Firstly, I would like to thank to thank God for giving me the mental and physical strength and health to complete this project. I would like to thank my family for their constant support and guidance which helped me to stay motivated, confident and calm during times of distress.
I would like to express my sincere gratitude to my faculty mentor Dr. Nisha Bharti, HOD- Agribusiness department, for her constant guidance and inputs. I would further like to thank my faculty members and my friends who took out time to share their valuable feedback.
Lastly, I would like to thank each and everyone who have played a role in helping me complete this project.
Over the past decade, microinsurance, similar to microfinance and microcredit, which have been important tools in trying to eradicate poverty and empower growth, has created interest in the scientific community. However, microinsurance appears to have been studied less than microfinance. Microinsurance is still evolving, drawing its own discrete course to microfinance in the bottom-of-the-pyramid market. Microinsurance practitioners have implemented microinsurance programs, and although it is too early to draw concrete conclusions, we have some preliminary results about their effectiveness and their sustainability. In the meantime, scholars have monitored and examined its development and effect on improving the poor’s well-being and reducing their vulnerability to poverty. Several qualitative and quantitative studies have been conducted over the past years. Measurements of microinsurance performance and its impact include several indicators. This study offers a literature review on microinsurance, focusing on its financial performance and social impact on the poor.
Insurance facilitates development across countless channels and mechanisms, generally across the financial channel and chiefly via chance management. Until today, much of the attention has been paid to determining the linkages of finance to economic development through the financial and credit channels. Financial deepening leads to the rise of investments and subsequently to an increased level of employment and income. However, several scholars have recognized managing risk as an important path for mitigating poverty by reducing the poor’s vulnerability through the risk-pooling (ex-ante) and shock-absorbing (ex-post) mechanisms.
Review of Literature
The insurance industry in India has experienced extreme changes in aspects such as regulation, promotional techniques, pricing norms, product innovation, and distribution means since 1999 due to the establishment of IRDA and opening up to private players. There have been many studies published on the effect of globalization and privatization on the marketing strategies of the insurance sector. A review of these studies is presented in chronological order.
Edward K. Strong Jr (1922), in the valuable book, “The Psychology of Selling Life Insurance”, throws light in the physiological principles involved in selling in as non technical manner as possible.
John Alford Stevenson (1922), in his invaluable book, “Selling Life Insurance” throws light in a systematic approach to the process of selling insurance in a simple style. The complete process of buying, starting from the customer to closing sales inclusive of the basic salesmanship qualities, and customer interviewing techniques, is demonstrated.
Harris (1944) in his book, “Life Insurance Salesmanship”, discovers that selling insurance is an art, which one acquires only through experience and exposure to industry. According to Harris, planning is crucial for an insurance agent to succeed in the job.
Desai (1973) in his book, “Life Insurance in India – its history and dimensions of growth”, explains and elaborates the historical background of the life insurance industry in India and its growth since nationalization.
Rao, B.S.R. (1976) conducted a research study, “Functioning of the LIC – An Appraisal”, where he critically evaluates the operation of the LIC in India over a period of decades, taking into consideration the objectives set forth and expectations stirred at the time when the life business was nationalized in the country.
Rajkumar (1985) in his study “The Role of Insurance Advertisement”, throws lightin the problem involved in insurance advertising and suggests certain measures that would improve the effectiveness of advertising in LIC. He proposes the urge to use humor in advertising to capture the attention of prospective customers. He also stresses the need for carrying the message of life insurance to the people, without creating unpleasant feelings.
Rajan Saxena (1986), in his article entitled “Marketing of Life Insurance Services”, discusses various issues relating to life insurance marketing. The author insisted on applying market concepts to life insurance and threw light on the importance of various strategies in marketing of life insurance.
Patki, V.V. (1988), in his article “Rural Marketing”, discusses the problems of selling life insurance in the rural areas and suggests ways to penetrate the rural market. The suggestions include participating in village fairs, using audiovisual methods, and explaining the advantages of life insurance to the villagers, etc.
Appi Reddy and Narasimha Murthy, G. (1996) tried to examine the true marketing practices followed by the Life Insurance Corporation in rural areas and the problems involved in providing the services. The organization appoints development officers with responsibility in a specified territory. They insist special promotional efforts like film shows, exhibitions, field publicity vans, etc. The study finds that only 4.55 crore people have been insured against the insurable population of 21 crore, despite of so many efforts.
Gupta, P.K. (2000) in his paper, “Exploring Rural markets for Private Life Insurance Players in India”, shows that insurance products must be designed keeping the rural people in mind, accompanied with systematic and intense advertising efforts, association of ethnical and cultural components of product promotion, awareness programs, to gain competitive advantage. He identifies that the key to success in rural areas are reasonably priced products, accessibility, and effective communication and aftersales services.
Srujan (2004), in his article, “Rural Insurance Market in India”, throws light and stresses the insurance potential in rural markets. He finds out that rural India accounts upto 55 per cent of national GDP and hence the success of insurance companies depends upon tapping this rich rural market potential.
Forte (2005) has conducted a study on Rural Insurance Market. According to the findings, the people who have higher education have higher earning capabilities and are more likely to be insurance customers. Typically the cheif wage earner insures himself thereby protecting his family and loved ones as beneficiaries. A majority of the respondents were able to name the types of policy but could not recall the actual name of the policy. Largely, people had purchased money-back policies and outreach of whole life policies was very low. Policies with a sum assured of less than Rs.50,000 accounted for most policies taken. A large number also opted for a higher value policy of up to Rs.1,00,000. There was a huge of similarity between the policy purchased by the respondents and the policy recommended by the agent at the time of purchase, which in turn suggests that the agents play a significant role in influencing the customer to buy the policy. Policyholders were found generally satisfied with the overall insurance process, the premium payment process, and their dealings with the agent.
Krishna Kumar (2005) shows the Life Insurance Corporation’s penetration in the rural market, the problems that they typically encounter, and the schemes offered to the rural poor. He states that there is large growth in the total premium income collected from rural areas. He has identified the problems faced by the Life Insurance Corporation, as: poor general awareness, inadequate market coverage, lapsing of policies, lack of proper documents, and health care problems. However, he has conveyed his hope that the Life Insurance Corporation, with its huge network, would enhance its reach to cover wider areas particularly the rural masses.
Findings and Analysis
Microinsurance: definition, scope and aim
Microinsurance aims to lessen poverty and foster development by reducing risk vulnerability to shock effects, smoothing income and consumption and by the adoption/initiation of greater investments. The microinsurance market can be characterized as supply-driven, and it offers a variety of different risk coverage products such as accident, disability, property, funeral, health and many others covering various types of life, non-life and health insurance.
In search of a definition of microinsurance, we find that it is closely related to insurance, but it is distinguished on two significant aspects: first, microinsurance targets the low-income population and, second, it provides low-priced tailored products to the poor.
In general, the poverty trap can also be attributed to the poor’s vulnerability to cope with unexpected shocks. Microinsurance reduces this vulnerability by switching the uncertainty of the future outcome with the obligation of making small, regular payments so as to receive a significant level of assurance in exchange. Nevertheless, microinsurance should not be seen as a panacea for reducing the vulnerability of the poor but only as a complementary tool of development and for coping with severe shocks.
Micro health insurance
While the Indian government’s GDP allocation to the nation’s health services has not been increased (it has fallen since 1990), the focus has to enable health service access through out-of-pocket or private health insurance (PHI) routes. Income seasonality excludes the poor temporarily and possibly permanently from out-of-pocket health services. Insurance transfers potential loss risks from one party to another in exchange for a premium. Private health insurance is a growth area and micro health insurance (MHI) provides health insurance for those normally excluded from insurance owing to low economic status. The current shift from micro credit to micro finance has broadened the financial resources and services available to the poor while reducing their susceptibility to disaster. Micro health insurance allows the poor to access health services. It is estimated that 1.3 billion people worldwide have lack of access to affordable and effective healthcare.
According to a WHO (2004) report, households contribute over 80 per cent of healthcare expenditure in India and over 100 million in the population already have health insurance. It is estimated that India’s PHI expenditure is less than 1 per cent of the total health spending. India has a middle-class population (around 300 million) and so the current PHI market is enormous. According to Mahal (2002), PHI growth is unlikely to affect healthcare quality but it could increase health service inequalities if the Indian government does not legislate appropriately for any new and innovative schemes to meet the poor’s needs. Health records are inadequate. Numbers enrolled on MHI schemes are estimated between five million (Chang, 2006) and 20 million (ILO, 2005). With persistent low access to health services by the poor and health indicators in the 2001 census showing the need to improve access, MHI schemes are seen as the answer.
Micro insurance schemes in India
The most comprehensive micro-insurance scheme list (labelled as an “inventory”) in India was compiled by the International Labor Office (ILO, 2005). The information was collected mainly through a questionnaire and partially from secondary sources. Analyzing ILO data emphasizes the difficulties that all health insurance models have when focusing on the rural population. Data from 51 operational micro insurance schemes were compiled in the ILO micro insurance scheme inventory. A total of 29 provide micro health insurance. Only three health schemes focused entirely on the urban poor. Population coverage by the schemes is shown in Table I. The schemes provide widespread care (Table II). Some focus on either subsidizing/reimbursing healthcare costs purchased from a health supplier (20 schemes), while others combine both health provision and subsidy/reimbursement (nine schemes). Five schemes were introduced by organizations that were largely health providers, six by community-based organizations, 14 by non-governmental organizations (NGO) and four by organizations providing micro-finance services.
With wide variations in how the schemes are operated and what they provide, data exhibits MHI provision’s exploratory nature in India. Financial and performance information identifies that financial viability has not been achieved by most schemes.
Marketing of Insurance
Marketing services, particularly, insurance products and services require proficiency, expertise and strategic approach due to their characteristics. The marketing decisions made in the insurance space are related to their structure (product), price, means of distribution (place), and promotion, method of service (process), people, and physical evidence. It is necessary to roll out a marketing strategy to survive in the environment because of the intervention of competitors, not only in the area of offering a large variety of products but also using excellent promotional measures, improving the quality of service process, reducing the distance between customer and organization in delivering products and services, and preparing sales personnel with professional skills to educate customers in the service delivery. The reforms in the insurance sector, lead to the sector opening for private participation and foreign equity. This in turned brought major changes to the design of the products available in the existing market and also brought changes to the way they were marketed. Strategic approaches were taken in formulation and implementing marketing decisions. The availability of variety products and services, advent of innovative channels of distribution, creative promotional efforts in product positioning, greater use of Information technology in enhancing speed and quality of service, trained and professional- looking sales personnel, drastic shifts in the facilities and utilities provided at the service scape are the outcomes of strategic approach in marketing services.
Emergence of Insurance Marketing
Post liberalization is when the insurance industry understood the significance of marketing in insurance. The industry launched special plans, strategies and policy measures after identifying the huge potential of the untapped segment of the market. The concept of marketing recently emerged in this sector, approximately of thirty years. The change in the environment, to say, removal of restrictions as to entry of private capital in the sector, setting up of regulatory mechanism IRDA, flow of FDI to the sector, etc., enhanced the importance of marketing in the sector. The insurance product is unique in its nature, unlike other financial products. The role of the agent is of prime importance as they have to convince the buyer of the need for an insurance policy. Marketing aims to increase in customer satisfaction by the introduction of products and services that match the customer expectations. This shift in the marketing practices, with introduction of multiple products and promotional measures in convincing the customer, and approach in serving customers, shows the significance of marketing in the insurance sector. The availability of multiple innovative products in the family of financial products, especially in life insurance, necessitates having practical marketing policy, the lack of which will place the competitors at an advantageous position.
Marketing of services requires great effort because of its characteristics such as intangibility, heterogeneity, perishable nature and inseparability. The awareness level of customers on financial products and services, like life insurance products and services, and the attitude towards investment and preference towards life insurance play a significant role in deciding their behavior as to their purchase decisions. Marketing strategies must be developed in line with customer needs and demands that are directly linked to their purchase decision. The LIC has promotional tools such as advertising, public relation and personal in the marketing of insurance products. The effectiveness of these tools and the level of influence of the media, in enhancing customer awareness and persuading them to buy policies decide the success of these promotional strategies.
The level of satisfaction of customers with products and services, the services of individual agents in particular, the direction of customers’ perceptions on the knowledge and attitude of agents of the organisation, customer needs, products and services and attitude and behavioural pattern of agents, the brand image, brand trust, brand loyalty and brand equity, as perceived by customers, serve as indicators of the effectiveness of the marketing policies and practices followed. The effectiveness of marketing policies and practices of an organisation varies, based on certain demographic features like employment status, area of residence, income level, family status, age group, etc. The self-evaluation of the attitude of agents towards their profession, their experience on basic duties and responsibilities, and confidence of their skills and abilities will be greatly influencing the role of agents in enhancing the effectiveness of marketing strategies. Individual agents face various problems in the course of marketing insurance products. The problems may be of multiple dimensions (product, process, financial status, price, people, and level of knowledge of customer, etc) having variation over areas i.e., Rural and Urban. The interrelationship of the marketing mix variables of the LIC, along with its activities, resources and capabilities with the organisational performance indicators, picture the effectiveness of the overall organisational efforts as to product /service design and development, managing personnel, promoting services and making the service scape attractive and useful to customers. The approach and practices followed by agents in handling objections, locating prospective customers and criteria, depend on which policies and prospects have a prominent role in determining their sales potential.
The life insurance industry has a huge potential in India, only one fifth of the population has insured their lives thereby giving rise to a significant untapped potential. A strategic approcach must be followed to bring the uninsured mass under the umbrella of life, not only in designing appropriate and suitable products but also in satisfying the customer needs to the extent of their expectation in all respects, especially in servicing policies. Understanding the customers’ purchasing behaviour and level of satisfaction on products and services, evaluation of their brand trust, brand loyalty and brand equity, perception on the satisfaction of services rendered by agents, customer perception on the brand image, are of great importance. The analysis of problems faced by agents in marketing life insurance and the interrelation between marketing strategies, resources, activities, its performance measures will be an eye opener in redesigning strategies to suit its requirements.
Following conclusions can be made:
1. Most of the policyholders are have a low number of policies (less than or equal to 3) with lesser sums assured (less than or equal to 5 lakh). When we consider the level of awareness on capital market products, policyholders in urban areas are found to have higher awareness. Further, the level of awareness of policyholders on products and services of the LIC is found to be high in respect of products and distribution channel elements among the members of nuclear family structure group.
2. Factors influencing the purchase decision of policyholders, the most depended source of knowledge on life insurance is TV advertisement for rural customers and internet website for urban customers. The basic motives for holding life policies for rural customers are inheritance motives and acquisition of home assets, while it is income tax relief for urban customers.
3. The advertising efforts create better company image, change the personal attitude of customers and improve the usefulness of its products and services. Public relation also helps to promote its products and services. TV advertisements, news paper advertisements and calendars, diaries and business cards of agents are the most influencing elements.
4. The most frequent objection faced by agents in the course of marketing life insurance products and services is related to return and liquidity of policies.
Life insurance awareness campaigns should be organised by the LIC as the market leader, along with the regulator of the industry (IRDA) so that the public can have a better understanging on the significance of having life policies and hence increase life insurance density and penetration.
The information technology has an enormous potential in marketing services and servicing policyholders. The underutilization of information technology is shown by dependence of customers on agents for payment of premium and other services.
Life insurance agents face numerous problems in marketing life insurance products and services from the perspectives of customers, office authorities and among themselves, as to the maintenance of ethics and standards in marketing. Up-to-date training and skill development programs should be arranged, which in turn would help to know the customer well and match their needs with products.
The promotional initiatives in rural areas should be reoriented such that radio and news paper get a prominent place along with social camps, word-of-mouth and customer contact programs. The distribution of calendars and diaries at low price will also be an advantage for this.
Installation of trans-slides electric display at prominent places and building of information kiosks at office premises will be helpful in enhancing the effectiveness of the promotional efforts as internet, website and email use are not so much popular among rural customers.
The regional language must be given prime importance in implementing promotional efforts through chosen media and the media selected should be appropriate to customer segments, and its theme and contents should be oriented in a way such that it adds to awareness and creates knowledge on products and services among the prospective customers.