BE Project Report_Grp4 (2)

8/6/2019 BE Project Report_Grp4 (2)

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Assessing Business Environment

ofBajaj Allianz General Insurance Company

GROUP 4

SECTION C

Aaron Lopes 2010121

Ambesh Agni 2010125

Apoorv Jain 2010128

Eshita Batta 2010136

Shashi Bhushan 2010167

Sneha Hingorani 2010170

Email- [email protected]

Mobile No. - +919545458505


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ABSTRACT

The General Insurance sectorhas witnessed a growth in personal/retail line products on the back

of increasing income levels and changing life styles. The report contains the study of business

environment of Bajaj Allianz General Insurance Company and the distribution channels that the

insurance industry as a whole uses to get its business. It also contains information about the

internal and the external environment factors affecting the company.

Quantitative analysis is done to evaluate the effectiveness of various distribution channels in the

industry. It also incorporates a comparative analysis of the expenses of top 5 companies in the

General Insurance Industry pertaining to the motor insurance segment which gives an idea about

the general practices that the company follows.

We would sincerely like to thank Prof. Nandi and Prof. Joy who guided us through the course of

this project.


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CONTENTS

INTRODUCTION ...................................................................................................................... 4

1.1 INSURANCE INDUSTRY IN INDIA .......................................................................... 4

Insurance SectorReforms .................................................................................................... 4

Market capitalization ........................................................................................................... 6

Size of the industry.............................................................................................................. 6

Total contribution to the economy/ sales ............................................................................. 7

1.2 General Insurance Industry ................................................................................................ 8

2.1 Companys History ....................................................................................................... 9

2.2 Internal environment ................................................................................................... 10

Values ............................................................................................................................... 10

Underwriting Philosophy................................................................................................... 10

Claims Philosophy ............................................................................................................ 11

Vision ............................................................................................................................... 11

Mission ............................................................................................................................. 11

Recognition ....................................................................................................................... 11

Human Resources at Bajaj Allianz .................................................................................... 12

Expenses Analysis of some General Insurance Companies in 2009-2010. ......................... 13

Company Image and Brand Equity .................................................................................... 14

2.3 External Environment ................................................................................................. 15

Major Competitors: ........................................................................................................... 15


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Growth Drivers and Opportunities ............................................................................................ 18

3.1 Threats ........................................................................................................................ 19

3.2 Challenges .................................................................................................................. 19

3.3 PEST Analysis ............................................................................................................ 20

Political ............................................................................................................................. 20

Economical ....................................................................................................................... 20

Social ................................................................................................................................ 21

Technological.................................................................................................................... 21

3.4 Latest developments ................................................................................................... 21

Distribution Analysis ................................................................................................................ 23

Distribution Modes ............................................................................................................... 23

Regression Model for predicting revenue from distribution channels ..................................... 24

Summary and Findings ......................................................................................................... 31

5.1 The Road Ahead ......................................................................................................... 31

5.2 Limitations ................................................................................................................. 32

EXHIBITS................................................................................................................................ 33


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INTRODUCTION

1.1INSURANCEINDUSTRYININDIA

History of General Insurance can be traced back to the 17th century to the Industrial Revolution

in the west and the consequent growth of sea-faring trade and commerce in the 17th century. The

General Insurance has its roots in the year 1850 in Calcutta from the establishment ofTriton

Insurance Company Ltd., by British. The Indian Mercantile Insurance Ltd was set up in the year

1907. As this was the first company to transact all classes of general insurance business. In the

year 1957 General Insurance Council, a wing of the Insurance Association of India was

established.

With the emergence of growing demand for insurance, more and more insurance companies are

now emerging in the Indian Insurance Industry. With the opening up of the economy, there are

several international leaders in the insurance sector that of India are trying to venture into the

India insurance industry.

Insurance Sector Reforms

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI GovernorR.N.

Malhotra was formed to evaluate the Indian insurance industry and recommend its future

direction. The Malhotra committee was set up with the objective of complementing the reforms

initiated in the financial sector.

In 1994, the committee submitted the report and some of the key recommendations included:

Structure

1. Government stake in the insurance Companies to be brought down to 50%.

2. Government should take over the holdings of GLC and its subsidiaries so that these

subsidiaries can act as independent corporations.

3. All the insurance companies should be given greater freedom to operate.


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Competition

1. Private Companies with a minimum paid up capital ofRs. 1 billion should be allowed to enter

the industry.

2. No Company should deal in both Life and General Insurance through a single entity.

3. Foreign companies may be allowed to enter the industry in collaboration with the domestic

companies.

4. Postal General Insurance should be allowed to operate in the rural market.

5. Only one State Level General Insurance Company should be allowed to operate in each state.

Regulatory Body

1. The Insurance Act should be changed.

2. An Insurance Regulatory body should be set up.

3. Controller of Insurance (Currently a part from the Finance Ministry) should be made

independent.

The goals of IRDA are to safeguard the interests of insurance policyholders, as well as to initiate

different policy measures to help sustain growth in the industry. This Authority has notified 27

Regulations on various issues like Registration of Insurers, Regulation on insurance agents, Re-

insurance, Solvency Margin, Obligation of Insurers to Rural and Social sector, Investment and

Accounting Procedure, Protection of policy holders' interest, etc.


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Indian Insurance Industry is flourishing with several national and international players

competing and growing at rapid rates. The success comes usually from the easing of policy

regulations, and India has become more familiar with different insurance products and the period

from 2010 - 2015 is projected to be the 'Golden Age' for the Indian insurance industry.

Market capitalization

Indian Insurance Industry is a colossal one which is growing at the rate of 15-20%. Today the

Insurance Industry together with banking services add about 7% to the countrys GDP. A well-

developed and evolved insurance industry is a boon for economic development which provides

long- term funds for infrastructure development at the same time strengthening the risk taking

ability of the country.

Size of the industry

According to the Life Insurance Council, the Indian life insurance industry is considered the fifth

largest life insurance market with US$ 41-billion & growing at a rapid pace of 32-34% annually.

In March 2010 the Life Insurance Corporation of India (LIC) registered an 83% increase in new

business income, while private players posted a 47% growth in new business premium.


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According to IRDA, the insurers in the year 2009-2010 sold 10.55 million new policies with LIC

selling 8.52 million and private companies 2.03 million policies. In the year March 2010, LIC

held 65% market share in terms of new business income collection with the private sector

contributing the remaining 35% share in 2009-10.

Total contribution to the economy/ sales

Indian Insurance Industry is one of the booming Industries of the economy and is growing at the

rate of 15-20 % per annum. Along with banking services, it contributes to about 7% to the

country's GDP. Insurance is a federal subject in India and is governed by Insurance Act, 1938,

the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act,

1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related

Acts.


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1.2GENERAL INSURANCE INDUSTRY

General Insurance is another segment, whichhas been growing at a faster pace. But as per the

current comparative statistics, the general insurance premium has been lower than life insurance.

General Insurance premium as a percentage of GDP was a mere 0.5 'per cent in 1996.

In the General Insurance Business, General Insurance Corporation (GIC) and its four subsidiaries

viz, New India Insurance, Oriental Insurance, National Insurance and United India Insurance, are

doing major business.

The General Insurance Industry has been growing at a rate of 19 percentper year.The entry of

several private insurance companies, particularly international insurance companies, through

joint ventures, will speed up the process of insurance mobilization. The competition will unleash

new schemes and benefits, which will give consumers a better Chance to save as well as insure.

The regulatory system in India is relatively new and will take some more time to make the

Insurance sector a perfectly competitive one.

IRDA issued regulations on 15 subjects which included appointedactuary, actuarial report,

insurance agents, solvency margins, reinsurance, registration of Insurers, and obligation of

insurers to rural and social sector, investment and accounting procedure. The reform in Insurance

in India is guided by factors like availability of a variety of products at a competitive price,

improvement in the quality of customer services etc. Also the employment opportunities in the

Insurance sector wil1 increase as major players set their business plans in India. The policy of

the government to open up the financial sector and the Insurance sector is expected to bring

greater FDI inflow into the country. The increase in the investment limit in this vital sectorhas

generated considerable business interests among the foreign Insurance companies". Their entry

wil1 certainly change the Insurance sector considerably.


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(IRDA)(Research and Markets)(Casact)(htt)Bajaj Allianz General

Insurance Company Limited or Bajaj Allianz Insurance is a joint venture between two of the

most reputed names in the Indian insurance sector - Bajaj Finserv Limited and Allianz SE. Both

of the names are known for their strength, expertise and stability in the insurance sector. While

Bajaj Finserv Limited holds the 74% of the paid up capital ofRs. 110 crore, Allianz SE holds the

remaining 26%. It can be added here that Bajaj Finserv Limited has very recently demerged from

Bajaj Auto Limited.Bajaj Allianz Insurance started its journey on May 2, 2001 when it received

the certificate ofRegistration from Insurance Regulatory and Development Authority (IRDA) for

conducting General Insurance business in India including Health Insurance. As on the end of

March 2009, the income of Bajaj Allianz Insurance went up to Rs. 2,866 crore with a growth of

11% over the previous year. It also registered a net profit ofRs. 95 crore, highest by any private

insurer, in the last financial year.

2.1 COMPANYSHISTORY

Allianz AG:Allianz group was founded in 1890 and is one of the world's leading insurance

companies with over 100 years experience in insurance and related services. It is also the largest

insurer in Europe. Allianz group has multi-local structure and presence in over 70 countries.

The key business areas of Allianz group include General Insurance (property, engineering,

marine, motor, casualty and miscellaneous), Reinsurance, Risk Management, Life & health

insurance, Asset Management and Pension Funds Management.

Bajaj Auto Ltd.: Bajaj Auto Ltd the flagship company of Bajaj Group was incorporated in 1945

as Bachraj Trading Corporation. Initially it started by assembling two and three wheelers in

collaboration with Piaggio of Italy. After the expiry of the Agreement in 1971 the two and three

wheelers acquired the brand name of Bajaj. The strength of the company lies in its strong brand

image and ability to offer value for money products leveraging on its large-scale operations.

The Joint Venture: Bajaj Allianz General Insurance is a joint venture non-life company promoted

jointly by Bajaj Auto and German insurer- Allianz. Indian auto majorholds 74% while Allianz

holds 26% in the Joint Venture, and has an authorized and paid up capital ofRs. ll0 crores. Mr.

Graham Norris is the CEO of the company. Bajaj Allianz General Insurance will leverage the

customer base and expertise of Bajaj Auto Ltd and Allianz.


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Offerings: Bajaj Allianz General Insurance Company Ltd. offers a range of insurance products to

its clients.The following insurances are offered by the company:

y Motor Insurance

y Asset Insurance

y Health Insurancey Travel Insurance

y Corporate Insuranceo Specialty Lines

Aviation Marine Hull Insurance

Project Insurance Sports & Entertainment Insurance

o Group insurance for Employees of various corporateo Office

o Manufacturing Unit

o Credit Insurance

2.2 INTERNAL ENVIRONMENT

Values

y

Business strategy aligned to clients' needs and trends in Indian and global economy /industry

y Internationally experienced core team, majority with local background

y Fast, decentralized decision making

y Long-term commitment to market and clients

y Trust

Underwriting Philosophy

The Bajaj Allianz underwriting philosophy focuses on:-

y Understanding the customer's needs

y Underwriting what we understand


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y Meeting the customer's requirements

y Ensuring optimal coverage at lowest cost

Claims Philosophy

The Bajaj Allianz claims philosophy focuses on:-

y Be flexible and settle fast

y Ensure no claim file to be seen by more than 3 people

y Check processes regularly against the global Allianz OPEX (Operational Excellence)

methodology that has sold over 1 million since inception

Visiony To be the first choice insurer for customers

y To be the preferred employer for staff in the insurance industry

y To be the number one insurer for creating shareholder value

Mission

As a responsible, customer focused market leader, we will strive to understand the insurance

needs of the consumers and translate it into affordable products that deliver value for money.1

Recognition

Bajaj Allianz has received iAAA rating, from ICRA Limited, an associate of Moody's Investors

Service, for Claims Paying ability. This rating indicates highest claims paying ability and a

fundamentally strong position.

Bajaj Allianz General Insurance has received the prestigious "Business Leader in General

Insurance", award by NDTV Profit Business Leadership Awards 2008. The company was one of

the top three finalists for the year 2007 and 2008 in the General Insurance Company of the Year

award by Asia Insurance Review.

1(Bajaj Allianz)


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Human Resources at Bajaj Allianz

Starting in 2001 with some borrowed furniture from Bajaj Auto the team at Head Office was

working out of one of the halls at GE Plaza. Since then the company has seen phenomenal

growth from 16 employees to its current strength of 3500+ employees. (Oct 2010)2

Features of the HR policies at Bajaj Allianz

1. Freedom and empowerment: Encouraging experimentation and innovation and

empowering people to take responsibilities. This means removing bureaucratic hurdles

and layers of management. In terms of business, this translates to faster decision making

and more accountability from team members for their actions.

2. Open, transparent culture: Open cross-level communication. Everybody knows and

understands the goals we are working towards. Feedback is encouraged through an online

suggestion scheme and a bulletin board where any team member can post their views on

any work related issue.

3. Recognition and reward: Growth is not defined by the years of experience you have.

The measure is Performance. Performance means not just an individual s ability to

deliver on the job but also his / her ability to develop and carry a team withhim / her.

Today more t

han

half of t

he offices are being

headed by youngsters below t

he age of 28.

2(General Insurance: Bajaj Allianz)


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xpenses Analysis of some General Insurance Companies in 2009-2010.

2010 2009

Refer to Exhibit 2

The above graphs show the comparison of expenses made by Bajaj Allianz with other companies

on the percentage of total expenses made by them for employees remuneration and benefits,

Information technology and advertisement and publicity in 2009-2010 in the motor insurance

segment. This gives a picture about the internal environment in all the companies.

y Bajaj Allianz and ICICI Lombard spend approximately 4 times the money on Employees

remuneration & welfare benefits than all the other companies in the motor insurance

segment.


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y Also Bajaj Allianz has been very aggressive and has been spending a lot on its business

development and sales promotion to beat its competitors. Both ICICI Lombard and Bajaj

are playing aggressive while Tata Aig has almost reduced its expenses on business

development and sales promotion by almost 50%.

y All the companies have been spending huge amounts on their information systems with

Bajaj Allianz spending the maximum in the year 2010.

Company Image and Brand Equity

Under extremely testing conditions during 2009-10, the Company has sought to focus on

profitability rather than growth by:

y Prudent Underwriting

y Cost control

y Focus on maintaining low combined ratio

The Company has strengthened the policy issuance process through several measures which

related to standardization of processes and strengthening the Centralized Operations Vertical.

The customer and channel partner can receive policy issuance status throughSMS. Bajaj Allianz

continues to have a strong image for its claims settlement in terms of approach and response

times. They publish claims statistics in its quarterly newsletter News Track and are pioneers in

providing claims status throughSMS.3

With a change in the focus from the product to the service that theyre providing Bajaj Allianz

aims to make a powerful connection with the existing and prospective clientele and all other

stakeholders through a single communication. The new campaign with a tagline of JiyoBefikar

(live without worries) talks about how one can live a care-free life ) while the earlier campaigns

talked about products and the agent with the focus on being able to provide the policy which is

the best fit to your needs.

3(Television Point)


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2.3 EXTERNAL ENVIRONMENT

Intense Competition:In a de-tariffed environment, competition will manifest itself in prices,

products, underwriting criteria, innovative sales methods and creditworthiness. Insurance

companies will vie with each other to capture market share through better pricing and client

segmentation.The battle has so far been fought in the big urban cities, but in the next few years,

increased competition will drive insurers to rural and semi-urban markets.4

MajorCompetitors5:

ICICI Lombard:A joint venture between ICICI Bank, India's second largest bank and Fairfax

Financial Holdings Limited; a Canada based diversified financial company. Currently the

company has more than 4000 employees working in 357 branches and has issued over 4 million

insurance policies and settled overRs. 30 Lakh in claims in 2009 alone.

Reliance:Reliance General Insurance is one of Indias leading private general insurance

companies. The Company has launched innovative products like Indias first Over-The-Counter

health & home insurance policies. Reliance General Insurance has an extended network of over

200 offices spread across 173 cities in 22 states, a wide distribution channel network, 24x7

customer service assistance and a full-fledged website.

IFFCO Tokio:A joint venture between the Indian Farmers Fertilizer Co-operative (IFFCO) and

Tokio Marine and Nichido Fire Group, IFFCO-TOKIO offers an extensive collection of

customized policies that cater to a wide array of customers, ranging from farmers to even the

automobile manufacturers. IFFCO TOKIO has been the pioneer in underwriting mega policies

for fertilizer as well as automobile company in India. It gets the technical support from Tokio

Marine for reinsurance and underwriting.

HDFC Ergo:HDFC ERGO General Insurance Company Limited is a 74:26 joint venture

between HDFC Limited, Indias premier Housing Finance Institution & ERGO

International AG, the primary insurance entity of MunichRe Group. HDFC ERGO has been

4 (IRDA)

5(Casact)


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expanding its presence across the country and is today present across 71 cities with 78 branch

offices with an employee base of over 950 professionals. The company has a right balance of

distribution channel comprising of Dealerships, Brokers, Retail and Corporate Agents,

Bancassurance and Direct Sales Team.

TATA AIG:Tata AIG Insurance company, one of the leading insurance company offering both

life and general insurance, is a joint initiative of the Tata Group and American International

Group,Inc(AIG). The ratio of stake holding of the respective companies is slated at 76:24. Tata

AIG has over the years has created a name for themselves in the insurance sector of India. The

company provides an extensive range of general insurance products ranging from automobile,

health, accident, property, home, travel to personal offering solutions to individuals as well as

corporates and tries to serve all sections of people.

RSAICL:Royal Sundaram Alliance Insurance Company Limited is a leading private insurance

company in India. In fact, it is the first Indian private insurer to get license in the post

privatization era in 2001. Provides innovative insurance solutions to its customers, Royal

Sundaram Alliance Insurance Company has also been first in introducing various useful services

like cashless hospitalization, co-branded credit cards, segment specific business solutions and

industry specific proposition etc. (Bajaj Allianz)

Chola: A joint venture between Japan's Mitsui Sumitomo Insurance Group and Murugappa

Group, Cholamandalam MS General Insurance Company offers a host of customized services in

all segments of the society.

The Murugappa Group, a conglomerate of US$ 2.4 billion have its headquarters in Chennai, with

interest in the field of engineering, abrasives, sanitaryware, fertilizers, finance, bio-products and

plantations has 29 companies under its umbrella. Mitsui Sumitomo Insurance Group is one of the

biggest insurance groups in the globe, operating in the non-life insurance, life insurance,

financial services and risk management services space.

Future Generali:Future Group is one of Indias leading business houses with multiple

businesses spanning across the country. Retail is the main business activity of Future Group.

Generali Group was established in Trieste on December 26, 1831. It is an international group

working in more than 40 countries with insurance companies, financial companies and real estate


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sectors. After doing business in Central Eastern Europe, Generali Group has started to develop

business in the principal markets of the Far East, including China and India.

BhartiAxa:Bharti has a joint venture - Bharti AXA Life Insurance Co. Ltd. - with AXA, world

leader in financial protection and wealth management. Bharti Enterprises is one of Indias

leading business groups with interests in telecom, agri business, financial services and retail.

Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its

credit. BhartiAirtel Limited, a group company, is one of Indias leading private sector providers

of telecommunications services with an aggregate of over 80 million customers as of end of June

2008. AXA Group is a worldwide leader in Financial Protection. AXA's operations are diverse

geographically, with major operations in Europe, North America and the Asia/Pacific area.6

Market Share of General Insurance Companies 2009-2010(htt)7

6 (Research and Markets)

7(IBEF)


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GROWTH DRIVERS AND OPPORTUNITIES

y There is a high demand for insurance products due to a growing middle class, increasing

working population, rising household savings and increasing purchasing power.

y Penetration levels set to increase.

y The increasing literacy rate, especially in rural India, has spread awareness about the

need for insurance.

y Between 2006 and 2026, the working population (2560 years) is expected to increase

from 675.8 million to 795.5 million giving rise to a favorablemarket for insurance

companies.

y Projected per capita GDP is expected to increase from US$ 380.8 in 20002001 to US$

2,097.5 in 2026, reflecting higher disposable income.

y Favorablegovernment and regulatory initiatives are expected to increase the contribution

of the insurance industry to the overall economic development of the country.

y Fast progressing medical technology and increasing demand for better healthcare has

resulted in rising demand forhealth insurance. Regulatory initiatives to promote health

insurance include:

y IRDA has set up a separate department forhealth insurance.

y It has recommended that the government brings down capital requirements for

standalone health insurance companies to US$ 10.42 million from US$ 20.83 million.


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y The government is set to raise budgetary support of US$ 28.33 billion for the health

sector during the Eleventh Plan.

y International players and life insurers have entered this segment.

y Launch of innovative products

y The non-life insurance sectorhas witnessed personal/retail line products pick up on

the back of increasing income levels and changing life styles.

y Emergence of new distribution channels, such as bancassurance, brokers and e-channels,

has increased outreach.y Rise in sale of passenger cars, fuelling demand for auto insurance

y Between 200203 and 200809, the number of passenger cars has increased at a

CAGRof 14 per cent. This trend is likely to continue due to strong growth in the auto

segment resulting from an increase in consumer income levels. Between 200506 and

200809, the auto insurance premium has increased at a CAGRof 21.4 per cent.

3.1 THREATS

No of Private players is constantly increasing eating up into the market of Bajaj Allianz.

Presence of very strong competitors is also going to impact severely. Capital requirements across

the sector are likely to increase due to:

y Higher sum assured driving sum at risk

y Greater allocation to policyholders assets due to lower charges

y Back loading resulting in high new business strain, and expense overruns due to low

productivity of newly set distribution network will likely increase in FDI from 26 percent

to 49 percent there is a chance of new entrants into the market.

3.2 CHALLENGES

y Threat of New Entrants:The insurance industry has been budding with new entrants

every other day. Therefore the companies should carve out niche areas such that the

threat of new entrants might not be a hindrance. There is also a chance that the big

players might squeeze the small new entrants.


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y Power of Suppliers:Those who are supplying the capital are not that big a threat. For

instance, if someone as a very talented insurance underwriter is presently working for a

small insurance company, there exists a chance that any big player willing to enter the

insurance industry might entice that person off.

y Power of Buyers: No individual is a big threat to the insurance industry and big

corporate houses have a lot more negotiating capability with the insurance companies.

Big corporate clients like airlines and pharmaceutical companies pay millions of dollars

every year in premiums.

y Availability of Substitutes:There exist a lot of substitutes in the insurance industry.

Majorly, the large insurance companies provide similar kinds of services be it auto,

home, commercial, health or life insurance.

3.3 PESTANALYSIS

Political

y IRDA and the Securities and Exchange Board of India (SEBI) are in the process of

finalising their directives and provide detailed guidelines for M&A. The Insurance Laws

(Amendment) Bill, 2008, proposes to provide for the increase in shareholdings by a

foreign company from the current limit of 26 per cent to 49 per cent.

y IRDA is drafting norms for mandatory disclosure of insurers financial statements,

investment portfolios at regular intervals, financial and operating ratios, actual solvency

margin, policy-lapse ratio, current financial position, risk management architecture, etc.

y Setting up of data warehouses to monitor settlement of insurance claims will also be

made compulsory.

Economical

y In the non-life insurance segment, share of the private sector in total premiums increased

from 9.5 per cent in 200203 to 40.9 per cent in 20092010.

y There is a younger consumer segment with very high disposable income which is still

untapped by the insurance companies.


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Social

y Low insurance literacy and awareness, high transaction costs, limited regulations and

narrow understanding of client needs and expectations have restricted demand for micro-

insurance products.

y Increasing insurance business has increased the demand forhighly skilled professionals

as well as semi-skilled and unskilled people. Due to this more and more people are

getting involved in the insurance business.

y Favorable demographics, fast progression of medical technology and increasing demand

for betterhealthcare have facilitated a high growth in health insurance.

Technologicaly Different features of general Insurance like online buying of insurance, renewing of

insurance, settlement of claims online, free pick up of cars, early settlements, case

settlements via SMS etc. have only been due to the technological advancements and have

made insurance an easy commodity. ERP systems and other information technology have

made life easier for the insurance company and have also helped them in being more

efficient.

3.4 LATEST DEVELOPMENTS

y In November 2009 According to the industry body report publication, the medical

insurance sector would account for US$ 3 billion in the next three years.

y In the year 2008-09 the IRDA in its annual report said that the Health insurance premium

collections touched US$ 1.45 billion compared with US$ 1.13 billion in the previous

year.

y Further in 2009 the total premium between April and December was US$ 1.35 billion, upfrom US$ 1.12 billion, an increase of 20 %, as per figures released by the regulator.

y According to IRDA guidance note released by IRDA, the regulator has increased the

lock-in period for all unit-linked insurance plans (ULIPS) to five years from the current

three years, which makes them long-term financial instruments and provide risk


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DISTRIBUTION ANALYSIS

DISTRIBUTION MODES

y Most new entrants are targeting the Indian middle class segment estimate at over 250

million persons.

y High focus on direct selling-the preferred route is the agency network. The agency

channel constitutes 90-95% of the market.

y Alliance with banks: Insurance is using branch network s to sell insurance products. This

enable insurance to leverage on low distribution costs by using existing network. Insurers

are also targeting bank employees as per prospective customers and agent to market

products.

y Non-bank alliances: These are tie ups with non-governmental organizations (NGOs)

mainly to tap the rural market. This would be enable insurers to ensure IRDA compliance

with respect to rural coverage.

y Retail financial service distribution: This involves the tie ups with NBFCs to act as

corporate agent, and also enable insurers to cross sell with other financial services.

With the entry of private insurers, the market is already seeing a wide array of products. Insurers

today are not merely looking at offering the basic life insurance solution, but offering products

with a combination of benefits (riders) which could be bundled/customized to suit an

individuals need. Insurance is also being promoted as a sound long-terms investment option.

In terms of returns insurance products today offer a competitive 7-9 percent. Besides return when

really increases the appeal of insurance is the benefit of life protection from insurance products

along withhealth cover benefits. The tax benefits are also attractive.

While the plain individual insurance (whole life, term etc.) will remain popular, sale of newproducts such as single premium, unit-linked, retirement products, money back and annuity are

set to rise. With Parliament passing the Insurance Amendment Bill, non-profit products are likely

to become increasingly prevalent.


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REGRESSION MODEL FORPREDICTING REVENUE FROM DISTRIBUTION CHANNELS

We ran a regression for the total revenue earned and the contribution of each distribution

network employed by each company, four distribution channels turned out to be most significant

contributors in terms of revenue generated: brokers, individual agents, direct business and

corporate agents. Then further regression was employed to find the most significant contributors

amongst the four and the results were:

The regression equation is

total = 2689 + 1.19 Individual Agents + 0.225 Corporate Agents + 4.87 Brokers

+ 0.178 Direct Business

Predictor Coef SE Coef T P

Constant 2689 2235 1.20 0.283

Individual Agents 1.1854 0.3867 3.07 0.028

Corporate Agents 0.2253 0.4380 0.51 0.629

Brokers 4.867 2.436 2.00 0.102Direct Business 0.1785 0.3148 0.57 0.595

S = 3558.36 R-Sq = 95.6% R-Sq(adj) = 92.0%

Analysis of Variance

Source DF SS MS F P

Regression 4 1364122181 341030545 26.93 0.001

Residual Error 5 63309636 12661927

Total 9 1427431817

Source DF Seq SSIndividual Agents 1 1090772337

Corporate Agents 1 73989481

Brokers 1 195291541

Direct Business 1 4068822


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Unusual Observations

Individual

Obs Agents total Fit SE Fit Residual St Resid

8 297 14064 8427 2281 5637 2.06R

R denotes an observation with a large standardized residual.

Scatter Plot:

It was thus found that none of the variables were contributing significantly except Individual

agents. It was also found that observation point 8 was an outlier. Hence, a fresh regression was

done after removing the outlier.


Total = 1251 + 1.46 Individual Agents + 0.714 Corporate Agents + 2.41 Brokers



Constant 1251 1007 1.24 0.282



Brokers 2.408 1.167 2.06 0.108

Direct Business 0.5825 0.1595 3.65 0.022

S = 1530.82 R-Sq = 99.3% R-Sq(adj) = 98.7%


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Source DF SS MS F P

Regression 4 1390511584 347627896 148.34 0.000

Residual Error 4 9373650 2343412

Total 8 1399885234

Source DF Seq SS

Individual Agents 1 1079443977


Brokers 1 194902894


Scatter plot:

It was now found that all the variables were contributing significantly, except brokers. Hence a

final regression was done without brokers as one of the variables.


total = 1930 + 1.70 Individual Agents + 1.08 Corporate Agents



Constant 1930 1223 1.58 0.175



Direct Business 0.8556 0.1145 7.47 0.001

S = 1967.52 R-Sq = 98.6% R-Sq(adj) = 97.8%


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Source DF SS MS F P

Regression 3 1380529470 460176490 118.87 0.000

Residual Error 5 19355764 3871153

Total 8 1399885234

Source DF Seq SS

Individual Agents 1 1079443977



Scatter plot:

Thus a model was obtained which contributed significantly towards predicting the total revenues

obtained by a company if we know the premium that these four distribution channels are offering

and the number of policies that each of them would sell.

We ran a regression for the total number of policies sold and the distribution network employed

by each company, four distribution channels turned out to be most significant contributors in

terms of the number of policies sold: brokers, individual agents, direct business and corporate

agents. Then further regression was employed to find the most significant contributors amongstthe four and the results were:

The regression equation is:

Total = 19168 + 0.882 Individual Agents + 0.834 Corporate Agents + 3.25 Brokers +

0.801 Direct Business


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Constant 19168 33822 0.57 0.595



Brokers 3.249 2.545 1.28 0.258

Direct Business 0.8007 0.2102 3.81 0.013

S = 54652.2 R-Sq = 98.6% R-Sq(adj) = 97.6%


Source DF SS MS F P

Regression 4 1.08837E+12 2.72093E+11 91.10 0.000

Residual Error 5 14934316298 2986863260

Total 9 1.10331E+12

Source DF Seq SS

Individual Agents 1 6.54944E+11

Corporate Agents 1 2.69351E+11

Brokers 1 1.20738E+11



Individual

Obs Agents Total Fit SE Fit Residual St Resid

8 4779 169741 76541 33067 93200 2.14R


Durbin-Watson statistic = 2.30653

Scatter Plot:

Since brokers was not very significant, we ran the regression without considering it. The results

obtained are:



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Total = 44114 + 1.03 Individual Agents + 1.09 Corporate Agents + 1.00 Direct Business


Constant 44114 29016 1.52 0.179



Direct Business 1.0037 0.1445 6.95 0.000

S = 57447.3 R-Sq = 98.2% R-Sq(adj) = 97.3%


Source DF SS MS F P

Regression 3 1.08350E+12 3.61168E+11 109.44 0.000

Residual Error 6 19801162708 3300193785

Total 9 1.10331E+12

Source DF Seq SS



Direct Business 1 1.59208E+11


Individual

Obs Agents Total Fit SE Fit Residual St Resid

8 4779 169741 52664 28662 117077 2.35R


Durbin-Watson statistic = 2.63852


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Scatter Plot:

The R square value decreased slightly, but now all the variables are highly significant and

contribute well towards the model. But we still run the regression once again without the outlier

and see if the Rsquare value or significance of the variables changes positively or not.


Total = 4835 + 1.06 Individual Agents + 1.15 Corporate Agents



Constant 4835 10265 0.47 0.657Individual Agents 1.05548 0.03129 33.73 0.000


Direct Business 1.11957 0.04681 23.92 0.000

S = 17613.0 R-Sq = 99.9% R-Sq(adj) = 99.8%


Source DF SS MS F P

Regression 3 1.03841E+12 3.46135E+11 1115.79 0.000

Residual Error 5 1551081158 310216232

Total 8 1.03996E+12

Source DF Seq SS



Direct Business 1 1.77457E+11

The regression equation hence obtained is more significant and would be highly effective in

predicting the total number of policies that the company may expect to sell in one quarter.


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SUMMARY AND FINDINGS

The report gives an overview of the insurance industry in India and focuses on the Internal and

the external business environment affecting Bajaj Allianz. It contains a comparative analysis of

the Expenses done by various companies in the segment on employees, advertisement and

publicity and also the effectiveness of the various distribution channels used in the industry.

The report also discusses the various growth drivers and opportunities in the insurance sector.

The analysis shows that Bajaj Allianz is one of the most aggressive companies when it comes to

advertising and publicity and spends almost 10% of its total expenditure for publicity. It also

invests highly in IT and has increased its expenses almost 50% in 2010 as compared to 2009. As

far as employees are concerned Bajaj Allianz spends almost 4 times the money on employee

remuneration and benefits. It spends almost 50% of its total expenses on its employees.

The distribution network has really evolved over the years with alternative channels such

bancassurance, direct selling agents, brokers, online distribution, corporate agents getting lot of

encouragement. Overall in the industry Independent agents, corporate agents and direct business

are the distribution channels that get almost 85-90 % of the business but other channels like

banks, referrals etc. are also coming up and will be contributing much more in the years to come.

5.1 THE ROAD AHEAD

The general insurance industry in India is going through a sea change after introduction of

Discounts in Motor OD and De-tariffing of Property Insurance. The premium rates have reduced

drastically while the cost of repairing/replacement has gone up considerably leading to high

incurred claim ratios.

With more and more private players coming into the industry it would be difficult for some

companies to hold their position in the market. Thus Bajaj Allianz should have a customer

focused approach and should be play aggressive as it has been till now to be one of the best

Insurance companies.


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5.2 LIMITATIONS

1. The scope of study was limited as the General Insurance industry was privatized only in

2000 with most of the major players coming in 2002-2003. So we only had access to

annual reports of last 7-8 years only.

2. We were able to get only the distribution data for 1st quarter 2011; therefore the

regression analysis to evaluate the effectiveness of distribution channels was not very

significant.


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EXHIBITS

EXHIBIT 1: Distribution channelsused for motor insurance 2010.

Comparisons based on Policies sold

Comparison based on Premiums

2010-11 Q1 Channelwise Number of Policies

States ICICI Lombard Bajaj Allianz Reliance IFFCO Tokio HDFC Ergo TATA AIG RSA Chola Future Generali Bharti Axa Total Percentage

IndividualAgents 114,813 332,434 42,132 614,119 37,307 55,059 13,971 4,779 1,257 16,853 1,232,724 30.2%

Corporate Agents 592,646 73,679 10 105,488 751 62,642 119,257 763 - - 955,236 23.4%

Banks - 40,090 - - 29,538 10,614 - 58,909 - - 139,151 3.4%

Others - - - 19 - - - 11,754 - - 11,773 0.3%

Brokers 67,156 56,068 37,445 49,630 12,363 12,131 12,791 15,484 8,843 20,074 291,985 7.1%

Referral Arrangements 44,614 - 663 8,677 - - - 75,278 - - 129,232 3.2%

Direct Business 72,814 448,877 301,572 76,538 45,218 164,596 36,173 2,774 109,555 66,951 1,325,068 32.4%

Total 892,043 951,148 381,822 854,471 125,177 305,042 182,192 169,741 119,655 103,878 4,085,169 100.0%

Motor (Motor OD + TP)

Pr Rs. LAKHS

States ICICI Lombard Bajaj Allianz Reliance IFFCO Tokio HDFC Ergo TATA AIG RSA Chola Future Generali Bharti Axa Total Percentage

Individual Agents 7,351 11,735 2,063 12,078 1,259 1,962 1,280 297 60 1,449 39,535 20.8%

Corporate Agents 14,595 4,253 1 4,737 55 1,265 9,248 55 - - 34,209 18.0%

Banks - 2,071 - - 3,095 465 - 5,521 - - 11,152 5.9%

Others - - - 8,866 - - - 756 - - 9,622 5.1%

Brokers 4,222 3,832 2,984 2,467 907 604 1,626 1,096 678 1,593 20,009 10.5%

Referral Arrangements 4,615 - 20 198 - - - 6,115 - - 10,949 5.7%

Direct Business 4,165 19,245 17,899 1,878 3,060 2,858 3,995 224 6,437 5,196 64,955 34.1%

Total 34,949 41,137 22,967 30,224 8,376 7,155 16,147 14,064 7,175 8,238 190,431 100.0%


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EXHIBIT 2: Expenses Incurred related to motor insurance 2009-2010

Bajaj Allianz 2010 R atio 2010 2009 Ratio 2009 % Change

C ommis si on Pa id - D irec t- TO TAL (R s. in 000s )

Agents 587,333 44% 742,794 48.28% -21

Brokers 262,516 20% 344,078 22.36% -24

Corporate Agency 487,376 36% 451,676 29.36% 8

Referral - -

Total 1,337,225 1,538,548 -13

RELATED TO MOTOR INSURANCE

Operating Expenses related to insurance business (Rs. in 000s)

Employees remuneration & welfare benefits 1,130,386 54% 1,269,032 54.15% -11

Travel, conveyance and vehicle running expenses 72,455 3.45% 77,866 3.32% -7

Training expenses 2,826 0.13% 7,737 0.33% -63

Rents, rates & taxes 144,598 6.88% 164,838 7.03% -12

Repairs & maintenance 14,168 0.67% 16,370 0.70% -13

Printing & stationery 55,855 2.66% 59,111 2.52% -6

Information Technology 94,080 4.48% 79,434 3.39% 18

Communication 84,653 4.03% 107,879 4.60% -22

Legal & professional charges 33,905 1.61% 45,150 1.93% -25

Advertisement and publicity 214,063 10.18% 242,601 10.35% -12

Interest & Bank charges 14,042 0.67% 15,748 0.67% -11

Others

(a) Miscellaneous expenses 136,414 6.49% 145,652 6.21% -6(b) Business & Sales Promotion 104,474 4.97% 112,297 4.79% -7

2,101,919 2,343,715

IFFCO TOKIO 2010 Ratio2010 2009 Ratio2009 %Change

RELATED TO MOTOR INSURANCE (Rs. in000s)

CommissionPaid - Direct

Agents 279263 63.25% 254817 63.98% 10

Brokers 51475 11.66% 73498 18.46% -30

Corporate Agency 106846 24.20% 67404 16.93% 59

Referral 3947 0.89% 2531 0.64% 56

Total 441531 398250 11

Operating Expenses relatedto insurancebusiness (Rs. in 000s)

Employees remuneration& welfarebenefits 235217 19.77% 216839 19.22% 8

Travel,conveyanceandvehiclerunning expenses 50120 4.21% 49949 4.43% 0

Training expenses 3490 0.29% 8774 0.78% -60

Rents, rates &taxes 69437 5.84% 62852 5.57% 10

Repairs &maintenance 33346 2.80% 26502 2.35% 26

Printing &stationery 25116 2.11% 27982 2.48% -10

InformationTechnology 32178 2.70% 26561 2.35% 21

Communication 30274 2.54% 28912 2.56% 5

Legal & professional charges 591858 49.75% 547798 48.56% 8

Advertisement andpublicity 57217 4.81% 64099 5.68% -11

Interest &Bank charges 15470 1.30% 10974 0.97% 41

Others(a) Miscellaneous expenses 45922 3.86% 56850 5.04% -19

1189645 1128092


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TATA AIG 2010 Ratio 2010 2009 Ratio 2009 % Change

RELATED TO MOTO R INSURANCE

Commission Paid - Direct (Rs. in 000s)

Agents 67,563 60.34% 54,096 42.56% 25

Brokers 14,231 12.71% 13,698 10.78% 4

Corporate Agency 30,182 26.95% 59,326 46.67% -49

Referral - -

Total 111,976 127,120 -12


Employees remuneration & welfare benefits 252,530 31.08% 251,743 22.33% 0



Rents, rates & taxes 130,523 16.06% 147,965 13.12% -12

Repairs & maintenance 6,873 0.85% 6,860 0.61% 0


Information Technology 30,242 3.72% 32,828 2.91% -8

Communication 25,141 3.09% 31,217 2.77% -19


Advertisement and publicity 59,625 7.34% 29,494 2.62% 102

Interest & Bank charges 8,199 1.01% 2,348 0.21% 249Others

(a) Miscellaneous expenses 8,180 1.01% 4,093 0.36% 100

(b) Direct Telemarketing costs 40,297 4.96% 57,576 5.11% -30

(c) Outsourced Operations costs 43,423 5.34% 61,638 5.47% -30

(d) Business Development Expenses 8,075 0.99% 17,252 1.53% -53

(e) Agent Training 31,502 3.88% 4,467 0.40% 605

812,645 1,127,437

ICICI Lombard 2010 Ratio 2010 2009 Ratio 2009 % Change

Commission Paid - Direct- TOTAL (Rs. in 000s)

Agents 371,062 19.62% 451,675 20.20% -18

Brokers 380,666 20.13% 465,762 20.83% -18

Corporate Agency 748,860 39.59% 730,832 32.68% 2

Referral 390,909 20.67% 587,770 26.29% -33

Total 1,891,497 2,236,039 -15



Employees remuneration & welfare benefits 1,159,705 52.60% 1,410,030 56.38% -18



Rents, rates & taxes 201,368 9.13% 178,566 7.14% 13



Communication 163,667 7.42% 193,049 7.72% -15



Interest & Bank charges 31,194 1.41% 30,880 1.23% 1

Others

(a) Miscellaneous expenses 143,053 6.49% 66,212 2.65% 116

(b) Business & Sales Promotion 62,488 2.83% 70,375 2.81% -11

2,204,920 2,501,054


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HDFC ERGO 2010 Ratio 2010 2009 Ratio 2009 % Change


Commission Paid - Direct (Rs. in 000s)

Agents 31,622 6.03% 15,514 8.59% 104

Brokers 226,199 43.10% 138,411 76.63% 63

Corporate Agency 91,661 17.47% 26,692 14.78% 243

Referral 175309 33.41% - -Total 524,791 180,617 191


Employees remuneration & welfare benefits 303,988 37.16% 198,052 37.19% 53

Travel, conveyance and vehicle running expenses 26,507 3.24% 15,538 2.92% 71

Training expenses 8,674 1.06% 1,146 0.22% 657

Rents, rates & taxes 115,153 14.08% 95,342 17.90% 21


Printing & stationery 15,093 1.84% 14,230 2.67% 6

Information Technology 24,776 3.03% 38,748 7.28% -36

Communication 20,387 2.49% 11,384 2.14% 79

Legal & professional charges 233,382 28.53% 81,215 15.25% 187


Interest & Bank charges 3,475 0.42% 4,204 0.79% -17

Others

(a) Miscellaneous expenses 29,071 3.55% 48,690 9% -40

818,109 532,606

Documents

BE Project Report_Grp4 (2)