Literature Review INSURANCE

Literature Review Lect. D.ramkumar(2003), “Relationship Marketing – The new mantra for life insurance sector”. Department Of Management Studies, N.M.S.S. Vallaichamy Nadir College, Nagamalai, Madurai studied the role of relationship marketing in life insurance sector. In today’s impersonal marketplace, customer satisfaction, retention and loyalty are rapidly become the thing of the past. Relationship marketing brings them back to the forefront, providing easy-to-apply solutions and strategies for establishing meaningful bonds with customers and turning them into reliable, life-long partners. Relationship marketing can be defined as the process to “identify and establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders at a profit so that the objective of all parties involved are met; and this is done by mutual exchange and fulfillment of promises”. The important objectives of relationship marketing are to acquire new customers, maintain and enhance existing relationships with existing customers, reactivation

of

ex-customers,

and

handling

of

customer

terminations. The key objective of relationship marketing is to establish a one to one relationship with all the customers. This may sound like a daydream few years ago; but thanks to the technology breakthrough and technological solutions providers it is very much of reality.

Dr.

Ch.rajesham

(2004),

“changing

scenario

of

India

insurance sector”, department of commerce & Business Management, University P G college, Kakatiya University Khammam, Andhra Pradesh revised that insurance sector has not only been playing a leading role within the financial system in India but also has significant socio-economical function, making inroads into the interiors of the economy and is being considered as one of the fast developing area in the Indian financial sector too. It has also been facilitating economic development with an objective to build an efficient, effective and a stable insurance business in India as well as a strong base to both the needs of the real economy and socio-economic objective of the country. It has been mobilizing long term saving through life- insurance to support

economic

growth

and

also

facilitating

economic

development, insurance cover to a large segment of people, while the non-life insurance and reinsurance firms in India are main providers of risk financing for manmade disasters and natural catastrophes. Thus, both life insurance and non-life insurance are found playing a significant role in avoiding or facing the risk of life and business enterprises and also aiding to certain extents for their smooth sailing. Therefore, an attempt is made in this paper to highlight the developments of insurance sector in India in a phased manner and to examine the reasons for the entry of private and foreign insurance players into Indian insurance market and to present the changing scenario of insurance business in India. It is also attempted to examine the growth of

Indian insurance sector during the period of pre and post liberalization and finally to suggest the strategies and challenges need to be adopted by Indian insurance sector in the light of global scenario so as to enhance its market share. J.Mehra (2005), “innovations in life insurance industry”, the financial express, new delhi studied that economic growth in the emerging markets has time and again outpaced the developed and industrialized countries. Alongside the rising importance of emerging economics, their life insurance sectors are also drawing more attention. It’s been four years since the life insurance sector was opened up for private players in India. The reasons that prompted the government to bring in reform in this sector are well known. While the public sector life insurance companies

made

enormous

contribution

in

the

spread

of

awareness about insurance, and expanded the market, it was recognized that their reach was still limited, the range of product offered restricted to the services to the consumer inadequate. It was also felt that the rapid economic growth witnessed in the 90s couldn’t be sustained without a thriving insurance sector. Today, the private accounts for nearly 20% of the market. The market share of the private players has to be seen in the context of this enlarged market. There has been a flurry of private players providing a wide range of innovation products, services and customized solutions. Emerging markets-such as China, India, Mexico, and Russia- are home to some 86% of the world’s

population. Collectively, they account for 23% of world economic output. Yet, insurance business is underdeveloped in these markets. In fact, India as a country is under-insured. Only 35% of the 250 million insurable population is insured. Exploiting the growth potential of emerging insurance market- India and China are in the spotlight. Both the countries currently attract a lot of attention due to their size, strong growth performance and favorable regulatory changes. To begin with, India and China are the most populous countries and both have sustained impressive economic growth in the last decade. Between 1993 and 2003, annual real GDP growth averaged 8.9% in china and 5.9% in India. Interestingly, both markets have gone through a similar period of nationalization of their insurance business, although China revoked state monopoly earlier than India. Joseph Calandro Jr, Scott Lane, Ranganna Dasari , (2008) "A

practical

approach

for

risk‐adjusting

performance", Measuring Business Excellence, Vol. 12 Iss: 4, pp.4 – 12 studied that many insurance companies vigorously pursue top-line growth, even though it has the potential to develop unprofitably over time. The time lag(or tail) between when insurance is sold and when claims are paid generates risks unique to insurance companies. Furthermore, the insurance market is both mature and efficient (i.e. its level of completion is very high), which means that profitable opportunities are both

rare and untenable unless protected by competitive advantage. There currently no practical measure available ( of which the authors are aware ) at the business unit level to evaluate insurance premium growth in the face of the industry’s risk, impairing executives’ ability to assess segment opportunities (and hazards),

thus

hampering

strategies

decision

making.

The

purpose of this paper is to introduce a practical measure developed by the authors called Underwriting Return (UWR) which aims at helping to alleviate this situation. The paper introduces UWR which was developed during the course and scope of the authors’ work in the insurance industry, and their research into applying value-based management to that industry. The paper finds that UWR is a practical measure that property and casualty executives can use at the business unit level to help quantify market segments to grow, hold, harvest and abandon. A variety of strategies analysis tools, such as the popular Boston Consulting Group matrix, are utilized today. In general, the application of such tools is hampered by an imprecision of measurement but each can add a level of insight to executive’ resource allocation options. UWR can further aid insurance executive in strategic analysis by helping to quantify in which segments to compete, and which ones to abandon. The paper demonstrates the utility of the measure in an example based on an actual analysis. Keerthi,

P.

and

Vijayalakshmi,

R.,

“A

Study

on

the

Expectations and Perceptions of the Services in Private

Life Insurance Companies, SMART Journals, Vol. 5, 2009 . A study conducted by Keerthi, P. and Vijayalakshmi, R. (2009)90 “A Study on the Expectations and Perceptions of the Services in Private Life Insurance Companies” reveals that the policyholders’ expectations are well met in the case of certain factors reacting to service quality. But in the case of other variables, there exists a significant gap which means that policyholders have experienced low levels of service as against their expectations. If all the players in the Life insurance industry focus on the effective delivery of services, they can win the hearts of customers and anticipate their increased market share. Ramanathan, K.V., A Project on “A Study on Policyholders Satisfaction with Special Reference to Life Insurance Corporation of India, Thanjavur Division, Bharathidasan University, 2011. research has resulted in the development of a reliable and valid instrument for assessing customer perceived service

quality,

awareness

level,

and

satisfaction

level

of

customers towards life insurance industry. Here, service quality needs to be measured using a six dimensional hierarchal structure consisting of assurance, competence, personalized financial planning, corporate image, tangibles and technology dimensions. This would help the service managers to efficiently allocate resources, by focusing on important dimensions first. There is no right and wrong in this. The success of marketing insurance depends on understanding the social and cultural needs

of the target population, and matching the market segment with the suitable intermediary segment. R.S. Arora,“Marketing of Services: A Study of LIC in Jalandhar Division”, Ph.D. Thesis Submitted to Guru Nanak Dev University, Amritsar, 2008. R.S.Arora64 (2008) in his thesis entitled, “Marketing of Services: A Study of LIC in Jalandhar Division”

has

explained

that

service

quality

to

be

a

multidimensional construct. The research indicated that the five dimensional structure of service quality was not only industry specific but also country specific. The results also showed that out of

the

seven

factors

used

to

define

service

quality,

responsiveness had the strongest correlation and was the best predictor of the overall quality. Product convenience was found to have the greatest influence on customer satisfaction followed by assurance and tangibility. The results regarding the intermediaries showed that the agents attached 56 more weight to all aspects as compared to bank employees. The agents gave more importance to good customer service and regular updating of knowledge, whereas the bank employees stressed more on providing objective information. No significant difference was found in the demands of customers of both agents and bank employees. The data analysis revealed that agents had better success rate as compared to the bank employees in selling products and that agent’s

perceived

employees.

lower

competitive

pressure

than

bank

R. Kumar, “Performance Evaluation of General Insurance Companies: A Study of Post-Reform Period”, Ph.D. Thesis Submitted to Punjabi University, Patiala, 2010. R. Kumar65 (2010) in his thesis entitled, “Performance Evaluation of General Insurance Companies: A Study of Post-Reform Period” has explained that the public sector exhibited higher underwriting losses in the post-reform period than the pre-reform period. The higher investment return of the public sector general insurance companies compensated their underwriting losses. The author had suggested that productivity of the private insurers was higher than the public insurers due to their hi-tech environment and modern technology features supported by them. The study suggested methods to improve the performance of these companies. The results showed that private sector companies provide significantly higher service quality than the public sector general insurance companies. V. Singla, “Impact of Service Quality on Customer Loyalty: A Study of Hotel Industry in Punjab and Chandigarh”, Ph.D. Thesis Submitted to Punjabi University, Patiala, 2010 . Singla 66 (2010) in her thesis entitled, “Impact of Service Quality on Customer Loyalty: A Study of Hotel Industry in Punjab and Chandigarh” has modified the SERVQUAL scale to include six dimensions. The gap scores were significant for a number of

attributes and these attributes were different for different categories of hotels. The performance was found to be below the expectations of the customers. So, they were 57 unable to deliver the service according to customers’ expectation. The study also showed that the managers over estimated and were also too self assured about the delivery of a particular service. Lastly, the study had suggested measures for improving customer loyalty. M.K. Brady and C.J. Joseph, “Some New thoughts on Conceptualizing Perceived Service Quality; A Hierarchical Approach”, Journal of Marketing, Vol. 65, 2001, pp.34-47. M.K. Brady and C.J. Joseph58 (2001) in their article titled, “Some New Thoughts on Conceptualizing Perceived Service Quality; A Hierarchical Approach” have concluded that evidence proved that customers form service quality perceptions on the basis of the three primary dimensions: interaction, environment and outcome and customers based their evaluation of these primary factors on their

assessment

of three

corresponding sub factors.

The

combination of all these constitute the customers’ overall perception of the service quality. The results also indicated that reliability,

responsiveness

and

empathy

are

important

for

providing superior service quality.

Gorski, Lorraine (2002a). "The New Producers." Best’s Review, May

2002, p.45-48.

The article describes how insurers can use the banks' customer base to reach new customers. Banks have the trust of their customers and that would be a good distribution channel for life insurance, especially in the midlevel or mass market. Banks could represent 3-4 different insurers therefore the insurance products need to be competitive (for the customer and the representative) and specific for bank employee selling. Furthermore, stable relationships are necessary and the product needs to be branded and well-advertised. Underwriting will stay with the insurers but selling may go both ways by insurance agents or bank employees. Insurers have founded banks to offer banking products. One hundred and thirty five applications were made between Jan.1, 1997 and May 31, 2001. Insurance banks have an uphill battle to convince their customers to establish a bank account because it is hard to determine when and why an insurance customer needs a bank account. On the other hand, it is easier for a bank that provides a loan to sense when insurance is necessary. Since most people already have a bank account, customer as well as agents have to be motivated to deal with another financial institution or to switch. In addition these new institutions often have no brick and mortar establishment but rather rely on Internet applications and Internet interactions. Establishing banks enable insurers to get into the trust business and offer a sophisticated retirement package and to be able to cross-sell insurance

products to their customers and to earn fee income. Although this can be done through partnerships, some insurers want to do it alone and thus to avoid finding later on unpleasant surprises. They count on their name recognitions and the availability of their agents (State Farm, Allstate). Increasing brand awareness, direct mailing, providing up-to-date interest rates should help to lure customers. Most insurance firms have hired experienced bankers to create and manage these banks .

Shobhit and Sanjay Shukla, “Failure of Private Insurance Players in Rural Areas- An Analysis”, Insurance IndustryThe Current Scenario, ICFAI University Press, Hyderabad, 2005, pp.9-19. Shobhit and Sanjay Shukla (2005) conducted a study in Lucknow city and its adjoining rural areas to expose the reasons for the failure of insurance players of private sector in attaining a significant share in the rural market. The study revealed that there is a major difference in the objectives and expectations between rural and urban policyholders. Rural population showed high bias towards low premium and maximum risk coverage. In rural areas private players have not achieved much success. The private players have not been able to provide policies preferred by rural people. In urban areas, for the conservative consumers insurance is a tax saving device. In urban

areas consumers belonging to the middle income group prefer policies of public sector players and only high income group preferred private sector players. The study also revealed that in urban areas the efficient customer service helped the 24 market penetration by private players. The major reasons cited for the failure in the rural sector can be summarised as follows. 1. Lack of popular appeal in marketing strategy 2. High variation between services provided and consumers’ expectations 3. High premiums 4. Product differentiation and innovation are not in conformity with the rural population 5. Professional style of working has failed to generate confidence and goodwill as rural population prefers personalised approach and that too in accordance with the regional culture The above findings reveal that there should be a change in the products, marketing and service strategy of private players of insurance sector. Srinivasan

K.

K.

“Changes

in

the

Insurance

Market

Globally-Regulators’ Perspectives”, IRDA Journal, October 2006, pp.12-15. Srinivasan K.K. (2006) in his article attempts to identify the key areas of change that require the regulator’s urgent attention. The regulator has to be supportive of industry development. The regulator also has to play a positive role in enhancing international competitiveness of the players. The regulator also has to monitor the rural and social obligations of the insurers. Thus the major areas that require the attention of the regulators are:- 29 1. Regulation of conglomerates 2. Products

and the regulator 3. E-commerce 4. Regulator and consumer confidence 5. Corporate governance 6. Channel proliferation 7. Socio- economic and developmental challenges 8. Integrating technology Life Insurance Corporation could streamline their marketing

programmes

on

the

basis

of

the

valuable

recommendations of this research study so that need - based strategies may be formulated to suit the requirements of all segments, especially the rural household sector. The planning wing of LIC Divisional office, Warangal, conducted a study to assess the level of customer satisfaction regarding the services of LIC. The overall conclusions that emerged from the above study are: 1. There is an urgent need for keeping up the tempo of maturity claim settlement operations at the present level. 2. It is necessary to verify policy ledgers every month for omissions in the computer list so that delays can be reduced. The study reveals the various lapses of the Corporation in the settlement of claims, service of agents and officers and personal attention in the settlement of claims. Khansili,

Dinesh

Chandra,

“A

New

Way

of

Thinking-

Innovation in Product and Pricing by the LIC”, IRDA Journal, Vol.11, No. 6, May 2004, pp.25-26 . Khansill (2004) examines the innovation in product design and pricing by LIC. Innovation in life insurance market is attributed to the 37 initiatives taken by new private companies. The private life insurance companies have joint venture partners from countries

operating in US, UK, Germany, Canada and Australia. The practices of the life insurance market of these countries are reflected in the products made available in our country by private life insurance companies. The LIC has introduced two novel products, namely, Jeevan Bharti and Jeevan Saral. These products are very unique. This reflects a change in the product pricing concepts of LIC. Reddy, Appi V., Marketing of Life Insurance Services, Printwell Publishers, Jabalpur, 1998 Reddy (1994) in his study makes a comprehensive analysis of marketing programmes of LIC of India to market its products to different segments of customers. He has examined the problem on the basis of evaluation of the perception of different customers’ segments in respect of different components of marketing mix that are essential to meet the 39 challenges

posed

by

customerinteraction

and

intangibility customer

in

service-provider-

involvement

in

service

consumption and production. 1. The results of the study suggest that policies with profit plans account for about ninety percent of the total policies sold and policies without profit plans account for about ten percent of the same. Segmentwise analysis of preference of policies also suggest that majority of customers in all segments prefer policies with profit plans. 2. Among the various types of plans, endowment assurance plans account for a major share (92 percent) followed by children’s plans (5 percent) and whole life insurance plans and pension plans (3 percent).

Segmentwise analysis also clearly indicates that endowment plans are more popular than other types of insurance plans. 3. Analysis of motives for buying insurance policies indicates that risk coverage is the most important motive in the selection of life insurance policies. Savings motive, income tax relief, marriage and education of children, old age protections are perceived to be the other important motives in their order of preference. 4. Segmentwise analysis of motives reveal the following:- a. The professional and managerial group regard income tax relief as the second important motive followed by savings motive. 40 b. Rural and illiterate segments consider savings as the second important motive. They are not fully conscious of the benefit of risk coverage associated with life insurance plans even though it is their primary motive. c. Self employed and regular income groups consider old age protection as the second important motive and children’s marriage and education as the third important motive. 5. Some of the insurance plans were hastily introduced without proper planning and research. Consequently LIC incurred heavy loss on account of such short lived plans. 6. While designing new insurance plans by LIC to satisfy the requirements of different segments, systematic and elaborate efforts are not infused to generate new product ideas or to examine them thoroughly from various angles. 7. LIC did not make any serious attempt to design policies to suit the requirements of rural population and the lower income group. 8. Seventy eight percent of the policyholders felt that the services of agents are inevitable for promoting LIC

business. 9. Performance rating of the pre purchase service of agents is very high and in the post purchase period service performance rate is very poor. 10. Mortality, rate of interest, service and selling expenses are the important factors taken as the basis for determining premium rates. 41 The study is a valuable contribution in the area of marketing of products by financial institutions, especially for marketing insurance products. The study identified many lapses in the marketing of life insurance services. In fact, some of the observations of the study point out the fact that product designing, premium fixation and service attributes deserve serious attention of the policyholders and the management in view of increased competition and socioeconomic transformation.