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It can be lost due to early death It can become non functional due to disability and sickness It can be lost due to living too long It can be lost due to unemployment.
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Insurance is needed because of following reasons: 1. Social Security Tool Insurance acts as an important tool providing a sense of security to the society on a whole. It is the right of every human-being to have basic amenities like food, clothing, housing, medical care, standard of living necessary for his personal and family's well being, and right to security in case of unemployment, disability, sickness or any other circumstances out of his control. 2. Uncertainty The basic need of insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is protected against risks or its exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in value due to such risk, the insurance company bears the loss and compensates the insured by making payment to him. 3. Economic Development The premium paid by people to the insurance companies is a part of their savings. Insurance, thus, acts as a useful instrument in promoting savings and investments, particularly within the lower-income and middle-income families. These savings are ultimately used as investments fuelling economic growth The purpose of Insurance is to replace the uncertainty of loss with certainty of compensation. Below is the figure depicting the need and purpose of insurance
PERIL
ASSET
CANNOT BE PREVENTED
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On 19th January 1956, the management of the entire life insurance business of 229 Indian insurers & provident insurance societies & the Indian life insurance business of 16 nonIndian life insurance companies then operating in India, was taken over by the central govt. & then nationalized on 1st September 1956 when Life Insurance Corporation came into existence. Since 1956, with the nationalization of insurance industry, the LIC held the monopoly in India's life insurance sector. From 1991 onwards, the Indian Government introduced various reforms in the financial sector paving the way for the liberalization of the Indian economy. It was a matter of time before this liberalization affected the insurance sector.
STAGE 3: Insurance Regulatory and Development Authority Act, 1999 The Government of India introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies into the insurance. Further, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies. Regulations for Indian insurers To protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry, Insurance Regulatory and Development Authority (IRDA) was established. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956 The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company The Companys sole purpose is to carry on life insurance business or general insurance business or reinsurance business.
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The minimum paid up equity capital for life or general insurance business is 100crores The minimum paid up equity capital for carrying on reinsurance business has been prescribed as 200 crores Role and functions of IRDA: Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA. (1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. (2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, (A) Issue to the applicant a certificate of registration, renews, modify, withdraw, suspend or cancel such registration (B) Protection of the interests of the policy holders in matters concerning assigning of Policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance (C) Specifying requisite qualifications, code of conduct and practical training for Intermediary or insurance intermediaries and agents (D) Specifying the code of conduct for surveyors and loss assessors (E) Promoting efficiency in the conduct of insurance business (F) Promoting and regulating professional organizations connected with the insurance and re-insurance business (G) Levying fees and other charges for carrying out the purposes of this Act (H) Calling for information from, undertaking inspection of, conducting enquiries and Investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; (I) Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and
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regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938) (J) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries (K) Regulating investment of funds by insurance companies; (L) Regulating maintenance of margin of solvency; (M) Adjudication of disputes between insurers and intermediaries or insurance Intermediaries (N) Supervising the functioning of the Tariff Advisory Committee (O) Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations. (P) Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector (Q) Exercising such other powers as may be prescribed.
Life insurance products are usually referred to as plans of insurance. These plans have two basic elements, one is the Death Cover providing for the benefit being paid on the death of the insured person within a specified period and the other is the Survival benefit providing for the benefit being paid on survival of a specified period. The various types of life insurance products are:1. Term assurance plans:The plans of insurance that provide only death cover are called Term assurance plans. Term assurance policies are only for a limited time, claim for which is paid to the family of the assured only when he dies. In case the assured survives the term of policy, no claim is paid to the assured.
2. Pure Endowment and Endowment Assurance plans
The plans of insurance that provide only survival benefits are called Pure Endowment plans. A term assurance plan along with a pure endowment plan when offered as a single product is called an Endowment Assurance plan. In case of endowment assurance plan, the term of policy is defined for a specified period say 15, 20, 25 or 30 years. The insurance company pays the claim to the family of assured in an event of his death within the policy's term or in an event of the assured surviving the policy's term. 3. Whole Life Plan A term assurance plan with an unspecified period is called a Whole Life Plan. In whole life plan, insurance company collects premium from the insured for whole life or till the time of his retirement and pays claim to the family of the insured only after his death. It is suitable for those who want to leave estate for their children. 4. Annuity Annuities are just opposite to life insurance. A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by installments) to the insurer. The insurer in return promises to pay the insured a series of payments until insured's death. Generally, life annuity is opted by a person having surplus wealth and wants to use this
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money after his retirement. No underwriting is required in annuities, as the risk of living too long is covered under annuities. There are two types of annuities, namely:
a. Immediate Annuity: In an immediate annuity, the insured pays a lump sum
amount (known as purchase price) and in return the insurer promises to pay him in installments a specified sum on a monthly/quarterly/half-yearly/yearly basis.
b. Deferred Annuity: A deferred annuity can be purchased by paying a single
premium or by way of installments. The insured starts receiving annuity payment after a lapse of a selected period (also known as Deferment period). 5. Children plans Insurance can be taken on the lives of children, who are minors. The proposal will have to be made by a parent or a guardian. In this plans, risk on the life of the insured will begin only when the child attains a specified age.
a. Child's Deferred Assurance: Under this policy, claim by insurance company is
paid on the option date which is calculated to coincide with the child's eighteenth or twenty first birthdays. In case the parent survives till option date, policy may either be continued or payment may be claimed on the same date. However, if the parent dies before the option date, the policy remains continued until the option date without any need for payment of premiums. If the child dies before the option date, the parent receives back all premiums paid to the insurance company.
b. School fee policy: School fee policy can be availed by affecting an endowment
policy, on the life of the parent with the sum assured, payable in installments over the schooling period. 6. Money back policy Money back policy is a policy opted by people who want periodical payments. A money back policy is generally issued for a particular period, and the sum assured is paid through periodical payments to the insured, spread over this time period. In case of death of the insured within the term of the policy, full sum assured along with bonus accruing on it is payable by the insurance company to the nominee of the deceased. 7. Joint Life Policy
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In this policy two or more lives can be covered. Such policies usually cover married couples or partners. The sum assured is paid on the death of any of the insured persons during the term or at the end of the term. Some plans also provide payment of sum assured on the death of one life and the policy is continued to cover the second life till maturity, without payment of further premium. 8. Convertible plans Convertible plans of assurance are plans, which provide, in its terms and conditions, that it can be changed to another plan after, or within, a certain period after commencement. For example, a convertible plan can be converted into a whole life policy or an endowment policy, within a period specified in the original plan.
Individual adults Children (minors) Two or more persons jointly under one policy
What can be the Sum Assured? Some plans stimulate a minimum SA(Sum assured). There can be maximum limits also for SA as well as certain benefits, like Accidental benefits.
In what contingency the Sum Assured is payable? Could be on death or on survival How and when the Sum Assured is payable? Could be in one lump sum or in installments, and on the contingency happening or some other dates
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This determines the period during which the specified event should occur for the SA to be payable. Some plans provide for benefits even beyond the term. Are there additional benefits? These are also called supplementary benefits and may be provided by way of riders, in addition to the basic covers.
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Thus ULIP has addressed and overcome several concerns that customers had about life insurance - liquidity, flexibility and transparency. Traditionally, the savings element of insurance has been opaque, giving policyholders no control over asset allocation, no transparency, no flexibility to match one's lifestyle, inexplicable returns and an expensive, complicated exit. ULIPs, by separating the two parts within the same product, and managing them independently, offer insurance buyers a product mix that satisfies the dual needs of protection and investment with higher flexibility and transparency. In short, ULIPs are structured such that the protection (insurance) element and the savings element (capital appreciation) can be distinguished and hence managed according to one's specific needs.
1.2. Recent changes in the ULIP structure and their implications for investors
The new IRDA guidelines on ULIPs are implemented from 1st September, 2010.
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Features
ULIP Avatar ULIP (Before Sept.(After Sept. 01,Implications 01, 2010) 2010)
1. Minimum 5 times of the10 times of theIt will enhance the risk cover for the policyholder Sum Assured www.irda.gov.in premiumbut it will lead to increase in mortality charges as Source: annual premiumannual amount amount well 2. Agents No disclosure ofCompulsorily Commission disclosure will help policyholders to Commission agents disclosure ofget information about how much of his premium commissions agents commissionamount will be contributed towards payment of in benefitagents commission illustration of a policy 3. Guaranteed Returns Nil Guaranteed returnsThe minimum guarantee rate certainly holds on unit-linkedeconomic sense. However, this may actually make pension plans @it costlier (in terms of the premium paid) for the 4.5% buyers of such products. Moreover, actuaries at life insurance companies may find it difficult to manage long-term guarantees because there are not many long-term investment options available. Presently, the longest maturity government bond has tenure of 30 years. Moreover, the guaranteed rate is very low as compared to other fixed income instruments like PPF, Bank FDs which will fetch higher returns
4. Upfront High in initial 3Evenly distributedIRDA has eliminated high front-ending of the Charges years of theover the initial 5expenses, which were as high as 60%. The policy and 4thyears (lock-inregulator has also mandated that expenses should year onwardsperiod) be evenly distributed during the lock-in period (5gradually years) which will reduce the overall charges for reduces the whole policy term 5. Surrender No limit.IRDA has set aThis will help those investors who wish to exit Charges * Companies canrange of surrenderULIP after the 5-year lock-in as they would not charge as percharges from 2.5%suffer any additional surrender charges over and their discretion to 12.5% forabove the expenses mandated by the IRDA policies of less than 10 year term and 2.5% to 15% for policies of more than 10 year term 6. Overall No limit Charges Companies canIRDA has taken this move in favour of investors, charge maximumwhich will thus result in overall higher returns due upto 3% and 2.5%to lower charges for policy of 10 year term and 15 year term respectively
7. Top-up
No compulsoryTop-ups will beThis step will have mix impact on the life cover treated as singlepolicyholders. On the one side, they can get Page | 13 premium policiesincreased insurance cover without entering into a and will attractnew policy agreement. But, on the other hand, it mandatory will increase overall cost due to higher mortality
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1.3.2 Promoters
The promoters of Aviva life insurance are the Dabur Group and Aviva Group. Dabur Group is one of India's oldest and largest group of companies, with a consolidated annual turnover in excess of Rs 2,834 crores. It is the country's leading producer of traditional healthcare products. On the other hand, Aviva Group is the UKs largest and one of the biggest Insurance groups worldwide. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. With a history dating back to 1696, Aviva Group has a 50 million customer base worldwide
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The vision is to be amongst Indias leading life insurers with a quality business model, focused on sustainable growth. They seek to build a robust product portfolio meeting all customer lifecycle needs related to Savings, Retirement, Investments and Protection.
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The organization structure of Aviva Life Insurance is depicted below: National Director [ND]
Agents
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Type
Features
Traditional
Guaranteed additions to the sum assured in the first three policy years. Attractive returns by participation in the companys profits and an additional terminal bonus on maturity The option to deposit any amount of premium and at any point of time into deposit account Option to withdraw money from the account after 3 policy years High life cover; equal to 10 times the first premium A life cover that doesnt lapse even if subsequent premiums are missed Guaranteed returns: Guaranteed Additions @7% of Life Cover for each completed policy year till maturity Limited premium payment: Premiums are not required to be paid during the last five years of the policy Additional protection: Rebate for high Sum Assured: Rebate on basic premium is allowed if Sum Assured is Rs. 1 Lac or higher Payment of life cover to the family in the event of death Additional protection against accidental permanent total disability Return of the money paid towards the base premium on the survival at the end of the policy term Provision of selecting a rider for additional protection against permanent total disability and 18 critical illnesses Rebate on premium depending on the sum assured Life cover (sum assured) plus fund value as death benefit Flexible life cover and an in-built accidental death cover Provision of selecting a rider for additional protection 8 fund options with option of Systematic Transfer Plan (rupee cost averaging) Option to pay top-up premiums to Page increase the savings element along with|a19 nominal life cover A percentage of the Life Cover is paid out, depending on the policy term, at the
Traditional
Traditional
ULIPS
[Note:- Some of the products of Aviva Life Insurance were banned after the new IRDA guidelines on ULIPs, which are not considered.]
of Marketability of product) Examples Equity, Debt, Forex, etc. are the various markets one can invest in.
2. Liquidity Risk: The risk involved with concerns related to liquidity. (Stuck with
a stock) Example If one have a crore worth of land near the highway and is in an urgent need for Rs. 2 Lac will this property get the required liquidity.
3. Interest Rate Risk: The risk associated with the change in Interest Rate.
(Fluctuations in Rate) If interest rise, savers make more money but borrowers lose money, if interest rate goes up price of bond with lower rate fall resulting into loss.
4. Inflation Rate Risk: The rise in inflation could surpass the returns earned or
accrued and thus hamper the Financial Goals. (Increase of Oil prices) Inflation reduces the purchasing power of money hence the effective rate of return will go down. Example FD rate at 9% with inflation at 7%
5. Business Risk: The risk involved with any particular Business is called a
Business risk. Example Pager Black n white TV, Sectoral) Sectors like cement, banking, Pharma etc
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6. Credit Risk: The risk involved with the default of payment. (Payment default
risk) What if the investment tool is not able to pay the interest or does not declare dividend when expected or your debtor goes bankrupt
7. Currency Risk: The risk involved with currency movements. (Exchange rate) If
dollar exchange rate comes down importers will have to pay less where as exporters will get less money for the same amount of dollar payment.
8. Political Risk: The risk involved with Political developments. (Political
Instability)
Money Market- is the market for trading short term instruments which mature in less than 1 year. These instruments are:a) Cash- refers to money in the physical form of currency, such as banknotes
and coins b) Call Money- is the money borrowed by banks from other banks or from financial institutions for one night. c) Notice Money- is the money borrowed by banks from other banks or from financial institutions for less than 15 days. d) Term Money- is the money lent for 15 days or more but for less than 365 days. e) Fixed Deposits maturing in less than 1 year- They remain with a bank for duration of less than 1 year. Commercial papers are issued by corporate to fund their working capital requirement for periods ranging from 7 days to a year.
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f) Treasury Bills- are issued by Reserve Bank of India. These bonds are for 2 durations of 91 days or 364 days.
ii.
Capital Market- Financial instruments having maturity of one year or more form the capital market instruments. These include debt instruments which promise to repay a borrowed amount.
%age of shares held by the shareholder reflects the ownership of shareholder in that company. The shareholder earn returns by way of:
Capital Appreciation: E.g.: Rs 100 share becomes Rs.200 Dividend: the company divides a certain percentage of its profits as reward to the shareholders. Dividend is declared upon the face Value of share i.e at the original rate of the share at which they were issued and not the Market Price.
b) Debt Market- It is an agreement to pay a certain sum of money to the lender after
a stipulated period of time and the rate of interest is fixed. The various instruments under debt market are:
Fixed deposits: are issued by a bank/corporate and can be secured or unsecured depending upon the amount and the issuer. Debentures: are issued by a bank/corporate and can be secured or unsecured depending upon the amount and the issuer. They are secured loans with a fixed rate of interest.
Convertible Debentures: are that get converted into equity at a discounted value at a later stage. Government Securities: These are fully secured instruments issued by the Government of India and have a fixed tenure and a coupon rate. Bonds: These are secured loans with fixed coupon (interest) rates. In most of the bonds the coupon is paid at regular intervals except in the case of a zero-coupon bond.
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Equity Funds: In this type of fund, sometimes also called Growth funds, there would be more investments in equities which are shares/ stocks traded in the stock market.
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II.
Debt Funds: In this type of fund, also called Bond funds, the investments are primarily in Government and government guaranteed securities and such safe debts and other high investment grade corporate bonds.
III.
Money Market Funds: In this type of fund, sometimes also called Liquid funds, the investment may be more in short term money market instruments such as treasury bills, commercial papers etc.
IV.
Balanced Funds: In this type of funds, the investments are in both equity as well as debts.
The following are the risk characteristics of the funds General Description Equity Funds Nature of Investments Primarily invested in company stocks with the general aim of capital appreciation Invested in corporate bonds, government securities and other fixed income instruments Risk Category Medium to High
Debt Funds
Medium
Sometimes known as Money Market Low Funds invested in cash, bank deposits and money market instruments
Combining equity investment with fixed Medium interest instruments Source: www.irda.gov.in
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LITERATURE STUDY
Till today a lot of research has been done on the Indian insurance industry especially the life insurance sector. The material for this study was collected from various internet sites, journals and books by various authors. A lot of groundwork has also been done by studying the vast range insurance products before taking up this research. According to Swiss Res annual study of world insurance markets on an inflation-adjusted basis, global insurance premiums contracted by 1.1% to $4.06 trillion in 2009, which is an improvement over 2008 when global premiums shrank 3.6%. In most countries (66%), insurance grew faster than GDP, which shows the robustness of the industry. Swiss Re said in its World Insurance 2009 report said that for the year 2010, it is expected that the overall premium growth in the industry will turn positive and profitability and balance sheets will continue to improve. A research has been carried out by Sathak Mohanty who worked on the risk profile of ULIPs and analyzed insurance as an investment option. He says that Life Insurance Corporation of India (LIC) is still the undisputed leader in the Indian context. According to Anita Gupta-director, marketing and communication, ING Vysa Life insurance ULIPs are suitable for all types of customers, right from the lower class to the premium class. Also according to the Financial express (Dated 12th April, 2009) ULIPs are flexible to the core. In the IRDA journal of May 2009 said, J.Harinarayana said that (Life) Insurance was being sold as a tax planning device some time ago, it is being sold as an investment option now and some day, we hope (life) insurance will be sold as insurance.
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hand, making IRDA the sole regulator for unit linked insurance plans (ULIPs). In a circular issued on June 28, 2010, the regulator notified a number of changes to the structure and framework of ULIPs and the new guidelines on ULIPs will be effective from September 1 this year. (This story was published in Business world Issue Dated 26-04-2010)
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thought that the insurers profitability will reduce due to even distribution of charges over 5 years. IRDA says that the Insurance companies will have to make a choice between taking the hit on the margins themselves and passing the burden to the distributors in terms of lower commissions. While, Mr Sanjiv Bajaj, Joint MD, Bajaj Capital, a distributor, said that if the companies reduce commissions, it will impact volumes.
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India First Life Insurance MD and CEO, P Nandagopal., also agreed with the CEO and MD of IDBI Fortis, that increasing commission on renewal premium is the only way of increasing persistency. Vishakha Mulye, managing director & CEO, ICICI Venture is of the opinion that insurance will become an important tool for investment in the coming days and private equity will be a great asset class from a long-term perspective. On the other hand, Star Union Daiichi Life Insurances chief executive officer, K Sahay, is of the opinion that there will be a slump in business during the coming months as it is easy to push policies we are accustomed to sell, and it will take time to convince policyholders about the newly-approved products. A senior SBI Life executive, said that in the new era, pension will become less attractive and the insurance companies which have been selling products that will become less attractive after upcoming changes. SB Mathur, secretary general of Life Insurance Council, said investors should have more options to choose from instead of forcing them to buy products with higher cover. as everyone has different needs and they buy Ulips accordingly. We cannot have one-fit for all sizes, Mathur added. Gorakhnath Agarwal, chief actuary of Future Generali India Life Insurance, agreed with Mathur, and said that the customers should have the choice. Agarwal said Future Generali Life Insurances average cover is 10.14 times the annual premium. Aegon Religare Life Insurance offers an average cover of 10 times to Ulip customers, while Aviva Life Insurance said it is roughly between 8.5 and 10 times. A Bajaj Allianz Life spokesperson said, that as per peoples need, we often add term riders to our policies for higher cover. The insurer are also worried about the workforce as they expect workforce to shrink by 20% on revised norms. HDFC Standard Life said that in the runup to meet the September 1 deadline of the new Ulip guidelines rolled out by Irda, we are currently assessing its impact on our product range, cost structure and incentives/commissions. So far, we have not undertaken any step on rationalising our workforce. As an organisation, we continue to monitor under-performers/poor performers, which is a regular exercise carried out by the organisation, irrespective of the market condition. On the other hand,Rajesh Relan, managing director,of Metlife India. said that the recent IRDA circular would not lead to an incremental change but to a fundamental change in the way we do business. He thinks that there will be a 20%
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workforce reduction in the insurance market over the next 6-10 months, he also added that while the customer is the clear winner, insurance companies will have to cut operating expenses drastically to be able to provide for the stipulated yield to the customer. This would require companies to cut costs at all levels, including investments for growth, current sales models would need to be reoriented. It will also lead to dramatic reduction in commissions and put many small agents out of business. In an interview Jeffrey Liew, Senior Director, of Fitch Ratings talked to Sunaina Vasudev on the new ULIP norms, its likely impact on the life insurers and oppurtunities for the investors. Jeffrey Liew said that the new IRDA regulations will tighten up several policy loopholes and will definitely benefit policyholders. However, it will impact earnings of life insurance companies, as a lot of Indian life insurers depend on ULIP (Unit linked insurance plan) policy sales to expand market shares because ULIPs were easier to sell. The lock-in period is now more constrained and people may hesitate to buy these policies. Therefore, the agency force will have to be more competent and trained to sell such policies. He also added that the increase in lock-in period (from 3 years to 5years), will also enable people compare this product with alternative investments, which he thinks will impact sales and also change the way in which Indian life insurers continue to sell ULIP policies, and also the longer lock-in period allows a wider range of investments other than pure equity, and definitely more bonds with maturity of 5 years or more. The agents commission will be reduced from 35-40% to 15-17% which will affect the earnings of the insurers. He said that the insurers will now have to control selling and new business expenses including agent commissions, and especially bank commissions. Also, charges on surrenders are capped by the new regulations which were a source of revenue for life insurers. The IRDA regulations emphasize higher coverage (life or health etc) and making ULIPs a more insurancelike product compared to a part investment product earlier, where the insurance component was lower than the investment component. The insurance component will increase so people have more coverage. However, Jeffrey Liew, thinks, that volumes will come down because of this as people who already have an insurance
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policy when offered a ULIP may consider other alternate investment routes. It is still very early to say that the regulations will dramatically change proportion of business from ULIPs but obviously it will impact volumes. Going ahead, one can expect to see the balance between traditional policies and ULIPs normalizing, as compared to very high proportion of ULIPs in new business premium seen so far especially for private life insurers. Prior to these regulations, the thrust on ULIPs was basically because they were easier to sell with the volume gains boosting market share. ULIPs are also profitable faster, as future premium is collected at the outset (front-loaded premium), which is an immediate capitalization of profit for life insurers and also helps them pay for new business. However, now, with charges being spread over 5 years, there is lower incentive to sell ULIP policies and they will become comparable to selling traditional policies. The MD and CEO of Future Generali India Life Insurance, Mr Deepak Sood, also agreed and said that at this stage, selling a traditional product will be more attractive for an agent than selling a ULIP. (This article was published in The Hindu Business Line on July 30, 2010)
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According to Uco Vegter, chief marketing and strategy officer, ULIPs have been getting standardized. While according to ING Life Insurance Company, the difference in product design has come down drastically. As a result, there is far more transparency in ULIPs for customers. According to Kapil Mehta, Managing director and chief executive officer of DLF Pramerica Life only two types of insurers will emergesmall but focused players on long-term protection and large players focused on investment aspects. According to an article published in Outlook Money, the 5 common features in new ULIPs are being discussed. They are:
Mortality rates: These are outside the IRDA cost cap & have been hiked by many companies Limited Premium Payment: Several policies have started offering the limited premium payment option for 5 years Minimum Premium: Now raised. For some policies, its as high as 50,000 now. Earlier, the average was lower Further guarantees on NAV-based products: Apart from the highest NAV, more guarantees now on offer Loans against ULIPS: Earlier, it was allowed only for traditional plans.
The outlook money discussed the randomly picked up ULIPs of different genres- type I, type II, pension plans, childrens plans and highest NAV guaranteed plans. In Type I ULIPs they discussed the product of Aviva Life Insurance Freedom Life Advantage, in type II they have discussed ICICI Prudential Life Insurances Life Time Premier and Kotak Life Insurances Wealth Insurance, which is their favoured version, in NAV guaranteed plans there is HDFC standard Life Insurances Crest and SBI Life Insurances Smart Performer, in Childrens ULIPs there is Max New York Life Insurance Shiksha Plus II, in Pension Plus category there is LICs PENSION plus. According to Rajiv Gupta, Executive director (Marketing), SBI Life Insurance , NAV guaranteed products are for those who arent happy to invest their entire amount in the stock market and want to play safe. According to G. Murlidhar, Chief
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operating officer, of Kotak Life Insurance firms will invest more in better equipped intermediaries; customers can look forward to far better product and service experience. According to IRDA chairman, J. Hari Narayan agency network was unprofessional, and the part time nature of their job and low business per agent were making the entire agency force costly to maintain. So, it is essential that the companies professionalise the agency force by a suitable filtration process. According to Kamesh Goyal, CEO, of Bajaj Allianz Life Insurance, ULIPs have become customer-friendly. He added that the present model of large distribution network and low productivity will be changed and it will be difficult to retain the agents at a very low commission. It has arrived at the stage that the traditional products of insurance have become comparable to ULIPs. According to Abizer Diwanji, executive director at KPMG, there will be more strategic tie-us such as the one between Axis Bank and Max New York Life Insurance, where insurance companies dilute their stake in favour of the banks. According to Madhivanan Balakrishnan, executive director of ICICI Prudential Life Insurance, insurance companies plans to bring down the concentration of ULIPs in their product mix from 80-90 per cent now to 55-65 per cent, and the distributors, too, will have to adjust to the emerging trends of lower commissions. The balanced portfolio mix between traditional products and ULIPs is required at this stage. (This article was published in Outlook Money, 6 October, 2010)
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3.2 Need of the studyThe study is done on the insurance sector with special reference to Aviva Life Insurance Company, to undertake a comparative analysis between traditional products of insurance and ULIPs. The study is also aimed to study the impact of the new IRDA guidelines, on the consumers, the agents and the sale of ULIPs versus traditional products in Aviva Life Insurance Company in the North-East Region. 1) This study will help us understand the consumers needs and perception in general, towards traditional products and ULIPs. 2) This study will help Aviva Life Insurance to customize the service and product, according to consumers need.
3.3 Scope of the studyThis study is limited to the consumers within the limit of Guwahati city. The agents data are collected from the various branches of Aviva Life Insurance in the north-eastern region. The study will be able to reveal the preferences, needs and perception of the customers regarding the traditional life insurance products and ULIPs. The study also reveals the impact of the new IRDA guidelines on ULIPs on the agents as well as on the sale of traditional products and ULIPs in the month of September and October.
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Insurance since 2008 till the month of October in the year, 2010. 5. To study the impact of the new IRDA guidelines on ULIPs with respect to i. ii. Sales volume of Aviva life insurance in the NE Region Agency network
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help of a structured questionnaire. This research covers 100 consumers in Guwahati city, belonging to various age groups.
II.
The study also aims to know the impact of the new IRDA guidelines on ULIPs on the agency network of Aviva Life Insurance Company. This research covers 80 agents of various branches of Aviva Life Insurance Company in the North-East Region.
III.
The study also aims to know the impact of the new IRDA guidelines on the sales volume of Aviva Life Insurance. This research covers 50 sales managers of various branches of Aviva Life Insurance Company in the North-East Region.
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An interview-schedule and well-structured questionnaire is administered to the respondents to collect primary data (Copy of questionnaire is attached in the appendix). Open and close-ended questions are used in the questionnaire. The orders of the questions are in such a manner that they begin with simple questions and lead on the questions that needed more involvement from respondents. The secondary data are collected from periodicals, magazines, journals and Internet.
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their interpretations. The Statistical package for social science (SPSS) Package17.0 was also used to do the frequency analysis.
3.9 Limitations of the StudyEvery study or research is conducted under some limits and there are some restrictions which have some impact on the project. Limitations of the project were: 1. Reluctance of the respondents to provide information in some cases. 2. A portion of the study has been done on the basis of the various secondary data as such there is possibility of inaccuracy information in the report.
3. The agents of all the branches were not covered for the survey.
4. The survey of the consumer is limited within the city of Guwahati. 5. The study is confined only to a small segment of the entire population and is confined to the north-eastern region only. 6. To study the impact analysis of the new IRDA guidelines on ULIPs, September and Octobers data is insufficient.
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4.1.1 Interpretation:
From the above table, it can be interpreted that there is very low product differentiation among the traditional plans and ULIPs. As ULIPs can be compared to Product Product of Aviva Life Shield Advantage Death Benefit Surviv al Benefit Loss Investment Flexibility Transparent
Term Assuran ce
Pure Aviva Endowm Dhan ent Sanchay Endowm Aviva ent Dhan Assuran Vriddhi ce Plan Whole Life Plan Annuity Aviva Life Line
ULIPs
Endowment plan, if not withdrawn till maturity Pension plan by withdrawing every month after retirement. Whole Life plan by not withdrawing at all, till 70 or 80 years of age.
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4.1.2 Findings:
From the above table, it is found that the important differences between traditional plans and ULIPs are:ULIPs Traditional Plans The premiums, in excess of risk cover, All the premiums go into a common fund are invested by the policyholder, which and means it is flexible. The investment return may are invested at the insurers discretion, which is not flexible. vary There are two categories of benefitsand risk. non-guaranteed. However For non-
the investment risk is borne entirely by guaranteed benefits the insurer bears the guaranteed benefits such as bonuses, depend on the performance of the insurer. Withdrawals are allowed. Loss if any, Surrenders are allowed but at a loss. depends on NAV loans are not allowed Loans may be provided. There are no bonuses, except loyalty For participating policies, bonuses are bonus in some cases payable The amount of the premium used for The premium amount used for insurance insurance coverage, other charges and the coverage, other charges and investment purchase of units are unbundled and are bundled-up and not known, and so transparent Benefits are variable Loss is likely Gains likely depending movements they are not transparent. Benefits are Pre-determined Loss is un-likely market Gains un-likely except through bonuses
on
4.2 Analysis 2:- To study the portfolio management of funds of Aviva Life Insurance
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The 9 ULIP funds of Aviva Life Insurance is studied. The different funds are:-
observed from the above graph, it can be interpreted that the bond fund has always given portfolio return greater than the benchmark return in the last three years. Asset Allocation Pattern Government and other Debt Securities 60%-100% Cash and Money Market 0%-40% ASSET MIX PORTFOLIO Central Govt. Securities Corporate Bonds Cash and Money Market Asset % 18.81 53.65 27.54
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The investment objective of the fund is to provide progressive returns on the investment and carry capital guarantee. Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market 60-100% 0-20% 0-40%
ASSET MIX ASSETS PORTFOLIO % Equities 7.33 Central Govt. Securities 27.3 Corporate Bonds 52.21 Cash and money market 13.16 Portfolio Return, As on June 30, 2010 Sin ce Inc ept ion Por tfol io Ret urn Be nch ma rk 6.0 % 7.0 7.2 6.5 9.2 6.4 % % % % % 8.4 % La st 5 Ye ars La st 4 Ye ars La st 3 Ye ars La st 2 Ye ars La st 1 Ye ar
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As observed from the above graph, it can be interpreted that the secure fund since its inception has given portfolio return greater than the benchmark return, but in the last one year the portfolio return has nearly touched the benchmark return.
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Portfolio Return, As on June 30, 2010 Since Inception 7.1% 7.3% Last 3 years 7.3% 6.6% Last 2 years 9.0% 9.2% Last 1 year 5.3% 6.4%
As observed from the above graph, it can be interpreted that the protector fund since its inception has given portfolio return nearly equal to the benchmark return, but in the last one year the protector funds portfolio return is below the benchmark return.
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As observed from the above graph, it can be interpreted that the balanced fund since its inception has given portfolio return greater than the benchmark return, but in the last one year the balanced funds portfolio return has nearly touched the benchmark return. Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market PORTFOLIO Equities Central Govt. Securities Corporate Bonds Cash and money market ASSETS % 32.6 21.84 35.66 9.9 50-90% 0-45% 0-40%
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Asset Allocation Pattern Government & other Debt Securities Equity Cash & Money Market 0-50% 30-85% 0-40%
Asset Mix PORTFOLIO Equities Cash and money market ASSETS % 93.41 6.59
Portfolio Return
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As observed from the above graph, it can be interpreted that the growth fund since its inception has given portfolio return nearly equal to the benchmark return, but in the last one year the growth funds performance was below the benchmark return.
Asset Mix
PORTFOLIO EQUITIES CASH AND MONEY MARKET Since Portfolio return Benchmark Inception -4.7% -5.5% Last 2 years 15.4% 14.7% ASSETS% 98.81 Portfolio Return 1.18
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As observed from the above graph, it can be interpreted that the growth fund since its inception has given portfolio return nearly equal to the benchmark return.
Asset Allocation Pattern Government and other Debt Securities 70-100% Equity 0-20% Cash & Money Market 0-40% Bonus Rate: 4.75% (until September 30, 2010) ASSETS PORTFOLIO Equities Corporate Bonds Cash and money market % 0.67 22.28 77.05
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ASSET MIX
PORTFOLIO Equities Cash and money market ASSETS % 87.77 12.23
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ASSET MIX
PORTFOLIO Equities Cash and money market 5.67 ASSETS % 94.33
4.2.1 Findings
As observed from the portfolio return of the different funds, it can be found that almost all the funds are following the benchmark return, except growth fund and protector fund which has performed below the benchmark return in the last one year.
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From the analysis of the asset allocation pattern of the different funds of Aviva Life Insurance, it can be found that FUNDS CENTRAL GOVT SECURITIES(%) BOND FUND SECURE FUND PROTECTOR FUND BALANCED FUND GROWTH FUND INDEX FUND PROFIT FUND P.S.U FUND INFRA FUND 18.81 27.3 27.02 21.84 0 0 0 0 0 53.65 52.21 44.12 35.66 0 0 22.28 0 0 CORPORATE CASH AND BONDS(%) MONEY MARKET (%) 27.54 13.16 24.49 9.9 6.59 1.18 77.05 12.23 5.67 0 7.33 4.37 32.6 93.41 98.81 0.67 87.77 94.33 EQUITIES (%)
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From the above graph, it can be found that the growth fund, index fund, P..S.U. fund and infra fund are similar funds with its maximum exposure to equities and minimum exposure to cash and money market. SL NO 1 2 3 4 5 6 7 8 FUND BOND FUND SECURE FUND PROTECTOR FUND BALANCED FUND GROWTH FUND INDEX FUND P.S.U FUND INFRA FUND SINCE INCEPTION 8.7 8.4 7.1 18.4 21.3 -4.7 LAST YERS N.A 8.7 7.3 12.4 17.3 N.A. 5 LAST 2YEARS 10.5% 11.2% 9.0 13.2 14.9 15.4 LAST YEAR 5.5% 6.7% 5.3% 10.7 17.0 24.4 1
The study is done using the historical NAV (Net Asset Value) of ULIP funds of Aviva Life Insurance. To understand the Portfolio performance of ULIPs of Aviva Life Insurance, the funds of the Aviva Life Insurance Company are selected and the historical NAVs are obtained for a period since inception of the fund. The returns of each fund were found out for each year. To calculate the return, the following formula was usedReturn = Rj Ri / Ri * 100, Where, Ri = Return for the initial year Rj = Return for the final year Period of study: 30 June 2008 30 June 2010. The returns thus obtained were used to evaluate the performance of the ULIP funds. For ULIPs risk-return, the historical NAVs of the funds for 2 years were taken. The funds of both were divided into different categories. The funds with more than 55%
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exposure in equity are considered as Equity category for ULIPs And funds with less than 55% in exposure in debt are considered as Debt category.
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In the debt category, 4 ULIP funds were considered to compare the risk-return. The funds were selected arbitrarily. Similarly, 4 ULIP funds standard deviation was calculated using the formula: Standard Deviation () = , were selected to be compared in the equity category. To find out the risk of the selected funds, the
where Xi = return of the fund in period i (i= 1, 2, 3n) X bar = arithmetic return n = number of periods To find out the return, the formula used was: Return = Rj Ri / Ri * 100, where Ri = Return for the initial year Rj = Return for the final year. FINDINGS
For a short period [last 1 year], index fund and growth fund has given a
highest return, as stock markets of India has revived from the slowdown. But in long duration the return is very slow. All the balanced funds, like Balanced and growth fund were able to give a higher return over the long term. Among all the funds in the one to five year period, the Growth Fund gave the highest return.
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For the period of three years, some funds did exceptionally better than other
funds namely, eg- Growth Fund, Balanced Fund, . These funds have given an exceptionally higher return over all the ULIP products of Aviva Life. The balanced fund like ULIP Balanced Fund has again done well in the period of three years. Balanced funds are continuously ranked among the funds giving higher returns in the longer term. For the period of three years, Growth Fund has outperformed all the other funds. All Bond Funds for the period of three years were able to give very good returns. For short term of 1 to 2 year Index fund is performing well, but for a long time for 5 years index fund performance is very poor. The risk involved in the index fund is higher than the growth fund ,but the return in long term is quite different from each other. During the period of one year the funds which gave the higher return are Bond Fund, Balanced Fund, Growth Fund and Index Fund have performed better than all the others in the one year period. Index Fund has again outperformed all the funds for the one year period. In fact, the fund has been giving the highest return from its inception. Balanced funds were able to give a return of over 13% for the period of five years. An investor who wants to invest for a period of five years should consider these funds.
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Although there is a difference in the specific definitions of risk and uncertainty, for our purpose and in most financial literature, the two terms are used interchangeably. In fact, one way to define risk is the uncertainty of future outcomes. An alternative definition might be the probability of an adverse outcome. One of the best-known measures of risk is the variance, or standard deviation of expected returns. It is a statistical measure of the dispersion of returns around the expected value whereby a larger variance or standard deviation indicates greater dispersion. The idea is that the more disperse the expected returns, the greater the uncertainty of future returns. Another measure of risk is the range of returns. It is assumed that a larger range of expected returns, from the lowest to the highest return, means greater uncertainty and risk regarding future expected returns. The variance, or standard deviation, is a measure of the variation of possible rates of return from the expected rate of return. To find out the risk of the selected funds, the standard deviation was calculated using the formula:
Standard Deviation () = Where, Xi = return of the fund in period i (i= 1, 2, 3n) , X bar = arithmetic return n = number of periods 2 The risk is calculated using the standard deviation of all the NAVs of the Funds for the period 30th June 2008 to 30th June 2010.
Return: Return is the primary motivation force that drives investment. It represents the reward for undertaking investment. Since the game investment is about return (after allowing for risk), measurement of realized (historical) return is necessary to access how well the Fund has done. In addition, historical returns are often used as an important input in estimating future (prospective) returns. In ULIPs the return is the increase or decrease in
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the unit of the ULIPs. And the NAV of the ULIP is considered to ascertain the return that has been earned by the investor. To calculate the return, the following formula was usedReturn = Rj Ri / Ri * 100, Where, Ri = Return for the initial year Rj = Return for the final year
Allocatio n
RISK
RETURN
EQUITY
GROWTH FUND INDEX FUND P.S.U FUND INFRA FUND BOND FUND SECURE FUND BALANCED FUND PROFIT FUND
ULIPS High Very High mediu m High Low Low Mediu m mediu m
DEBT
Findings Among the equity based ULIPs, Growth and index fund,the difference in risk is just 0.45 where index is having more risk, but the difference in the returns is
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3.50%,growth is having better return than the index fund. So, taking only risk and return it can be said that its better to invest in Growth Fund. Among the equity based ULIP Funds, growth and index fund is given retun of 1415% with high degree of risk 16.41 %whereas PSU Fund gives are turn of 14.4% but with a very low risk of 8.47. So, considering risk and return parameters PSU Fund should be chosen over Growth and index fund as the firm gives more return with less risk. In the Debt Category, the scenario is different with ULIPs taking more risk than the Mutual funds. And ULIPs are able to give a higher return then the mutual funds. Among the Debt based ULIP funds three funds are considered, Bond, secured , balanced and profit Funds are considered. And the secure fund gives a return of 11.20% and with a risk of 1.27, Bond fund gives a slightly less return of 10.50% but with a risk of 1.24 and the balance Fund gives a return of 9% and with the higher risk of 3.12. From the above three funds bond fund or secure fund should be chosen. Although the risk is high the return is more than the excess risk which the investor may take. By taking a risk of 0.03 more the investor may increase his return by 0.60%. secure bond should be chosen among the ULIP debt funds.
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4.3 Consumer Analysis 4.3 Analysis 3: - The objective of this analysis is to have an overview of the need,
perception and awareness of the consumer towards ULIPs Vs traditional products of insurance.
4.3.1 Sample collected:-The sample size was of 100 consumers, which was selected
from the city of Guwahati.
4.3.2 Tools and Techniques:- The data has been presented with the help of
graphical method like pie charts, bar diagrams etc., for convenience in understanding the results and their interpretations. The Statistical package for social science (SPSS) Package17.0 was also used to do the frequency analysis. The chi-square test and the paired sample t-test is being conducted with the help of Statistical package for social science (SPSS) Package17.0.
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A detailed survey in Guwahati city is conducted to understand and study the consumers responses. The primary data was collected through questionnaires. This questionnaire was mainly formulated to target the common man to see his perception and awareness of various investment options available. The sample size of the survey was 100.Out of these 64% was male and 36% were female. about towards primary The the analysis mindset of of Vs these people ULIPs. through questionnaires gives us an insight regarding various investments and traditional data Following is the analysis of the collected questionnaires. (Please refer to annexure I) The sample included respondents from all the age groups out of which 28 % of people are in the age group of 20-30, 44% are in the age-group of 31-40, 12% are in the age group of 41-50 and 16% are in the age-group of > 50. The sample of respondents was heterogeneous with people of various educational qualifications right 12 th pass to ones who were post graduate. Out of these 24% are 12th pass, 32% people are graduate and 44% people are post graduate. Out of 100 consumers, 26% of the consumer were in the income range of below 1,50,000 per annum, 22% of the consumer were in the income range of
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1500001-250000, 16% were in the income range of 250001-350000, 14% were in the income range of 350001-450000 and 22% were in the income range of more than 450000.
Out of 100 consumers, 45% of the people people invest invest their their money money in in insurance for Tax saving, 41% of the insurance for saving, 8% invest their money in insurance for returns, 4% invest their money in insurance for liquidity and the rest 2% invest their money in insurance for other reasons. Out of 100 consumers, 41% of the consumers save their money for future security, 18% of the consumer save their money for their childrens education, 17% of the consumer wants to buy house/ vehicle, 16% of the consumers save their money for their childrens marriage and the rest 8 % of them save money for other reasons.
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Out of the 32% consumers only 27% of them say they have taken a ULIP policy, and 73% of them have not taken ULIP policy. Only 28% of the consumer were aware of the new IRDA guidelines on ULIPs and 72% of the consumer are not aware.
Out
of
the 28 consumers who were aware of the changes, 82% of them were satisfied with the new changes, and 18% of them were not satisfied with the new IRDA guidelines on ULIPs.
Analysis to know the reasons for taking ULIPs and Traditional Policy
In this analysis effort was made to know the reasons for taking ULIPs and Traditional Policy from the consumers side. In this question the respondent were asked about the most important and the least important reason for taking ULIPs and Traditional policy. The various reasons were to be ranked from 1 to 7. The following table shows the no.of respondents making a particular factor as per their prefernce.
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Rank Traditional ULIPs Returns Liquidity Flexibility Tax Planning Life protection Transparenc y Safety
4 6 5 3 1 7 2 1 4 2 5 7 3 6
The above table and graph shows that Life protection is the most preferred reason for taking a Traditional policy while its the least preferred reason in a ULIP policy, safety is important in taking a traditional policy whereas this reason is not that important for the consumer to take a ULIP policy. Transparency is one of the important reason for taking a ULIP policy, whereas this reason is not that important for the consumer to take a traditional policy. In the other reasons like returns, liquidity, flexibility and tax planning, consumers have almost the same preference level.
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From the Chi-square test, it has been found that the null hypothesis has been rejected as the calculated value i.e. 0.000 is less than the significance level i.e. 0.05. This means that there is a significant relationship between the age of the consumers and their reasons for saving money.
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Reasons for savings Supporting Buying Future Security house/vehicle Age 20-30 31-40 41-50 > 50 Total 12 14 2 14 42 10 8 0 0 18 Daughter/son's marriage 0 10 8 0 18 education of children 6 6 2 0 14 Others 0 6 0 2 8
Total
28 44 12 16 100
From the test it is evident that out of 100 consumers, 42 consumers save their money for future security. This means future security is the main reason for the consumers of all age groups to save their money. Out of 100 consumers, 28 consumers belongs to the agegroup of 20-30, and out of 28 consumers, 10 consumers save their money for buying house/ vehicle. Out of 100 consumers, 12 consumers belongs to the age-group of 41-50, and out of 12 consumers, 8 consumers save their money for daughter/sons marriage. So, it can be concluded that the consumers of different age-groups have different needs and so they save their money according to their need.
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4.3.3.2 Hypothesis 2:- There is no significant relationship between the income of the consumers and their reasons for investing money. The chi-square test is conducted at confidence level 95% and significance level 0.05%
Chi-Square Tests
Asymp. Sig. (2Value Pearson Chi-Square Likelihood Ratio 68.180a 80.507 df 16 16 1 sided) .000 .000 .062
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From the Chi-square test, it has been found that the null hypothesis has been rejected as the calculated value i.e. 0.000 is less than the significance level i.e. 0.05. This means that there is a significant relationship between the income of the consumers and their reasons for investing money.
Major reasons for investment Return Liquidity Saving Tax Saving Other Income Range Below 150000 150001-250000 250001-350000 350001-450000 More than 450000 Total 8 2 41 45 4 100 0 3 2 3 0 0 0 0 0 2 24 10 2 2 3 0 7 12 9 17 2 2 0 0 0 Total 26 22 16 14 22
From the result of the test, it was found that out of 100 consumers, 26 co nsumers
range of below 1, 50,000 and out of 26 consumers, 24 consumers invest their money for saving. Out of 22 consumers belonging to the income range of 150001-250000, 7 consumers invest their money for tax- saving which is evident from the above table. It can be clearly seen from the above table that with the increase in the income-range, the consumers mainly invest their money for tax-saving. In the income range of more than 4, 50,000, out of 22 consumers, 17 consumers invest their money for saving tax.
4.3.4 Findings
From the consumer survey it is found that most of the people buy insurance policy for getting tax benefits, so it means tax saving is the main reason for investing their money in insurance.
From the consumer survey it is found that, future security is the main reason for
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The awareness level of ULIPs can be termed as poor, as only 32% of the
consumers have heard about ULIPs, and out of 32% consumers only 27 % of the consumers have taken a ULIP policy, and only 28% of the consumers knows about the new IRDA guidelines on ULIPs.
Life protection is the most important reason for taking a traditional policy
whereas it is the least important reason for taking a ULIP policy. The main reason behind taking a ULIP is Transparency, whereas it is not important in traditional policy.
Consumers of different age-groups have different needs and they save their
money according to their need, ie there is a strong relationship between the age of the consumers and their reasons for saving money. Future security is found as the main reason for saving their money which is the most important need of the consumers irrespective of the age.
There is a significant relationship between the income of the consumers and their
reasons for investing money, as with the increase in the income-range, tax saving becomes the main reason for investing their money.
4.4 Analysis 4:-To study the rise and fall in demand for various products offered by
Aviva Life Insurance since 2008 till the month of October in the year, 2010. a. To know the peak season and slack season of Aviva Life Insurance Company b. To study the impact of the new IRDA guidelines on ULIPs on the sales volume in the month of September and October as compared to the sales in the year 2008 and 2009. Tools and Techniques:- The data has been presented with the help of graphical method like line diagram, for convenience in understanding the results and their interpretations.
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The analysis is done by collecting the data with the help of the structured questionnaires for the agents and the sales managers, and with the help of an interviewing technique with the branch managers of Aviva Life Insurance Company. ( please refer to Annexure I and II) The various products sale in terms of annual premium (APE) of all the branches of Aviva Life Insurance Company from the year 2008 till the month of October, 2010 is shown with the help of a line-diagram below. I. Agartala Branch Mr. Mridul Dey, Asst. branch manager, Agartala Branch Mr. Partho Pratim Mukherjee, Sales Manager, Agartala Data sheet:BRANCH AGARTALA (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC Graphical Analysis APE IN 2008 1,316,000 1,060,000 3,958,600 823,000 1,740,600 1,770,500 1,340,600 2,581,000 2,822,700 2,364,000 1,817,800 1,814,000 APE IN 2009 1,017,1 50 607,451 1,290,188 94,670 356,442 741,069 1,070,426 1,167,375 987,0 00 1,039,878 1,438,328 0 APE IN 2010 715, 754 922,645 2,791,064 730,040 1,080,046 851,360 1,318,597 1,565,227 823, 163 678543 Primary Data collected- Mr. Abhijit Sarkar, Branch Manager of Agartala Branch
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Interpretation:-From the above graph it can be interpreted that in the year 2008, the premium collected amount is higher than 2010 followed by 2009. These shows an impact of bear run of Indias share market on ULIP performance and return. The decreased pattern of sale from 2007 has been reduced to minimum 2009 again developing it continuously from 2009 mid onwards till date. If by analyzing the monthly pattern, it can be seen that March, the year ending month of a financial year shows maximum performance, which implies insurance products are being marketed as a tax-deduction instrument and companys get success to generate highest amount of revenue during this period. There is also a significant sales observed in the month of August and December.
II.
Dibrugarh Branch
Primary Data collected- Mr. Raktim Baurah, Branch Manager of Dibrugarh Branch
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Mr. Rajeev Goswami, Asst. branch manager, Dibrugarh Branch Mr. Partho Pratim Mukherjee, Sales Manager, Dibrugarh Branch Data sheet:BRANCH DIBRUGARH (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC Graphical Analysis: APE IN 2008 317,900 702,000 2,385,000 149,500 757,000 383,000 934,700 304,200 933,400 516,927 1,234,400 866,400 APE IN 2009 318,1 50 217,645 604,937 104,180 209,928 482,688 327,221 678,666 920,4 14 723,159 1,119,250 1,082,937 APE IN 2010 435, 112 909,260 2,465,407 154,591 964,522 1,009,881 974,158 1,501,304 600, 810 456764
Interpretation:-From the above graph it can be interpreted that in the year 2010 and 2008, the premium collected amount is equal [app 25,00,000] which is far more higher than 2009. The decreased pattern of sale from 2007 has been reduced to minimum in 2009 but revived again in 2010 and reached to the similar performance like 2008.
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If by analyzing the monthly pattern, it can be seen that March, the year ending month of a financial year shows maximum performance. September month is showing medium income due to midyear closing of accounts and tax payable. After the implementation of the new IRDA guidelines, a significant drop in the sales of September and October is observed. III. Guwahati A unit
Primary Data collected- Mr. Munin Saikia, Branch Manager of Guwahati A unit Mr. Bijay Choudhury, Asst. branch manager, Guwahati A unit Mrs. Devika Ghosh, Sales Manager, Guwahati A unit Data Sheet APE IN APE IN APE IN 2008 2009 2010 2,472,000 95,250 736,056 1,139,200 84,100 989,795 1,608,100 38,640 1,966,467 130,000 0 200,137 55,000 25,000 656,271 0 0 1,024,911 58,000 0 610,808 56,500 326,000 1,584,886 135,000 300,873 487,477 234,000 395,234 567452 500,997 762,128 609,900 1,180,804
MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
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Graphical Analysis
From the above graph, it can be interpreted that as compared to the year 2009 the annual premium collected in the year 2010 has increased. In the year 2010 and 2008 the APE collected is high in the month of March. In the year 2008, the APE collected is highest in the month of January. In the year 2010, in the month of August also, a significantly high APE is collected. After the implementation of the new IRDA guidelines, a significant drop in the sales of September and October is observed.
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IV.
Guwahati G.S.Road Primary Data Mr. Shantanu Sharma, Branch Manager of Guwahati G.S.Road Mr.Mukut Bharali,Asst.Branch manager,Guwahati G.S.Road Mr. Ratul Borah, Sales Manager, Guwahati G.S.Road
Data Sheet APE IN 2008 2,733,796 3,467,008 8,235,182 1,633,800 4,072,819 2,269,168 2,119,000 2,132,404 2,790,354 1,759,971 1,333,949 2,069,446 APE IN APE IN 2009 2010 524, 1,250,32 323 1 574,154 1,477,251 922,718 2,863,280 138,833 203,964 532,625 552,555 399,412 1,099,909 540,403 1,275,994 834,028 2,351,333 1,022, 392,97 426 6 703,642 245673 824,480 1,261,61 0
MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
Graphical Analysis
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From the above graph, it can be interpreted that in the year 2008, 2009 and 2010, the APE collected is highest in the month of March. A significant sale is observed in the month of May, September and December in the year 2010. As compared to the year 2009, the APE collected in the year 2008 and 2010 is good. After the implementation of the new IRDA guidelines, a significant drop in the sales of September and October is observed. V. Guwahati Panbazar
Primary Data Mr.Deep Baruah , Branch Manager of Guwahati Panbazar Mr.Sanjay Gupta,Asst.Branch manager,Guwahati panbazar Mr.Suman Dutta, Sales Manager, Guwahati panbazar Data sheet APE IN 2009 16 4,200 71,600 89,491 0 14,400 57,500 251,53 3 521,00 0 37 7,000 629,21 3 550,34 0
MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV
APE IN 2008 71,000 596,000 550,000 212,000 1,648,300 731,200 953,665 884,200 1,373,804 871,179 590,000
APE IN 2010 208, 477 794,439 1,457,826 468,462 405,499 680,300 976,712 925,718 628, 808 646789
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995,200
593,90 7
From the above graph it can be interpreted that the Guwahati Panbazar branch, the sale pattern is very fluctuating. The performance of this branch is high in the year 2008, as compared to the year 2009 and 2010, but in the month of March the performance is high in the year 2010, as compared to 2008. In the month of august, VI. Jorhat Mr. Apurva Baruah , Branch Manager of Jorhat Mr.Sanjay Debnath,Asst.Branch manager, Jorhat Ms.Indrani Das, Sales Manager, Jorhat Data sheet APE IN 2008 742,000 1,073,00 0 2,958,00 0 581,000 1,122,00 APE IN APE IN 2009 2010 357, 425, 569 394 489,009 956,459
Primary Data
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375,143 823,114 508,595 497,418 331,376 1,167,977 632, 715, 940 891 672,555 876,543 731,176 1,244,16 2
From the above graph it can be interpreted that in all the years in this branch March is the significant month and the highest amount of premium is collected in this month. In the month of June, august and December also an observable amount of premium is collected. The year 2009s performance is very low in comparison to the year 2008 and 2010. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. VII. Sibsagar Mr. Ashiq Agarwalla , Branch Manager of Sibsagar Mr.Mrinal Jyoti Hazarika,Asst.Branch manager, Sibsagar Ms.Juri Moni Baruah., Sales Manager, Sibsagar Data Sheet
Primary Data
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MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
APE IN 2008 1,316,00 0 1,060,00 0 3,958,60 0 823,000 1,740,60 0 1,770,50 0 1,340,60 0 2,581,00 0 2,822,70 0 2,364,00 0 1,817,80 0 1,814,00 0
APE IN APE IN 2009 2010 763,2 984, 00 337 774,285 1,149,523 285,272 556,098 644,100 930,316 1,279,484 1,662,0 26 1,731,624 1,452,779 2,286,946 1,687,244 4,330,447 594,782 1,307,185 1,687,324 1,080,543 1,831,048 685, 114 765,432
Graphical Analysis
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From the above graph it can be interpreted that the highest amount of premium is collected in the month of March in all the years. The performance of this branch in the year 2009 is low in comparison to the other years which may be due to recession. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. VII. Silchar Mr. P.Kalita, Branch Manager of Silchar Mr. Sandeep Sarma,Asst.Branch manager, Silchar Mr.Manoj Kumar Sarma, Sales Manager, Silchar BRANCH SILCHAR (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC APE IN 2008 298,000 192,000 909,400 635,500 888,000 903,000 610,640 2,092,000 1,581,800 1,498,000 940,992 1,624,900 APE IN APE IN 2009 2010 57,07 634,43 0 0 295,454 742,233 521,265 2,062,044 78,376 288,822 304,599 824,397 511,482 1,144,178 353,552 640,768 812,102 561,805 720,51 529,28 8 0 576,083 654,321 820,000 691,003
Primary Data
Graphical Analysis
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From the above graph it can be interpreted that the premium collection in the month of March, August and December is high in the year 2008, and compared to the year 2009 and 2010, 2008 performance is high. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. VIII. Tezpur Mr.Sanjib Bhattacharjee, Branch Manager of Tezpur Mr. Ram Sarma,Asst.Branch manager, Tezpur Mr. Moonjyoti Saikia, Sales Manager, Tezpur Data Sheet APE IN 2008 449,000 482,500 478,700 75,000 318,700 520,600 380,200 402,200 1,630,80 8 720,200 900,700 564,390 APE IN APE IN 2009 2010 249,8 575,3 28 01 93,928 1,284,151 704,277 3,410,106 14,000 950,448 279,303 1,951,129 165,312 2,310,700 356,417 1,747,580 160,846 2,456,897 288,8 517,7 35 38 568,754 576,435 390,207 518,868
Primary Data
MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
Graphical
Analysis
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From the above graph it can be interpreted that in the Tezpur branchs performance in the year 2010, is good as compared to the year 2008 and 2009. A significant amount of premium is collected in the month of June and august. There is a significant drop in the sales in the month of September and October in the year 2010, which may be due to the implementation of the new IRDA guidelines. IX. Tinsukia Primary Data Mr.Kailash Talukdar, Branch Manager of Tinsukia Mr.Debojit Sarma,Asst.Branch manager, Tinsukia Mr.Manas Goswami, Sales Manager, Tinsukia BRANCH TINSUKIA (SB) MONTHS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT APE IN 2008 6,000 51,000 1,180,00 0 374,500 797,000 593,000 710,600 983,900 1,769,40 0 1,470,60 APE IN APE IN 2009 2010 302,17 575, 6 301 496,246 1,284,151 1,068,586 292,754 514,827 603,427 622,317 940,951 1,525,24 0 1,386,800 3,410,106 950,448 1,951,129 2,310,700 1,747,580 2,435,867 517, 738 432,567
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0 1,943,90 0 1,521,40 0
2,210,130 1,844,076
From the above graph, it can be interpreted that Tinsukia branchs performance in the year 2010, is much higher as compared to the performance in the year 2008 and 2009. In the month of March, the premium collection is high which is observed in the 3 years data. A significant premium is collected in the month of August and September of the year 2008 and 2009. As compared to the year 2008 and 2009, the premium collection of the year 2010, in the month of September and October has reduced significantly which may be due to the implementation of the new IRDA guidelines.
Findings
Mont hs Premi um collec tion Medi um Low High est Low Low Med ium Low High Med ium Low Low High Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
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In the insurance sector, the whole financial year is divided into four quarters, ie from January to March, April to June, July to September and October to December and the employees of the company are given the quarter targets. i. January- In the month of January, there is medium sale of policies, as due to Bihu, most of the employees are in leave, and to achieve the companys target of December, most of the policies are being done in December, so in comparison to December, the sale in January is low.
ii.
February- As most of the policies are being sold in March, to avail the tax benefits under section, as per Section 80 C and Section 10(10D) of the Income Tax Act, 1961. So , there is a drop in the sales in the month of February
iii.
March- As per Section 80 C and Section 10(10D) of the Income Tax Act, 1961, the individual gets tax benefits by taking an insurance policy. In this month the sale of policies is the highest, which is the most significant month for the insurance sector.(For further details of the tax benefits, please refer to ANNEXURE-IV)
iv.
April- In the month of April, there is a drop in the sale of policies as most of the people buy the policies in the month of March to avail tax benefits. The agents start the steps of selling the product.
v.
May- In the month of May, as compared to April, there is a rise in the sale of policies, so as to meet the target of the quarter ending June.
vi.
June- In the month of May, as compared to April, there is a rise in the sale of policies, so as to meet the target of the quarter ending June.
vii.
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viii.
August- In the month of August, various sales promotion schemes are introduced to motivate the agents, like foreign trips, gifts, awards like the best agent award etc. if they achieve their target.
ix.
September- As it is the time to collect the half-yearly premium, and the government employees are also given the bonus, so they invest their money in insurance. On 15th of September Income tax returns has to be submitted, so to avail the tax benefit, they invest the money in insurance.
x.
October- In this month the sale is very low, as most of the employees are on leave due to Durga Puja, and also the people dont buy the insurance policy during puja, as they buy clothes for the puja and spend money for their household items.
xi.
November- In the month of November, due to diwali and other puja, sale as compared to October is high but compared to December is low, as it is the quarter end.
xii.
December- In this month, the sale is high, as the employees are given targets, and their performance is assessed in this month and based upon this performance, they are given promotions.
After analyzing the sales of all the months from 2008 to 2010 in various branches
of Aviva Life Insurance Company, a similar trend is observed, ie, March, August and December are identified as the most significant months for Aviva Life Insurance Company and is the peak season, and April, July, October are the slack seasons in Aviva Life Insurance Company
In all the branches, premium collection in the year 2009 was significantly low,
due to the market slowdown; people had no belief in the stock market related products. From the graphs it has been observe that the ULIPs sale the year 2009 is greatly impacted by the bear run of stock market.
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Due to the implementation of the new IRDA guidelines on ULIPs in the year 2010, the premium collected in the month of September and October is drastically low.
To study the impact of the new IRDA guidelines on ULIPs with respect to sales volume of various products of Aviva life insurance in the NE Region
Analysis of data:- The analysis is done by colleting the data from the agents, sales managers and branch managers of various branches of the north-east region. The technique adopted is the interviewing technique with the help of unstructured questionnaires for the sales managers and branch managers and with the help of structured questionnaire for the agents. The analysis is mainly done to see the impact of the new IRDA guidelines on the sales of ULIPs and traditional products of insurance. The data is collected from the various branches of Aviva Life Insurance in the north-east region. The most selling products of Aviva Life Insurance Company are taken for the purpose of analysis.
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PRODUCTS Pension Plus Aviva Dhan Sanchay Aviva Dhan Vriddhi Aviva SaveGuard Aviva Sachin Century Plan Aviva Freedom Life Advantage
The sales data in terms of policy, of the year 2010, from the month of January to August are collected and presented with the help of table and graph below: PRODUCTS Pension Plus Aviva Dhan Sanchay Aviva Dhan Vriddhi Aviva SaveGuard Aviva Sachin Century Plan Aviva Freedom Life Advantage POL-Policy JAN- AUG 362 163 278 1133 916 1423 POL PRODUCT% 8.47% 3.81% 6.50% 26.50% 21.43% 33.29%
From the above graph, it can be interpreted that the contribution of Aviva Freedom Life plan is the highest, ie 33%, followed by Aviva Saveguard, ie 27%, and Aviva Sachin Century Plan, ie 21%, and the contribution of Aviva Dhan Vridhi, Aviva Dhan Sanchay and Pension Plus is very low in comparison to these products. After the implementation of the new IRDA guidelines on ULIPs, some products like Aviva dhan vridhi, with additional features became new Aviva Dhan Vridhi from September 1st, likewise Aviva Freedom Life Plan became Aviva Freedom Life Advantage, Aviva Saveguard became Aviva Life Saver Plus.
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The sales in terms of policy, for the month of September and October can be presented with the help of a table and a graph below: PRODUCTS Pension Plus Aviva Dhan Sanchay New Aviva Dhan Vriddhi Aviva Life Saver Plus Aviva Sachin Century Plan Aviva Freedom Life Advantage SEPT OCT 24 110 120 18 1 25 POL PRODUCT % 8.05% 36.91% 40.27% 6.04% 0.34% 8.39%
From the graph it can be interpreted that the contribution of the products like Aviva Freedom Life advantage, Aviva Life Saver Plus, and Aviva Sachin Century Plan, has dropped down significantly after the implementation of the new IRDA guidelines on ULIPS and the contribution of Aviva Dhan Vridhi, Aviva Dhan Sanchay and Pension Plus which was low from January to August has significantly increased, with New Aviva Dhan vridhi contributing 40 %, followed by Aviva Dhan Sanchay ie 37%. So, we see that before the implementation of the new IRDA guidelines, ie from January to August the ULIPs contributed 81% to the sales and traditional products contributed 19% to the sales, which can be seen with the help of a graph below:
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After the implementation of the new IRDA guidelines on ULIPs, the ULIPs contributed 15 % to the sales in the month of September and October while traditional products contributed 85 % to the sales. So, we can compare the traditional products and ULIPs before and after the implementation of the IRDA guidelines on ULIPs with the help of the histogram.
So, from the graph it can be clearly seen that the sale of traditional products of insurance increased after the implementation of the guidelines and the ULIPs sale dropped significantly.
Findings
It has been found that before the implementation of the IRDA guidelines on
ULIPs, the ULIPs contributed 81 % to the sales, and traditional contributed 19%, but after the implementation of the IRDA guidelines, ULIPs contributed 15% to the sales, while traditional contributed 85 % to the sales. It means that the new IRDA guidelines on ULIPs have a direct impact on the sales of ULIPs.
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4.5.2 Analysis 5 (ii):ii. To study the impact of the new IRDA guidelines on ULIPs with respect to agency network Sample collected:-The sample size was of 80 agents, which was collected from all the branches of Aviva Life Insurance In the North-East region. Tools and Techniques:- The data has been presented with the help of graphical method like pie charts, bar diagrams etc., for convenience in understanding the results and their interpretations. The Statistical package for social science (SPSS) Package17.0 was also used to do the frequency analysis. The chi-square test and the paired sample t-test is being conducted with the help of Statistical package for social science (SPSS) Package17.0.
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Primary Data Analysis A detailed survey is conducted to understand and study the impact of the new IRDA guidelines on ULIPs with respect to agency network. The primary data was collected through questionnaires. The sample size of the survey was 80 agents. The following is the analysis of the primary data collected through questionnaires. (Please refer to annexure II) In the questionnaire the agents were asked their reasons for joining the insurance sector.(refer to question no.2 of annexure II) Out of 80 agents, 65% of the agents said that they joined the insurance sector for earnings, 15% of the agents joined the insurance sector for recognition, 8% for opportunities, 7 % for rewards and 5% of them joined for some other reason.
To know the impact of the new IRDA guidelines on sale of policies, Question No.6 was asked in the questionnaire. Out of 80 agents, 73% of the agents said that there is a decrease in the number of policies and annual premium after the implementation of the new guidelines, and 27% of the agents said that there is an increase in the number of policies and annual premium after the implementation of the new guidelines.
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Factor affecting the sales An analysis is done to know the most important factor which affects the sales of ULIPs. The agents were asked to rate this factor on a scale of 1 to 5 , with 1 as least important and 5 as most important. Factors Lock in period Min S.A Agents commission Even distribution of charges Partial withdraw period Guarantee Return Mean 3.1 2.9 4.2 4.3 2.7 4.5
From the above graph it can be interpreted that guarantee returns with the highest mean value of 4.5 is the most important factor which affects the sales as the customers wants a guaranteed return in the policy. Even distribution of charges is also an important factor, as earlier the policies were front-loaded, resulting in high policy charges during the initial years, due to even distribution of charges, aggressive selling by agents may come down. The agents commission is also an important factor, as the agents commission has fallen drastically after the new IRDA guidelines, which de-motivates the agents to sell ULIPs. Tools and Techniques:- The paired sample t-test is being conducted with the help of Statistical package for social science (SPSS) Package17.0.
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Sample size- The sample selected to perform this test is 30 agents, as this test is performed for the sample size of less than or equal to 30. Comparison in selling the ULIPs and traditional products before and after September 1, 2010 The products which are taken for the analysis are: Type Traditional Product before September Aviva Dhan Vridhi Product after September New Aviva dhan Vridhi (same product with added features) Aviva Dhan Sanchay Money Back Aviva Freedom Life advantage (same product with added features) Aviva Life Saver Plus (same product with added features)
ULIPs
Aviva Saveguard
All the products offered by Aviva Life insurance is not taken for the analysis, only the top most selling products are considered for the analysis. This analysis is done to draw a comparison between ULIPs and traditional products of insurance and to know the impact of the new IRDA guidelines on the selling of the products. In the questionnaire, the agents were asked to rate the products on a difficulty level of 1 to 5 with 1 as difficult and 5 as easy. The mean of the agents responses is shown below in table and graph
Mean Before Sept 2.8276 2.9655 3.5517 4.1379 4.2759 After Sept 4.6552 4.7931 3.4828 3.0690 2.5862
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Aviva Dhan Vridhi Aviva Dhan Sanchay Money Back Policy Aviva Freedom Life Plan Aviva Safeguard
From the above graph it can be interpreted that before the implementation of the IRDA guidelines on ULIPs the agents faced difficulty in selling the traditional products and selling ULIPs was easy for the agents. But after the implementation of the new IRDA guidelines on ULIPs the agents faced difficulty in selling ULIPs, on the other hand selling traditional plans became easier. Findings From the agents survey, it has been found that the most important reason which attracts the agents to join the insurance sector is earnings. From the agents survey, it has been found that the new IRDA guidelines on ULIPs has created a huge impact on the sales of policy as it has fallen drastically after September 1, 2010. From the agents survey, it has been found that the guaranteed return, even distribution of charges and the agents commission are the main factors which affect the sales. As most of the agents join the insurance sector for earnings, so low agents commission becomes one of the main reasons for the drop in sales.
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There was difficulty in selling the traditional products before September 1 st, 2010,
and ULIPs was easy to sell but after September 1st, ULIPs became a difficult product to sell, and selling a traditional policy became easy. It means that people now prefer traditional policies over ULIPs
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and now after the new IRDA guidelines ULIPs have become more standardized and comparable to traditional plans.
For a short period [last 1 year], index fund and growth fund has given a highest
return, as stock markets of India has revived from the slowdown. But in long duration the return is very slow. All the balanced funds, like Balanced and growth fund were able to give a higher return over the long term. Among all the funds in the one to five year period, the Growth Fund gave the highest return.
For the period of three years, some funds did exceptionally better than other funds
exceptionally higher return over all the ULIP products of Aviva Life. The balanced fund like ULIP Balanced Fund has again done well in the period of three years. Balanced funds are continuously ranked among the funds giving higher returns in the longer term. For the period of three years, Growth Fund has outperformed all the other funds. All Bond Funds for the period of three years were able to give very good returns.
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For short term of 1 to 2 year Index fund is performing well, but for a long time for 5 years index fund performance is very poor. The risk involved in the index fund is higher than the growth fund ,but the return in long term is quite different from each other. During the period of one year the funds which gave the higher return are Bond Fund, Balanced Fund, Growth Fund and Index Fund have performed better than all the others in the one year period. Index Fund has again outperformed all the funds for the one year period. In fact, the fund has been giving the highest return from its inception. Balanced funds were able to give a return of over 13% for the period of five years. An investor who wants to invest for a period of five years should consider these funds. From the consumer survey it is found that most of the people buy insurance policy for getting tax benefits, so it means tax saving is the main reason for investing their money in insurance.
From the consumer survey it is found that, future security is the main reason for
saving the money. The awareness level of ULIPs can be termed as poor, as only 32% of the consumers have heard about ULIPs, and out of 32% consumers only 27 % of the consumers have taken a ULIP policy, and only 28% of the consumers knows about the new IRDA guidelines on ULIPs. Life protection is the most important reason for taking a traditional policy whereas it is the least important reason for taking a ULIP policy. The main reason behind taking a ULIP is Transparency, whereas it is not important in traditional policy.
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Consumers of different age-groups have different needs and they save their money according to their need, ie there is a strong relationship between the age of the consumers and their reasons for saving money. Future security is found as the main reason for saving their money which is the most important need of the consumers irrespective of the age.
There is a significant relationship between the income of the consumers and their
reasons for investing money, as with the increase in the income-range, tax saving becomes the main reason for investing their money.
insurance sale have a direct relation with the tax benefits as per Section 80 C and Section 10(10D) of the IT Act, 1961. For further details please refer to annexure IV.
In the month of April, also premium collection is high due to various sales
promotion schemes are introduced to motivate the agents, like foreign trips, gifts, awards like the best agent award etc. if they achieve their target.
In the month of December, the employees performances are assessed and are
given promotions. In all the branches of Aviva Life Insurance Company, premium collection in the year 2009 was significantly low, due to the market slowdown; people had no belief in the stock market related products. From the graphs it has been observe that the ULIPs sale the year 2009 is greatly impacted by the bear run of stock market. Due to the implementation of the new IRDA guidelines on ULIPs in the year 2010, the premium collected in the month of September and October is drastically low.
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It has been found that before the implementation of the IRDA guidelines on
ULIPs, the ULIPs contributed 81 % to the sales, and traditional contributed 19%, but after the implementation of the IRDA guidelines, ULIPs contributed 15% to the sales, while traditional contributed 85 % to the sales. It means that the new IRDA guidelines on ULIPs have a direct impact on the sales of ULIPs. From the agents survey, it has been found that the most important reason which attracts the agents to join the insurance sector is earnings. From the agents survey, it has been found that the new IRDA guidelines on ULIPs has created a huge impact on the sales of policy as it has fallen drastically after September 1, 2010. From the agents survey, it has been found that the guaranteed return, even distribution of charges and the agents commission are the main factors which affect the sales. As most of the agents join the insurance sector for earnings, so low agents commission becomes one of the main reasons for the drop in sales.
There was difficulty in selling the traditional products before September 1 st, 2010,
and ULIPs was easy to sell but after September 1st, ULIPs became a difficult product to sell, and selling a traditional policy became easy. This may be due to the following reasons
i.
ULIPs was earlier used as a short term instrument, but now with the increase in the lock- in period from 3 years to 5 years the customer may be unwilling to buy ULIPs. They will prefer traditional policies for long term instrument.
ii.
Due to the drop in commissions of the agents, aggressive selling by the agents has come down, which has reduced the sales of ULIPs. As from the above findings, it is evident that most of the agents join the insurance sector for earnings, and low commission is one of the main reasons for the drop in sales.
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As with the implementation of the new IRDA guidelines, the sale has been
adversely affected, so the company should focus more on rural area, where the large untapped market is present.
Market surveys should be conducted regularly so that to know about customer
demands and changing needs: The Company should know about the customers changing needs and demands by conducting market surveys which are helpful in introducing a product which suits the customers requirements. Insurance companies should try to adopt different strategies to market their products or plan. Companies should not primarily focus on the agents for their business, as agents may be unwilling to perform with low commissions. Insurance policies should not just be considered as a tax-saving, but should be considered as a long-term investment plan. The company should make the people aware of the benefits of taking an insurance policy.
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iv. v. vi.
The first step in selling is to identify and qualify prospects. The company can qualify the leads by contacting them by mail or phone to assess their level of interest and financial capacity. The leads can be categorized, with hot prospects turned over to the field sales force and warm prospect turned over to the telemarketing unit for follow-up. ii. PREAPPROACH The salesperson needs to learn as much as possible about the prospect company (what it needs, who is involved in the purchase decision) and its buyers (personal characteristics and buying sales).The salesperson should set call objectives: to qualify the prospect, gather information. He can make personal visit, a phone call. As a salesperson of Aviva Life Insurance Company, one should understand the above prospects very well. iii. PRESENTATION AND DEMONSTRATION The salesperson should tell the product story to the buyer, following AIDA formula of gaining attention, holding interest, arousing desire and obtaining action. The salesperson uses a features, advantages, benefits, and value approach. To get the good result salesperson should stress on benefit and value i.e. a customer orientation not more on future of the product, i.e. product orientation. Due to the lack of understanding the needs of the customer, mis-selling occurs, so salespeople should properly understand the needs of the customer to solve the problem of mis-selling
iv. OVERCOMING OBJECTIONS Customers typically pose objections during presentations. These objections can be handled by the salesperson by maintaining a positive approach and clarifying their objections, and by turning their objections in to reasons for buying.
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v. CLOSING Salespeople need to know how to recognize closing signs from the buyer, including physical actions, statements or comments and questions. Salesperson of Aviva Life Insurance Company should use techniques like asking for directly premium or started filling forms or asking for their documents. vi. FOLLOW- UP AND MAINTAINANCE The follow-up and maintenance is necessary if the salesperson wants to ensure customer satisfaction and repeat business. The salesperson should ensure that whether policy logins has been reached to the customer and he should call the customer whether he is happy with the purchasing and any objection if he has, salesperson should clarify it as one satisfied customer provides more customers.
The consumers should communicate their need properly to the agent, in the first meeting with the agent. The consumer should gain knowledge of industry and products, so that you can cross-check when the agents talk to you about the product. The consumers should fill up the form by themselves, so that they are aware of the policy details and mis-selling doesnt occur. The consumers should retain their existing policies, as agents may try to convince the customers for a new policy, as new policies always fetch an agent greater commission.
5.2 Conclusion
An Insurance policy is an investment oriented plan. As compared to other investment plans, the investment portfolio of the Insurance Policy functions like a mutual fund and other investment. It is invested in a portfolio of debt and equity instruments, in
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conformity with the announced investment policy. Hence it grows or erodes in line with the performance of that portfolio. From this study it reveals that the consumers have different needs and preferences. A 5 years before the consumers and the general public were not interested to take an Insurance Policy but now days there are many options and choices in front of the customers. They are interested to take high return policies in order to secure their lives. Some, people are aware of all the benefits and returns of insurance policies, but still most of the people are unaware of ULIPs and the new IRDA guidelines on ULIPs. Due to the intense competition in the life insurance market, the Aviva Life insurance Company should adopt better strategies to attract more customers and also to cope with the new changes brought in by IRDA. The company should introduce new products by properly assessing the needs of the consumer. Only a few portion of Indian population is insured, so the rural market gives a challenging opportunity to the company to tap this segment. Lastly, a well-functioning insurance market plays an important role in economic development and financial stability of developing economies such as Indias. First, it inculcates and encourages the habit of saving. Second, it provides a safety net to rural and urban enterprise and productive individuals.
GLOSSARY
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Investment: It is current commitment of rupees for a time period to derive benefits in future. The future benefits are known as return (nominal return). Return may be in the form of income, capital appreciation or combination of both. Inflation adjusted returns are known as real return/net return Risk: It refers to the probability that the actual return on an investment will differ from the expected return. When the assets return has no variability, its called risk free asset. Credit Risk refers to the Risk of default Volatility: Movement in capital value of investment Primary Market: Its a process by which a company raises its initial capital from the public through IPO and obtains listing on the stock exchange Equity: Its an investment by which investors become part owner in the issuing company and share profits (its any) through dividends Liquidity: It is ease of marketability Capital Gain: The positive difference between the cost price & sales price of an asset held by investor Hedging: It is protection against risk Security: A legally enforceable document which can be traded Riders- are add-on benefits that can be attached to the basic policies. It is just like buying a helmet with a motorcycle for extra security .They are relatively cheap and are most effective for enhancing the coverage under the basic policy. Premiums for the riders are low, but there are no maturity / surrender benefits under the rider scheme. Capital Market: A place where all type of securities are traded
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Fund Manager- The person(s) responsible for implementing a fund's investing strategy and managing its portfolio trading activities Sum Assured- is the minimum amount payable to the assured or his/her dependants on the death of the life assured Lock-in-period- Its the period during which an investment may not be sold. Bank assurance- It means selling insurance through bank branches Administrative charges: These are charges that are levied for the administration of the policy and the related cost of administration of the insurance company, itself. They are more related to the cost like IT, operational, etc cost of continuing the policy. Fund management charges: These are the charges for buying and selling debt and equity. These are the charges are adjusted in NAV itself. Mortality charges: This covers the cost of providing life protection for the insured and may be paid once at the start of the policy for a recurrent manner for example this charges levied to provide the insurance cover under the plan . normally these charges are one year charges as per the age of the holder. Rider charges: Rider charges are similar in nature to the mortality charges as they are levied to pay for the other protection benefits that the policy holder has chosen for- like the critical illness benefit or the accident benefited. Surrender charges: When the policy holder decides to surrender the policy or partially withdraw some of the units for cash, a surrender charge may be apply. Surrender charges are used to cover initial expenses that have been incurred by the company but not yet recovered from the policyholder yet. Mis-selling- The ethically questionable practice of a salesperson misrepresenting or misleading an investor about the characteristics of a product or service
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ABBREVIATIONS
1. ULIP- Unit Linked Insurance Plans 2. APE- Annual Premium 3. NAV- Net Asset Value 4. CAGR- Compounded Annual Growth Rate 5. POL- Policies 6. S.A- Sum Assured 7. SEBI- Securities and Exchange Board of India 8. IRDA- Insurance Regulatory and Development Authority 9. DTC- Direct Tax Code 10. B.S.E- Bombay Stock Exchange 11. N.S.E- National Stock Exchange
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Bibliography
Books
1. Dr. Singh, Avtar, Principles of Insurance Law, S Chand & Sons, Delhi, 2003.
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Websites visited
1. www.avivaindia.com 2. www.irda.gov.in 3. www.insuranceguru.com 4. www.scribd.com 5. www.economywatch.com 6. www.indianmba.com 7. www.moneycontrol.com 8. www.marketsmonitor.com 9. www.financialexpress.com 10. www.investopedia.com 11. http://www.indianembassy.org/enews/econews(dec99).pdf-
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12. http://www.fido.gov.au/asic/pdflib.nsf/LookupByFileName/YourMoneyStarter_I
unpan002873
24. http://www.scribd.com/doc/24411988/Project-Report-on-Insurance25. http://www.scribd.com/doc/25011370/Insurance-Project-Report 26. http://www.scribd.com/doc/28601591/Insurance-Project27. http://www.scribd.com/doc/30042666/Project-Report-on-Insurance-Industries 28. http://www.scribd.com/doc/24179171/project-on-insurance 29. http://www.scribd.com/doc/7060410/Insurance-
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30. http://www.appuonline.com/insurance/insurance-types.html31. http://www.appuonline.com/insurance/insurance-need.html32. http://www.appuonline.com/insurance/life.html33. http://www.appuonline.com/insurance/life.html#education34. http://www.appuonline.com/insurance/life.html#wealth35. http://www.appuonline.com/insurance/life.html#premium36. http://www.appuonline.com/insurance/life.html#protection37. http://www.appuonline.com/insurance/general.html38. http://www.appuonline.com/insurance/choose-insurance.html39. http://www.irdaindia.org/FAQs/faq_ulips221007.pdf40. http://www.irdaindia.org/ulips/CIRCULAR_ULIP%2028062010.pdf41. http://argus-research.in/ULIP.pdf 42. http://www.thehindubusinessline.com/2010/09/28/stories/2010092850051100.ht
m
43. http://smartinvestor.in/market/advice-33819-advicedet-
mandatory.html
47. http://www.icrier.org/pdf/WP116.PDF
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48. http://www.lifeinscouncil.org/media-centre/latest-news/506-new-ulips-to-change-
industry-irda-image49. http://www.scribd.com/doc/4996143/OVERVIEW-OF-INSURANCE-SECTOR-
INDIA50. http://www.monstersandcritics.com/news/business/news/article_1163869.php/Ind
ia_s_insurance_sector_to_see_500_per_cent_growth_by_2010_Study-
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ANNEXURES
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Muskan Verma. Your Name: _______________ 1. Gender: a. Male 2. Age: a. 20-30 yrs old old b. 31-40 yrs old c. 41-50 yrs old d. >50 yrs b. Female
b.150001-250000
c. 250001-
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------6. Major reason for investment in Insurance option : (Please tick one) a. Return d. Tax saving b. Liquidity e. Other c. Saving
7. Your savings is directed towards which option? a. Future security c. Daughter/Sons marriage b. Buying house/ vehicle d. supporting education of children
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e. Others 8. Do you have an insurance policy? a. Yes 9. Have you heard about ULIP? a. Yes heard b. Not Heard b. No
b. No
11. What are the reasons to invest in ULIPs? Please rank this attributes from 1 to 7. Attributes Rank Returns Liquidity Flexibility Tax planning Life Protection Transparency Safety 12.What are the reasons for taking Traditional plans? Please rank this attributes from 1 to 7. Attributes Returns Liquidity Flexibility Tax planning Life Protection Transparency Safety Rank
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14.Are you satisfied with the changes made by IRDA in ULIP? a. Yes 15. Give your suggestions/ complaints if any. b. No
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1) How many years you have been working with Aviva Life insurance? a) 0-2 b) 3-5 c)6-8 d) 8 and above
2) Why did you join the Insurance sector? [Please tick any one] a) Earnings b) Rewards c)Recognition
d) Opportunities e) other reason If other reason, please specify? ------------------------------------------------------------------------------------------------3) What number of policies and monthly premium averagely you business before Sept-1, 2010?(approximately) Month Sept Oct 200 200 Nov 200 Dec 200 Jan 201 Feb 201 Mar 201 Apr 201 Ma y Jun e July 201 Aug 201
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201 0
201 0
4) Please rate which attributes is most important in attracting the customer for buying these products on a scale of 1 to 5 (1- least important, 5- most important) Category Types of plans in Aviva life insurance Death Tax benefit Benefit Investment Risk Returns
ULIPs Traditional 5) Are you aware of the present changes in insurance sector due to the new IRDA guidelines? [Please tick] a) Yes b) No
6) Is there a increase/decrease in the number of policies as well as average premium receive after the new IRDA guidelines? [Please tick] a) Yes- increased b) No-decreased
7) Have you found any change in No of policies and monthly premium averagely after Sept 1, 2010? Sept 2010 No of policy Average monthly premium Oct 2010
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8) In your view, how much sales have been affected after Sept 1st? Please rate on a scale of 1 to 5.( 1 as highly decreased..3 as not at all affected..5 as highly increased). Please tick any one. 1..2..3..4.5
9) How much these factors effect the sales after Sept 1st? Please rate these factors on a scale of 1 to 5? (1- least important, 5- most important) i. ii. iii. iv. v. vi. Lock In Period Minimum sum assured Low Agents commission Even Distribution of charges Partial withdraw period Guarantee return 1.23.4.5 1.23.4.5 1.23.4.5 1.23.4.5 1.23.4.5 1.23.4.5
10) Please rate the difficulty level on a scale of 1 to 5, the difficulty in selling the following products of insurance before September 1? (1- difficult, 5- easy). Please tick it. i. ii. iii. iv. v. Aviva Dhan Vridhi Aviva Dhan Sanchay Money Back Aviva Freedom Life Plan Aviva Safeguard 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5
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11) Please rate the difficulty level on a scale of 1 to 5, the difficulty in selling the following products of insurance after September 1? ( 1- difficult,5- easy) i. ii. iii. iv. v. New Aviva Dhan Vridhi Aviva Dhan Sanchay Money Back 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5 1-----------2----------3----------4----------5
Aviva Freedom Life Advantage 1-----------2----------3----------4----------5 Aviva Life Saver Plus 1-----------2----------3----------4----------5
12) Please rate on a scale of 1 to 5, the change in your commissions after the new IRDA guidelines? ( 1 increase, 2- small increment, 3- no change, 4- small decrement, 5- decreased) Tick any one. 1 2...............3.....................4..5 13) Give reasons for continue/ discontinue in the insurance sector.
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1) How many years you have been working with Aviva Life insurance? b) 0-2 b) 3-5 c)6-8 d) 8 and above
2) Why did you join the Insurance sector? [Please tick any one] b) Employment b) Rewards c)Recognition
d) Opportunities e) other reasons If other reason, please specify? -----------------------------------------------------------------------------------------------. 3) Which product was sold the most before September 1st, 2010? Please rank it from 1 to 10. (1 as least sold and 10 as the most sold)
PRODUCTS
Pension Plus Aviva Dhan Sanchay
% OF CONTRIBUTION
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Aviva Dhan Vriddhi Aviva Saveguard Aviva Sachin Century Plan Aviva Freedom Life Plan
4) What number of policies and monthly premium averagely you business before Sept-1, 2010?(approximately) Mont Sep h t09 Oct09 Nov Dec 09 09 Jan 10 Feb 10 Mar Apr 10 10 May 10 Jun e 10 Ju Aug ly 10 10
5) Do you find any seasonal variation in sales of insurances in Aviva? (Please Tick) a. YES b. NO
6) Is there a increase/decrease in the number of policies as well as average premium receive after the new IRDA guidelines? [Please tick] b) Yes- increased b) No-decreased
7) Have you found any change in No of policies and monthly premium averagely after Sept 1, 2010? Sept 2010 Oct 2010
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PRODUCTS
Pension Plus Aviva Dhan Sanchay New Aviva Dhan Vriddhi Aviva Life Saver Plus Aviva Sachin Century Plan Aviva Freedom Life Advantage
% OF CONTRIBUTION
9) In your view, how much sales have been affected after Sept 1st? Please rate on a scale of 1 to 5.( 1 as highly decreased..3 as not at all affected..5 as highly increased). Please tick any one. 1..2..3..4.5 10) Give reasons for continue/ discontinue in the insurance sector. ..
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ANNEXURE-IV
Income Tax Rates for A.Y:2010-11 Taxable income slab (Rs) Up to 1,60,000 Up to 1,90,000 (Resident Women) Up to 2,40,000( Resident Age 65 & above) Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Deductions under Section-80C Deduction is allowed on the following amount :Rate % Nil
10 20 30
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1. Life insurance premium on life of himself, spouse, children and any member of HUF subject to a maximum of 20 percent of sum assured. 2. Contribution by employee to Statutory or Recognized Provident Fund. 3. Contribution by any person to public provident fund subject to a maximum of Rs. 70,000. 4. Repayment of loan taken from Central/State Govt./any other bank/LIC/ National Housing Bank where employer is statutory corporation or, public company or university or college or local authority or a co-operative society for purchase or construction of a residential house property.
5. Tuition fees (excluding donation or development fees etc) at the time of
admission for full time education of any two children of such individual to any University, college, school or other educational institution situated in India. 6. Fixed deposit with schedule Bank for not less than five Years.
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Section 80CCC Investment in Pension Fund Persons entitled Individual Quantum of deduction Amount paid or Rs 1,00,000 whichever is less Payment Regarding Annuity plan of Life Insurance Corporation of India or any other insurer for receiving annuity or pension from a fund referred to in section 10(23AAB). Note: If assessee or nominee receives any pension or other amount on surrender of which deduction has been allowed, then such amount shall be taxable in the previous year in which the amount is received.
Sections under 80 D Medical Insurance Premium 1 Persons Entitled (a) Individual (b) H.U.F 2 Payment Rearding Medical Insurance premium for a) Self spouse, dependent parents, dependent children b) Any member of H.U.F An assessee shall be allowed deduction of a) Rs. 15,000 (Rs. 20,000 for insurance of senior citizen) or b) Amount paid, whichever is less. Payment can be made by any mode other than cash and it is to be paid out of the income chargeable to tax.
Quantum of deduction
Income Tax at different levels of income in the case of individuals Levels of income Up to 1,60,000 Till 3,00,000 Rate % Nil 10 Rs 3,00,000 Nil Rs 14000 Rs 5,00,000 Nil Rs 14000 Rs 10,50,000 Nil Rs 14000
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3,00,0015,00,000 5,00,001 onwards Secondary & higher education Cess Total tax
20 30 3
Rs 420
Rs 40000 Rs 1,620
Rs 14420
Rs 55,620
Rs 2,25,570
Income Tax at different levels of income in the case of women below 65 years of age Levels of income Up to 1,90,000 Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Secondary & higher education Cess Total tax Rate % Nil 10 20 30 3 Rs 3,00,000 Nil Rs 11000 Rs 330 Rs 5,00,000 Nil Rs 11000 Rs 40000 Rs 1,530 Rs 10,50,000 Nil Rs 11000 Rs 40000 Rs 1,65,000 Rs 6,480
Rs 11330
Rs 52,530
Rs 2,22,480
Income Tax at different levels of income in the case of women below 65 years of age Levels of income Up to 2,40,000 Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Secondary & higher education Cess Total tax Rate % Nil 10 20 30 3 Rs 3,00,000 Nil Rs 6000 Rs 180 Rs 5,00,000 Nil Rs 6000 Rs 40000 Rs 1,380 Rs 10,50,000 Nil Rs 6000 Rs 40000 Rs 1,65,000 Rs 6,330
Rs 6180
Rs 47,380
Rs 2,17,330
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Income Tax at different levels of income in the case of individuals after availing DeductionsIf the policy is taken on the health of senior citizen Levels of income Maximum Deductions:(a) Deductions u/s 80C (b) Deductions u/s 80D - For Self, Spouse and children, if any - Additional for Parents Rate % Rs 3,00,000 Rs 5,00,000 Rs 10,50,000
Rs 1,00,000
Rs 1,00,000
Rs 1,00,000
Rs 20,000
Rs 20,000
Rs 20,000
Revised levels of income after availing deductions Up to 1,60,000 Till 3,00,000 3,00,001-5,00,000 5,00,001 onwards Secondary & higher education Cess Total tax Income Tax if deductions are not availed Net savings in Tax due to deductions Under section 80C and 80 D
Rs 20,000 Rs 9,10,000 Nil Rs 14,000 Rs 40,000 Rs 1,23,000 Rs 5,310 Rs 1,82,310 Rs 2,25,570 Rs 43,260
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