Marketing in Insurance

DESING OF THE STUDY

Objectives

·           To know how Insurance companies are benefited through marketing.

·           To understand what is marketing.

Limitations

·           The project is limited to the marketing strategies of LIC.

·           Time, length, and depth of the study are limited as per the requirements of Mumbai University.

Scope

·           The project begins with a brief mention of what “MARKETING” is and its need and importance in Insurance Companies. It further goes on to show the challenges faced by the Insurance Companies

Methodology of study

Data for the project is obtained from secondary source

·           Secondary source-

Secondary data for the project has been gathered from various Marketing & Insurance books and internet.

Period

The period of study was from 22^nd   February to 3^rd March 2011.

Executive summary

Wherever there is uncertainty there is a risk. We do not have control on uncertainties which involve financial losses. The risk may be certain events like death, pension, retirement or uncertain events like theft, fire, accident etc.

Insurance is a financial service for collecting the savings of the public and providing them with the risk coverage. The main function of insurance is to provide against the possible chance of generating losses. It eliminates worries and miseries of losses by destruction of property and death. It also provides capital to the society as the funds accumulated are invested in the productive heads.

Insurance comes under the service sector and while marketing this service, due care is to be taken in quality product and customer satisfaction. While marketing the services, it is also pertinent that they think about the innovative promotional measures. It is not sufficient that you perform well but it is also important that you let other know about the quality of your positive contribution.

The creativity in the promotional measures is the need of the hour. The advertisement, public relations, word of mouth communication needs due care and personal selling requires intensive care.

                                                                                                                                                 Chapter 1

INSURANCE

                                                                                          

1.1

Definition

A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car insurance, health insurance, disability insurance, life insurance, and business insurance.

The meaning of insurance

“Insurance is a policy from a large financial institution that offers a person, company, or other entity reimbursement or financial protection against possible future losses or damages”.

The meaning of insurance is important to understand for anybody that is considering buying an insurance policy or simply understanding the basics of finance. Insurance is a hedging instrument used as a precautionary measure against future contingent losses.

 This instrument is used for managing the possible risks of the future. 

Insurance is bought in order to hedge the possible risks of the future which may or may not take place. This is a mode of financially insuring that if such a incident happens then the loss does not affect the present well-being of the person or the property insured. Thus, through insurance, a person buys security and protection.

A simple example will make the meaning of insurance easy to understand. A biker is always subjected to the risk of head injury. But it is not certain that the accident causing him the head injury would definitely occur. Still, people riding bikes cover their heads with helmets. This helmet in such cases acts as insurance by protecting him/her from any possible danger. The price paid was the possible inconvenience or act of wearing the helmet; this i.e. equivalent to the insurance premiums paid.

Though loss of life or injuries incurred cannot be measured in financial terms, insurance attempts to quantify such losses financially. Insurance can be defined as the process of reimbursing or protecting a person from contingent risk of losses through financial means, in return for relatively small, regular payments to the insuring body or insurance company.

Insurance can range from life to medical to general (residential, commercial property, natural incidents, burglary, etc)

·         Life Insurance:
It insures the life of the person buying the Life Insurance Certificate. Once a Life Insurance is sold by a company then the company remains legally entitled to make payment to the beneficiary after the death of the policy holder.

·         Medical Insurance :

 This is also known as mediclaim. Here, the policy holder is entitled to receive the amount spent for his health purposes from the insurance company.

·         General Insurance: :
This insurance type involves insuring the risks associated with the general life such as automobiles, business related, natural incidents, commercial and residential properties, etc.

1.2

History of insurance

 Refers to the development of a modern laws and market in insurance against risks. 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 has been used much longer 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 neighbour, the other neighbors must help. Otherwise, neighbours will not receive help in the future.

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in

Exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Nowruz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "whenever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."

A thousand years later, the inhabitants of Rhodes created the 'general average', which allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sink age.

The ancient Athenian "maritime loan" advanced money for voyages with repayment being cancelled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.

The Greeks and Romans introduced the origins of health and life insurance c. 600 BCE when they created guilds called "benevolent societies" which cared for the families of deceased members, as well as paying funeral expenses of

Members. Guilds in the Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Medieval and Early modern

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1343, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. The first printed book on insurance was the legal treatise On Insurance and Merchants' Bets by Pedro de Santarem (Santerna), written in 1488 and published in 1552.

Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed. The will of Robert Hayman, written in 1628, refers to two policies he has taken out with a wealthy Londoner: one of life insurance and one of marine insurance.^[6] Toward the end of the 17th century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for

Marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 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.

The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina in 1732, but it provided only fire insurance.

Industrial revolution

Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contribution ship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.

The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests created a comparable relief fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived.

Prior to the American Civil War, many insurance companies in the United States insured the lives of slaves for their owners. In response to bills passed in California in 2001 and in Illinois in 2003, the companies have been required to search their records for such policies. New York Life for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation.

Insurance is essentially a hedge against misfortune, in modern usage. In the 20th century ‘insurance’ was also used as a form or extortion, most notably used by organized crime as a means of generating tax free income and to control businesses, populations, and politics, usually on a local level.

In the USA, until the passage of the Social Security Act, the federal government had never mandated any form of insurance upon the nation as a whole, but this program expanded the concept and acceptance of insurance as a means to achieve individual financial security that might not otherwise be available. That expansion experienced its first boom market immediately after the Second World War with the original VA Home Loan programs that greatly expanded the idea that affordable housing for veterans was a benefit of having served. The mortgages that were underwritten by the federal government during this time included an insurance clause as a means of protecting the banks and lending institutions involved against avoidable losses. During the 1940s there was also the GI life insurance policy program that was designed to ease the burden of military losses on the civilian population and survivors.

During the 1970s and 1980s there was a growth in support for the requirement for drivers to have insurance as a means of proving financial responsibility since it was recognized that the automobile, in the case of an accident, could cause significant collateral damage. It soon followed that car insurance became a mandatory requirement for all drivers.

Health insurance in the United States

Accident insurance was first offered in the United States by the Franklin Health Assurance Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad and steamboat accidents. Sixty organizations were offering accident insurance in the US by 1866, but the industry consolidated rapidly soon thereafter. In 1887, the African American workers in Muchakinock, Iowa, a company town, organized a mutual protection society. Members paid fifty cents a month or $1 per family for health insurance and burial expenses. In the 1890s, various health plans became more common. Disability insurance group disability policy was issued in 1911

Commercial insurance companies began offering accident and sickness insurance (disability insurance) as early as the mid-19th century. Hospital and medical expense policies were introduced during the first half of the 20th century. The first group medical plan was purchased from The Equitable Life Assurance Society of the United States by the General Tire & Rubber Company in 1934. Before the development of medical expense insurance, patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.

During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis. The first group pre-payment plan was created at the Baylor University Hospital in Dallas, Texas. This concept became popular among hospitals during the Depression, when they were facing declining revenues. The Baylor plan was a forerunner of later Blue Cross plans. Physician associations began offering pre-paid surgical/medical benefits in the late 1930s Blue Shield plans. Blue Cross and Blue Shield plans were non-profit organizations sponsored by local hospitals (Blue Cross) or physician groups (Blue Shield). As originally structured, Blue Cross and Blue Shield plans provided benefits in the form of services rendered by participating hospitals and physicians ("service benefits") rather than reimbursements or payments to the policyholder.

Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations. The Ross-Loos Clinic, founded in Los Angeles in 1929, is generally considered to have been the first health maintenance organization (HMO). Henry J. Kaiser organized hospitals and clinics to provide pre-paid health benefits to his shipyard workers during World War II. This became the basis for Kaiser Permanente HMO. Most early HMOs were non-profit organizations. The development of HMOs was encouraged by the passage of the Health Maintenance Organization Act of 1973. The first employer-sponsored hospitalization plan was created by teachers in Dallas, Texas in 1929. Because the plan only covered members' expenses at a single hospital, it is also the forerunner of today's health maintenance organizations (HMOs).

Employer-sponsored health insurance plans dramatically expanded as a result of wage controls during World War II. The labor market was tight because of the increased demand for goods and decreased supply of workers during the war. Federally imposed wage and price controls prohibited manufacturers and other employers raising wages high enough to attract sufficient workers. When the War Labor Board declared that fringe benefits, such as sick leave and health insurance, did not count as wages for the purpose of wage controls, employers responded with significantly increased benefits.

Employer-sponsored health insurance was considered taxable income until 1954.

In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks.

1.3

Concept of Insurance

 The functions of Insurance will give you an idea on how to go ahead with the approach of insurance and what type of insurance to choose. In a layman's words, insurance means, ‘a guard against pecuniary loss arising on the happening of an unforeseen event’. In developing economies, the insurance sector still holds a lot of potential which can be tapped. Majority of the people in the developing countries remains unaware of the functions and benefits of insurance and it is for this reason that the insurance sector is still to grow. 

Tangible or intangible – an individual can insure anything! Be it a house, car, factory, or the voice of a singer, leg of a footballer, and the hand of an author.....etc. It is possible to insure all these as they have the possibility of becoming non functional by any disaster or an accident.

Basic functions of Insurance 

1.     Primary Functions

2.     Secondary Functions

3.     Other Functions

Primary functions of insurance

·         Providing protection –

The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others.

·         Collective risk bearing 

 Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid.

·         Evaluating risk –

 Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well.

·         Provide Certainty 

 Insurance is a device, which assists in changing uncertainty to certainty.

Secondary functions of insurance

·         Preventing losses 

 Insurance warns individuals and businessmen to embrace appropriate device to prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc.

·         Covering larger risks with small capital 

     Insurance assuages the businessmen from security investments. This is done                                                                                                by paying small amount of premium against larger risks and dubiety.

·         Helps in the development of larger industries 

 Insurance provides an opportunity to develop to those larger industries which    have more risks in their setting up.

Other functions of insurance

·         Is a savings and investment tool 

 Insurance is the best savings and investment option, restricting unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option.

·         Medium of earning foreign exchange 

 Being an international business, any country can earn foreign exchange by way of issue of marine insurance policies and a different other ways.

·         Risk Free trade 

Insurance boosts exports insurance, making foreign trade risk free with the help of different types of policies under marine insurance cover. 

  Insurance provides indemnity, or reimbursement, in the event of an    unanticipated loss or disaster. There are different types of insurance policies under the sun cover almost anything that one might think of. There are loads of companies who are providing such customized insurance policies.

1.4 OVERVIEW of INSURANCE : The economic reforms undertaken in the last 15 years have brought about a considerable improvement in the health of banks and financial institutions in India. The banking sector is a very important sector of the Indian economy. The sector has made a marked improvement in the liberalization period. There has been extraordinary progress in the financial health of the commercial banks with respect to capital adequacy, profitability, and asset quality and risk management. Deregulation has opened new doors for banks to increase revenues by entering into investment banking, insurance, credit cards, depository services, mortgage, securitization, etc.

The limit for foreign direct investment in private banks has been increased from 49% to 74%. In addition, the limit for foreign institutional investment in private banks is 49%. Liberalization and globalization have created a more challenging environment in the banking sector as well as in the other segments of the financial sector such as mutual funds, Non Banking Finance Companies, post offices, capital markets, venture capitalists, etc. Now the challenges faced by the sector would be gaining profitability, reinforcing technology, maintaining global standards, corporate governance, sharpening skills, risk management and, the most important of all, to establish 'Customer Intimacy'.  The insurance business is one of the most rapidly growing areas in the financial sector. As an economy grows over the years, insurance sector intensifies and broadens its reach. Every practical and futuristic individual would want himself, his family and his assets to be insured. Insurance deals mainly with life and general insurance. India has a large insurance market commensurate with its population. The IRDA Act 1999 (Insurance Regulatory and Development Authority of India Act) has given new opportunities to private players to enter into the market on the fulfillment of certain prerequisites. The IRDA is the licensing authority in the sector; the current FDI cap/Equity in the sector stands at 26 percent. There is no doubt the challenges ahead will become tougher with more companies competing both in general and life Insurance. Also mortgage insurance will soon be coming into the industry. New players have contributed to the launch of innovative products, services and value-added benefits.  Major foreign players have entered the country and announced joint ventures in both life and non-life areas. These include New York Life, Aviva, Tokio Marine, Allianz, Standard Life, Lombard General, AIG, AMP and Sun Life among others.  Commercial banks are coming up with more and more vacancies, and the banking sector now has more new jobs than any other sector. Right from the branch level to the highest level, there is tremendous range of opportunities available in the sector. Jobs in this sector can be both rewarding and enjoyable, as you get opportunities to learn about business, interact with people and build up clientele. The same is the case with insurance, as it is the fastest growing industry under the financial sector. Both government and private players are currently offering a plenty of jobs in this sector. So, this is great news for you if you are thinking to go into the banking & insurance streams.

1.5

Insurance Principles

Main principles of Insurance:

•  Utmost good faith
•  Indemnity
•  Subrogation
•  Contribution
•  Insurable Interest
•  Proximate Cause

1.     Utmost Good Faith (Uberrimae Fides)

As a client it is your duty to disclose all material facts to the risk being covered.  A material fact is a fact which would influence the mind of a prudent underwriter in deciding whether to accept a risk for insurance and on what terms. The duty to disclose operates at the time of inception, at renewal and at any point mid term.

2.     Indemnity

On the happening of an event insured against, the Insured will be placed in the same monetary position that he/she occupied immediately before the event taking place.  In the event of a claim the insured must:

·                      Prove that the event occurred

·                      Prove that a monetary loss has occurred

·                      Transfer any rights which he/she may have for recovery from       another source to the Insurer, if he/she has been fully indemnified.

3.     Subrogation

The right of an insurer which has paid a claim under a policy to step into the shoes of the insured so as to exercise in his name all rights he might have with regard to the recovery of the loss which was the subject of the relevant claim paid under the policy up to the amount of that paid claim. The insurer’s subrogation rights may be qualified in the policy.

In the context of insurance subrogation is a feature of the principle of indemnity and therefore only applies to contracts of indemnity so that it does not apply to life assurance or personal accident policies. It is intended to prevent an insured recovering more than the indemnity he receives under his insurance (where that represents the full amount of his loss) and enables his insurer to recover or reduce its loss. 

4.     Contribution

The right of an insurer to call on other insurers similarly, but not necessarily equally, liable to the same insured to share the loss of an indemnity payment i.e. a travel policy may have overlapping cover with the contents section of a household policy.  The principle of contribution allows the insured to make a claim against one insurer who then has the right to call on any other insurers liable for the loss to share the claim payment.

5.     Insurable Interest

If an insured wishes to enforce a contract of insurance before the Courts he must have an insurable interest in the subject matter of the insurance, which is to say that he stands to benefit from its preservation and will suffer from its loss. 

In non-marine insurances, the insured must have insurable interest when the policy is taken out and also at the date of loss giving rise to a claim under the policy.

6.     Proximate Cause

An insurer will only be liable to pay a claim under an insurance contract if the loss that gives rise to the claim was proximately caused by an insured peril. This means that the loss must be directly attributed to an insured peril without any break in the chain of causation.

CHAPTER 2

MARKETING OF INSURANCE

AN INTRODUCTION

2.1

Insurance Marketing Strategies

Insurance marketing is basically just the marketing of insurance products. Marketing of this sort is an important tool when it comes to the business of insurance. The marketing of insurance readily happens in the life insurance department as well as the non-life insurance department.   

What type of advertising and marketing is most suitable for your insurance business? This is not a one size fits all deal. You must consider how much of a budget you have and work from there. You also need to know what your target market is. For example, are you going to sell one type of insurance such as life insurance or a variety, such as health insurance, auto insurance and house insurance? What is the demographic you are aiming for? The more you know the better able you will be to figure out what type of insurance marketing you should do to grow your business.

Online advertising is one marketing tool that is worth the money. As the Internet takes on more power and influence all of the time, having a web presence will put you on the cyber map and get you noticed. It has been found through studies that 75 percent of all households have access to a computer and Internet resources. Find out what you need to do in order to get online before that percentage gets any higher!

Block line advertising in trade journals, industry publications and periodicals is the way to go. This is because industry professionals read these publications to keep in

the know. You are an industry professional so you need to get yourbusiness in one or more of these publications as well.

Television ads and print ads are excellent forms of insurance marketing. However the downside is that both can be very expensive. You may go way beyond your budget if you decide to use either one of these methods. However if you can afford it then your best course of action is to either consult with an external advertising agency or hire one to help you develop a campaign that is conducive to what you need most. Your goal of course is to gain exposure and to increase your sales.

If you decide that print ads would suit your style and your budget just fine then colored ads are the most expensive to produce but can be very appealing to the eye. You can also choose a “reverse type” for your advertisements. Think back to what black and white television looked like. The ad would have white lettering on a stark black background. The black background sets off the lettering and gives it that catchy effect.

2.2

Meaning & Definition of Marketing

Marketing is the process of performing market research, selling products and/or services to customers and promoting them via advertising to further enhance sales. It generates the strategy that underlies sales techniques, business communication, and business developments. It is an integrated process through which companies build strong customer relationships and create value for their customers and for themselves.

Marketing is used to identify the customer, to satisfy the customer, and to keep the customer. With the customer as the focus of its activities, it can be concluded that marketing management is one of the major components of business management. Marketing evolved to meet the stasis in developing new markets caused by mature markets and overcapacities in the last 2-3 centuries. The adoption of marketing strategies requires businesses to shift their focus from production to the perceived needs and wants of their customers as the means of staying profitable.

The term marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions. It proposes that in order to satisfy its organizational objectives, an organization should anticipate the needs and wants of consumers and satisfy these more effectively than competitors.

Definition

The management process through which goods and services move from concept to the customer. As a practice, it consists in coordination of four elements called 4P's: 1)  Identification, selection, and development of a product,

2)  Determination of its price,

3)  Selection of a distribution channel to reach the customer's place, and

4)  Development and implementation of a promotional strategy.

As a philosophy, marketing is based on thinking about the business in terms of customer needs and their satisfaction. Marketing differs from selling because (in the words of Harvard Business School's emeritus professor of marketing Theodore C. Levitt) "Selling concerns itself with the tricks and techniques of getting people to exchange their cash for your product. It is not concerned with the values that the exchange is all about. And it does not, as marketing invariably does, view the entire business process as consisting of a tightly integrated effort to discover, create, arouse, and satisfy customer needs."

2.3

Indian Insurance Marketing

The Indian insurance market in spite of having a history covering almost two centuries took a turn after the establishment of the Life insurance Corporation in India in 1956. From being an open competitive market to being nationalized and then back to a liberalized market again, the insurance sector has witnessed all aspects of contest.

The Indian insurance market conventionally focused around life insurance until recently, a various range of other insurance policies covering sectors like medical, automobile, health and other classes falling under general insurance came up, generally provided by the private companies. The life insurance of India added 4.1% to the GDP of the economy in 2009, an immense growth since 1999, when the gates were opened for the private company in the market. 

Policy change in the Indian insurance market

The Insurance Regulatory Development Act, 1999 (IRDA Act) allowed the entry of private companies in the insurance sector, which was so far the sole prerogative of the public sector insurance companies. The act was passed to protect the concerns of holders of insurance policy and also to govern and check the growth of the insurance sector. This new act allowed the private insurance companies to function in India under the following circumstances:

·         The company should be established and registered under the 1956 company Act

·         The company should only the serve the purpose of life or general insurance or reinsurance business

·         The minimum paid up equity capital for serving the purpose of reinsurance business has been decreed at Rs 200 crores.

·         The minimum paid up equity capital for serving the purpose of reinsurance business has been decreed at Rs 100 crores

·         The average holdings of equity shares by a foreign company or its subsidiaries or nominees should not go above 26% paid up equity capital of the Indian Insurance company.

Investment policy in the Indian insurance market

·         A policy known by the name of 'Health plus Life Combi Product', offering life cover along with health insurance has been granted permission by the IRDA act and insurance companies are allowed to provide it now.

·         The FDI limit in the insurance sector has been capped at 26% for the foreign marketers but the government is thinking to increase it to 49% and a bill of this offer is pending at the Rajya Sabah

·         A low cost pension scheme is supposed to be formed by the Pension Fund Regulatory and Developmental Authority (PFRDA) on 1st April, 2010 to provide social security to the poorer class.

·         The compulsory ceding by every General Insurance Corporation (GIC), would go on to stay at 10% under current regulations as specified by IRDA.

Future Of Indian Insurance Market

As per the report of 'Booming Insurance Market in India' (2008-2011), concentration of insurance markets in many developed countries of the world has made the Indian insurance market more magnetic in terms of international insurance players. Furthermore, the report says

·         Home insurance sector is likely to achieve a 100% growth since home insurance are made compulsory for housing loan approvals by the financial institutions.

·         In the coming three years Health insurance sector is all set to become the second largest business after motor insurance.

·         During the period of 2008-09 to 2010-11 the non life insurance premium is likely to have a growth of 25%.

Insurance Companies in Indian
Registration has been granted to 12 private life insurance companies and 9 general insurance companies so far by the IRDA. Considering the existing public sector companies in the Indian insurance market there are 13 companies functioning in both life and general insurance business respectively.

Some of the major insurance companies in public sector are 

·         Life Insurance Corporation (LIC) of India

·         National Insurance Company Limited

·         Oriental Insurance Limited

Some of the major insurance companies in Private sector are 

·         Tata AIG Life

·         HDFC Standard

·         Bajaj Allianz

·         ICICI Prudential

·         SBI Life

2.4
Types of insurance
What you should know about the various types of insurance policies before getting insured. All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Here is a snapshot of the types of policies and what they offer. ·        Term Insurance Term insurance covers you for a term of one or more years. It pays a death benefit only if the policy holder dies during the period the insurance is in force. Term insurance generally offers the cheapest form of life insurance. You can renew most term insurance policies for one or more terms even if your health condition has changed. However, each time you renew the policy for a new term, premiums may climb higher, just like a rent agreement every time you renew the lease. This policy is particularly useful to cover any outstanding debt in the form of a mortgage, home loan, etc. For example if you have taken a loan of Rs10 lakhs, you will have an option of taking an insurance to protect the loan in case of passing away before the debt is repaid. ·        Whole Life Insurance Whole life insurance covers you for as long as you live if your premiums are paid. You generally pay the same premium amount throughout your lifetime. Some whole life policies let you pay premiums for a shorter period such as 15, 20 or 25 years. Premiums for these policies are higher since the premium payments are made during a shorter period. There are options in the market to have a return of premium option in a whole life policy. That means after a certain age of paying premiums, the life insurance company will pay back the premium to the life assured but the coverage will continue. ·        Money Back Insurance The money back plan not only covers your life, it also assures you the return of a certain per cent of the sum assured as cash payment at regular intervals. It is a savings plan with the added advantage of life cover and regular cash inflow. This plan is ideal for planning special moments like a wedding, your child's education or purchase of an asset, etc. Money back plan have "participating" and "non participating" versions in the market. ·        Endowment Assurance  Endowment insurance is a level premium plan with a savings feature. At maturity, a lump sum is paid out equal to the sum assured (plus dividends in a par policy). If death occurs during the term of the policy then the total amount of insurance and any dividends (par policy) are paid out. There are a number of products in the market that offer flexibility in choosing the term of the policy namely you can choose the term from five to 30 years. There are products in the market that offer non participating (no profits) version, the premiums for which are cheaper. ·        Universal Life This is a flexible life insurance policy and is also market sensitive. You decide on the several investment options on how your net premium are to be invested. While the money invested has the potential for significant growth, such funds are subject to market risks including the loss of the principal. ·        Unit Linked Product Market-linked plans or unit-linked insurance plans (ULIP) are similar to traditional insurance policies with the exception that your premium amount is invested by the insurance company in the stock market. Market-linked insurance plans (MLP) mimic mutual funds and invest in a basket of securities, allowing you to choose between investment options predominantly in equity, debt or a mix of both (called balanced option). The major advantage market-linked plans offer is that they leave the asset allocation decision in the hands of investors themselves. You are in control of how you want to distribute your money among the broad class of instruments and when you want to do it or pull out. Any of the products mentioned above except term products could be unit-linked. ·        Riders  Riders are additional add-on benefits that you could opt to include in your policy over and above what the policy may provide. However, these additions come at an extra premium charge depending of the rider you opt for. These riders cannot be bought separately and independently. The extra premium, nature and characteristics of the riders are based on the base policy that is offered. Some riders available in the market are : 1.)   Accident Death Benefit: Provides a additional amount in case death occurs as a result of an accident.  2.) Term Rider: It allows the payment of an additional amount should    death of the insured happens. 3.)  Waiver of Premium: In case of total and permanent disability of life insured due to accident or any other means this rider allows premiums on base policy or riders to be waived.  4.)  Critical Illness: It provides payment of an additional amount on the diagnosis of some critical illness.

2.5

What Problems Are Faced by Insurance Companies?

1.     Factors in the economy, risk management, keeping costs low and retaining business in a competitive market are issues insurance companies face on a regular basis, according to Price Waterhouse Coopers. Uncertainty regarding the economy along with changes in how people do business keep this industry on its toes as it strives to meet the demands of consumers and ensure long-term success.

Maintaining Funds in Hard Economic Times.

2.     Price Waterhouse Coopers stated that instead of seeing collapsing assets, insurance companies have to deal with problems relating to collapses in hedge funds, structured securities and equities, according to the company's "Top Nine Insurance Industry Issues in 2009" publication. As a result, credit markets seized, sales in life insurance policies dropped, asset management fees lowered and bond and mortgage insurers lost significant amounts of capital. In an effort to hold on to whatever funds they have, insurance companies are doing what they can to deny claims, pay less in settlements and defend their claim decisions in court, a battle that can take several years, according to a 2007 CNN article.

3.     Companies that offered whole and term life insurance began offering "market-sensitive" products in an effort to expand product portfolios, according to Price Waterhouse Coopers. This gave policyholders competitive returns and gave

Insurance companies an edge in the financial service market. Consequently, reserve calculations are subjective, more complex and the investment portfolios require more attention in order to manage them so returns and cash flow align with future liabilities. Market sensitive products that involve long- and short-term investments for companies that sell life insurance are seeing low returns. As a result, insurance companies need to look at other avenues to ensure solvency and increase retention efforts.

4.     Cost cutting efforts can have devastating consequences to insurance companies, but is an issue they face in an effort gain capital. Insurance companies, as they determine which costs to cut, must look at forces behind costs. This helps them ensure a cut in one area does not increase the cost in another, which can make an insurance company less competitive. For example, cutting employee benefits reduces employee retention, or cuts in staff can lead to long turn-around times. Financial Web states that as insurance company costs increase, their capital decreases. Additionally, insurance companies face difficulties when it comes to creating improvement plans that reduce costs when the plans lack a basis in resources, priorities, dependencies and the integration of the human element, such as training, communication and performance management.

2.6

Challenges faced by Insurance Sector

 Every business has risks but insurance companies do get a bigger share of these unwanted possibilities. Anyone who's had to be screened for a policy knows that specific criteria are used in determining the chances of being approved or the actual price of premiums to be paid. This is because the more an individual is likely to use coverage, the higher the risk that the insurer incurs losses. And since insurance companies are business entities that need to make money, they will have a natural aversion to individuals who are likely put them at risk as a way of ensuring their survival.

One of the ways insurance companies determine risk is by using mortality tables. For Self-Insured Medical Plans, for example, an age group that has higher mortality will be required a higher premium or denied altogether. Meanwhile, individuals who belong to the bracket where mortality is low enjoy low fees. Providers also use past experiences with policy holders in gauging whether or not a person is insurable or not. A basic example is someone who has had a number of operations performed on him. Most probably, this person is going to have another operation and then another. An insurance company which gives him coverage is, thus, very likely to incur losses while providing for his medical needs which are very likely to surface again and again.

When the losses are small, they are easily and automatically covered by all insured individuals. However, when the losses are big, this is when insurance companies become, to a degree, unstable. This is also the reason why they have to be extra discerning in detecting risks. Providers partner with re-insurance companies as a way of cushioning eventualities. This only means the risks are spread and part of

them is managed by the reinsurance firms to ensure the insurer's survival in the case of huge claims.

There are a number of risks that insurance companies face but the largest and most obvious of these are the risk for underwriting losses. When a policy holder claims coverage that is worth more than the amount that he has been paid for the policy, an underwriting loss occurs. When underwriting losses balloon, they could actually cause the company to be unstable or worse, dissolved.

Although insurance companies may feel like heroes for saving people from covered expenses, they are not to be taken in the wrong context. Before the service aspect is still the fact that insurers are around for business reasons, that is, to make money. Therefore, people should understand why laxity is jut not possible when these providers categorize insurable and non-insurable individuals. It must be understood that careless management of risks could well cost an insurance company its survival.

If you're considering getting insurance and would like to inquire about the possibilities, a Missouri insurance agent could tell you more about Self-Funded Medical Plans, Group Life and Disability and other options you may explore.

Chapter 3

Marketing Mix of Insurance

3.1

7P’s of Marketing Mix

Marketing professionals and specialist use many tactics to attract and retain their customers. These activities comprise of different concepts, the most important one being the marketing mix. There are two concepts for marketing mix: 4P and 7P. It is essential to balance the 4Ps or the 7Ps of the marketing mix. The concept of 4Ps has been long used for the product industry while the latter has emerged as a successful proposition for the services industry.

The 7Ps of the marketing mix can be discussed as:

·        Product

 It must provide value to a customer but does not have to be tangible at the same time. Basically, it involves introducing new products or improvising the existing products.

·        Price

 Pricing must be competitive and must entail profit. The pricing strategy can comprise discounts, offers and the like.

·        Place

 It refers to the place where the customers can buy the product and how the product reaches out to that place. This is done through different channels, like Internet, wholesalers and retailers.

·        Promotion

 It includes the various ways of communicating to the customers of what the company has to offer. It is about communicating about the benefits of using a particular product or service rather than just talking about its features.

·        People

 People refer to the customers, employees, management and everybody else involved in it. It is essential for everyone to realize that the reputation of the brand that you are involved with is in the people's hands.

·        Process

 It refers to the methods and process of providing a service and is hence essential to have a thorough knowledge on whether the services are helpful to the customers, if they are provided in time, if the customers are informed in hand about the services and many such things.

·        Physical (evidence)

 It refers to the experience of using a product or service. When a service goes out to the customer, it is essential that you help him see what he is buying or not. For example- brochures, pamphlets etc serve this purpose.

3.2

Tip’s of on successful Insurance Marketing

Anything can be marketed effectively, and the basic principles of marketing remain the same, no matter what's being sold: You focus on what the benefit is to the person who's buying the product; you emphasize the points of differentiation between your product and the others in your market segment, and then close with the pitch.

We're going to make an example out of insurance marketing here to illustrate the point. The reason for insurance marketing is because everyone needs insurance, and the market is saturated with a lot of products competing. Writing insurance marketing tips for a saturated market is an example of how you, as an internet entrepreneur, can make money by being a liaison to local businesses in your area.

So, let's look at the big questions from up top - what's the big benefit for taking insurance? It's buying a specific sort of peace of mind. It's providing coverage in case there's a disaster. Let's focus that into marketing insurance: "Wouldn't you like to know that your family will be taken care of, if something happens to you?" is one way to state the benefit. Another one is "It's cheaper to buy insurance for your car than to get into an accident without it. And while you may be a good driver, can you be certain of everyone else?" Both of these are fairly straightforward ways to insurance marketing and its benefits to the end customer.

Now, when I write insurance marketing tips, I'm constantly looking for the edge, the out - the hook. What makes this product work for the reader and prospective buyer?

To answer that question, I start with doing some research on Google, and look for page ranks for specific permutations of insurance buying search terms, like "cheap health insurance" or "cheap life insurance" or "auto insurance Michigan" - anything that will help narrow down the search fields. Then I look at what others are doing on those pages that pull up. It is extremely important to understand what your competitors are doing. It helps you keep track of market trends and makes sure you keep your edge.

Are they competing primarily on price, or are they competing on features? Insurance is a mature product category, so it's difficult to differentiate on new features. Difficult doesn't mean "impossible", though. There are combinations of features on policies that can form a competitive advantage; in the field, these tend to be short lived, because someone else will notice what you're selling and emulate it. Unlike technology where an advance can last for six to eighteen months before you get significant product penetration from competitors, writing a new policy package doesn't take much. So the other differentiators are on price (which is the primary driver in insurance policies) and service (which is where insurance companies trying to maintain margins on policies try to set themselves up as upscale.

Chapter 4

Case study

Case study

The Life Insurance Corporation of India (LIC) is the largest state-owned life insurance company in India, and also the country's largest investor. It is fully owned by the Government of India. It also funds close to 24.6% of the Indian Government's expenses. It has assets estimated of 9.31 trillion (US$202.03 billion). It was founded in 1956 with the merger of more than 200 insurance companies and provident societies.

Headquartered in Mumbai, financial and commercial capital of India, the Life Insurance Corporation of India currently has 8 zonal Offices and 101 divisional offices located in different parts of India, at least 2048 branches located in different cities and towns of India along with satellite Offices attached to about some 50 Branches, and has a network of around 1.2 million agents for soliciting life insurance business from the public.

History

The Oriental Life Insurance Company, the first corporate entity in India offering life insurance coverage, was established in Calcutta in 1818 by Bipin Bernard Dasgupta and others. Europeans in India were its primary target market, and it charged Indians heftier premiums. The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance provider. Other insurance companies established in the pre-independence era included,

§  Bharat Insurance Company (1896)

§  United India (1906)

§  National Indian (1906)

§  National Insurance (1906)

§  Co-operative Assurance (1906)

§  Hindustan Co-operatives (1907)

§  Indian Mercantile

§  General Assurance

§  Swadeshi Life (later Bombay Life)

The first 150 years were marked mostly by turbulent economic conditions. It witnessed, India's First War of Independence, adverse effects of the World War I and World War II on the economy of India, and in between them the period of world wide economic crises triggered by the Great depression. The first half of the 20th century also saw a heightened struggle for India's independence. The aggregate effect of these events led to a high rate of bankruptcies and liquidation of life insurance companies in India. This had adversely affected the faith of the general public in the utility of obtaining life cover.

The Life Insurance Act and the Provident Fund Act were passed in 1912, providing the first regulatory mechanisms in the Life Insurance industry. The Indian Insurance Companies Act of 1928 authorized the government to obtain statistical information from companies operating in both life and non-life insurance areas. The subsequent Insurance Act of 1938 brought stricter state control over an industry that had seen several financially unsound ventures fail. A bill was also introduced in the Legislative Assembly in 1944 to nationalize the insurance industry.

Nationalization

In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of private insurance companies. In the ensuing investigations, one of India's wealthiest businessmen, Ram Kishan Dalmia, owner of the Times of India newspaper, was sent to prison for two years. Eventually, the Parliament of India passed the Life Insurance of India Act on 1956-06-19, and the Life Insurance Corporation of India was created on 1956-09-01, by consolidating the life insurance business of 245 private life insurers and other entities offering life insurance services. Nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least seventeen sectors of the economy, including the life insurance.

Current status

LIC building, at Connaught Place, New Delhi, designed by Charles Correa, 1986.

Over its existence of around 50 years, Life Insurance Corporation of India, which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses, and contributed around 7 % of India's GDP in 2006.

The Corporation, which started its business with around 300 offices, 5.6 million policies and a corpus of INR 459 million (US$ 92 million as per the 1959 exchange rate of roughly Rs. 5 for a US $ , has grown to 25000 servicing around 180 million policies and a corpus of over 8 trillion (US$173.6 billion).

The recent Economic Times Brand Equity Survey rated LIC as the No. 1 Service Brand of the Country. The slogan of LIC is "Zindagi ke saath bhi, Zindagi ke baad bhi"in Hindi. In English it means "with life also, after life also’’.

According to The Brand Trust Report 2011, LIC is the 8th most trusted brand of India.

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

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business.

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 are 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 crores 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.

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, 1972 nationalized the
general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies’ viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.

Objectives of LIC

Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost.  Maximize mobilization of people's savings by making insurance-linked savings adequately attractive.  Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return.  Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders.  Act as trustees of the insured public in their individual and collective capacities. Meet the various life insurance needs of the community that would arise in the changing social and economic environment.  Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy.  Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

Mission 
"Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development." 

Vision
"A trans-nationally competitive financial conglomerate of significance to societies and Pride of India."

Chapter 5

Suggestion & conclusion

Suggestion and conclusion

There are many aids of marketing of products but the challenges are also there. The external environment of insurance market changes time to time, the customer expectations are increased, they need good technology services at quick.

The aim of marketing of insurance product is to create customer and generate profit through customer satisfaction. The insurance marketing focuses on the formulation of an ideal mix for insurance business so that the insurance organization survives and thrives in the right perspective.

The government policy changes and low productivity and high cost of agency organization, Illiteracy of people many challenges, by giving high technology services to the customer, giving special training to the agents so that they can convince the customers in rural areas.

The marketing of insurance really helps the companies and customers to know what type of insurance are in the market.

So in today’s world “MARKETING” is the life of Insurance companies

BIBLIOGRAPHY

1.     Insurance principles and practices    –  M.N. Mishra

2.     Marketing in Banking & Insurance   –  Romeo Mascarenhas

WEBLIOGRAPHY

WWW.GOOGLE.COM

WWW.WIKIPEDIA.COM

WWW.licindia.in