A Study of the Attitude of Insurance Agents and …serialsjournals.com/serialjournalmanager/pdf/1495706765.pdfbased consumers and agents towards the proposed increase in Foreign Direct

A Study of the Attitude of Insurance Agents and Employees towards Hike in FDI Limit...

325 International Journal of Applied Business and Economic Research

A Study of the Attitude of Insurance Agents and Employeestowards Hike in FDI Limit in Insurance Sector- With SpecialReference to Sangrur and Patiala District

Neena Brar1, B.S. Bhatia2 and Rubeena Bajwa3

1 Research Scholar,Sri Guru Granth Sahib World University,Fatehgarh Sahib2 Dean Research, Sri Guru Granth Sahib World University,Fatehgarh Sahib3 Assistant Professor, Sri Guru Granth Sahib World University,Fatehgarh Sahib

1. INTRODUCTION

Insurance in India refers to the market for insurance which covers both the public and private sector organizations.A contract of insurance may be elucidated as a contract whereby, one party called the ‘insurer’ undertakes inreturn for the agreed consideration called the ‘premium’ to pay to another party called ‘assured’ a sum of moneyor its equivalent on the happening of a specified event. The motive of insurance is to make provisions againstvarious contingencies which beset human life and dealings. The insurance industry not only safeguards humanlife but plays a vital role in raising funds for the country’s infrastructure as well. Thus, in an economy which isin a developing stage, insurance sector plays a pivotal role as it inculcates the habit of saving among individualswhich further generates long-term funds for numerous investment purposes.

1.1. FDIin Insurance – A Historical Overview

Before the year 1956, a plethora of insurance companies co-existed in India and the level of competitionwas quite high. During that time, allegations against insurers regarding unfair trade practices was alsohigh. Thus, taking into consideration the prevailing scenario, the Government of India decided to nationalizeinsurance business and an ordinance was passed in January, 1956 nationalizing the insurance sector. LifeInsurance Corporation of India (LIC) came into existence in the same year and absorbed 245 Indian andforeign insurance companies. In 1972 with the General Insurance Business (Nationalization) Act was passedby the Indian Parliament and as a result General Insurance business was nationalized with effect from 1January 1973.

On recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and DevelopmentAuthority was constituted as an autonomous body to regulate and develop the insurance industry.

Neena Brar, B.S. Bhatia and Rubeena Bajwa

International Journal of Applied Business and Economic Research 326

The LIC had monopoly till late 1990s when the insurance sector was reopened for private participation.The IRDA opened up the market in August 2000 with the invitation for application for registrations. However,FDI was permitted only to the extent of 26 per cent. Foreign companies were allowed to enter the insuranceindustry through joint ventures with Indian companies.

Currently. The Government of India has raised FDI limit in insurance to 49% of the total paid-up equity ofthe Indian Insurance Company through the automatic approval route.

2. A BIRD’S EYE VIEW OF LITERATURE

This section briefly discusses some of the studies related to FDI inflows in Insurance.

Rao, M.Subba & Srinivasulu, R. (2013) opined that Insurance Company was a major instrument for themobilization of savings of people particularly from the middle and lower income groups. These savings werechannelized into investment for economic growth. Insurance served a number of valuable economic functionsthat were largely distinct from other types of financial intermediaries.

Sharma, Yogita (2013) examined the current status of FDI in insurance sector in India. Only 26% of FDIwas permitted in insurance sector. The total insurance business touched US$ 60 billion size. It was observed inthe study that opening up of Insurance sector to an extent of 49% for FDIs enhanced FDI’s contribution toinsurance business to nearly US$ 2 billion. Furthermore, the study also made an attempt to ascertain the reasonsof opposing the limit of FDI in insurance sector.

Singh Bikramdeep (2013) discussed Challenges and response to Indigenization along with the continuouslyevolving Defense Procurement Procedure (DPP). It was found in the study that Indian capital defense acquisitionswere governed by the provisions of the DPP. The DPP clearly defined an Indian defense item as one that had aminimum 30 percent indigenous content while the offset provisions for Indian companies under the ‘Buy (Global)’route nullified such a definition. The Vijay Kelkar Committee constituted in 2004 examined the acquisitionprocesses and procedures and recommended changes in the acquisition process.

Parida, Tapas Kumar (2014) emphasized that foreign investments provided huge capital support to theinsurers which led to product innovation, better customer service mechanism and higher insurance penetrationin the country. It was observed in the study that the increased amount of FDI in insurance also helped to meet theinfrastructural needs of the economy, which was estimated $1.2 trillion in the 12th Plan. However, to boostfinancial savings, Government raised the 80C investment cap to 1.5 lakh from 1 lakh, which helped the insurersto tap the new business which was declining in the preceding 2 years.

HM, Rakesh & R Shilpa (2015) emphasized that Liberalization of insurance created conducive environmentfor the generation of long term contractual funds for infrastructural investments. The main objective of the studywas to investigate the Indian insurance industry and review on foreign investors on FDI, as well as an overviewof the Indian Policy and Regulatory Environment. The study concluded that the benefits of the increased FDIwould be seen more in the long term than in the short term. Most prominent insurance companies had a presencein India and would be able to augment their shareholding. The study revealed that it would pose a threat forIndian promoters in the insurance business as they would face competition from foreign companies. Subsequently,this would create healthy competition. Furthermore, it was also found that some foreign insurers would not beinterested in investing unless they had 100% ownership and that the current policy prevented them from choosingIndia as Insurance Destination.

K. Venkataramani., Kumar. R. Mohan & Brindha, G. (2016) described a study of the attitude of Chennaibased consumers and agents towards the proposed increase in Foreign Direct Investment (FDI). The studyfocused on the impact of FDI in insurance as perceived by both the customers and agents in terms of viability,service, benefits, and overall benefits visa-a-vis existing scene. A quantitative survey was conducted with a



special measuring tool specifically devised for the study. The sample group consisted of Chennai based insurancecustomers and agents. The results indicated that the customers welcomed the increase in FDI as they perceivedbetter and quicker service, better options, and professionalism in insurance transactions.

3. OBJECTIVE OF THE STUDY

The main objective of the study is to analyze the attitude of Insurance agents and employees of Public andPrivate Banks in Sangrur and Patiala Districts of Punjab towards hike in FDI limit in Insurance sector to 49% interms of three counts: - Impact on economy, Credibility of New Entrants among Indian Customers and regardingstiff competition for the existing players.

3.1. Hypothesis of the Study

1. H0- Hike in FDI limit in Insurance Sector is not welcomed by the Insurance agents and employees ofPublic and Private Banks in Sangrur and Patiala Districts of Punjab.

2. Ha: -Hike in FDI limit in Insurance Sector is welcomed by the Insurance agents and employees ofPublic and Private Banks in Sangrur and Patiala Districts of Punjab.

4. RESEARCH METHODOLOGY

Following research methodology is incorporated in order to achieve the objective of the study.

4.1. Statistical tools

The research is primary in nature. This study is conducted on Insurance agents and employees of Public andPrivate Banks of Sangrur and Patiala Districts of Punjab. A sample group of 100 respondents were interviewedat their places of work or residence. The entire sample group of 100 respondents completed the questionnaire inall details thus yielding a response rate of 100%. Non-probabilistic convenience sampling technique is employedin choosing the sample.

A special instrument with 12 items was designed and developed specifically for the current study. Theinstrument (a questionnaire) was validated by a team of experts comprising two professors from universities ofrepute and two senior managers/executives of well-known insurance companies. The scale was developed basedon a five-point Likert scale ranging from “strongly disagree” (1) to “strongly agree (5). The participants of thestudy were asked to indicate their degree of agreement and disagreement with each item.

The sample group consists of 100 insurance agents of Public and Private Banks of Sangrur and PatialaDistrict. It can be categorized as:

Sangrur District (50) Patiala District (50)

Public Banks (25) Public Banks (25)

Private Banks (25) Private Banks (25)

The collected and collated data were analysed using the software package SPSS 21.0. The statistical analysisincluded Reliability Analysis, Descriptive Statistics and analysis through T-test.

4.1.1. Reliability Analysis

Cronbach’s Alpha Statistics is employed to test the reliability of the scale developed for the study as shown intable 1. The alpha value for the scale is estimated at 0.83 for most of the items which is well above the cut-offvalue of 0.70, and hence deemed acceptable (Hair et al. 2010).



Table 1Reliability of each items

Subject Scale Scale Corrected Cronbach’sMean Variance Item- Alpha ifif Item if Item Total Item

Deleted Deleted Correlation Deleted

Perception About Indian Economy

Do you think that hike in FDI from 26% to 49% in 43.22 29.81 0.56 0.83Insurance sector would prove to be a right decision of theIndian Government?

Will the increased limit pave way for greater innovation and 43.28 30.55 0.57 0.83better quality healthcare services?

Do you think that hike in FDI would introduce better man 43.43 29.6 0.59 0.83agement practices in Insurance and enhance profits?

Would it increase employment in the nation? 43.35 30.78 0.63 0.83

Perception about Credibility of New Entrants among Indian Customers

Will it safeguard Indian Ownership and control? 43.82 30.47 0.52 0.83

Would it lead to more flow of funds in the Indian economy? 43.5 30.56 0.52 0.83

Will it enhance Insurance area in the country? 43.5 31.97 0.36 0.84

Do you think that from investors point of view funds will 44.11 30.85 0.43 0.84be in safer hands?

Perception regarding stiff competition for the existing players

Would it lead to the establishment of more joint ventures in 43.02 33.6 0.32 0.84Insurance Sector?

Will it foster healthy competition among the existing 43.21 31.87 0.41 0.84insurance sectors?

Will FDI in insurance curb fraudulent practices of Indian 43.89 29.13 0.59 0.83Insurance Companies?

Will it prove effective in processing the claim transactions 43.73 28.85 0.62 0.82of the customers?

4.1.2. Descriptive Statistics

The descriptive statistics which indicates the average values of the factors of the scale is obtained and is presentedin the Table 2. An analysis of the results exhibit that Sangrur and Patiala based respondents showed a moderatedegree of acceptance for increase in FDI limit and that the perceived impact of such an increase is favorable inall the three paradigms: impact on economy, Credibility of New Entrants among Indian Customers and regardingstiff competition for the existing players.

Table 2Descriptive Statistics

Factors Mean SD

Perception About Indian Economy 43.32 30.185

Perception about Credibility of New Entrants among Indian Customers 43.73 30.96

Perception regarding stiff competition for the existing players 43.46 30.86



The table 3 exhibits that private and public banks insurance agents and employees of Sangrur and PatialaDistricts perceive that hike in FDI limit to 49% in Insurance sector would prove to be a right decision of theIndian Government as it would introduce better management practices in Insurance and lead to enhancement inprofits. Furthermore, they opine that new entrants in insurance sector would lead to the establishment of morejoint ventures and Indian ownership and control will also not get affected. Subsequently, customers would alsobe satisfied as it will prove effective in processing their claim transactions. Thus, they welcome FDI in insuranceto a great extent.

Table 3Mean and SD between Private and Public for insurance items

Private(n=50) Public(n=50) t df p

Mean SD Mean SD value value


Do you think that hike in FDI from 26% to 49% in Insurance 4.46 0.54 4.02 1.08 2.58 98 0.01**sector would prove to be a right decision of the Indian Government?

Will the increased limit pave way for greater innovation and 4.28 0.61 4.08 0.9 1.3 98 0.2better quality healthcare services?

Do you think that hike in FDI would introduce better management 4.22 0.74 3.84 0.98 2.2 98 0.03*practices in Insurance and enhance profits?

Would it increase employment in the nation? 4.12 0.56 4.1 0.79 0.15 98 0.88


Will it safeguard Indian Ownership and control? 4.02 0.59 3.26 0.88 5.09 98 0.00**

Would it lead to more flow of funds in the Indian economy? 4.1 0.68 3.82 0.94 1.71 98 0.09

Will it enhance Insurance area in the country? 4.02 0.77 3.9 0.86 0.73 98 0.46

Do you think that from investors point of view funds will be in 3.52 0.86 3.18 0.92 1.91 98 0.06safer hands?


Would it lead to the establishment of more joint ventures in 4.56 0.54 4.32 0.55 2.2 98 0.03*Insurance Sector?

Will it foster healthy competition among the existing insurance 4.34 0.77 4.16 0.77 1.17 98 0.24sectors?

Will FDI in insurance curb fraudulent practices of Indian 3.7 0.84 3.44 1.01 1.4 98 0.17Insurance Companies?

Will it prove effective in processing the claim transactions of the 3.92 0.88 3.54 0.97 2.05 98 0.04*customers?

**p<0.01 and *p<0.05

4.1.3. T-Test Results

An independent sample t-test was conducted to measure the significance of difference in the mean ratingbetween insurance agents and employees of Public and Private Banks of Sangrur and Patiala Districts in theirperception towards the proposed increase in FDI in insurance. The results in table 4reveal that insuranceagents and employees both of public and private sector banks of Patiala and Sangrur Districts perceive thatincreased FDI limit to 49% would safeguard Indian ownership and control and think that it would not getaffected.



Table 4Mean and SD between Patiala and Sangrur for insurance items

Patiala(n=50) Sangrur(n=50) t df p



Do you think that hike in FDI from 26% to 49% in Insurance sector 4.28 0.81 4.2 0.95 0.45 98 0.65would prove to be a right decision of the Indian Government?

Will the increased limit pave way for greater innovation and better 4.18 0.52 4.18 0.96 - - -quality healthcare services?

Do you think that hike in FDI would introduce better management 4.06 0.77 4 0.99 0.34 98 0.74practices in Insurance and enhance profits?



Will it safeguard Indian Ownership and control? 3.84 0.68 3.44 0.93 2.46 98 0.02*

Would it lead to more flow of funds in the Indian economy? 4.02 0.74 3.9 0.91 0.72 98 0.47

Will it enhance Insurance area in the country? 4.1 0.71 3.82 0.9 1.73 98 0.09

Do you think that from investors point of view funds will be in 3.44 0.64 3.26 1.1 1 98 0.32safer hands?


Would it lead to the establishment of more joint ventures in 4.44 0.61 4.44 0.5 - - -Insurance Sector?

Will it foster healthy competition among the existing insurance 4.18 0.85 4.32 0.68 -0.91 98 0.37sectors?

Will FDI in insurance curb fraudulent practices of Indian Insurance 3.72 0.78 3.42 1.05 1.62 98 0.11Companies?

Will it prove effective in processing the claim transactions of the 3.72 0.73 3.74 1.12 -0.11 98 0.92customers?

*p<0.05

Table 5Mean and SD between Patiala and Sangrur for insurance items in case of Private

Patiala(n=25) Sangrur(n=25) t Df p



Do you think that hike in FDI from 26% to 49% in Insurance 4.44 0.58 4.48 0.51 -0.26 48 0.8sector would prove to be a right decision of the Indian Government?

Will the increased limit pave way for greater innovation and better 4.16 0.62 4.4 0.58 -1.41 48 0.16quality healthcare services?

Do you think that hike in FDI would introduce better management 4.24 0.72 4.2 0.76 0.19 48 0.85practices in Insurance and enhance profits?

Would it increase employment in the nation? 4.12 0.53 4.12 0.6 - - -


Will it safeguard Indian Ownership and control? 4 0.65 4.04 0.54 -0.24 48 0.81

Would it lead to more flow of funds in the Indian economy? 4.04 0.73 4.16 0.62 -0.62 48 0.54

Will it enhance Insurance area in the country? 3.88 0.78 4.16 0.75 -1.3 48 0.2



(contd...Table 5)

Patiala(n=25) Sangrur(n=25) t Df p


Do you think that from investors point of view funds will be in 3.48 0.65 3.56 1.04 -0.32 48 0.75safer hands?


Would it lead to the establishment of more joint ventures in 4.52 0.59 4.6 0.5 -0.52 48 0.61Insurance Sector?


Will FDI in insurance curb fraudulent practices of Indian Insurance 3.96 0.68 3.44 0.92 2.28 48 0.03*Companies?

Will it prove effective in processing the claim transactions of the 3.88 0.53 3.96 1.14 -0.32 48 0.75customers?

*p<0.05

Table 6Mean and SD between Patiala and Sangrur for insurance items in case of Public

Patiala Sangrur t df p



Do you think that hike in FDI from 26% to 49% in Insurance 4.12 0.97 3.92 1.19 0.65 48 0.52sector would prove to be a right decision of the Indian Government?

Will the increased limit pave way for greater innovation and better 4.2 0.41 3.96 1.21 0.94 48 0.35quality healthcare services?

Do you think that hike in FDI would introduce better management 3.88 0.78 3.8 1.15 0.29 48 0.78practices in Insurance and enhance profits?



Will it safeguard Indian Ownership and control? 3.68 0.69 2.84 0.85 3.83 48 0.00**

Would it lead to more flow of funds in the Indian economy? 4 0.76 3.64 1.08 1.36 48 0.18

Will it enhance Insurance area in the country? 4.32 0.56 3.48 0.92 3.91 48 0.00**

Do you think that from investors point of view funds will be in 3.4 0.65 2.96 1.1 1.73 48 0.09safer hands?


Would it lead to the establishment of more joint ventures in 4.36 0.64 4.28 0.46 0.51 48 0.61Insurance Sector?


Will FDI in insurance curb fraudulent practices of Indian Insurance 3.48 0.82 3.4 1.19 0.28 48 0.78Companies?

Will it prove effective in processing the claim transactions of the 3.56 0.87 3.52 1.08 0.14 48 0.89customers?

**p<0.01



The p value (0.03) in the above table 5 reveals that insurance agents of Private Banks of both the districtsopine that increased FDI limit to 49% will curb fraudulent practices of Indian Insurance Companies and assist insmooth functioning in Insurance sector.

The insurance agents of Public Banks of both the districts perceive that increased limit in FDI to 49%would safeguard Indian Ownership and control and also enhance Insurance area in the country, thereby coveringmore number of people as seen in table 6.

4.1.4. Discussion

An analysis of the data and statistical indicators show that the Sangrur and Patiala based respondents welcomedthe proposed increase in FDI and perceived that the proposed increase could usher in healthy competition andthus bring about a favorable change in terms of better management practices, establishment of more joint venturesleading to enhancement in insurance cover, curb fraudulent practices of Indian Insurance Companies and assistin smooth functioning in Insurance sector. In nutshell, it is welcomed by the insurance agents of public andprivate banks to a great extent. Thus null hypothesis is rejected leading to the acceptance of alternate hypothesis.

5. LIMITATIONS OF THE STUDY

Due to time constraint the study covers only two districts due to which less number of respondents are covered.

6. FINDINGS AND CONCLUSION OF THE STUDY

The results of the study reveal that insurance agents of Private and Public Banks of Sangrur and Patiala Districtswelcomed FDI in insurance and perceive that as India is a highly populated country, thus people need to haveinsurance. Hike in FDI limit would lead to more insurance cover as there would be establishment of more jointventures, thus pose a stringent competition to the existing domestic players. Furthermore, it will prove delightfulto the customers as well as their transactions would be settled down efficiently. In nutshell, FDI in insurance iscrucial for the growth and development of an economy.

BIBLIOGRAPHY

Hair, J. F., Ringle, C. M., & Sarstedt, M. (2011),”PLS-SEM: Indeed a silver bullet”, The Journal of Marketing Theory and Practice,19(2), 139-152

HM, Rakesh & R Shilpa (2015),”A Study on Indian Insurance Industry and Foreign Direct Investment”, IRACST – InternationalJournal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 4, No.1, and February 2015.

K. Venkataramani., Kumar. R. Mohan & Brindha, G. (2016),”A Study Of The Attitude Of Customers And Agents Towards TheProposed Increase Of FDI In The Insurance Sector In Chennai Metropolis”, Vol.4 (Iss.2): February, 2016.

Rao M.Subba & Srinivasulu R. (2013), “Contribution of Insurance Sector to Growth and Development of the Indian Economy”,IOSRJournal of Business and Management Volume 7, Issue 4 (Jan. - Feb. 2013), PP 45-52www.iosrjournals.org.

Sharma Yogita (2013), “Analysis Of FDI In Insurance Sector In India”, IJRESS Volume 3, Issue 3, April 2013.

Singh Bikramdeep (2013), “Defense Indigenization Made in India, by India, for India”,Claws Journal[online] Available atwww.papers.ssrn.com [Accessed 17.11.2013].

Websites

• www.economictimes.indiatimes.com/

• http://www.india.com/business/6-benefits-of-increased-foreign-direct-investment-limit-in-insurance-sector-101998/

• www.investopedia.com/terms/f/fdi.asp

• www.rbi.org.in ›Publications



• http://www.thehindu.com/business/Industry/govt-allows-49-fdi-in-insurance-under-automatic-route/article8375048.ece

• http://vijaysvision.blogspot.in/2015/06/pros-and-cons-of-foreign-direct.html.

• https://en.wikipedia.org/wiki/Insurance_in_India

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A Study of the Attitude of Insurance Agents and …serialsjournals.com/serialjournalmanager/pdf/1495706765.pdfbased consumers and agents towards the proposed increase in Foreign Direct