Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry Subhasis Ray * and Shahid Ali **
The Life Insurance Industry in India is on the rise. With less than 40% of the insurable population being insured, the potential for growth for this industry is inevitable. With increased number of private players currently in the market, the going will be tough, but surely it will be rewarding for those who can align their products with consumer’s expectation. This paper makes an attempt to identify the gap between available and desired features in terms of existing products and services in life insurance. This paper also gauges general awareness about life insurance, investigates reasons for buying life insurance and finds preferred tenure and age cut off for entering into a life insurance.
Introduction Insurance is a contract between two parties whereby one party, called insurer, undertakes in exchange for a fixed sum called premiums, to pay the other party, called insured, a fixed amount of money on the event of any mishap or a calamity. In other words, insurance is a protection against financial loss arising from the unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insured and the insurance companies act as trustees to the amount collected.1 A well-developed life insurance industry is a reflection of a well organized and sophisticated economy, with a great portion of risks faced by individuals being properly handled. Life insurance products (or policies) are used not only as a means to mitigate the financial impact of death, disability, diseases and accidents, but also takes care of longevity. Since liberalization in 2000, the Indian insurance sector has become a buyer’s market, where the customer has the choice to select from a variety of products, services and service providers. With the regulators (i.e., IRDA) giving licenses to many private players, many companies have entered the insurance market leading to a fierce competition for market share. Multinationals are now collaborating with Indian companies who can help them with local requirements. Table 1 shows the market share of leading insurance companies in India (Pitalwalla, 2006). In this competitive market, the insurance companies need to understand the needs of people and should design products accordingly. *
Faculty Member, The Icfai Business School, Kolkata, India. E-mail:
[email protected]
**
Student, Class of 2008, The Icfai Business School, E-mail:
[email protected]
1
http://www.bimaonline.com/cgi-bin/ind/basics.asp, last accessed on September 25, 2007.
© 2008 The Icfai University Press. Expectation All Rights Reserved. Gap Analysis Between Customer’s and Current Provisions of Indian Life Insurance Industry
33
Objective of the Study
Table 1: Performance of Major Indian Insurance Companies
The set of objectives include: •
Finding out the general awareness level of various savings/investment instruments.
Company
Market Share (%)
Max New York
1.35
Tata AIG
1.63
Bajaj Allianz
7.00
AMP Sanmar
0.61
Metlife
0.43
Birla Sunlife
1.91
ING Vysa
0.63
HDFC Standard Life
3.11
Kotak
0.81
Methodology
ICICI Prudential
6.42
Literature/Internet Survey
Aviva
1.13
SBI Life
1.49
•
•
•
Finding out the relative importance of factors in the purchase decision of a life insurance product. Assessment of existing features/ additional needs for various plans, e.g., Term Plan, Money Back Policy, Unit Linked Insurance Plan. Understanding people’s preference relating to after sales services.
The study started with the literature survey of journals and magazines that helped to comprehend the various facets
LIC
74.31 Source: www.insuremagic.com/Content/ PlanInfo/lic_products.asp
Figure 1: Schematics Showing Methodological Steps Literature Survey/
Design of
Design of
Internet Survey
Questionnaire
Sample Survey
Determination of Data Analysis Methods
Data Tabulation/ Data Validation
Data Collection
Interpretation of Results
Source: Ray S and Pathak A, 2006.
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The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008
of the insurance industry2 (Ray and Pathak, 2007). Also, the Internet survey was conducted to understand the latest occurrences in the industry. These sources provided the basic knowledge about the industry, key players apart from LIC like ICICI Prudential, Bajaj Allianz, Birla Sunlife, TATA AIG, etc., their performance, key communication mediums, product features, etc., which facilitated the designing of questionnaire and hence analysis3 (Levin and Rubin, 1995; and Pitalwalla, 2006).
Design of Questionnaire The questionnaire was designed based upon the objectives of the study. The questionnaire consisted of mainly closed questions. It was divided into three parts, viz., (1) understanding awareness of insurance and its drivers; (2) finding out feedbacks on existing features and assessing needs for additional ones for current plans; and (3) knowing customers’ choice on after sales services. Major rules and regulations mandated by Insurance Regulatory and Development Authority (IRDA) were also considered while preparing the questionnaire. The questionnaire is attached in Appendix I.
Design of Sample Survey Primary data was collected to conduct the study as it helps to derive more authentic conclusions from the findings. In this study, the primary data is collected by means of a structured questionnaire via one-to-one interaction with the respondents. The respondents were mostly from central Kolkata in the age group varying between 18 and 65 years. They were approached in different branches of banks, post offices and also restaurants, cafes, etc. In this study, the target sample size was kept at 300 (without repetition) to meet budget and time constraints.
Data Tabulation/Validation After the data collection, the data was tabulated in a Microsoft Excel sheet and the data was edited, coded and verified for validity. During the survey, 300 respondents were interviewed from the target group. Out of this, no record was rejected due to inconsistencies or incompleteness.
Determination of Data Analysis Methods The data was analyzed using the Microsoft Office Excel 2003. Mainly bar charts and pie charts were used in this analysis to portray people’s awareness of insurance, motivating factors behind an insurance purchase, preferred age limit for buying insurance, tenure of such investments, etc. Chi-square test of independence was also carried out to check the dependency between risk and return.
Interpretation of the Result Finally, the results that emerged from the study were analyzed and interpreted and suitable conclusions were drawn from those results. Recommendations have been made keeping in mind various rules and regulations mandated by IRDA. 2 3
www.tata-aig-life.com; www.myiris.com/insurance/index.php “Taxhounds Sniff Money in ULIP Fees”, 2007, http://www.m oneycontrol.com /m ccode/news/article/ news_article.php?autono=282803, last accessed on September 25, 2007; “Life Insurance Industry Grows 38% in A pril-Oc tober”, 2005, htt p: / /personal financ e. m oneycont rol .c om / m c c ode/ new s/ art ic le/ news_article.php?autono=194338, last accessed on September 25, 2007; “Market Share of Private Life Insurers at 25.7% ”, 2006, htt p:/ /news. m oneyc ontrol. com /m c code/news/artic le/ new s_arti cle.php? autono=197524, last accessed on September 25, 2007; http://www.bimaonline.com/cgi-bin/ind/basics/ basics.asp, last accessed on September 25, 2007.
Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry
35
Data Analysis General Awareness and Generic Needs In this section, four questions were taken into consideration. The first question deals with the people’s awareness of various investment/savings channels. As per Figure 2, out of the 300 respondents, majority of the people knew about banks, insurance, post office deposits, shares and fixed deposits. It is to be seen that 246 out of 300 respondents knew that life insurance is an investment channel to protect the future. Even though the figures are inflated due to mostly urban respondents, this augurs well for the insurance industry, demonstrating a lot of potential to grow.
Figure 2: Awareness of Various Investment Channels
Respondents
300
282 247
231
246
250
210
200
179
150
134
117
100
122
121
82
58
50 0 Banks
Insurance
Gold
Debent
NSC
Real
Post
Est.
Off.
Comm. Shares
FD’s
Govt. Bond
PPF
Knowledge of Investment Channels
The next question was targeted to understand the main driving reasons behind purchasing an insurance. The results are shown in Figure 3.
Response
Figure 3: Relative Importance of Various Driving Factors for Life Insurance 6 5 4 3
5.34 3.18
3.50
3.15
Children’s Marriage/ Education
PostRetirement Needs
2.70
2 1 0 Tax Planning
Risk Cover Against Death/ Accident
4.84
3.48
Freeing the Attractive Flat from Investment Schemes Mortgage/Debt
Forced Savings
Need for Insurance (1-Highest, 7-Lowest)
Here the respondents were asked to rate the importance of various factors (on a scale of 1 to 7 with 1 being the highest and 7 being the lowest) when they invest in life insurance. 36
The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008
As shown in Figure 3, the most important driver for life insurance is ‘Risk coverage against death/accident’ with an average rating of 2.7. The next factor that came out was that the people take an insurance policy to meet ‘Post-retirement needs’. The next most important factor is ‘tax planning’ and the fact that it is being looked upon as an ‘attractive investment scheme’. This may be influenced again by the selection of respondents who are mostly from the city of Kolkata. Still, the figures are encouraging for the life insurance industry, since this is perceived as an attractive investment channel with the additional benefit of tax saving. The next investigation was related to finding out preferred age limit for people to buy a life insurance product. The options for minimum age were 50, 55, 60, 65 years and also ‘no limit’. The data is tabulated in Figure 4.
Figure 4: Preferred Age Limit for Buying Life Insurance 180
163
Respondents
160 140 120 100
84
80 60 40 20
21
21
11
0 50 Years
55 Years
60 Years
65 Years
No Limit
Age Limit for Buying Insurance
As many as 163 out of 300 respondents voted for having no age limit for entering into life insurance which is understandable. If a regulatory framework does not allow implementing this, the next best option is 55 years which has attracted 28% of the responses. The next question was to find out the preferred tenure of investment in life insurance policies. The basic motivation was to see the total number of years people like to remain invested in a policy. The result is shown in Figure 5. A total of 111 respondents (37%) out of 300 responded that the tenure should be 15 or more number of years. This was followed by 93 respondents (31%) who want it to be between 6 and 10 years. The respondents are divided between long-term and short-term plans. This can be explained if we look at various types of life insurance products, e.g., Term Plan and Endowment Plan. Term plans purely cover the risk of the policyholder Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry
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Figure 5: Preferred Tenure of Insurance 120
111 93
Respondents
100 80 60
53 43
40 20 0 0-5
6-10
11-15
15 Above
Number of Years
without having any saving benefit in the future, whereas Endowment plans gives life cover to the policyholder and also pays the maturity benefit. The endowment products can be further sub-divided into two categories: 1. Participatory plans 2. Non-participatory plans/Unit Linked Products Participatory plans are those plans which enjoy the benefit of bonuses earned by the company in a particular financial year whereas Non-participatory plans/Unit linked products enjoy returns from the stock market. People voting for long-term tenures are generally buyers of term plan or participatory plan whose main aim is to cover risk against death, etc., and meet post-retirement expenses. On the other hand, people opting for small-term tenures prefer unit linked products who want the flexibility to ‘time’ the share market and look at insurance more from a wealth accumulation perspective.
Plan Specific Analysis The study is also aimed towards some plan specific features so that the gap between company’s offering and people’s expectation can be identified. The first point that was revealed is that 95% of the people want to earn bonus on Term Plans. For Unit Linked Products (ULIP), most of the people prefer the option of capital guarantee. In order to understand risk appetite of people, respondents were asked to mark their preferred rate of return (low, moderate and high) and level of risk (low, moderate and high) they are ready to take. The data is shown in Table 2. A chi-square test of independence was carried to check the dependency between risk and return.4 The null hypothesis: H0: Risk and return are independent. H1: Risk and return are not independent. 4
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https://iciciprulife.com/public/Life-plans/Plans.htm
The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008
The observed Table 2: Cross-Tabulation of Risk and Return chi-square value is 88.13. The tabulated Return Low Moderate High Risk chi- square value for four Low 39 52 32 degrees of freedom at 5% level of significance Moderate 2 32 86 is 9.488. Since the High 0 12 45 observed chi-square value is greater than the tabulated value, H0 should be rejected. This shows that the question was unambiguously understood by the respondents. A closer look at Table 2 reveals that people expect moderate to high return at a low to moderate risk. The next question was related to money back policy seeking to know preferred pattern of returns. The options for getting money back were (a) annually after completion of first seven years; (b) gap of three years; and (c) gap of five years. The result is shown in Figure 6.
Figure 6: Preferred on Money Back Policies 160
139
Respondents
140 120 100
94 68
80 60 40 20 0 Annually After Seven Years
Every Three Years
After Every Five Years
Frequency of Returns in Money Back Policies
It is seen that 139 of the 300 respondents (46%) preferred three yearly returns. The next choice was to get returns annually after completion of first seven years. Most of the existing policies do not conform to any of these choices—so it is imperative that companies design products accordingly. The next plan was the pension plan. There were two basic reasons for analysis, firstly, to find out (a) what is the preferred age when a person wants to receive pension; and (b) what kind of equity exposure should the pension fund be exposed to. It is found from Figure 7 that 126 of the 300 respondents wanted pension from the age of 50 years followed by 55 years. These two groups include 79% of the total respondents. Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry
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Companies disbursing pension before the age of 45 or after the age of 55 may like to revisit their pension plans.
Figure 7: Preferred Timeframe for Receiving Pension
140
126
112
Respondents
120 100 80 60 40
33
29
20 0 45 Years
50 Years
55 Years
60 Years
Time of Return
The respondents were asked to mark the kind of equity exposure that the unit linked pension funds should be having. Figure 8 shows an overwhelming 76% of respondents voting for balanced funds, as expected. This is slightly different from Table 2 as people tend to be less adventurous with respect to pension plan which essentially meets post retirement needs.
Figure 8: Preference for Equity Exposure of Pension Funds Equity Exposure for Pension Funds 17 (6%) 55 (18%) Low High Balanced
228 (76%)
The last plan was related to children’s plan. The analysis was aimed at finding out whether the return should be lump sum on maturity of the policy or it should be regular periodic return. In the analysis it is seen that 56% of the total sample respondents have preferred to receive the lump sum return whereas only 44% of the respondents have preferred regular periodic returns. 40
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After Sales Services and Communication Channels After sales services is the most important differentiator especially in the insurance industry. In the face of stiff competition, all major players generally stay at par in terms of product offering. One company’s successful innovative product gets replicated by other companies soon. When there is very little choice of products, service is very important to get repeat business and also to extend business. In this section, an attempt has been made to find out services that are perceived to be important and the preferred mode of communication. Firstly, an analysis was done to find out the most important service which people want. Here also the rating method has been used where 1 is the highest and 5 the lowest. The average rating on four designated services are captured in Figure 9.
Figure 9: Preference of After Sales Services 3.0
2.6
2.5
2.5
Rating
2.0
2.3
1.7
1.5 1.0 0.5 0 New Product Information
Dates for Premium Renewal
Switching of Funds
Fund Statement
After Sales Services
Here it is seen that the most important service is to get the reminder of the dates for premium payment. Secondly, it is the fund statement which the people need, followed by information on switching of funds to new products. So it is a good reminder for the companies that they should now make arrangements for providing customers with information on switching of funds. As per this survey, SMS came out to be the most preferred mode of communication (see Figure 10). This is followed by phone calls and e-mails. It should also be noted that company representatives have got the last preference, which means most people do not want company representatives to come and approach them. However, one must admit that the finding is influenced by urban respondents who are more exposed to mobile and internet technology. The last part of the analysis was to find out the frequency of receiving the fund statement. The options were the company should send account statements (a) quarterly; (b) half-yearly; or (c) annually. The findings are shown in Figure 11. Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry
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Figure 10: Preferred Mode of Communication
Responses
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
4.00 3.50 3.00
2.60 1.89
2.00
SMS
Phone Calls
E-mails
Letters
Co. Rep.
Co. Bro./Mag.
Preference of Communication
Out of 300 respondents, 183 people (61%) want the fund statement to be sent once in a quarter. Half-yearly and annual statements follow this with 24% and 15% respectively. Even though this (i.e., sending fund statements quarterly) requires an extra cost, the companies should try to satisfy its customers. Cheaper options can be through SMS, online with the consent of the customer.
Figure 11: Preferred Frequency of Fund Statement Frequency of Fund Statement 15%
24%
Yearly Quarterly Half–Yearly
61%
Conclusion From the study, it can be concluded: •
People have good knowledge about different investment/savings channels including banks, post office, share market and also insurance.
•
Life insurance nowadays has become an attractive investment channel along with providing risk coverage against death/accident, tax savings and also for meeting post-retirement needs, etc.
•
Insurance companies should try to come up with a product where there should be no entry limit on age. But in order to do so, the company should follow the IRDA rules and directives. The next best option is at least 55 years.
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The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008
•
Traditionally, people tend to invest in life insurance for a long-term period say 15 years and above. But there is a polarization as a good proportion of people are coming up who want it to be short-term—between 6-15 years.
•
Life insurance companies may come up with a term policy that earns bonus, however, this needs further probing since term plan is specifically designed for covering the risk.
•
People prefer balanced equity fund for their pension to grow and the pension should start at the age of 50 years.
•
People like to receive quarterly statement. Companies should also inform people about premium payment, its new products and also about switching of funds. The preferred media of communication is SMS, phone call and e-mail at least for the urban population. Sending representative may not work that well with the population in urban areas.
•
A lot of companies give a lump sum return in its child policies, which is what most people want. But since there is not much of a difference (of proportions) between the two, it would be beneficial for a company if it starts giving regular periodic returns too, as it will enable the company to maximize its market share among the sections of the people who want regular periodic returns.
Future Study •
The sample consisted of respondents within the age group of 18-65 years in central Kolkata. Even though the study included a large spectrum of age dimension, this study can further be conducted in different segments of population, e.g., rural, semi-urban, etc. Income level can be a good differentiator.
•
In this sample, some of the respondents were not insured. So it is wiser to get feedback from people on general as well as specific plans from customers and non-customers.
Finally, this study should be treated as a first step and can provide stimulus for more in-depth research. q
References 1. Levin Richard I and Rubin David S (1995), Statistics for Management, 6th Edition, Prentice-Hall of India Private Limited. 2. Pitalwalla Yasir A (2006), “Gasping for Capital”, Businessworld, February 13, pp. 34-35. 3. Ray S and Pathak A (2006), “Strategizing the Exposure Mix in Various Communication Channels for Enhancing Visibility in the Indian Insurance Industry”, Icfaian Journal of Management Research, Vol. 5, No. 10, pp. 7-17. 4. Ray S and Pathak A (2007), “Strategizing Brand Positioning in the Context on Indian Insurance Industry”, Icfai Journal of Brand Management, Vol. 4, No. 1. 5. www.bajajallianzlife.co.in/lifeinsurance/products/individual.asp 6. www.birlasunlife.com/BirlaSunLife/Insurance/BSLI_MP/index5.aspx
Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry
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Appendix Questionnaire Initial Information Name: Address: Telephone:
Mobile:
Age:
Profession:
Total no. of family members:
No. of dependents:
No. of earning members:
Gross annual income:
Q1) Which among these are you aware of as a savings/investment channel? Banks
NSC
Shares
Insurance
Real Estate
Fixed Deposits
Gold
Post Office
Govt. Bonds
Debentures
Commodities
PPF
Q2) What according to you are the reason/s to buy a Life Insurance product? please rate it on scale of 1 to 7, 1 the highest and 7 the lowest. Reason
Rating
Tax Planning Risk Cover against Death/Accident Children’s Marriage/Education Post-Retirement Needs Attractive Investment Schemes Freeing the Flat from Mortgage/Debt Forced Savings Q3) Do you think there should be an age limit for an individual to buy a Life Insurance policy? 50 yrs
55 yrs
60 yrs
65 yrs
No such limit (Contd...)
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Appendix
(...contd)
Questionnaire Q4) Your investment in Life Insurance should be of 0-5 yrs
6-10 yrs
11-15 yrs
Above 15 yrs
Term Plan Q5) Would you like to buy a Life Insurance product which earns bonus? Strongly Disagree
Disagree
Neither Agree or Disagree
Agree
Strongly Agree
Unit Linked Insurance Plan Q6) The feature of ‘capital guarantee’ adds safety to the investment– Strongly Disagree
Disagree
Neither agree or Disagree
Agree
Strongly Agree
Q7) Your investment in a Unit Linked Insurance plan should perform as: Return Risk
Low
Moderate
High
Low Moderate High Money Back Policy Q8) When do you want your money back in a Money Back plan? Annually
After every 3 years
After every 5 years
(After completion of first 7 years) Pension Plan Q9) Your Pension plan should start giving you return from the age of: 45
50
55
60
Q10) What type of equity exposure should your Unit Link Pension plan have? High
Balanced
Low
Children Plan Q11)
Children plan should give you: Regular Periodic Returns
Lump Sum Return (Contd...)
Gap Analysis Between Customer’s Expectation and Current Provisions of Indian Life Insurance Industry
45
Appendix
(...contd)
Questionnaire Q12)
Please rate the following notifications from your life insurance company on a scale of 1 to 5, where 1 is the highest and 5 is the lowest. New product information Dates for the renewal of premium Information about the switching of funds Fund statements
Q 13) Please rate communication modes on a scale of 1 to 5, 1 being the highest and 5 being the lowest SMS
Phone Calls
Letters in self addressed envelopes
E-mails Company representatives
Company brochures/magazines Q14)
The frequency of the fund statement should be Quarterly
Half -yearly
Yearly
Name of the Interviewer: Date:
Reference # 46J–2008–09–03–01
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The Icfai University Journal of Consumer Behavior, Vol. III, No. 3, 2008