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INTRODUCTION

The story of insurance is probably as old as the story of mankind. Tendency of a human being to secure themselves against loss and disaster has been from the starting of world. They sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era past few centuries yet its beginnings date back almost 6000 years as per records. Insurance business is divided into four classes: Life Insurance Fire Marine Miscellaneous Insurance.

Insurance provides:
Protection to investor. Accumulation of savings. Channeling these savings into sectors needing huge long term investment.

FUNCTIONS OF INSURANCE
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Provide protection: The primary function of insurance is to provide protection

against future risk, accidents and uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others.

Collective bearing of risk: Insurance is an instrument to share the financial

loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is paid.

Assessment of risk: Insurance determines the probable volume of risk by

evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also.

Provide certainty:
made more certain.

Insurance is a device, which helps to change from

uncertainty to certainty. Insurance is device whereby the uncertain risks may be

Small capital to cover larger risk: Insurance relieves the businessmen from
security investments, by paying small amount of premium against larger risks and uncertainty.

Contributes towards the development of industries: Insurance provides

development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.

Means of savings and investment:

Insurance serves as savings and

investment, insurance is a compulsory way of savings and it restricts the

unnecessary expenses by the insured's For the purpose of availing income-tax exemptions also, people invest in insurance.

Source of earning foreign exchange: Insurance is an international business.

The country can earn foreign exchange by way of issue of marine insurance policies and various other ways.

Risk free trade: Insurance promotes exports insurance, which makes the
foreign trade risk free with the help of different types of policies under marine insurance cover.

LIFE INSURANCE
Life insurance is a contract under which the insurer (Insurance Company) in Consideration of a premium paid undertakes to pay a fixed sum of money on The death of the insured or on the expiry of a specified period of time

Whichever is earlier? In case of life insurance, the payment for life insurance policy is certain. The Event insured against is sure to happen only the time of its happening is not known. So life insurance is known as Life Assurance. The subject matter of insurance is life of human being. Life insurance provides risk coverage to the life of a person. On death of the person insurance offers protection against loss of income and compensate the titleholders of the policy.

Roles of life insurance

Life insurance as an investment: - Insurance products yield more than any
other investment instruments and it also provides added incentives or bonus offered by insurance companies.

Life insurance as risk cover: - Insurance is all about risk cover and protection
of life. Insurance provides a unique sense of security that no other form of invest can provide.

Life insurance as tax planning: - Insurance serves as an excellent tax saving

mechanism too.

Importance of life insurance:

Protection against untimely death: - Life insurance provides protection to

the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.

Saving for old age: - After retirement the earning capacity of a person reduces.
Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age.

Promotion of savings: - Life insurance encourages people to save money

compulsorily. When life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him. In case of surrender of policy, the policyholder gets the surrendered value only after the expiry of duration of the policy.

Initiates investments: - Life Insurance Corporation encourages and mobilizes

the public savings and canalizes the same in various investments for the economic development of the country. Life insurance is an important tool for the mobilization and investment of small savings.

Credit worthiness: - Life insurance policy can be used as a security to raise

loans. It improves the credit worthiness of business.

Social Security: - Life insurance is important for the society as a whole also.
Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.

Tax Benefit: - Under the Income Tax Act, premium paid is allowed as a
deduction from the total income under section 80C.

Indian insurance industry

History:
Life insurance came to India from England in 1818 when oriental life insurance company started in Calcutta by Europeans. After this many insurance companies had been started in India. But these companies were looking after only the 7

needs of European community established in India. Indian people were not being insured by these companies. First Indian life insurance company came as Bombay mutual life insurance assurance. Second company was Bharat insurance company came in 1896. After this the united India in madras, national Indian and national insurance in Calcutta and the co-operative assurance in Lahore were established in 1906. To regulate Indian insurance business first insurance act came in 1912 as life insurance company act and provident fund act. These acts consist of premium rates tables and periodical valuations of companies. In the first two decade of 20 th century many life insurance companies were started. So the insurance act came in 1938 to governing life and non life insurance companies and to provide strict state control. In 1956 the life insurance business in India was nationalized. In 1956 life insurance corporation of India (LIC) was created to spreading life insurance much more widely particularly in rural areas. In that year LIC had 5 zonal offices, 33 divisional offices and 212 branch offices. In 1957 the business of LIC of sum assured of 200crores, 1000crores in 1970, and 7000crores in 1986.

Indian regulatory development authority:

In 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders interests.

Role of IRDA:
Protecting the interests of policyholders.

Establishing guidelines for the operations of insurers, and brokers. Specifying the code of conduct, qualifications, and training for insurance intermediaries and agents. Promoting efficiency in the conduct of insurance business. Regulating the investment of funds by insurance companies. Specifying the percentage of business to be written by insurers in rural sectors. Handling disputes between insurers and insurance intermediaries.

INVESTMENT OF INDIAN HOUSEHOLD SAVINGS (as a % in different sector)

BANK DEPOSITS CORP. BANKS SHARES AND DEBENTURES MUTUAL FUNDS NBFCS GOVT. BONDS INSURANCE PF/ RETIRE FUNDS CURRENCY 39% 2% 1% 2% 3% 13% 13% 21% 6%

GLOBAL INSURANCE INDUSTRY

Globally, insurers increasingly are pressured by the demands of their clients. The development of global insurance industry over the past few years was influenced by booming stock markets which enabled considerable capital gains to be made in non life business. Increase in insurers equity capital increased underwriting capacity, while demand did not develop at the same pace, resulting in decrease in insurance policies prices. The stock market boom of the past few years led to demand for unit linked insurance products.

The global insurance industry is growing at rapid pace. Most of the markets are undergoing globalization. Lot of mergers and acquisition are taking place in the insurance world. The rapidity in the industry, technological improvement has resulted in pressures on a few economic parameters. The world insurance industry is at peak of its globalization process. Global insurance market is increasing by an average of six percent per year since 1990. Insurance companies have collected $2443.7 billion premium world wide according to the global development of premium volume in 144 countries in 2005. $1521.3 has been generated as life insurance premium and $922.7 as non life insurance premium. The US accounted for 35% of global life and non life premium, Japan had global share of 21%, and UK was having 10% of global share.

Influence on Indian insurance industry:

In this era of globalization, insurance companies face a dynamic global environment. Dramatic changes are taking place owing to the internationalization of activities, appearance of new risk, new types of covers to match with new risk situations, and unconventional and innovative ideas on customer services. Low growth rates in developed markets, changing customers needs, and the uncertain economic conditions in the developing world are exerting pressure on insurers resources and testing their ability to survive. Now the existing insurers are facing difficulties from non-traditional competitors those are entering the retail market with new approaches and through new channels. India has a rapidly growing middle class and this section can afford to buy insurance products. This shows the attraction that the Indian market holds for foreign insurers who have been putting pressure on developing countries as well as on India to open up its market.

Life insurance penetration as a % of GDP

United kingdom Japan Korea United states 8.9% 8.3% 7.3% 4.1% 10

Malaysia India China Brazil

3.6% 3.0% 1.8% 1.3%

Source: - www.indianinsuranceresearch.com

FUNCTIONING OF INSURANCE INDUSTRY

Insurers business model:
Profit = earned premium + investment income - incurred loss - underwriting expenses Insurers make money in two ways: (1) through underwriting, the processes by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insured. The most difficult aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge

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to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. An insurer's underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Insurance companies also earn investment profits on float. Float or available reserve is the amount of money, at hand at any given moment that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out. . Naturally, the float method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the "underwriting" or insurance cycle. Finally, claims and loss handling is the materialized utility of insurance. In managing the claims-handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages.

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COMPARISON OF INSURANCE WITH OTHER SIMILAR FACTORS

(1) Insurance and gambling compared
Insurance is often erroneously confused with gambling .There are two important differences between them .First ,gambling creates a new speculative risk ,while insurance is a technique for handling an already existing pure risk .thus ,if you bet Rs 300 on a horse ,a new speculative technique is created ,but if you pay Rs 300 to an insurer for fire insurance ,the risk of fire is already present and is transferred to the insurer by a contract. No new risk is created by the transaction. The second difference between insurance and gambling is that gambling is socially unproductive, because the winners gain comes at the expense of the loser .In contract; insurance is always socially productive, because neither the insurer nor the insured is placed in a position where the gain of the winner comes at the expense of the loser. The insurer and the insured have a common interest in the prevention of a loss. Both parties win if the loss does occur .Moreover, consistent gambling transaction generally never restore the losers to their former financial position .

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2.Insurance and hedging compared The concept of hedging is to transferring the risk to the speculator through purchase of future contracts .An insurance contract, however, is not the same thing as hedging .Although both technique are similar in that risk is transferred by a contract, and no new risk is created, there are some important difference between them. First, an insurance transaction involves the transfer of insurable risks, because the requirement of an insurable risk generally can be met .However, hedging is a technique for handling risks that are typically uninsurable ,such as protection against a decline in the price agriculture products and raw materials. A second difference between insurance and hedging is that insurance and hedging is that insurance can reduce the objective risk of an insurer by application of the law of large numbers. As the number of exposure units increases, the insurers prediction of future losses improves, because the relative variation of actual loss from expected loss will decline .thus, many insurance transactions reduce objective risk. In contract, hedging typically involves only risk transfer , not risk reduction .The risk of adverse price fluctuation is transferred because of superior knowledge of market conditions .The risk is transferred, not reduced, and prediction of loss generally is not based on the law of large numbers.

TYPES OF LIFE INSURANCE POLICY Endowment policies:

This type of policy covers risk for a specified

period, and at the end of the maturity sum assured is paid back to policyholder with the bonuses during the term of the policy.

Money back policies: This type of policy is for periodic payments of partial
survival benefits during the term of the policy as long as the policy holder is alive.

Group insurance: This type of insurance offers life insurance protection under
group policies to various groups such as employers-employees, professionals, cooperatives etc it also provides insurance coverage for people in certain approved occupations at the lowest possible premium cost.

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Term life insurance policies: This type of insurance covers risk only during the
selected term period. If the policy holder survives the term, risk cover comes to an end. These types of policies are for those people who are unable to pay larger premium required for endowment and whole life policies. No surrender, loan or paid up values are in such policies.

.Whole life insurance policies:

This type of policy runs as long as the

policyholder is alive and is covered for the entire life of the policyholder. In this policy the insured amount and the bonus is payable only to nominee on the death of policy holder.

Pension plan: A pension plan or annuity is an investment over a certain number of

years but does not provide any life insurance cover. It offers a guaranteed income either for a life or certain period.

Unit linked insurance plan: ULIP is a kind of insurance plan which provides life
cover as well as return on premium paid over a certain period of

INSURANCE AND ECONOMY

Indian economy is growing in reference to global market. Business of insurance with its unique features has a special place in Indian economy. It is a highly specialized technical business and customer is the most concern people in this business, therefore this business is able to spur the growth of infrastructure and act as a catalyst in the overall development of Indian economy. The high volumes in the insurance business help spread risk wider, allowing a lowering of the rates of the premium to be charged and in turn, raising profits. When there is a bigger base, the probabilities become more predictable, and with system wide risks balanced out, profits improve. This explains the current scenario of mergers, acquisitions, and globalization of insurance. Insurance is a type of savings. Insurance is not only important for tax benefits, but also for savings and for providing security. It can be serving as an essential service which a welfare state must make available to its people. Insurance play a crucial role in the commercial lives of nations and act as the lubricants of economic activities. Insurance firms help to spread the potentially 15

financial consequences of risk among the large number of entities, to mobilize and distribute savings for productive use, facilitate investment, support and encourage external trade, and protect economic entities against external risk.

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COMPANY PROFILE
SBI Life insurance is a joint venture between the State Bank of India and Cardiff SA of France. SBI Life insurance is registered with an authorized capital of Rs 500 crore and a paid up capital of Rs 350 crores. SBI owns 74% of the total capital and Cardiff the remaining 26%. State Bank of India enjoys the largest banking franchise in India. Along

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with its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,000 branches across the country, the largest in the world. Cardiff is a wholly owned subsidiary of BNP Paribas, which is The Euro Zones leading Bank. BNP is one of the oldest foreign banks with a presence in India dating back to 1860. It has 9 branches in the metros and other major towns in the country. Cardiff is a vibrant insurance company specializing in personal lines such as long-term savings, protection products and creditor insurance. Cardiff has also been a pioneer in the art of selling insurance products through commercial banks in France and 29 more countries .In 2004, SBI Life insurance became the first company amongst private insurance players to cover 30 lakh lives. The company expects to carve a niche in the Indian insurance market through extensive product innovation and aims to provide the highest standards of customer service through a technological interface. To facilitate this, call centres have been already installed and help lines will be installed and customers will have access to their accounts through the Internet or through SBI branches. SBI Life insurance is uniquely placed as a pioneer to usher banc assurance into India. The company hopes to extensively utilize the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans, personal loans and credit cards. SBIs access to over 100 million accounts provides a vibrant base to build insurance selling across every region and economic strata in the country. Under section 88 of insurance act 1961 an individual is entitled to a rebate of 20 per cent on the annual premium payable on his/her life and life of his/her children or adult children. The rebate is deductible from tax payable by the individual or a Hindu Undivided Family. This rebate is can be availed up to a maximum of Rs 12,000 on payment of yearly premium of Rs 60,000. By paying Rs 60,000 a year, you can buy anything upwards of Rs 10 lakh in sum assured. (Depending upon the age of the insured and term of the policy) This means that you get an Rs 12,000 tax benefit. The rebate is deductible from the tax payable by an individual or a Hindu Undivided Family.

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SBI Life Insurance is currently growing at an impressive rate of 200%. As per the latest IrDA report SBI Life ranks No. 3 amongst the private insurers. The company's market share has increased to 10% amongst the private players and is 2.25% in the total industry. This year, the company is aiming at a growth of 150%. The new business premium of the company from beginning of the year to September 2006 is Rs 660 crores. The total business premium of the company from the beginning of the year till September 2006 is Rs 765 crores. The company aims to collect first year premium of over Rs 2,000 crores. SBI Life follow a multi distribution channel approach and expect all channels to contribute to the overall growth. Today, the agency channel contributes over 50% and banc assurance channel contributes to 40% of the business. Other channels like Credit Life and Group Corporate are also performing very well.

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(1) Unit Linked products

Smart Ulip Unit Plus II Horizon 11 Unit Pus 11 Unit plus child Plan Unit Plan Elite

(1) Group Employee Benefit Products Retirement Solutions

Cap Assure Gratuity Cap Assure Superannuation Cap Assure Leave Encashment Group Immediate Annuity SBI Life Golden Gratuity

(2) Pension Products

Horizon 11 Pension Unit Plus 11 Pension Lifelong Pension

Protection Plan
Sampoorn Suraksha SBI Life Group Term Scheme In Lieu of EDLI SBI Life Keyman Insurance Life

Specialized Term Insurance

(3) Pure Protection Products

Swadhan Shield keyman

(2) Group Loan Protection Products Dhanaraksha Plus

Dhanaraksha Plus SP Dhanaraksha Plus LPPT Dhanaraksha Plus RP

(4) Protection cum savings products

Sudarshan Scholar11 Setubandhan

(3) Group Savings Protection Plan

Nidhi Raksha RP

(4) Group Micro Insurance

Grameen Suraksha Shakti and Super

(5) Money back scheme products

Money Back Sanjeevan Supreme

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DISTRIBUTION OF INSURANCE PRODUCT

Insurance has to be sold the world over. The Touch point with the ultimate customer is the distributor or the producer and the role played by them in insurance markets is critical. It is the distributor who makes the difference in terms of the quality of advice for choice of product, servicing of policy post sale and settlement of claims. In the Indian market, with their distinct cultural and social ethics, these conditions will play a major role in shaping the distribution channels and their effectiveness. In today's scenario, insurance companies must move from selling insurance to marketing an essential financial product. The distributors have to become trusted financial advisors for the clients and trusted business associates for the insurance Companies. Challenges for insurance companies and intermediaries in India Building faith about company in the mind of clients. Building personal credibility with the clients.

Different distribution channels in India:A multi-channel strategy is better suited for the Indian market. Indian insurance market is a combination of multiple markets. Each of the markets requires a different approach. Apart from geographical spread the socio-cultural and economic segmentation of the market is very wide, exhibiting different traits and needs. Different multi-distribution channels in India are as follows

Agents: Agents are the primary channel for distribution of insurance. The public
and private sector insurance companies have their branches in almost all parts of the country and have attracted local people to become their agents. Today's insurance agent has to know which product will appeal to the customer, and also know his competitor's products to be an effective salesman who can sell his company, the product, and himself to the customer. To the average customer, every new company is the same. Perceptions about the public sector companies

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are also cemented in his mind. So an insurance agent can play an important role to create a good image of company.

Banks: Banks in India are all pervasive, especially the public sector banks.
Many insurance companies are selling their products through banks. Companies which are bank owned, they are selling their products through their parent bank. The public sector banks, with their vast branch networks, are helpful to insurance companies. This channel of selling insurance is known as Banc assurance.

INSURANCE COMPANY
ICICI prudential

ASSOCIATE BANKS
ICICI bank, bank of India, Citibank, Allahabad bank, Federal bank, south Indian bank, Punjab and Maharashtra cooperative bank State

SBI life Birla sun life ING Vysya bank Aviva life insurance HDFC standard life Met life

bank

of of

India,SBBJ,SBP,SBI,SBS,SBT etc. Deutsche bank, Citibank, bank Rajasthan, Andhra bank Vysya bank ABN amro bank, canara bank Union bank, Indian bank Karnataka bank, j&k bank Source: - Hindu Business Line, January 08, 2007

Brokers: Now a days different financial institution are selling insurance. These
financial institutions are known as brokers. They are taking some underwriting charges from the insurance companies to sell their insurance products.

Corporate agents: Corporate agency is a cross selling type of channel.

Insurance companies tie-up with business houses in other industries to sell insurance either to their employees or their customers. Insurance industry, during the past 2 years has witnessed a number of such strategic tie-ups and alliances. Corporate agents have become a major force to reckon with in distributing

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insurance products. Such as- Bajaj Allianz tied up with Maruti Udyog and Ford for auto insurance and Tata AIG life has tied up with Tata tea, khaitans Williamson major and bridge foundation for selling rural policies.

Internet:

In this technological world internet is also a channel of selling

insurance. This can be as direct marketing.

COMPETITORS OF SBI LIFE INSURANCE

ICICI prudential: ICICI prudential insurance is a joint venture of ICICI bank and
prudential plc a leading financial service group in the UK. Total capital stands for Rs. 37.72 billion, with ICICI Bank holding a stake of 74% and Prudential plc holding 26%. ICICI begin their operations in December 2000 after receiving approval from IRDA. Now ICICI prudential is having over 1000 offices, over 270000 advisors and 21bancassurance partners. ICICI Prudential was the first life insurer in India to receive a National Insurer Financial Strength rating of AAA from Fitch ratings. ICICI prudential is working on the base of five core values Integrity Customer first Boundary less Ownership

Key features:
Understanding the needs of customers and offering them superior products and service. Leveraging technology to service customers quickly, efficiently and conveniently. Developing and implementing superior risk management and investment strategies to offer sustainable and stable returns to policyholders.

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Providing an enabling environment to foster growth and learning for employees.

HDFC standard life insurance: HDFC Standard Life Insurance Company Ltd. is one
of India's leading private insurance companies. It is a joint venture of Housing Development Finance Corporation Limited, India's leading housing finance institution and a Group Company of the Standard Life in UK. HDFC as on March 31, 2007 holds 81.9 per cent of equity venture. Gross premium income of the HDFC for the year ending March 31, 2007 was Rs. 2, 856 crores and new business premium income was Rs. 1,624 crores. The company has covered over 8, 77,000 lives year ending March 31, 2007. HDFC standard is having 1000 advisors in 11 towns.

Key features:
Creating corporate agents through HDFC bank in India. Creating agents to provide total financial consultancy. Introducing low cost group schemes for companies and NGOs.

Reliance life insurance: Reliance Life Insurance Company Limited is a part of

Reliance Capital Ltd. of the Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of Indias leading private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, stock broking, life and general insurance, proprietary investments, private equity and other activities in financial services. Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934.

Aviva life insurance: Aviva is UKs largest and the worlds fifth largest insurance
Group. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. Aviva has a joint venture of Dabur, one of India's oldest, and largest Group of companies. And country's leading producer of 24

traditional healthcare products. In accordance with the government regulations Aviva holds a 26 per cent stake in the joint venture and the Dabur group holds the balance 74 per cent share. Aviva has 193 Branches in India (including rural branches) supporting its distribution network. Through its Banc assurance partner locations, Aviva products are available in more than 2,795 locations across India. Aviva has a sales force of over 30000 financial planning advisors.

Key features:
Through the Financial Health Check (FHC) Avivas sales force has been able to establish its credibility in the market. The FHC is a free service administered by the FPAs for a need-based analysis of the customers long-term savings and insurance needs. Depending on the life stage and earnings of the customer, the FHC assesses and recommends the right insurance product for them. Introduced the concept of Banc assurance in India. Products to provide customers flexibility, transparency and value for money. Differentiation in fund management operations.

MetLife insurance: MetLife India Insurance Company Limited is an affiliate of

MetLife, Inc. and was incorporated as a joint venture between MetLife International Holdings, Inc.and The Jammu and Kashmir Bank, M. Pallonji and Co. Private Limited and other private investors. MetLife is one of the fastest growing life insurance companies in the country. It offers a range of innovative products to individuals and group customers at more than 600 locations through its bank partners and companyowned offices. MetLife has more than 32,000 Financial Advisors. It has approximately 70 million customers all over world. MetLife is working on the base of six core values Innovation Long term relationship Customer centered and result focused vision Creating high performance organization Working with integrity, fairness and financial prudence Partnering with internal and external customers 25

Max New York life insurance: Max New York Life Insurance Company Ltd. is a
joint venture between New York Life, a Fortune 100 company and Max India Limited, one of India's leading multi-business corporations The Company's paid up capital is Rs. 907.4 crore. Max New York life is working on the base of six core values Excellence, Honesty, Knowledge, Caring, Integrity

The Company practices a lot of importance on its selection process of insurance advisors which comprises four stages - screening, psychometric test, career seminar and final interview. 337 agent advisors have qualified for the Million Dollar Round Table (MDRT) membership in 2007 and Max New York Life has moved up to 21st rank in MDRT global list.

Key features:
Max New York Life has adopted prudent financial practices to ensure safety of policyholder's funds. Investing significantly in its training programme and each agent is trained for 152 hours as opposed to the mandatory 100 hours stipulated by the IRDA before beginning to sell in the marketplace. Using a five-pronged strategy to pursue alternative channels of distribution which include the franchisee model, rural business, direct sales force involving group insurance and telemarketing opportunities, banc assurance and corporate alliances.

Bharti Axa life insurance: Bharti Axa life insurance is a joint venture between
Bharti, one of Indias leading business groups with interests in telecom, agri business and retail, and Axa world leader in financial protection and wealth management. The joint venture company has a 74% stake from Bharti and 26% stake of Axa. The company started its operations in December 2006. Now company is having over 5200 employees across over 12 states in the country. Company is working on the base of five core values26

Professionalism Innovation Team Spirit Pragmatism Integrity

Key features:
Using multi-distribution, multi product platform techniques. Adapting AXA's best practices as a sound platform for profitable growth. Leveraging Bharti's local knowledge, infrastructure and customer base. Delivering high levels of shareholder return. Building long term value with business partners by enhancing the proposition to their customers. Retaining the best talent in India.

Tata AIG life insurance: Tata AIG Life Insurance Company Limited (Tata AIG
Life) is a joint venture company of the Tata Group and American International Group, Inc. (AIG). The Tata Group holds 74 per cent stake in the insurance venture with AIG holding the balance 26 percent. Tata AIG Life provides insurance solutions to individuals and corporate. Tata AIG Life Insurance Company started to operate its business in India on April 1, 2001. Tata AIG is having 3000 advisors all over India.

Key features:
Establishing direct mailers; call-centers in 60 centers. Creating awareness workshops in housing societies. 15-day trial period with refund, premium payment through credit card.

Bajaj Allianz life insurance: Bajaj Allianz life insurance company ltd. Is a joint
venture of Allianz AG, one of the worlds largest insurance companies and Bajaj auto, one of the biggest two and three wheeler manufacturing companies in the world.

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Company is having over 440000 satisfied customers in India. Company is having 550 branches across the country and over 60000 advisors.

Key features:
Tying up with seven regional rural banks sponsored by Syndicate Bank to tap the rural market. Introducing micro-insurance products and coming out with a new capital guarantee product. Expanding its agency force from 1.60 lakh to 2 lakh and the branch network will also be increased from 900 to 1400.

ING Vysya life insurance: ING Vysya Life Insurance Company Limited a part of
the ING group the worlds largest financial services provider entered in the private life insurance industry in India in September 2001.ING Vysya Life is currently present in 246 cities and has a network of over 300 branches, staffed by 7,000 employees and over 51,000 advisors, serving over 5.5 lakh customers. ING Vysya Life has a diversified distribution channels,. While Tied Agency remains the strongest channel, the Alternate Channels business within ING Vysya Life is one of the fastest growing distribution channels. ING Vysya Life has strengthened its position as the unparallel leader in the life insurance industry in cooperative banks tie ups. The company currently has tie ups with 130 cooperative banks across the country. The Alternate Channels division has Banc assurance, ING Vysya Bank, Corporate Agents and SMINCE. ING Vysya is working on the base of five core values Professionalism Entrepreneurial Trustworthy Approachable Caring

Birla sun life insurance: Birla Sun Life Insurance Company Limited (BSLI) is a joint
venture between the Aditya Birla Group and the Sun Life Financial Services of Canada. It started operations in March 2001 after receiving its registration license from IRDA in January 2001. Company is having more than 45 branches across India. 28

Key features:
Focus on unit linked insurance products supported with protection products to maintain leadership in product innovation. Use of multi distribution channels- Direct Sales Force, Alternate Channels and offering convenient channels of purchase to customers. Web-enabled IT systems for superior customer services and issuing policies on the internet. High degree of transparency in all business practices and procedures. Working on operational Business Continuity Plan.

Market share of different insurance companies:

ICICI Prudential HDFC Standard SBI Life Bajaj Allianz Aviva life insurance MetLife insurance Reliance life insurance Birla sun life insurance Max new York life insurance Bharti AXA life insurance Tata AIG ING Vysya Kotak Mahindra 9.1% 2.4% 3.0% 4.2% 1.3% 0.6% 1.1% 1.0% 2.3% 0.1% 1.6% 0.7% 0.9%

Source: - www.irdaindia.org
Growth in premiums of different insurance companies:Companies Premium up to Premium up to Growth % oct (Rs.mill.)
ICICI Prudential HDFC Standard SBI Life Bajaj Allianz Aviva life insurance 431831.8 410675.7 714717.4 126498.1 4586.8

08 oct (Rs.mill.)
20808.5 6595.7 8142.4 15208.2 3464.2 29

07
53 61.9 80.8 74.2 32.4

MetLife insurance 3756.0 Reliance life 9571.2 insurance Birla sun life 8595.4

1162.7 2803.7 3844.7 3720.4 1.1 3264.8

137.0 205.7 97.6 86.6 22907.8 35.2

insurance Max new York life 6942.0 insurance Bharti AXA insurance Tata AIG life 258.7 4413.0

Comparison of ULIP products of different insurance companies

ICICI Prudential Fund options-. growth fund, balanced fund, income fund, and preserver allocation to equities- upto 100% in growth fund, upto 40% in balanced fund, nil in
income fund, 50% in preserver.

minimum premium- 20,000. min/max age at entry- upto 65 years. sum assured- annual premium*term/2. fund management charges- 1.5% in growth fund, 1.0% in balanced fund, .75% in
income and preserver fund.

fixed monthly expenses- 60rs. partial withdrawals- above one partial withdrawal 100 rs. charge per withdrawal. charges on top ups- 1%. switching charges- above 4 switches in a year 100 rs. Per switching.

Birla Sun Life Insurance

fund options- enhancer fund, builder fund, protector fund. allocation to equities- maximum 35% in enhancer fund, maximum 20% in builder
fund, maximum 10% in protector fund.

30

minimum premium- 20,000 rs. min/max age at entry- 30 days to 60 years. sum assured- face amount + policy fund. fund management charges- 1% for all the fund options. fixed monthly expenses- 22 rs.+ annual charges as applicable. partial withdrawals- 2 free partial withdrawals in a year.
charges on top ups- 2%.

switching charges- 2 free switches in a year, and 100 rs. Per switching. HDFC Standard Life Insurance fund options- growth fund, balanced fund, defensive fund, secure fund, liquid fund. allocation to equities- 100% in growth fund, 30-60% in balanced fund, 15-30% in
defensive fund, 0% in secure and liquid fund.

minimum premium- 10,000. min/max age at entry- 18- 65 years. sum assured- annual premium*term/2, to 40 times the regular premium amount. fund management charges- .80%. fixed monthly expenses- 20 rs. partial withdrawals allowed- above 6 partial withdrawals 250 rs. per withdrawal. charges on top ups- 2.5% for initial 2 years, after 1%. switching charges- 24 free switching and then 100 rs. per switching. SBI Life Insurance fund options- equity fund, bond fund, growth fund, balanced fund. allocation to equities- upto 100% in equity fund, upto 20% in bond fund, 40 - 100% in
growth fund, 40 60% in balanced fund.

minimum premium- 24,000.

31

min/max age at entry- 7 65 years. sum assured- 5 50 times the regular premium amount. fund management charges- 1.5% for equity fund, 1.35% for growth fund, 1.25% for
balanced fund, 1% for bond fund.

fixed monthly expenses- 60 rs. partial withdrawals allowed- above 4 partial withdrawals 100 rs. per withdrawals. charges on top ups- 1%. switching charges- above 4 switching 100 rs. per switching. Max New York Life Insurance fund options- growth fund, balanced fund, conservative fund, secure fund. allocation to equities- 20 70% in growth fund, 10 40% in balanced fund, 0 15%
in conservative fund, 0% in secure fund.

minimum premium- 15,000. min/max age at entry- 12 60 years. sum assured- minimum sum assured 100,000 rs. fund management charges- .90% - 1.25% of net assets in the fund. fixed monthly expenses- 50 rs. charges on top ups- nil. switching charges- above 2 switching per year 500 rs. Per switching. Reliance Life Insurance fund options- equity fund, growth fund, balanced fund, capital secure fund. allocation to equities- upto 100% in equity fund, upto 40% in growth fund, upto 20%
in balanced fund, 0% in capital secure fund.

minimum premium- 10,000. min/max age at entry- 30 days to 65 years. sum assured- for age of 12 years 5 times, above 12 years 5 times to unlimited.

32

fund management charges- 1.75% in equity and growth fund, 1.5% in capital secure
fund.

fixed monthly expenses- 40 rs. partial withdrawals allowed- rs. 100 for every withdrawal. charges on top ups- 2%. switching charges- above 1 switching 100 rs. Per switching.

Insurer

Market view

Product focus

Distribution Others strategy

33

ICICI Prudential

Market growth Pension in

and Significantly

Significant

at 60%CAGR healthy products diversified with capital medium likely to grow 40% from non requirement for aging agency and expanding life reach to metro areas. is behind a time could force, maintain share in both willing contribute, a high partners to non growth market, term, target to given maintain share population at 30% in increasing expectancy. Product awareness slightly LIC significant health despite private segment.

disadvantage; comprise 3 5% of product mix in 5 years.

HDFC insurance

Expect

high Focus on regular Prefer digit premium offices and franchisees,

own Breakeven not versus necessarily next in 18

Standard life double

market growth products

34

over next few higher years, state expected steady persistency not levels, focus flexibility equity investment, competitive versus tenure funds for longer products given lower amc

higher focus on months, training agents would given sell, rural focus FDI in required obstacles include lack of bank

it require were

group rather than hard capital even if but raised to 49%.

mutual infrastructure.

Bajaj Allianz insurance

Current

charges Most products More focus on Growth homogeneous across smaller towns, market oriented on strategy, force detarrifing players, greater agency expansion. to be by not

and share

life industry
growth

sustainable for not much price emphasis next 7 10 differentiation, years, 10% years target ULIPsales market unlikely recent regulations, much threat from

would hit non life segment adversely.

share in next 5 affected

mutual funds. Birla sun life Target to be Currently only Agent

It

believes could

insurance

top in 5 years

unit group products

linked productivity

is some marginal

products sold but an issue given players are nature, target is over India, also

linked their part time br bought out.

focus area for 130 branches all development. 35

will leverage on groups products distribution strengths.

36

PROJECT OVERVIEW
INTRODUCTION Meaning of Working Capital
current assets less current liabilities, properly called net working capital. Working capital is a measure of a company's liquidity. Sources of working capital are (1) net income, (2) 37

increase in noncurrent liabilities, (3) increase in stockholders' equity, and (4) decrease in noncurrent assets.

Definition of working capital

The net working capital of a business is its current assets less its current liabilities

Current Assets include: - Cash balances Finished Trade Stocks of raw materials Work-in-progress goods debtors Prepayments

Current - Short term loans

Liabilities
Trade Taxation Dividends

include:
creditors Accruals payable payable

Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the longterm as well.

38

Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity. Increased production tends to engender a need to hold additional stocks of raw materials and work in progress. Increased sales usually means that the level of debtors will increase. A general increase in the firms scale of operations tends to imply a need for greater levels of cash. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's shortterm assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.ing capital management

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:-

Gross Working Capital: It represents the total current assets and is also referred to as
circulating capital because current capital as current assets, are circulating in nature.

39

Net Working Capital: It is a measure of liquidity and it can be defined in two ways.
The most usually implied definition of net working capital is that it represents the difference between current assets and current liabilities. Some people also define it as excess of current assets over the current liabilities. It is that portion of the firms current assets, which is financed by long-term funds. Net working capital as a measure of liquidity is generally not very useful to compare the performance of different units due to difference in scales of operation, efficiency, and creditability in the market etc., between the different firms. However it is a very useful measure for internal control purposes. It can also be used to compare the liquidity position of the same unit over a period of time. This will help in maintaining the acceptable level of net working capital. Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

CONCEPT OF CAPITAL OF SBI LIFE

Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves

Mar '07 526.30 526.30 0.00 0.00 23,545.84

Mar '08 526.30 526.30 0.00 0.00 27,117.79 40

Mar '09 526.30 526.30 0.00 0.00 30,772.26

Mar '10 631.47 631.47 0.00 0.00 48,401.19

Mar '11 634.88 634.88 0.00 0.00 57,312.82

Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities

0.00 0.00 24,072.14 27,644.09 367,047.53 380,046.06 19,184.31 30,641.24 386,231.84 410,687.30 49,578.89 55,538.17 459,882.87 493,869.56

0.00 31,298.56 435,521.09 39,703.34 475,224.43 60,042.26 566,565.25

0.00 49,032.66 537,403.94 51,727.41 589,131.35 83,362.30 721,526.31

0.00 57,947.70 742,073.13 53,713.68 795,786.81 110,697.57 964,432.08

Assets Cash & Balances with RBI CallBalance with Banks, Money Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities

Mar '07 12 mths

Mar '08 12 mths

Mar '09 12 mths 29,076.43 22,892.27 337,336.49 149,148.88 8,061.92 5,385.01 2,676.91 141.95 25,292.31 566,565.24 259,536.57

Mar '10 12 mths 51,534.62 15,931.72 416,768.20 189,501.27 8,988.35 5,849.13 3,139.22 234.26 44,417.03 721,526.32 736,087.59

Mar '11 12 mths 55,546.17 48,857.63 542,503.20 275,953.96 10,403.06 6,828.65 3,574.41 263.44 37,733.27 964,432.08 614,603.47

16,810.33 21,652.70 22,511.77 22,907.30 202,374.45 261,641.53 197,097.91 162,534.24 6,691.09 7,424.84 4,114.67 4,751.73 2,576.42 2,673.11 121.27 79.82 18,390.71 22,380.84 459,882.86 493,869.54 131,325.40 191,819.34 41

Bills for collection Book Value (Rs)

44,794.10 57,618.44 457.39 525.25

70,418.15 594.69

93,652.89 776.48

152,964.06 912.73

TYPES OF WORKING CAPITAL A. Permanent Working Capital

B. Temporary Working Capital Permanent Working Capital: The operating cycle is a continuous feature in almost all the going concerns and therefore creates the need for working capital and their efficient management. However the magnitude of working capital required will not be constant, but will fluctuate. At any time, there is always a minimum level of current assets which is constantly and continuously required by a business unit to carry on its operations. This minimum amount of current assets, which is required on a continuous and uninterrupted basis is after referred to as fixed or permanent working capital. This type of working capital should be financed (along with other fixed assets) out of long term funds of the unit. However in practice, a portion of these requirements also is met through short term borrowings from banks and suppliers credit.

42

For eg., In a manufacturing unit, basic raw materials required for production has to be available at all times and this has to be financed without any disturbance.

Temporary Working Capital

Any amount over and above the permanent level of working capital is variable, temporary or fluctuating working capital. This type of working capital is generally financed from short term sources of finance such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency. As the name implies, the level of fluctuating working capital keeps on fluctuating depending on the needs of the unit unlike the permanent working capital which remains constant over a period of time.

COMPETITORS Competition Last Price SBIL ICICI PRU BAJAJ ALLIANZ LIFE BIRLA SUN LIFE TATA AIG ING VAISYA BHARTI HEXA AVIVA LIFE INS. IOB Oriental Bank 2,199.00 847.00 408.00 510.00 269.75 330.50 117.65 162.45 115.20 249.00 Market Cap.Net InterestNet Profit (Rs. cr.) Income 139,610.16 63,788.43 9,121.24 26,706.12 19,326.16 3,090.88 21,427.15 16,347.36 3,007.35 18,577.59 15,091.58 2,227.20 13,625.56 11,889.38 1,726.55 13,550.50 17,119.06 2,072.42 8,527.26 11,631.62 858.53 6,981.61 6,830.33 1,245.32 6,276.10 9,641.40 1,325.79 6,238.44 8,856.47 905.42 Total Assets 964,432.08 246,918.62 225,501.75 227,406.73 160,975.51 219,645.80 172,402.33 84,121.74 121,073.40 112,582.58

DETERMINANTS OF WORKING CAPITAL

43

Working capital management is an indispensable functional area of management. However the total working capital requirements of the firm are influenced by the large number of factors. It may however be added that these factors affect differently to the different units and these keep varying from time to time. In general, the determinants of working capital which are common to all organizations can be summarized as under: a. b. c. d. e. f. g. h. i. j. Nature and Size of Business Production Cycle Business Cycle Production Policy Credit Policy Growth & Expansion Proper availability of raw materials Profit level Inflation Operating Efficiency

7.

SOURCES OF WORKING CAPITAL

The working capital necessary and what constitutes working capital have been analyzed in depth. Now we look out what are the ways we can generate working capital. a. b. c. Trade Credits Bank Credit Current provisions and non-bank short term borrowings: and 44

d.

Long term sources ie., equity share capital, preference share capital and

other long term borrowings. Short term source of funds are generally available at comparatively lower costs but theoretically these funds can be called back any moment and therefore it is more appropriate to meet at least two thirds of the permanent working capital requirements from the long term sources. The advantages of long term sources is, it reduces risk as there is no need to repay the loans at frequent intervals and funds can be employed gainfully and it increases liquidity.

INTRODUCTION TO WORKING CAPITAL MANAGEMENT

The perfect world does not requires or concentrates about current assets or current liabilities because there would not be uncertainty, no transaction costs, information search costs, scheduling costs or production and technology constraints. The unit cost of production would not vary with the quantity produced. Capital, Labour and products markets shall be perfectly competitive and would reflect all available information. Thus in such an environment, there would be no advantage for investing in short term assets. Whereas, the world in which we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowing and lending rates for investments and financing of equal risk. Similarly each organization is faced with its own limits on the production capacity and technology it can employ. There are fixed as well as variable costs associated with producing goods. In other words, the markets in which real firms operate are not perfectly competitive.

45

These real world facts introduce problems and require the necessity of working capital. The most important areas in the day to day management of the firm, is the management of working capital. Working capital management is the functional area of finance that covers all the current accounts of the firm. It is concerned with management of the level of individual current assets as well as the management of total working capital. Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. For example, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial inputs in future at reasonable price. This may necessitate the holding of inventory ie., current assets. Similarly an organization may be faced with an uncertainty regarding the level of its future cash inflows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of a reserve of short term marketable securities, again a short term capital asset. The unpredictable and uncertain global market plays a vital role in working capital. Though the globalization of economy and free trading of products envisages the continuous availability of products but how much its cost effective and quality based varies concern to concerns. Working capital refers to the funds invested in current assets, ie., investment in stocks, sundry debtors, cash and other current assets. Current assets are essential to use fixed assets profitably. The term current assets refers to those assets which in the ordinary course of business can be converted into cash within one year without undergoing diminish in value and without disrupting the operations of the firm. The current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those which are to be paid within a year out of the current assets or earnings of the concern. The current liabilities are accounts payable, bills payable, bank overdraft and outstanding expenses.

46

The financial manager plays a vital role in management of working capital. The financial management of any business organization involves the three following vital functions: 1. 2. 3. Management of Long Term Assets Management of Long Term Capital Management of Short Term Assets and Liabilities

In most of the organizations the first & second one which refers to Capital Budgeting and Capital Structure respectively will be maintained and cope up with organization growth. The third one which refers to Working Capital Management requires more skills for sustaining and steady growth rate for any organization.

The working capital management includes decisions

i. ii. iii. iv. v. vi. How much stock/inventory to be hold How much cash/bank balance should be maintained How much the firm should provide credit to its customers How much the firm should enjoy credit from its suppliers What should be the composition of current assets What should be the composition of current liabilities

For eg., a machine cannot be used without raw material. The investment on the purchase of raw material is identified as working capital. It is obvious that a certain amount of funds is always tied up in a raw material inventories, work in progress, finished goods, consumable stores, sundry debtors and day to day cash requirements. However the businessman also enjoys credit facilities from his suppliers who may supply raw material on credit. Similarly, a businessman may not pay immediately for various expenses. For instance, the labourers are pain only periodically. Therefore, a certain amount of funds is

47

automatically available to finance the current assets requirements. However, the requirements for current assets are usually greater than the amount of funds payable through current liabilities. The satisfactory level of working capital is the main object of working capital management. Any organization which fails to maintain satisfactory level of working capital may be forced to bankruptcy. The current assets should always be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Thus the interaction between current assets and current liabilities is the main aim of working capital management. The basic objective of financial management is to maximize shareholders wealth. This objective can be achieved when the company earns sufficient profits. The amount of profits largely depends on the magnitude of sales. But, sales do not convert into cash instantly. There is time lag between the sale of goods and the receipt of cash. Working capital is required to purchase the materials, pay wages and other expenses in order to sustain sales activity the time lag. The time gap between the sale of goods and realization of cash is called operating cycle. What operating cycle stands for? a. b. c. Conversion of cash into raw materials Conversion of raw materials to finished goods Conversion of finished goods into receivables
Conversion of receivables into cash

48

Working Capital Management

managerial

accounting

strategy

focusing

on

maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

49

Decision criteria
By definition, working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability. One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making. See Economic value added (EVA).

50

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable. Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity (EPQ). Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances. Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

51

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The main objective is to ensure the maintenance of satisfactory leve of saworking capital in such a way that it is neither inadequate nor excessive. It should not only be sufficient to cover the current liabilities but ensure a reasonable margin of safety also. 1. To minimize the amount of capital employed in financing the current assets. This also leads to an improvement in the Return of Capital Employed. 2. To manage the current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital acquired to finance them. This will ensure the maximization of the value of the business unit. 3. To maintain the proper balance between the amount of current assets and the current liabilities in such a way that the firm is always able to meet its financial obligations, whenever due. This will ensure the smooth working of the unit without any production held ups due to paucity of funds.

52

53

DATA ANALYSIS AND INTERPRETATION

1.Do

you have knowledge about insurance? Yes No

1. Do you have knowledge about insurance.

No 1%
Yes No

Yes 99%

2. Do you have purchase any insurance policy.

Yes 54

No

2. Do you have purchase any insurance policy.

Yes 22% Yes No

No 78%

If Yes
3. Which co.? Company LIC ICICI PRU BAJAJ ALLIANZ BIRLA SUN LIFE AVIVA OTHERS Percentage 65% 8% 5% 1% 1% 20%

55

3. Which co.
70% 60% 50% 40% 30% 20% 10% 0% 66%

Percentage

10%

10%

14% 5% 5% AVIVA OTHERS

LIC

ICICI PRU

BAJAJ BIRLA SUN ALLIANZ LIFE Companies

1.Which insurance policy

General Insurance Life Insurance

4. Which insurance policy General Insurance 42%

General Insurance Life Insurance

Life Insurance 58%

56

1.Do you know we are giving more security with high rate of returns?
Yes No

5. Do you know we are giving more security with high rate of returns?
Yes 5% Yes No No 95%

57

(6) Quarries regarding policy in your co.

Returns Claims on time Services Others

12% 22% 35% 31%

5. Quarries regarding policy in your co.

35% 30% 25% 20% Percentage 15% 10% 5% 0% 33% 24% 14%

29%

Returns

Claims on time

Services

Others

Queries

58

If No 1.Whats your annual earning?

Earning Less than 1,00,000 1-3 lakh 3-5 lakh More than 5 lakh

Percentage 52 22 17 9

1. Whats your annual earning?

60 40 Percentage 20 0 1. Whats your annual earning? Less 52 1-3 lakh 3-5 lakh 23 17

52 23 17

8
More 8

Earning

1.How you have make secure yourself and your family?

59

Property Fixed deposit Educate children Not secure

12% 36% 22% 30%

40% 35% 30% 25% 20% 15% 10% 5% 0%

2. How you have make secure yourself and your family?

36% 22% 12% 30%

Percentange

Property

Fixed deposit Securities

Educate children

Not secure

3. Do you know we are giving more security with high rate of returns?
Yes 5 persons

60

No

70 persons

3. Do you know we are giving more security with high rate of returns?
Yes 7%
Yes No

No 93%

61

4.Which facility does you like most provided by us?

Facility Rate of return Wavier of premium Timely claim settlement Easy exit Others

Percentage 46 22 26 2 4

3.
50 Percentage 40 30 20 10 0 46

Which facility does you like most provided by us?

22

26

2 Rate of return Wavier of premium Timely claim settlement Facilities Easy exit

4 Others

62

CONCLUSION
63

 Insurance companies are recruiting their advisors mainly through personal reference, through advertisement, and through walk in interviews. None of the company is recruiting their advisors through placement agencies. But some companies have started recruiting their advisors through placement agencies as a trial basis. Those advisors who are recruited through personal references need more training session and company has to put effort to make them active. Most of the companies are giving training session to advisors to make them active. Only one or two companies are providing higher channel position and increasing incentives to make them active.

Most of the insurance companies have started recruiting agency manager and high posted people from professional colleges to improve efficiency of the insurance company. Insurance companies have forgotten their traditional products. Companies are totally concentrating on selling ULIP products. Now insurance companies are selling their products as an investment product not as life insurance products.

64

 Insurance companies are deploying their products mostly based on customer needs and demands. Insurance companies are not doing enough market researches to know the potential of the market.

Most of the insurance companies are differentiating themselves from the competitors by providing better service quality. Some companies are differentiating themselves providing better pricing of the product.

Branch managers of most of the companies think that providing better service quality is the best tool to compete in the market. Better service quality may be in the form1. Issuing policy in time. 2. Providing claims in time. 3. Making customers aware about their status of policy.

65

RECOMMENDATIONS
SBI Life should start recruiting advisors through placement agencies. By practicing this SBI Life will get more capable advisors who can work efficiently. Inactive advisors kind of thing would not happen.

66

 SBI Life should also promote the term and endowment insurance products including ULIP products. Because these are basic insurance products. Promote products as life insurance products not an as investment products.

Somewhat the brand name of SBI is harming the SBI Life insurance, because most of the people are not happy with the service provide by SBI bank, so it is necessary to change the mentality of the people that SBI Life insurance is different from SBI bank. SBI Life should promote their product features rather than promoting their brand name.

To increase awareness in rural market SBI Life should do some activities in villages and small towns. This can be done by putting kiosk in fairs and festival melas organizing in villages.

SBI Life can sell their products through charitable institutions.

67

 SBI Life should sell their products through head of the villages or through panchayat in villages. People in villages believe on the head and panchayat so selling insurance will be easier in villages.

SBI Life can introduce some special policies for the farmers to tap the rural market, and pricing for these kinds of products should be less so farmers can easily afford to take policies.

As SBI Life is coming in general insurance so it can introduced products like cattle insurance and water pump insurance. It will also help to promote the products of SBI Life insurance. Make aware about SBIs products by seminars conducted by mangers and senior dignitaries to clear the myth related to it twice a year. Regular advertisement in media & newspaper can educate about our product, and keep in touch with public in Jodhpur. By communicating our competitive advantages, we can grab the belief of public in insurance sector.

68

 Many clients of other policies are not satisfied by their services we can make them agree to purchase our policies by effective sales management. Still market is full of opportunities; only a realistic strategy or plan is needed to be implemented.

69

70

QUESTIONNAIRE
1. Name ____________________________

2. Age Group (Tick appropriate One) 20-25 45-50 25-30 50(Above) 3 0-35 35-40 40-45

3. Sex Male Female

4. Educational Qualification

_____________________________

5. Do You Know About Life Insurance/General Insurance (Y/N) If Yes ___________________________________________________

6. Do You Have any Life Insurance Policy (If Yes, Mention It)?

________________________________________________

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7. Before Buying A Insurance Policy How Much Important? Do You attach to the following Attributes?

(A) Investment (c) Risk Cover

(B) Saving For Future (D) Tax Saving

8. From Where Did You Come To Know About Insurance?

(A) T.V / Media (C) Insurance Agents/Advisor Agent/Brokers

(B) Friends /Relatives (D) others

9.Do you know about the SBI Life Insurance Co. Ltd .?

(A) Yes

(B) No

10.Is the brand name SBI Life Insurance Co. Ltd. effective?

(A) Yes

(B) No

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11.What are changes do you like to have in Life Insurance Company and their policy, comment?

___________ _______________________________________________________

12.What is your suggestion to the Life Insurance Company and their policy?

Address

Phone No.

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APPENDIX

A.S.I A.S.M B.S.I CAC SYSTEM C.S NET D.S.C L.H.D R.E.F

: : : : : : : :

AREA SERVICE IN CHARGE AREA SALES MANAGER BRANCH SERVICE IN CHARGE COMMERCIAL AIR CONDITIONING CUSTOMER SERVICE NET DIRECT SERVICE CENTRE LOGISTIC HEAD OF DEPARTMENT REFRIGERATOR.

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BIBLIOGRAPHY Website www.sbi.com

Books
Philip Kotler Marketing Management. C.R.Kothari Research Methodology. K. Ashwathappa Human Resoures Management. Stephen Robins Organizational Behaviour. Hawkins Marketing Research. Consumer Behaviour. SBI Life Product Module.

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REFERENCES
Books
Insurance in India Insurance

Magazines
Business world Magazines

News papers
The Hindu on Business Line

Internet
IRDA website Google search

distribution (ICFAI investment Publications) Insurance industry (ICFAI Publications) Economic Times Websites of different insurance companies

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