax reforms in India are such that it encourages the citizens to invest in insurance sector. The tax policy of government is particular relevant for life insurance which is a long-term contract and inculcates among policyholders the habit of saving. Taxation of returns on investment influences, investment decisions and high rates of taxation will discourage the desire to save. Already in India there are complaints that the rates of return on life policies are not what they could be. Therefore tax incentives play a vital role in determining the attractiveness of such policies. Such tax breaks are available in many countries and have helped in the development of their life sector. In western countries the gain from the proceeds of a life insurance policy is paid free of tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying policies get basic rate tax relief, though higher rate taxpayers may still have to pay tax on the gain, although at a reduced rate. The insurance companies can use such tax concessions rate. The insurance companies can use such tax concessions to design products for different categories of taxpayers. The other factors, which affect the insurance sector, are the employment law, and government stability. These are the factors, which affect the insurance industry.

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INVESTMENT DECISIONS MANDATED BY GOVERNMENT: Insurers are required to fulfill certain social commitments as well. As many of the social welfare measures companies are not just regulated, but have been mandated to hand over a portion of their funds to the state for investment in infrastructure and for social development through government bonds and securities. In India, pattern was, prescribed in great detail by government. This was not in form of guidelines, but as a legal obligation under insurance Act, 1938.

5.2. ECONOMICAL FACTORS AFFECTING LIFE INSURANCE INDUSTRY

Interest rate at bank and P.F variation very much affect to insurance industry, because people always attract by higher return. Therefore, they do not prefer lower return policy. Unemployment also affects insurance industry, because people will not have earning, so saving also affect to insurance sector. Because of these events turns into lots of death, so LIC have to pay claim against policy. Infant and maternity mortality rate are also affecting to life insurance. Typical Indian want luxurious product against low income, so they prefer installment or annuity (EMI), so may not have extra saving to invest in life insurance.

5.2.1. Adequacy of capital:

Capital adequacy is a matter of attention in view of nature of insurance business, where in case a contingency arises, the insurers should be in position to meet its long-term contractual obligations and pay up dues or claims and companies should not run business purely on other peoples money.

5.2.2. Increased Economical Activity:

Although economic activity has slowed down since 1996, sooner or later there will be an upswing. The increase in growth rate in various sectors accompanied by growth in trade in the context of fulfilling of commitments to WTO will signal a growth in demand for insurance covers of new types.

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Interest Rates: During last years government has rationalized interest rate creates better business opportunities for insurance sector because substitute products are graded lower by customers. On other hand value of the holdings of insurance companies will increase. Rationalized of the interest rates is still expected, and it is an opportunity for the company. Low interested rates mean low investment return for reinsures causing negative impact. A positive outcome is that low inflation rates, if sustained for a considerable period, usually bring some relief to reinsures. Low interest rates and low inflation result in higher assets, lower liabilities, hence greater surplus and greater risk capacity resulting in less demand for, and greater surplus of reinsurance.

Inflation rate: Inflation can also be one of the causes to change scenario of insurance sector. High inflation for instance, would tend to reduce insurance, particularly life, because real value of money paid back to policyholder on maturity would go down and would, therefore, lose its attraction for the investor. The response to an inflationary situation will depend on what benefit the insured is looking for. In high inflation, clients would prefer savings policies.

Market related factors:

This includes internal as well as external factors. These all factors have changed trend and governs entire of life insurance sector, which is shown in the following figure.
Stage 1 Entry controlled state. is high Stage 2 expertise Stage 3 to entry Entry to reduced brought. systems low can Stage 4 costs and are are capital Closed market, Barriers to entry are Barriers by operate is essential, expertise license to obtain.

be requirements same.

Scarce resource is Permission from

Scarce resource is expertise

Scarce resource is capital

Scarce resource is brand

From above we see that now days strength of brand is very important aspect for the success in this sector with strong distribution channel without which growth is not possible.

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Customer satisfaction: Since customer is the focus of any service industry, every such industry continuously strives for greater variety and better quality, improvement, and quick response to perceived needs in short qualitatively superior service. Indian LICs already have a sizable line up of products. Difference between them and foreign operators perhaps lies in service provided, because there is still not enough concern on the part of the Indian companies, with customer satisfaction. If high standards have been achieved, it is not impossible to attain same in India too. One can anticipate greater insistence from pressure groups like customer forums to keep customer satisfaction at the top of list of priorities of insurers.

5.3. SOCIO-CULTURAL FACTORS AFFECTING LIFE INSURANCE INDUSTRY:

5.3.1. Population:
Growth in population is major factor pushing up demand. It is also going to exert a special influence on the life insurance market in other ways. Apart from exerting pressure on demand for goods and services, and through that, positive as well as negative aspects, ill effects of uncontrolled growth of population also could spur the growth of demand

5.3.2. Life style:

The peculiar lifestyle of a country or an age also influences insurance business. Change therein produces different demands for life insurance. For e.g. All over world, family size is shrinking and fact that in decades to come, working outside the home will mean that there could be a greater possibility of property loss results in higher demand for convenience and service. Companies will respond by trying to shorten the transaction time for delivery. However, consumers behavior cannot be adequately and accurately predicted. The younger generation is overwhelmingly influenced by consumerism. Thus these are how changing life style of citizens is affecting life insurance industry.

5.3.3. Level of education:

India is one of developing countries: the level of education is very low here. The literacy rate is very poor. Thus the people are not able to understand the concept of insurance. Among the

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educated people quality of education is still a big question mark. Thus the awareness is not created and it has become a big challenge for the industry.

5.3.4. Level of earning:

Another factor, which affects the life insurance sector, is the level of earning. In India rule of 80-20 is working. The 80% of total population is having 20% of wealth and 20% of total population is having 80% of total wealth. Thus richer are richer and poorer are poorer.

5.3.5. Societal benefits:

In view of fact that large sections of India have inadequate life insurance cover, an important social responsibility of government relates to spreading it far and wide. It is not the total population but the insurable population which is material for the conclusion of potential.

5.4. TECNOLOGICAL FACTORS AFFECTING LIFE INSURANCE INDUSTRY:

Internet as an intermediary in the current Indian market customer is not aware about the intrinsic value of insurance. He thinks of insurance only in the mount of March as a tax saving measure. In such a scenario Internet can be an effective medium for educating the consumers about insurance. Product development and target marketing through Internet with increase in number of insurance companies there will be a need for market segmentation and subsequently product designed for each of them. In such a scenario Internet can be effective channel for pushing product specific information to a particular market there would be cut through competition. Therefore the use of technology and specifically the Internet with realigned strategies would be one of the key factors to success. Constraints of locations, timing and accessibility would not be a hurdle for either customers or businesses. 5.4.1. Maintaining the database The most important factor that is affecting insurance industry is marinating the database of customers. The insurance industry have huge list of customers. In order to maintain it in manual format it is really the work of stupidity. With the change in time computers has taken work. Thus with the development of technology it is possible to maintain such huge database.

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5.4.2. E-business insurance in India: Internet has played a vital role in transforming business of 21st century. Computers are now being used extensively for creating a storing data, information with the help of complex and sophisticated technological tools in every kind of business. With this change in business process, insurers have to devise new methods for so-called e-business insurance.

5.4.3. Impact on distribution channels: Distribution channels are most important part of insurance industry. The scenario is continuously changing in this industry. In future the customers are expected to be more technology oriented, more knowledgeable and demanding. The insurers will have to offer all types of channel to customer. Hence the companies have to be very careful and cautious in catering to the needs of these customers. Thanks to the technological advancement and increased de regulation and sophistication, the carriers and producers can now reach the customers in different ways.

CHAPTER. 6. PORTER FIVE-FORCE ANALYSIS

One important component of industry and competitive analysis involves delving into the industrys competitive process to discover what the main sources of competitive pressure are and how strong each competitive force is. This analytical step is essential because managers cannot devise a successful strategy without in-depth understanding of the industrys competitive character. Even though competitive pressures in various industries are never precisely the same, the competitive process works similarly enough to use a common analytical framework in gauging the nature and intensity of competitive forces. The state of competition in an industry is a composite of five competitive forces. 1. The rivalry among competing sellers in the industry. 2. The potential entry of new competitors. 3. The market attempts of companies in other industries to win customers over to their own substitute products. 4. Competitive pressures stemming from supplier-seller collaboration and bargaining. Figure shows porters five-forces model of competition.

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The five-force model developed by porter in 1980, guides the analysis of an organizations, Environment and attractiveness of the life insurance industry. The nature and degree of competition in an industry hinge on five forces, which include the threat of substitute, bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants and degree of rivalry between the existing competitors.

6.1.

THREAT NEW ENTRANTS: As life insurance future market scenario marked by active presence of international players, beside several Indian players there would be fewer entries due to firm with lower expenses ratios and better capitalization. In life insurance industry threat of entry is determine by barriers is moderate so The Indian market is highly brand oriented, it is difficult to introduce new Tax exemption structure makes the industry attractive. High level of competition in life insurance become giant player came into the High profit in life insurance industry act as magnet to firms outside industry But again due to potential market, private giants and international player try to that it becomes profitable, it attracts new entrants and increase in number of competitors. brand. The acceptability of new brand is also very low. market. motivating potential entrants to commit the resources needed to hurdle entry barriers. enter in to market in large scale with their proper homework with customized and products too.

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Registration: Every insurer is required to obtain a certificate of registration from Economies of scale: Economies of scale is difficult to find in the initial stage of

the controller of insurance. curve. Legislation or government action: special permission is required from government to enter in insurance sector. entry into the market because of experience as evidence by the theory of experience

6.2.

BARGAINING POWER OF BUYER: Now a day competition is increasing in each and every sector, and as competition in market increase bargaining power of buyer will get increase. Market is highly segmented. Buyers in this industry are very return oriented and it switches easily. The switching cost of buyer over brand or close substitute products: The life insurance industry has the uniqueness of providing risk protection, which does have any substitute. If buyers buy insurance then switching cost become high. High switching cost creates buyers lock in and makes a buyers bargaining power. Buyers have a strong competitive force when they are able to exercise bargaining leverage over premium, service or other terms of sale.

6.3.

BARGAINING POWER OF SUPPLIERS: Policy designer tend to have less leverage to bargain over premium and other terms of sale when the company they are supplying a major customer. Suppliers bargaining power increase if reduced administrative cost and also reduced claim procedure time. Insurance is tax exempted so that suppliers bargaining power increases. Suppliers then have a big incentive to protect and enhance their customers competitiveness via reasonable premium, better service and on going advances in the technology of the item supplied. Suppliers ability to integrate forward: the private players can integrate forward to increase the volumes of business by providing customized and tailor-made policies whereas existing players whereas lack on this point.

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Brand identity: there is certainty among the minds of people in relation to existence and payment of claims from the existing players whereas the solvency of private players is not certain.

6.4.

THREAT FROM SUBSTITUTES:-

Life insurance sector can be featured in three factors. SAVING: As far as saving are concerned, Existences of a large number are saving through PPF, EPF. Most of customer saving their money in bank, post deposit. Many customers invest their money in share market, purchase Gold & Silver also. Substitute products are as follow: Term deposits in bank (5.25-8 %) Investment in government securities. (4-5%) Money market investment (for corporate) Capital market (around 13% p.a. for developing country like India) RISK COVERAGE:- There is no close substitute of product. Risk protection is provided by this sector only. No other instrument provides assurance against risk. TAX BENEFIT:- There are various substitute of this feature of life insurance. Some of substitute which provides tax benefit is: - PPF, NSE, Post Office Securities, Other Tax Saving Instrument.

6.5.

RIVALRY AMONG THE EXITING PLAYER:

As a result of privatization competitive conditions will prevail in which entry of companies buyers will exercise control. There is cut- thought competitions among rivals in life insurance industry. There are mainly 13 private organizations and one public organization in LIC. The insurance sector is showing high market growth rate. All insurance companies deal in identical policies, as service levels offered are similar. Hence, there is no product differentiation. Ministry of finance controls all insurance companies that are in industry at present. Hence, there are less chances of exit. Also, post privatization there will be less chances of exit, as ministry of finance and IRDA1999 govern insurance companies. 33

 Nationalized players have negligible computerization and use of management information system (MIS). Although they are planning to implement software developed by CMC for fulfilling the MIS requirements across various levels of offices. Private players will make extensive use of MIS as well as will have more or less a paperless office.

(SOURCE: Prasanna Chandra. Strategic Management, By Tata McGraw-Hill

Publishing Company Limited)

CHAPTER.7. OT ANALYSIS
OT- analysis of industry shows opportunity and threat industry is likely to face. OT analysis of Indian LIC shows comparative strengths and weakness with rest of world and major opportunities and threats.

7.1. OPPORTUNITIES:
Todays human life becomes full uncertain, so they prefer protection against the risk. Therefore they prefer life insurance. This is the opportunity for the life insurance sector. Easy accesses to development in the more advance market provide further opportunity to upgrade their working. Technological, financial or specific area based avenues of absorbing 34

improved system are also now more easily available. So, that insurance companies working efficiently and fast service. Uncovered market:- The Indian insurance market is one of the least markets in the world. In India 10% have a life insurance policy. Thus there lies a big opportunity for life insurance industry. No doubt lots of marketing and promotional efforts have to be done for trapping uncovered portion of the huge market. Indias insurance has long way to catch up with the rest of the world. According to ICFAI, India is 23rd largest insurance market in world. To sell insurance products through electronic Medias. Natural calamities: natural calamities taking place now days have created a concern for life insurance among public and have become conscious about its benefits and need. Thus through a calamity it has become a considerably big opportunity for industry. Growing population: It has become an opportunity as growth in population is very high. To use Internet and e-commerce technologies to dramatically cut the costs and/or to pursue new sales-growth opportunities. With the help of technology it has become easy for the companies to reach the customer quickly, easily, efficiently and in a better way. Also the companies can cut down the cost of operation up to considerable level. Thus technology has thrown lots of opportunity for the company. Government has liberalized policy in life insurance sector. Now a day role of government has changed. Due to liberalized policy of government country is benefited in earning foreign inflows: domestic company can also collaborate with foreign country and create synergy. Thus there is great opportunity for those who trap it.

7.2. THREATS:
Private entrants are naturally targeting profitable and more lucrative segments, by providing better service, new products and flexibility. They are targeting bigger corporate the other clients in well established metropolitan center. These new entrants succeeded in eating share of the existing entities. This creates threat among rival firms itself. Decreased in bank rate is the biggest threat for the life insurance sector. Fluctuation in the bank rate makes big difference for the life insurance industry.

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Increasing intensity of competition among industry rivals-may cause squeeze

(fall) on profit margins. Consumers education- consumers are more and more confused because the market players are offering large number of product range. sector. The flight of talent to new entrants is already in evidence, and could be on the rise for some time to come. Retaining qualified and competent executives will be considerable challenges for existing companies. One very serious danger that government on units is likely to face is that even if at some point of time, government does decide to disinvest portion of its equity; they may not be fully free from government interference. In effects, their working could be no different from what it was before their ownership pattern change. This could be genuine threats. The new units, equipped with state of arts equipment and innovative procedure would have an in-built edge over the erstwhile public sector units, which until recently had no such opportunity and incentives. Due to possible negative impact on employment, there were no serious efforts at updating technology and equipment. Fraud in insurance sector: the major problem fraud, which affects life insurance

7.3. KEY STRATEGY TO SUCCESS

In order to succeed in any of business its necessary to make and follow strategies. Following are the general strategies, which are recommending to insurance sector.

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PORTER GENERIC STRATEGIES: One of the experts Michel porter identified three internally consistent generic strategies, used singly or in combination: overall cost leadership is clearly under stable. In a differentiation strategy, a company seeks to be unique in its industry. May be the lowest cycle time for settling a claim under say, a med claim policy could be differentiating factor. In a cost focus, a company seeks a cost advantage in its target segment, while in differentiation focus; seeks differentiation target. MARGINAL DIFFERENT PRODUCT: Another strategy would be for the companies to design products that will make comparisonshopping difficult. They could offer wide variety of covers with marginal differences and varying prices, whose terms and conditions are difficult to compare for consumers and to make a clear choice. If consumer is offered a unique policy, he will have no alternative coverage with which can be compared. DESIGNING NEW STRATEGIES: The existing insurance companies cannot be satisfied with concentrating on the consolidation of their existing markets, but have to achieve further growth and penetration. They must, therefore, concentrating on strengthening existing points of service, designing new channel of distribution, direct contact with their ultimate customers, and front line employee empowerment. They also need to refresh their marketing set up. The new comers, on the other hand give priority to tapping the market, left unexploited by the public sector companies.

MOVE TOWARDS RURAL MARKET: It is one of most important suggestions; data says that rural market is still uncovered by this sector. We believe that the sector should move towards tie rural market. Insurance penetration can be achieved by tapping the neglected Rural Markets who have vast potential for insurance growth. A recent survey, training and Education in insurance (FORTE) suggests that insurance can be sold profitably to rural communities in India. The survey reveals that There is distinct hierarchy of needs in rural areas. 37

 The saving habit is very strong in rural areas. There is high level of awareness about life insurance and fairly high-level about 36% already own life insurance. 51% of these who own life insurance would like to buy more. MOTIVATION OF SALES FORCE: A life insurance company should constantly be involved in the process of motivating the sales force in the turbulent times. The following strategies are recommending; Building relationship is real perk. One should be sure to build in networking times for agents during the program-in addition to entertainment and education. Web should be frequently used for creating gift ideas. Hold sales contests in the forth quarter. It is the best times ti motivates agents who wants to qualify for a trip. Consider a contrast within the contest for- top-tier producers; additional rewards for additional milestones that are met, such as air and guest room upgrades.

USE OF INTERNET:
The present scenario is such that the products sold with the help of Internet. The technological advancement is such that force the companies to take such steps. Still the full-fledged use of Internet is not done in our country. Appointing of proper and efficient agent as well as effective direct marketing could do this. By way of training the excessive staff, which is a major problem in the company, the company could reduce management expense to a large extent. (SOURCE: Thompson and Strickland. Strategic Management By Tata Mc Graw)

CHAPTER.8. CONCLUSION
The current state of insurance distribution in India is still in flux. On one hand, insurers are awaiting regulations to be approved for brokerages and banc assurance to be truly launched. On other hand they are trying the corporate models of intermediaries.

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There is no right and wrong in all this. The success of marketing insurance depends on understanding social and cultural needs, and matching market segment with suitable intermediary segment. In addition, a major segment of Indian population has low disposable income, meaning that every penny won will be obtained after a lot of persuasion and the expected value for money is high. As suggestion earlier the Internet based life insurance will help the companies to reduce the transaction cost and time. At the time it can improve the quality of service to its customers, which is the mission of the company. All intermediaries cannot sell all lines of business profitability in all market. There should be clear demarcation in marketing strategies of company from this perspective. Client should also receive price differentials for using different channels. These intermediaries need to be empowered with the right learning, training and development tools and technology enablers. Coupled with right product mix, this will help the insurers to survive and flourish in this competitive market. One approach is to focus on product quality, which instills confidence in minds of customers that they would be offered best product from out of several available products. The other approach, is to focus on customers need, would involve a heavy investment in developing relationships with policyholders. The third approach is of greater market segmentation where population should be divided into several groups, product, and services targeted towards such selected markets.

CHAPTER.9. BIBILIOGRAPHY

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BOOKS.
Prasanna Chandra. Strategic Management, Fifth Edition. By Tata McGraw-Hill Publishing Company Limited. Renu Sobti, 2003. Banking and Insurance Services In India By New Century Publication. Planed P.S and Shah R.S; Insurance in India, Response books-2003 Insurance 4th edition CIB Puplicaion-2002 Insurance Practices & PrinciplesM.N.Misra---S Chand Publications. Insurance----M.J.Mathew ---- RBSA Publicaions 2003 Insurance Fundamentals, Environment & Procedures --- B.S.Bodla, MC.Garg, K.P.Singh --- Deep & Deep Publications 2003 Ruddar Datt and K.P.M.Sundharam, 2003. Indian Economy, Forty-seventh Revused Edition By S.Chand & Company. Insurance in India P.S. Planed, R.S. Shah, M.L.Lunawat response books-2003 Thompson and Strickland. Strategic Management, Thirteenth Edition. By Tata Mc Graw-Hill Publishing Company Limited.

WEBSITES
www.insurancestrategy.com

MAGAZINES
Banking Finance, January 2001. RBI Bulletin, November 2004. Life insurance vol 1 ICFAI PRESS 2002 Insurance law and regulation vol 1ICFAI PRESS 2002

NEWSPAPERS
Economic Times Times of India

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