The perception of college teachers towards life insurance. A case study

INDEX

Acknowledgment

Index

List of the Tables

List of the Graphs

Chapter I Introduction

Chapter II Research Methodology

Chapter III Review of Literature

Chapter IV Analysis & Interpretation of Data

Chapter VII Conclusions & Suggestions

Appendix

Bibliography

ACKNOWLEDGEMENT

I would like to express my gratitude towards your precious co-operation from the bottom of my heart:

- Dayanand Education Society and Dayanand College of Commerce, Latur You are the stimulation behind every academic achievement and progression.
- Respected Dr. S. S. Solanke, Principal, Dayanand College of Commerce, Latur. Sir, Your lovely persuasion & valuable guidance with great affiliation, really pulled me to this stage.
- My Inspiration and Motivation Dr. A. N. Shelgenwar, Dr. R. S. Pawar and Dr. B. R. Dayma Your guidance and continuous support for this research work helped me to complete it within the given time frame.
- My dear colleagues & Students, You are the inspiring source and very cause behind the research, as everything has been gained from you, nothing is mine, but my name

Dr. B. T. Chavan

Researcher

LIST OF TABLES

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LIST OF GRAPHS

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Chapter I Introduction

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1.1: Introduction

Human life is full of uncertainties and numerous pitfalls, wise people remain adequately alert and cautious about this fact of life. Even though nobody can avoid probable risks and uncertainties but can be well prepared to face it. To avoid the danger is no within our reach but making us strong enough to counter the strokes is possible. The person with future awareness opts to buy the life insurance armor for becoming able enough to face any eventuality. Up till now many lives have been made free of anxieties through life insurance. The Hindu philosophy gives the axiomatic truth of the nature of insurance “Yat bhavati tat nashyati” which means whatever is created, certainly destroyed. The universe as a whole is created, as a matter created, it is but natural that it is subject to destruction. Creation is inevitably followed by destruction; risks therefore are inevitable in life. Creation, preservation and dissolution is unending cycle of the universe, everybody is expected to accept and digest it.

Ours is an era of uncertainty and life is surprising. It is the confederation of tensions and anxieties regarding the future uncertainties. Wherever may be an uncertainty, it is risky. Normally any risk is difficult to avoid, though not impossible. Chances of risk can be minimized by adequate cautiousness. No one can accurately predict the uncertainty. Life styles have been changed tremendously and along with these changes, the uncertainties of human lives also raised more question marks of worries and dark shadows of anxieties.

The history of Indian culture reveals that joint family system provided financial protection when an unfortunate event or accident occurred to an individual in the family. The massive impact of industrialization in our country resulted into the division of the joint family system into nuclear family units and the support of the joint family system completely disappeared. The purchase of life insurance policy is a planned and systematic decision of the individual to minimize the loss of risk arising out of uncertainty. This gives him protection economically and also provides peace of mind as his family is assured to get relief from financial stress and strain. The Indian society is largely traditional, as insurance against life is considered as a negative thinking of ‘widow’s money’ when the bread earner of the family is no more. But at present, it is considered a positive instrument by many for creating assets and wealth during long period.

Insurance generally operates on the premise of uncertain future and as such its promotion and development depends mostly on the ability of insurers in assessing the real uncertainties of life of the insured. Insurance provides payment for unexpected losses to individual’s family and business firms, allowing their activities to continue smoothly despite unfavorable and unfortunate events. An insurer’s reputation is evaluated mainly on his ability to fulfill his promise when the insured needs it. The life insurance industry also plays an important role in the mobilization of household and corporate savings and promoting investment activity. This industry provides for efficient and productive allocation of capital resources, thus facilitates growth and development of an economy. The life insurance industry in India, with LIC and 23 private sector players, has been playing a major role in performing some insurance functions for the society.

1.2: The Concept

“The basic foundation of insurance is to protect the few against the heavy financial impact of anticipated misfortune by spreading the loss among the many who are exposed to risk of a similar nature.” Insurance neither prevents losses nor reduce the costs of losses, but the principle of insurance states the loss of few is shared by many.

The oxford English dictionary defined insurance as, “the act of securing the payment of a sum of money in the event of loss or damage to property, life etc. by payment of a premium.”

The term insurance may also be defined as, “a social device providing financial compensation for the consequences of adversities, the payments being made from the accumulated contributions of all parties participating in the arrangement.”

The essence of insurance thus, is collective bearing of risks as it involves pooling of risk. It is also a social instrument in which economic security and social protection are provided to people and also to corporate. Insurance is a mix of promise and service. Hence, the survival of life insurance industry depends mostly on utmost good faith of the insured and insurer. Insurance is generally categorized into two groups i.e. life insurance and non-life (General) insurance. Life insurance provides financial protection to the insured against the risk of uncertain events in the life of insured. Non-life insurance provides protection to the insured against accidents, damage, burglary and other loss to the property. If an unfortunate event occurs, the insurer has to pay the sum assured to the insurer. Insurable interest is therefore necessary to become a valid insurance contract. If there is no insurable interest, the contract becomes void and unenforceable. The concept of insurance is originated to cover the appropriate risk occurred. Therefore, as per principle of indemnity, insurance company neither gives more than or less than loss occurred.

The aim of life insurance is to protect the life from variety of risks which are anticipated. He who seeks this protection is called the assured or insured and the other person/party who takes the risk by undertaking to protect the other from loss is called the insurer and he does this for a small consideration called the premium. So the contract of insurance may be defined as, “contract, whereby one person/party, called the ‘insurer’ undertakes, in return for the agreed consideration called the ‘premium’, to pay to another person, called ‘assured’, a sum of money or its equivalent on the happening of a specified event.” The happening of the specified event must involve some loss to the assured which is in the law of insurance commonly called the ‘risk’.

1.3: Basic Types of Life Insurance

- Term Life
- Provides coverage for specific periods of time, including a 30-year mortgage, or raising children.
- Can be purchased at a fixed premium rate for various term lengths (5, 10, 20 or even 30 years) to avoid potentially huge annual premium increase.
- When the term ends, so does the insurance coverage. Term Life Insurance will only pay if you die within the term.

- Permanent, Whole Life or Cash Value Life
- Often used if you have significant assets, if you want to be sure that estate taxes are covered, if you want to support a surviving partner's retirement funds, or if you want to be sure to have enough money to pay for your funeral expenses. Permanent life insurance will pay when you die, no matter how old you get.
- Based on a client paying higher rates (making overpayments) in the early years, and comparatively lower rates later on, when health, age and mortality rates would call for much higher rates.
- Overpayment made in the early years is set aside, and can be accessed by the client. By law, the insured is entitled to a refund of the overpayment when the policy is canceled, hence the term "Cash Value".

1.4: Origin of the Insurance

The origin of the life insurance is as old as the history of human civilization. Life insurance in India can be traced back to the Vedas. A form of community insurance was presented around 1000 BC and was practiced by the Aryans. Some societies were found in the Buddhist period to help families to build houses, protect widows and children. It also found mention in the writings of Manusmriti, Dharmshastra and Arthshastra.

The concept of insurance was also born at Lloyd’s Cafeteria (1688) in England where most of the sailors and ship owners refreshed themselves. For compensating the losses incurred to the ships in the high seas, an alliance was formed amongst ship owners and they pooled up larger sums of money. Later this idea initiated the development of large scale business of personal, property and liability insurance. Insurance in the modern form originated in the Mediterranean during the 13th century. The earliest references to insurance have been found in Babylonia, the Greeks and the Romans.

The policy of life of William Gybbons of England on June 18, 1633, was the recorded evidence of life insurance. Even before this, the annuities were found common in England. The first registered life insurance Company was the ‘Hand-In­Hand Society’ which was established in 1669. With the advent of industrial revolution, the miscellaneous insurance like accident insurance, fidelity insurance, liability insurance and theft insurance took the present shape. Insurance developed rapidly with the growth of British trade and commerce in 17th and 18th centuries. The first joint stock company was established by charter in England in 1720 and the first insurance company in the American colonies was formed in New York City in 1787.

1.5: World Life Insurance Scenario

T-1/5.1: International comparison of insurance penetration (Data presented as ratio of premium in US $ to GDP, 2012)

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Source: IRDA Annual Report - 2012-13

In the above Table No. T-1/5.1 and Graph No. G-1/5.1 shown below, Taiwan has the highest penetration of life insurance showing 15% of premium in US $ to its GDP-2012. And second highest country is Hong Kong with 11% of premium in US $ to its GDP-2012. India is far behind as it stood at 3.2% of premium in US $ to its GDP-2012 showing less than world penetration but more than neighboring country China.

T-1/5.2: International comparison of insurance density (Data presented as ratio of premium in US $ to total population, 2012)

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Source: IRDA Annual Report - 2012-13

As per above Table No. T-1/5.2 and Graph No. G-1/5.2 bellow, Japan has the highest Density of life insurance showing 4142.5 ratio of premium in US $ to its total population-2012, and second highest country is Switzerland with 4121.1 ratio of premium in US $ to its total population-2012. India was far behind, it stood at 42.7 ratio of premium in US $ to its total population-2012 showing less than world and China’s density but more than Russia.

This shows that either our firms are not able to reach the people or people are not so educated to view insurance as the tool of protection to lead anxiety free life. To lead a happy and anxiety free life, we should be able to transfer life risk to someone. Life insurance companies are meant to accept the life risks with the small consideration called premium. Everyone wants to transfer the risk but the important task before insurance companies is to educate, convince and motivate the people about life insurance. If companies try from root level, India’s scenario will be different than what it is at present.

1/5.1: Mandatory Life Insurance in the world

There are thirty three developed nations. All of them have universal health care insurance. They follow the system for this which is as follows;

System Types:

Single Payer: The government provides insurance for all residents (or citizens) and pays all health care expenses except for co-pays and coinsurance. Providers may be public, private, or a combination of both. (Countries: Norway, Japan, UK, Kuwait, Sweden, Bahrain, Brunei, Canada, UAE, Finland, Slovenia, Italy, Portugal, Cyprus, Spain, Iceland)

Two-Tier: The government provides or mandates catastrophic or minimum insurance coverage for all residents (or citizens), while allowing the purchase of additional voluntary insurance or fee-for service care when desired. (Countries: New Zealand, Netherlands, Denmark, France, Australia, Ireland, Honk Kong, Singapore, Israel)

Insurance Mandate: The government mandates that all citizens purchase insurance, whether from private, public, or non-profit insurers. (Countries: Germany, Belgium, Austria, Luxemburg, Greece, South Korea, Switzerland, US)

1.6: Indian Life Insurance Scenario

The life insurance in India has been progressively evolutionary through a number of phases in its nearly 200 years of history. The evolutionary development of life insurance industry in India went through many different phases moving from private market to nationalization and from nationalization to liberalization.

- Early Period: The first insurance company i.e. “Oriental Life Insurance Company” was started in 1818 at Kolkata (Calcutta). Latter the Bombay Mutual Life Insurance Society commenced its business in 1870. Some other European life insurers came in India to cover the lives of Europeans. They also used to cover the Indian lives of a higher income group. Later, the impact of Gandhiji’s Swadeshi Movement was felt in the insurance circles with the increasing support of clients to domestic companies. The Indian Mercantile Insurance Company was started purely with indigenous capital.
- Pre-Independence Period: The life insurance business in pre-independence India was mostly guided and governed by the provisions of the British Acts. The starting of the regulation over the insurance business was taken place only with the enactment of the Indian Life Insurance Companies Act, 1912 and the Provident Fund Act, 1912. Later a new Indian Insurance Companies Act was enacted in 1928. The Insurance Act of 1938, which came into force from 1st July, 1939, was a landmark to the conduct of insurance business in the country and was followed even after nationalization of insurance sector by the monopolistic players and also after liberalization. The importance of the act was that the whole business was brought under a integrated system of control and regulations. There were 176 insurance companies operating in the country by 1938. 50% of premiums in life insurance sector were controlled by the domestic industry by 1947.
- Post-Independence Period: The Insurance Amendment Act, 1950 abolished principal agencies. There were large number of insurance companies and the level of competition was high. There were also allegations that many companies resorted to unfair trade practices. Life insurance business during this period was slow and restricted mostly to urban areas and upper class population. The insurance needs of the population in rural areas and low income groups were completely neglected. Insurance was considered only as unfulfilled dream to many. Due to this, the concept of nationalization of insurance industry was developed by the government. Nationalization of the life insurance business in India was the outcome of the Industrial Policy Resolution of 1956, which allowed the state to control the life insurance business in India.
- Nationalization of Insurance Industry: on the eve of the nationalization of life insurance in India, the then Prime Minister Mr. Pandit Jawahrlal, Nehru advocated that the nationalization of life insurance is an important step in our march towards a socialist society. The then India’s Finance Minister Mr. C. D.

Deshmukh, asserted that the nationalization of life insurance sector was done only as an economic priority. The majority of the small and medium size life insurance companies which developed in Indian market during the British rule were financially weak and likely to collapse in time to come. It was, therefore, necessary to merge the entire life insurance business under the control of a public sector i.e. Life Insurance Corporation of India. Life insurance business was nationalized in 1956 with the merger of 245 private life insurance companies. 1st Sept, 1956, was the commencement day of Life Insurance Corporation of India.

- Liberalization Period: As a concept liberalization is meant for maximizing individual’s liberty, freedom of thought, expression and action. One of the key objectives of insurance liberalization was to deepen the insurance under its fold and improve on the product deliverable and customer servicing aspects of the business to bring it on par with international standards. Though the nationalized industry strengthened its network and profitability position due to its monopolistic character, the lack of competition made the industry to low consumer awareness, low levels of insurance penetration, high cost of insurance products, delayed service and stagnant consumer servicing. So this was become imperative to adopt the process of financial globalization and liberalization to overcome above drawbacks.

The Indian life insurance industry entered a new phase of transition following liberalization. The liberalization gave an opportunity to the entry of traditional competitive insurance companies and foreign entrants into the insurance market. The biggest representative from each of the matured insurance markets joined the life insurance sector of our country. Till the year 2000, the insurance industry was a government monopoly but it is now experiencing rigorous competition because a number of players have entered into the Indian market in the form of joint ventures with Indian private sector partners. Insurance industry in India is undergoing a paradigm shift. It is significantly affected by the dynamics in external environment which compares new regulatory framework, a variety of new products, increasing use of latest technology, new approaches to underwriting and claims processing and new marketing and distribution channels. The insurance liberalization makes the acquisition of insurance business in India an important place and role to play in the financial sector of Indian economy. Liberalization has given greater sovereignty to life insurance companies as a way to improve their performance and act as autonomous companies with economic and financial motives.

- Post-Liberalization Reforms in Insurance Sector: The insurance business during the post liberalization regime may expect greater variety of products, efficiency in customer service, efficiency in the delivery of service by the new and efficient distribution channels and proactive regulatory framework. The liberalized insurance market in India has been able to generate substantial interest and awareness among people. Insurance field is creating new horizons of attracting talent and as a result leads to reduced unemployment. With the entry of private players after insurance liberalization, the rules of the insurance business have been completely changed. The entire insurance regulations vest with the responsibility of the insurance regulator i.e. the IRDA (Insurance Regulatory Development Authority).

The outcome of insurance liberalization over a period of 10 years has been encouraging and is identified as the beginning of new era. This revolution in insurance industry brought by the committee on insurance sector reforms (CIRS) headed by R. N. Malhotra (former finance secretary and governor, Reserve Bank of India) was constituted by the union government in 1993. The committee submitted its report in 1994 recommended the opening up of the insurance sector to private players. The major recommendations of the committee included permitting private companies with a minimum paid up capital of Rs. 100 crores to enter the industry, permitting foreign companies to enter the industry in the joint venture mode with the domestic companies and setting up of an insurance regulatory body etc.

Government responded to the recommendations positively and established an Interim Insurance Regulatory Authority (IRA) in Jan 1996 through an executive order. This was as interim body which becomes Insurance Regulatory and Development Authority (IRDA) in 1999. The IRDA was established on 29th Dec. 1999 with an objective to protect the interest of the insurance policy holders and to ensure an orderly growth of insurance industry in the post reform period. IRDA is playing dual role of a regulator and a developmental authority. The regulations of the IRDA had helped the insured to have a transparency in the activities of the insurers relating to sales, documentation, customer servicing and grievance redressal. IRDA provides the insurance market with direction, management control and correction. An amendment was made to Insurance Act, 1938 in 2002 which helped a lot for new entrants in the insurance market.

The rational for insurance reforms was to convert the insurance of classes to the insurance of masses. The positive performance seemed to be an outcome of reforms encompassing a range of measures that led to transformation spread all over the sectors of economy. This change brought higher degree of sophistication and efficiency in operations. Moreover, domestic economy became far more integrated with the rest of the world. The insurance reforms in India are both regulatory and promotional in character to develop the insurance industry. The insurance sector reforms are not static, as FDI has been increased from 26% to 49% and again an IRDA panel known as the ‘Suresh Mathur Committee’ has recommended hiking FDI in all insurance sector intermediaries like brokers, surveyors, third party administrators and web aggregators to 49% from the present 26% immediately and then 100% over the next three years. (The Economic Times, 15th Oct. 2014)

1.7: Composition and Contribution of Life Insurance Industry in India

The insurance industry of India consists of 53 insurance companies out of which 24 are in life insurance business and remaining 29 are in non-life insurance business. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Among the non-life insurers there are six public sector insurers. In addition to these, there is sole national re-insurer namely General Insurance Corporation of India (GIC). Again there are two more specialized insurers belonging to public sector, namely Export Credit Guarantee Corporation of India (ECGC) for credit insurance and Agriculture Insurance Company Ltd. (AIC) for crop insurance.

Even though there is only one public sector life insurance Company (LIC) and remaining 23 are private sector companies, it has largest market share if we consider total premium. LIC has more than the double market share than other 23 companies. And it has nearly double branches all over the India than the 23 private companies. In simple words LIC is the biggest insurance company which has captured market more than what other 23 companies has captured and it has set up more branches than total branches of all other 23 companies. Below is the Table No. T-1/7.1 showing life insurance companies operating in India.

T-1/7.1: Life Insurance Companies Operating in India

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Source: IRDA Annual Report - 2012-13

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Source: IRDA Annual Report - 2012-13

In the above Table No. T-1/7.3 and graph No. G-1/7.3, insurance penetration and density are shown. As shown in the graph insurance density is increasing from 2001-2010 at increasing rate. But in the year 2011 it is decreased. Insurance penetration is not showing major growth; this is due to faster increase in the population as compared to the insurance penetration.

T-1/7.6: State wise insurance penetration and density of individual new business (2012-13)

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Source: IRDA Annual Report - 2012-13

In the Table No. T-1/7.6 and Graph No. G-1/7.6 and G-1/7.7 State wise insurance penetration and density of individual new business for the year 2012-13 is shown. Chandigarh is the union territory having highest share in the insurance penetration and density. As far as state is considered Assam is the largest contributor in the insurance penetration and Goa is the largest contributor in the insuracne density. Maharashtra state is not much behind as far as penetration is considered but yes it is far behind as per density. Maharashtra’s position is better than average Indias position in penetration as well as density.

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