Study for Market Potential of Life Insurance in Rural Marketing
Gaurav Kar (Roll No. 13082)
Work Carried at IDBI Federal Life Insurance Co. Ltd
Submitted in partial fulfilment of the requirement of
Summer Internship Programme
Under the Supervision of
Mrs. Shanthi Yagyanath
Asst. Branch Head, IDBI Federal Life Insurance Co. Ltd
SDM INSTITUTE FOR MANAGEMENT DEVELOPMENT, MYSORE
This is to certify that Mr. Gaurav Kar PGDM Roll No. 13082 of Batch 2013-15 has
satisfactorily completed Summer Internship Project titled “Study for Market Potential of
Life Insurance in Rural Marketing” at IDBI Federal Life Insurance Company Limited
from 1st April to 31st May 2014 to fulfill the requirements of the PGDM program under my
Signature: Date: 27-06-2014
Name: Dr. Srilakshminarayana G
Designation: Assistant Professor
Shri Dharmasthala Manjunatheshwara Institute for Management Development, Mysore
It is said that, “No learning is possible without any proper guidance and no research endeavor is a solo exercise, some contribution is given by various individuals.”
With due respect I would like to express my sincere gratitude to my company guide Mrs. C. Shanthi, Assistant Branch Head, IDBI Federal Life Insurance Co. Ltd., Coimbatore for guiding and helping me complete my Project Report. Her encouragement, time and effort are greatly appreciated.
I would then like to thank my faculty guide, Dr. Lakshminarayana G., for all his inputs.
I would also like to thank Jayamala Patil, Manager Co-Ordinator, for her attentive guidance, insightful comments and advice for carrying out this Project. She always gave me continuous encouragement and support, and shares with me her knowledge and experience. I really appreciate the effort she has put in the development of me and my work and her help to improve the quality of my Project.
I would like to express my eternal gratitude and thanks to my parents for their love and support throughout my life. Their support and absolute faith in my abilities have been a huge motivation. Perhaps, mere thanks will not suffice for what they have done for me.
Rural India is the next frontier for life insurance companies. Cost-effective distribution channels and client awareness will be critical to success in this market.
India's life insurance market is booming. From a single company a decade ago to 34 active players today, the market has grown at a healthy CAGR of 24% over the past five years. Most of this growth is coming from the urban areas. The increase in competition is forcing insurance providers to look beyond urban centers and take their trade to the more challenging rural hinterlands of the country, where only 3% of the population of more than 720 million people have any form of life insurance coverage.
Rural India is witnessing a surge of income growth, and the propensity to consume financial products which has increased considerably in recent years. With increased urbanization, the rural centers’ contribution to the national GDP has come down in percentage but increased significantly in value. Insurance providers are working overtime to ensure that this additional wealth is effectively channeled.
The objectives of the study is “To analyze the scope for Insurance Institutions to expand their market in Rural India, as there are specific functionaries and agencies in the rural areas which can help explore and exploit insurance business in the untapped rural market. As India is becoming Insurance Hub of the world, as research reports state that by 2020 India is poised to have largest youth population in the world and as we all know, much of it will be from the rural hinterland of India”. The study is divided into six chapters. The first chapter is introductory in nature and deals with history of insurance, meaning and concept of insurance principles of insurance, functions of insurance, importance of insurance, types of life insurance policies, features of life insurance contract and duties, power and functions of IRDA. Research Methodology is dealt with in the report, which includes research statement, hypothesis, and objectives of the study, tools and methods of data analysis, scope and limitations of the study.
Since both Life insurance density and penetration have increased from 2000-01 to 2011. The prediction of new business and total premium for both private and public sector life insurance companies in India for the year 2015 shows an upward trend. This signifies that there is a lot of scope for life insurance sector to develop in India.
Here in this report we will look forward to the financial performance of IDBI Federal Life insurance and then provide suggestions of areas of improving in the Rural Part of India. The private life insurance sector has nearly grabbed 30% of the market share in terms of total premium income. LIC’s new business premium has fallen from 99.23% in 2000-01 to 71% in 2012-13, so it’s high time for IDBI Federal to take a dig in the rural market to expand its reach.
Executive Summary 5
Insurance Policy 8
Risks which can be insured 9
Life Insurance: 11
Importance of Life Insurance: 11
Types of Insurance: 13
Powers & Functions of IRDA: 15
Indian Insurance Industry: 16
Size of the Industry: 19
Insurance Companies in India: 19
Market Share: 21
Insurance Penetration: 22
Company Profile: 24
About this project: 28
Objective of the Study: 30
Scope of the study: 30
Research Methodology: 31
Research location: 31
Sampling design: 32
Hypotheses for study: 32
Data collection: 33
Analysis of data: 33
Limitations of the study: 54
What is Insurance?
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. According to The Chartered Insurance Institute, there are the following categories of risk: Financial risks which means that the risk must have financial measurement. Pure risks which means that the risk must be real and not related to gambling Particular risks which means that these risks are not widespread in their effect, for example such as earthquake risk for the region prone to it. It is commonly accepted that only financial, pure and particular risks are insurable.
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated Insurance Policy
Insurance policy is a contract generally a standard form contract between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language. Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts. Since insurance policies are standard forms, they feature boilerplate language which is similar across a wide variety of different types of insurance policies. The insurance policy is generally an integrated contract, meaning that it includes all forms associated with the agreement between the insured and insurer. In some cases, however, supplementary writings such as letters sent after the final agreement can make the insurance policy a non-integrated contract. One insurance textbook states that generally "courts consider all prior negotiations or agreements … every contractual term in the policy at the time of delivery, as well as those written afterwards as policy riders and endorsements ... with both parties' consent, are part of written policy". The textbook also states that the policy must refer to all papers which are part of the policy. Oral agreements are subject to the parole evidence rule, and may not be considered part of the policy if the contract appears to be whole. Advertising materials and circulars are typically not part of a policy. Oral contracts pending the issuance of a written policy can occur. Risks which can be insured
Risks which can be insured by Private Companies typically share seven common characteristics: 1. Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd’s of London, which is famous for insuring the life or health of actors, sports figures and other famous individuals. However all exposures will have differences, which may lead to different premium rates.
2. Define Loss: The loss takes place at a known time in known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time. Place or cause is identifiable, ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements. 3. Accidental Loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks or even purchasing a lottery ticket, are generally not considered insurable.
4. Large Loss: The size of the loss must be meaningful from the perspective of the insured. Insured premiums need to cover both the expected cost of losses, plus the cost of issuing administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such cost unless the protection offered has real value to a buyer.
5. Affordable Premium: If the likelihood of an insured event is so high, or the cost of the event is so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the accounting profession formally recognises in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance.
6. Calculable Loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
7. Limited risk catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital constrains insurers’ ability to sell earthquake insurance as well as wind insurance in hurricane zones. In the US, flood risk issued by the federal government. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurers’ capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.
Life insurance is a contract between an insured and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") in exchange for a premium, upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion.
Life-based contracts tend to fall into two major categories: I. Protection policies – designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. II. Investment policies – where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life, and variable life policies.
Importance of Life Insurance:
I. Risk Cover - Life today is full of uncertainties; in this scenario Life Insurance ensures that your loved ones continue to enjoy a good quality of life against any unforeseen event.
II. Planning for life stage needs - Life Insurance not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite. Traditional life insurance policies i.e. traditional endowment plans, offer in-built guarantees and defined maturity benefits through variety of product options such as Money Back, Guaranteed Cash Values, Guaranteed Maturity Values.
III. Protection against rising health expenses - Life Insurers through riders or standalone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses. This benefit has assumed critical importance given the increasing incidence of lifestyle diseases and escalating medical costs.
IV. Builds the habit of thrift - Life Insurance is a long-term contract whereas policyholder, you have to pay a fixed amount at a defined periodicity. This builds the habit of long-term savings. Regular savings over a long period ensures that a decent corpus is built to meet financial needs at various life stages.
V. Safe and profitable long-term investment - Life Insurance is a highly regulated sector. IRDA, the regulatory body, through various rules and regulations ensures that the safety of the po...