Description
In linguistics, the comparative is a syntactic construction that serves to express a comparison between two (or more) entities or groups of entities in quality, quantity, or degree; it is one of the degrees of comparison, alongside the positive and the superlative
Financial Study on individual and comparative plan analysis of kotak Mahindra and ICICI INTRODUCTION
Man is a social animal. His day-to-day wants are increasing. Though the basic needs food, clothing, and shelter have to be there in the day-to-day life of man, he is in search of new wants like car, furniture, television, V.C.R and other luxuries. To fulfill these extra-obligations man has to work more so that he can make more money to fulfill the above requirements. His family also enjoys the same benefits as him and naturally they get used to that new walk of life. Here life insurance plays a major role. Uncertainty, that is risk, which gives rise to the necessity for same form of protection against the financial loss arising from death. Life insurance is a contract providing for the payment of a sum of money to the person assured or paying the amount to the person entitled to receive the same, on the happening of a certain event.
What is Life Insurance?
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 dates at periodic intervals or at unfortunate death, if it occurs earlier among other things, the contract also provides for the payment of premium periodically to the corporation by the assured. Life insurance is universally acknowledged to be an institution that eliminates 'risk' substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of the death of the breadwinner. By and large, life insurance is civilization's partial solution to the problems caused by death.
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Definitions
Section 2(11) of the insurance act 1993 defines life insurance business as follows Life insurance business is the business of effecting contract of insurance assured on death (except death by accident only) or the happening of contingency dependent on human life and any contract, which is subject to the payment of premium for a term dependent on human life and shall be deemed to include. Life insurance is just a way of spreading financial risks from individual shoulders to the shoulders of us all as a group. But in 1956 Government decided to nationalize insurance sector and handed over the Life insurance to LIC of India. From 1956 onwards LIC remained as a monopoly in the life insurance sector till 1999. In 1999 Government allowed Private sector and foreign players to enter into the market. IRDA is the instituted governing body for all insurance companies in India. They are vested with powers regarding granting of license to insurance companies, consumer protection. As a whole they are expected to act as a watchdog with sharp hangs and honed claws for the insurance industry.
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List of players entered into life insurance business arena with the registration number and date of entry are given below. S.NO REGISTRATION 1 2 3 4 5 6 7 8 9 10 NUMBER 101 104 105 107 109 110 111 114 116 117 DATE OF REG. 23.10.2000 15.11.2000 24.11.2000 10.01.2001 31.01.2001 12.02.2001 30.03.2001 02.08.2001 03.08.2001 06.08.2001 NAME OF THE COMPANY HDFC Standard Life Insurance
Company Ltd. Max New York Life Insurance Co. Ltd. ICICI Prudential Life Insurance
Company Ltd. Om Kotak Mahindra Life Insurance Co. Ltd. Birla Sun Life Insurance Company Ltd. Tata Aig Life Insurance Company Ltd. SBI Life Insurance Company
Limited . ING Vysya Life Insurance Company Private Limited Alliance Bajaj Life Insurance
Company Ltd.. Metlife India Insurance Company Pvt. Ltd.
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OBJECTIVES OF LIFE INSURANCE
PROTECT THE FAMILY: The most important objective of the life insurance is to provide financial protection for the family in case of an unexpected and premature death of its breadwinner. The purpose is to protect the dependants against the loss of earning power of the insured through death or its disability. Those who have insured their lives for an adequate sum can live in peace and comfort, free of the gnawing worry of what would happen to their families in case of their sudden and their premature death. Without adequate life insurance cover, there can be no real peace of mind. Make no mistake about it. Life insurance has long been recognized as a necessary and essential element in a family's total financial Programme. REGULAR SAVINGS: Saving is not a physical need, like hunger or Sleep. Many of us may not save unless there is an element of compulsion. For such people life insurance is compulsory regular saving scheme especially through monthly salary saving scheme. Even if an investor does not subscribe to salary saving scheme they can issue standing instruction to their bankers to pay premium regularly without reference to them. The element of saving in life insurance contract should be understood in a proper prospective. Typically life insurance made available on the basis of equated periodical payments. In initially years the investor tends to pay more compared to risk factor. Thus a reserve is created for later years when the risk factor is high. Strictly speaking, the saving aspect of life insurance should not be compared with other pure savings media. TAX BENEFITS: There is a tax rebate under section 88 of Income Tax Act on life insurance premium. Many investors especially those in high tax bracket, use to buy ljfe insurance mainly to take advantages of this tax benefit.
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? HOUSING FINANCE OFFERED UNDER OWN YOUR HOUSE (OYH) SCHEME: One of the easier ways of acquiring a house property is through OYH scheme. To enjoy this loan facility many investors go in additional life insurance. ? ANNUITIES FOR REGULAR INCOME DURING RETIREMENT: If life insurers survive till the maturity of the policy, the maturity value represents a size estate of the person Normally this estate would be available at one's age of retirement. Insurance money comes quiet handy for investment so that retirement may not cause undue financial worries. ? BONUS OFFERED BY INSURANCE COMPANIES: Insurance company pays bonus to the policyholders on all with profit policy. This bonus is payable on maturity or death which ever is earlier. ? RIDERS OFFERED BY INSURANCE COMPANIES: Insurance companies offer many riders at nominal cost. Basically it’s like offering many policies to a single investor at nominal cost that is profitable for the investor. Insurance business is concerned with 3 basic services: ? Indemnification of loss of value ? Scientific approach to risk management ? Equitable distance of the cost among the insured
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TYPES OF INSURANCE POLICIES:
1. WHOLE LIFE POLICIES: Whole life policies are called as such policies as these policies cover you up to age of 100. In fact, a whole life plan is known, as an endowment plan maturing at the age of 100, should be the insurers at the age of 100.should the insurer survives to that age. There have been some instances where maturity proceeds were paid to the insured that were living at the age of 100. The whole life policy is supposed to be a very flexible type of policy because of its long-term duration, low premiums, and higher insurance amount available to this policy. Typically whole life policies run for as long as policyholder is alive. The policy monies and the bonus are payable only to the nominee or the beneficiary of the policyholder. This represents a serious drawback in the case of whole policies for they go on covering a policyholders life even after his life has no further no economic value for others. On the other hand policy holder would require the money for himself and his spouse during retired life but this would not be possible since sum assured is payable only when policy holder dies. On the other hand, whole life policies appear to be cheapest category available from the insurance companies. 2. ENDOWMENT POLICIES: It is the most popular of all insurance plans. They cover the risk for specific period at the end of which sum assured is paid back to the policyholder along with all bonus accumulated during the term of policy. In case of endowment policies the policy amount is paid on the date of the maturity or event of the death. Endowment policies are sold in large numbers because they emphasis on the savings aspect in a life insurance policy. It could be said only a predetermined savings found is insured in such cases and not the economic value of insured. Many times when the breadwinner dies the capital sum assured does not meet the needs of the family and also the premiums are high as compared to whole life policies.
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Insurance experts say that wherever the protection need is dominant, endowment policies not be recommended. 3. JOINT LIFE POLICIES: It is in fact a variant of endowment policies in that these policies also offer maturity benefits to the policyholders, apart from covering the risks as all life insurance policies do. The reason may be categorized separately is that these policies cover tow lives together thus offering a unique advantages in some cases; notably for a married couple, or for partners in a business firm. 4. CHILDREN'S POLICIES: It defeats the whole purpose of life insurance by a simple logic that life insurance should be made on the person who has some economic value. The family benefits lies in apportioning the maximum part of family's insurance budget for buying as much life insurance as possible on the lives of the breadwinner. 5. ANNUAL PLANS: It ensures regular income for the annuitant or his/ her nominees either for a fixed period or till death, depending upon the terms of the contract of annuity.
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INDUSTRY PROFILE
While talking about the growing industries in India, It would be hard to miss out the Life Insurance Industry, which is one of the very fast growing industries. The •industry, which positions itself in the rapid growth & take off stage in its Business Life Cycle, is growing about 15% annually. With a market of roughly, around 240 million prospective buyers & Rs.35000 cores in terms of monetary value, the competitive rivalry is very hot on a national level. The industry is dominated & concentrated by few large companies; LIC at presents leads the show followed by other new private players who are fighting for their share of the market. Their access to the customers is through agents/employees, thus making them their primary distribution channel. Though the industry marks a very good growth rate & targets at a very vast market of 240 mn prospective buyers, the new product innovations are fairly low to medium. Even with a low/medium product range, there is a high product & service differentiation among the rival firms. Even with a low/medium product range, there is a moderate product differentiation among the rival firms, for example ICICI is having a product called pru cash back, in which investor can get back their money before the maturity date. The service of LIC and other private players are highly differentiated in the sense they provide better inter-personal service. Other services in which private players are ahead of LIC are Transparency in operation, updating and promptly sending newsletter to the customers. The market ahead being a very large one, demands the players to be spread all over in order to gain reasonably good market shares. One of the main characteristics of [the industry is its strong learning & experience curve. This is one industry with high capital requirement & also has high entry barriers put in by IRDA. The profitability is above par. Companies can realise the economies of scale on advertising & marketing. All the capital & revenue expenditures are largely influenced by size of the distribution. The Awareness among the users is high.
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COMPANY PROFILE About OM Kotak Mahindra Life Insurance Co Ltd.
OM Kotak Mahindra OM Kotak Mahindra Life Insurance Company Limited is a joint venture between Kotak Mahindra Finance Limited and Old Mutual pic. Life has a plan for each and every one of us and so does OM Kotak Mahindra. OM Kotak Mahindra Life Insurance Company Ltd. aims to offer a wide range of innovative life insurance products that help in making the Indian consumer financially independent. Kotak Mahindra With years of expertise in the Indian financial market, Kotak Mahindra is a leader in several of its businesses - investment banking, retail distribution and car finance. With a distribution network spread across 40 centers, the group enjoys a widespread network. It also has offices overseas in New York, London and Dubai. Old Mutual plc With 155 years of experience in the life insurance business, Old Mutual pic is today an International Financial Services group based in London with expanding operations in Life Assurance, Asset Management, Banking and General Insurance.
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Old Mutual is the largest South African Life Insurer. Old Mutual has a multilayered distribution network comprising of Life Advisors, brokers (including banks) and direct. Old Mutual plc is listed on the London Stock Exchange (where it is included on the FTSE 100 Index) and also on the South African, Namibian, Malawi and Zimbabwe stock exchanges. In 2000, Old Mutual acquired Gerard Group in the United Kingdom and United Asset Management in the United States, bringing total assets under management to US$ 252 billion (as at 31 December 2000). Financial highlights for the year ended 31 December 2000 included a 29% increase in operating profit to US $ 1381 million. Old Mutual has made significant progress through continued development of core business and, through focused acquisitions, has established a strong foundation upon which to further build the business for customer and shareholder value in the years ahead. The company has the ability to cater to a variety of consumer market segments, and offers a comprehensive and innovative product range catering to all income groups.
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ORGANIZATION STRUCTURE OF OMKM
MANAGING DAM
DIRECTOR
MD-SHIVAJI
TRAINING
IT
ACTUARIAL
MARKETING
FINANCE S CLIENT SERVICING
INVESTMENTS
TH PEERU ABDULLAH
CTO NIHAR RAO
AA ANDREW CARTWRIGHT
CMO TREMAN AHLUWALIA
CFO G.MURLIDHAR
CIO
REGIONAL MANAGER (EAST)
RM (West)
RM (NORTH)
RM (SOUTH)
AVP CORPORATE AGENTS
SALES MANAGER
SM
SM
AGENT
AGENT
AGENT
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REVIEW OF LITERATURE
INSURANCE IN INDIA The Indian Context The subject of a much heated debate for years, the Indian insurance sector is today poised to embark on a new and challenging voyage despite innumerable delays, as winds of liberalization finally fill its sails. Opened to private competition with the passing of the Insurance Regulatory and Development Authority (IRDA) Act, 1999, the Indian insurance sector is ready to burst with renewed vigour and activity - to witness breaking of old rules and defining new paradigms as the government owned incumbents fight to maintain supremacy and the new entrants break fresh ground to find their co-ordinates in the evolving space. Insurance in India — On the Reforms Path A multitude of private players (over 250 in life and exceeding 100 in non-life) dominated the city-oriented insurance business until its nationalisation in two phases in 1956 (life) and 1972 (non-life), when the Indian insurance sector was reserved for the public sector. The entire insurance business in the country was taken over by the two pubic sector companies, Life Insurance Corporation (LIC) of India and General Insurance Corporation (GIC) of India. In consonance with the ongoing economic reforms, the Indian Government set the reform ball rolling in the insurance sector, taking the first step by appointing the Malhotra Committee in April 1993 to suggest reforms in the nationalised insurance sector. The committee suggested opening up of the insurance sector to private participation and a restructuring of the existing players.
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Evolution Through The Century - Regulatory Milestones 1912 The Indian Life Assurance Companies Act - kicked off regulations in the Indian insurance sector 1938 The Insurance Act - marked the real beginning of comprehensive regulations; several amendments and additions were made in the Act until the nationalisation of the industry 1956 Nationalisation of life insurance business through enactment of the Life Insurance Act 1972 Nationalisation of general, (non-life) insurance business through enactment of the General Business (Nationalisation) Act 1993 Constitution of the Malhotra Committee to study the insurance industry and suggest reforms 1994 Malhotra Committee recommendations released - key suggestions:
? Open industry to private participation - domestic and foreign ? Strengthen incumbents capital base; reduce mandatory investments. ? Restructure LIC/GIC operations; induct accountability to policy holders ? Set up a statutory autonomous regulatory body with independent financing ? Introduce intermediaries between insurers and customers ? Periodic review of product pricing and premia rate rationalization 1995 Constitution of the Mukherjee Committee to examine issues of transparency in insurance accounting and suggest new standards for solvency margins
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1996
Constitution of the Interim Insurance Regulatory Authority (IRA) to suggest legislative reforms in the insurance industry until the establishment of an independent regulatory authority
1997 1999
Mukherjee Committee Report on solvency issues submitted to Government; findings and recommendations not made public Passing of the Insurance Regulatory and Development Authority (IRDA) Act The most important recent development is the passing of the IRDA Act, 1999 that contains provisions to give statutory character to the regulatory body, and three schedules concerning amendments to the Insurance Act, 1938, Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972.
Insurance Market - Raring to Go The deregulated Indian insurance market with a potentially large customerbase (200-300 million middle class) that is becoming sophisticated, demanding new and better products and services presents attractive opportunities for international and domestic competitors. In a recent study. The Monitor Group placed the Indian life insurance market at about USS 5 billion in 1998 with historical average annual growth rates in the region of 12-13 percent Higher growth rates are expected in future. Accordingly, the Monitor Group has projected the market to reach USS 25-30 billion by 2008. According to another Report by the Expert Group of the Confederation of Indian Industry (CII) issued in October 1999, life insurance premia are likely to account for 18-20% of the gross domestic savings of the country by the year 2010 as compared to around 8% currently. The Report estimates life premia collection to reach USS 30-35 billion by the year 2010. Substantially smaller than the life segment, the non-life market at USS 2 billion in 1998 is expected to grow robustly and reach a. level of USS 10-12 billion by 2008 according to The Monitor Group estimates. The CII Expert Group estimates non-life premia to rise to 4% of the gross domestic capital formation by the year 2010 as
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Compound growth of 14-15% in the next 10 years A near saturation stage in developed nations like the UK and US, makes India an attractive destination offering high growth potential to international insurers. With a low premium per capita substantiated by a low premium as a percentage of GDP, the case for investment in the insurance sector in India becomes even more compelling. Many overseas insurers, bullish about their possible entry into India, have pre-empted the opening up of insurance sector and entered into MoUs and anticipatory alliances with Indian companies. Several companies identified the Asset Management Company route to gain a foothold in the Indian market, prior to their entry into the insurance sector. Among those that have reportedly entered into strategic alliances or are preparing to forge one are Allianz, Aegon, AIG, Allstate, AXA, CGU, Canada Life, Cigna, ING, Mitsui Marine, Munich Re, New York Life, Old Mutual, Prudential, Rothschild, Royal Sun Alliance, Standard Life, Sun Life, Tokio Marine, Winterthur, Yasuda Fire and Marine and Zurich. The passing of the IRDA Act has generated a lot of excitement amongst these companies and the Indian insurance terrain, hitherto devoid of competition, is on the threshold of a new competitive order. "The two dominant factors guiding the penetration of insurance in India are affordability and a clear understanding of the risks as Indian insurance market being one of the least insured markets in the world, there is an immense need for insurance and the understanding of insurance in India ". This insurance after liberization has undergone various changes leaving a large room for further analysis and study of various aspects in this sector. Insurance as been understood as a cover for all sorts of uncertainties. Thus it acts as a financial support to withstand or face the losses that would have been still worst. Further insurance (both life and general) has become more popular. In India the origin of insurance could be traced back to the Vedic era in spite of this fact, it hasn't been fully matured hence various steps have been taken in by the government to fully tap the existing marketing potential prevailing in the country. 16
Still insurance products are not viewed as good investment option and it is only considered as a tool for covering a person's risk. Further the returns from any insurance investments are ' long-term in nature. This may be another factor that makes people reluctant to invest here. Unfortunately it has been found out that insurance has not been fully understood and its products are merely sold to policyholders who are ignorant of the other futures. Another interesting aspect being, after the liberalization era more and more private players have come to present with excellent range of products and stiff competition. Now slowly the awareness of various products has been seen increasing as a result of the great steps taken by the players in educating the people about is products.
KEY SUCCESS FACTORS
Every industry, company or individual have something in them, which makes them successful in their endeavors. They become their key success factors. An industry's Key Success Factors (KSFs) are those things that affect industry member's ability to prosper in the market place-the particular strategy elements, product attributes, resources, competencies, competitive capabilities, & business outcomes that spell the difference between profit & loss & ultimately, between competitive success or failures. The KSFs are by nature so important that all firms in the industry must pay attention to the them-they are the prerequisites for industry success. In other words KSFs rules that shape whether a company will be financially and competitively successful. Similarly the Life Insurance industry also bank upon some factors that make them appealing. They are as follows: ? High Security & Returns, ? Courteous customer service, ? Fast or immediate settlement of claims,
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? Breadth of the product line, ? A good distribution channel, ? Clever Advertising, ? Developing Innovative Product/Schemes, ? Brand image & customer confidence, ? Having offices in all major areas of the country, ? Low distribution costs, ? Capability to use the Internet, ? Manager experience: all the new private players do not have this & for this reason, they are roping in the ex-employees of LIC, GIC etc. ? Ability to respond quickly, 0 Strong Financial resources i.e., Strong corpus.
The table given below clearly shows that rural market is left untapped. THE RURAL INSURANCE SCENARIO Year RURAL BUSINESS Policy 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 (in lakhs) 4.61 5.72 5.91 9.52 30.48 49.02 52.57 60.33 68.40 81.23 Sum Assured (in crores) 251.764 464.27 603.77 1569.62 8086.35 21571.00 21263.59 24278.73 27550.69 35372.94 % OF RURAL BUSINESS TO TOTAL BUSINESS Policy Sum Assured 33.00 31.85 28.20 35.26 41.23 45.10 47.70 49.20 51.40 54.70 24.54 26.37 22.09 29.20 34.33 39.10 41.00 42.80 43.30 47.00
The industry is running at above par profitable level. Once many players started entering in it will reduce the profit margin. This is because when there is intensified competition players would have no option than reducing their margin. When compared with international standard our profit margin is very high. Profit margin is benchmarked with few foreign companies in financial analysis. So far LIC was dictating terms as it was a monopoly, is forced to take defensive actions to protect
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its market share from eroding with the entry of 9 new players into the industry. After privatization, all the insurance companies have started giving a lot of discounts, freebies that in turn may affect profitability & the market being new for the private players, they will be running at a loss due to high capital expenditure. Out of the 9, 4 players are banks, which becomes their distribution channel & their customers might make competition heavy. On the other hand, the remaining five players are Indian Majors. This makes the competition really stronger & fierce.
POTENTIAL NEW ENTRANTS: Generally in the insurance industry brand preference & customer loyalty is expected to be very high. As IRDA requires the promoters to bring in an Rs.lBn, the capital requirement, to establish oneself in the industry is very high. The switching costs for the buyers are high. It is almost impossible for the private players to duplicate the huge distribution network formed by LIC due to the high cost & time involved in it. The regulations by the regulatory authority i.e. IRDA are very stringent; IRDA can even bar the entry of firms by not issuing license & permits. For e.g. Dabur filled application on the first day (the day when insurance was opened up for the private sector), but was rejected. The experience & learning curve has a great effect on the industry. But the new players can overcome this by roping employees from nationalized insurance companies like LIC, GIC. The economies of scale can operate on sales & marketing expenses by entering in huge scale. In the insurance business key to success is expertise in the industry. These foreign players have enough expertise to grow in this area. Apart from it the foreign players have deep pockets. Indian insurance companies can use the foreign companies name to borrow at international market at a rate very lesser than when compared to interest rate in India. These foreign players can change the way the industry as a whole operates. Thus it is understood that the barriers to enter the industry for the new entrants are moderate to high.
INTERPRETATION: 19
Ratio of outstanding claims to claims payable: Lesser the ratio better it is. LIC has better ratio when it compared to Sunlife but its lower than standard Life. LIC should try to reduce it outstanding claims. New entrants are supposed to keep the ratio much less; they should try to keep on par with or better than LIC. They should try to maintain global standards. Payout ratio: LIC payout ratio is much less when compared to international standards. This may be because of monopoly enjoyed by them over the years. So far Customers had no option than going to LIC and that's the reason their payout ratio is less, the payout ratio is expected to increase for both LIC and Private players and as a result profits of both the kind of players would be affected. The private players have no option than looking for the ratios of international standards. Profit ratio: LIC'S net profit ratio again is much higher than the international standard. The new entrants in the market have to look for the returns of Standard Life. LIC's profit ratio is much higher because of its heavy investment and the returns earned out of that investment. Other income as percentage of net profit: This substantiates the interpretation of net profit ratio. New entrants cannot have such a cushion of huge reserves and as a result they may earn less other income. From the financial analysis made above, one thing is quite clear LIC's ratios are far ahead of all key players in global Tiarket. This is because of the monopoly enjoyed by them over the years. 20
Their reserves are also quite high to withdraw any shock. If the ICICI or other new entrants could look for anything is international standard. They can't expect anything higher than that of global standard. They shouldn't be trying to benchmark with LIC. All that which is realistically possible for the new entrants is achieving the returns of global standard. LIC over the years because of monopoly has put itself in such a strong position.
PROTECTION THROUGH INSURANCE
PERSONAL RISK MANAGEMENT Why does an individual need protection? An individual is exposed to many types of risks that may adversely affect his own or his dependent's welfare. Some of these risks cab be: 1. Risks of death, sickness and injury 2. Risk of loss, damage to property he may own or for which he is responsible. 3. Risk of incurring liability to compensate others for personal injury or damage. No matter how one lives, it is impossible to avoid all risks, and indeed, even to try to minimize the total risk to which one is exposed, would involve forgoing many pleasures and benefits associated with various various activities such as sports travel, and taking up occupations which are risky. So how does one protect oneself against risks? While the individual can take steps to reduce risks to property and person by wearing protective clothing, making premises secure etc. the only way in which he can participate in the benefits of risk combination is by insuring. What is insurance?
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Essentially, insurance is a device for dealing with those risks, which may cause severe financial difficulties. While there are social security schemes like provident fund, voluntary provident fund etc. to which compulsory contribution have to be made and which entitle the contributor to the benefits of the scheme, these provide only partial protection. Insurance can be bought to give additional protection, the cost of future income guarantees being the forgoing of current income. Whether the security provided by insurance will be judged worth the premium involved must be a personal decision in the light of a detailed analysis of needs. RISK MANAGEMENT PROCESS The process of risk-management can be broken down into 3 elements, which follow each other in a logical sequence. ? Risk Analysis ? Risk Control ? Risk Financing Let us take a look at each. RISK ANALYSIS The first step is to analyse the risks to which and individual /organization is exposed. Risk analysis itself has 2 prime elements ? Identification of risk ? Evaluation of risk Once the various risks to which an individual is exposed is identified, is exposed is identified, like death, loss to property etc., which have been covered earlier, the risk must be evaluated in terms of the probability of a loss occuring and its severity to the person minimizing the loss.
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The next two stages of the risk management process i.e. the risk control and risk financing are concerned with ways of handling risk in order to improve the security of the individual. RISK CONTROL Risk control covers all those measures which are aimed at avoiding, eliminating or reducing the chances of loss - producing events or limiting the severity of losses that to happen. Here, one is seeking to change those specific conditions that. bring about loss - producing events or increase their severity. While risk avoidance is the most drastic method of dealing with risk, risk reduction is perhaps a more common way of controlling risk as one cannot avoid risk totally. Risk avoidance seeks to totally prevent the sources of loss, like withdrawal of those activities that leads to loss. Risk reduction on other hand, is concerned with achieving a reduction either in (a) the probability of the occurrence of a loss - producing event or (b) the size of the ensuing losses. Loss reduction measures have been classified in the following ways by A.H Mowbray and R.H Blanchard: ? Preventive - eliminating the cause of loss o Protective or quasi - preventive protecting things or persons expose to damage or injury ? Minimizing - to limit loss to as small a compass as possible o Salvation - to preserve as much as possible of the value of damaged property or the ability of injured persons. While the first measure is directed at reducing the probability of the occurrence of a loss, the others are concerned with limiting the size of the loss. RISK FINANCING: Here, one is concerned with the manner in which the risk remaining after the risk control measures have been implemented shall be financed. It has to be recognized that in the long run, we have to pay for our own losses. Therefore, the
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primary objective of this financing is to spread more evenly overtime, the costs of risk, in order to reduce the financial strain and possible insolvency that the random occurrence of large losses may cause. The secondary objective is to minimize the risk costs. Risk avoidance and risk reduction decisions should not be taken without regard to their financial costs and benefits. If loss reduction measures are a success in cutting future loss expectancies, there will be smaller losses to finance and seek protection against.
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OBJECTIVE OF THE STUDY
PRIMARY OBJECTIVE: The primary objective of this report is to clearly indicate as to which company comes out with the best policy and returns, so that OMK could improve on its policy features to enhance returns. SECONDARY OBJECTIVES: 1. To do a SWOT analysis of L1C, 1CICI Prudential life insurance and Om Kotak Mahindra life insurance companies. 2. To analyze the strategic issues of the three focus companies and there by suggest the relevant strategic alternatives. 3. To arrive at benefits by applying capital budgeting appraisal criteria's such as: a. INTERNAL RATE OF RETURN (IRR) b. NET PRESENT VALUE (NPV) c. BENEFIT COST RATIO (BCR) 4. Protection through Insurance a. Personal risk management b. Risk management process i. Risk analysis ii. Risk control iii. Risk financing
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SCOPE OF THE STUDY
FOCUS SEGMENT: The Indian life insurance industry is a fast emerging industry. The market size of the life insurance industry is roughly around Rs.35000 cores. Industry's growth rate is 16%(Source: Price water house coopers survey on Indian life insurance industry). This is a new era of insurance in which as many as eleven private players have entered into the market with in a short period of one year. FOCUS COMPANY: LIC, Om kotak Mahindra and ICICI are our focus players. LIC has established its distribution network and branches in every part of the country. ICICI has just entered into the market and trying to match its distribution channel with that of LIC. LIC has found itself in the good place in the market. ICICI will also find itself in the good place of market because of the following reasons: ? It has entered into the industry in a joint venture with prudential life insurance. Prudential life insurance is an experienced player in the industry and the experience is the key for this sector. ? Its parent body ICICI has huge finance reserves that can be very helpful for them to grow. ? ICICI bank has already wide distribution channel which can be used to leverage the distribution channel for ICICI Pru life insurance. OM Kotak Mahindra Life Insurance Company Limited (OMKM) is a joint venture between Kotak Mahindra Bank Ltd and Old Mutual pic. Being a part of the life insurance business in India for more than 2 years, they aim to help their customers make important financial decisions at every stage in life by offering them a wide range of innovative life insurance products.
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? Kotak Mahindra is one of India's premier financial services groups, and spans its business operations across sectors such as asset finance, wealth management, investment banking and institutional broking (rated AAA by CRISIL). ? In order to implement their Marketing plans they are looking for Trade Marketing assistant Managers/ Managers in Delhi, Kolkata, Chennai, Bangalore, Chandigarh, Ahmedabad.
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LIMITATIONS OF THE STUDY
? The first and the foremost limitations of the study is based on the secondary data. ? The study analysis the past data and hence can give the details of what went wrong and is a sort of post mortem ? The study has to be done within a short span of time. There is a constraint of time span.
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RESEARCH METHODOLOGY
APPRAISAL CRITERIA We will now examine whether the investment is financially desirable or not. A number of criteria have been evolved for evaluating the financial desirability investment. These criteria's can be classified as follows:
Evaluation Criteria
Non-Discounting Criteria
Discounting Criteria
Payback Period
ARR
NPV
BCR
IRR
NET PRESENT VALUE (NPV): The net present value is equal to the present value of the future cash flows plus any immediate cash outflow. In the case of a project the immediate cash flow will be investment (cash outflow) and the net present value will be therefore equal to the present value of cash inflows minus the initial investment. The decision rule based on the NPV criteria is obvious. An investment will be accepted if its NPV is positive and rejected if its NPV is negative. Rarely in real life situations, we encounter a project with NPV exactly equal to zero.
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If it happens, theoretically speaking the decision-maker is supposed to be indifferent between accepting and rejecting the project. But in practice, NPV in the neighborhood of zero calls for a close review of the projections made in respect of such parameters that are critical to the viability of the project because even minor adverse variations can mark the viability of such marginally viable projects. The NPV is a conceptually sound criterion of investment appraisal because it takes into account the time value of money and considers the cash flow stream in its entirety. The only problem in applying this criterion appears to be the difficulty in comprehending per se. Most non-financial executives and businessmen find "Return On Capital Employed" or "Average Rate Of Return" easy to interpret compared to absolute values like the NPV. BENEFIT COST RATIO: - (BCR) Benefit cost ratio is also known as Desirability Factor or Profitability Index. The decision- rules based on the BCR will be as follows: If BCR > 1 BCR < 1 Decision Rule Accept the investment. Reject the investment.
Since the BCR measures the present value per rupee of outlay, it is considered to be a useful criterion for ranking a set of projects in the order of decreasing efficient use of capital. But there are two serious limitations inhibiting the use of this criterion. First, it provides no means for aggregating several smaller projects into a package that can be compared with a large project. Second, when the investment outlay is spread over more than one period, this criterion cannot be used.
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INTERNAL RATE OF RETURN (IRR) The internal rate of return is that rate of interest at which the net present value of the project is equal to zero, or in other words, it is the rate which equates the present value of the cash inflows to the present value of the cash overflows. While under NPV method the rate of discounting is known (the firm's cost of capital) under IRR this rate, which makes NPV zero has to be found out. To determine the IRR, we have to compute the NPV of the project for different rates of interest until we find that rate of interest at which the NPV of the project is equal to zero .To use IRR as an Appraisal Criterion, we require information on the cost of capital or funds employed in the project. If we define IRR as "r" and cost pf capital as "k", then the decision based on IRR will be Accept the project if "r" is greater than "k" and reject the project if r is less than k. (if r = k, is a matter of indifference). IRR is a popular method of investment appraisal and has a number of merits: 1. 2. 3. It takes into account the time value of money. It considers the cash flow streams over the entire investment horizon. Like ARR, it makes sense to business men who prefer to think in terms of rate or return on capital employed This Criterion however suffers from the following limitations: ? IRR is Uniquely defined only for a project whose cash flow pattern is characterized by cash outflows(s) followed by cash inflows (such projects are called as simple investments). If the cash flow stream has one or more cash outflows interspersed with cash inflows, there can be multiple internal rate of return.
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? The IRR criterion can be misleading when the decision maker has to choose between mutually exclusive projects that differ significantly in terms of outlay. ? In spite of these defects, IRR is still the best criterion today to appraise a project financially. Financial Institutions insists that projects having substantial outlay specially in the medium and large sectors must show the computation of IRR in the detailed project report, which they appraise before sanctioning financial assistance.
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FORMULA USED
CAPITAL BUDGETING CRITERIA The formula could actually differ from various kinds of projects i.e. they could be investments in mandatory projects, replacement projects, expansion projects, diversification projects, research and development projects, miscellaneous projects etc. Another aspect of the formula differing could also be from industry to industry. In this case since it is an insurance company the formula for IRR, BCR and NPV for computed differently. INTERNAL RATE OF RETURN (IRR) PREMIUM AMOUNT * PVIFA VALUE (TERM PERIOD, X %) = MATURITY BENEFIT AMOUNT * PVIF VALUE (SAME TERM PERIOD, X %) ? Where PVIFA value is from the Present Value Interest Factor of Annuity Table ? PVIF value also Present Value Interest Factor from the Table. ? Term Period is for the Term of insurance coverage opted by the customer. BENEFIT COST RATIO (BCR) MATURITY BENEFIT * PVIF (TERM, 5%) PREMIUM AMOUNT * PVIFA (TERM, 5%) ? Where Maturity Benefit is that Amount which the customer will ? get at the time of maturity of the policy. ? 5 % is the Interest Rate Percentage for the table values. NET PRESENT VALUE (NPV) MATURITY BENEFIT * PVIF (TERM , 5%) - PREMIUM AMOUNT (TERM, 5%) ? Where Premium Amount is that amount which the customer pays all through his term.
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ANALYSING THE POLICIES OF KOTAK ALONE
1.KOTAK PREFERRED TERM PLAN About The Product: Kotak preferred term plan is a product that is designed to provide the policyholder with reduced premium rates for a sum assured of 10 lakhs and above. In all other aspects it is similar to a kotak term plan. The unique feature of this plan is that it gives special preference to non-smokers. Illustration: The following conditions have been assumed for the illustration of this plan. AGE: 25 years TERM: 30 years SUM ASSURED: Rs. 10,00,000 MODE OF PAYEMENT: yearly ANNUAL PREMIUM: Rs.2,500 CASH INFLOW AT MATURITY: 0 CASH INFLOW AT DEATH: Rs. 10,00,000 BCR = 6.010% NPV = Rs.l,92,568 DEATH AT AGE 50 Years 45 Years 42 Years IRR 18.99% 24.67% 32.40% BCR 8.37% 12.1% 15.469% NPV Rs.2,59,765 Rs.31,155 Rs.28,188
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35 30 25 20 15 10 5 0 50 Years 45 Years 42 Years IRR BCR
2. KOTAK ENDOWMENT PLAN About The Product: Kotak Endowment Plan (KEP) is a protection plan that covers your life and at the same time ensures that the policyholders money does not lie idle. It invests a portion of the premium in financial instruments and ensures a considerable growth in savings. This is a participating plan (with profits). AGE REQUIREMENTS: 18-65 years TERM OF THE POLICY: 10-30 years MODE OF PAYMENT: quarterly, half yearly, annually MATURITY BENEFIT: on maturity, one would receive the sum assured plus the bonus addition. DEATH BENEFIT: the sum assured or the amount in the accumulation account, which ever is higher.
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Illustration: PART A The general conditions used for this plan is given as follows AGE: 35 years TERM : 25years SUM ASSURED: Rs. 15,00,000 ANNUAL PREMIUM: Rs.50409 MATURITY BENEFIT :At the age of 60 years, the policy holders will receive Rs.31,33,400 and the IRR is calculated to be 6.89% . BCR at 5% = 1.301% NPV = Rs.2,13,888 DEATH AT AGE 47 years 50 years 52 years IRR 15.54% 9.55% 7.56% BCR 3.906% 2.88% 2.4% NPV Rs. 12,98,529 Rs. 9,83,920 Rs.7,97,851
16 14 12 10 8 6 4 2 0 47 years 50 years 52 years IRR BCR
PARTB
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DIFFERENT ENTRY AGES: AGE: 35 years TERM : 25 years SUM ASSURED: Rs. 15,00,000 ENTRY AGE 20yrs 30yrs 40yrs 50yrs MATURITY PREMIUM AT 8% Rs.30,81,800 Rs.31,00,100 Rs.31,70,100 Rs.33,48,100 Rs.48,459 Rs.49,234 Rs.52360 Rs.60784 IRR 7.03% 6.97% 6.72% 6.03% BCR 1.33% 1.317% 1.267% 1.152% NPV Rs.2,26,150 Rs.2,20,626 Rs. 1,97,218 Rs. 1,31,000
8 7 6 5 4 3 2 1 0 20yrs 30yrs 40yrs 50yrs BCR NPV
PARTC FOR DIFFERENT TERMS: TERM 10yrs 20yrs 30yrs MATURITY Rsl9,59,600 Rs.26,35,000 Rs.37,90,400 PREMIUM Rs. 1,52,341 Rs.66,485 Rs.40,364 IRR 5.49% 6.71% 6.96% BCR 1.022% 1.198% 1.41% NPV Rs.26,817 Rs. 1,64,859 Rs.2,55,067
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7 6 5 4 3 2 1 0 10yrs 20yrs 30yrs IRR BCR
3. KOTAK MONEY BACK PLAN: About The Plan: The Kotak Money Back Plan (KMBP) not only covers the policy holders life, but also assures him/ her with a certain percent of the sum assured as cash payment at regular intervals of every 5 years. It is a savings plan with the added advantage of life cover and regular cash inflow. This is a participating plan (with profits). On maturity, one would receive the sum of the survival benefit, guaranteed addition and bonus addition. In the unfortunate event of the death during the term of plan, the beneficiary would receive the death benefit. The death benefit increases by 7% of the sum assured each year. AGE REQUIREMENTS: 18-60 years TERM OF THE POLICY: 15,20 and 25 years MODE OF PAYMENT: quarterly, half yearly and yearly. Ilustration: PART A: The following results were obtained for a 23 year policy holder with a 20 year term and a sum assured of Rs. 1,00,000. ENTRY AGE 23yrs 25yrs 40yrs MATURITY PREMIUM Rs. 1,30,700 Rs. 1,28,900 Rs. 1,40,000 Rs.6,990 Rs.7,330 Rs.7,670 IRR 4.957% 4.05% 4.12% BCR 0.56% 0.53% 0.55% NPV Rs.-3,78,356 Rs.-42,751 Rs.-42,804
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PARTB FOR DIFFERENT TERMS: The results obtained for 20 yr term sum assured of Rs. 1,00,000 is as follows: TERM 15yrs 20yrs 25yrs MATURITY Rs. 1,09,000 Rs. 1,30,700 Rs. 1,80,600 PREMIUM Rs.8,810 Rs.6,990 Rs.5,820 IRR 2.431% 4.957% 7.493% BCR 0.573% 0.565% 0.649% NPV Rs.-39,019 Rs.-37,836 Rs.-21,139
4. KOTAK CHILD ADVANTAGE PLAN: About The Plan : The Kotak Child Advantage Plan (KCAP) is an investment plan designed to meet a child's future financial needs. The plan is a participating plan. On maturity, you would receive the sum assured plus the bonus addition. In the event of the unfortunate death of the insured during the term of the plan, the following would become payable. ? If the policy has been in force fro 5 years or if the life insured is atleast 18 yrs old, the beneficiary will receive either the sum assured or accumulation account whichever is higher, as on the date of death. ? If the death occurs within 5 yrs from commencement of policy and if the insured is less than 18 years old, the death benefit would be either the total of all premiums paid so far or the surrender value at that time, whichever if higher. AGE REQUIERMENTS: 0-17 yrs TERM OF THE POLICY: 10-30yrs MODE OF PAYMENT: quarterly, half yearly and yearly
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Illustration: PART A SUM ASSURED: Rs.5,00,000 ENTRY AGE lyr 3yr 5yr PARTB FOR DIFFERENT TERMS: ENTRY AGE 5 yrs 5 yrs TERM 12 yrs 15 yrs MATURITY PREMIUM IRR RS.6,89,400 Rs.7,48,000 Rs.41,160 Rs.31,857 5.89% 6.116% BCR 1.05% 1.08% NPV Rs.2,30,336 Rs.4,36,685 TERM 19 yrs 17 yrs 18 yrs MATURITY PREMIUM IRR Rs.8,44,300 Rs. 7,94,300 Rs.8,18,200 Rs. 23,726 Rs. 27,288 Rs. 25,388 BCR NPV Rs.9,04,667 Rs.6,73,160 Rs.3,43,400
6.547 % 1.16% 6.412 % 1.12% 6.466 % 1.14%
5. KOTAK RETIREMENT PLAN (WITH AND WITHOUT COVER) About The Plan: The Kotak Retirement Income Plan (KRIP) is a savings plan designed to meet one's post retirement needs. The kotak retirement income plan is a participating plan. The plan comes in 2 forms ? With cover ? Without cover
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ILLUSTRATION: PART A : WITH COVER DIFFERENT ENTRY AGES The returns are calculated for a 25 year term sum assured of Rs. 10,00,000. ENTRY AGE 30yrs 35yrs 40yrs PARTB DIFFERENT TERMS AGE; 30 yrs SUM ASSURED: Rs.10,00,000 TERM 15 yrs 20 yrs 25 yrs MATURITY Rs.15,26,300 Rs. 17,86,300 Rs.21,13,100 PREMIUM Rs.57,515 Rs.40,591 Rs.30,691 IRR 7.71% 7.68% 7.62% BCR 1.22% 1.33% 1.44% NPV Rs. 1,3 7,145 Rs. 1.67,590 Rs. 1.90,806 MATURITY PREMIUM Rs.21,13,100 Rs.30,691 Rs.21,34,200 Rs.31,369 Rs.21,59,000 Rs.32,521 IRR 7.62% 7.50% 7,36% BCR 1.44% 1.42% 1.38% NPV Rs. 1,90,806 Rs. 1,87,474 Rs.1,78,554
WITHOUT COVER PART A DIFFERENT ENTRY AGES TERM : 25yrs ENTRY AGE 30 yrs 40 yrs MATURITY PREMIUM Rs.20,91,000 Rs.29,193 Rs.20,91,000 Rs.29,193 IRR 7.88% 7.88% BCR 1.49% 0.023% NPV Rs.2,05,399 Rs.2,05,399
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DIFFERENT BENEFITS AT DIFFERENT AGES OF DEATH: AGE: 30 yrs TERM: 25 yrs SUM ASSURED: Rs. 10,00,000 DEATH AGE 35 yrs 40 yrs 45 yrs DEATH BENEFIT Rs. 1,63,400 Rs.4,10,500 Rs.7,73,600 PREMIUM Rs. 1,45,965 Rs.2,91,930 Rs.4,37,895 BCR 0.023% 0.003% 0.036% NPV Rs.-20,09,028 Rs.-39,93,364 Rs.-59,43,918
6. KOTAK SAFE INVETSMENT PLAN: About The Plan: Kotak Safe Investment Plan (KSIP) is an investment cum insurance plan, where we invest your money in capital markets and you get the market-linked returns. All gains from the markets are yours to take and in case the markets do not perform well, you would still get back the guaranteed Sum Assured This plan is an opportunity to invest in the capital markets and make market linked returns. The plan assures you of a minimum guaranteed amount in case of death or on maturity. Thus, while it invests your money in capital markets, and gives you an opportunity to make high returns, it protects your downside. What's more, these returns are tax-free to you. AGE 25 yrs 35 yrs 45 yrs TERM 15 yrs 15 yrs 15 yrs SUM MATURITY PREMIUM Rs.29,439 Rs.29,685 Rs.28,963 IRR 2.96 % 9.69 % 9.30 % BCR 1.44 % 1.43 % 1.22 % NPV Rs.1,35,212 Rs.1,33,861 Rs.50,315
ASSURED @10% Rs.5,00,000 Rs.9,16,400 Rs.5,00,000 Rs.9,18,900 Rs.5,00,000 Rs. 4,46,200
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7. KOTAK CAPITAL MULTIPLIER PLAN About The Plan : A plan that multiplies your capital while covering your life. The Kotak Capital Multiplier Plan (KCMP) creates wealth, at the same time multiplies your capital, and retains your money for a time when you need it the most. Additionally, this plan also gives you the flexibility to use your money in regular withdrawals as and when you want it. The Kotak Capital Multiplier Plan that not only covers your life, but also builds a wealth-base for your use in the future. The Kotak Capital Multiplier Plan is a participating plan that is built in such a way that it allows your money to multiply, and gives you the flexibility of using this money the way you need it, in regular withdrawals. This is an endowment plan, which is very flexible, and has a lot of other in-built benefits. AGE 25 yrs 35 yrs 45 yrs TERM 25 yrs 15 yrs 5 yrs SUM MATURITY PREMIUM IRR 7.04 % 6.38 % 3.27 % BCR 1.33% 1.10% 0.966 % NPV Rs76,222 Rs.35,818 Rs-15,821
ASSURED Rs.5,00,000 Rs.10,34,800 Rs.16,250 Rs.5,00,000 Rs.7,54,300 Rs.500,000 Rs.5,76,500 Rs.31,503 Rs. 1,08,061
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COMPARATIVE ANALYSIS
Out of 7 policies offered by Kotak only 3 are compared with its competitors such as LIC and ICICIPRU. They are listed as follows:
PLAN TERM
OMKM KOTAK PREFERRED
LIC ANMOL JEEVAN
ICICI PRU FOREVER LIFE
TERM ENDOWMEMENT KOTAK UNIT LINK
ENDOWMENT
SAVE'N' PROTECT LIFE LINK
ENDOWMENT ASSURANCE KOTAK SAFE BIMA PLUS INVESTMENT
ANALYSING THE POLICES OF LIFE INSURANCE CORPORATION OF INDIA ALONE
1. TERM PLAN ABOUT THE PRODUCT: ANMOL JEEVAN This plan of assurance is designed to meet the needs of those who are initially unable to pay the larger premium required for a whole life or endowment assurance policy, but hope to be able to pay for such policy in the near future. This plan would be found useful also in cases where it is desired to leave the final decision as to the plan to a later date when, perhaps a better choice could be made.
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AGE REQUIREMENTS: 18-50 yrs TERM OF THE POLICY: 10-20 yrs MODE OF PAYMENT: Quarterly, half yearly and annually Illustration AGE: 25 yrs TERM: 30 yrs MODE OF PAYMENT: Yearly SUM ASSURED: Rs.10,00,000 ANNUAL PREMIUM: Rs.8,194 CASH INFLOW AT MATURITY : Premium paid so far CASH INFLOW AT DEATH: Rs.10,00,000 IRR= 11.49% DEATH AGE 50 yrs 45 yrs 42 yrs SUM ASSURED Rs.10,00,000 Rs.10,00,000 Rs. 10,00,000 PREMIUM Rs.2,04,850 Rs.l,63,880 Rs.1,39,298 BCR 0.102% 0.18% 0.28% NPV Rs.-25,92,156 Rs.-16,65,273 Rs.-l 1,34,446
2. ENDOWMENT PLAN About The Plan: ENDOWMENT ASSURANCE PLAN This policy not only makes provisions for the family of the life assured in the event of his early death but also assures a lump sum at a desired date. It is similar to the kotak endowment plan. AGE REQUIREMENTS: 12-65 yrs TERM OF THE POLICY: 5-55 yrs MODE OF PAYMENT: Quarterly, Half yearly and Annually
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ILLUSTRATION PART A AGE: 35 yrs TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ANNUAL PREMIUM: Rs.60,000 MATURITY BENEFIT AT AGE OF 60 yrs: Rs.35,00,000 IRR: 6.47% BCR: 1.22% NPV: Rs.1,86,860 DEATH AGE 47 yrs 50 yrs 52 yrs PARTB FOR DIFFERENT AGE ENTRY TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ENTRY AGE 20 yrs 30 yrs 40 yrs MATURITY PREMIUM IRR 6.41% 6.38% 6.35% BCR 1.21% 1.20% 1.2% NPV Rs 1,70,142 Rs. 1,71,454 Rsl,72,766 PREMIUM Rs.7,20,000 Rs.9,00,000 Rs. 10,20,000 BCR 0.13% 0.08% 0.06% NPV Rs.-55,45,860 Rs.-86,20,500 Rs.-l ,08,45,480
Rs.33,00,000 Rs57,000 Rs.34,00,000 Rs.59,000 Rs.35,00,000 Rs.61,000
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PARTC FOR DIFFERENT TERMS AGE: 35 yrs TERM 10 yrs 20 yrs 30 yrs MATURITY PREMIUM Rs.24,00,000 Rs. 1,82,000 Rs.33,00,000 Rs85,000 Rs.35,00,000 Rs.52,000 IRR % % % BCR 1.05% 1.17% 1.01% NPV Rs.68,196 Rs.l, 84,830 Rs.9,104
3.UNIT LINKED PLAN About The Plan: BIMA PLUS It is a Unit Linked Insurance plan, which has the backing of LIC's vast experience in the investment sector. The corpus, over Rs.4.19 crore, has a distinct identity and is managed by the Investment department of LIC of India at Mumbai. It is invested in NIFTY stocks and Government securities. NAV (Net Asset Value) over the past six months ranges between Rs.13 and Rs.14, despite a low interest regime. It is declared every Saturday, and the new rates will be applicable from the following Monday.
ANALYSING THE POLICIES OF ICICI PRUDENTIAL ALONE
1.TERM PLAN ILLUSTRATION: AGE: 25 yrs TERM: 30 Years MODE OF PAYMENT: yearly SUM ASSURED: Rs.10,00,000 ANNUAL PREMIUM: Rs.45,000 CASH INFLOW AT MATURITY: Rs.20,00,000 CASH INFLOW AT DEATH: Rs.10,00,000 IRR = 2.62%
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DEATH AGE 50yrs 45 yrs 42yrs
PREMIUM Rs.45,000 Rs.45,000 Rs.45,000
IRR 4.52% 7.77% 11.01%
BCR 0.47% 0.67% 1.4%
NPV Rs.-3,39,230 Rs.-1,83,790 Rs.-l,58,165
2.ENDOWMENT PLAN: About The Plan: SAVE ‘N’ PROTECT This is an ideal plan for those who want to accumulate funds on a regular basis while enjoying insurance protection. It is a fixed term policy that combines savings with life cover. It is a fixed term plan in which you pay premia regularly during the term. The plan provides with a guaranteed addition (GA) of 3.5% compounded annually for the first 4 years of the plan and thereafter bonuses (Vested bonuses) will be applicable as per the performance. Once the policy matures, i.e. at the end of the term, one can get the full sum assured and guaranteed additions as well as the vested bonuses. In addition, one will get an extended term insurance cover for five years after the maturity date of the policy for 50% of the sum assured. One will not have to pay any premia for the same. Illustration: PART A AGE:35Yrs TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ANNUAL PREMIUM: Rs.60,000 MATURITY BENEFIT AT THE AGE OF 60 yrs: Rs.25,00,000 IRR= 4%
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DEATH AGE 47yrs 50Yrs 52Yrs PARTB
DEATH BENEFIT Rs.25,00,000 Rs. 15,00,000 Rs. 17,00,000
PREMIUM Rs7,20,000 Rs.9,00,000 Rs. 10,20,000
IRR 10.33% 13.4% 10.33%
BCR 0.22% 0.08% 0.06%
NPV Rs49,88,860 Rs.86,20,500 Rs-1,07,58,280
DIFFERENT ENTRY AGES TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ENTRY AGE 20yrs 30Yrs 40Yrs 50 yrs PARTC DIFFERENT TERMS AGE: 35 yrs SUM ASSURED : 15,00,000 TERM 15 yrs 20 Yrs 30 Yrs MATURITY BENEFIT Rs.20,00,000 Rs. 25,00,000 Rs. 30,00,000 PREMIUM Rs 80,000 Rs 75,000 Rs 67,000 IRR 6.92 % 5.09 % 2.67 % BCR 1.16% 1.01 % 0.67 % NPV Rs 1,31,600 Rs 7,850 Rs-3,36,991 MATURITY BENEFIT Rs.25,00,000 Rs. 25,00,000 Rs. 25,00,000 Rs. 25,00,000 PREMIUM Rs 60,000 Rs 67,500 Rs 75,000 Rs. 82,500 IRR 4% 3.14 % 2.35 % 1.61 % BCR 0.87 % 0.78 % 0.70 % 0.64 % NPV Rs-1,08,140 Rs-2,13,845 Rs-3,19,550 Rs -4,21,542.
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3. UNIT LINKED PLAN About The Plan : LIFE LINK PLAN LifeLink allows one to enjoy both the benefits! A unique plan that combines the security of a life insurance policy with the opportunity of enjoying high returns on ones investments. Without the market risks compromising the protection of ones family! LifeLink ? Provides death benefit security to the family. ? brings additional income on funds that might have languished in our savings account. ? enables us to enjoy the upside of market returns, while protecting our family from the downsides. Illustration AGE 25 yrs 45 yrs TERM 15 yrs 15 yrs SUM ASSURED Rs.5,00,000 Rs.3,00,000 MATURITY @ 10 % Rs. 10,00,000 Rs.5,00,000 PREMIUM Rs.40,000 Rs.20,000 IRR 6.92 % 6.92 % BCR 1.16% 1.16% NPV Rs 65,800 Rs 32,900
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COMPARATIVE ANALYSIS
Endowment plan Sum assured amount – 15,00,000 Term 25 years
Comparison of IRR and BCR of OMKM with, LIC and ICICI prudential life insurance companies.
Company OMKM LIC ICICI Prudential life insurance Internal Rate of Return 6.89 6.47 4 Benefit Cost Ratio 1.301 1.22 0.12
INTERPRETATION
Since both the IRR and BCR of OMKM’S are greater than LIC and ICICI PRUDENTIAL Life Insurance it suggest that OMKM has better and high returns on endowment plan than that of LIC and ICICI Prudential life insurance company.
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Endowment plan Sum assured amount 15,00,000
Comparison of IRR and BCR at different terms of OMKM with ICICI Prudential life insurance
Term 20 30 IRR 6.71 6.96 OMKM BCR 1.198 1.41 ICICI Prudential Life Insurance IRR BCR 5.09 1.01 2.67 0.67
INTERPERTATION
From the above analysis we are coming to know that OMKM’S internal rate of return and Benefit Cost Ratio are higher than that of ICICI Prudential life insurance company. Since OMKM products are giving higher returns.
Endowment plan
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Sum assured amount 15,00,000 Term 25 years
Comparison of IRR and BCR at different ages of entry of OMKM with LIC and ICICI Prudential Life Insurance company.
Entry age IRR 20 30 40 7.03 6.97 6.72 OMKM BCR 1.33 1.31 1.26 IRR 6.41 6.38 6.35 LIC BCR 1.21 1.2 1.2 IRR 4 3.14 2.35 ICICI BCR 0.87 0.78 0.7
INTERPERTATION
Since both the Internal Rate of Return and Benefit Cost Ratio of OMKM is greater than LIC and ICICI Prudential Life insurance company at different ages of entry. Which suggest that OMKM product is better than LIC and ICICI Prudential Life insurance.
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Comparison of Internal Rate of Return and Benefit Cost Ratio of different insurance products of OMKM with ICICI Prudential Life Insurance company.
Insurance Product s IRR Endowment plan Term – 25 years Sum assured Rs. 15,00,000 Unit link plan Term 15 years Sum assured Rs. 5,00,000 9.96 1.44 6.92 1.16 6.89 1.30 4 0.12 OMKM BCR IRR ICICI BCR
INTERPERTATION
From the above analysis we are coming to know that the calculated values Internal Rate of Return and Benefit Cost Ratio of endowment plan of OMKM is higher than that of ICICI . The calculated values Internal Rate of Return and Benefit Cost Ratio of OMKM’S unit linked plan is higher that of ICICI Prudential life insurance. The above calculations are shows that OMKM’S products are far better than the ICICI Prudential Life insurance.
ANALYSIS
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SWOT ANALYSIS OF ICICI PRUDENTIAL STRENGTH Joint ventures with prudential life insurance, UK is one of the greatest strengths of ICICI. THREATS Many Indian majors like Reliance & other foreign majors like Templeton are planning to set their foot into the insurance business. ICICI has sound They weaker a The market share is Substitutes are financial resources, weaker have a Rs.l, 35,000 crore& more powerful than which will help distribution channel a share in it would insurance products. them to grow the when compared to be highly profitable business effectively their arc rival LIC & smoothly. ICICI has good This will become Entering the urban This is mainly due contacts with retail its major weakness area may prove to the poor returns investors & as India is a costlier, but it has being offered by institutions, as they rural economy & to be considered the insurance are already present more than 60% as capital companies. in the banking & of its population investment, which institution credit lives in rural areas. is required to grow business in the long run. ICICI has attractive It has a got a high With the increase in customer base& opening to take the competing rivals Prudential is the market share from the companies have market leader in the the insurance major started giving many insurance sector. LIC. discounts, freebies etc. that has an adverse effect on the profits. It has superior It has a good scope intellectual components to its key rivals. to grow rapidly as people have started to view life insurance as a necessity. WEAKNESS They have a very narrow product line when compared to LIC. OPPORTUNITIES ICICI's can use the existing corporate skills or technological know- how to establish in the Insurance business
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SWOT ANALYSIS OF LIC STRENGTH As the first life insurance company in India, LIC has the first mover advantage. WEAKNESS LIC lacks in innovation. OPPORTUNITIES By 2040,60% of the population will be above 60 years of age, out of which only 6% are covered under pension scheme at present IT can be used to cut cost effectively & improve sales. THREATS The likely entry of foreign majors like Templeton & Indian majors like Reliance etc., can pose a very serious\ threat to LIC in the future.
It has got very sound resources for it to grow in the business
They charge a very high premium & this might lead to the reduction of customer base in future. The returns by LIC is very low; the returns are only when unexpected things occur.
The quality of service if not improved would be one of the reasons for the erosion.
For being in the field for around 43 years, it insulated from the competitive pressure. LIC has such a big image among the public that it would cost the competitors very heavily, both money & time. They are spread almost allover.
Insurance accounts for only 2% of global insurance, which is very less & this can be exploited. It has an opportunity to invest in infrastructure area, which the country is badly in need of.
These might have the insurance to contribute just 10% to the Gross Domestic Savings.
They do not upgrade their policies, in fact the premiums are charged on the basis of mortality rate table, calculated in 1975.
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SWOT ANALYSIS OF OM KOTAK MAHINDRA
STRENGTH Allied activities support. WEAKNESS Low Brand Awareness Requires Advertising Centralized Operations OPPORTUNITIES Kotak Bank. THREATS LIC and other major Private Players in the Market. Lack of Trust in the Private Insurance Companies.
Prudent fund managers.
Awareness of Insurance as an Industry i.e. a Boom In the Insurance Sector. Government's new rules regarding the Pension Segment
Wide range of products.
IT Support Insufficient
Mutual Funds and other Short-term Investment Option against Kotak products such as KSIP and KCMP Kotak Savings Investment Plan and Kotak Capital Multiplier Plan. Too many Private Players into the market. Neglecting the Lower Middle Class Segment. \
Nearly 0 % NPA. Steady Growth Smart in understanding the business and thereby formulating good business strategies Company projects better returns in comparison with other insurance companies. Brand name
Lack of penetration The Increase in the into the market. Per Capita Income of the Customers Location. Lack of good customer base Insurance as a Tax Saving Option Insurance as a Savings Option.
Misalignment certain areas.
in
Bank assurance is lacking.
59
ANALYSIS - 2
VALUE CHAIN FOR LIC
Purchased Supplies & the ready availability of Policies /Product
Distribution of the Product 1. Direct Selling 2. Agents Along with Clever Advertising &. marketing
Service
Profit Margin
? The Suppliers will be the Govt., RBI, Banks & the supplies will be application document.
VALUE CHAIN FOR ICICI
Purchased Supplies & the ready availability of Policies /Product Primary Activities of Cost
Distribution of the Product 1. Direct Selling 2. Agents 3. Brokers 4. Banks 5. Post Offices Along with Clever Advertising & marketing
Service
Profit Margin For the company & the benefits of the customers
Policies R&D & Technology Secondary Activities of Cost HRM General Administration
? Suppliers for ICICI are the promoter's tie up partners banks customers through security
60
? R &D Technology: Activities costs and assets relating to product R&D , investments & development of computerized support system. ? HRM: Activities costs and assets associated with the recruitment, hiring training, development & compensation, development of knowledge based skills & other competencies. ? General Administration: Activities relating to general management accounting & finance, legal & regulatory affairs 7 forming strategic alliance & partners' safety, security and other overhead functions
VALUE CHAIN FOR OMKM
Distribution of the Product Direct Selling Agents (Individual and Corporate). Brokers Banks (Dena & Kotak) General Administration Network Marketing. Along with Conservative Advertising & marketing
The ready availability of Policies / Product
Service
Profit Margin For the company & the benefits of the customers
Primary Activities of Cost Policies R&D & Technology Secondary Activities of Cost HRM General Administration
Company follows a conservative approach towards advertisements and marketing with a view to reduce the general administrative expenses, which is normally met with the premium collected from public. Hence company will have more investable money and so will be the returns.
61
? R &D Technology: Activities costs and assets relating to product R&D , investments & development of computerized support system. o HRM: Activities costs and assets associated with the recruitment, hiring training, development & compensation, development of knowledge based skills & other competencies. o General Administration: Activities relating to general management accounting & finance, legal & regulatory affairs 7 forming strategic alliance & partners' safety, security and other overhead functions KSFS /COMPANY High Returns Courteous customer service, Breadth of the product line A good distribution channel Clever Advertising, Having offices in all major areas of the country, Strong Financial resources Total Average LIC 6 5 8 8 6 9 8 50 -72 ICICI 5 6 6 5 8 6 6 42 -60 HDFC 5 6 5 3 7 4 4 34 -49 SBI 5 6 3 4 6 6 5 35 -50 TATA -AIG 5 6 1 2 6 3 4 27 -39
This table clearly shows LIC is ahead of bunch but it is also evident that ICICI is not far away in the respect of all KSF'S.
62
Analysis – 3 PREMIUM ANALYSIS L1C Vs ICICI: Life = Male Age = 30 years Term & Mode = 20 Years & Yearly Sum Assured = Rs. 2,00,000/SAVE 'N' ENDOWMENT DIFFERENCE PROTECT OF 1 2 3 a. Sum Assured b. Bonus & all Yearly Premium with AB & DB Total premium for 20 years Maturity Benefits 200,000 200,000 282,343 284,000 (4.5% annually (Rs. 71/-per compounded 4 5 6 7 for 20 years) Extended term cover for 5 Yes years On Death with in the period On Death due to normal accident If death occurs while traveling in a public transport system via. 8 9 Train, bus. Disability benefits Rider facility -Critical Illness for Rs. 2.55/Yes Yes Yes No. 200,000 200,000 400,000 1000/-x 200 x 20 years) No 200,000 200,000 Nil + 400,000 +100,000/ -1,657/ICICI PRU 9,138 182,760 TABLE -14 OFUC 9,792 195,840 - 654/-13,080/-
+ 200,000
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10 Rider facility -Major surgical benefits for Rs. 6.11/11 Rider facility -Level term
Yes Yes
No No.
+ 200,000/+ 200,000/-
benefits for Rs. 2.82/12 Premium wavier Yes Yes 13 Loan facility Yes Yes BONUS CALCULATED ON MINIMUM GUARANTEED ADDITIONS BASIS. THIS MAY VARY TO HIGHER RANGE DEPENDING UPON THE PERFORMANCE OF THE COMPANY CASH BACK MONEY BACK OF ICICIPRU 1 2 3 Yearly Premium with AB & DB Total premium for 20 years Maturity Benefits a. Sum Assured 13,154 263,080 20,000 30,000 40,000 50,000 100,000 240,000 238,225 (4.0% annually compounded for 4 5 Extended term cover for 5 years On Death with in the period 20 years) No 200,000 POLICY OF LIC -TABLE 75-20 12,760 255,200 40,000 40,000 40,000 80,000 200,000 268,000 (Rs. 67/-per 1000/-x 200 x 20 years) No 200,000 - 40,000/. +29,775/+ 394/+ 7,880/DlFFERENCE
b. Bonus & all
64
6 7
On Death due to normal accident If death occurs while traveling in a public transport system i.e. train & bus. Disability benefits Rider facility -Critical Illness for Rs. 2.55/Rider facility -Major surgical benefits for Rs. 6.11/Ridcr facility -Level term
200,000 400,000
200,000 Nil + 400,000/-
8 9 10 11
Yes Yes Yes Yes
Yes No. No. No.
+ 200,000/+ 200,000/+ 200,000/-
benefits for Rs. 2.82/12 Premium wavier Yes Yes 13 Loan facility No No BONUS CALCULATED ON MINIMUM GUARANTEED ADDITIONS BASIS. THIS MAY VARY TO HIGHER RANGE DEPENDING UPON THE PERFORMANCE OF THE COMPANY
Its clear from the above table that ICICI provides lesser return than LIC, which is not healthy for ICICI. ICICI should provide better return than LIC in order to grow in future years. It should be able to provide at least .5% return higher than LIC.
65
ANALYSIS-4 COMPARATIVE PLAN ANAYLSIS - ENDOWMENT PLAN
SAVE 'N* PROTECT (ICICI PRU LIFE) Suitability • It is an ideal plan for persons who wish to accumulate savings on a regular basis, while having insurance protection. Salient Features • It is basically an Endowment KOTAK ENDOWMENT (OMKM) Suitability • who wish to invest in a savings instrument all the while having life insurance cover. Salient Features • Assurance Plan with deferred participation in profits and extended life cover. • It is a fixed term plan • Premiums cease at death or on combination of both savings & life cover. expiry of term whichever is earlier • The premiums paid are deposited This amount is in one's personal Accumulation Account. invested in financial instruments as per the IRDA regulations after deducting administrative expenses charges. • The company will annually declare a return on the balance in Accumulation Account based on investment performance, but with a view to reducing the variability from year to year. and risk cover It is an endowment plan where in amounts are payable either on maturity or death occuring within the term. PLAN
The plan is suitable for people
66
• •
Bonus is payable under this scheme Loan can be availed under the policy provided the policy is kept in force for 3 years, however the amount depends on the balance in life assured's accumulation account. The interest rate is determined based on the prevailing interest rates.
•
In the event of default in premium payment, life is still covered as premium will be drawn from Accumulation account. For this minimum 3 years' premium should have been paid. Each depends on availability funds with
Benefits • 1. On death occurring within the term. Full SA plus GA & vested bonuses are payable On survival On survival 1. Full SA plus GA plus vested bonuses during the full term 2. Additionally, one gets a free life cover for 5 years, from date of maturity, for 50% of original sum assured. No Evidence of health is required and no premium need to be paid
Accumulation account. Benefits On Maturity • Sum Assured + Bonus Addition is payable. On Death • During the Term of the plan, Nominee / Beneficiary shall receive the Sum Assured plus the excess, if any, of Accumulation Account over the Sum Assured.
for
67
this. Riders available • a. b. c. Accident & disability benefit Waiver of future premiums an 10% of SA each year for 10 years. Additional SA, if death is due to accident • in train or bus Critical illness benefit conditions are covered. On claim, full SA + and policy admission of a GA + VB is paid 9 medical while traveling as a passenger
contract terminates with all riders ceased. Claim under this rider is not admissible during first six months of the policy. • • 1. 2. 3. Major Surgical Assistance 43 surgical procedures are covered Major Surgical Procedure-50% of S A Intermediate Surgical Procedure - 30% of SA Minor Surgical Procedure - 20% of SA Claims can be made for more than one surgical procedure, subject to a maximum of 50% of SA, claim under this rider is not allowed
during first 6 months of the policy
68
•
Level Term Insurance
Additional cover in the event of death happening within the term. • When one avails extend life cover, no riders are available.
Other Conditions • • • • • • Minimum age 15 Maximum age 60 Maximum Maturity age 70 Minimum SA Rs.20,000/Minimum Term 10 years Loans can be availed under the policy and loan interest is chargeable.
Additional Riders Value-adds: Value-adds are additional benefits which can be availed of by paying nominal extra premiums but only at the time of taking the plan. • Term Cover: In the event of insured dying during the term of this benefit, Beneficiary / Nominee would receive an additional Death Benefit amount over and above the benefit from the Plan. The maximum Term Cover benefit one can avail of is double the Sum Assured. • Accidental Death Benefit: In
case, life assured dies as a result of an accident during the term of this benefit, Beneficiary / Nominee Assured. The will receive the Accidental Death Benefit Sum maximum Accidental Death Benefit one can avail of is equal to the Sum
Assured (subject to a limit of Rs. 10 lakhs).
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Other Conditions • • • • • Minimum Age at entry : 18 years. Maximum Age at entry: 65 years. Maximum Maturity age : 75 years. Term can be availed for 10-30 years Minimum premium 1. 2. 3. ENDOWMENT ASSURANCE PLAN (LIC) Suitability • This is the most popular plan among all insurance plans. It provides family protection as well as old age provision at an affordable premium. This policy is suitable for all categories of people. Salient Features • Sum assured is payable either on survival to the term or on death occurring within the term. • There is a With-Profit and a Without-Profit plan under this policy Salient Features • It is an endowment plan where in amounts are payable either on maturity or death occurring within the term. • Premiums cease at death or on expiry of term whichever is earlier KOTAK (OMKM) Suitability • The plan is .suitable for people who wish to invest in a savings instrument all the while having life insurance cover. Quarterly - Rs.540 Half-Yearly-Rs. 1035 Yearly - Rs. 2000 ENDOWMENT PLAN
•
Bonus for the full term is payable •
The premiums paid are deposited in
on the date of maturity or in the event of one's personal Accumulation Account.
70
death, whichever is earlier. •
This amount is invested in financial instruments as per the IRDA regulations
Premiums cease on death or on after deducting administrative expenses and risk cover charges. The company will annually declare a based on investment
expiry of term whichever is earlier. •
Premiums can be limited to •
shorter term or can be paid as single return on the balance in Accumulation premium. Account performance, but with a view to reducing the variability from year to year. • • Bonus is payable under this scheme Loan can be availed under the policy
provided the policy is kept in force for 3 years, however the amount depends on the balance in life assured's accumulation account. The interest rate is determined based on the prevailing interest rates. • will In the event of default in premium be drawn from Accumulation
payment, life is still covered as premium account. For this minimum 3 years premium should have been paid. Each depends on availability funds with Accumulation account.
71
Benefits On Survival • Basic Sum Assured + bonus Basic under the With-profit plan. • plan.
Benefits On Maturity • Sum Assured + Bonus Addition is payable.
Sum Assured only under Without-Proflt On Death On Death: • Basic Sum Assured + bonus Basic under the With-profit plan. • plan. Other Conditions • Minimum Sum Assured : 1. upto 60. 2. Rs 25,000 for entry age • premium must Term Cover: In the event of / Nominee Death insured dying during the term of this • • • policy. Minimum be benefit, Beneficiary Rs.800 per annum Minimum age at entry : 12 years. would receive an additional between 61-65. • During the Term of the plan, excess, if Nominee / Beneficiary shall receive the Sum Assured plus the any, Sum Assured. Additional Riders Value-adds: Value-adds are additional benefits which can be availed of by Rs 10,000 for entry age paying nominal extra premiums but only at the time of taking the plan. of Accumulation Account over the
Sum Assured only under Without-Proflt
Benefit amount over and above the
Maximum age at entry : 65 years benefit from the Plan. The maximum double the Sum Assured. • Accidental Death Benefit: In case, life assured dies as a result
normally but 60 years for single premium Term Cover benefit one can avail of is
72
of an accident during the term of this benefit, Beneficiary / Nominee will receive the Accidental Death Benefit Sum Assured. The maximum Accidental Death Benefit one can avail of is equal to the Sum Assured (subject to a limit of Rs. 10 lakhs). Other Conditions • • • years. • years • 1. 2. 3. Minimum premium Quarterly - Rs.540 Half-Yearly-Rs. 1035 Yearly - Rs. 2000 Term can be availed for 10-30 Minimum Age at entry : 18 years. Maximum Age at entry: 65 years. Maximum Maturity age : 75
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TERM PLAN ANALYSIS ICICI (ICICIPRU) Suitability Maximum thrust is on family PRU LIFE GUARD KOTAK PREFERRED TERM PLAN(OMKM) Suitability Kotak Preferred Term Plan is a
protection. This policy is suitable for pure risk plan, designed to provide nonpeople who wish to provide large sums smokers with reduced premium rates for a for the benefit of their family at an Sum Assured of Rs.10 lakhs and above. economical cost. Salient Features Its is a pure risk or term insurance plan. variants: 1. 2. ICICI ICICI Pru Pru LifeGuard LifeGuard Level Term Assurance Level Term Assurance with Return of Premium 3. ICICI Pru LifeGuard Single Premium full sum assured is payable on death. other Salient Features I
It is a low-cost insurance plan. One can choose between a regular
The policy is offered in three premium payment option or a single premium payment plan. For a regular premium payment plan, one can pay the premiums either through quarterly, half yearly or annual installments. The plan can be converted to any plan offered by OM Kotak Mahindra Life Insurance Co. Ltd except for another term plan, if there are at least For delayed premium payment a I
Under each of the above variants, 5 -years before the cover expires. On survival to maturity nothing is grace period of 30 days is allowed I from payable except under ICICI Pru Life the due-date when the premium I Guard Level Term Assurance with Return became payable. of Premium, where in premiums paid are In case of the single premium returned without any interest.
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Riders enhance the benefits under option one can surrender the policy in the policy, which can be availed by case of a financial emergency. paying marginal additional premium. One The premiums paid under the plan can avail Accident and Disability rider will qualify for rebate under Sec.88 of the under all the above variants except Income Tax Act, 1961 and the returns are ICI.C1 Pru LifeGuard Single Premium fully tax exempt under Sec 10 (lb D). Premiums paid for Critical Illness Benefit All the premiums paid under the qualify for rebate under Sec 80D. policy are eligible for tax rebate under section 88 of IT Act. Value-adds are the additional benefits which can be availed by paying nominal additional premium at the time of taking policy, subject to aggregate premium on all value-adds not exceeding 30% of the basic Kotak Term Plan premium. The value adds available under the plan are: 1. 2. 3. Benefits On Survival On survival to maturity nothing is payable Return interest. On Death full sum assured is payable on death. except of under ICICI where Accidental Death Benefit Permanent Disability Benefit Critical Illness Benefit
Benefits On maturity This being a pure risk cover plan, Pru there are no maturity benefits. in Riders Accidental Death Benefit: basic sum assured is provided to the beneficiary in the event of accidental The beneficiary would receive
LifeGuard Level Term Assurance with On Death Premium, premiums paid are returned without any the sum assured.
Under each of the above variants, An additional amount over and above the
75
death of the life insured. The maximum cover under the rider is limited to the basic sum assured subject to a maximum limit of Rs. 10 lakhs. Permanent Disability Benefit: In case the insured is permanently disabled due to an accident the amount payable under this benefit would be paid out as an annuity. The maximum cover being limited to basic sum assured subject to a maximum of Rs. 10 lakh. Critical Illness Benefit: This rider provides financial support in case of a medical emergency. On first occurrence of critical illness during the policy term, a portion of the sum assured Other conditions Age at entry: 18 years Maximum age at entry: 50 years. Maximum age at exit: 65 Minimum term: 5 years Maximum term : 25 years( For ICICI Term Pru LifeGuard with Level Assurance & ICICI Pru LifeGuard Level Assurance Return of Premium) Maximum term : 15 years(For ICICI Pru LifeGuard Single Premium) Minimum premium - Rs. 2400 will be paid out to the policyholder. Other Conditions Minimum age : 25 years Maximum age : 60 years Policy term : 10 -30 years for regular premium plan 5- 30 years for single Term premium plan
76
per annum. ( For ICICI Pru LifeGuard Level Term Assurance & ICICI Pru LifeGuard Level Term Assurance with Return of Premium) Minimum Sum assured : Rs. 2,00,000 (For ICICI Pru LifeGuard Single Premium)
ANMOL JEEVAN PLAN (LIC) Suitability This is a pure risk policy suitable for
KOTAK PREFERRED TERM PLAN (OMKM) Suitability Kotak Preferred Term Plan is a pure
people who wish to provide huge sums for risk plan, designed to provide non-smokers their family at an economical premium. All with reduced premium rates for a Sum males and females with earned income Assured of Rs.10 lakhs and above. (Category I) and females with unearned income and paying tax (Category II) are eligible for this plan. Salient Features The policy being a pure term plan, the sum assured is payable on the death of the, policyholder during the term of the policy. payable. up value. No Surrender Value will be available under this plan. No loan will be granted under this plan. Policyholder has an option to pay premium Yearly, Half-yearly, Quarterly or Salient Features It is a low-cost insurance plan. One can choose between a regular premium payment option or a single premium payment plan, one can pay the yearly or annual installments. The plan can be converted to any other plan offered by
On survival to maturity nothing is premium I payment plan. For a regular The policy will not acquire any paid- premiums either through quarterly, half -
77
Single Premium
OM Kotak Mahindra Life Insurance
A grace period of 15 days will Co. Ltd except for another term plan, if be allowed for payment of yearly, half- there are at least 5 -years before the yearly or quarterly premiums. cover expires. delayed premium payment a the premium If death occurs within the grace For
period and before the payment of the grace period of 30 days is allowed from premium then due, the policy will still be the due- date when valid and the Sum Assured paid after became payable. deduction of the said premium as also In case of the single premium unpaid premiums falling due before the option one can surrender the policy in next policy anniversary of the Policy. If case of a financial emergency. the premium is not paid before the The premiums paid under the plan will expiry of the days of grace, the Policy qualify for rebate under Sec.88 of the lapses. Income Tax Act, 1961 and the returns are fully tax exempt under Sec 10 (10 D). Premiums paid for Critical Illness Benefit qualify for rebate under Sec 80D. Value-adds are the additional benefits which can be availed by paying nominal additional premium at the time of taking policy, subject to aggregate premium on all value-adds not The value adds exceeding 30% of the basic Kotak Term Plan premium. 1. 2. 3. available under the plan are: Accidental Death Benefit Permanent Disability Benefit Critical Illness Benefit
78
Benefits On Death Full sum assured + loyalty additions jOn Survival Nothing is payable |Benefit illustration for a person aged 30 years. Sum Assured (in Rs) Term in Yearly Premiu Payable (Rs) Single Premiu m (Rs) Amount payable on death during Term of Policy (in 5,00,000 5,00,000 5,00,000 10,00,00 0 10,00,00 0 10,00,00 10 15 20 10 15 20 1,140 1,285 1,528 2,037 2,328 2,813 8,200 12,425 17,400 14,550 22,550 32,100 Rs) 5,00,000 5,00,000 5,00,000 10,00,000 10,00,000 10,00,000
Benefits On maturity This being a pure risk cover plan, there are no maturity benefits. On Death The Riders Accidental Death Benefit: An additional amount over and above the basic sum assured is provided to the beneficiary in the event of accidental death of the life insured. The maximum cover 'under the rider is limited to the ibasic sum assured subject to a I maximum limit of Rs. 10 lakhs. Permanent Disability Benefit: In case the the insured is permanently disabled due to an accident amount payable under this benefit would be paid out as an annuity. The maximum cover being limited to basic sum ;assured subject to a maximum of Rs. 10 lakh. beneficiary would receive the sum assured.
years) m
0 * Conditions apply
79
Critical Illness Benefit: This rider provides financial support in case of a medical emergency. On first occurrence of during critical illness the policy term, a portion of the
sum assured will be paid out to the Other Conditions Minimum age at entry : 18 years Maximum age at entry : -50 years Maximum age at maturity : 60 years Policy Term : 10, 15 and 20 years Minimum Sum Assured : Rs.5,00,000 Maximum Sum Assured : Rs.3,00,00,000 policyholder. Other Conditions Minimum age : 25 years Maximum age : 60 years Policy term : 10-30 years for regular premium plan 5- 30 years for single premium plan
UNIT LINKED PLAN ANALYSIS
ICICI PRU LIFE LINK (ICICI PRU KOTAK SAFE INVESTMENT PLAN (OMKM) Suitability Suitability policy is an investment cum
The policy is most suitable for people The
who have an appetite and inclination for endowment insurance plan, and suitable market linked returns at the same time for people who are looking at investment wish that adverse market movement do option with good return and the security not effect their family in unfortunate of the investment. event of their death. Salient Features It is single premium plan wherein Salient Features This is an endowment cum;
death benefit is 105% of the amount invested. investment plan and hence benefits are After deducting initial charges balance payable both on death and on maturity.
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premium is invested in units.
Premiums paid are invested in
On death higher of the value of units capital markets providing the policyholder or 105% of the aggregate of the premium and an opportunity to earn market-linked the top-up single premiums (less 1.05 times returns. Policyholder can avail of all the any withdrawals) is paid to the nominee. benefits by paying Top-up premiums. profits from the markets and in case the still get back the guaranteed Sum Assured Policy holder has the option to increase his market does not perform well, he would One can withdraw amount through thus protecting him from the adverse partial or complete surrender of units after the affects of market. first policy year and death benefit will decrease by 1.05 times the amount withdrawn. from a. equity Growth Plan, Income aims Plan or The plan assures a minimum guaranteed amount on maturity, or in case This is a non-participating plan. The premiums paid, net by of the
Policy holder has the option to choose of death. Balanced Plan based on his risk propensity. While Growth plan appreciation by investing in equity
a capital charges, are converted into units and and invested in funds selected
related products, income plan's policyholder. Based on his risk appetite And policyholder has the to choose any of the • Money Market Fund –
priority is to provide steady returns. capital appreciation and steady returns. options, once in every year free of cost. under the plan are exempted from tax.
balanced fund provides a balance between four funds offered under the policy. One can switch between various plan A portfolio invested primarily in money market instruments and other short-term risk portfolio and is useful when one All the premiums paid and benefits received investments. It provides access to a low Unit value is calculated bi-weekly on a wants to avoid the risks associated with forward pricing basis every Tuesday and long-term investments. Friday. Unit Value = (Market/Fair Value of the relevant Plan's Investments plus Current
Money Deposit / cash/ call money market 100% 100% Low instruments/ Bank Min.Investment Maximum Risk profile
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Assets
less
Current
Liabilities • by the
Gilt Fund - the portfolio pimarily Central Government of India. is no credit risk
and Provisions)/Number
of units consists of securities issued by or guaranteed Short-term investments will also be made with banks. There associated with this portfolio. Suitable for investors looking for regular and steady income
Min.Investment Securities issued Central by Govt./ 80% 100% Low Maximum Risk profile
outstanding under the relevant Plan.
Guaranteed by Central Govt. Short bank cash money / Term deposit call
0%
20%
Low
•
Balanced
Fund in highly of
-
A rated
portfolio invested primarily in shares of wellmanaged companies and securities of portfolio offers you a returns and growth.
Min.Investment Equity shares of blue chip companies Securities issued Central by Govt./ 80% 100% Low 30% 60% Medium Maximum Risk profile
Central Government. This balance steady
Guaranteed by Central Govt. Short bank Cash money / Term deposit call
0%
20%
Low
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• equity
Growth Fund - A portfolio in equity of and wellrelated investments
invested judiciously
managed companies. Security will be enhanced through holdings in highly rated securities looking and for short-term deposits. growth and capital This fund is suitable for investors appreciation in the long term.
Min.Investment Equity shares of blue chip companies Securities issued Central by Govt./ 80% 40%
Maximum
Risk profile
80%
Medium to High
Guaranteed by Central Govt. Short bank cash money / Term deposit call
60%
Low to Medium
0%
20%
Low
Policy holder has the flexibility to switch the money (or a part of it) from one fund to the other is available. Funds can be switched any number of times during the term of the plan, at daily declared selling and buying prices.. Loan can be availed provided the policy has been in force for 3 years. Automatic Cover Maintenance
83
facility: This facility keeps the policy in force even on non-payment of premium. However this facility is available only if the policy has been in force for a period of 3 years. Under this facility, in case policyholder misses premium payments, units would be liquidated at the prevailing selling price to meet the risk and expense charges and policy would be in force. As long as the value of units is sufficient to meet the expenses, the policy would be in force. On maturity, the residual value of units would be paid as a benefit to the policyholder. The premiums paid under the plan will qualify for rebate under Sec.88 of the Income Tax Act, 1961 and the returns are fully tax exempt under Sec 10 (10 D). Premiums paid for Critical Illness Benefit qualify for rebate under Sec SOD. The enhanced by policy adding benefits riders can to be it.
The riders available with the policy are: ? Term/Preferred Term Benefit ? Accidental Death Benefit ? Permanent Disability Benefit ? Critical Illness Benefit ? Life Guardian Benefit ? Accidental Disability ? Guardian Benefit
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Benefits On Death
Benefits On maturity
The nominee/s will receive Full Sum assured or the market value of the higher of the value of units or 105% units, whichever is higher is payable. of the aggregate of the premium and On Death the top-up single premiums (less 1.05 Full Sum assured or the market value of the times any withdrawals). Withdrawal Benefit units, whichever is higher is payable. Riders Term/Preferred Term Benefit: In the There is no specific maturity event of death during the term of this benefit, date. Anytime after 1 year one can the beneficiary would receive an additional choose to withdraw money through death benefit amount, which is partial or complete surrender of units. over and above the by the 1.05 times amount withdrawn. sum assured. The The death benefit would be reduced maximum amount of benefit one can avail is equal to the basic sum assured. Where I the Term Benefit cover applied for is more than Rs.10 lakhs, better rates may apply, subject to meeting eligibility requirements. Accidental Death Benefit: This benefit (provides an additional amount (over and above the sum assured) to the beneficiary in the event accidental death of the life insured. The maximum cover available under this benefit is equal to the basic sum assured (subject to a maximum of Rs.10 lakhs). Permanent Disability Benefit: In case of permanent disability due to an accident, the rider pays an additional amount, which i ipaid out as an annuity. The maximum \Permanent Disability Benefit that one can
85
avail of is equal to the basic sum assured subject to a maximum of Rs.10 lakhs). Critical Illness Benefit: This benefit can be added to the basic life insurance plan toj provide financial support in the event ofj medical emergencies. On the first occurrence of critical illness during the term of the plan, policyholder would receive a portion of the sum assured to reduce your financial burden in this emergency. Life Guardian Benefit: In case of the unfortunate death of the proposer, this benefit keeps the policy alive by waiving all future premiums on the policy. Accidental Disability Guardian Benefit: In case the proposer is permanently disabled as a result of accident, this benefit keeps the policy alive by waiving all future premiums on the policy. Other Conditions Other Conditions
Minimum Premium: Rs 20,000 Minimum Age at entry : 18 years. Minimum Top up Single Premium: Rs 10,000 Minimum age at entry: 0 yrs(risk commencing from 7 yrs) Maximum age at entry: 62 Maximum Age at entry : 60 years. Maximum maturity age : 75 years Term of the policy: 10-30 years Minimum premium 1. Quarterly - Rs.2620
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ANALYSIS- 5 STRATEGIC ISSUES AND THEIR OPTIONS
STRATEGIC ISSUES OF LIC ? How to fight the product innovation of rivals? ? How to improvise on providing better customer service, ? How to sustain the company's present growth rate/ how to improve it? ? Should there be a cut in the premiums to outflank the private players? ? How to encounter the threats posed by ICICI Pru life, SBI Life? ? How improve the quality of service & product returns? ? How to use e-commerce technologies for providing better service? ? How to improve financial resources to bear any shocks? STRATEGIC OPTIONS ? They can diversify into areas of infrastructures, bonds. ? There should be a decentralization of the management. The branch managers must be given more autonomy, which in turn may help to provide better service to customers. ? LIC requires a better professional management. They should employ professionals to revamp the organization's structure, which would help to provide better product innovation & boost performances. ? Reducing the premium is another option, which would reduce the profit margin, is necessary to outflank the competitors & LIC has the financial resources to bear with it. ? They can also try out a merger with GIC, which would improve its distribution network, operate economies of scale, offering more riders in both life & nonlife area.
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STRATEGIC ISSUES OF ICICI ? How to capture a widespread distribution network? ? How to offer more returns than LIC? ? How to increase the market share up to the level of LIC? ? How to offer more riders at minimal cost? ? How to encounter threats posed by LIC & other private players? ? How to gain better visibility for company & the company's products? ? How to use e-commerce technologies for providing better service? ? How to cut cost & minimize premiums? ? How to induce customer loyalty? ? How to improve financial resources to bear any shocks? ? How to increase the product range? STRATEGIC OPTIONS ? ICICI should be to have a close tie up with the Govt. offices, agents & other nationalized banks, to improve their distribution channel & gain greater visibility for their company products. ? They need to have a good marketing strategy, better rates of commissions, command over the agents & improve the awareness of their products among the public is a necessity to improve their market share. ? They should also have access to economies of scale, transparency in operation, better investment pattern, flexibility in schemes are necessary to cut premium costs, offering more riders at nominal costs & better returns. ? They need to maintain & improve their quality of product or service, prompt repayment of claims. All these are necessary to win customer confidence. ? Using internet (e-com) to accept application forms, payments & redemptions, could make their service better. ? They can enter the capital market to gain more funds; leveraging the brand name of ICICI can do this.
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? They can leverage the name of Prudential its foreign J.V partner to borrow funds from international market at an interest rate at a very lesser than market rate in India. ? They should conic up with a wide range of products in order to cater the financial needs of the public to the maximum extent. STRATEGIC ISSUES OF OMKM ? How to capture a widespread distribution network? ? How to offer more returns than LIC? ? How to increase the market share up to the level of LIC? ? How to offer more riders at minimal cost? ? How to encounter threats posed by LIC & other private players? ? How to gain better visibility for company & the company's products? ? How to use e-commerce technologies for providing better service? ? How to cut cost & minimize premiums? ? How to induce customer loyalty? ? How to improve financial resources to bear any shocks? ? How to increase the product range? ? How to improve on the brand awareness? STRATEGIC OPTIONS ? OMKM should also have a close tie up with the Govt. offices, agents & other nationalized banks, to improve their distribution channel & gain greater visibility for their company products. ? They also need to have a good marketing strategy, better rates of commissions, command over the agents & improve the awareness of their products among the public is a necessity to improve their market share. ? They should also have access to economies of scale, transparency in operation, better investment pattern, flexibility in schemes are necessary to cut premium costs, offering more riders at nominal costs & better returns.
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? They need to maintain & improve their quality of product or service, prompt payment of claims. All these are necessary to win customer confidence. ? Using internet (e-com) to accept application forms, payments & redemptions, could take their service better. ? They can enter the capital market to gain more funds; leveraging the brand name of Kotak Mahindra can do this. ? They can leverage the name of Old Mutual its foreign J.V partner to borrow funds from international market at an interest rate at a very lesser than market rate in India. ? They should come up with a wide range of products in order to cater the financial needs of the public to the maximum extent. ? OMKM can also increase the number of branches to have a wide network of marketing and hence the reach.
ANALYSIS-5
COMPARISON OF THREE COMPANIES: This part shows the company that offers the best death benefit and maturity benefit. PLAN Term plan Endowment plan DEATH BENEFIT MATURITY BENEFIT LIC (Anmol jeevan) NIL LIC (endowment OMKM assurance plan) (Kotak endowment)
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FINDINGS: ? Based on the comparative analysis of endowment plan, when the assured amount is Rs. 15,00,000 and the term is 25 years, the highest IRR is 6.89 % and BCR is 1.301 of that of OMKM and the next highest is that of LIC (IRR 6.47 %, BCR 1.22 %) and the least is that of ICICI (IRR 4 %, BCR 0.12) ? Based on the comparative analysis of unit linked plan, when the sum assured is Rs. 5,00,000 for a term of 15 years, the highest IRR 9.96 % and the highest BCR 1.44 % is that of OMKM when compared to ICICI is IRR (6.92 %) and BCR (1.16%). ? KOTAK preferred term plan is one of the highly recommended policy for people who are involved in highly risky jobs due to its good return sum assured amount (10,00,000) and a less premium of Rs 2,500. ? KOTAK money back plan is a saving plan with the added advantage of life cover and cash inflow at a regular interval of 5 years. Also, the death benefit increased by 7 % of the sum assured each year. ? KOTAK CHILD PLAN is an investment plan designed to meet a child’s feature financial needs. When the sum assured is 5 lakhs, and when the entry age is 1 year the IRR is 6.547 %, BCR is 1.16 % and the NPV is Rs. 9,04,667. ? KOTAK RETIREMENT PLAN is a savings plan design to meet one’s post retirement needs. The returns are calculated for a 25 years term assured of Rs. 10,00,000. The IRR is at 7.62 % and BCR at 1.44 % when the entry age is 30 years. ? KOTAK SAFE INVESTMENT PLAN is an investment cum insurance plan. The returns from this plan is tax-free. When the sum assured is 5,00,000 for 15 years, the IRR is 2.96 % and BCR is 1.44 % and maturity at 10 % is Rs. 9,16,400.
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? KOTAK CAPITAL MULTIPLAYER
PLAN is also an endowment plan
which is very flexible and has a lot of other in built benefits. When the sum assured is 5,00,000 and a premium of Rs. 16,250 the IRR is 7.04 % and BCR is 1.33 %. ? From the swot analysis of OMKM, the major strength seems to be the projection of better returns in comparison with other insurances companies when the major weakness seems to be the lack of penetration into the market and the major opportunity seems to be the increasing the per capital income of the customers and the major threat seems to be the neglection of lower and middle class segments. ? Hence the project mainly focuses on to the question, whether OMKM offer better policy when compared to LIC and ICICI Prudential. The solution for this project may help the company in finding its position with respect to the other two companies. The source for the problem had been from executive experience and theory. ? Hence the problem stated above clearly indicates the position of each company with respect to every comparable policy at different angles.
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RECOMMENDATIONS
? As such, the policies and returns of OMKM yields better benefits compare to LIC and ICICI. The company should also try to extend its services to rural segments. To capture market share.
? The company should maintain close ties ups with government departments to easily sell the products and to reach the urban area.
? Transparency in operation is are one of the keys to succeed. They should also have access to economies of scale, better investment pattern, flexibility in schemes are necessary to cut premium cost, offering more riders at nominal cost and better returns.
? OMKM need to maintain and improve their quality of products or service, prompt repayment of clients. All these are necessary to win customer confidence.
? OMKM should also use of technological advancements, like electronic commerce, to accept application forms, payments and redemption to make their services quicker and better. This should also help them to reduce the cost of distribution and gain more customers. ? OMKM has no option than following all the strategic options listed above. To be as a leader down the lane after 10 years they have to follow the strategic options listed above. Only choice they have in strategic option is between going for capital markets or borrowing debts from international market. ? They need to maintain good marketing strategy wherein this will provide them chance to capture both rural and urban market. They should give high incentive to brokers. This in turn may affect the profitability, but they have to bear with it in the initial years in order to grow.
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? OMKM down the lane after 10 years, to reach the leader the status should look into all the above recommendations and options followed by excellent execution & constant improvements & innovations.
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CONCLUSION
Today, after nearly fifty years, the insurance sector is a buyers market where the consumer has the choice to select from a variety insurance product and services. The insurance companies should concentrated on the requirements of the insurers and they should modify their policies to become a market leader. Only the customer satisfaction will take a company to the high of success. So the insurance companies should focus on ensuring the maximum customer satisfaction. OM KOTAK MAHINDRA though made a late entry into the insurance industry, have established themselves in such a manner that OMKM has become a serious competitor to major leading insurance companies that exist presently in India. OM KOTAK MAHINDRA still one among the leader in private insurance sector, in near future can become the top among the private insurance sector since their products cater to different needs of various different sectors.
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ANNEXURE: 1
Principles duties, powers and functions of IRDA are laid down in section 14 of the IRDA act: ? IRDA shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. ? Powers and functions of IRDA include: a) Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration. b) Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contract if insurance. c) Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents d) Specifying the code of conduct for surveyors and loss assessors e) Promoting efficiency in the conduct of insurance business f) Promoting and regulating professional organizations connected with the insurance and reinsurance business g) Levying fees and other charges for carrying out the purposes of this Act h) Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with insurance business i) Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938)
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j) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries k) Regulating funds of insurance companies l) Regulating maintenance of margin of solvency m) Adjudication of disputes between insurers insurance n) Supervising the functioning of the Tariff Advisory Committee o) Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in categories of clause (f) p) Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector and q) Exercising such other powers as may be prescribed and intermediaries or
ANNEXURE-2
How to Maintain Your Life Insurance Policy in Full Force The need for maintaining your life insurance policies in full force is simple: a deficient policy means a deficient risk cover, negating the very idea of painstakingly building your insurance portfolio. And like in anything else, preventive maintenance is better than corrective maintenance. In the case of life insurance policies, maintaining them in full force at all times takes very little. The few things that require your attention are dealt with in this chapter. Check the policy document for mistakes As soon as you receive the policy document from Insurance Company, you must go through it carefully for any possible mistakes — in your name, in the name of your nominee, relationship and all other details. In case there is any mistake, get in touch with your agent and ask him to get it rectified by Insurance Company. Of
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course, you can also directly approach to the concerned branch office of Study also the conditions and privileges in small print, and understand them well. This is essential to avoid any misunderstanding and complications later on. Inform your spouse or nominee It is vitally important to keep your spouse and nominee fully in the picture about all the details of your portfolio: the number of policies there are, the complete benefits of the policies whether for her or the children, etc., where you store the policy documents, the name and address of your insurance agent and the concerned Insurance company office, etc. Physical safekeeping The policy document is an evidence of the contract between you and L.I.C. You will do well to keep the document carefully in a safe place till its maturity. The policy document may have to be submitted to L.I.C. for settling maturity or death claims. As it is a cumbersome procedure to get a duplicate policy, you must take care to avoid losing the policy document. Rest assured, however, that the loss of a policy bond does not extinguish your rights as policyholder. How to prevent your policies from lapsing Regular and prompt payment of premiums is the single most important requirement of maintaining your policy in full force at all times. You are allowed a grace period of thirty days for payment of yearly, halfyearly and quarterly premiums, and fifteen days in the case of monthly payment of premium. Do not wait, however, until the last days of the grace period. The best way is to pay your premiums on a yearly basis. Even if you start a policy on a quarterly premium payment basis, it is advisable to change it to yearly payment later on: the fewer the transactions with L.I.C, the better. Further, it is easier to remember the due date in a year. The more frequent the payments, the more are the chances of your policy lapsing. 100
Maintain all the premium receipts It is also very important to safely retain all your premium receipts in tact. Even if you pay your premiums regularly, it is possible that in a few cases the L.I.C.'s Ledgers remain unposted with your payments. At the time of settling a claim in such cases, L.I.C. writes to the policyholder about these missing payments and ask him to produce the premium receipts, or otherwise prove that you did indeed make the payments. Make sure your policies have a valid nomination or assignment at all times In case you raise a loan from a bank, making an assignment in favour of the lender pledges the policy. Since a later assignment always cancels an earlier nomination, your earlier nomination is rendered meaningless in such a case. When the loan is repaid, the policy is again re-assigned in favour of the policyholder. At that time, the policy will be without any nomination and this is a dangerous lacuna. After
such re-assignments in your favour, it is therefore very important to make a fresh nomination in the policy. If you fail to do so, there would be trouble in the settlement of a death claim. Notify L.I.C. of any change in your address Whenever you shift from one place to another make sure to notify the change in your address to the relevant branch office of L.I.C, which directs your policy so that it can send your premium, notices, receipts, etc. to your new address. On the other hand, it is not a good idea to get your policies transferred to a different branch every time you move from one place to another.
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Keep in touch with your agent Keep in touch with your agent. Keep his latest address and telephone number in your policy file and make sure that your spouse knows how to contact him in case of any need.
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BIBLIOGRAPHY
URLs: 1. 2. 3. 4. 5. 6. 7. Books: 1. 2. 3. Magazines: 1. 2. 3. Business World Intelligent Investor A&M Ready reckoner for insurance-By LIC Taxplanning by Bajaj Capital LIC policiesLICIndia.com Insurance-India.net IRDA.com myris.com karvy.com ICICIPrudcntial.com maxnewyorkindia.com indiainfoline.com student-guide.net
Newsletters/Pamphlets: 1. 2. 3. 4. Karvy Integrated enterprises Bajaj Capital LIC
Articles & Reports: 1. KPMG Report Price Water House Cooper Article from ICICI Prudential & from other experts, Life Insurance Policies by B.Raman
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ACRONYMS
OMK /OMKM - OM KOTAK MAHINDRA IRR - INTERNAL RATE OF RETURN NPV - NET PRESENT VALUE BCR - BENEFIT COST RATIO IRJDA - INSURANCE REGULATION & DEVELOPMENT AUTHORITY GIC- GENERAL INSURANCE CORPORATION CII - CONFEDERATION OF INDIA INDUSTRY KSF'S - KEY SUCCESS FACTORS NPA - NON PERFORMING ASSETS ARR - AVERAGE RATE OF RETURN PVIFA - PRESENT VALUE INTEREST FACTOR OF ANNUITY PVIF - PRESENT VALUE INTEREST FACTOR KEP- KOTAK ENDOWMENT PLAN KMBP - KOTAK MONEY BACK PLAN KCAP - KOTAK CHILD ADVANTAGE PLAN.
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doc_934034814.doc
In linguistics, the comparative is a syntactic construction that serves to express a comparison between two (or more) entities or groups of entities in quality, quantity, or degree; it is one of the degrees of comparison, alongside the positive and the superlative
Financial Study on individual and comparative plan analysis of kotak Mahindra and ICICI INTRODUCTION
Man is a social animal. His day-to-day wants are increasing. Though the basic needs food, clothing, and shelter have to be there in the day-to-day life of man, he is in search of new wants like car, furniture, television, V.C.R and other luxuries. To fulfill these extra-obligations man has to work more so that he can make more money to fulfill the above requirements. His family also enjoys the same benefits as him and naturally they get used to that new walk of life. Here life insurance plays a major role. Uncertainty, that is risk, which gives rise to the necessity for same form of protection against the financial loss arising from death. Life insurance is a contract providing for the payment of a sum of money to the person assured or paying the amount to the person entitled to receive the same, on the happening of a certain event.
What is Life Insurance?
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 dates at periodic intervals or at unfortunate death, if it occurs earlier among other things, the contract also provides for the payment of premium periodically to the corporation by the assured. Life insurance is universally acknowledged to be an institution that eliminates 'risk' substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of the death of the breadwinner. By and large, life insurance is civilization's partial solution to the problems caused by death.
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Definitions
Section 2(11) of the insurance act 1993 defines life insurance business as follows Life insurance business is the business of effecting contract of insurance assured on death (except death by accident only) or the happening of contingency dependent on human life and any contract, which is subject to the payment of premium for a term dependent on human life and shall be deemed to include. Life insurance is just a way of spreading financial risks from individual shoulders to the shoulders of us all as a group. But in 1956 Government decided to nationalize insurance sector and handed over the Life insurance to LIC of India. From 1956 onwards LIC remained as a monopoly in the life insurance sector till 1999. In 1999 Government allowed Private sector and foreign players to enter into the market. IRDA is the instituted governing body for all insurance companies in India. They are vested with powers regarding granting of license to insurance companies, consumer protection. As a whole they are expected to act as a watchdog with sharp hangs and honed claws for the insurance industry.
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List of players entered into life insurance business arena with the registration number and date of entry are given below. S.NO REGISTRATION 1 2 3 4 5 6 7 8 9 10 NUMBER 101 104 105 107 109 110 111 114 116 117 DATE OF REG. 23.10.2000 15.11.2000 24.11.2000 10.01.2001 31.01.2001 12.02.2001 30.03.2001 02.08.2001 03.08.2001 06.08.2001 NAME OF THE COMPANY HDFC Standard Life Insurance
Company Ltd. Max New York Life Insurance Co. Ltd. ICICI Prudential Life Insurance
Company Ltd. Om Kotak Mahindra Life Insurance Co. Ltd. Birla Sun Life Insurance Company Ltd. Tata Aig Life Insurance Company Ltd. SBI Life Insurance Company
Limited . ING Vysya Life Insurance Company Private Limited Alliance Bajaj Life Insurance
Company Ltd.. Metlife India Insurance Company Pvt. Ltd.
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OBJECTIVES OF LIFE INSURANCE
PROTECT THE FAMILY: The most important objective of the life insurance is to provide financial protection for the family in case of an unexpected and premature death of its breadwinner. The purpose is to protect the dependants against the loss of earning power of the insured through death or its disability. Those who have insured their lives for an adequate sum can live in peace and comfort, free of the gnawing worry of what would happen to their families in case of their sudden and their premature death. Without adequate life insurance cover, there can be no real peace of mind. Make no mistake about it. Life insurance has long been recognized as a necessary and essential element in a family's total financial Programme. REGULAR SAVINGS: Saving is not a physical need, like hunger or Sleep. Many of us may not save unless there is an element of compulsion. For such people life insurance is compulsory regular saving scheme especially through monthly salary saving scheme. Even if an investor does not subscribe to salary saving scheme they can issue standing instruction to their bankers to pay premium regularly without reference to them. The element of saving in life insurance contract should be understood in a proper prospective. Typically life insurance made available on the basis of equated periodical payments. In initially years the investor tends to pay more compared to risk factor. Thus a reserve is created for later years when the risk factor is high. Strictly speaking, the saving aspect of life insurance should not be compared with other pure savings media. TAX BENEFITS: There is a tax rebate under section 88 of Income Tax Act on life insurance premium. Many investors especially those in high tax bracket, use to buy ljfe insurance mainly to take advantages of this tax benefit.
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? HOUSING FINANCE OFFERED UNDER OWN YOUR HOUSE (OYH) SCHEME: One of the easier ways of acquiring a house property is through OYH scheme. To enjoy this loan facility many investors go in additional life insurance. ? ANNUITIES FOR REGULAR INCOME DURING RETIREMENT: If life insurers survive till the maturity of the policy, the maturity value represents a size estate of the person Normally this estate would be available at one's age of retirement. Insurance money comes quiet handy for investment so that retirement may not cause undue financial worries. ? BONUS OFFERED BY INSURANCE COMPANIES: Insurance company pays bonus to the policyholders on all with profit policy. This bonus is payable on maturity or death which ever is earlier. ? RIDERS OFFERED BY INSURANCE COMPANIES: Insurance companies offer many riders at nominal cost. Basically it’s like offering many policies to a single investor at nominal cost that is profitable for the investor. Insurance business is concerned with 3 basic services: ? Indemnification of loss of value ? Scientific approach to risk management ? Equitable distance of the cost among the insured
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TYPES OF INSURANCE POLICIES:
1. WHOLE LIFE POLICIES: Whole life policies are called as such policies as these policies cover you up to age of 100. In fact, a whole life plan is known, as an endowment plan maturing at the age of 100, should be the insurers at the age of 100.should the insurer survives to that age. There have been some instances where maturity proceeds were paid to the insured that were living at the age of 100. The whole life policy is supposed to be a very flexible type of policy because of its long-term duration, low premiums, and higher insurance amount available to this policy. Typically whole life policies run for as long as policyholder is alive. The policy monies and the bonus are payable only to the nominee or the beneficiary of the policyholder. This represents a serious drawback in the case of whole policies for they go on covering a policyholders life even after his life has no further no economic value for others. On the other hand policy holder would require the money for himself and his spouse during retired life but this would not be possible since sum assured is payable only when policy holder dies. On the other hand, whole life policies appear to be cheapest category available from the insurance companies. 2. ENDOWMENT POLICIES: It is the most popular of all insurance plans. They cover the risk for specific period at the end of which sum assured is paid back to the policyholder along with all bonus accumulated during the term of policy. In case of endowment policies the policy amount is paid on the date of the maturity or event of the death. Endowment policies are sold in large numbers because they emphasis on the savings aspect in a life insurance policy. It could be said only a predetermined savings found is insured in such cases and not the economic value of insured. Many times when the breadwinner dies the capital sum assured does not meet the needs of the family and also the premiums are high as compared to whole life policies.
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Insurance experts say that wherever the protection need is dominant, endowment policies not be recommended. 3. JOINT LIFE POLICIES: It is in fact a variant of endowment policies in that these policies also offer maturity benefits to the policyholders, apart from covering the risks as all life insurance policies do. The reason may be categorized separately is that these policies cover tow lives together thus offering a unique advantages in some cases; notably for a married couple, or for partners in a business firm. 4. CHILDREN'S POLICIES: It defeats the whole purpose of life insurance by a simple logic that life insurance should be made on the person who has some economic value. The family benefits lies in apportioning the maximum part of family's insurance budget for buying as much life insurance as possible on the lives of the breadwinner. 5. ANNUAL PLANS: It ensures regular income for the annuitant or his/ her nominees either for a fixed period or till death, depending upon the terms of the contract of annuity.
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INDUSTRY PROFILE
While talking about the growing industries in India, It would be hard to miss out the Life Insurance Industry, which is one of the very fast growing industries. The •industry, which positions itself in the rapid growth & take off stage in its Business Life Cycle, is growing about 15% annually. With a market of roughly, around 240 million prospective buyers & Rs.35000 cores in terms of monetary value, the competitive rivalry is very hot on a national level. The industry is dominated & concentrated by few large companies; LIC at presents leads the show followed by other new private players who are fighting for their share of the market. Their access to the customers is through agents/employees, thus making them their primary distribution channel. Though the industry marks a very good growth rate & targets at a very vast market of 240 mn prospective buyers, the new product innovations are fairly low to medium. Even with a low/medium product range, there is a high product & service differentiation among the rival firms. Even with a low/medium product range, there is a moderate product differentiation among the rival firms, for example ICICI is having a product called pru cash back, in which investor can get back their money before the maturity date. The service of LIC and other private players are highly differentiated in the sense they provide better inter-personal service. Other services in which private players are ahead of LIC are Transparency in operation, updating and promptly sending newsletter to the customers. The market ahead being a very large one, demands the players to be spread all over in order to gain reasonably good market shares. One of the main characteristics of [the industry is its strong learning & experience curve. This is one industry with high capital requirement & also has high entry barriers put in by IRDA. The profitability is above par. Companies can realise the economies of scale on advertising & marketing. All the capital & revenue expenditures are largely influenced by size of the distribution. The Awareness among the users is high.
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COMPANY PROFILE About OM Kotak Mahindra Life Insurance Co Ltd.
OM Kotak Mahindra OM Kotak Mahindra Life Insurance Company Limited is a joint venture between Kotak Mahindra Finance Limited and Old Mutual pic. Life has a plan for each and every one of us and so does OM Kotak Mahindra. OM Kotak Mahindra Life Insurance Company Ltd. aims to offer a wide range of innovative life insurance products that help in making the Indian consumer financially independent. Kotak Mahindra With years of expertise in the Indian financial market, Kotak Mahindra is a leader in several of its businesses - investment banking, retail distribution and car finance. With a distribution network spread across 40 centers, the group enjoys a widespread network. It also has offices overseas in New York, London and Dubai. Old Mutual plc With 155 years of experience in the life insurance business, Old Mutual pic is today an International Financial Services group based in London with expanding operations in Life Assurance, Asset Management, Banking and General Insurance.
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Old Mutual is the largest South African Life Insurer. Old Mutual has a multilayered distribution network comprising of Life Advisors, brokers (including banks) and direct. Old Mutual plc is listed on the London Stock Exchange (where it is included on the FTSE 100 Index) and also on the South African, Namibian, Malawi and Zimbabwe stock exchanges. In 2000, Old Mutual acquired Gerard Group in the United Kingdom and United Asset Management in the United States, bringing total assets under management to US$ 252 billion (as at 31 December 2000). Financial highlights for the year ended 31 December 2000 included a 29% increase in operating profit to US $ 1381 million. Old Mutual has made significant progress through continued development of core business and, through focused acquisitions, has established a strong foundation upon which to further build the business for customer and shareholder value in the years ahead. The company has the ability to cater to a variety of consumer market segments, and offers a comprehensive and innovative product range catering to all income groups.
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ORGANIZATION STRUCTURE OF OMKM
MANAGING DAM
DIRECTOR
MD-SHIVAJI
TRAINING
IT
ACTUARIAL
MARKETING
FINANCE S CLIENT SERVICING
INVESTMENTS
TH PEERU ABDULLAH
CTO NIHAR RAO
AA ANDREW CARTWRIGHT
CMO TREMAN AHLUWALIA
CFO G.MURLIDHAR
CIO
REGIONAL MANAGER (EAST)
RM (West)
RM (NORTH)
RM (SOUTH)
AVP CORPORATE AGENTS
SALES MANAGER
SM
SM
AGENT
AGENT
AGENT
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REVIEW OF LITERATURE
INSURANCE IN INDIA The Indian Context The subject of a much heated debate for years, the Indian insurance sector is today poised to embark on a new and challenging voyage despite innumerable delays, as winds of liberalization finally fill its sails. Opened to private competition with the passing of the Insurance Regulatory and Development Authority (IRDA) Act, 1999, the Indian insurance sector is ready to burst with renewed vigour and activity - to witness breaking of old rules and defining new paradigms as the government owned incumbents fight to maintain supremacy and the new entrants break fresh ground to find their co-ordinates in the evolving space. Insurance in India — On the Reforms Path A multitude of private players (over 250 in life and exceeding 100 in non-life) dominated the city-oriented insurance business until its nationalisation in two phases in 1956 (life) and 1972 (non-life), when the Indian insurance sector was reserved for the public sector. The entire insurance business in the country was taken over by the two pubic sector companies, Life Insurance Corporation (LIC) of India and General Insurance Corporation (GIC) of India. In consonance with the ongoing economic reforms, the Indian Government set the reform ball rolling in the insurance sector, taking the first step by appointing the Malhotra Committee in April 1993 to suggest reforms in the nationalised insurance sector. The committee suggested opening up of the insurance sector to private participation and a restructuring of the existing players.
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Evolution Through The Century - Regulatory Milestones 1912 The Indian Life Assurance Companies Act - kicked off regulations in the Indian insurance sector 1938 The Insurance Act - marked the real beginning of comprehensive regulations; several amendments and additions were made in the Act until the nationalisation of the industry 1956 Nationalisation of life insurance business through enactment of the Life Insurance Act 1972 Nationalisation of general, (non-life) insurance business through enactment of the General Business (Nationalisation) Act 1993 Constitution of the Malhotra Committee to study the insurance industry and suggest reforms 1994 Malhotra Committee recommendations released - key suggestions:
? Open industry to private participation - domestic and foreign ? Strengthen incumbents capital base; reduce mandatory investments. ? Restructure LIC/GIC operations; induct accountability to policy holders ? Set up a statutory autonomous regulatory body with independent financing ? Introduce intermediaries between insurers and customers ? Periodic review of product pricing and premia rate rationalization 1995 Constitution of the Mukherjee Committee to examine issues of transparency in insurance accounting and suggest new standards for solvency margins
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1996
Constitution of the Interim Insurance Regulatory Authority (IRA) to suggest legislative reforms in the insurance industry until the establishment of an independent regulatory authority
1997 1999
Mukherjee Committee Report on solvency issues submitted to Government; findings and recommendations not made public Passing of the Insurance Regulatory and Development Authority (IRDA) Act The most important recent development is the passing of the IRDA Act, 1999 that contains provisions to give statutory character to the regulatory body, and three schedules concerning amendments to the Insurance Act, 1938, Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972.
Insurance Market - Raring to Go The deregulated Indian insurance market with a potentially large customerbase (200-300 million middle class) that is becoming sophisticated, demanding new and better products and services presents attractive opportunities for international and domestic competitors. In a recent study. The Monitor Group placed the Indian life insurance market at about USS 5 billion in 1998 with historical average annual growth rates in the region of 12-13 percent Higher growth rates are expected in future. Accordingly, the Monitor Group has projected the market to reach USS 25-30 billion by 2008. According to another Report by the Expert Group of the Confederation of Indian Industry (CII) issued in October 1999, life insurance premia are likely to account for 18-20% of the gross domestic savings of the country by the year 2010 as compared to around 8% currently. The Report estimates life premia collection to reach USS 30-35 billion by the year 2010. Substantially smaller than the life segment, the non-life market at USS 2 billion in 1998 is expected to grow robustly and reach a. level of USS 10-12 billion by 2008 according to The Monitor Group estimates. The CII Expert Group estimates non-life premia to rise to 4% of the gross domestic capital formation by the year 2010 as
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Compound growth of 14-15% in the next 10 years A near saturation stage in developed nations like the UK and US, makes India an attractive destination offering high growth potential to international insurers. With a low premium per capita substantiated by a low premium as a percentage of GDP, the case for investment in the insurance sector in India becomes even more compelling. Many overseas insurers, bullish about their possible entry into India, have pre-empted the opening up of insurance sector and entered into MoUs and anticipatory alliances with Indian companies. Several companies identified the Asset Management Company route to gain a foothold in the Indian market, prior to their entry into the insurance sector. Among those that have reportedly entered into strategic alliances or are preparing to forge one are Allianz, Aegon, AIG, Allstate, AXA, CGU, Canada Life, Cigna, ING, Mitsui Marine, Munich Re, New York Life, Old Mutual, Prudential, Rothschild, Royal Sun Alliance, Standard Life, Sun Life, Tokio Marine, Winterthur, Yasuda Fire and Marine and Zurich. The passing of the IRDA Act has generated a lot of excitement amongst these companies and the Indian insurance terrain, hitherto devoid of competition, is on the threshold of a new competitive order. "The two dominant factors guiding the penetration of insurance in India are affordability and a clear understanding of the risks as Indian insurance market being one of the least insured markets in the world, there is an immense need for insurance and the understanding of insurance in India ". This insurance after liberization has undergone various changes leaving a large room for further analysis and study of various aspects in this sector. Insurance as been understood as a cover for all sorts of uncertainties. Thus it acts as a financial support to withstand or face the losses that would have been still worst. Further insurance (both life and general) has become more popular. In India the origin of insurance could be traced back to the Vedic era in spite of this fact, it hasn't been fully matured hence various steps have been taken in by the government to fully tap the existing marketing potential prevailing in the country. 16
Still insurance products are not viewed as good investment option and it is only considered as a tool for covering a person's risk. Further the returns from any insurance investments are ' long-term in nature. This may be another factor that makes people reluctant to invest here. Unfortunately it has been found out that insurance has not been fully understood and its products are merely sold to policyholders who are ignorant of the other futures. Another interesting aspect being, after the liberalization era more and more private players have come to present with excellent range of products and stiff competition. Now slowly the awareness of various products has been seen increasing as a result of the great steps taken by the players in educating the people about is products.
KEY SUCCESS FACTORS
Every industry, company or individual have something in them, which makes them successful in their endeavors. They become their key success factors. An industry's Key Success Factors (KSFs) are those things that affect industry member's ability to prosper in the market place-the particular strategy elements, product attributes, resources, competencies, competitive capabilities, & business outcomes that spell the difference between profit & loss & ultimately, between competitive success or failures. The KSFs are by nature so important that all firms in the industry must pay attention to the them-they are the prerequisites for industry success. In other words KSFs rules that shape whether a company will be financially and competitively successful. Similarly the Life Insurance industry also bank upon some factors that make them appealing. They are as follows: ? High Security & Returns, ? Courteous customer service, ? Fast or immediate settlement of claims,
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? Breadth of the product line, ? A good distribution channel, ? Clever Advertising, ? Developing Innovative Product/Schemes, ? Brand image & customer confidence, ? Having offices in all major areas of the country, ? Low distribution costs, ? Capability to use the Internet, ? Manager experience: all the new private players do not have this & for this reason, they are roping in the ex-employees of LIC, GIC etc. ? Ability to respond quickly, 0 Strong Financial resources i.e., Strong corpus.
The table given below clearly shows that rural market is left untapped. THE RURAL INSURANCE SCENARIO Year RURAL BUSINESS Policy 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 (in lakhs) 4.61 5.72 5.91 9.52 30.48 49.02 52.57 60.33 68.40 81.23 Sum Assured (in crores) 251.764 464.27 603.77 1569.62 8086.35 21571.00 21263.59 24278.73 27550.69 35372.94 % OF RURAL BUSINESS TO TOTAL BUSINESS Policy Sum Assured 33.00 31.85 28.20 35.26 41.23 45.10 47.70 49.20 51.40 54.70 24.54 26.37 22.09 29.20 34.33 39.10 41.00 42.80 43.30 47.00
The industry is running at above par profitable level. Once many players started entering in it will reduce the profit margin. This is because when there is intensified competition players would have no option than reducing their margin. When compared with international standard our profit margin is very high. Profit margin is benchmarked with few foreign companies in financial analysis. So far LIC was dictating terms as it was a monopoly, is forced to take defensive actions to protect
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its market share from eroding with the entry of 9 new players into the industry. After privatization, all the insurance companies have started giving a lot of discounts, freebies that in turn may affect profitability & the market being new for the private players, they will be running at a loss due to high capital expenditure. Out of the 9, 4 players are banks, which becomes their distribution channel & their customers might make competition heavy. On the other hand, the remaining five players are Indian Majors. This makes the competition really stronger & fierce.
POTENTIAL NEW ENTRANTS: Generally in the insurance industry brand preference & customer loyalty is expected to be very high. As IRDA requires the promoters to bring in an Rs.lBn, the capital requirement, to establish oneself in the industry is very high. The switching costs for the buyers are high. It is almost impossible for the private players to duplicate the huge distribution network formed by LIC due to the high cost & time involved in it. The regulations by the regulatory authority i.e. IRDA are very stringent; IRDA can even bar the entry of firms by not issuing license & permits. For e.g. Dabur filled application on the first day (the day when insurance was opened up for the private sector), but was rejected. The experience & learning curve has a great effect on the industry. But the new players can overcome this by roping employees from nationalized insurance companies like LIC, GIC. The economies of scale can operate on sales & marketing expenses by entering in huge scale. In the insurance business key to success is expertise in the industry. These foreign players have enough expertise to grow in this area. Apart from it the foreign players have deep pockets. Indian insurance companies can use the foreign companies name to borrow at international market at a rate very lesser than when compared to interest rate in India. These foreign players can change the way the industry as a whole operates. Thus it is understood that the barriers to enter the industry for the new entrants are moderate to high.
INTERPRETATION: 19
Ratio of outstanding claims to claims payable: Lesser the ratio better it is. LIC has better ratio when it compared to Sunlife but its lower than standard Life. LIC should try to reduce it outstanding claims. New entrants are supposed to keep the ratio much less; they should try to keep on par with or better than LIC. They should try to maintain global standards. Payout ratio: LIC payout ratio is much less when compared to international standards. This may be because of monopoly enjoyed by them over the years. So far Customers had no option than going to LIC and that's the reason their payout ratio is less, the payout ratio is expected to increase for both LIC and Private players and as a result profits of both the kind of players would be affected. The private players have no option than looking for the ratios of international standards. Profit ratio: LIC'S net profit ratio again is much higher than the international standard. The new entrants in the market have to look for the returns of Standard Life. LIC's profit ratio is much higher because of its heavy investment and the returns earned out of that investment. Other income as percentage of net profit: This substantiates the interpretation of net profit ratio. New entrants cannot have such a cushion of huge reserves and as a result they may earn less other income. From the financial analysis made above, one thing is quite clear LIC's ratios are far ahead of all key players in global Tiarket. This is because of the monopoly enjoyed by them over the years. 20
Their reserves are also quite high to withdraw any shock. If the ICICI or other new entrants could look for anything is international standard. They can't expect anything higher than that of global standard. They shouldn't be trying to benchmark with LIC. All that which is realistically possible for the new entrants is achieving the returns of global standard. LIC over the years because of monopoly has put itself in such a strong position.
PROTECTION THROUGH INSURANCE
PERSONAL RISK MANAGEMENT Why does an individual need protection? An individual is exposed to many types of risks that may adversely affect his own or his dependent's welfare. Some of these risks cab be: 1. Risks of death, sickness and injury 2. Risk of loss, damage to property he may own or for which he is responsible. 3. Risk of incurring liability to compensate others for personal injury or damage. No matter how one lives, it is impossible to avoid all risks, and indeed, even to try to minimize the total risk to which one is exposed, would involve forgoing many pleasures and benefits associated with various various activities such as sports travel, and taking up occupations which are risky. So how does one protect oneself against risks? While the individual can take steps to reduce risks to property and person by wearing protective clothing, making premises secure etc. the only way in which he can participate in the benefits of risk combination is by insuring. What is insurance?
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Essentially, insurance is a device for dealing with those risks, which may cause severe financial difficulties. While there are social security schemes like provident fund, voluntary provident fund etc. to which compulsory contribution have to be made and which entitle the contributor to the benefits of the scheme, these provide only partial protection. Insurance can be bought to give additional protection, the cost of future income guarantees being the forgoing of current income. Whether the security provided by insurance will be judged worth the premium involved must be a personal decision in the light of a detailed analysis of needs. RISK MANAGEMENT PROCESS The process of risk-management can be broken down into 3 elements, which follow each other in a logical sequence. ? Risk Analysis ? Risk Control ? Risk Financing Let us take a look at each. RISK ANALYSIS The first step is to analyse the risks to which and individual /organization is exposed. Risk analysis itself has 2 prime elements ? Identification of risk ? Evaluation of risk Once the various risks to which an individual is exposed is identified, is exposed is identified, like death, loss to property etc., which have been covered earlier, the risk must be evaluated in terms of the probability of a loss occuring and its severity to the person minimizing the loss.
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The next two stages of the risk management process i.e. the risk control and risk financing are concerned with ways of handling risk in order to improve the security of the individual. RISK CONTROL Risk control covers all those measures which are aimed at avoiding, eliminating or reducing the chances of loss - producing events or limiting the severity of losses that to happen. Here, one is seeking to change those specific conditions that. bring about loss - producing events or increase their severity. While risk avoidance is the most drastic method of dealing with risk, risk reduction is perhaps a more common way of controlling risk as one cannot avoid risk totally. Risk avoidance seeks to totally prevent the sources of loss, like withdrawal of those activities that leads to loss. Risk reduction on other hand, is concerned with achieving a reduction either in (a) the probability of the occurrence of a loss - producing event or (b) the size of the ensuing losses. Loss reduction measures have been classified in the following ways by A.H Mowbray and R.H Blanchard: ? Preventive - eliminating the cause of loss o Protective or quasi - preventive protecting things or persons expose to damage or injury ? Minimizing - to limit loss to as small a compass as possible o Salvation - to preserve as much as possible of the value of damaged property or the ability of injured persons. While the first measure is directed at reducing the probability of the occurrence of a loss, the others are concerned with limiting the size of the loss. RISK FINANCING: Here, one is concerned with the manner in which the risk remaining after the risk control measures have been implemented shall be financed. It has to be recognized that in the long run, we have to pay for our own losses. Therefore, the
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primary objective of this financing is to spread more evenly overtime, the costs of risk, in order to reduce the financial strain and possible insolvency that the random occurrence of large losses may cause. The secondary objective is to minimize the risk costs. Risk avoidance and risk reduction decisions should not be taken without regard to their financial costs and benefits. If loss reduction measures are a success in cutting future loss expectancies, there will be smaller losses to finance and seek protection against.
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OBJECTIVE OF THE STUDY
PRIMARY OBJECTIVE: The primary objective of this report is to clearly indicate as to which company comes out with the best policy and returns, so that OMK could improve on its policy features to enhance returns. SECONDARY OBJECTIVES: 1. To do a SWOT analysis of L1C, 1CICI Prudential life insurance and Om Kotak Mahindra life insurance companies. 2. To analyze the strategic issues of the three focus companies and there by suggest the relevant strategic alternatives. 3. To arrive at benefits by applying capital budgeting appraisal criteria's such as: a. INTERNAL RATE OF RETURN (IRR) b. NET PRESENT VALUE (NPV) c. BENEFIT COST RATIO (BCR) 4. Protection through Insurance a. Personal risk management b. Risk management process i. Risk analysis ii. Risk control iii. Risk financing
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SCOPE OF THE STUDY
FOCUS SEGMENT: The Indian life insurance industry is a fast emerging industry. The market size of the life insurance industry is roughly around Rs.35000 cores. Industry's growth rate is 16%(Source: Price water house coopers survey on Indian life insurance industry). This is a new era of insurance in which as many as eleven private players have entered into the market with in a short period of one year. FOCUS COMPANY: LIC, Om kotak Mahindra and ICICI are our focus players. LIC has established its distribution network and branches in every part of the country. ICICI has just entered into the market and trying to match its distribution channel with that of LIC. LIC has found itself in the good place in the market. ICICI will also find itself in the good place of market because of the following reasons: ? It has entered into the industry in a joint venture with prudential life insurance. Prudential life insurance is an experienced player in the industry and the experience is the key for this sector. ? Its parent body ICICI has huge finance reserves that can be very helpful for them to grow. ? ICICI bank has already wide distribution channel which can be used to leverage the distribution channel for ICICI Pru life insurance. OM Kotak Mahindra Life Insurance Company Limited (OMKM) is a joint venture between Kotak Mahindra Bank Ltd and Old Mutual pic. Being a part of the life insurance business in India for more than 2 years, they aim to help their customers make important financial decisions at every stage in life by offering them a wide range of innovative life insurance products.
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? Kotak Mahindra is one of India's premier financial services groups, and spans its business operations across sectors such as asset finance, wealth management, investment banking and institutional broking (rated AAA by CRISIL). ? In order to implement their Marketing plans they are looking for Trade Marketing assistant Managers/ Managers in Delhi, Kolkata, Chennai, Bangalore, Chandigarh, Ahmedabad.
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LIMITATIONS OF THE STUDY
? The first and the foremost limitations of the study is based on the secondary data. ? The study analysis the past data and hence can give the details of what went wrong and is a sort of post mortem ? The study has to be done within a short span of time. There is a constraint of time span.
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RESEARCH METHODOLOGY
APPRAISAL CRITERIA We will now examine whether the investment is financially desirable or not. A number of criteria have been evolved for evaluating the financial desirability investment. These criteria's can be classified as follows:
Evaluation Criteria
Non-Discounting Criteria
Discounting Criteria
Payback Period
ARR
NPV
BCR
IRR
NET PRESENT VALUE (NPV): The net present value is equal to the present value of the future cash flows plus any immediate cash outflow. In the case of a project the immediate cash flow will be investment (cash outflow) and the net present value will be therefore equal to the present value of cash inflows minus the initial investment. The decision rule based on the NPV criteria is obvious. An investment will be accepted if its NPV is positive and rejected if its NPV is negative. Rarely in real life situations, we encounter a project with NPV exactly equal to zero.
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If it happens, theoretically speaking the decision-maker is supposed to be indifferent between accepting and rejecting the project. But in practice, NPV in the neighborhood of zero calls for a close review of the projections made in respect of such parameters that are critical to the viability of the project because even minor adverse variations can mark the viability of such marginally viable projects. The NPV is a conceptually sound criterion of investment appraisal because it takes into account the time value of money and considers the cash flow stream in its entirety. The only problem in applying this criterion appears to be the difficulty in comprehending per se. Most non-financial executives and businessmen find "Return On Capital Employed" or "Average Rate Of Return" easy to interpret compared to absolute values like the NPV. BENEFIT COST RATIO: - (BCR) Benefit cost ratio is also known as Desirability Factor or Profitability Index. The decision- rules based on the BCR will be as follows: If BCR > 1 BCR < 1 Decision Rule Accept the investment. Reject the investment.
Since the BCR measures the present value per rupee of outlay, it is considered to be a useful criterion for ranking a set of projects in the order of decreasing efficient use of capital. But there are two serious limitations inhibiting the use of this criterion. First, it provides no means for aggregating several smaller projects into a package that can be compared with a large project. Second, when the investment outlay is spread over more than one period, this criterion cannot be used.
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INTERNAL RATE OF RETURN (IRR) The internal rate of return is that rate of interest at which the net present value of the project is equal to zero, or in other words, it is the rate which equates the present value of the cash inflows to the present value of the cash overflows. While under NPV method the rate of discounting is known (the firm's cost of capital) under IRR this rate, which makes NPV zero has to be found out. To determine the IRR, we have to compute the NPV of the project for different rates of interest until we find that rate of interest at which the NPV of the project is equal to zero .To use IRR as an Appraisal Criterion, we require information on the cost of capital or funds employed in the project. If we define IRR as "r" and cost pf capital as "k", then the decision based on IRR will be Accept the project if "r" is greater than "k" and reject the project if r is less than k. (if r = k, is a matter of indifference). IRR is a popular method of investment appraisal and has a number of merits: 1. 2. 3. It takes into account the time value of money. It considers the cash flow streams over the entire investment horizon. Like ARR, it makes sense to business men who prefer to think in terms of rate or return on capital employed This Criterion however suffers from the following limitations: ? IRR is Uniquely defined only for a project whose cash flow pattern is characterized by cash outflows(s) followed by cash inflows (such projects are called as simple investments). If the cash flow stream has one or more cash outflows interspersed with cash inflows, there can be multiple internal rate of return.
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? The IRR criterion can be misleading when the decision maker has to choose between mutually exclusive projects that differ significantly in terms of outlay. ? In spite of these defects, IRR is still the best criterion today to appraise a project financially. Financial Institutions insists that projects having substantial outlay specially in the medium and large sectors must show the computation of IRR in the detailed project report, which they appraise before sanctioning financial assistance.
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FORMULA USED
CAPITAL BUDGETING CRITERIA The formula could actually differ from various kinds of projects i.e. they could be investments in mandatory projects, replacement projects, expansion projects, diversification projects, research and development projects, miscellaneous projects etc. Another aspect of the formula differing could also be from industry to industry. In this case since it is an insurance company the formula for IRR, BCR and NPV for computed differently. INTERNAL RATE OF RETURN (IRR) PREMIUM AMOUNT * PVIFA VALUE (TERM PERIOD, X %) = MATURITY BENEFIT AMOUNT * PVIF VALUE (SAME TERM PERIOD, X %) ? Where PVIFA value is from the Present Value Interest Factor of Annuity Table ? PVIF value also Present Value Interest Factor from the Table. ? Term Period is for the Term of insurance coverage opted by the customer. BENEFIT COST RATIO (BCR) MATURITY BENEFIT * PVIF (TERM, 5%) PREMIUM AMOUNT * PVIFA (TERM, 5%) ? Where Maturity Benefit is that Amount which the customer will ? get at the time of maturity of the policy. ? 5 % is the Interest Rate Percentage for the table values. NET PRESENT VALUE (NPV) MATURITY BENEFIT * PVIF (TERM , 5%) - PREMIUM AMOUNT (TERM, 5%) ? Where Premium Amount is that amount which the customer pays all through his term.
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ANALYSING THE POLICIES OF KOTAK ALONE
1.KOTAK PREFERRED TERM PLAN About The Product: Kotak preferred term plan is a product that is designed to provide the policyholder with reduced premium rates for a sum assured of 10 lakhs and above. In all other aspects it is similar to a kotak term plan. The unique feature of this plan is that it gives special preference to non-smokers. Illustration: The following conditions have been assumed for the illustration of this plan. AGE: 25 years TERM: 30 years SUM ASSURED: Rs. 10,00,000 MODE OF PAYEMENT: yearly ANNUAL PREMIUM: Rs.2,500 CASH INFLOW AT MATURITY: 0 CASH INFLOW AT DEATH: Rs. 10,00,000 BCR = 6.010% NPV = Rs.l,92,568 DEATH AT AGE 50 Years 45 Years 42 Years IRR 18.99% 24.67% 32.40% BCR 8.37% 12.1% 15.469% NPV Rs.2,59,765 Rs.31,155 Rs.28,188
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35 30 25 20 15 10 5 0 50 Years 45 Years 42 Years IRR BCR
2. KOTAK ENDOWMENT PLAN About The Product: Kotak Endowment Plan (KEP) is a protection plan that covers your life and at the same time ensures that the policyholders money does not lie idle. It invests a portion of the premium in financial instruments and ensures a considerable growth in savings. This is a participating plan (with profits). AGE REQUIREMENTS: 18-65 years TERM OF THE POLICY: 10-30 years MODE OF PAYMENT: quarterly, half yearly, annually MATURITY BENEFIT: on maturity, one would receive the sum assured plus the bonus addition. DEATH BENEFIT: the sum assured or the amount in the accumulation account, which ever is higher.
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Illustration: PART A The general conditions used for this plan is given as follows AGE: 35 years TERM : 25years SUM ASSURED: Rs. 15,00,000 ANNUAL PREMIUM: Rs.50409 MATURITY BENEFIT :At the age of 60 years, the policy holders will receive Rs.31,33,400 and the IRR is calculated to be 6.89% . BCR at 5% = 1.301% NPV = Rs.2,13,888 DEATH AT AGE 47 years 50 years 52 years IRR 15.54% 9.55% 7.56% BCR 3.906% 2.88% 2.4% NPV Rs. 12,98,529 Rs. 9,83,920 Rs.7,97,851
16 14 12 10 8 6 4 2 0 47 years 50 years 52 years IRR BCR
PARTB
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DIFFERENT ENTRY AGES: AGE: 35 years TERM : 25 years SUM ASSURED: Rs. 15,00,000 ENTRY AGE 20yrs 30yrs 40yrs 50yrs MATURITY PREMIUM AT 8% Rs.30,81,800 Rs.31,00,100 Rs.31,70,100 Rs.33,48,100 Rs.48,459 Rs.49,234 Rs.52360 Rs.60784 IRR 7.03% 6.97% 6.72% 6.03% BCR 1.33% 1.317% 1.267% 1.152% NPV Rs.2,26,150 Rs.2,20,626 Rs. 1,97,218 Rs. 1,31,000
8 7 6 5 4 3 2 1 0 20yrs 30yrs 40yrs 50yrs BCR NPV
PARTC FOR DIFFERENT TERMS: TERM 10yrs 20yrs 30yrs MATURITY Rsl9,59,600 Rs.26,35,000 Rs.37,90,400 PREMIUM Rs. 1,52,341 Rs.66,485 Rs.40,364 IRR 5.49% 6.71% 6.96% BCR 1.022% 1.198% 1.41% NPV Rs.26,817 Rs. 1,64,859 Rs.2,55,067
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7 6 5 4 3 2 1 0 10yrs 20yrs 30yrs IRR BCR
3. KOTAK MONEY BACK PLAN: About The Plan: The Kotak Money Back Plan (KMBP) not only covers the policy holders life, but also assures him/ her with a certain percent of the sum assured as cash payment at regular intervals of every 5 years. It is a savings plan with the added advantage of life cover and regular cash inflow. This is a participating plan (with profits). On maturity, one would receive the sum of the survival benefit, guaranteed addition and bonus addition. In the unfortunate event of the death during the term of plan, the beneficiary would receive the death benefit. The death benefit increases by 7% of the sum assured each year. AGE REQUIREMENTS: 18-60 years TERM OF THE POLICY: 15,20 and 25 years MODE OF PAYMENT: quarterly, half yearly and yearly. Ilustration: PART A: The following results were obtained for a 23 year policy holder with a 20 year term and a sum assured of Rs. 1,00,000. ENTRY AGE 23yrs 25yrs 40yrs MATURITY PREMIUM Rs. 1,30,700 Rs. 1,28,900 Rs. 1,40,000 Rs.6,990 Rs.7,330 Rs.7,670 IRR 4.957% 4.05% 4.12% BCR 0.56% 0.53% 0.55% NPV Rs.-3,78,356 Rs.-42,751 Rs.-42,804
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PARTB FOR DIFFERENT TERMS: The results obtained for 20 yr term sum assured of Rs. 1,00,000 is as follows: TERM 15yrs 20yrs 25yrs MATURITY Rs. 1,09,000 Rs. 1,30,700 Rs. 1,80,600 PREMIUM Rs.8,810 Rs.6,990 Rs.5,820 IRR 2.431% 4.957% 7.493% BCR 0.573% 0.565% 0.649% NPV Rs.-39,019 Rs.-37,836 Rs.-21,139
4. KOTAK CHILD ADVANTAGE PLAN: About The Plan : The Kotak Child Advantage Plan (KCAP) is an investment plan designed to meet a child's future financial needs. The plan is a participating plan. On maturity, you would receive the sum assured plus the bonus addition. In the event of the unfortunate death of the insured during the term of the plan, the following would become payable. ? If the policy has been in force fro 5 years or if the life insured is atleast 18 yrs old, the beneficiary will receive either the sum assured or accumulation account whichever is higher, as on the date of death. ? If the death occurs within 5 yrs from commencement of policy and if the insured is less than 18 years old, the death benefit would be either the total of all premiums paid so far or the surrender value at that time, whichever if higher. AGE REQUIERMENTS: 0-17 yrs TERM OF THE POLICY: 10-30yrs MODE OF PAYMENT: quarterly, half yearly and yearly
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Illustration: PART A SUM ASSURED: Rs.5,00,000 ENTRY AGE lyr 3yr 5yr PARTB FOR DIFFERENT TERMS: ENTRY AGE 5 yrs 5 yrs TERM 12 yrs 15 yrs MATURITY PREMIUM IRR RS.6,89,400 Rs.7,48,000 Rs.41,160 Rs.31,857 5.89% 6.116% BCR 1.05% 1.08% NPV Rs.2,30,336 Rs.4,36,685 TERM 19 yrs 17 yrs 18 yrs MATURITY PREMIUM IRR Rs.8,44,300 Rs. 7,94,300 Rs.8,18,200 Rs. 23,726 Rs. 27,288 Rs. 25,388 BCR NPV Rs.9,04,667 Rs.6,73,160 Rs.3,43,400
6.547 % 1.16% 6.412 % 1.12% 6.466 % 1.14%
5. KOTAK RETIREMENT PLAN (WITH AND WITHOUT COVER) About The Plan: The Kotak Retirement Income Plan (KRIP) is a savings plan designed to meet one's post retirement needs. The kotak retirement income plan is a participating plan. The plan comes in 2 forms ? With cover ? Without cover
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ILLUSTRATION: PART A : WITH COVER DIFFERENT ENTRY AGES The returns are calculated for a 25 year term sum assured of Rs. 10,00,000. ENTRY AGE 30yrs 35yrs 40yrs PARTB DIFFERENT TERMS AGE; 30 yrs SUM ASSURED: Rs.10,00,000 TERM 15 yrs 20 yrs 25 yrs MATURITY Rs.15,26,300 Rs. 17,86,300 Rs.21,13,100 PREMIUM Rs.57,515 Rs.40,591 Rs.30,691 IRR 7.71% 7.68% 7.62% BCR 1.22% 1.33% 1.44% NPV Rs. 1,3 7,145 Rs. 1.67,590 Rs. 1.90,806 MATURITY PREMIUM Rs.21,13,100 Rs.30,691 Rs.21,34,200 Rs.31,369 Rs.21,59,000 Rs.32,521 IRR 7.62% 7.50% 7,36% BCR 1.44% 1.42% 1.38% NPV Rs. 1,90,806 Rs. 1,87,474 Rs.1,78,554
WITHOUT COVER PART A DIFFERENT ENTRY AGES TERM : 25yrs ENTRY AGE 30 yrs 40 yrs MATURITY PREMIUM Rs.20,91,000 Rs.29,193 Rs.20,91,000 Rs.29,193 IRR 7.88% 7.88% BCR 1.49% 0.023% NPV Rs.2,05,399 Rs.2,05,399
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DIFFERENT BENEFITS AT DIFFERENT AGES OF DEATH: AGE: 30 yrs TERM: 25 yrs SUM ASSURED: Rs. 10,00,000 DEATH AGE 35 yrs 40 yrs 45 yrs DEATH BENEFIT Rs. 1,63,400 Rs.4,10,500 Rs.7,73,600 PREMIUM Rs. 1,45,965 Rs.2,91,930 Rs.4,37,895 BCR 0.023% 0.003% 0.036% NPV Rs.-20,09,028 Rs.-39,93,364 Rs.-59,43,918
6. KOTAK SAFE INVETSMENT PLAN: About The Plan: Kotak Safe Investment Plan (KSIP) is an investment cum insurance plan, where we invest your money in capital markets and you get the market-linked returns. All gains from the markets are yours to take and in case the markets do not perform well, you would still get back the guaranteed Sum Assured This plan is an opportunity to invest in the capital markets and make market linked returns. The plan assures you of a minimum guaranteed amount in case of death or on maturity. Thus, while it invests your money in capital markets, and gives you an opportunity to make high returns, it protects your downside. What's more, these returns are tax-free to you. AGE 25 yrs 35 yrs 45 yrs TERM 15 yrs 15 yrs 15 yrs SUM MATURITY PREMIUM Rs.29,439 Rs.29,685 Rs.28,963 IRR 2.96 % 9.69 % 9.30 % BCR 1.44 % 1.43 % 1.22 % NPV Rs.1,35,212 Rs.1,33,861 Rs.50,315
ASSURED @10% Rs.5,00,000 Rs.9,16,400 Rs.5,00,000 Rs.9,18,900 Rs.5,00,000 Rs. 4,46,200
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7. KOTAK CAPITAL MULTIPLIER PLAN About The Plan : A plan that multiplies your capital while covering your life. The Kotak Capital Multiplier Plan (KCMP) creates wealth, at the same time multiplies your capital, and retains your money for a time when you need it the most. Additionally, this plan also gives you the flexibility to use your money in regular withdrawals as and when you want it. The Kotak Capital Multiplier Plan that not only covers your life, but also builds a wealth-base for your use in the future. The Kotak Capital Multiplier Plan is a participating plan that is built in such a way that it allows your money to multiply, and gives you the flexibility of using this money the way you need it, in regular withdrawals. This is an endowment plan, which is very flexible, and has a lot of other in-built benefits. AGE 25 yrs 35 yrs 45 yrs TERM 25 yrs 15 yrs 5 yrs SUM MATURITY PREMIUM IRR 7.04 % 6.38 % 3.27 % BCR 1.33% 1.10% 0.966 % NPV Rs76,222 Rs.35,818 Rs-15,821
ASSURED Rs.5,00,000 Rs.10,34,800 Rs.16,250 Rs.5,00,000 Rs.7,54,300 Rs.500,000 Rs.5,76,500 Rs.31,503 Rs. 1,08,061
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45
COMPARATIVE ANALYSIS
Out of 7 policies offered by Kotak only 3 are compared with its competitors such as LIC and ICICIPRU. They are listed as follows:
PLAN TERM
OMKM KOTAK PREFERRED
LIC ANMOL JEEVAN
ICICI PRU FOREVER LIFE
TERM ENDOWMEMENT KOTAK UNIT LINK
ENDOWMENT
SAVE'N' PROTECT LIFE LINK
ENDOWMENT ASSURANCE KOTAK SAFE BIMA PLUS INVESTMENT
ANALYSING THE POLICES OF LIFE INSURANCE CORPORATION OF INDIA ALONE
1. TERM PLAN ABOUT THE PRODUCT: ANMOL JEEVAN This plan of assurance is designed to meet the needs of those who are initially unable to pay the larger premium required for a whole life or endowment assurance policy, but hope to be able to pay for such policy in the near future. This plan would be found useful also in cases where it is desired to leave the final decision as to the plan to a later date when, perhaps a better choice could be made.
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AGE REQUIREMENTS: 18-50 yrs TERM OF THE POLICY: 10-20 yrs MODE OF PAYMENT: Quarterly, half yearly and annually Illustration AGE: 25 yrs TERM: 30 yrs MODE OF PAYMENT: Yearly SUM ASSURED: Rs.10,00,000 ANNUAL PREMIUM: Rs.8,194 CASH INFLOW AT MATURITY : Premium paid so far CASH INFLOW AT DEATH: Rs.10,00,000 IRR= 11.49% DEATH AGE 50 yrs 45 yrs 42 yrs SUM ASSURED Rs.10,00,000 Rs.10,00,000 Rs. 10,00,000 PREMIUM Rs.2,04,850 Rs.l,63,880 Rs.1,39,298 BCR 0.102% 0.18% 0.28% NPV Rs.-25,92,156 Rs.-16,65,273 Rs.-l 1,34,446
2. ENDOWMENT PLAN About The Plan: ENDOWMENT ASSURANCE PLAN This policy not only makes provisions for the family of the life assured in the event of his early death but also assures a lump sum at a desired date. It is similar to the kotak endowment plan. AGE REQUIREMENTS: 12-65 yrs TERM OF THE POLICY: 5-55 yrs MODE OF PAYMENT: Quarterly, Half yearly and Annually
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ILLUSTRATION PART A AGE: 35 yrs TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ANNUAL PREMIUM: Rs.60,000 MATURITY BENEFIT AT AGE OF 60 yrs: Rs.35,00,000 IRR: 6.47% BCR: 1.22% NPV: Rs.1,86,860 DEATH AGE 47 yrs 50 yrs 52 yrs PARTB FOR DIFFERENT AGE ENTRY TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ENTRY AGE 20 yrs 30 yrs 40 yrs MATURITY PREMIUM IRR 6.41% 6.38% 6.35% BCR 1.21% 1.20% 1.2% NPV Rs 1,70,142 Rs. 1,71,454 Rsl,72,766 PREMIUM Rs.7,20,000 Rs.9,00,000 Rs. 10,20,000 BCR 0.13% 0.08% 0.06% NPV Rs.-55,45,860 Rs.-86,20,500 Rs.-l ,08,45,480
Rs.33,00,000 Rs57,000 Rs.34,00,000 Rs.59,000 Rs.35,00,000 Rs.61,000
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PARTC FOR DIFFERENT TERMS AGE: 35 yrs TERM 10 yrs 20 yrs 30 yrs MATURITY PREMIUM Rs.24,00,000 Rs. 1,82,000 Rs.33,00,000 Rs85,000 Rs.35,00,000 Rs.52,000 IRR % % % BCR 1.05% 1.17% 1.01% NPV Rs.68,196 Rs.l, 84,830 Rs.9,104
3.UNIT LINKED PLAN About The Plan: BIMA PLUS It is a Unit Linked Insurance plan, which has the backing of LIC's vast experience in the investment sector. The corpus, over Rs.4.19 crore, has a distinct identity and is managed by the Investment department of LIC of India at Mumbai. It is invested in NIFTY stocks and Government securities. NAV (Net Asset Value) over the past six months ranges between Rs.13 and Rs.14, despite a low interest regime. It is declared every Saturday, and the new rates will be applicable from the following Monday.
ANALYSING THE POLICIES OF ICICI PRUDENTIAL ALONE
1.TERM PLAN ILLUSTRATION: AGE: 25 yrs TERM: 30 Years MODE OF PAYMENT: yearly SUM ASSURED: Rs.10,00,000 ANNUAL PREMIUM: Rs.45,000 CASH INFLOW AT MATURITY: Rs.20,00,000 CASH INFLOW AT DEATH: Rs.10,00,000 IRR = 2.62%
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DEATH AGE 50yrs 45 yrs 42yrs
PREMIUM Rs.45,000 Rs.45,000 Rs.45,000
IRR 4.52% 7.77% 11.01%
BCR 0.47% 0.67% 1.4%
NPV Rs.-3,39,230 Rs.-1,83,790 Rs.-l,58,165
2.ENDOWMENT PLAN: About The Plan: SAVE ‘N’ PROTECT This is an ideal plan for those who want to accumulate funds on a regular basis while enjoying insurance protection. It is a fixed term policy that combines savings with life cover. It is a fixed term plan in which you pay premia regularly during the term. The plan provides with a guaranteed addition (GA) of 3.5% compounded annually for the first 4 years of the plan and thereafter bonuses (Vested bonuses) will be applicable as per the performance. Once the policy matures, i.e. at the end of the term, one can get the full sum assured and guaranteed additions as well as the vested bonuses. In addition, one will get an extended term insurance cover for five years after the maturity date of the policy for 50% of the sum assured. One will not have to pay any premia for the same. Illustration: PART A AGE:35Yrs TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ANNUAL PREMIUM: Rs.60,000 MATURITY BENEFIT AT THE AGE OF 60 yrs: Rs.25,00,000 IRR= 4%
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DEATH AGE 47yrs 50Yrs 52Yrs PARTB
DEATH BENEFIT Rs.25,00,000 Rs. 15,00,000 Rs. 17,00,000
PREMIUM Rs7,20,000 Rs.9,00,000 Rs. 10,20,000
IRR 10.33% 13.4% 10.33%
BCR 0.22% 0.08% 0.06%
NPV Rs49,88,860 Rs.86,20,500 Rs-1,07,58,280
DIFFERENT ENTRY AGES TERM: 25 yrs SUM ASSURED: Rs. 15,00,000 ENTRY AGE 20yrs 30Yrs 40Yrs 50 yrs PARTC DIFFERENT TERMS AGE: 35 yrs SUM ASSURED : 15,00,000 TERM 15 yrs 20 Yrs 30 Yrs MATURITY BENEFIT Rs.20,00,000 Rs. 25,00,000 Rs. 30,00,000 PREMIUM Rs 80,000 Rs 75,000 Rs 67,000 IRR 6.92 % 5.09 % 2.67 % BCR 1.16% 1.01 % 0.67 % NPV Rs 1,31,600 Rs 7,850 Rs-3,36,991 MATURITY BENEFIT Rs.25,00,000 Rs. 25,00,000 Rs. 25,00,000 Rs. 25,00,000 PREMIUM Rs 60,000 Rs 67,500 Rs 75,000 Rs. 82,500 IRR 4% 3.14 % 2.35 % 1.61 % BCR 0.87 % 0.78 % 0.70 % 0.64 % NPV Rs-1,08,140 Rs-2,13,845 Rs-3,19,550 Rs -4,21,542.
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3. UNIT LINKED PLAN About The Plan : LIFE LINK PLAN LifeLink allows one to enjoy both the benefits! A unique plan that combines the security of a life insurance policy with the opportunity of enjoying high returns on ones investments. Without the market risks compromising the protection of ones family! LifeLink ? Provides death benefit security to the family. ? brings additional income on funds that might have languished in our savings account. ? enables us to enjoy the upside of market returns, while protecting our family from the downsides. Illustration AGE 25 yrs 45 yrs TERM 15 yrs 15 yrs SUM ASSURED Rs.5,00,000 Rs.3,00,000 MATURITY @ 10 % Rs. 10,00,000 Rs.5,00,000 PREMIUM Rs.40,000 Rs.20,000 IRR 6.92 % 6.92 % BCR 1.16% 1.16% NPV Rs 65,800 Rs 32,900
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COMPARATIVE ANALYSIS
Endowment plan Sum assured amount – 15,00,000 Term 25 years
Comparison of IRR and BCR of OMKM with, LIC and ICICI prudential life insurance companies.
Company OMKM LIC ICICI Prudential life insurance Internal Rate of Return 6.89 6.47 4 Benefit Cost Ratio 1.301 1.22 0.12
INTERPRETATION
Since both the IRR and BCR of OMKM’S are greater than LIC and ICICI PRUDENTIAL Life Insurance it suggest that OMKM has better and high returns on endowment plan than that of LIC and ICICI Prudential life insurance company.
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Endowment plan Sum assured amount 15,00,000
Comparison of IRR and BCR at different terms of OMKM with ICICI Prudential life insurance
Term 20 30 IRR 6.71 6.96 OMKM BCR 1.198 1.41 ICICI Prudential Life Insurance IRR BCR 5.09 1.01 2.67 0.67
INTERPERTATION
From the above analysis we are coming to know that OMKM’S internal rate of return and Benefit Cost Ratio are higher than that of ICICI Prudential life insurance company. Since OMKM products are giving higher returns.
Endowment plan
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Sum assured amount 15,00,000 Term 25 years
Comparison of IRR and BCR at different ages of entry of OMKM with LIC and ICICI Prudential Life Insurance company.
Entry age IRR 20 30 40 7.03 6.97 6.72 OMKM BCR 1.33 1.31 1.26 IRR 6.41 6.38 6.35 LIC BCR 1.21 1.2 1.2 IRR 4 3.14 2.35 ICICI BCR 0.87 0.78 0.7
INTERPERTATION
Since both the Internal Rate of Return and Benefit Cost Ratio of OMKM is greater than LIC and ICICI Prudential Life insurance company at different ages of entry. Which suggest that OMKM product is better than LIC and ICICI Prudential Life insurance.
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Comparison of Internal Rate of Return and Benefit Cost Ratio of different insurance products of OMKM with ICICI Prudential Life Insurance company.
Insurance Product s IRR Endowment plan Term – 25 years Sum assured Rs. 15,00,000 Unit link plan Term 15 years Sum assured Rs. 5,00,000 9.96 1.44 6.92 1.16 6.89 1.30 4 0.12 OMKM BCR IRR ICICI BCR
INTERPERTATION
From the above analysis we are coming to know that the calculated values Internal Rate of Return and Benefit Cost Ratio of endowment plan of OMKM is higher than that of ICICI . The calculated values Internal Rate of Return and Benefit Cost Ratio of OMKM’S unit linked plan is higher that of ICICI Prudential life insurance. The above calculations are shows that OMKM’S products are far better than the ICICI Prudential Life insurance.
ANALYSIS
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SWOT ANALYSIS OF ICICI PRUDENTIAL STRENGTH Joint ventures with prudential life insurance, UK is one of the greatest strengths of ICICI. THREATS Many Indian majors like Reliance & other foreign majors like Templeton are planning to set their foot into the insurance business. ICICI has sound They weaker a The market share is Substitutes are financial resources, weaker have a Rs.l, 35,000 crore& more powerful than which will help distribution channel a share in it would insurance products. them to grow the when compared to be highly profitable business effectively their arc rival LIC & smoothly. ICICI has good This will become Entering the urban This is mainly due contacts with retail its major weakness area may prove to the poor returns investors & as India is a costlier, but it has being offered by institutions, as they rural economy & to be considered the insurance are already present more than 60% as capital companies. in the banking & of its population investment, which institution credit lives in rural areas. is required to grow business in the long run. ICICI has attractive It has a got a high With the increase in customer base& opening to take the competing rivals Prudential is the market share from the companies have market leader in the the insurance major started giving many insurance sector. LIC. discounts, freebies etc. that has an adverse effect on the profits. It has superior It has a good scope intellectual components to its key rivals. to grow rapidly as people have started to view life insurance as a necessity. WEAKNESS They have a very narrow product line when compared to LIC. OPPORTUNITIES ICICI's can use the existing corporate skills or technological know- how to establish in the Insurance business
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SWOT ANALYSIS OF LIC STRENGTH As the first life insurance company in India, LIC has the first mover advantage. WEAKNESS LIC lacks in innovation. OPPORTUNITIES By 2040,60% of the population will be above 60 years of age, out of which only 6% are covered under pension scheme at present IT can be used to cut cost effectively & improve sales. THREATS The likely entry of foreign majors like Templeton & Indian majors like Reliance etc., can pose a very serious\ threat to LIC in the future.
It has got very sound resources for it to grow in the business
They charge a very high premium & this might lead to the reduction of customer base in future. The returns by LIC is very low; the returns are only when unexpected things occur.
The quality of service if not improved would be one of the reasons for the erosion.
For being in the field for around 43 years, it insulated from the competitive pressure. LIC has such a big image among the public that it would cost the competitors very heavily, both money & time. They are spread almost allover.
Insurance accounts for only 2% of global insurance, which is very less & this can be exploited. It has an opportunity to invest in infrastructure area, which the country is badly in need of.
These might have the insurance to contribute just 10% to the Gross Domestic Savings.
They do not upgrade their policies, in fact the premiums are charged on the basis of mortality rate table, calculated in 1975.
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SWOT ANALYSIS OF OM KOTAK MAHINDRA
STRENGTH Allied activities support. WEAKNESS Low Brand Awareness Requires Advertising Centralized Operations OPPORTUNITIES Kotak Bank. THREATS LIC and other major Private Players in the Market. Lack of Trust in the Private Insurance Companies.
Prudent fund managers.
Awareness of Insurance as an Industry i.e. a Boom In the Insurance Sector. Government's new rules regarding the Pension Segment
Wide range of products.
IT Support Insufficient
Mutual Funds and other Short-term Investment Option against Kotak products such as KSIP and KCMP Kotak Savings Investment Plan and Kotak Capital Multiplier Plan. Too many Private Players into the market. Neglecting the Lower Middle Class Segment. \
Nearly 0 % NPA. Steady Growth Smart in understanding the business and thereby formulating good business strategies Company projects better returns in comparison with other insurance companies. Brand name
Lack of penetration The Increase in the into the market. Per Capita Income of the Customers Location. Lack of good customer base Insurance as a Tax Saving Option Insurance as a Savings Option.
Misalignment certain areas.
in
Bank assurance is lacking.
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ANALYSIS - 2
VALUE CHAIN FOR LIC
Purchased Supplies & the ready availability of Policies /Product
Distribution of the Product 1. Direct Selling 2. Agents Along with Clever Advertising &. marketing
Service
Profit Margin
? The Suppliers will be the Govt., RBI, Banks & the supplies will be application document.
VALUE CHAIN FOR ICICI
Purchased Supplies & the ready availability of Policies /Product Primary Activities of Cost
Distribution of the Product 1. Direct Selling 2. Agents 3. Brokers 4. Banks 5. Post Offices Along with Clever Advertising & marketing
Service
Profit Margin For the company & the benefits of the customers
Policies R&D & Technology Secondary Activities of Cost HRM General Administration
? Suppliers for ICICI are the promoter's tie up partners banks customers through security
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? R &D Technology: Activities costs and assets relating to product R&D , investments & development of computerized support system. ? HRM: Activities costs and assets associated with the recruitment, hiring training, development & compensation, development of knowledge based skills & other competencies. ? General Administration: Activities relating to general management accounting & finance, legal & regulatory affairs 7 forming strategic alliance & partners' safety, security and other overhead functions
VALUE CHAIN FOR OMKM
Distribution of the Product Direct Selling Agents (Individual and Corporate). Brokers Banks (Dena & Kotak) General Administration Network Marketing. Along with Conservative Advertising & marketing
The ready availability of Policies / Product
Service
Profit Margin For the company & the benefits of the customers
Primary Activities of Cost Policies R&D & Technology Secondary Activities of Cost HRM General Administration
Company follows a conservative approach towards advertisements and marketing with a view to reduce the general administrative expenses, which is normally met with the premium collected from public. Hence company will have more investable money and so will be the returns.
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? R &D Technology: Activities costs and assets relating to product R&D , investments & development of computerized support system. o HRM: Activities costs and assets associated with the recruitment, hiring training, development & compensation, development of knowledge based skills & other competencies. o General Administration: Activities relating to general management accounting & finance, legal & regulatory affairs 7 forming strategic alliance & partners' safety, security and other overhead functions KSFS /COMPANY High Returns Courteous customer service, Breadth of the product line A good distribution channel Clever Advertising, Having offices in all major areas of the country, Strong Financial resources Total Average LIC 6 5 8 8 6 9 8 50 -72 ICICI 5 6 6 5 8 6 6 42 -60 HDFC 5 6 5 3 7 4 4 34 -49 SBI 5 6 3 4 6 6 5 35 -50 TATA -AIG 5 6 1 2 6 3 4 27 -39
This table clearly shows LIC is ahead of bunch but it is also evident that ICICI is not far away in the respect of all KSF'S.
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Analysis – 3 PREMIUM ANALYSIS L1C Vs ICICI: Life = Male Age = 30 years Term & Mode = 20 Years & Yearly Sum Assured = Rs. 2,00,000/SAVE 'N' ENDOWMENT DIFFERENCE PROTECT OF 1 2 3 a. Sum Assured b. Bonus & all Yearly Premium with AB & DB Total premium for 20 years Maturity Benefits 200,000 200,000 282,343 284,000 (4.5% annually (Rs. 71/-per compounded 4 5 6 7 for 20 years) Extended term cover for 5 Yes years On Death with in the period On Death due to normal accident If death occurs while traveling in a public transport system via. 8 9 Train, bus. Disability benefits Rider facility -Critical Illness for Rs. 2.55/Yes Yes Yes No. 200,000 200,000 400,000 1000/-x 200 x 20 years) No 200,000 200,000 Nil + 400,000 +100,000/ -1,657/ICICI PRU 9,138 182,760 TABLE -14 OFUC 9,792 195,840 - 654/-13,080/-
+ 200,000
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10 Rider facility -Major surgical benefits for Rs. 6.11/11 Rider facility -Level term
Yes Yes
No No.
+ 200,000/+ 200,000/-
benefits for Rs. 2.82/12 Premium wavier Yes Yes 13 Loan facility Yes Yes BONUS CALCULATED ON MINIMUM GUARANTEED ADDITIONS BASIS. THIS MAY VARY TO HIGHER RANGE DEPENDING UPON THE PERFORMANCE OF THE COMPANY CASH BACK MONEY BACK OF ICICIPRU 1 2 3 Yearly Premium with AB & DB Total premium for 20 years Maturity Benefits a. Sum Assured 13,154 263,080 20,000 30,000 40,000 50,000 100,000 240,000 238,225 (4.0% annually compounded for 4 5 Extended term cover for 5 years On Death with in the period 20 years) No 200,000 POLICY OF LIC -TABLE 75-20 12,760 255,200 40,000 40,000 40,000 80,000 200,000 268,000 (Rs. 67/-per 1000/-x 200 x 20 years) No 200,000 - 40,000/. +29,775/+ 394/+ 7,880/DlFFERENCE
b. Bonus & all
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6 7
On Death due to normal accident If death occurs while traveling in a public transport system i.e. train & bus. Disability benefits Rider facility -Critical Illness for Rs. 2.55/Rider facility -Major surgical benefits for Rs. 6.11/Ridcr facility -Level term
200,000 400,000
200,000 Nil + 400,000/-
8 9 10 11
Yes Yes Yes Yes
Yes No. No. No.
+ 200,000/+ 200,000/+ 200,000/-
benefits for Rs. 2.82/12 Premium wavier Yes Yes 13 Loan facility No No BONUS CALCULATED ON MINIMUM GUARANTEED ADDITIONS BASIS. THIS MAY VARY TO HIGHER RANGE DEPENDING UPON THE PERFORMANCE OF THE COMPANY
Its clear from the above table that ICICI provides lesser return than LIC, which is not healthy for ICICI. ICICI should provide better return than LIC in order to grow in future years. It should be able to provide at least .5% return higher than LIC.
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ANALYSIS-4 COMPARATIVE PLAN ANAYLSIS - ENDOWMENT PLAN
SAVE 'N* PROTECT (ICICI PRU LIFE) Suitability • It is an ideal plan for persons who wish to accumulate savings on a regular basis, while having insurance protection. Salient Features • It is basically an Endowment KOTAK ENDOWMENT (OMKM) Suitability • who wish to invest in a savings instrument all the while having life insurance cover. Salient Features • Assurance Plan with deferred participation in profits and extended life cover. • It is a fixed term plan • Premiums cease at death or on combination of both savings & life cover. expiry of term whichever is earlier • The premiums paid are deposited This amount is in one's personal Accumulation Account. invested in financial instruments as per the IRDA regulations after deducting administrative expenses charges. • The company will annually declare a return on the balance in Accumulation Account based on investment performance, but with a view to reducing the variability from year to year. and risk cover It is an endowment plan where in amounts are payable either on maturity or death occuring within the term. PLAN
The plan is suitable for people
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• •
Bonus is payable under this scheme Loan can be availed under the policy provided the policy is kept in force for 3 years, however the amount depends on the balance in life assured's accumulation account. The interest rate is determined based on the prevailing interest rates.
•
In the event of default in premium payment, life is still covered as premium will be drawn from Accumulation account. For this minimum 3 years' premium should have been paid. Each depends on availability funds with
Benefits • 1. On death occurring within the term. Full SA plus GA & vested bonuses are payable On survival On survival 1. Full SA plus GA plus vested bonuses during the full term 2. Additionally, one gets a free life cover for 5 years, from date of maturity, for 50% of original sum assured. No Evidence of health is required and no premium need to be paid
Accumulation account. Benefits On Maturity • Sum Assured + Bonus Addition is payable. On Death • During the Term of the plan, Nominee / Beneficiary shall receive the Sum Assured plus the excess, if any, of Accumulation Account over the Sum Assured.
for
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this. Riders available • a. b. c. Accident & disability benefit Waiver of future premiums an 10% of SA each year for 10 years. Additional SA, if death is due to accident • in train or bus Critical illness benefit conditions are covered. On claim, full SA + and policy admission of a GA + VB is paid 9 medical while traveling as a passenger
contract terminates with all riders ceased. Claim under this rider is not admissible during first six months of the policy. • • 1. 2. 3. Major Surgical Assistance 43 surgical procedures are covered Major Surgical Procedure-50% of S A Intermediate Surgical Procedure - 30% of SA Minor Surgical Procedure - 20% of SA Claims can be made for more than one surgical procedure, subject to a maximum of 50% of SA, claim under this rider is not allowed
during first 6 months of the policy
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•
Level Term Insurance
Additional cover in the event of death happening within the term. • When one avails extend life cover, no riders are available.
Other Conditions • • • • • • Minimum age 15 Maximum age 60 Maximum Maturity age 70 Minimum SA Rs.20,000/Minimum Term 10 years Loans can be availed under the policy and loan interest is chargeable.
Additional Riders Value-adds: Value-adds are additional benefits which can be availed of by paying nominal extra premiums but only at the time of taking the plan. • Term Cover: In the event of insured dying during the term of this benefit, Beneficiary / Nominee would receive an additional Death Benefit amount over and above the benefit from the Plan. The maximum Term Cover benefit one can avail of is double the Sum Assured. • Accidental Death Benefit: In
case, life assured dies as a result of an accident during the term of this benefit, Beneficiary / Nominee Assured. The will receive the Accidental Death Benefit Sum maximum Accidental Death Benefit one can avail of is equal to the Sum
Assured (subject to a limit of Rs. 10 lakhs).
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Other Conditions • • • • • Minimum Age at entry : 18 years. Maximum Age at entry: 65 years. Maximum Maturity age : 75 years. Term can be availed for 10-30 years Minimum premium 1. 2. 3. ENDOWMENT ASSURANCE PLAN (LIC) Suitability • This is the most popular plan among all insurance plans. It provides family protection as well as old age provision at an affordable premium. This policy is suitable for all categories of people. Salient Features • Sum assured is payable either on survival to the term or on death occurring within the term. • There is a With-Profit and a Without-Profit plan under this policy Salient Features • It is an endowment plan where in amounts are payable either on maturity or death occurring within the term. • Premiums cease at death or on expiry of term whichever is earlier KOTAK (OMKM) Suitability • The plan is .suitable for people who wish to invest in a savings instrument all the while having life insurance cover. Quarterly - Rs.540 Half-Yearly-Rs. 1035 Yearly - Rs. 2000 ENDOWMENT PLAN
•
Bonus for the full term is payable •
The premiums paid are deposited in
on the date of maturity or in the event of one's personal Accumulation Account.
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death, whichever is earlier. •
This amount is invested in financial instruments as per the IRDA regulations
Premiums cease on death or on after deducting administrative expenses and risk cover charges. The company will annually declare a based on investment
expiry of term whichever is earlier. •
Premiums can be limited to •
shorter term or can be paid as single return on the balance in Accumulation premium. Account performance, but with a view to reducing the variability from year to year. • • Bonus is payable under this scheme Loan can be availed under the policy
provided the policy is kept in force for 3 years, however the amount depends on the balance in life assured's accumulation account. The interest rate is determined based on the prevailing interest rates. • will In the event of default in premium be drawn from Accumulation
payment, life is still covered as premium account. For this minimum 3 years premium should have been paid. Each depends on availability funds with Accumulation account.
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Benefits On Survival • Basic Sum Assured + bonus Basic under the With-profit plan. • plan.
Benefits On Maturity • Sum Assured + Bonus Addition is payable.
Sum Assured only under Without-Proflt On Death On Death: • Basic Sum Assured + bonus Basic under the With-profit plan. • plan. Other Conditions • Minimum Sum Assured : 1. upto 60. 2. Rs 25,000 for entry age • premium must Term Cover: In the event of / Nominee Death insured dying during the term of this • • • policy. Minimum be benefit, Beneficiary Rs.800 per annum Minimum age at entry : 12 years. would receive an additional between 61-65. • During the Term of the plan, excess, if Nominee / Beneficiary shall receive the Sum Assured plus the any, Sum Assured. Additional Riders Value-adds: Value-adds are additional benefits which can be availed of by Rs 10,000 for entry age paying nominal extra premiums but only at the time of taking the plan. of Accumulation Account over the
Sum Assured only under Without-Proflt
Benefit amount over and above the
Maximum age at entry : 65 years benefit from the Plan. The maximum double the Sum Assured. • Accidental Death Benefit: In case, life assured dies as a result
normally but 60 years for single premium Term Cover benefit one can avail of is
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of an accident during the term of this benefit, Beneficiary / Nominee will receive the Accidental Death Benefit Sum Assured. The maximum Accidental Death Benefit one can avail of is equal to the Sum Assured (subject to a limit of Rs. 10 lakhs). Other Conditions • • • years. • years • 1. 2. 3. Minimum premium Quarterly - Rs.540 Half-Yearly-Rs. 1035 Yearly - Rs. 2000 Term can be availed for 10-30 Minimum Age at entry : 18 years. Maximum Age at entry: 65 years. Maximum Maturity age : 75
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TERM PLAN ANALYSIS ICICI (ICICIPRU) Suitability Maximum thrust is on family PRU LIFE GUARD KOTAK PREFERRED TERM PLAN(OMKM) Suitability Kotak Preferred Term Plan is a
protection. This policy is suitable for pure risk plan, designed to provide nonpeople who wish to provide large sums smokers with reduced premium rates for a for the benefit of their family at an Sum Assured of Rs.10 lakhs and above. economical cost. Salient Features Its is a pure risk or term insurance plan. variants: 1. 2. ICICI ICICI Pru Pru LifeGuard LifeGuard Level Term Assurance Level Term Assurance with Return of Premium 3. ICICI Pru LifeGuard Single Premium full sum assured is payable on death. other Salient Features I
It is a low-cost insurance plan. One can choose between a regular
The policy is offered in three premium payment option or a single premium payment plan. For a regular premium payment plan, one can pay the premiums either through quarterly, half yearly or annual installments. The plan can be converted to any plan offered by OM Kotak Mahindra Life Insurance Co. Ltd except for another term plan, if there are at least For delayed premium payment a I
Under each of the above variants, 5 -years before the cover expires. On survival to maturity nothing is grace period of 30 days is allowed I from payable except under ICICI Pru Life the due-date when the premium I Guard Level Term Assurance with Return became payable. of Premium, where in premiums paid are In case of the single premium returned without any interest.
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Riders enhance the benefits under option one can surrender the policy in the policy, which can be availed by case of a financial emergency. paying marginal additional premium. One The premiums paid under the plan can avail Accident and Disability rider will qualify for rebate under Sec.88 of the under all the above variants except Income Tax Act, 1961 and the returns are ICI.C1 Pru LifeGuard Single Premium fully tax exempt under Sec 10 (lb D). Premiums paid for Critical Illness Benefit All the premiums paid under the qualify for rebate under Sec 80D. policy are eligible for tax rebate under section 88 of IT Act. Value-adds are the additional benefits which can be availed by paying nominal additional premium at the time of taking policy, subject to aggregate premium on all value-adds not exceeding 30% of the basic Kotak Term Plan premium. The value adds available under the plan are: 1. 2. 3. Benefits On Survival On survival to maturity nothing is payable Return interest. On Death full sum assured is payable on death. except of under ICICI where Accidental Death Benefit Permanent Disability Benefit Critical Illness Benefit
Benefits On maturity This being a pure risk cover plan, Pru there are no maturity benefits. in Riders Accidental Death Benefit: basic sum assured is provided to the beneficiary in the event of accidental The beneficiary would receive
LifeGuard Level Term Assurance with On Death Premium, premiums paid are returned without any the sum assured.
Under each of the above variants, An additional amount over and above the
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death of the life insured. The maximum cover under the rider is limited to the basic sum assured subject to a maximum limit of Rs. 10 lakhs. Permanent Disability Benefit: In case the insured is permanently disabled due to an accident the amount payable under this benefit would be paid out as an annuity. The maximum cover being limited to basic sum assured subject to a maximum of Rs. 10 lakh. Critical Illness Benefit: This rider provides financial support in case of a medical emergency. On first occurrence of critical illness during the policy term, a portion of the sum assured Other conditions Age at entry: 18 years Maximum age at entry: 50 years. Maximum age at exit: 65 Minimum term: 5 years Maximum term : 25 years( For ICICI Term Pru LifeGuard with Level Assurance & ICICI Pru LifeGuard Level Assurance Return of Premium) Maximum term : 15 years(For ICICI Pru LifeGuard Single Premium) Minimum premium - Rs. 2400 will be paid out to the policyholder. Other Conditions Minimum age : 25 years Maximum age : 60 years Policy term : 10 -30 years for regular premium plan 5- 30 years for single Term premium plan
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per annum. ( For ICICI Pru LifeGuard Level Term Assurance & ICICI Pru LifeGuard Level Term Assurance with Return of Premium) Minimum Sum assured : Rs. 2,00,000 (For ICICI Pru LifeGuard Single Premium)
ANMOL JEEVAN PLAN (LIC) Suitability This is a pure risk policy suitable for
KOTAK PREFERRED TERM PLAN (OMKM) Suitability Kotak Preferred Term Plan is a pure
people who wish to provide huge sums for risk plan, designed to provide non-smokers their family at an economical premium. All with reduced premium rates for a Sum males and females with earned income Assured of Rs.10 lakhs and above. (Category I) and females with unearned income and paying tax (Category II) are eligible for this plan. Salient Features The policy being a pure term plan, the sum assured is payable on the death of the, policyholder during the term of the policy. payable. up value. No Surrender Value will be available under this plan. No loan will be granted under this plan. Policyholder has an option to pay premium Yearly, Half-yearly, Quarterly or Salient Features It is a low-cost insurance plan. One can choose between a regular premium payment option or a single premium payment plan, one can pay the yearly or annual installments. The plan can be converted to any other plan offered by
On survival to maturity nothing is premium I payment plan. For a regular The policy will not acquire any paid- premiums either through quarterly, half -
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Single Premium
OM Kotak Mahindra Life Insurance
A grace period of 15 days will Co. Ltd except for another term plan, if be allowed for payment of yearly, half- there are at least 5 -years before the yearly or quarterly premiums. cover expires. delayed premium payment a the premium If death occurs within the grace For
period and before the payment of the grace period of 30 days is allowed from premium then due, the policy will still be the due- date when valid and the Sum Assured paid after became payable. deduction of the said premium as also In case of the single premium unpaid premiums falling due before the option one can surrender the policy in next policy anniversary of the Policy. If case of a financial emergency. the premium is not paid before the The premiums paid under the plan will expiry of the days of grace, the Policy qualify for rebate under Sec.88 of the lapses. Income Tax Act, 1961 and the returns are fully tax exempt under Sec 10 (10 D). Premiums paid for Critical Illness Benefit qualify for rebate under Sec 80D. Value-adds are the additional benefits which can be availed by paying nominal additional premium at the time of taking policy, subject to aggregate premium on all value-adds not The value adds exceeding 30% of the basic Kotak Term Plan premium. 1. 2. 3. available under the plan are: Accidental Death Benefit Permanent Disability Benefit Critical Illness Benefit
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Benefits On Death Full sum assured + loyalty additions jOn Survival Nothing is payable |Benefit illustration for a person aged 30 years. Sum Assured (in Rs) Term in Yearly Premiu Payable (Rs) Single Premiu m (Rs) Amount payable on death during Term of Policy (in 5,00,000 5,00,000 5,00,000 10,00,00 0 10,00,00 0 10,00,00 10 15 20 10 15 20 1,140 1,285 1,528 2,037 2,328 2,813 8,200 12,425 17,400 14,550 22,550 32,100 Rs) 5,00,000 5,00,000 5,00,000 10,00,000 10,00,000 10,00,000
Benefits On maturity This being a pure risk cover plan, there are no maturity benefits. On Death The Riders Accidental Death Benefit: An additional amount over and above the basic sum assured is provided to the beneficiary in the event of accidental death of the life insured. The maximum cover 'under the rider is limited to the ibasic sum assured subject to a I maximum limit of Rs. 10 lakhs. Permanent Disability Benefit: In case the the insured is permanently disabled due to an accident amount payable under this benefit would be paid out as an annuity. The maximum cover being limited to basic sum ;assured subject to a maximum of Rs. 10 lakh. beneficiary would receive the sum assured.
years) m
0 * Conditions apply
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Critical Illness Benefit: This rider provides financial support in case of a medical emergency. On first occurrence of during critical illness the policy term, a portion of the
sum assured will be paid out to the Other Conditions Minimum age at entry : 18 years Maximum age at entry : -50 years Maximum age at maturity : 60 years Policy Term : 10, 15 and 20 years Minimum Sum Assured : Rs.5,00,000 Maximum Sum Assured : Rs.3,00,00,000 policyholder. Other Conditions Minimum age : 25 years Maximum age : 60 years Policy term : 10-30 years for regular premium plan 5- 30 years for single premium plan
UNIT LINKED PLAN ANALYSIS
ICICI PRU LIFE LINK (ICICI PRU KOTAK SAFE INVESTMENT PLAN (OMKM) Suitability Suitability policy is an investment cum
The policy is most suitable for people The
who have an appetite and inclination for endowment insurance plan, and suitable market linked returns at the same time for people who are looking at investment wish that adverse market movement do option with good return and the security not effect their family in unfortunate of the investment. event of their death. Salient Features It is single premium plan wherein Salient Features This is an endowment cum;
death benefit is 105% of the amount invested. investment plan and hence benefits are After deducting initial charges balance payable both on death and on maturity.
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premium is invested in units.
Premiums paid are invested in
On death higher of the value of units capital markets providing the policyholder or 105% of the aggregate of the premium and an opportunity to earn market-linked the top-up single premiums (less 1.05 times returns. Policyholder can avail of all the any withdrawals) is paid to the nominee. benefits by paying Top-up premiums. profits from the markets and in case the still get back the guaranteed Sum Assured Policy holder has the option to increase his market does not perform well, he would One can withdraw amount through thus protecting him from the adverse partial or complete surrender of units after the affects of market. first policy year and death benefit will decrease by 1.05 times the amount withdrawn. from a. equity Growth Plan, Income aims Plan or The plan assures a minimum guaranteed amount on maturity, or in case This is a non-participating plan. The premiums paid, net by of the
Policy holder has the option to choose of death. Balanced Plan based on his risk propensity. While Growth plan appreciation by investing in equity
a capital charges, are converted into units and and invested in funds selected
related products, income plan's policyholder. Based on his risk appetite And policyholder has the to choose any of the • Money Market Fund –
priority is to provide steady returns. capital appreciation and steady returns. options, once in every year free of cost. under the plan are exempted from tax.
balanced fund provides a balance between four funds offered under the policy. One can switch between various plan A portfolio invested primarily in money market instruments and other short-term risk portfolio and is useful when one All the premiums paid and benefits received investments. It provides access to a low Unit value is calculated bi-weekly on a wants to avoid the risks associated with forward pricing basis every Tuesday and long-term investments. Friday. Unit Value = (Market/Fair Value of the relevant Plan's Investments plus Current
Money Deposit / cash/ call money market 100% 100% Low instruments/ Bank Min.Investment Maximum Risk profile
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Assets
less
Current
Liabilities • by the
Gilt Fund - the portfolio pimarily Central Government of India. is no credit risk
and Provisions)/Number
of units consists of securities issued by or guaranteed Short-term investments will also be made with banks. There associated with this portfolio. Suitable for investors looking for regular and steady income
Min.Investment Securities issued Central by Govt./ 80% 100% Low Maximum Risk profile
outstanding under the relevant Plan.
Guaranteed by Central Govt. Short bank cash money / Term deposit call
0%
20%
Low
•
Balanced
Fund in highly of
-
A rated
portfolio invested primarily in shares of wellmanaged companies and securities of portfolio offers you a returns and growth.
Min.Investment Equity shares of blue chip companies Securities issued Central by Govt./ 80% 100% Low 30% 60% Medium Maximum Risk profile
Central Government. This balance steady
Guaranteed by Central Govt. Short bank Cash money / Term deposit call
0%
20%
Low
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• equity
Growth Fund - A portfolio in equity of and wellrelated investments
invested judiciously
managed companies. Security will be enhanced through holdings in highly rated securities looking and for short-term deposits. growth and capital This fund is suitable for investors appreciation in the long term.
Min.Investment Equity shares of blue chip companies Securities issued Central by Govt./ 80% 40%
Maximum
Risk profile
80%
Medium to High
Guaranteed by Central Govt. Short bank cash money / Term deposit call
60%
Low to Medium
0%
20%
Low
Policy holder has the flexibility to switch the money (or a part of it) from one fund to the other is available. Funds can be switched any number of times during the term of the plan, at daily declared selling and buying prices.. Loan can be availed provided the policy has been in force for 3 years. Automatic Cover Maintenance
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facility: This facility keeps the policy in force even on non-payment of premium. However this facility is available only if the policy has been in force for a period of 3 years. Under this facility, in case policyholder misses premium payments, units would be liquidated at the prevailing selling price to meet the risk and expense charges and policy would be in force. As long as the value of units is sufficient to meet the expenses, the policy would be in force. On maturity, the residual value of units would be paid as a benefit to the policyholder. The premiums paid under the plan will qualify for rebate under Sec.88 of the Income Tax Act, 1961 and the returns are fully tax exempt under Sec 10 (10 D). Premiums paid for Critical Illness Benefit qualify for rebate under Sec SOD. The enhanced by policy adding benefits riders can to be it.
The riders available with the policy are: ? Term/Preferred Term Benefit ? Accidental Death Benefit ? Permanent Disability Benefit ? Critical Illness Benefit ? Life Guardian Benefit ? Accidental Disability ? Guardian Benefit
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Benefits On Death
Benefits On maturity
The nominee/s will receive Full Sum assured or the market value of the higher of the value of units or 105% units, whichever is higher is payable. of the aggregate of the premium and On Death the top-up single premiums (less 1.05 Full Sum assured or the market value of the times any withdrawals). Withdrawal Benefit units, whichever is higher is payable. Riders Term/Preferred Term Benefit: In the There is no specific maturity event of death during the term of this benefit, date. Anytime after 1 year one can the beneficiary would receive an additional choose to withdraw money through death benefit amount, which is partial or complete surrender of units. over and above the by the 1.05 times amount withdrawn. sum assured. The The death benefit would be reduced maximum amount of benefit one can avail is equal to the basic sum assured. Where I the Term Benefit cover applied for is more than Rs.10 lakhs, better rates may apply, subject to meeting eligibility requirements. Accidental Death Benefit: This benefit (provides an additional amount (over and above the sum assured) to the beneficiary in the event accidental death of the life insured. The maximum cover available under this benefit is equal to the basic sum assured (subject to a maximum of Rs.10 lakhs). Permanent Disability Benefit: In case of permanent disability due to an accident, the rider pays an additional amount, which i ipaid out as an annuity. The maximum \Permanent Disability Benefit that one can
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avail of is equal to the basic sum assured subject to a maximum of Rs.10 lakhs). Critical Illness Benefit: This benefit can be added to the basic life insurance plan toj provide financial support in the event ofj medical emergencies. On the first occurrence of critical illness during the term of the plan, policyholder would receive a portion of the sum assured to reduce your financial burden in this emergency. Life Guardian Benefit: In case of the unfortunate death of the proposer, this benefit keeps the policy alive by waiving all future premiums on the policy. Accidental Disability Guardian Benefit: In case the proposer is permanently disabled as a result of accident, this benefit keeps the policy alive by waiving all future premiums on the policy. Other Conditions Other Conditions
Minimum Premium: Rs 20,000 Minimum Age at entry : 18 years. Minimum Top up Single Premium: Rs 10,000 Minimum age at entry: 0 yrs(risk commencing from 7 yrs) Maximum age at entry: 62 Maximum Age at entry : 60 years. Maximum maturity age : 75 years Term of the policy: 10-30 years Minimum premium 1. Quarterly - Rs.2620
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ANALYSIS- 5 STRATEGIC ISSUES AND THEIR OPTIONS
STRATEGIC ISSUES OF LIC ? How to fight the product innovation of rivals? ? How to improvise on providing better customer service, ? How to sustain the company's present growth rate/ how to improve it? ? Should there be a cut in the premiums to outflank the private players? ? How to encounter the threats posed by ICICI Pru life, SBI Life? ? How improve the quality of service & product returns? ? How to use e-commerce technologies for providing better service? ? How to improve financial resources to bear any shocks? STRATEGIC OPTIONS ? They can diversify into areas of infrastructures, bonds. ? There should be a decentralization of the management. The branch managers must be given more autonomy, which in turn may help to provide better service to customers. ? LIC requires a better professional management. They should employ professionals to revamp the organization's structure, which would help to provide better product innovation & boost performances. ? Reducing the premium is another option, which would reduce the profit margin, is necessary to outflank the competitors & LIC has the financial resources to bear with it. ? They can also try out a merger with GIC, which would improve its distribution network, operate economies of scale, offering more riders in both life & nonlife area.
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STRATEGIC ISSUES OF ICICI ? How to capture a widespread distribution network? ? How to offer more returns than LIC? ? How to increase the market share up to the level of LIC? ? How to offer more riders at minimal cost? ? How to encounter threats posed by LIC & other private players? ? How to gain better visibility for company & the company's products? ? How to use e-commerce technologies for providing better service? ? How to cut cost & minimize premiums? ? How to induce customer loyalty? ? How to improve financial resources to bear any shocks? ? How to increase the product range? STRATEGIC OPTIONS ? ICICI should be to have a close tie up with the Govt. offices, agents & other nationalized banks, to improve their distribution channel & gain greater visibility for their company products. ? They need to have a good marketing strategy, better rates of commissions, command over the agents & improve the awareness of their products among the public is a necessity to improve their market share. ? They should also have access to economies of scale, transparency in operation, better investment pattern, flexibility in schemes are necessary to cut premium costs, offering more riders at nominal costs & better returns. ? They need to maintain & improve their quality of product or service, prompt repayment of claims. All these are necessary to win customer confidence. ? Using internet (e-com) to accept application forms, payments & redemptions, could make their service better. ? They can enter the capital market to gain more funds; leveraging the brand name of ICICI can do this.
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? They can leverage the name of Prudential its foreign J.V partner to borrow funds from international market at an interest rate at a very lesser than market rate in India. ? They should conic up with a wide range of products in order to cater the financial needs of the public to the maximum extent. STRATEGIC ISSUES OF OMKM ? How to capture a widespread distribution network? ? How to offer more returns than LIC? ? How to increase the market share up to the level of LIC? ? How to offer more riders at minimal cost? ? How to encounter threats posed by LIC & other private players? ? How to gain better visibility for company & the company's products? ? How to use e-commerce technologies for providing better service? ? How to cut cost & minimize premiums? ? How to induce customer loyalty? ? How to improve financial resources to bear any shocks? ? How to increase the product range? ? How to improve on the brand awareness? STRATEGIC OPTIONS ? OMKM should also have a close tie up with the Govt. offices, agents & other nationalized banks, to improve their distribution channel & gain greater visibility for their company products. ? They also need to have a good marketing strategy, better rates of commissions, command over the agents & improve the awareness of their products among the public is a necessity to improve their market share. ? They should also have access to economies of scale, transparency in operation, better investment pattern, flexibility in schemes are necessary to cut premium costs, offering more riders at nominal costs & better returns.
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? They need to maintain & improve their quality of product or service, prompt payment of claims. All these are necessary to win customer confidence. ? Using internet (e-com) to accept application forms, payments & redemptions, could take their service better. ? They can enter the capital market to gain more funds; leveraging the brand name of Kotak Mahindra can do this. ? They can leverage the name of Old Mutual its foreign J.V partner to borrow funds from international market at an interest rate at a very lesser than market rate in India. ? They should come up with a wide range of products in order to cater the financial needs of the public to the maximum extent. ? OMKM can also increase the number of branches to have a wide network of marketing and hence the reach.
ANALYSIS-5
COMPARISON OF THREE COMPANIES: This part shows the company that offers the best death benefit and maturity benefit. PLAN Term plan Endowment plan DEATH BENEFIT MATURITY BENEFIT LIC (Anmol jeevan) NIL LIC (endowment OMKM assurance plan) (Kotak endowment)
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FINDINGS: ? Based on the comparative analysis of endowment plan, when the assured amount is Rs. 15,00,000 and the term is 25 years, the highest IRR is 6.89 % and BCR is 1.301 of that of OMKM and the next highest is that of LIC (IRR 6.47 %, BCR 1.22 %) and the least is that of ICICI (IRR 4 %, BCR 0.12) ? Based on the comparative analysis of unit linked plan, when the sum assured is Rs. 5,00,000 for a term of 15 years, the highest IRR 9.96 % and the highest BCR 1.44 % is that of OMKM when compared to ICICI is IRR (6.92 %) and BCR (1.16%). ? KOTAK preferred term plan is one of the highly recommended policy for people who are involved in highly risky jobs due to its good return sum assured amount (10,00,000) and a less premium of Rs 2,500. ? KOTAK money back plan is a saving plan with the added advantage of life cover and cash inflow at a regular interval of 5 years. Also, the death benefit increased by 7 % of the sum assured each year. ? KOTAK CHILD PLAN is an investment plan designed to meet a child’s feature financial needs. When the sum assured is 5 lakhs, and when the entry age is 1 year the IRR is 6.547 %, BCR is 1.16 % and the NPV is Rs. 9,04,667. ? KOTAK RETIREMENT PLAN is a savings plan design to meet one’s post retirement needs. The returns are calculated for a 25 years term assured of Rs. 10,00,000. The IRR is at 7.62 % and BCR at 1.44 % when the entry age is 30 years. ? KOTAK SAFE INVESTMENT PLAN is an investment cum insurance plan. The returns from this plan is tax-free. When the sum assured is 5,00,000 for 15 years, the IRR is 2.96 % and BCR is 1.44 % and maturity at 10 % is Rs. 9,16,400.
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? KOTAK CAPITAL MULTIPLAYER
PLAN is also an endowment plan
which is very flexible and has a lot of other in built benefits. When the sum assured is 5,00,000 and a premium of Rs. 16,250 the IRR is 7.04 % and BCR is 1.33 %. ? From the swot analysis of OMKM, the major strength seems to be the projection of better returns in comparison with other insurances companies when the major weakness seems to be the lack of penetration into the market and the major opportunity seems to be the increasing the per capital income of the customers and the major threat seems to be the neglection of lower and middle class segments. ? Hence the project mainly focuses on to the question, whether OMKM offer better policy when compared to LIC and ICICI Prudential. The solution for this project may help the company in finding its position with respect to the other two companies. The source for the problem had been from executive experience and theory. ? Hence the problem stated above clearly indicates the position of each company with respect to every comparable policy at different angles.
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RECOMMENDATIONS
? As such, the policies and returns of OMKM yields better benefits compare to LIC and ICICI. The company should also try to extend its services to rural segments. To capture market share.
? The company should maintain close ties ups with government departments to easily sell the products and to reach the urban area.
? Transparency in operation is are one of the keys to succeed. They should also have access to economies of scale, better investment pattern, flexibility in schemes are necessary to cut premium cost, offering more riders at nominal cost and better returns.
? OMKM need to maintain and improve their quality of products or service, prompt repayment of clients. All these are necessary to win customer confidence.
? OMKM should also use of technological advancements, like electronic commerce, to accept application forms, payments and redemption to make their services quicker and better. This should also help them to reduce the cost of distribution and gain more customers. ? OMKM has no option than following all the strategic options listed above. To be as a leader down the lane after 10 years they have to follow the strategic options listed above. Only choice they have in strategic option is between going for capital markets or borrowing debts from international market. ? They need to maintain good marketing strategy wherein this will provide them chance to capture both rural and urban market. They should give high incentive to brokers. This in turn may affect the profitability, but they have to bear with it in the initial years in order to grow.
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? OMKM down the lane after 10 years, to reach the leader the status should look into all the above recommendations and options followed by excellent execution & constant improvements & innovations.
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CONCLUSION
Today, after nearly fifty years, the insurance sector is a buyers market where the consumer has the choice to select from a variety insurance product and services. The insurance companies should concentrated on the requirements of the insurers and they should modify their policies to become a market leader. Only the customer satisfaction will take a company to the high of success. So the insurance companies should focus on ensuring the maximum customer satisfaction. OM KOTAK MAHINDRA though made a late entry into the insurance industry, have established themselves in such a manner that OMKM has become a serious competitor to major leading insurance companies that exist presently in India. OM KOTAK MAHINDRA still one among the leader in private insurance sector, in near future can become the top among the private insurance sector since their products cater to different needs of various different sectors.
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ANNEXURE: 1
Principles duties, powers and functions of IRDA are laid down in section 14 of the IRDA act: ? IRDA shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. ? Powers and functions of IRDA include: a) Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration. b) Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contract if insurance. c) Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents d) Specifying the code of conduct for surveyors and loss assessors e) Promoting efficiency in the conduct of insurance business f) Promoting and regulating professional organizations connected with the insurance and reinsurance business g) Levying fees and other charges for carrying out the purposes of this Act h) Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with insurance business i) Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938)
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j) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries k) Regulating funds of insurance companies l) Regulating maintenance of margin of solvency m) Adjudication of disputes between insurers insurance n) Supervising the functioning of the Tariff Advisory Committee o) Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in categories of clause (f) p) Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector and q) Exercising such other powers as may be prescribed and intermediaries or
ANNEXURE-2
How to Maintain Your Life Insurance Policy in Full Force The need for maintaining your life insurance policies in full force is simple: a deficient policy means a deficient risk cover, negating the very idea of painstakingly building your insurance portfolio. And like in anything else, preventive maintenance is better than corrective maintenance. In the case of life insurance policies, maintaining them in full force at all times takes very little. The few things that require your attention are dealt with in this chapter. Check the policy document for mistakes As soon as you receive the policy document from Insurance Company, you must go through it carefully for any possible mistakes — in your name, in the name of your nominee, relationship and all other details. In case there is any mistake, get in touch with your agent and ask him to get it rectified by Insurance Company. Of
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course, you can also directly approach to the concerned branch office of Study also the conditions and privileges in small print, and understand them well. This is essential to avoid any misunderstanding and complications later on. Inform your spouse or nominee It is vitally important to keep your spouse and nominee fully in the picture about all the details of your portfolio: the number of policies there are, the complete benefits of the policies whether for her or the children, etc., where you store the policy documents, the name and address of your insurance agent and the concerned Insurance company office, etc. Physical safekeeping The policy document is an evidence of the contract between you and L.I.C. You will do well to keep the document carefully in a safe place till its maturity. The policy document may have to be submitted to L.I.C. for settling maturity or death claims. As it is a cumbersome procedure to get a duplicate policy, you must take care to avoid losing the policy document. Rest assured, however, that the loss of a policy bond does not extinguish your rights as policyholder. How to prevent your policies from lapsing Regular and prompt payment of premiums is the single most important requirement of maintaining your policy in full force at all times. You are allowed a grace period of thirty days for payment of yearly, halfyearly and quarterly premiums, and fifteen days in the case of monthly payment of premium. Do not wait, however, until the last days of the grace period. The best way is to pay your premiums on a yearly basis. Even if you start a policy on a quarterly premium payment basis, it is advisable to change it to yearly payment later on: the fewer the transactions with L.I.C, the better. Further, it is easier to remember the due date in a year. The more frequent the payments, the more are the chances of your policy lapsing. 100
Maintain all the premium receipts It is also very important to safely retain all your premium receipts in tact. Even if you pay your premiums regularly, it is possible that in a few cases the L.I.C.'s Ledgers remain unposted with your payments. At the time of settling a claim in such cases, L.I.C. writes to the policyholder about these missing payments and ask him to produce the premium receipts, or otherwise prove that you did indeed make the payments. Make sure your policies have a valid nomination or assignment at all times In case you raise a loan from a bank, making an assignment in favour of the lender pledges the policy. Since a later assignment always cancels an earlier nomination, your earlier nomination is rendered meaningless in such a case. When the loan is repaid, the policy is again re-assigned in favour of the policyholder. At that time, the policy will be without any nomination and this is a dangerous lacuna. After
such re-assignments in your favour, it is therefore very important to make a fresh nomination in the policy. If you fail to do so, there would be trouble in the settlement of a death claim. Notify L.I.C. of any change in your address Whenever you shift from one place to another make sure to notify the change in your address to the relevant branch office of L.I.C, which directs your policy so that it can send your premium, notices, receipts, etc. to your new address. On the other hand, it is not a good idea to get your policies transferred to a different branch every time you move from one place to another.
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Keep in touch with your agent Keep in touch with your agent. Keep his latest address and telephone number in your policy file and make sure that your spouse knows how to contact him in case of any need.
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BIBLIOGRAPHY
URLs: 1. 2. 3. 4. 5. 6. 7. Books: 1. 2. 3. Magazines: 1. 2. 3. Business World Intelligent Investor A&M Ready reckoner for insurance-By LIC Taxplanning by Bajaj Capital LIC policiesLICIndia.com Insurance-India.net IRDA.com myris.com karvy.com ICICIPrudcntial.com maxnewyorkindia.com indiainfoline.com student-guide.net
Newsletters/Pamphlets: 1. 2. 3. 4. Karvy Integrated enterprises Bajaj Capital LIC
Articles & Reports: 1. KPMG Report Price Water House Cooper Article from ICICI Prudential & from other experts, Life Insurance Policies by B.Raman
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ACRONYMS
OMK /OMKM - OM KOTAK MAHINDRA IRR - INTERNAL RATE OF RETURN NPV - NET PRESENT VALUE BCR - BENEFIT COST RATIO IRJDA - INSURANCE REGULATION & DEVELOPMENT AUTHORITY GIC- GENERAL INSURANCE CORPORATION CII - CONFEDERATION OF INDIA INDUSTRY KSF'S - KEY SUCCESS FACTORS NPA - NON PERFORMING ASSETS ARR - AVERAGE RATE OF RETURN PVIFA - PRESENT VALUE INTEREST FACTOR OF ANNUITY PVIF - PRESENT VALUE INTEREST FACTOR KEP- KOTAK ENDOWMENT PLAN KMBP - KOTAK MONEY BACK PLAN KCAP - KOTAK CHILD ADVANTAGE PLAN.
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