MANAGEMENT RESEARCH PROJECT

A REPORT

ON

“A Study on the impact of customer

buying behavior towards insurance
products in India”

Submitted To: Submitted by:

Prof: Vinay Aggarwal Rakesh Pandey

Faculty, I.B.S Chandigarh (08BS0002466)

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 A REPORT
ON

“A Study on the impact of customer

buying behavior towards insurance
products in India”

A report submitted in partial fulfillment of the requirement of MBA

program of ICFAI University

Submitted to: Submitted by:

Prof: Vinay Aggarwal Rakesh Pandey
Faculty I.B.S Chandigarh (08BS0002466)

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 DATE OF SUBMISSION
December 13th, 2009

TABLE OF CONTENTS
Acknowledgement

Abstract

Chapter 1: Introduction

1.1 History of Insurance Industry

1.2 Purpose of Study
1.3 Limitations of the study
1.4 Methodology
1.5 Problems – Why study is being carried out

Chapter 2: Industry Analysis

2.1 Overview about Industry

2.2 Latest Happenings
2.3 Facilities
2.4 Best Practices

Chapter 3: Project in Brief

3.1 Internal and External factors – Definition

3.2 Analyzing the factors responsible
3.3 Study on the consumer psyche towards Insurance Products

Chapter 4: Analysis and Interpretation

Chapter 5: Recommendations
Chapter 6: Conclusion
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 Chapter 7: Learning’s from MRP

Glossary

Reference

ACKNOWLEDGEMENT

Surpassing milestones towards a mission sometimes gives us such degree of satisfaction that

we tend to forget the precious guidance and help extended by the people to whom the success

of mission is solely dedicated.

I take this opportunity to express my profound sense of gratitude to my faculty guide Prof:
Vinay Aggarwal for his invaluable guidance, constant encouragement and practical
suggestions based on the experience to focus my efforts to which this work has come to the
presentable form.

I would like to extend my sincere thanks to all the sources which have been my constant

source of inspiration throughout the research.

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 Rakesh Pandey

ABSTRACT
During the post 1990 period, services sector in most of the Asian economies witnessed
growth fueled by substantial changes in the financial sector of these economies. The
insurance industry, in most of the Asian economies were publicly owned and remained
isolated from domestic private or foreign participation. But, regulatory reforms and policy
changes in the ASEAN economies in the post financial crisis period, liberalization process in
some of the SAARC countries, China’s accession to WTO and creation of Hong Kong SAR
had led to phenomenal changes in the growth pattern of insurance industry in these
economies.

India is a country where the average selling of Life Insurance Policies is still lower than many
Western and Asian Countries, with the second largest population in the world the Indian
insurance market is looking very prospective to many multinational and Indian insurance
companies to expand their business and market share. Before the opening of Indian Insurance
market to various Multinational Insurance companies, Life Insurance Corporation (LIC) was
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 the only company which dealt in life insurance and after opening this sector to private
companies all the world leaders of Life insurance has started their operations in India. With
their world market experience and their network, these companies have offered many good
schemes to lure all kind of customers in India but unfortunately failed to gain a major share of
market. Still LIC is the biggest player in the insurance sector having a market share of 65%
approx. But why Indian consumers do not trust on many companies and why major
population of the country do not have any life Insurance policy or what are the factors that
plays a major role in buying behavior of consumers towards life insurance policies.

There are certain factors which are kept in mind by the Insurance Companies when dealing
with such products, which are:

1) Customer Buying Behavior

2) Customer Preferences
3) Customers Perception
4) Brand Loyalty

Chapter 1
INTRODUCTION
Life is full of risks and uncertainties. Since we are social human beings we have too many
responsibilities. Indian consumers have big influence of emotions and rationality on their
buying decisions. They believe in the future rather than the present and desire to have a better
and secured future, in this direction life insurance services have its own value in terms of
minimizing risks and uncertainties. Indian economy is developing and having huge middle
class, Societal Class and salaried persons. Their money value for current needs and future
desires helps in generating the reason behind holding a policy.

Insurance, in law and economics, is a form of risk management primarily used to hedge
against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk
2| of a loss, from one entity to another, in exchange for a premium, and can be thought of as a
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 guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a
company selling the insurance; an insured or policyholder is the person or entity buying the
insurance. The insurance rate is a factor used to determine the amount to be charged for a
certain amount of insurance coverage, called the premium. Risk management, the practice of
appraising and controlling risk, has evolved as a discrete field of study and practice

The growth of the services sector in the Asian economies led to substantial changes in the
financial sector. The Asian Financial Crisis, affecting the ASEAN economies in particular
resorted to more regulatory measures to enhance delivery of products with minimal risks and
failures. The countries surrounding the ASEAN economies also went through a phase of
economic-restructuring, the most notable event being the impact of China’s accession to
WTO. The insurance industry in most of the Asian economies were publicly owned and
operated. Government monopoly kept this segment of the financial market isolated from
domestic private or foreign participation. Barring few exceptions, the insurance market on an
average remained underdeveloped in terms of insurance density and penetration. Regulatory
changes since mid eighties and opening of these markets to private and foreign entry have
been luring global heavyweight insurers to enter these economies. As more suppliers enter
these markets, the issue is to re-examine the factors that can probably elevate demand for
insurance products. 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.
Tracing the developments in the Indian insurance sector reveals the 360-degree turn
witnessed over a period of almost 19 years. The business of life insurance in India in its
existing form started in India in the year 1818 with the establishment of the Oriental Life
Insurance Company in Calcutta.

Some of the important milestones in the life insurance business in India are:

• 1912 - The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.

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 • 1928 - The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.
• 1938 - Earlier legislation consolidated and amended to by the Insurance Act with the
• 1945- 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British.
Life insurance is essentially a form of saving, competing with other forms of saving available
in the market

1.1 Purpose of the Project:

The main objectives of the project are:

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 ➢ To study the factors underlying consumer perception towards investments in life
insurance policies
➢ To analyze the degree of changes in the consumer psyche towards Insurance
products with respect to market conditions.
➢ To open further vistas for new researches.

1.2 Research Methodology:

Type of Study:

The study commenced is Exploratory in nature as we have the given problem and we are
trying to find a solution to the problem

Sampling Size:

To analyze the customer psyche towards Insurance products we have taken a sample size of
100 consumers. The main factors taken into consideration while commencing the study is

 Age Level
 Income level of the consumer

Data Collection Methodology

Primary data will be collected and analyzed through the form of questionnaire being
prepared based on the sample size taken.

Secondary data will be collected through magazines, journals, internet so as to further help
in analyzing the study.

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 1.3 Limitations of the Study:

➢ In a rapidly changing industry, analysis on one day or in one segment can change
very quickly. The environmental changes are vital to be considered in order to
assimilate the findings.
➢ The data collected may have a level of inaccuracy as the primary source may not
be helpful enough or portray the right information needed.
➢ Detailed research cannot be conducted due to time constraint.
➢ Money because some of the information required to conduct the study may seem
expensive

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 Chapter 2
Insurance industry
Insurance has got its origin from the concept of Indemnity. Indemnity against the loss, which
has occurred due to some unavoidable circumstances. To some, the concept of insurance has
got its origin related to the uncertainty in the life. Uncertainty has been the integral part of
everyone's life, be the uncertainty in terms of money, uncertainty in terms of life etc. Through
out the tenure every other individual's effort is directed towards avoiding this uncertainty. The
concept of insurance has got its origin from this very effort of avoiding the uncertainty.
Though it is not possible to avoid the uncertainty, it is highly possible to compensate the loss,
which has occurred due to happening of this uncertainty. This compensation of unavoidable
circumstances (uncertainty), which has occurred, is known as Insurance. It is the pooling of
funds by many to compensate the loss of few, whereby many individuals pool themselves
together to create a fund in order to compensate the loss that has occurred to the few.

Insurance, in law and economics, is a form of risk management primarily used to hedge
against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk
of a loss, from one entity to another, in exchange for a premium, and can be thought of as a
guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a
company selling the insurance; an insured or policyholder is the person or entity buying the
insurance. The insurance rate is a factor used to determine the amount to be charged for a
certain amount of insurance coverage, called the premium. Insurance is something that
almost all of us will need sometime, and it is worth understanding it before buying it.

HISTORY OF INSURANCE
Insurance as we know today can be traced to the Great Fire of London which, in 1666 AD,
destroyed 13200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office
to insure buildings. In 1680, he established England's first fire insurance company, "The Fire
Office", to insure brick and frame homes. Gradually the concept of insurance came to be
understood as a contract that offered the purchaser protection against the financial loss due to
2| specific incident. Since the risk of financial loss was to be spread amongst the large group of
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 people, the extent of financial loss, In the event of mishap occurred, became less devastating
to the individual.
Though the concept of insurance is old as history of mankind, back to some 6000 years, it
got its presence registered in India somewhere in 1818 with opening up of Oriental Life
Insurance Company in Calcutta by Europeans. During those years Indians were considered as
substandard and they were forced to give high premium on account of their low profile.
However with the continuous effort of few eminent people Indians were later considered as of
equal status and they were charged the normal rate, at par with the Europeans. This was
majorly due to the establishment of first Indian life Insurance company, Bombay Mutual Life
Assurance society in the year 1870. Later on the development of Indian life insurance
industry was more fired by the patriotic sentiments and gave rise to number of Indian life
insurance companies viz. United India in Madras, National Indian and National Insurance in
Calcutta and the Co-operative Assurance at Lahore were amongst those company which was
formed to treat the Indian populace at par. With increase in the pressure from Indian intellect,
to give the Indian Insurance industry a organized structure, Government of India was forced
to pass Life insurance Companies act, 1912 and Provident Fund Act. But this was not the end
to the suffering of Indian populace that even this act recognized the demarcation between the
Europeans and Indian while charging the premium. Then came the act of 1938 which not only
governed the Life Insurance Industry but also had its spread to the Non life Insurance
Industry. With the increase in atrocities from all these companies, the demand to amend the
prevailing act of 1938 assumed velocity. Thus in the year 1956 the act was passed as Life
Insurance Corporation act, 1956 on 19th June, 1956 which called for nationalization of all the
Insurance company working in India under one name as Life insurance corporation of India
(hereafter LIC). Thus LIC was formed on 1st September 1956, with an objective to spread life
insurance especially in rural areas as a mean to provide the protection cover to the life of
Indian populace and as tool to help them in the time of financial need at a reasonable cost.
Till 1999 LIC was the only life insurance player in Indian Life Insurance field, when
government of India decided to amend the then prevailing act prohibiting the private life
insurance player to enter the Indian market. It was Insurance Regulatory Authority, 1999
(IRA) that gave the freedom the private players to play in the field. But the basic motive for
introducing such an act was not fulfilled as the amended act was meant for only regulation
purpose only and not as a development tool and hence the act was further modified to add the
element of development to the concept and thus came the current prevailing act i.e. Insurance
Regulatory and Development Authority (IRDA), 1999. It was further amended to incorporate
the element of competitiveness. Thus Government of India via IRDA permitted the private
Life Insurance player also to enter the Indian field; and made some provision for foreign
insurance companies that if they want to enter the Indian market they can do so but to the
extent of 26 % of share only with any of Indian partner.
Today almost 15 private life insurance companies are working India, some in wholly owned
2| format and some as a joint venture with foreign company or with Indian company. Together
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 they hold the market share of approx. 24 % in life insurance market. Still LIC holds the
kingship with almost 76 % of market share. That's the good news for the LIC people on one
part but on another aspect if we deal that shows the pace at which the private life insurance
companies are moving, they are defiantly going to give the tough fight to LIC.
The leadership lies not in getting the maximum out of market share but it is there somewhere
in understanding the reason for the choice of one product over another one.

In some sense we can say that insurance appears simultaneously with the appearance of
human society. We know of two types of economies in human societies: Money Economies
(with markets, money, financial instruments and so on) and Non-money or Natural
Economies (without money, markets, financial instruments and so on) the second type is a
more ancient form than the first. In such an economy and community, we can see insurance in
the form of people helping each other. For example, if a house burns down, the members of
the community help build a new one. Should the same thing happen to one's neighbor, the
other neighbors must help? Otherwise, neighbors will not receive help in the future. This type
of insurance has survived to the present day in some countries where modern money economy
with its financial instruments is not widespread.

The Insurance sector in India has come a full circle from being an open competitive market to
Nationalization and back to Liberalized market again. Tracing the developments in the Indian
Insurance sector reveals the 360 degree turn witnessed over a period of almost 190 years. The
business of life insurance in India in its existing form started in India in the year 1818 with
the establishment of Oriental Life Insurance Company in Calcutta.

Some of the important milestones in the life insurance business in India are:
• 1912 - The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
• 1928 - The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.
• 1938 - Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
• 1956 - 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in
2| the year 1850 in Calcutta by the British.
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 Some of the important milestones in the general insurance business in India are:
• 1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.
• 1957 - General Insurance Council, a wing of the Insurance Association of India,
frames a code of conduct for ensuring fair conduct and sound business practices.
• 1968 - The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.
• 1972 - The General Insurance Business (Nationalization) Act,
(http://historyofinsuranceindustry.com)

TYPES OF INSURANCE
There are basically three types of Insurance:

1) LIFE INSURANCE: It is a type of insurance which relates to the life of Human

beings. The main objective of Life Insurance is:
➢ Human life safeguard
➢ Survivor benefit
➢ Family safeguard after the death of the insured person

There are two types of policies under life Insurance namely conventional policy and ULIP
Policy. In conventional policy the insured is not given the information about the investment
fund about where is money is invested. On the other hand the ULIP is just opposite of
conventional policy which ensures a detail about the insurer’s investment and offers him
many benefits as compared to Conventional plan.

2)HEALTH INSURANCE: Most developed nations have government-funded health

care which means that most or all citizens have access to medical facilities and treatment, as
well as health insurance.
For example, the National Health Service (NHS) in the United Kingdom pays for citizens’
medical needs. However, in the US, there is no government-funded health policy - whether
for insurance or treatment. As a result, US citizens and residents must be insured or risk
facing astronomical medical bills, garnishing of wages, and bankruptcy. Often, medical
insurance (both health and dental) is included in employee benefit packages in the US and
other countries. Nevertheless, the issue of affordable health insurance and treatment in the US
is one of the most controversial and heated topics, as many cannot afford either. If you live in
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 a country without comprehensive national health care, then low cost health insurance is a vital
requirement.

3) GENERAL INSURANCE: General Insurance represents other forms of insurance

beyond Life and Health Insurance. There are various types of General Insurance such as:

➢ Motor Insurance
This includes automobile, truck, motorcycle, aircraft, boat, or any other form of
motorized transportation. It is perhaps the most common type of insurance, and is
required by law in many countries.

Motor insurance covers the insured party against financial loss that he may incur to
repair his vehicle or a third party’s in the event of an accident. In return for annual or
semi-annual premiums, the insurance company is bound to pay any losses as
described in the policy. Such a policy may include property, liability or third party, and
medical coverage.

Property coverage insures damage to or theft of a vehicle; liability covers bodily

injury or property damage that may occur as a result of the insured’s actions, and
medical coverage pays any fees necessary for bodily injuries, rehabilitation and in
some cases foregone wages and funeral costs.

In many countries, all of these types of automobile insurance are required of vehicle
owners. In some countries, or states, only third party is required. However, in the case
of new vehicles, any banks which may be financing the vehicle may require full
insurance as a condition of financing.

➢ Disability Insurance
This form of insurance protects workers from injuries and illnesses which prevent them
from doing their jobs. It can pay for existing commitments the policyholders may have such
as outstanding bills, mortgages, utilities, and more.
Workers’ compensation is common in the US, and pays a worker his wages and medical
expenses in the event of an injury on the job.
Permanent disability which prevents a worker from ever working again is covered by total
permanent disability insurance. This provides the disabled employee with benefits for the rest
of his or her life, or according to the terms specified in the policy. Companies can purchase a
similar type of insurance, called, disability overhead insurance. This pays for ongoing
overhead costs of a business while the owners are not able to work.
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 ➢ Property Insurance
This type of insurance typically covers things like homes, machinery, crops, valuable
goods, shipped cargo, rented property (homes or apartments), and more. It can cover damages
as a result of various activities including acts of God (earthquakes, floods, storms, hurricanes,
etc), vandalism, terrorism, fraud, and more.
➢ Liability Insurance
This covers negligent acts of an insured party with reference to a vehicle or a home. It
protects the insured against legal claims and indemnification.

There are various types of liability insurance such as professional indemnity insurance
Environmental liability insurance and Prize indemnity insurance
Professional indemnity insurance protects employees from malpractice suits (as in the
medical profession), errors and omissions (by appraisers, home inspectors, realtors, insurance
agents, notaries, and others), and other acts of unintentional workplace negligence.
➢ Credit Insurance
This is taken by lenders who need coverage against the people that have credit with them
(borrow money). In the event of their inability to pay it back (usually due to unemployment,
disability, or death), this insurance protects the lender.

There are many other kinds of insurance, and even each of the major categories
mentioned above has dozens of variations and types. They differ depending on the markets,
the understanding of risk and availability of historical data, government regulation and law,
cultural perceptions and expectations, and more.

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 FUNCTIONS OF INSURANCE
The functions of Insurance can be bifurcated into two parts:

1. Primary Functions
2. Secondary Functions
3. Other Functions

The Primary functions of insurance include the following:

Provide Protection - The primary function of insurance is to provide protection against future
risk, accidents and uncertainty. Insurance cannot check the happening of the risk, but can
certainly provide for the losses of risk. Insurance is actually a protection against economic
loss, by sharing the risk with others.

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 Collective bearing of risk - Insurance is a device to share the financial loss of few among
many others. Insurance is a mean by which few losses are shared among larger number of
people. All the insured contribute the premiums towards a fund and out of which the persons
exposed to a particular risk is paid.

Assessment of risk - Insurance determines the probable volume of risk by evaluating various
factors that give rise to risk. Risk is the basis for determining the premium rate also

Provide Certainty - Insurance is a device, which helps to change from uncertainty to

certainty. Insurance is device whereby the uncertain risks may be made more certain.

The Secondary functions of insurance include the following:

Prevention of Losses - Insurance cautions individuals and businessmen to adopt suitable

device to prevent unfortunate consequences of risk by observing safety instructions;
installation of automatic sparkler or alarm systems, etc. Prevention of losses cause lesser
payment to the assured by the insurer and this will encourage for more savings by way of
premium. Reduced rate of premiums stimulate for more business and better protection to the
insured.

Small capital to cover larger risks - Insurance relieves the businessmen from security
investments, by paying small amount of premium against larger risks and uncertainty.

Contributes towards the development of larger industries - Insurance provides

development opportunity to those larger industries having more risks in their setting up. Even
the financial institutions may be prepared to give credit to sick industrial units which have
insured their assets including plant and machinery.

The Other functions of insurance include the following:

Means of savings and investment - Insurance serves as savings and investment, insurance is
a compulsory way of savings and it restricts the unnecessary expenses by the insured's For the
purpose of availing income-tax exemptions also, people invest in insurance.

Source of earning foreign exchange - Insurance is an international business. The country

can earn foreign exchange by way of issue of marine insurance policies and various other
ways.

Risk Free trade - Insurance promotes exports insurance, which makes the foreign trade risk
1| free with the help of different types of policies under marine insurance cover.
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 (http://functionsofinsurance.com)

CONTRIBUTION OF INSURANCE SECTOR TOWARDS INDIAN

ECONOMY

Some surveys have predicted that India and China will play a very vital role in the years to
come. Indian economy can be termed as an emerging economy as it is doubling its GDP in 3
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 to 5 years and moreover it is not dependent on any particular sector for its GDP. If we look at
the GDP of the Indian economy very closely over the years, we can easily come to know the
changing structure of the economy. We can also come to know the changing contribution of
the various sectors like agriculture, manufacturing and the service sector. In the financial year
1993-94, agricultural sector contributed to 31%, manufacturing accounted to 26.3% and the
service sector contributed to 42.7% of the total GDP of the country. Thus over the years as
India became an emerging economy in 2003-04 manufacturing sector contributed for 21.7 %,
manufacturing contributed for 26.8 whereas service sector contributed for 51.4% of the total
GDP. There has been 7.5% growth in the total GDP of the country and is estimated to grow at
8.0% in 2006-07. The Indian economy has shown signs of strong performance despite a rise
in oil prices, high inflation rate and abnormal rains in many parts of the country. The overall
growth of the Indian economy has been equally supported by all the three sectors of the
economy, i.e. the agriculture, manufacturing and the service sector.
Insurance, together with the banking sector, contributes to about 7.3 % of the total GDP of
India, and the gross premium collected contributes to about 2% of the total GDP of the
country. The insurance sector in India has completed a full circle from being an open
competitive market to nationalization and back to a liberalized market again. Tracing the
developments in the Indian insurance sector reveals the 360 degree turn witnessed over a
period of almost 200 years.

THE PURCHASE DECISION

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 The purchase decision in general is prompt by number of factors viz. Psycho graphical,
Economical, Social, Politico legal and Demographical. The list is not exhaustive but it is
sufficient to have the deep understanding of the factors influencing the decision.
Psycho graphical Factors are those factors that include the behavioral aspect of the
individual viz. lifestyle, living standard. Here purchase decision in influenced by those issues
that affect the lifestyle of the consumer or in the other that reflects the status. For e.g.:
purchase decision related to buying of car and that to Mercedes Benz. Talking specifically to
the insurance sector, here customer will buy only that policy that has got high premium or
that type of policy which company is promoting to limited high-income level group only. For
e.g. "Classic Life premier" policy of Birla Sun life insurance is meant for only those
individual who can pay at least Rs. 25000/- per annum.
Economical factors affect the purchase decision by influencing the issues pertaining to
money and income level of the individual. Consumer will buy only that product which will
not have any negative effect on his pocket. For e.g. decision to buy an insurance policy is
influenced by the deepness in the pocket.

Social factor affect the purchase decision by influencing the issues pertaining to social
beliefs and morals.
Politico legal is the macro level environment. It effects in a way, say IRDA has restricted the
sale of Key Man Insurance policy through Term Plan only.
Demographical factor is that factor which has got the maximum of its effect in the purchase
decision of the product and especially if that product is life insurance product. It is so because
these factors incorporate other above said factors and includes those factors that can influence
the buying decision to maximum extent viz. Occupational factor (service/business), Age
factor, Gender, Marital status factor and Income level etc. It cannot be denied that buying
decision of the individual who is unmarried and is into business, having the income level of
the range Rs. 2.4 lakh per annum, is into the age group of say 25 years will have the entirely
different approach towards purchase of the life insurance policy with the individual who is
into service and is married, is into the age group of, say 35, and is earning Rs. 30000/- per
month.
(www.effectsof demographical factors.com)

2| QUESTIONNAIRE
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 1 Name:

Sex- Male Female

Age- 20-30years, 30-40years, 40-50years, >50years

Income: 1.5lacs- 3lacs 3lacs-4lacs

4.5lacs-6lacs >6lacs

2 What percentage of your income do you save normally?

10-25% 25-40% >45%

3 Rank the following investments according to your preference (1-5)?

• Bank Deposit
• Stocks/Shares
• Mutual Funds
• Bullions/Foreign Exchange
• Insurance

4 Do you have any Insurance Policy?

Yes No

5 If yes which type of policy do you have?

• Life Insurance
• Health Insurance
• General Insurance

6 What type of Insurance do you prefer?

ULIP Conventional

7 Do you have any ULIP policy?

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 Yes No

8 If yes which are the factors that you prefer the most?

• Returns
• Returns
• Risk Raiders
• Switch Options

9 Among life insurance companies which one does you prefer the most (rank)?

• LIC
• Tata AIG
• SBI Life
• Bajaj Allianz
• Kotak Mahindra

10 While selecting an insurance company for investments what is that you consider the
most?

• Brand Name
• Market Share/ Size
• Returns/Benefits offered
• Brand Loyalty

11 Do you consider market condition as an important tool for investment in Insurance

policies?

Yes No

12 At what market condition do you prefer to invest in Insurance?

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 CHAPTER 3
PROJECT IN BRIEF
Insurance business in India has been growing in its stature – both quantitatively as well as
qualitatively. Although insurance itself made a late entry into the country, we are presently at
a stage from where we can hopefully look forward to achieving global standards in the not-
too-distant future. Especially in the life insurance domain, looking at the fact that we have
made a transition from what used to be a protective shield from the comfort of a joint family
system to the intricacies of complex transactions of today’s business; it has to be appreciated
That the growth needs to be supported by practices of the best order. In the non-life domain,
there is need for identifying areas where we are lagging behind and emulate some of the
practices being followed in the global markets. Being an emerging market, to set benchmarks
in various fields may be a tough ask; looking at some of the well-developed global markets
and adapting their practices to suit our own industry may not be a bad idea at all.

Customer satisfaction in a domain that deals with intangibles, like the financial services, for
example, is hugely challenging. Within this space, insurance occupies an even more
important position – considering that the moment of truth viz. the claim settlement may arise
at the end of a very long term in some cases. In several others, it may never arise in view of
the fact that the claim becomes payable only on the contingent happening of the event. In
such a scenario, to achieve high standards of customer satisfaction is a tall order; and
adopting best practices of service delivery would go a long way in building up one’s
reputation. The adoption of best practices should not merely be a routine exercise wherein a
player sets a standard list of activities that have to be achieved within certain limits. It has to
be a part of the mindset and the best practices have to be followed, and also demonstrated; in
their true spirit. For a player to be able to achieve this in the Indian insurance domain has
additional challenges, for obvious reasons. The need for best practices should begin at the
very beginning and insurance companies should make the proposal form a document of
comprehensive and purposeful questions that aim to elicit the right answers from the
proponent. In a contract where it forms the pedestal of the huge edifice of the insurance
contract, best practices in designing a meaningful questionnaire will be instrumental in
3| drawing a clear road-map. It is very essential that the underwriters make use of the
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 information provided in a very objective manner; and arrive at decisions that take care of the
business priorities and at the same time render the best services to the clientele. Emphasis
should be placed on communicating the intricacies of the contract to the prospect, especially
with regard to the limitations / exclusions so that the scope for a later heartburn or
controversy is reduced to the barest minimum. Where a rejection or repudiation of a claim is
inevitable, it should be dealt with a great deal of sensitivity and an element of empathy with
the claimant. It should be the Endeavour of the players to ensure that adoption of best
practices of business is a way of life; and that they go beyond mere customer satisfaction.

The project is focused on analyzing the Internal and the External factors which aims at
determining the customers buying behavior towards insurance products in India. We are
focused in trying to understand the various factors responsible for the buying decision, in
order to try and understand these factors are a critical task. The purchase decision in general
is prompt by number of factors viz. Psycho graphical, Economical, Social, Politico legal
and Demographical. The list is not exhaustive but it is sufficient to have the deep
understanding of the factors influencing the decision. There are certain other factors which
need to be understood while keeping in mind the investment decisions made by customers
who include Customer Buying Behavior, Customer Preferences, and Customers Perception
Brand Loyalty etc.

These factors play a major role in understanding the customer buying pattern and are of much
importance for any organization.

NATURE OF INSURANCE:
Risk sharing and risk transfer: Insurance is used to share the financial losses that might
occur to an individual or his family on the happening of specified events. The loss arising
from such events are shared by all the insured in the form of premium.
Example: suppose in a village, there are 250 houses, each valued at Rs.200000.Every year
one house gets burnt, resulting into a total loss of Rs 200000.If all the 250 owners come
together and contribute Rs.800 each, the common fund would be Rs200000.This is enough to
pay to the owner whose house gets burnt. Thus the risk of one owner is spread over 250 house
owners of the village.

Risk assessment in advance: Insurance companies are risk bearers. They assess the risk
before insuring to charge the amount of premium.
It’s not gambling or charity: The uncertainty is changed to certainty by insuring property
2| and life because the insurer promises to pay a definite sum at damage or death. Insurance is
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 antithesis of gambling. Failure of insurance amounts to gambling because the uncertainty of
loss is always looming. Moreover insurance is not possible without premium. So it is different
from charity because charity is given without consideration.

Huge number of insured people: It is essential to insure larger number of people or

property to make cost of insurance less consequently premium would also be less.

Assists in capital formation: Insurance provides capital to society. Accumulative funds are
invested in productive channels.

LIFE INSURANCE

After the entry of new players and increase in the penetration levels, could see the
Insurance sector cross the Rs 2, 00,000-core mark in business by 2010.The current size of
The sector is estimated to be at Rs 50,000 crore, which has seen a compound annual growth
rate (CAGR) of around 175 percent in the last few years. The insurance sector, both life and
non life, is likely to grow by over 200 percent, and private insurers are expected to achieve a
growth rate of 140 percent as a result of aggressive marketing technique. It added that state
owned insurance companies are likely to be 35-40 percent.
On account of intense marketing strategies adopted by the private insurance players, the
market share of state-owned insurance companies like GIC, LIC and others has come down to
70 percent in last 4-5 years from over 97 percent. Despite regulation, the private players are
offering 35 percent rate of return to is policy holders against 20 percent by public-sector
insurers. The industry body also noted that India’s life insurance premium is 1.8 percent as
percentage of GDP whereas it is 5.2 percent in the US, 6.5 percent in the South Korea. The
services sector offers immense opportunities for expansion opportunities for expansion
opportunities and the rural market, also, offers tremendous growth opportunities for insurance
companies.

GENERAL INSURANCE

General insurance in India has been expecting growth except in some portfolios like motor
insurance, fire and engineering. These portfolios are still under tariff- this means that
premium depends on a fixed predetermined rate structure. In India, GDS as a proportion of
GDP at current prices increased from 26.1% in 2002-03 to 28.1% in 2003-04.house hold
2| sector continued to be the major contributor to GDS at 24.3% in 2003-04.this can be
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 attributed to soft interest rates prevailing in housing sector. General Insurance has low market
penetration. It is 1.95% and ranks 51st. However in collection of premium it is ranked 23rd.
The ratio of the premium collected to that of GDP is 0.58. The main reason for the general
insurance industry to perform very poorly was because of the slow settlement of claims.
Moreover the rates of claim in India were highest in the world. It was 70 percent compared to
40 percent internationally. This meant that out of 100 people who had insured their
commodities 70 claimed for a loss or damage. The main reason for the lack of demand for
general insurance is that people consider it as an unnecessary expenditure. However it must
be noted that the general insurance has been earning consistent profits and has an efficient
dividend paying record accompanied by a steady growth in its financial resources. The
industry is recognized as one of the largest financial Institutions in the country. Some of the
private players in this sector are- ICICI – Lombard, Reliance, Royal-Sundaram,
Chholamandalam etc.

GOVERNMENT POLICIES REGARDING LIFE INSURANCE

Insurance Regulatory and Development Authority (IRDA) 1999
Reforms in the insurance sector were initiated with the passage of the IRDA bill in December
1999.it was set up as an independent body and it has been able to frame globally compatible
legislations. The IRDA was set up to protect the interests of holders of insurance policies ,to
regulate ,promote and insure orderly growth of the insurance industry and for matters
connected therewith or incidental thereto. This act extends to whole of India. With the
establishment of this act, government amended Insurance act 1938, Life Insurance Act 1956
and General Insurance Act 1972. IRDA was formed on the recommendations of Malhotra
Committee. In 1999 government of India has set up Malhotra Committee to examine the
structure of insurance industry and recommend changes, under R.N Malhotra –former
governor of RBI.

PRIVATE PLAYERS IN THE INDIAN INSURANCE SECTOR

2| Some major players in the Indian market are:

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 • Aviva Life
• Bajaj Allianz
• Birla Sun Life
• HDFC Standard
• ICICI Prudential
• ING Vysya
• Kotak Mahindra
• Max Newyork
• MetLife
• Sahara Life
• SBI Life etc
Taking the various factors stated both Internal and External a detailed study will be
undertaken and the factors will be analyzed as to find out the impact on the customer buying
behavior towards insurance products.

GLOSSARY

Risk: It is defined as an uncertainty of a financial loss. It is the unintentional decline in or

disappearance of value arising from contingency.

Policy: It is the document which embodies the insurance contract

Whole life policy: It is the policy under which the amount of policy will be paid only on
death of the insured. Premiums may be payable throughout the life or for a limited period.

Endowment policy: Endowment policies entitle the insured to receive the amount of the
policy on his reaching a certain age and premiums also stops. If death occurs earlier, amount
of the policy will be paid at that time and payment of premium will also stop at that time.

Claim: It is the amount which an insurer has to pay against a policy.

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 Reinsurance: It refers to placing a part of the risk by an insurer with another insurer. The
object is to reduce the possible loss to be borne by the original insurer, who pays premiums at
the ordinary rates to the reinsurer. Reinsure must pay commission to the original insurer.

Premium: A periodic payment made on an insurance policy.

Insurance penetration: It is defined as insurance premium as a share of gross domestic

product.

Insurance density: Insurance density is defined as per capita expenditure on insurance

premium i.e. premium per capita.

Actuary: The actuary is a specialist who combines an understanding of risks and

mathematical technique to develop financial products to manage these risks, price these
products. He helps in designing insurance plans and then evaluates the financial risk of the
company which it takes while selling an insurance policy.

CHAPTER 5
references

➢ www.google.com
➢ www.irda.com
➢ Magazines
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 ➢ Journals
➢ www.goi.com

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