Major Project Idbi

7/30/2019 Major Project Idbi

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Chapter-1

INTRODUCTION



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1.1PREFACE

Insurance plans can be divided into Unit Linked Insurance Plans (ULIP) and Traditional

Plans. ULIPs have gained high acceptance since it offers more benefits than traditional life

insurance p l a n s . T h e r e a r e m a n y b e n e f i t s a v a i l a b l e s u c h a s h i g h e r r e t u r n s o n i n v e s t m e n t , p a r t i a l withdrawal, flexibility to choose life cover, wider

fund options, top up facility, free switches, tax benefits, etc. In spite of the prospective benefits

offered by ULIPs, there are still insurers who prefer traditional plans. The main difference

between these two is that ULIP invests based on the type chosen in equity market, half equity,

half debt and debt only. They can either grow very high based on stock market or also have loss

of capital if stock market falls. In the traditional Insurance plans, these are guided by

Government regulation.

In spite of the high popularity of ULIPs, Traditional Policies remain the favorite option of

agents as well as conventional insurers. In these types of plans, the insurance company would

col l ec t r egular premiums and inves t s them in a common pool of funds . At

the end of each year, the company would declare a bonus. This bonus is actually a share

in the profits of the fund. At the end of the term, the policyholder will receive the sum assured

plus bonuses. If he dies during the term, his nominees will get the sum assured plus bonuses

accrued till the date of death. So in away, the policyholder is assured of receiving at least the sum

much of premium he has invested so far. As against this, a Unit Linked Policy offers much more

transparency. The policyholder will know how much of his premiums are deducted

as expens es and how much i s i nves t ed .

T he policyholder will also have an option to choose the type of fund-debt, equity, or

balanced unlike the common pool that exists in a traditional policy. Now insurance has started

playing a major role in the life of the humanity. Slowly people stared to realize the necessity of

the insurance and these needs are unending as long as life exists. In fact insurance is not

restricted for any category neither of the society nor in term of cast, ages or life styles. Also

many people have a notion that Insurance is very good form of an investment, which is not right.

Insurance is just creating a protection for you and your family. As Indian investors are now more

exposed to the capital markets and have started understanding its working, they want to multiply



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their money rapidly. This can be done through Unit Linked Insurance Plans (market linked

plans) introduced by the Insurance Players.

Therefore the only reasons for selecting this topic are

· To get more knowledge about insurance sector in India

· To undergo a comprehensive study of ULIPs.

· To get experienced of corporate scenario.

1.2SIGNIFICANCE OF THE STUDY

The Indian insurance sector is rapidly moving towards international standards of free (risk-

based) market pricing and new/innovative product offerings. Big changes have occurred over the

last several years, during which the sector was opened to private participation. Since

privatization of insurance sector in India is a new concept for insurance marketing India hence

people are not much aware of the products being offered by these new private pl ayers .

Moreover, after studying the insurance scenario in India & keeping the needs of the

customers in mind the companies are introducing new products. The customers is finding

difficulty in comparing these products & choosing the right one for himself since each

product is uni que in it se lf bu t the decidi ng factor is st il l the monetary investment.

There are number of investment options available in the market. But there are some

investment which provides both savings and return. This project studies on the

acceptance of savings cum investment product ULIP in market

1.3 OBJECTIVES OF THE STUDY

Primary Objective:

To analyze the market potentiality of ULIPs in the insurance sector.

Secondary Objectivea) To compare ULIPs of IDBI with that of its competitors.

b) To identify various factors that influences the customer to invest and not to invest in

ULIP.

c) To gain knowledge on ULIP and to have a comprehensive understanding about the

insurance sector



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1.4 SCOPE OF THE STUDY:

A novel product offered by insurance companies is Unit Linked Insurance Plan (ULIP).

It‘s an entirely different product offered by insurance companies where the investors is getting an

indirect entry to stock market with comparatively high returns. The scope of the study coversopinion of customers relating to various in the selection of insurance companies, to assess the

level of satisfaction with respect to various factors like service quality, customer friendliness,

creating proper awareness, time taken for policy documentation, and opinion on one-to-one

insurance experience. In addition to this the project tries to capture the consumer perception towards various

insurance products.

1.5 METHODOLOGY OF THE STUDY

Research in common parlance refers to search for knowledge. Research methodology is a

way to systematically solve a research problem. It may be understood as a science of studying

how research is done scientifically. In this we study the various steps that are generally adopted

by the researcher in studying his research problem along with the logic behind them. It is

necessary for the researcher to know not only the research methods/techniques but also the

methodology. The researcher has to develop his methodology for his problem as the same may

differ from problem to problem. A researcher has to expose the research design to evaluation

before they are implemented. He has to specify very clearly and precisely what decisions he

selects and why he selects them so that others can evaluate them also.

According to C.R Kothari, a researcher has to explain the following:

―When a research study has been undertaken, how the research problem has been defined, in

what way and why the hypothesis has been formulated, what data have been collected and what

particular method has been adopted, why particular technique of analyzing data has been used‖.

METHODOLOGY

Research design – descriptive

Data sources- primary data and secondary data

Research approach – face to face interview.

Research instrument – questionnaire.



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Data Collection:

Primary Data:

1) Use of a Questionnaire for carrying out a survey.

2) Presentation given by the Advisors of IDBI FEDERAL.

3) Face to face interview.

Secondary Data:

1) Books

2) Newspapers

3) Magazines

4) Internet

5) Television

6) Policy Brochures.

Sampling Plan

i) Sample Method : Non- random sampling

ii) Sample Size : I00

iii) Sample Unit : Interview with IDBI investors and questionnaire data collection from

people who are aware of ULIP product.

1.6 PERIOD OF THE STUDY

The period of the study is from April 4, 2012 to May 18, 2012.

1.7 LIMITATIONS OF THE STUDY

No study is free from limitations. The limitations of this study can be:

• The result is based on primary and secondary data that has its own limitations.

• The study only covers the area of Calicut that may not be applicable to other area.

The sample size is very less, hence the responses of just 100 respondents

does not imply for the complete population.



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The findings of the survey are based on the subjective opinion of the respondents and

there is no way of assessing truth of the statements.

There is some respondent‘s bias which cannot be removed.

Lastly, some amount of error exists in the data filling process because of the following

reasons:

Influence of others.

Misunderstanding of the concept.

Hurried filling of the questionnaire.



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CHAPTER-2LITERATURE REVIEW



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1. ―The study of the empirical relation between savings and investment in developed as

well as developing countries”P.K Mishra, J.R Das, S.K Mishra, 164 European

Journal of Economics, Finance and Administrative Sciences - Issue 18 (2010).

The study of the empirical relation between savings and investment in developed as well

as developing countries has received considerable attention in recent years. Economists often

claim that higher savings contribute to increased investment and GDP growth in a country.

Thus, the purpose of this paper is to investigate the dynamics of the relation between

savings and investment in India for the period 1950-51 to 2008-09. Using annual data, the study

reveals the co integration between savings and investment and suggests the feedback causality

between them. And, the most interesting part of the result is that while co integration provides

the evidence of long-run equilibrium relationship between savings and investment, the time

series plotting of both the variables over the study period infers the fact that investment remained

greater than the savings in India. The study of dynamic relation between savings and investment

has received considerable attention in recent years especially in emerging economies like India.

The role of savings and investment in promoting economic growth of India has been given

paramount importance since independence. Savings and investment have been considered as two

critical macro-economic variables with microeconomic foundations for achieving price stability

and promoting employment opportunities thereby contributing to sustainable economic growth.

Since independence Indian economy has been moved from a moderate growth path of

1950-1980 to a higher growth trajectory since 1980s. Over the last three decades, Indian

economy has emerged as one of the fastest growing economies of the world. Apart from

registering impressive growth rate, India‘s growth process has been almost stable. Many

empirical studies suggest the evidence that the year‘s variation in growth rate of Indian economy

has been one of the lowest. In view of this fact, the role of savings and investment in proving the

fundamental growth impulses in the economy cannot be overemphasized.

A long-standing view of the macro-economic dynamics of the growth process was

thatincreasing savings when transformed into productive investment would help achieve an

economic―take-off‖ (Harrod, 1939; Domar, 1946; Lewis, 1954; Solow, 1956). Solow (1970)

argue that theincrease in the savings rate boosts steady-state output by more than its direct



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impact on investmentbecause the induced rise in income raises savings, leading to a further

riskin investment. Theendogenous growth theories since the mid-1980s, typified by Romer

(1986, 1990), Lucas (1988) andBarro (1990) reconfirm the view that the accumulation of

physical capital is the critical driver of long run economic growth. Bacha (1990) and Jappelli and

Pagano (1994) also claim that savings contributeto higher investment and higher GDP growth in

the short-run. Since then economists have been studying the relationship between saving and

investment with renewed vigor.

2. “India's best ULIPs”, Sunil Dhawan, Outlook Money, January 03, 2008.

We have toyed with the idea for a long time. Should we rank the unit-linked insurance plans

(Ulips) in the market? The idea is exciting simply because it has never been done in India

before . Th e idea is good becaus e it al lows an i nv es t o r a h and l e wi t h wh i ch to

hold the product . Also, the idea is very daunting because comparing insurance

pol ic ies is like tr ying to un ravel no o d l e s o u p . T h e m o r e y o u s t i r , t h e

m o r e c om pl i ca t e d i t l o o k s A f t e r discus sing with the regulat or, some

industry leaders and those close to the insurance sector, Outlook Money decided to bite the

bullet and get on with the ranking. This is where we realized what an overwhelming task we had

taken on. Just comparing the return figure, as given by net asset value data, would be incorrect

since a financial product is a function of cost and return. The minute we bring in costs,

comparisons became almost impossible to c a r r y o u t .

U n l i k e t h e m u t u a l f u n d p r o d u c t t h a t h a s a v e r y s i m p l e c o s t

s t r u c t u r e , U L I P s c a r r y a g r e a t e r n u m b e r o f c o s t s ( a d m i n i s t r a t i o n

a n d mortality), in addition to the others. To cu t th ro u gh th e co nf u si on an d ye t be

relevant to you, we took illustrations from all 14 life insurance companies for their

ULIPs for ages 30and 45. We assumed that a 30-year-old was taking a 20-year policy

for anSA of Rs 12.5 lakh, paying an annual premium of Rs 50,000. And a 45-year-old was

tak ing a 1 0-ye ar p ol ic y fo r an SA o f Rs 7 .5 l akh wi th the same premium (see

How We Did It). Premiums are paid throughout the term. We also assumed that only the growth,

or the fund with up to 100 per cent equity allocation, is chosen. Left with only nine

companies , we looked at Type-Iand Type-I I pol icies . A Type-I pol icy jus t



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gives the higher of the sum assured or the fund value, making the policy buyer

extremely vulnerable to small corpus in case of an untimely death in the early part of

the plan.

A Type-II policy gives both the sum assured and the fund value, and sure, I t

costs more too.RESULT. The winner in the Type-I category is Tata AIG Life's Invest Assure

II,which has scored primarily because its one-year return, at 72 per cent, was way

above the benchmark return of 53 per cent of the BSE Sensex. This despite the fact

that it has a fund management charge of 1.75 per cent, more than double the 0.8 per

ce nt th at HD FC St an da rd Li fe ch ar ge s. In fa ct , HDFC Standard Life has done very

well on the cost parameter. The insurer is clearly the lowest cost one in our examples,

but has lo st out du e to unde rper fo rmance ove r the time per iod. At re turns of 42.7

per cent ,H D F C S t a n d a r d L i f e h a s u n d e r p e r f o r m e d t h e b e n c h m a r k b y

a b o u t 1 0 percentage points. In fact, Tata and Bharti have outperformed the index by10

p e r cen t a ge po i n t s o r mor e . Fou r c omp an i es wer e un ab l e t o b ea t

th e benchmark over a one-year period. In Type-II policies, there is much less

compe t i t i on , w i t h j u s t s i x compan i es i n t he f r ay .

Kot ak L i f e ' s P l a t i num Advan t age i s t he w i nne r and has a n i ce mi x o f

l o we r co s t s and dece n t returns. It has consistently outperformed the benchmark. Early exit

options-The ULIP product works over the long term. The earlier the exit, the worse-

off is the investor since he ends up redeeming a high-front-load product and is then encouraged

to move into another higher cost product at that stage. An early exit also takes away the benefit

of compounding from him. An early exit option in a unit-linked plan shows how the

product is structured. We found many products that clearly encouraged product churn b y

g i v i ng t oo many ze r o cos t op t i ons t o ge t ou t o f t he po l i cy a f t e r t he

mandatory holding period was over.

There are others, like the plans from MetLife, which encourage a longer holding term.

Creeping costs-since the investors are now more aware than before and have begun to ask for

costs, some companies have found a way to answer that without disclosing too much.

People are now asking how much of the premium will go to work. There are plans that are able

to say 92 per cent will be invested, that is, will have a front load of just 8 per cent. What they do

not say is the much higher policy administration cost that is tucked away inside (adjusted from



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the fund value). While most insurance companies charge an annual fee of about Rs 600 as

administration costs, that stay fixed over time, there are plans that charge this amount, but

it grows by as much as 5 per cent a year over time. There are others that charge a multiple

of this amount and that too grows.

3. Dr. A. VINAYAGAMOORTHY, “INDIAN INSURANCE: MODERN MARKETING

APPROACH‖.

Marketing strategies for insurance in the emerging scenario could be understood

in terms of the following steps:

R >>>>>> STP>>>>>MM>>I>>>> C

Here, R = Market Research

STP = Segmentation, targeting, positioningMM = Marketing Mix

I = Implementation

C = Control

Having done market research and finalizing on segmentation, targeting and positioning the

strategy would focus on the marketing mix namely, Product, Price, Place and Promotion. While

determining the implementation methodology, the four characteristics viz. Intangibility,

Inseparability, Perishability and Variability gives rise to certain unique requirements that deserve

careful attention while formulating the marketing strategy for insurance. After implementation,

the insurers should concentrate on the effective control that would enhance their business.

In India Insurance is sold and not bought. The agents / Advisors by using various strategies sell

the product by convincing the customers. Moreover, they push Policies with the highest premium

to pocket a higher commission. The consultative approach to selling is the modern approach,

which helps customers and prospects to buy. A consultant makes calls and sells just like any

other sales person. The difference is in their attitude, their approach and their commitment. Here,

the customer is seen as a person to be served and not a person to be sold. It helps the purchaser to

make an intelligent decision. The four-step process includes:

*Need discovery

* Selection of the product



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* Need satisfaction presentation, and

* Serving the sale

This approach to selling their products requires understanding of concepts and principles

borrowed from the fields of psychology, communications, and sociology and needs a lot of

personal commitments and self – discipline from the seller.

The commitments referred are:

Finding and understanding the needs of the customers.

Partnering with the customers.

Helping the customers to achieve his business and other objectives by the purchase of the product or service.

Believing that your products / services are a great fit with your customer‘s needs, and

Believing in yourself and your ability to help the customers in solving their problems.

A consultant is willing to forego short-term gains to achieve greater long – term benefit to

him and to the customers he serves. He builds relationships on a foundation of trust, respect and

performance. Moreover, consultants don‘t sell – they‘re specialists who make recommendations

to help the prospect to buy. They act as a professional and offer real – world solutions that make

sense to the customer. Today, the insurers adopt this technique and thereby go on increasing their

marketshare.

CONCLUSION

In the global era, Insurance companies are increasingly willing to spend more on the

customer satisfaction and brand building exercises. Though it is one of the highly regulated

industries, it still provides lot of scope for creativity and innovations. As our industry is

predominantly dominated by personal selling and personalized services many a time the service

standards vary based on the intermediary involved in the process. In order to achieve the

competitive edge over others standardize the process and bring about quality improvement and

get feedback from the customers regarding the quality of services rendered. This will result in

customer satisfaction, customer retention, customer acquisition, and employee retention and cost



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reduction. This paper focuses on the marketing approach adopted by the modern insurers to

withhold their existing customers and attract new ones.

5.“Budget 2012 & impact on insurance: Not all policies will get you tax break,

now”PreetiKulkarni, Economic Times Bureau .Mar 21, 2012, 01.17AM IST

At the first glance, there was no significant announcement on the insurance sector in the

Budget. However, there are some amendments tucked away in the voluminous Budget

documents that could have far-reaching implications on the way you treat insurance. To begin

with, all regular-premium life insurance policies issued after April 1, except pension plans, will

have to offer a protection cover of at least 10 times the annual premium. Otherwise, they will not

be eligible for tax benefits under section 80C and 10 (10D). While 80C allows a deduction on

life insurance premium up to Rs 1 lakh, Section 10 (10D) exempts maturity proceeds from tax.

Until now, the mandated cover was five times the annual premium.

Both unit-linked insurance plans (Ulips) and endowment plans will be affected due to this

change. However, most term plans will fulfill the new requirement. "This is a welcome move as

it will ensure a minimum life cover to the policyholders. The new requirement will ensure that

they have some protection over a longer period of time," says KamaljiSahay, CEO, Star Union

Dai-ichi Life. The other tinkering include change in definition of sum assured, lowering the age

of senior citizens to claim tax breaks on health insurance premium, extra Rs 5,000 on preventive

health care and so on.

Change in Plans

Clearly, the government is nudging individuals to buy pure life or protection policies

(term plans, in other words) than the more popular insurance-cum-investment plans such as

ULIPs and endowment. Since a bigger chunk of the premium will go towards mortality charges

due to the mandatory higher life cover, the devotees of ULIPs and endowment plans would be

left with relatively small amount for investment. "A person not looking for a pure protection

cover need not buy a life policy at all. Instead, if their objective is wealth-creation, they can

direct their funds to instruments like public provident fund ( PPF), tax-free infra bonds and

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highly-rated non-convertible debentures (NCDs)," advises Suresh Sadagopan, certified financial

planner, Ladder7 Financial Advisories.

"In terms of equity, depending on their risk appetite, they can invest either directly in

stocks or through mutual funds. Based on their risk-taking ability they can choose from large-,

mid- and small-cap funds." For solely your protection requirements, you need not look beyond

term policies - the cheapest form of life insurance.

Bonuses Will Not Count As Cover

The finance minister has also amended the definition of sum assured (insurance cover, in

simple words). The premiums that will be returned to the policyholder and bonuses will not be

taken into account while computing the sum assured for claiming deductions. 'This amendment

has been proposed to ensure that the life insurance products are not designed to circumvent the

prescribed limits by varying the capital sum assured from year to year,' states the Budget fine

print. Again, the message is: Focus on life cover, and not on the investment component.

Prevention Could Be the Cure: A small, yet significant, measure in the Budget relates to

deduction for spending up to Rs 5,000 on preventive medical checkups. These could include

blood tests for diabetes, cardio-vascular tests and so on. To be allowed within the 80D limit, it

will come in handy for individuals, particularly the young, whose premiums are lower and hence

not enough to claim higher tax breaks. "Providing this tax exemption to individuals is a step in

the right direction... it will help in bringing a greater focus on preventive health care. Most

progressive health insurance companies have already started focusing on this space," says

BhargavDasgupta, CEO, ICICI Lombard. "You can undergo a preventive health check-up at a

diagnostic centre and submit the bill along with your investment declaration to your employer,"

says VaibhavSankla, director, H&R Block India.

'Younger' Senior Citizens: Another minor modification in section 80D will help more elderly

individuals claim higher deductions on health insurance premium. Section 80D allows tax relief

of up to Rs 15,000 on health insurance premium paid for self, spouse and children. One can

further claim tax deduction of Rs 15,000 if he/she is paying premiums for parents' health policy.

If the individual (or parents) are senior citizens, this limit goes up to Rs 20,000. Earlier, only

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individuals above 65 years were considered as senior citizens for this benefit. The Budget has

lowered the age to 60 years.

Deductions for Differently-Abled Senior Citizens: Under section 80DDB, the tax benefit on

medical treatment pertaining to individuals or dependants with disabilities is Rs 60,000 if they

happen to be senior citizens. For others, this limit stands at Rs 40,000. The reduction in age limit

for senior citizens will help those between 60 and 65 years of age claim the higher tax break

now.

6. A. Pushparaj, “Benefits of Unit Linked Insurance Plan (ULIP)”, Articles

When people see how investments in the capital market have grown over the last few

years, they prefer to use their funds in ways that help them to participate in the boom in the

capital market. Insurers have developed plans that combine the benefits of life insurance as well

as giving various options of participating in the growth of the capital market. Such plans of

insurance are called Linked Life Insurance Plans, also Unit Linked Insurance Plans i.e. ULIPs.

This means an ULIP is a life insurance protection and investment.

Insurers offer policyholders a choice of funds in which their moneys may be invested, like -

Equity Funds: Sometimes also called Growth Funds, in which, there would more

investments in equities which are shares/stocks traded in the stock market.

Debt Funds: Also called Bond Funds, in which, the investments are primarily in

Government and Government guaranteed securities and such safe debts and other high

investment grade corporate bonds.

Money Market Funds: Also called Liquid Funds, in which, the investment may be more

in short term money market instruments such as treasury bills, commercial papers etc.

Balanced Funds: In this type of funds, the investments are in both equity as well as debts.

ULIPs provide a lot of flexibility to the policyholders -

1. The option of switching, in which, a policyholder can switch his moneys from one fund

to another during the term of the policy.

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2. Policyholders are allowed to make a lump sum additional contribution at any time. The

risk cover will remain same, but the amount going into the fund for investment will

change i.e. known as Top-up.

3. Policyholders may be allowed to redirect the current premium into any fund, in any

proportion, irrespective of the fund in which the earlier premiums have been invested, to

take advantage of the market conditions, without exercising the switching option.

4. If policyholders may not pay the premium in a year, subject to certain conditions, no new

units will be added to his fund but some units will be reduced to pay for the annual

charges for cover, administration, fund management etc. This is called premium holiday.

The arrangement can also be terminated at any time & the amount in the fund withdrawn.

The loss will only be a nominal fee.

ULIPs differ from other traditional insurance plans in matters of documents, lapse, and

revival conditions and in claim settlement procedures. The proposal form will have questions

about family history & personal history. The agent's report is also called for. The underwriter

may call for more reports, medical or otherwise to check insurability, if necessary.

7. By BalaramSarma,HINDU, Mar 7, 2012, Why you should stay with ULIPs.

Life Insurance is a long-term product and Unit-Linked Insurance Plans (ULIPs) are no

different. Unfortunately, some customers have bought ULIPs with a short-term objective in

mind, and in the volatile market conditions, they press the panic button and surrender the policies

or discontinue payment of premiums. This action is detrimental to the financial health of the

policy holder. It is important to keep the ULIP policy in force for the entire term by paying

premium regularly.

IMPORTANCE OF COVER

You will lose the insurance cover on discontinuance or surrender of the policy. Please

remember that you are losing not only the investment benefits, but also the insurance cover. To

keep your insurance cover at the same level, you need to purchase another insurance policy,

which may come at a higher cost than the mortality charges deducted from units.

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Another option frequently exercised is discontinuing paying the premiums after the

mandatory period and continuing to hold the policy. In such cases, you have to remember that

the sufficient fund value should exist in the policy to cover the mortality charges for life cover to

be maintained. The policy will be terminated if the fund value goes below the threshold limit

prescribed by the insurer. The mortality rates will be available in the policy document.

PERSISTENCY/BONUS UNITS

Some of the ULIP plans offer bonus units in the form of additional units. They will be credited to

your fund account at the time of maturity or after keeping the policy in force for a certain period.

Discontinued policies are not eligible for this benefit.

NO SHORT-TERM PLAY

Do not treat ULIPs as high-yielding short-term investments. Investment returns can turn

negative in the short term, thereby reducing the value of your portfolio. Purchase Ulips by

aligning them with your long-term objectives and stay put in the policy for the entire term.

DON'T SURRENDER IF MARKET CRASHES

Most policy holders‘ surrender their policies while the market has crashed. On the contrary, it is

the best time to pay the premium for a long-term product. Premiums paid while the market is at

lower levels, purchase more units at a lower NAV. As the market goes up and NAV increases,the fund value increases.

HIGHER CHARGES IN INITIAL YRS

Insurers incur high costs for policy acquisition. These costs are recovered from the premiums

paid during the initial years. As the tenure increases, these costs reduce drastically. As the higher

costs have already been paid, it will be beneficial for you to reap the benefits of higher allocation

to invest in the later years.

SPREAD YOUR INVESTIBLE AMOUNT ACROSS THE FUNDS

ULIPs offer various fund options to select. If you are not an aggressive investor, spread your

funds across equity, balanced and debt funds as offered by the insurer. Also remember to align

your fund portfolio to suit your investment profile and Life Style.

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USE FUND SWITCH OPTION

Most of the customers switch to debt funds after the markets crash. Instead, it is the time to

switch in rather than switch out of equity funds. Switching out of equity funds should be done

while the market is doing well and switch in the amount when the markets are doing badly.

Effective rebalancing of your fund portfolio will increase value when the market goes up again

8. Michael Zakim, Journal of the Early Republic Volume 32, Number 2,

Summer 2012.

Investing in Life Insurance.

Sharon Ann Murphy's Investing in Life is a meticulous history of a significant but

understudied event in the making of liberalism, the invention of life insurance. This was a social

technology born of statistics, population, and the mass market, and of modern notions of self-

ownership. All were pillars of the new industrial system, which meant that all effectively

undermined an older patriarchy resting on land and household by which family and property had

traditionally been organized in America.

Life insurance was accordingly designed for persons whose income depended upon their

lives, as the North American Review explained in a survey of the industry's explosive growth in

1863. The reference was to those who owned no real property and so lived and worked

exclusively within the money economy. In the event of a father, brother, or son passing away,

and in the absence of more grounded collateral, the family would be protected by a financial

contract drawn up in advance for such a contingency. The insurance policy, in other words,

transformed the wage, that most ephemeral of possessions, into an inheritable asset capable of

spanning generations. Boasting of their subsequent success in protecting widows and orphans,

insurance companies effectively assumed the mantel of the deposed patriarch. A properly insured

society, it was explained, did not have to depend on the good will of family, friends, and

neighbors. Instead, everyone would be in a position to help themselves. This was, in other words,

the technical apparatus of "self-reliance." Or, as Tocqueville remarked in his famous chapter on

individualism, "Aristocracy links everybody, from peasant to king, in one long chain.

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19

Democracy breaks the chain and frees each link." A market niche had opened up, and a new

industry rushed in to insure that democracy.

Life insurance was most often peddled in modest policies on affordable terms. This was

an obvious strategy for expanding sales. Much of Investing in Life is consequently taken up with

the "price-setting quandary" (16), the entrepreneurial challenge of turning a novel technology

into a profitable enterprise. Regardless of which actuarial model was ultimately adopted,

however, the terms for business success were obvious. Insurance required a mass market. "There

is really no element of uncertainty in the case, provided the company can obtain business

>enough," the North American Review explained (emphasis in the original). Only if enough

policies were sold, in other words, would there be enough cash on hand to pay out on claims:

Risk could thus become a reliable investment rather than an irresponsible gamble only if it wasspread out over the population. In this respect we could say that insurance generated a new form

of community, peopled by policy holders who mutually guaranteed each other's personal security

while entirely lacking any particular ties or even passing acquaintance.

Like money more generally, then, insurance simultaneously socialized and individualized

human relations. It turned responsibility for the social order into a collective but anonymous

burden, fixed by a statistics of costs rather than such old-fashioned, or unprofitable, principles as

natural justice and moral economy. There were those who spurned the hubris of a technology

that seemed designed to "act in defiance of providence" (207). "Tis God alone who holds the key

of Life or death," as opponents protested the ontological conceits of insurance. They pointed,

predictably enough, to the farmer as representing the proper order of things, investing as he did

in "that best of all banks, a bank of earth."

But the bourgeoisie, enthusiastic subscribers to the post-agrarian creed of progress,

opportunity, and ambition, believed otherwise. And so they insured themselves against that same

volatility that underwrote their power and privilege in the first place. Life insurance, Sharon

Murphy explains, would serve as "a countervailing force against these dramatic societal changes"

(3). That is true. But insurance was itself a dramatic change: It was certainly not a force of

reaction. Securitizing one's own life.



20

9. LESLIE SCISM and LARRY LIGHT , Wall street journal, Saturday,

February 6, 2010.

Grim Risks of Reaping Death's Rewards

Death is inevitable, but good investment returns aren't — especially those that rest on how

long people live.

The increasingly popular practice of buying rights to older people's life insurance is risky,

even downright perilous. People are living longer than actuarial tables say they should, and that

is a problem, at least for the investor. Adding to the danger are a recent adverse tax ruling and

some scam artists on the edges of the industry.

Carol Tonzi, who spent $52,000 for an insurance policy stake, has paid an additional

$15,000 as the policyholder outlived her life expectancy, called "life settlements," these

arrangements allow senior citizens to sell their policies at a discount to face value. As a buyer,

you claim the benefits when the seller dies. In the meantime, you pay the policy premiums.

Investment earnings hinge on how long the insured person lives. The ghoulish facts of such

investing: The sooner the original policyholder dies, the better for the investor.

Say you purchase a $1 million policy held by an 82-year-old woman. Actuarial tables say

she has five years to live. If you do the deal via Life Partners Holdings Inc., LPHI 0.00% a major

life-settlements firm, you must pony up $540,000. The woman gets $200,000 of that; the

remainder goes toward future premiums and transaction fees.

Should she obligingly die on time, you net a 13% annual return. Yet if she doesn't shuffle

off this mortal coil for 10 years and you end up forking over much more in premiums, the return

sinks to 3%. Every extra year she soldiers on, your take shrinks.

Carol Tonzi, a court reporter in Palmyra, N.Y., sank $51,700 into partial ownership of a

$5 million policy in 2003 from the now-defunct Mutual Benefits Corp. of Fort Lauderdale, Fla.

She says her tax preparer touted the investment as "safe and secure" and said her money in five

years would grow to $82,720, a 60% increase.

http://online.wsj.com/search/term.html?KEYWORDS=LESLIE+SCISM&bylinesearch=true

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21

But Ms. Tonzi, 52, is still waiting for the policyholder, now 89, to pass away. Over the

past three years, she says she has shelled out an additional $15,000 in premium payments. She is

suing the tax preparer, Richard H. Nichols, in state court in New York, alleging negligent advice.

"It's a mess," she says. "If I wanted to gamble, I would have left the money in the stock market."

Mr. Nichols says he "in no way, shape or form misled" Ms. Tonzi. In court papers, his

lawyer notes that Ms. Tonzi still stands to make a tidy profit because some other investors who

had a fractional interest in the same $5 million policy have dropped out, and she now is poised to

receive at least $100,000 from the death benefit.

Comprehensive statistics don't exist on life-settlement returns, so Conning Research &

Consulting looked world-wide for enough data to build an index. For 2007, its analysis of 12

overseas funds showed a gain of 11.3% in net-asset values. It revamped its approach to focus on

eight overseas funds, and they showed net-asset-value growth of 6.6% in 2008 and 2.4% in 2009.

One reason for the drop-off: The relatively new industry of life settlements doesn't have

the business volume insurers‘ count on to offset losses with other gains. Underwriting firms two

years ago lengthened life expectancies, and some underwriters acknowledge "as more

experiential data is gathered, future refinements to methodologies are inevitable," says Conning.

Things became grimmer for the life-settlement industry last May, when the Internal

Revenue Service ruled that death benefits received by investors should be treated as ordinary

income, not as a lower-cost capital gain.

Still, the supply of policies for sale remains strong, with older folks eager to sell for quick

cash. In 2008, policies totaling about $12 billion in face value were sold to investors, bringing

the total outstanding to $31 billion, says Conning. (Figures aren't in yet for 2009.) The industry

began during the AIDS epidemic, when the disease was usually fatal. Medical advances hurt the

business back then, so it changed its focus to the elderly.

The appeal to investors is that betting on mortality doesn't seem to be correlated to

stocks, bonds or anything else. Some professionals in the field say individuals pondering death

investments should use reputable investment firms with the know-how to identify trustworthy



22

hedge funds that specialize in the products. They say putting money into a fund containing

hundreds of policies helps to reduce the risk.

Investors can also get in through a life-settlement firm such as Life Partners. The firm

permits investors to buy a piece of a policy for as little as $50,000, so they can diversify by

owning multiple stakes.

Who Can Invest

Only people with ample financial assets should venture here. Much as with hedge funds,

a Life Partners investor must have an annual income of at least $200,000 ($300,000 for a couple)

and a net worth of $1 million or more. "This is not a place for amateurs," says Doug Head,

executive director of the Orlando, Fla.-based Life Insurance Settlement Association. "It's a high-

risk investment that requires considerable sophistication."

One worrisome issue: fraud. Between January 2004 and July 2009, Conning says, the

Securities and Exchange Commission took legal action against 27 U.S. life-settlement funds and

advisers. It isn't clear just how many of them there are, but life settlements make the top-10 list

of "investor traps," says the North American Securities Administrators Association. In some

instances, the industry has been a magnet for shady operators. California financier Danny Pang

died in September battling SEC allegations that his Private Equity Management Group

misrepresented hundreds of millions of dollars of investments, including life-insurance policies.

When those didn't generate enough profit to cover the cost of the premiums and deliver returns,

the SEC alleges, he used money from new investors to cover the shortfall. Ponzi operators who

deal in life settlements have also surfaced in Idaho, New Jersey and Texas.

Caleb Callahan, a vice president of Valmark Securities in Akron, Ohio, refuses to sell life

settlements to clients, fearing that life expectancies may still be inaccurate and litigation risk

abounds, as insurers root out allegedly fraudulent policies. "There needs to be more disclosure

and regulation before we'd feel comfortable," he says



23

CHAPTER-3

PROFILE



24

3.1INDUSTRY PROFILE

What is Insurance?

Insurance is a legal contract that protects people from the financial costs thatresult from loss of life, loss of health, lawsuits, or property damage. Insurance provides a

means for individuals & society to cope up with some of the risks faced in everyday

l i f e by everybody. People purchase cont rac t s of insurance , ca l l ed a Pol i cy;

from various insurance companies. Almost every person exist ing in this world

is associated with insurance, direct ly or indirect ly. Directly, in the sense that

he/she has insured his/her life by some kind of 7 insurance policies from an y

company. Indirectly, in the sense they must have insured the assets of their own for

example their house, car, or anything else. Insurance can be divided into three categories. 1 .

L i f e I n s u r a n c e 2 . G e n e r a l I n s u r a n c e 3 . H e a l t h I n s u r a n c e . Life

insurance is a contract for payment of a sum of money to the person assured

(or failing him/her, to the person entitled to receive the same) on the happening of the event

insured against. Usually the contract provides for the payment of an amount on the

date of maturity or at specified intervals or at unfortunate death. The contract also provides

for payment of premium periodically to the corporation by the assured. General insurance

includes many areas of insurance like marine, motor, engineering, health, fire, etc. The

contract provides for the payment of an amount on the happening of some contingency. These

types of contracts are annual in nature.

HISTORY

In India, insurance has a deep-rooted history. Insurance in various forms has been

mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya

(Arthashastra). The fundamental basis of the historical reference to insurance in these ancient

Indian texts is the same i.e. pooling of resources that could be re-distributed in times of

calamities such as fire, floods, epidemics and famine. The early references to Insurance in these

texts have reference to marine trade loans and carriers' contracts.



25

Insurance in its current form has its history dating back until 1818, when Oriental Life

Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European

community. The pre-independence era in India saw discrimination between the lives of

foreigners (English) and Indians with higher premiums being charged for the latter. In 1870,

Bombay Mutual Life Assurance Society became the first Indian insurer.

At the dawn of the twentieth century, many insurance companies were founded. In the

year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to

regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that

the premium-rate tables and periodical valuations of companies should be certified by an actuary.

However, the disparity still existed as discrimination between Indian and foreign companies. The

oldest existing insurance company in India is the National Insurance Company Ltd., which was

founded in 1906. It is in business.

The Government of India issued an Ordinance on 19th January, 1956 nationalizing the

Life Insurance sector and Life Insurance Corporation came into existence in the same year. The

Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75

provident societies — 245 Indian and foreign insurers in all. In 1972 with the General InsuranceBusiness (Nationalization) Act was passed by the Indian Parliament, and consequently, General

Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were

amalgamated and grouped into four companies, namely National Insurance Company Ltd., the

New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India

Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a

company in 1971 and it commence business on January 1st 1973.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the

private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life

Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of

India, GIC). GIC had four subsidiary companies.

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With effect from December 2000, these subsidiaries have been de-linked from the parent

company and were set up as independent insurance companies: Oriental Insurance Company

Limited, New India Assurance Company Limited, National Insurance Company Limited and

United India Insurance Company Limited

The Insurance sector in India 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. With such a large popula tion and the untapped market area of this

popul at ion Insur ance ha pp ens t o be a ve ry b i g op po r t un i t y i n In d i a . To da y i t

stands as a business growing at the rate of 15-20 per cent annually. Together with banking

s e r v i ces , i t adds abou t 7 p e r cen t t o th e c ou n t r y‘ s GDP . In spite of all thisgrowth the statistics of the penetration of the insurance in the country is very poor.

Ne a r l y 80 % of Ind i an p opu l a t io ns ‘ a re wi t ho u t Li fe i n su r an ce cove r and

the Health insurance. This is an indicator that growth potential for the

insurance sector is immense in India.

I t was due t o t h i s i mmens e g r owt h t ha t t he r egu l a t i ons wer e

i n t r oduced i n t he i n s u r ance s ec t o r and i n con t i nua t i on

―MalhotraCommittee‖ was constituted by the government in 1993 to examine the

var iou s aspe ct s of th e indu s t ry . Th e key e lemen t of the r eform process was

par tic ip at ion of overseas in su rance compan ies wi th 26%capit al . Creat ing a more

efficient and competitive financial system suitable for the requirements of the economy

was the main idea behind this reform. Since then the insurance industry has gone through many

sea changes. T h e c o m p e t i t i o n L I C s t a r t e d f a c i n g f r o m t h e s e c o m p a n i e s

wer e t h r ea t en i ng t o t he ex i s t ence o f L I C .S i nce t he l i be r a l i za t i on o f t he

industry the insurance industry has never looked back and today standas the one of the

m o s t c o m p e t i t i v e a n d e x p l o r i n g i n d u s t r y i n I n d i a . T h e e n t r y o f t h e

p r i v a t e p l a y e r s a n d t h e i n c r e a s e d u s e o f t h e n e w d i s t r i bu t i on a re in

the l imel ight today. The use of new dis t r ibut ion techniques and the IT tools

has i ncreased the scope of the industry in the longer run.

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Important milestones in the Indian life insurance business.

1912: The Indian Life Assurance Companies Act came into force for regulating the life

insurance business.

1928: The Indian Insurance Companies Act was enacted for en abling the government to

collect statistical information on both life and non-life insurance businesses.

1938: The earlier legislation consolidated the Insurance Act with the aim of

safeguarding the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies were taken over by the

central government and they got nationalized. LIC was formed by an Act of Parliament,

viz. LIC Act, 1956. It started off wi th a ca pi ta l of Rs . 5 cr o re a nd th at to o fr om

the Government of India. The history of general insurance business in India can be

traced back t o T r i t o n I n s u r a n c e C o m p a n y L t d . ( t h e f i r s t g e n e r a l

i n s u r a n c e c o m p a n y ) w h i c h w a s f o r m e d i n t h e y e a r 1 8 5 0 i n

K o l k a t a b y t h e British.

Insurance Market- Present:

The i ns u r ance s ec t o r was opened up f o r p r i va t e pa r t i c i pa t i on 40

yea rs a go . F o r y e a r s n o w , t h e p r i v a t e p l a y e r s a r e a c t i v e i n

t h e l i b e r a l i z ed e n v i r o n m e n t . T h e i n s u r a n c e m a r k e t h a v e w i t n e s s e d

dynamic changes which includes presence of a fairly large number of insurers both life and non-

life segment. Most of the private insurance companies have formed joint venture

p a r t n e r in g wel l r ecogn iz ed foreign players across the globe. There are now 29 insurance

companies operating in the Indian market – 14 private life insurers, nine private non-life

insurers and six public sector companies. With many more joint ventures in the

offing, the insurance industry in India today stands at a crossroads as competition intensifies

and companies prepare survival strategies in a detariffedscenario. There is

p re s s ur e f ro m bo th wi th in t he co un t r y an d ou t s i de on th e Government to

increase the foreign direct investment (FDI) limit from the current 26% to 49%, which

would help JV partners to bring in funds for expansion. There are opportunities in



28

the pensions sector where regulations are being framed. Less than 10 % of Indians

above the age of 60 receive pensions. The IRDA has issued the first license for a standalone

h e a l t h c o m p a n y i n t h e c o u n t r y a s m a n y m o r e p l a y e r s w a i t t o e n t e r .

The hea l t h i n s u r ance s ec t o r has t r emendous g r owt h po t en t i a l , and a s i t

matures and new players enter, product innovation and enhancement will increase. The

deepening of the health database over time will also allow players to develop and

p r i ce p rod uc t s fo r l a rge r s egm en t s o f society.

Reaching Out To Customers – No doubt, the customer profile in the insurance industry is

changing with the introduction of large number of di ve rge nt int erm ed ia rie s

s u ch a s b ro k e r s, c or p or at e agen ts , and banc assurance. The industry now deals with

customers who know what they want and when, and are more demanding in terms of better

service and speedier responses. With the industry all s et to move to a detar iffed regime

by2 0 07 , t he re w i l l b e con s ide rab l e impr ovemen t i n cus tome r s e rv i ce levels,

product innovation and newer standards of underwriting.

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

prices , produ ct s, under writ ing cri ter ia, innovati ve sales methods and creditworthiness.

Insurance companies will vie with each other to capture market share through better

pricing and cl ien t 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.

Global Standards – While the world is eyeing India for growth and expansion, Indian

companies are becoming increasingly world class. Take the case of LIC, which

has s e t i t s s i gh t on becomi ng a ma j o r gl oba l p l aye r f o l l owi ng a Rs 280-

crore investment from the Indian government. The company now operates in

Mauritius, Fiji, the UK,Sri Lanka, Nepal and will soon start operations in Saudi Arabia. It

also plans to venture into the African and Asia-Pacific regions in 2006.The year 2005 was a

testing phase for the general insurance industry with a series of catastrophes hitting the

Indian sub-continent. However, with robust reinsurance programmes in place, insurers have

s u c c e s s f u l l y m a n a g e d t o t i d e o v e r t h e c r i s i s w i t h o u t a n y





30

6 . HDFC S t anda r d L i f e I ns u r ance Co L t d wi t h an i ncome o f Rs 2 ,680

crore in FY2007-08,registering a year-on-year growth of 64%. Its market share is 2.88%

and it ranks 6th among the insurance companies and 5th amongst the private players.

7. Birla Sun Life Insurance Co Ltd market share of the company increased from

1.22% to 2.11%in 2007-08.Max New York Life Insurance Co Ltd has reported

gr owt h o f 73% i n 20 07 -0 8 . To ta l new business generated was Rs 641.83 crore as

against Rs 387.51 crore.

8 . Ko t ak Mah i ndr a O l d Mut ua l L i f e I ns u r ance L t d t he f i s ca l 2007- 08 , t he

company reported growth of 80%, moving from the 11th position to 9th. It

captured a market share of 1.19% in2007-08.

9. Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08 from 9thlast

year. It has presence in more than 3,000 locations across India via 221 branches and close to40

banc assurance partnerships. Aviva Life Insurance plans to increase its capital base by Rs

344crore.

Booming Insurance Market In India

With a huge population base and large untapped market, insurance industry is a big

opportunity area in India for national as well as foreign investors. India is the fifth

largest life insurance market in the emerging insurance economies globally and is growing at

32-34% annually. This impressive growth in the market has been driven by liberalization, with

new players‘ significantly enhancing product awareness and promoting consumer

education and information. The strong growth potential of the country has also

made international players to look at the Indian insurance market. Moreover,

saturation of insurance markets in many developed economies has made the Indian market more

attractive for international insurance players. This research report will help the client to analyze

the leading-edge opportunities critical to the success of insurance industry in India. Based on this



31

analysis, the report gives a future forecast of the market that is intended as a rough guide

to the direction in which the market is likely to move. Total life insurance premium in

India is projected to grow Rs 1,230,000 Crore by 2010-11.

• Tot a l non- l i f e i n s u r ance p r emi um i s expec t ed t o i nc r eas e a t a CAGR of

25% for the period spanning from 2008-09 to 2010-11.

• With the entry of several low-cost airlines, along with fleet expansion by existing

ones and increasing corporate aircraft ownership, the Indian aviation insurance

market is all set to boom in a big way in coming years.

• Home insurance segment is set to achieve a 100% growth as financial institutions

have made home insurance obligatory for housing loan approvals.



32

ORGANISATIONAL PROFILE

I D B I F e d e r a l L i f e I n s u r a n c e C o L t d i s a j o i n t v e n t u r e

b e t w e e n t h r e e l e a d i n g f i n a n c i a l conglomerates – India‘s premier development and

commercial bank IDBI Bank ,one of India‘s leading private sector banks,Federal Bank and

Europe‘s banking and insurance giant,Fortis,each of which enjoys a significant status in their

respective business segments. In this venture,IDBI Bank owns 48% equity while Federal Bank

and Fortis own 26% equity each.IDBI Fortis launched its first set of products across

India in March 2008, after receiving the re qu isi te ap pro va ls fro m t he Insu ran ce

Regulatory Development Author i ty ( IRDA). The company offers i t s servicesthrough a vast nationwide network across the branches of IDBI Bank and Federal

Bank in addition to a sizeable network of advisors and partners.

At IDBIFortis, people endeavor to deliver products that provide value and convenience

to the customer. Through a continuous process of innovation in product and

service delivery the company intends to deliver world-class wealth management,

protection and retirement solutions to Indian customers IDBI Ltd. continues to be, since its

inception, India‘s premier industrial development bank. Creat ed in 1956 to supp or t India ‘s

indust rial backbone, IDBI has since evo lved into a powerhouse of industrial and retail

finance. Today, it is amongst India‘s foremost commercial banks , w i t h a w i de r ange o f

inn ova t iv e p rodu cts and se rvic es , serv ing reta i l and corp ora te customers in all

corners of the country from over 490 branches and more than 600 ATMs. The Bank offers its

customers an extensive range of diversified services including project financing,



33

t e r ml end i ng , wor k i ng cap i t a l f ac i l i t i e s , l ea s e f i nance , ven t u r e cap i t a l ,

l o an s yn d i c a t i on , corporate advisory services and legal and technical advisory services to its

corporate clients as well as mortgages and personal loans to its retail clients.

IDBI Bank

Limited (BSE: 500116) is an Indian financial service company headquartered Mumbai,

India. RBI categorized IDBI as an "other public sector bank". It was established in 1964 by an

Act of Parliament to provide credit and other facilities for the development of the fledgling

Indian industry. It is currently 10th largest development bank in the world in terms of reach with

1514 ATMs, 923 branches including one overseas branch at DIFC, Dubai and 621 centers

including two overseas centers at Singapore & Beijing. Some of the institutions built by IDBI are

the Securities and Exchange Board of India (SEBI), National Stock Exchange of India (NSE),

the National Securities Depository Limited (NSDL), the Stock Holding Corporation of India

Limited (SHCIL), the Credit Analysis & Research Ltd, the Exim Bank (India)(Exim Bank), the

Small Industries Development Bank of India(SIDBI), the Entrepreneurship Development

Institute of India, and IDBI BANK, which is owned by the Indian Government. IDBI Bank is on

a par with nationalized banks and the SBI Group as far as government ownership is concerned. It

is one among the 26 commercial banks owned by the Government of India. The Bank has an

aggregate balance sheet size of Rs. 2, 53,378 crore as on March 31, 2011. IDBI Bank's

operations during the financial year ended March 31.

The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under

an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February

1976, the ownership of IDBI was transferred to the Government of India and it was made the

principal financial institution for coordinating the activities of institutions engaged in financing,

promoting and developing industry in the country. Although Government shareholding in the

Bank came down below 100% following IDBI‘s public issue in July 1995, the former continues

to be the major shareholder (current shareholding: 65.14%). IDBI provides financial assistance,

both in rupee and foreign currencies, for green-field projects as also for expansion,

modernization and diversification purposes. In the wake of financial sector reforms unveiled by

the government since 1992, IDBI also provides indirect financial assistance by way of

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http://en.wikipedia.org/wiki/Stock_Holding_Corporation_of_India_Limited


http://en.wikipedia.org/w/index.php?title=Credit_Analysis_%26_Research_Ltd&action=edit&redlink=1

http://en.wikipedia.org/wiki/Exim_Bank_%28India%29

http://en.wikipedia.org/wiki/Small_Industries_Development_Bank_of_India

http://en.wikipedia.org/wiki/Entrepreneurship_Development_Institute_of_India




http://en.wikipedia.org/wiki/Small_Industries_Development_Bank_of_India

http://en.wikipedia.org/wiki/Exim_Bank_%28India%29

http://en.wikipedia.org/w/index.php?title=Credit_Analysis_%26_Research_Ltd&action=edit&redlink=1



http://en.wikipedia.org/wiki/National_Securities_Depository_Limited

http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India

http://en.wikipedia.org/wiki/Securities_and_Exchange_Board_of_India

http://en.wikipedia.org/wiki/Act_of_Parliament

http://en.wikipedia.org/wiki/Financial_service


http://en.wikipedia.org/wiki/Bombay_Stock_Exchange



34

refinancing of loans extended by State-level financial institutions and banks and by way of

rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred

payment terms.

IDBI has played a pioneering role, particularly in the pre-reform era (1964 – 91),in

catalyzing broad based industrial development in the country in keeping with its Government-

ordained ‗development banking‘ charter. Narasimam committee recommends that IDBI should

give up its direct financing functions and concentrate only in promotional and refinancing role.

But this recommendation was rejected by the government. Later RBI constituted a committee

under the chairmanship of S.H.Khan to examine the concept of development financing in the

changed global challenges. This committee is the first to recommend the concept of universal

banking. The committee wanted the development financial institution to diversify its activity. Itrecommended harmonizing the role of development financing and banking activities by getting

away from the conventional distinction between commercial banking and developmental

banking.

In September 2003, IDBI diversified its business domain further by acquiring the entire

shareholding of Tata Finance Limited in Tata Home finance Ltd., signaling IDBI‘s foray into the

retail finance sector. The fully owned housing finance subsidiary has since been renamed ‗IDBI

Home finance Limited‘. In view of the signal changes in the operating environment, following

initiation of reforms since the early 1990s, Government of India has decided to transform IDBI

into a commercial bank without eschewing its secular development finance obligations. The

migration to the new business model of commercial banking, with its gateway to low-cost

current, savings bank deposits, would help overcome most of the limitations of the current

business model of development finance while simultaneously enabling it to diversify its client/

asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act 2003 was

passed by Parliament in December 2003. The Act provides for repeal of IDBI Act,

corporatization of IDBI (with majority Government holding; current share: 58.47%) and

transformation into a commercial bank. The provisions of the Act have come into force from 2

July 2004 in terms of a Government Notification to this effect. The Notification facilitated

formation, incorporation and registration of Industrial Development Bank of India Ltd. as a

company under the Companies Act, 1956 and a deemed Banking Company under the Banking



35

Regulation Act 1949 and helped in obtaining requisite regulatory and statutory clearances,

including those from RBI. IDBI would commence banking business in accordance with the

provisions of the new Act in addition to the business being transacted under IDBI Act, 1964

from 1 October 2004, the ‗Appointed Date‘ notified by the Central Government.

IDBI Bank, with which the parent IDBI was merged, was a new generation Bank. The

Pvt Bank was the fastest growing banking company in India. The bank was pioneer in adapting

to policy of first mover in tier 2 cities. The Bank has one of the highest productivity per

employee in Indian banking industry.

On 29 July 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle

approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be

formed incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of

Undertaking and Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and

other regulatory and statutory approvals. A mutually gainful proposition with positive

implications for all stakeholders and clients, the merger process is expected to be completed

during the current financial year ending 31 March 2005.

The immediate fall out of the merger of IDBI and IDBI Bank was the exit of employees

of IDBI bank. The cultures in the two organizations have taken its toll. The IDBI Bank now is ina growing fold. With its retail banking arm expanding further after the merger of united western

Bank.

IDBI would continue to provide the extant products and services as part of its

development finance role even after its conversion into a banking company. In addition, the new

entity would also provide an array of wholesale and retail banking products, designed to suit the

specific needs cash flow requirements of corporate and individuals. In particular, IDBI would

leverage the strong corporate relationships built up over the years to offer customized and total

financial solutions for all corporate business needs, single-window appraisal for term loans and

working capital finance, strategic advisory and ―hand-holding‖ support at the implementation

phase of projects, among others.

http://en.wikipedia.org/wiki/Solution

http://en.wikipedia.org/wiki/Solution



36

IDBI‘s transformation into a commercial bank would provide a gateway to low-cost

deposits like Current and Savings Bank Deposits. This would have a positive impact on the

Bank‘s overall cost of funds and facilitate lending at more competitive rates to its clients. The

new entity would offer various retail products, leveraging upon its existing relationship with

retail investors under its existing Suvidha Flexi-bond schemes.

The responsibility for maintaining standards of corporate governance lies with its Board

of Directors. Two Committees of the Board viz. the Executive Committee and the Audit

Committee are adequately empowered to monitor implementation of good corporate governance

practices and making necessary disclosures within the framework of legal provisions and

banking conventions.

Federal Bank : I t s one o f I nd i a ‘ s l ead i ng p r i va t e s ec t o r banks , w i t h a

n a t i on al n e t wor k and dominant presence in the state of Kerala. It has a strong network of

over 550 branches and 450ATMs spread across India. The bank provides over four

million retail customers with a wide variety of financial products. Federal Bank is

one of the first large Indian banks to have an entirely automated and

i n t e r connec t ed b r anch ne t wor k . They ope r a t e on t he co r e

b ank ing p l a t f o r m a n d a r e R T G S / N E F T e n a b l e d t h r o u g h w h i c h t h e

B a n k o f f e r s s t a t e - o f - t h e - a r t technology enabled products and services.

Fortis: A Eur opean f i nanc i a l s e r v i ces p r ov i de r engaged i n bank i ng and

i ns u r ance wi t h a p r es ence i n ove r 50 coun t r i e s , o f f e r s i t s pe r s ona l ,

b us ine ss and i ns t i t u t i ona l cus t ome rs a comprehensive package of products and

services through its own channels, in collaboration with intermediaries and through other

distribution partners. With a market capitalization of over EUR 40 bi ll ion, Fort is ranks

among the 20 largest financial institu tions in Europe. Fortis‘ sound solvency

pos it ion and ded icated, pro fessional workforce of over 80,000, enables it to

combine global strength with local flexibility to provide its clients with optimum support and

service



37

Vision

To be the leading provider of wealth management, protection and retirement solutions

that meets the needs of our customers and adds value to their lives.

Mission

To continually strive to enhance customer experience through innovative product

offerings, dedicated relationship management and superior service delivery while striving

to interact with our customers in the most convenient and cost effective manner.

To be transparent in the way we deal with our customers and to act with integrity.

To invest in and build quality human capital in order to achieve our mission.

Values

Transparency: Crystal Clear communication to our partners and stakeholders

Value to Customers: A product and service offering in which customers perceive value

Rock Solid and Delivery on Promise: This translates into being financially strong,

operationally robust and having clarity in claims

Customer-friendly: Advice and support in working with customers and partners

Profit to Stakeholders: Balance the interests of customers, partners, employees,

shareholders and the community at large.

Product Portfolio:

Being a new entrant, IDBI is slowly increasing its portfolio which includes:

Retirement Plan: With rising inflation, it‘s absolutely necessary to make provisions for the future



38

which makes retirement plan an important financial decision. Better known as Pension plan, this

plan takes care of financial needs after retirement by investing a part of your savings for limited

period. Pension plan provides steady income after retirement and takes care of daily needs. The

pension plan offered by IDBI Federal is Retiresurance.

Term Plan: A risk plan which provides comprehensive cover for your family in the unfortunate

event of untimely demise. A term life insurance plan provides good cover at relatively nominal

cost and has no survival benefits. IDBI Federal Life term plan is Termsurance.

Investment Plan: Popularly known as ULIP, an investment plan invests part of your savings in

equity or debt market as per your preference. The objective of investment plan is to give you

returns which easily beat the rising costs since the usual returns in a bank are extremely low.

ULIP‘s offered by IDBI Federal Life are Wealthsurance, Bondsurance and Incomesurance.

Health Plan: Slightly different from health insurance, health plan provides cover for surgery

costs, critical illness. A lump sum is paid irrespective of actual hospital bill. Healthsurance is

IDBI Federal Life‘s health plan.

Distribution Network:

IDBI Federal Life Life Insurance Company leverages on the strong distribution network

of its promoters and advisors.

Financial Information:

The total premium earned for the half year ended September 30, 2010 was Rs 3,427

million. The profit after tax for the same period is Rs 513 million. There have been 132 death

claims reported during the period out of which 43 claims were settled and 19 claims were

rejected.





40

2009: IDBI Fortis launches Incomesurance™ Immediate Annuity

2009: IDBI Fortis Life Insurance uses an interactive application to help users easily

calculate their taxes

2009: IDBI Fortis reaches the City of Eastern Light

2009: IDBI Fortis receives bronze Dragon at 'PMAA 2009'

2009: IDBI Fortis Life Insurance introduces financial inclusion plan in rural Orissa

2009: IDBI Fortis launches Termsurance™ Protection Plan

2009: IDBI Fortis redefines endowment & money back with Incomesurance™

2009: IDBI Fortis to open 65 more branches; raise headcount by 1,000

2010: IDBI Fortis now renamed as IDBI Federal Life Insurance Company

PRODUCTS

1. Childsurance

The IDBI Federal ChildsuranceDreambuilder Insurance Plan will help in keeping

children‘s future-ready against both, changing dreams and life‘s twists. It allows creating build

and managing wealth by providing several choices and great flexibility according to specific

needs. It has powerful insurance benefits. Childsurance allows protecting child plan with triple

insurance benefits so that wealth-building efforts remain unaffected by unforeseen events and

child‘s future goals can be achieved without any hindrance.

2. Lifesurance

IDBI Federal Lifesurance Savings Insurance Plan is a fixed term participating

endowment policy that provides with the twin benefits of long-term savings and life cover. It is a

guaranteed plan that allows to accumulate considerable savings to meet responsibilities in life.

The IDBI Federal Lifesurance Savings Insurance Plan also offers the benefit of a death cover

that provides financial security to family in case of family head‘s absence.

http://www.idbifederal.com/Products/Childsurance/ChildsuranceDIP

http://www.idbifederal.com/products/Lifesurance%20Savings%20Insurance%20Plan

http://www.idbifederal.com/products/Lifesurance%20Savings%20Insurance%20Plan

http://www.idbifederal.com/Products/Childsurance/ChildsuranceDIP



41

3.Bondsurance

Bondsurance™ is designed for customers looking for guaranteed returns which will not

get affected by financial market conditions. It offers guaranteed return on investment along with

life insurance cover.

4.Healthsurance

This new insurance plan offers a host of features and benefits that are designed to help to

manage the extra financial burden that comes with hospitalization.

5. Homesurance

Homesurance Protection Plan is a mortgage reducing term insurance plan that secures the

policyholder, irrespective of interest fluctuations at a nominal cost with high benefits. IDBI

Federal HomesuranceProtection Plan provides full insurance cover for properties even under

construction, thus ensuring that the beneficiary gets the full sanctioned amount in case of any

unfortunate event. It also has an innovative fixed period cover for those who would aim to

prepay their loans early and would find a cover for the full term a waste.

6. Incomesurance

IDBI Federal Incomesurance Endowment &MoneyBack Plan is a unique combination of

the oldest type of insurance policies. On purchasing a typical endowment plan, it is difficult to

know the final maturity amount at the time of investing. Also, the maturity date is usually fixed

and therefore, if the goals shifted, like getting daughter married earlier,plan would not provide

the required flexibility. This is a combination of Endowment & Money Back plans into a single

plan that would allow to withdraw at maturity but also to take money back at intervals. This way,

one can now have the flexibility to tailor his investment to his life‘s goals. So investor could

invest according to the desired corpus intended to build. The Premium is eligible for taxdeduction under Sec 80C. Also, the Guaranteed Annual Payout and other benefits upon death are

tax-free under Sec 10(10D).

http://www.idbifederal.com/Products/Bondsurances/Bondsurance

http://www.idbifederal.com/Products/Healthsurance

http://www.idbifederal.com/Products/Homesurance/HomesuranceProtectionPlan

http://www.idbifederal.com/Products/Homesurance/HomesuranceProtectionPlan

http://www.idbifederal.com/Products/Healthsurance

http://www.idbifederal.com/Products/Bondsurances/Bondsurance



42

7. Loansurance

IDBI Federal Loansurance Group Life Plan is aa cost-effective way to ensure that the

outstanding debt is settled in the unfortunate event of death of the borrower. This term assurance

plan provides cover to a person directly liable for loan repayment (and the partners, in case of a

partnership).

8. Microsurance

Microfinance is recognised globally as the foremost tool in pulling large numbers of

poor households from the grip of poverty. Micro-insurance in particular is an explicit need and

desire of poor households as it offers some protection from their intense vulnerability to external

shocks. IDBI Federal Microsurance Plan is a one of its kind insurance plan which can be very

useful for various Micro Financial Institutions and NGOs, wherein not only the members but

even the member‘s family gets an insurance cover.

9. Termsurance

IDBI Federal TermsuranceGrameenBachatYojana is a low-cost risk protection plan

targeted at the rural population. It is an ideal plan to protect family members in the event of

unfortunate demise of the major income earner and also to save for specific events like

repayment of loan, daughter's marriage or child's education. The plan offers life cover at a

nominal cost along with the option of refund of premiums paid by you at maturity. This product

has got a very unique mix of options that allow the customers to receive either of 0%, 50%, 90%

or 100% return of premium. The coverage terms offered are 3 years, 5 years & 10 years. The

customer has the flexibility of get the sum assured ranging from Rs. 5,000 to Rs. 1,00,000 in the

multiples of Rs. 1,000.

10. WealthsuranceThis is time customers buy insurance - as an investment. This is designed to have all the

possible investments and insurance combinations. A plan that not only allows the policyholder to

invest according to their changing risk appetite; it also provides a host of insurance benefits to

protect them against uncertainties, so that they don‘t have to break their investment to meet

sudden financial demands and their money can keep compounding. The

http://www.idbifederal.com/Products/Loansurance

http://www.idbifederal.com/Products/GroupMicrosurance

http://www.idbifederal.com/Download/Brochures/Documents/Termsurance_Grameen_Bachat_Yojana.pdf

http://www.idbifederal.com/Products/Wealthsurances/wealthsurance

http://www.idbifederal.com/Products/Wealthsurances/wealthsurance

http://www.idbifederal.com/Download/Brochures/Documents/Termsurance_Grameen_Bachat_Yojana.pdf

http://www.idbifederal.com/Products/GroupMicrosurance

http://www.idbifederal.com/Products/Loansurance



43

Wealthsurance Milestone Plan enables the policyholder to save and build wealth to meet their

financial goals. This Plan comes with a wide range of 13 investment options and 7 insurance

benefits - all packaged with a low charge structure and unmatched flexibility. Moreover, get tax

benefits on investment and returns under Sec 80C and Sec 10(10D).

UNIT LINKED INSURANCE PLANS

Unit linked insurance plan (ULIP) is a life insurance solution that provides the client with

the benefits of protection and flexibility in investment. It is a solution which provides for life

insurance where the policy value at any time varies according to the value of the underlying

assets at the time. The investment is denoted as unit and is represented by the value that it has

attained called as Net Asset Value (NAV).ULIPs are a category of goal-based financial solutions

that combine the safety of insurance protection with wealth creation opportunities. In ULIPs, a

part of the investment goes towards providing a life cover. The residual portion of the ULIP is

invested in a fund which in turn invests in stocks or bonds; the value of investments alters with

the performance of the underlying fund opted by the customer. Simply put, ULIPs are structured

in such that the protection element and the savings element are distinguishable, and hence

managed according to your specific needs. In this way, the ULIP plan offers unprecedented

flexibility and transparency. ULIPs came into play in 1960s and became very popular in Western

Europe and America. The reason that is attributed to the wide spread popularity of ULIP is

because of the transparency and the flexibility which it offers to the clients. As time progressed

the plans were also successfully mapped along with life insurance needs toretirement planning .In

today‘s times ULIP provides solution for all the needs of a client like insurance planning, financial needs,

financial planning for children‘s future and retirement planning.

STRUCTURE OF ULIPs

ULIPs offered by different insurers have varying charge structures. Broadly the different

types of fees and charges are given below. However the insurers have the right to revise or

cancel these and charges over a period of time.



44

Premium Allocation charges

This is a percentage of the premium appropriated towards charges before allocating the

units under the policy. This charge normally includes initial and renewal expenses apart from

commission expenses.

Mortality Charges

These are charges to provide for the cost of insurance coverageunder the plan.

Mortality charges depend on number of factors such as age, amount of coverage, state of health

etc.

Fund Management Charges

These are fees levied for management of the fund(s) and are deducted before arriving at

the Net Asset Value (NAV) .

Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of units. This

could be flat throughout the policy term or vary at a pre-determined rate

Surrender Charges

A surrender charge may be deducted for premature partial or full encashment of units

wherever applicable, as mentioned in the policy conditions.

Fund Switching Charge

Generally a limited number of fund switches may be allowed each year without charge,

with subsequent switches, subject to a charge. But now a day‘s many insurers offer fund

switching free of cost.



45

Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the risk portion

of the premium.

TYPES OF FUNDS UNDER ULIPs

Most insurers offer a wide range of funds to suit one‘s investment objectives, risk profile and time

horizons. Different funds have different risk profiles. The potential for returns also varies from

fund to fund. The following are some of the common types of funds available along with an

indication of their risk characteristics.

General description Nature of investment Risk category

Equity Funds Primarily invested in company

stocks with the general aim of

capital appreciation

Medium to high

Income, Fixed interest and

Bond Funds

Invested in corporate bonds,

government securities and

other fixed income instrument

Medium

Invested amount

Premium allocation charges

Administration charges

Mortality charges

Fund management charges



46

Cash Funds Sometimes known as Money

Market Funds-invested in cash,

bank deposits and money

market instruments

Low

Balanced Funds Combining equity investment

with fixed interest instrument

Medium

HOW ULIPS MANAGE MONEY

ULIPs are different from traditional plans. They invest their monies in Shares, bonds,

government securities, money market instruments in varied proportions.

Insurance companies usually maintain 4 types of funds.

1. Growth Fund : 100% equity

2. Balanced Fund: 60% equity, 40% debt.

3. Debt Fund : 100% debt.

4. Money Market Funds: 100% MM instruments for a period of one year.

RISKS RETURNS

In case of equity, the risk and return is the highest, and vice verse for Money market

instruments.

It is a principle of financial management, the higher the risks you take, the higher the return you

get.

STEPS FOR ULIP SELECTION

· Understand what ULIPs are all about.

· Focus on your need and risk profile

· Compare ULIP products from various insurance companies

· Go for an experienced Insurance advisor.



47

USP of ULIPS

Insurance cover plus savings

ULIPs serve the purpose of providing life insurance combined with savings at market-

linked returns. To that extent, ULIPS can be termed as a two-in-one plan in terms of giving an

individual the twin benefits of life insurance plus savings.

Multiple investment options

ULIPS offer a lot more variety than traditional life insurance plans. So there are multiple

options at the individual‘s disposal. ULIPS generally come in three broad variants:

Aggressive ULIPS (which can typically invest 80%-100% in equities, balance in

debt)

Balanced ULIPS (can typically invest around 40%-60% in equities)

Conservative ULIPS (can typically invest up to 20% in equities)

Al t hough t h i s i s how t he ULI P op t i ons a r e gene r a l l y des i gned , t he exac t

debt/equity allocations may vary across insurance companies. Individuals can opt for a variant

based on their risk profile.

Flexibility

The flexibility with which individuals can switch between the ULIP variants to

capitalize on investment opportunities across the equity and debt markets is what

d i s t ingui shes i t f rom other ins t ruments . Some insurance companies a l low a

certain number of ‗free‘ switches. Switching also helps individuals on a n o t h e r f r o n t .

T h e y c a n s h i f t f r o m a n A g g r e s s i v e t o a B a l a n c e d o r

c onservative ULIP as they approach retirement. This is a refl ection of the change in

their risk appetite as they grow older.



48

Works like an SIP

Rupee cost-averaging is another important benefit associated with ULIPS.

With an SIP, individuals invest their monies regularly over time intervals of a

month/quarter and don‘t have to worry about ‗timing‘ the stock mark ets.

HURDLES OF ULIP

NO STANDARDIZATION

Al l t he cos t s a r e l ev i ed i n ways t ha t do no t l end t o s t anda r d i za t i on .

If one company calculates administration cost by a formula, another levies a flat

rate. If one company allows a range of the sum assured (SA), another allows only a multiple of

the premium. There was also the problem of a varying cost structure with age.

LACK OF FLEXIBILITY IN LIFE COVER

ULIP is known to be more flexible in nature than the traditional plans and, on most

counts, they are. However, some insurance companies do not allow the individual to fix the

life cove r tha t he needs. These rely on a mult iplie r tha t is fixed by the insurer

OVERSTATING THE YIELD

Insurance companies work on illustrations. They are allowed to show you how much

your annual premium will be worth if it grew at 10 per cent per annum. But there

are costs, so each company also gives a post-cost return at the 10per cent

illustration, calling it the yield. Some companies were not including the mortality

cost while calcu lating the yield. This amounts to overstating the yield.

INTERNALLY MADE SALES ILLUSTRATION

Dur i ng t he p r oces s o f co l l ec t i ng i n f o r ma t i on , i t was f ound t ha t t he

s a l e s benefit illustration shown was not conforming to the Insurance Regulatory and



49

Deve l opment Au t hor i t y ( I r da ) f o r ma t . I n many l oca t i ons 30 pe r cen t r e t u r n

illustrations are still rampant

NOT ALL SHOW THE BENCHMARK RETURN

To talk about returns without pegging them to a benchmark is misleading the customer.

Though most companies use Sensex, BSE 100 or the Nifty as the benchmark, or the

measuring rod of performance, some companies are not using any benchmark at all.

EARLY EXIT OPTIONS

The ULIP product works over the long term. The earlier the exit, the worse

off is the investor since he ends up redeeming a high-front-load product and isthen

encouraged to move into another higher cost product at that stage. Anearly exit also

takes away the benefit of compounding from insured

FACTORS INFLUENCING THE BUYING OF UNIT LINKEDINSURANCE PLAN

(ULIPs)

The degree of buying of ULIPs insurance varies from person to person. It depends upon

many factors. The factors can be classified into personal, social, economic, psychological

and company related variables. Age and experience of policyholder are personal factors, while

the co- education is a social factor. Economic factors include occupation, income and wealth,

and the psychological factors consist of perception, satisfaction about the services rendered

by insurance companies, the impact of advertisement and personal selling made by insurance

companies on policyholders. The company related variables are the promotional efforts to

sell the policies to prospective buyers. These include advertisement and personal selling too.



50

CHAPTER-4

DATA ANALYSIS AND

INTERPRETATION



51

Table: 4.1

Age group of respondents.

Age group Respondent Percentage

<25 yrs 20 20%

25-40 50 50%

41-50 20 20%

>50 10 10%

Total 100 100%

INTERPRETATION

50% i.e. the majority of the data collected is from the age group in between 25-40 and

20% belongs to less than 25 years and between 41-50 years and 10% of the data belongs to more

than 50 years. In this study almost all age group has been included and major portion is theworking group between 41-50 years.



52

Chart: 4.1

0

10

20

30

40

50

60

<25 25-40 41-50 >50

AGE GROUP



53

Table: 4.2

Occupation of respondents.

Occupation Respondents Percentage

Govt. employee 30 30%

Self employed 6 6%

Private sector employee 25 25%

Professional 13 13%

NRI 14 14%

Others 12 12%

Total 100 100

INTERPRETATION

30% of the respondents are government employees, 25% belongs to private sector.

Almost 50% of the respondents belong to these two categories. Then 14%, 13% and 12%

respectively belongs to NRI, professionals and others and a 6% belongs to self-employed.



54

Chart: 4.2

0

5

10

15

20

25

30

35

Government

employee

Self employed Private sector Professional NRI Others

Occupation



55

Table: 4.3

Annual income of respondents.

Income level Respondents Percentage

<1 lakh 10 10%

1 lakh-3 lakh 56 56%

3lakh-5lakh 22 22%

>5lakh 12 12%

Total 100 100%

INTERPRETATION

It can be inferred from the table that 56% i.e. the majority of the respondents are having the

income between 1lakh- 3 lakh, 22% in 3lakh-5lakh category, 12% in more than 5lakh and 10%

less than 1lakh.



56

Chart: 4.3

Annual income of respondents.

10%

56%

22%

12%

Income

<1 lakh

1lakh-3lakh

3-5 lakh

>5 Lakh



57

TABLE NO 4.4

Primary objective behind taking an Insurance coverage

Objective Number of respondent Percentage

Comfortable living 6 6%Meet contingencies 30 30%

Meet contingencies 25 25%

Retirement provision 15 15%

Wealth creation 5 5%

Savings in absence 19 19%

Total 100 100%

INTERPRETATION

Primary objective of 30% of the respondents is to meet contingency.

25% of the respondents‘ primary objective is to reduce tax.

19% of respondents wants saving in their absence.

15% of respondents considered it as a provision for retirement.

6% of respondents invested for a comfortable living

Primary objective of 5% of respondents is wealth creation.

It can be analyzed that the majority i.e. 55% of the respondents‘ primary objective is to

meet contingency and reduce tax.



58

Chart No: 4.4

0

5

10

15

20

25

30

35

Comfort living To meet

contigency

Tax reduction Retirement

provision

Wealth creation Savings in

absence

Primary objective of insurance





60

Chart: 4.5

Preference on investment

0

10

20

30

40

50

60

70

80

90

100

Insurance Bank deposit Stock market Mutual fund Real estate



61

Table: 4.6

Best private insurance company

Company Respondent Percentage

ICICI 42 42%

HDFC 17 17%

BAJAJ 10 10%

TATA 9 9%

IDBI 9 9%

AVIVA 6 6%

METLIFE 5 5%

Total 100 100%

INTERPRETATION

42% of respondents opted for ICICI PRUDENTIAL.

17% responded for HDFC STANDARD.

10% responds BAJAJ ALLIANZ.

9% responded for TATA AIG.

9% IDBI FEDERAL.

6% for AVIVA LIFE.

5% for MET LIFE.

Majority has chosen ICICI prudential as best private company.



62

Chart: 4.6

0

5

10

15

20

25

30

35

40

45

ICICI HDFC BAJAJ TATA IDBI AVIVA METLIFE

Best Private Company



63

Table: 4.7

Source about Insurance schemes

Source Respondent Percentage

ADVISOR 35 35%

NEWS PAPER 4 4%

TELEVISION 6 6%

MAGAZINE 6 6%

RELATIVES 21 21%

FRIENDS 28 28%

Total 100 100%

INTERPRETATION

35% of respondents came to know from advisors.

28% of respondents came to know from friends.

21% of respondents came to know from relatives.

6% of respondents came to know from magazines.

6% of respondents came to know from television.

4% of respondents came to know from news papers.

Majority came to know about schemes from advisors and TV,

magazines and news papers has only a minor role here.



64

Chart: 4.7

0

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30

35

40

ADVISOR NEWS PAPER TELEVISION MAGIZINE RELATIVES FRIENDS

Scheme knowkedge from



65

Table: 4.8

Suggesting others to invest in insurance

Suggest Respondent Percentage

Yes 10 10%

NO 18 18%

Cannot answer 72 72%

Total 100 100%

INTERPRETATION

72% responds that they cannot answer.

18% says no.

10% says they will.

One third of the respondent says (72%) responds is ―cant‘ say‖ but 18 % saysthey won‘t suggest others where a 10% says they will suggest.



66

Chart: 4.8

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20

30

40

50

60

70

80

Yes No Cannot say

Suggesting to others



67

Table: 4.9

Feeling after investing in Unit Linked Plans of IDBI Federal Life Insurance

Feeling Respondent Percentage

Good 25 25%

Averagely satisfied 65 65%

Cheated 10 10%

Total 100 100%

INTERPRETATION 65% are averagely satisfied.

25% feels good.

10% feels cheated in investing.

Majorities are averagely satisfied with the investment but one fourth feels they are cheated.



68

Chart: 4.9

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40

50

60

70

Good Averagely satisfied Cheated

Feeling of investment



69

Table: 4.10

Reasons for investing in Unit Linked Plans of IDBI Federal Life Insurance

Reason No of Respondents Percentage

Returns 2 2%

Schemes are good - 0%

Recommended 11 11%

Tax saving 17 17

Multiple benefit 32 32%

All of the above 38 38%

Total 100 100%

INTERPRETATION

38% respondents responded for all.

32% respondents responded for multiple benefits.

17% respondents responded for Tax saving.

11% because recommended by friends and relatives.

2% respondents responded for return.

38% choose ULIP because ULIP have different advantages. If considering a single reason, 17%

opted it for tax saving.



70

Chart: 4.10

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30

35

40

Reason for investing



71

Table: 4.11

Rate the Premium Amount to be paid in Unit Linked Plans of IDBI Federal Life Insurance

Premium amount No of Respondents Percentage

High 21 21%

Moderately high 49 49%

Medium 24 24%

Moderately low 6 6%

Low 0 0%

Total 100 100%

INTERPRETATION

49% of the respondents opted for moderately high.

24% of the respondents opted for medium.

21% of the respondents considers as high.

6% of the respondents opted for moderately low.

0% of the respondents opted for low.

Half of the respondent feels that premium amount to be paid is moderately high but none says it‘s low.



72

Chart: 4.11

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30

40

50

60

High Moderately high Medium Moderately low Low

Premium amount



73

Table: 4.12

Rate the Return in Unit Linked Plans of IDBI Federal Life Insurance

Return Respondent Percentage

Good 3 3%

Moderately good 21 21%

Average 44 44%

Moderately poor 21 21%

Poor 3 3%

Total 100 100%

INTERPRETATION

44% of the respondents opted for average rate of return.

27% of the respondents opted for moderately good.

21% of the respondents opted for moderately poor.

5% of the respondents opted for poor.

3% of the respondents opted for good.

From the data respondents considers return as an average one.



74

Chart: 4.12

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50

Good Moderately good Average Moderately poor Poor

RETURN



75

Table: 4.13

Rate the Units allocated in Unit Linked Plans of IDBI Federal Life Insurance

Unit allocated Respondent Percentage

Good 24 24%


Average 17 17%


Poor 6 6%

Total 100 100%

INTERPRETATION

39% of respondents opted for moderately good.

24% of respondents says its good.

17% of respondents opted for average.

14% of respondents opted for moderately poor.

6% of respondents opted for poor.

Majority of the respondents consider the units allocated as good.



76

Chart: 4.13

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30

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40

45


Units allocated



77

Table: 4.14

Risk associated with Unit Linked Plans of IDBI Federal Life Insurance

Risk Respondent Percentage

High 61 61%


Medium 8 8%

Moderately low 2 2%

Low 0 0%

Total 100 100%

INTERPRETATION

61% of the respondents are of the opinion that it is highrisk.

29% of the respondents are of the opinion that it is moderately high.

8% of the respondents are of the opinion that it is medium.

2% of the respondents are of the opinion that it is moderately low.

0% of the respondents are of the opinion that it is low.

Majority of the customers are of the considers investing in ULIP as risky.



78

Chart: 4.14

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40

50

60

70


Risk



79

Table: 4.15

Rate the Schemes with Linked Plans of IDBI Federal Life Insurance

Schemes No of Respondent Percentage

Good 1 1%


Average 55 55%


Poor 1 1%

Total 100 100%

INTERPRETATION

55% of the respondets rated as average.

22% of the respondets for moderately poor.

21% of the respondets for moderately good.

1% of the respondets for good.

1% of the respondets for poor.

Majority of the respondents consider the schemes with linked plans of IDBI as average.



80

Chart: 4.15

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Schemes



81

Table: 4.16

Rate the Service related with Unit Linked Plans of IDBI Federal Life Insurance

Service No of respondent Percentage

Good 2 2%


Average 44 44%


Poor 4 4%

Total 100 100%

INTERPRETATION

44% of the respondets considers the service as average.

28% of the respondets for moderately good.

22% of the respondets for moderately poor. 4% of the respondets for poor.

2% of the respondets for good.

Service related with ULIP is been considered as average with a slight percentage opting

more for moderately good.



82

Chart: 4.16

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Service related with



83

Table: 4.17

Rate the Transparency with Unit Linked Plans of IDBI Federal Life

Insurance

Transparency No of Respondents Percentage

Highly transparent 6 6%

Moderately transparent 20 20%

Average 45 45%

Low 25 25%

Not at all 4 4%

Total 100 100%

INTERPRETATION

6% of respondetns considers the tranparency as high.

20% of respondents considers it as moderately transparent.

45% considers the tranparency asaverage.

25% considers the tranparency aslow.

4% for not at all transparent.

The majority of the respondents considers transparency withULIP as average.



84

Chart: 4.17

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30

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45

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Highly transparent Moderately

transparent

Average Low Not at all

transparency



85

Tale: 4.18

Rate the Mortality charges with Unit Linked Plans of IDBI Federal Life

Insurance

Risk Respondent Percentage

High 21 21%


Medium 38 38%

Moderately low 10 10%

Low 5 5%

Total 100 100

INTERPRETATION

21% of the respondents consider the mortality charge as high.

26% of the respondents consider the mortality charge as moderately high.

38% of the respondents consider the mortality charge as medium.

10% of the respondents consider the mortality charge as moderately low.

5% of the respondents consider the mortality charge as low.

Majority of the respondents consider mortality charges with ULIP as a little high.



86

Chart: 4.18

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30

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40


Mortality charges



87

Table: 4.19

Rate the Premium allocation charges with Unit Linked Plans of IDBI

Federal Life Insurance

Premium allocation

charge

Respondent Percentage

High 30 30%


Medium 31 31%

Moderately low 6 6%

Low 0 0%

Total 100 100%

INTERPRETATION

30% of respondets considers the premium allocation charges as high.

33% for moderately high.

31% for medium.

6% for moderately low.

0% for low.

Respondents considers the Premium allocation charges with ULIP as high.



88

Chart: 4.19

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30

35


Premium allocation charges



89

Table: 4.20

Rate the Fund Management fee with Unit Linked Plans of IDBI Federal Life Insurance

Fund management fee Respondent Percentage

High 10 10%


Medium 44 44%


Low 8 8%

Total 100 100%

INTERPRETATION

10% of respondents opted for highrisk.

19% of respondents opted for moderately high.

44% of respondents opted for medium.

19% of respondents opted for moderately low.

8% of respondents opted for low.

Majority of the respondents considers fund management fee with ULIP as medium.



90

Chart: 4.20

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45

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Fund management fee



91

Table: 4.21

Rate the Administration Charges with Unit Linked Plans of IDBI Federal Life

Insurance

Administration charges Respondent Percentage

High 2 2%


Medium 50 50%


Low 6 6%

Total 100 100

INTERPRETATION

2% of respondents opted for high administration charges.

17% of respondents opted for moderately high.

50% of respondents opted for medium.

25% of respondents opted for moderately low.

6% of respondents opted for low.

Respondents consider administration charges with ULIP as medium.



92

Chart: 4.21

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40

50

60


Administration charges



93

Table: 4.22

Rate the Surrender Charges with Unit Linked Plans of IDBI Federal Life Insurance

Surrender charges Respondent Percentage

High 33 33%


Medium 30 30%


Low 0 0%

Total 100 100

INTERPRETATION

33% of respondetns considers the surrender charges as high.

27% of respondetns considers the surrender charges as moderately high. 30% of respondetns considers the surrender charges as medium.

10% of respondetns considers the surrender charges as moderately low.

0% of respondetns considers the surrender charges as low.

Respondents consider Surrender charges with ULIP as high.



94

Chart: 4.22

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35


Surrender charges



95

Table: 4.23

Satisfaction with Unit Linked Plans of IDBI Federal Life Insurance

Satisfaction level Respondent Percentage

Highly satisfied 2 2%

Satisfied 34 34%

Neutral 36 36%

Dissatisfied 24 24%

Highly dissatisfied 4 4%

Total 100 100

INTERPRETATION

24% of respondents opted for dissatisfied.

36% of respondents opted for neutral .

34% of respondents opted for satisfied.

2% of respondents opted for highly satisfied.

4% of respondents opted for highly dissatisfied.

It can be inferred that the majority of r espondents‘ satisfaction level is neutral with the product.

.



96

Chart: 4.23

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Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied

Satisfaction level



97

CAPTER-5

SUMMARY AND CONCLUSION



98

5.1 FINDINGS

55% respondents‘ primary objective is to meet contingency and reduce tax.

Majority of the respondent preferred bank deposit as investment.

Majority has chosen ICICI prudential as best private company.

Majority came to know about schemes from advisors and TV, magazines and news papers

has only a minor role here.

Majorities are averagely satisfied with the investment but one fourth feels they are cheated.

38% choose ULIP because ULIP have different advantages. If considering a single

reason, 17% opted it for tax saving

Half of the respondent feels that premium amount to be paid is moderately high but none says

it‘s low.

Respondents consider return on ULIP as an average one.

Respondents consider the units allocated as good.

Respondents considers investing in ULIP is having high risk.

Schemes with ULIP is considered as average.

Service related with ULIP is been considered as average with a slight percentage opting

more for moderately good

Respondents considers transparency withULIP as average.

Respondents consider mortality charges with ULIP as a little high.

Respondents considers the Premium allocation charges with ULIP as high.

Respondents considers fund management fee with Ulip as medium.

Respondents consider Surrender charges with ULIP as high.

Respondent‘s satisfaction level is neutral with the product.



99

5.2 SUGGESTIONS

1. Try to reduce fund charges, administration charges and other charges which help the

investors to invest more funds in the security market and earn good returns.

2.

Since ULIPs are less popular as a traditional plan, IDBI Federal should advertise in order to attract the attention of salaried people and to make them understand the importance of

investing in ULIPs for retirement. Publicityon a large scale about the different policies

should be done in all means of communication.

3. Needs-based Positioning: This is based on unders tanding di ff erent needs of

different groups of consumers. This can be done successfully if a company

has unique str engths to service a group of customer needs better than others.

4. Deriving the right feedback from customers and bringing out innovative products which

cater to customer demands will go a long way in tapping the market potential of the

insurance.

5. The company can arrange a seminar for the existing clients informing them about the

progress made by the company.

6. From the customer‘s point of view, IDBI Federal is just another private insurer trying to

sell whatever they have. Instead the company must modify its product range

in such a way that the company could clearly distinguish its products from that of its

competitors.



100

5.3 CONCLUSION

ULIPs as an investment avenue are good for people who have interest in staying for a

longer period of time, that is around10 years and above. Also in the coming times, ULIPs will

grow faster. ULIPs are actually being publicized more and also the other traditionalendowment pol icies are becoming unat t ract ive because of lower interes t rate .

It is good for people who were investing in ULIP policies of insurance companies as

t h ei r i nves tm en t s ea rn t hem a b et t e r return than the other policies.There are also

ULIP charges to consider than single and regular premium. It is also important to take a

overview of different charges are under ULIP plans. It includes premium allocation charge, risk

cover charges, policy administration charges, fund management charges, service tax charge,

miscellaneouscharge,etc.

At the end, ULIP is a good mixture of life cover and investment. But don‘t buy it for investment

purpose only; there are other good options available for the investment. Unit linked insurance

plan (ULIP) is a life insurance solution that provides the client with the benefits of protection and

flexibility in investment. Most of the market is still unaware about the ULIP plans and

hence by making proper promotional strategy companies can increase their sales.

It is a solution which provides for life insurance where the policy value at any time varies

according to the value of the underlying assets at the time.



101

BIBILOGRAPHY



102

BOOKS:

1. Marketing Research by Prof: Kotler.

2. Research Methodology (Methods & Techniques), by C.R Kothari, Second Edition.

3. Marketing management, Philip kotler.

WEBSITES:

1. www.IDBI Federal.com

2. www.irda.com.

3. www.wikipedia.com

OTHERS:

Companies Broachers and other product detail books1

http://www.irda.com/

http://www.irda.com/



103

ANNEXURE



104

A Study on Market Potential Analysis of ULIP with special reference to IDBI

Federal Investors

Respected Sir / Madam,

I am NithinPrem doing my fourth semester MBA at Holy Grace Academy of ManagementStudies, Mala, Thrissur. As part of my MBA curriculum I am doing a major project on the topic―A Study on Market Potential Analysis of ULIP‖. I would like to collect the data through

questionnaire which is given below. This questionnaire is strictly confidential and will be usedfor academic purpose only. May I expect a positive response at your earliest convenience?

Personal Details of the Respondents

Name (Optional):

Age Group:

a)Less than 25 years b)25-40 years c)41-50 years d)More than 50 years

Occupation:

a)Government employee b)Self employed c)Private sector employee

d)Professional e)NRI f)Others

Annual Income level:

a) Below 1 lakh b) 1 lakh – 3 Lakh c) More than 3 lakh d) Above 5 lakh

______________________________________________________________________________

1. What is your primary objective behind taking an Insurance coverage?

a)Comfortable living b)To meet contingencies c)For tax reduction

d) Provide for retirement e) Wealth creation. f) Savings for family in your

absence

2. Arrange your preference on various investment alternatives according to its

importance in ascending order.

1 Insurance

2 Bank deposit3 Stock market

4 Mutual fund

5 Gold and silver

6 Real estate



105

3. Which is the best private insurance company according to you?

a) ICICI prudential b) HDFC standard life c) Bajaj Allianz d) Tata AIG

e)IDBI Federal f)Aviva life g) Met life

4. From where did you come to know about Insurance schemes?

a)Advisorb)News paperc)Television d)Magazine e)Relatives f)Friends

5. Will you suggest others to invest in insurance?

a. Yes b. No C.Cannot answer.

6. How do you feel after investing in Unit Linked Plans of IDBI Federal Life Insurance?

a. Good b. Averagely Satisfied with the investment decision c. Cheated

7. Reasons for investing in Unit Linked Plans of IDBI Federal Life Insurance?

a. Returns b. Schemes are good c. Recommended by Family & Friends

d. Needs to save tax e. Offers Multiple benefits like investment+ insurance +Tax

Saving f)All of the above.

8. How do you rate the Premium Amount to be paid in Unit Linked Plans of IDBI

Federal Life Insurance?

a. High b.Moderately high c. Medium d.Moderately low e. Low

9. How do you rate the returns in Unit Linked Plans of IDBI Federal Life Insurance?

a. Good b.Moderately good c. Average d.Moderately poor e. Poor

10. How do you rate the units allocated in Unit Linked Plans of IDBI Federal Life

Insurance?


11. How do you rate the risk associated with Unit Linked Plans of IDBI Federal Life

Insurance?

a. High risk b.Moderately high c. Medium d.Moderately low e.low

12. How do you rate the schemes with Unit Linked Plans of IDBI Federal Life Insurance?



106


13. How do you rate the service related with Unit Linked Plans of IDBI Federal Life

Insurance?


14. How do you rate the transparency with Unit Linked Plans of IDBI Federal Life

Insurance?

a. Highly transparent b.Moderately highly c. Average d.Low e. Not at all

transparent

15. How do you rate the Mortality Charges in Unit Linked Plans of IDBI Federal Life

Insurance?


16. How do you rate the Premium Allocation Charges in Unit Linked Plans of IDBI



17. How do you rate the Fund Management Fees in Unit Linked Plans of IDBI



18. How do you rate the Administration Charges in Unit Linked Plans of IDBI Federal

Life Insurance?


19. How do you rate the Surrender Charges in Unit Linked Plans of IDBI Federal Life

Insurance?




20.Are you satisfied with Unit Linked Plans of IDBI Federal Life Insurance??

a.Highly satisfied b.Satisfiedc.Neutrald.Dissatisfiede.Highly dissatisfied.

Thank You