Inidian Insurance Industry

Marketing Environment

Insurance

(Life-Unit Linked Life Insurance)

by

Sushant Roy

Index

Objective 1

Introduction 1

What is Insurance? 1

Key Players 2

How do Insurance Companies make money? 2

Types of Insurance 3

Operations 4

The Financial Service Industry 5

ULIP 5

Marketing Environment 9

Pre Liberalization 9

Post Liberalization and Pre IRDA Bill(1999) 9

Current - MACRO 9

Current - MICRO 16

Current - Internal 19

Conclusion 20

Objective

The report gives the Marketing Environment for Insurance Sector in India. It gives an overall marketing Environment for Life Insurance and specifically tries to identify the variables affecting the Environment of Unit Linked Life Insurance (ULIP). This report is not an analysis of the variables identified but some analysis of the variables has also been included.

This is the first part of the project and concentrates in understanding the insurance sector and its dynamics. It analyses the current marketing environment prevalent in the country. The next part will involve a close scrutiny of the changes happening and accordingly shape up the marketing plan. It will concentrate on the product and its various features. An important objective will be to market it efficiently so that its strengths are highlighted and weaknesses are masked. Marketing implications and suitable plans of action will be suggested in the next part of the project. This will be done taking reference from the marketing environment, which has been included in the present document.

Introduction

What is Insurance?

Insurance is a way to transfer risk, for a price. Insurance is defined as an arrangement that transfers the risk of loss (financial consequences of a loss) from the insured (Policy Owner) to another party, usually an insurance company (Insurer) for a price (premium). In other words, Insurance is the system for indemnifying or guaranteeing an individual/organization against financial consequences of losses like accident, sickness, disability, death, property damage etc.

However, not every pure risk may be insurable. Typically, for a risk to be insured, it must:

Ш Occur by chance

Ш Be definite and measurable

Ш Be significant (enough to make the cost & effort of transactions involved, worthwhile)

Ш Have a predictable loss rate: i.e., insurer must have a large number of similar risk units

Ш Not be catastrophic to the insurer.

A key concept for insurers is the law of large numbers. Simply put, this says that the more the number of times we observe an event, the more likely that our observed results will approximate the 'true' probability of the event will occur.

Reimbursement is made from a fund to which many individuals exposed to the same risk have contributed specified amounts, known as premiums. This arrangement ensures that payment for the loss is divided among many and does not fall heavily upon the actual loser. Thus the essence of the contract of insurance, called a policy, is mutuality.

Key Players

The following are the key players in the insurance industry:

Ш Insurance Provider:

Providers are divided by the category they service, such as Life or Property and Casualty. Another categorization can be standard and non-standard insurers, with non-standard insurers catering to unique, one-off products. A third categorization is Private Insurers, and Government Insurers.

Ш Insured:

That is the policyholder, or the person/institution buying insurance.

Ш Insurance Distributors:

This group of players covers Agents, Brokers, etc

Ш Specialized service providers and outsourcers

Ш Insurance regulators:

To regulate, promote and ensure orderly growth of the insurance business and re-insurance business, a regulatory authority -- Insurance Regulatory and Development Authority (IRDA) -- was set up under IRDA Act, 1999.

IRDA is composed of a chairman, five whole time members and four part-time members. Insurance is a federal subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again.

The year 1999 saw a revolution in the Indian insurance sector, as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership.

Though, the existing rule says that a foreign partner can hold 26% equity in an insurance company, a proposal to increase this limit to 49% is pending with the government.

How do Insurance Companies make money?

Insurance companies or Insurers make money in the following ways:

Ш Premium income:

The insurer makes a net profit on the amount of premium collected vs. the amount