An empirical study on perception of consumer in insurance sector.
Consumer behavior studies the behavior of individual or a group of people. The study of consumer behavior provides marketers to understand and predict the future market behavior. In this paper, role of IRDA, role of Indian banks, role of private insurance companies, function of insurance company, various factors influencing consumer behavior, factors influencing buying decision and model of consumer decisions making process have been considered. Also, the types of insurance policy taken by consumer, the total sum assured of life insurance, the total sum assured of life insurance for the spouse, the share of public insurance in insurance sector, share of LIC in life insurance in insurance sector and the reasons for invested in life insurance have been studied.
Keywords: Consumer behavior, Buying decision and Consumer decisions making process
Consumer behavior is the process where the individual decides what, when, how and from whom to purchase goods and services. Consumer behavior studies how individuals, groups and organization select, buy, use dispose off goods, services, ideas or experiences to satisfy their needs and desire. The study of consumer behavior enables marketers to understand and predict consumer behavior in the market place in advance and it is concerned not only with what consumers buy but also with why, when, where, how and how often they buy it. Consumer research is the methodology which is used to study consumer behavior and it takes place at every phase of the consumption process during before and after the purchase. Consumer behavior is interdisciplinary approach that is based on concepts and theories about people that have been developed by scientists in diverse disciplines such as psychology, sociology, social psychology, cultural anthropology and economics. Consumer behavior has become an integral part of strategic and social responsibility. It should also be an integral component of every marketing decision embodied in a revised marketing and the social marketing concept. It helps marketers to fulfill the needs of their target markets in such a way that it develops a society.
The insurance sector in India come a full circle from being an open competitive market to nationalization and back to a liberalized market. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost 190 years. Insurance may be described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual. The risk, which can be insured against include fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved. Insurance is actually a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party on happening of a certain event. Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The business of life insurance started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. The Indian insurance market is characterized by the presence of 'young pensioners', as per an article in the 'Times of India'. Young pensioners are typically under 40 individuals who are purchasing retirement plans. The growing Indian economy has created an upwardly mobile, affluent young generation, who believe in going for a planned retirement. As per data from IRDA, 28% of the premiums collected by the Indian Insurance companies are from retirement plans.
Life Insurance Corporation (LIC) is India's biggest domestic institutional investor. It is also the largest life insurance company in India.LIC envisages augmenting its equity investment by one third in 2008. LIC plans to buy equities worth Rs 450 billion for the year 2008-09. The comparable figure for 2007-08 was Rs 340 billion. Thomas Mathew, LIC Managing Director expects the volatility in the stock markets to continue till October-November. The prime objective of the company is to ensure the safety of the resources invested by the company's shareholders. LIC is slated to buy up bonds worth Rs. 1.15 trillion in the current fiscal year. LIC expects to earn a gross investment income ranging from Rs. 400 billion to Rs. 450 billion in the current year, depending upon the prevalent market conditions.LIC manages total assets worth around US$175 billion.
According to K. N. Bhandari, the Secretary General of General Insurance Council, India's general insurance sector is slated to grow at 18% rate in 2008. The comparable figure for 2007 was 13%. As per Mr. Bhandari, the present market value of the Indian general insurance sector is Rs. 30,000-crore. The current penetration level of the Indian insurance sector is 0.65 %.The Indian urban sector is a significant contributor to the general insurance market P.Chidambaram, the then Indian Finance Minister, called for the insurance companies in India to make simple products for the Indian masses. It is expected that the products will then possess a high penetration power particularly in rural India. According to Mr. Chidambaram, a simple product will gain more reception.
* To know about the types of insurance policy taken by consumer
* To know about the total sum assured of life insurance
* To know about the total sum assured of life insurance for the spouse
* To know about the share of public insurance in insurance sector
* To know about the share of LIC in life insurance in insurance sector
* To know about the reasons for investment in life insurance
III. ROLE OF IRDA IN INSURANCE SECTOR
Insurance in India started without any regulations in the nineteenth century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000). The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and Development Authority bill was passed to protect the interest of the policyholders from private and foreign players.
IRDA plays an important role in insurance sector giving important guide lines to various companies in the area of insurance. The IRDA's green signal to insurance companies for investments in venture capital funds would provide a boost in growth pertaining to the infrastructure segment. The insurance companies would be allowed to invest about 5% of the total investment in the venture capital funds pertaining to infrastructure based projects. The total aggregate of the assets under the life insurance companies is Rs. 699,375 crores. The proposed alterations in the regulations pertaining to investments of the insurance companies were settled by the Insurance Regulatory and Development Authority of India (IRDA), at the board meeting on the 25th of March 2008. Several other alterations were also done with the investment norms. The other important norm is the expansion of the sanctioned investments category, which would also include the mortgaged securities and the initial public offerings unlike previously when these two were not included. The proposal would be submitted to the Insurance Regulatory and Development Authority of India (IRDA) board for approval. The final draft was published in the Gazette of the Central Government at the end of March 2008. The alterations would help in developing the instruments of investment and provide flexibility for insurers. The alterations would provide more margins pertaining to the investments in certificates of deposit issued by the banks and term deposits.
At present the insurance companies may invest about 10% of its investment funds to a particular sector. The Insurance Regulatory and Development Authority of India (IRDA) constituted a working group in the year 2006 to probe the existing investment regulations and provide review on the present statutory advices and the trends of investments for insurance companies. According to the Insurance Regulatory and Development Authority (IRDA), the private insurers had collected premium income from new business of about Rs. 18,980 crores, in 2007.
IV. ROLE OF INDIAN BANKS IN INSURANCE SECTOR
Many Indian banks are planning to enter the insurance sector due to the huge growth that is estimated to take place in this sector. Indian banks plan to foray into the insurance sector by setting up their own insurance companies. The Indian insurance sector collected a premium of about Rs. 75,000 crores in the segments of non- life and life insurance, during the first nine months of 2007-2008. Further, the business of insurance in the country is expected to increase due to the growth in the categories of semi- urban and rural insurance and is expected to be worth about US$ 60 billion by 2010. The major Indian Banks that are planning to enter the insurance sector of the country are Union Bank, Federal Bank, Allahabad Bank, Bank of India, Kamataka Bank, Indian Overseas Bank and Bank of Maharashtra. Further, there are a number of banks that are planning to set up their own companies for insurance such as Bank of Baroda, Punjab National Bank, and Dena Bank. Indian banks are planning to enter the insurance sector on their own, without partnering with insurance companies due to several reasons. One important reason is that they would get better dividends than the commission they would get by entering into partnerships with other insurance majors. Moreover, this would help them to diversify from the regular banking activity that they are involved in. The insurance companies have been affected with the planning of Indian banks to foray into the insurance sector of the country. This is due to the fact that the insurance companies are now unable to find banks with whom they can enter into partnerships for the distribution of their products.
V. ROLE OF PRIVATE INSURANCE COMPANIES IN INSURANCE SECTOR
Private sector also plays important role in this sector and tried to capture maximum shares in this sector. The private insurance joint ventures have collected the premium of Rs. 1019.09 crore with the investment of just Rs. 3,000 crore in three years of liberalization. The private insurance players have significantly improving their market share when compared to 50 years Old Corporation (i.e. LIC). As per the figures compiled by IRDA, the Life Insurance Industry recorded a total premium underwritten of Rs. 10,707.96 crore for the period under review of this, private players contributed to Rs. 1,019.09 crore, accounting for 10 percent. Life Insurance Corporation of India (LIC), the public sector giant, continued to lead with a premium collection of Rs. 9,688.87 crore, translates into a market share of 90 per cent. In terms of number of policies and schemes sold, private sector accounted for only 3.77per cent as compared to 96.23 per cent share of LIC (The Economic Times, 21 March, 2004). The ICICI Prudential topped among the private players in terms of premium collection. It recorded a premium of Rs. 364.9 crore followed by Max New York Life with Rs. 176.8 crore, Birla Sun Life with a premium of Rs. 170 crore ,HDFC Standard with Rs. 132.7 crore. In case of private non-life insurance players, that their market share rose to 14.13 per cent, recording a growth of 70.75 per cent on an annual basis, while the market share of public sector stood at 85.87 per cent, registering a marginal growth of 6.34 per cent. The overall market has recorded a growth of 12.32 per cent by the end of January 2004. Among the private non-life insurance players, ICICI Lombard topped the list with a premium collection of Rs.403.62 crore in one year period with a market share of 3.05 per cent and with an annual 131.6 per cent, followed by Bajaj Allianz with a premium of Rs.385.02 crore and 2.91 percent market share and Tata AIG with 300.49 crore premium and 2.27 per cent market share with an annual growth rate of 62.60 per cent.
Max New York Life Insurance Company is the leading private life insurance company in India. Max New York Life Insurance Company is one of the fastest growing life insurance companies in India and is the first life insurance company of India to be awarded with ISO 9001:2000 certification. Max New York Life Insurance Company Ltd. launched 'lifeline' a health insurance product on March 2008, across India. Now, the company can boast of offering complete health and life insurance products across 11 regions in India. This newly launched health insurance product of Max New York Life Insurance Company offers three groups of heath insurance solutions. The director marketing product management and corporate affairs of Max New York Life Insurance said that these three distinct heath insurance products are meant to cover eventualities like hospitalization, surgery and critical illness of the insured and these plans have been structured with features like coverage for a wide range of ailments, no claim discount on revised premium for a healthy life, a fixed premium for a five-year term, free second opinion from the best health care institutions of India on detection of illness. Further, it also has provision for a free telephonic medical helpline across India. The hospitalization is covered by "Medicash Plan", which is meant to provide a fixed amount of cash benefit on a day-to-day basis during the entire period of hospitalization of the insured. The "Medicash Plan" would also cover expenses for admission in ICU, lump sum benefits against an unlimited number of surgeries and recuperation benefits. The second plan of the newly launched health insurance of Max New York Life Insurance, is the "Wellness Plan", which is a more attractive one and covers 'critical illness' like cancer, alzheimers, heart ailments, liver disease, deafness, permanent disability, etc. The "Wellness plan" covers thirty eight critical illnesses, which is the highest number of illness covered under one insurance plan in India by any insurance company. The third health insurance policy of Max New York Life Insurance is a term plus health protection plan known as "Safety Net".
Recently, HDFC Chubb and Cholamandalam have registered annual growth rates of 4030.26 per cent and 1101.20 per cent respectively, whereas New India has registered it as 0.38 per cent. If this trend continues, private insurer would dominate the public sector like New India Insurance Corporation. It is obviously reflect the insurance sector has facing the challenges with foreign counter parties as well as private counter parties and lot more opportunities are prevailing to penetrate the insurance business among the uncovered people and area of India. Further, it leads to economic development of the country.
VI. FUNCTIONS OF INSURANCE CAN BE CLASSIFIED INTO THREE PARTS
1. Primary function
2. Secondary function
3. Other functions
The primary functions of insurance include the following:
Provide protection--The primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance is actually a protection against economic loss, by sharing the risk with others.
Collective bearing of risk--Insurance is a device to share the financial loss of few among many others. Insurance is a means by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is paid.
Assessment of risk--Insurance determines the probable volume of risk by evaluating various factors that give rise to risk.
Provide certainty--Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain.
The secondary functions of insurance include the following:
Prevention of Losses--Insurance cautions individuals and businessmen to adopt suitable device to prevent unfortunate consequences of risk by observing safety instructions and installation of automatic sparkler or alarm systems etc. Prevention of losses causes lesser payment to the assured by the insurer and this will encourage for more savings by way of premium. Reduced rate of premiums stimulate for more business and better protection to the insured.
Small capital to cover larger risks--Insurance relieves the businessmen from security investments, by paying small amount of premium against larger risks and uncertainty.
Contributes towards the development of larger industries--Insurance provides development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.
The other functions of insurance include the following:
Means of savings and investment--Insurance serves as savings and investment. Hence, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insured's. For the purpose of availing income-tax exemptions people may also invest in insurance.
Source of earning foreign exchange--Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways.
Risk free trade--Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.
VII. FACTORS INFLUENCING CONSUMER BEHAVIOUR
Social factor: Social factor divides the society into a hierarchy of distinct classes. The members of each class have relatively the same status and members of other classes have either more or less status. It includes family, group, celebrity etc.
Cultural factor: It has potent influences that are brought up to follow the beliefs, values and customs of their society and to avoid behavior that is judged acceptable. Beliefs, values and customs set subculture apart from other members of the same society. Thus sub-culture is a distinct cultural group that exists as an identifiable segment, within a larger, more complex society.
Personal factor: It is a very important factor. Personal factors also influence buyer's behavior. They include age, income, occupation, life style. They simply direct our outer personality.
Psychology factor: The buying behavior of consumer is influenced by a number of psychological factors which includes motivation, perception, learning, beliefs and attitude and personality.
VIII. FACTORS INFLUENCING THE BUYING DECISION
Major factors influencing buying decision
IX. MODEL OF CONSUMER DECISIONS MAKING PROCESS
A simple model of Consumer Decision Making
X. RESEARCH METHODOLOGY
The survey was conducted across 334 cities/towns in all the states and union territories. A sample of 1947 individuals has been selected by setting questionnaire. The online response system has self-checking and its validation system vetted the quality and veracity of the responses. The majority of the respondents were from the top five metres and 10 major cities had at least 30 participants. The profile of the target respondents is typically matched. The target respondents are well educated, familiar with English, spread over major urban centers having a higher socio-economic and income profile and spread across a range of occupations, professions and different age groups. This profile and the sensitivity of the information made it imperative that the respondents fill the survey questionnaire themselves.
The Study was aimed to identifying the perception of consumer in insurance sector.
The figure I explains about the types of insurance taken by consumer. About 20.20 % respondents have taken vehicle insurance, 19.61% respondents have taken term cover insurance, 14.6% respondents have taken medical/health insurance, purchase, 11.1% respondents have taken personal accident insurance, 10.60% respondents have taken unit linked insurance plan and 7.13% respondents have taken pension plan etc.
The figure II explains about the total sum assured of life insurance. About 1104 respondents having sum assured of life insurance less than Rs. 10 lakh, 300 respondents having sum assured of life insurance between Rs. 10 laldi to Rs. 20 lakh and 93 respondents having sum assured of life insurance between Rs. 20 lakh to Rs. 50 lakh etc.
The figure III explains about the total sum assured of life insurance for the spouses. About 695 respondents having sum assured of life insurance for the spouses less than Rs. 10 lakh, 132 respondents having sum assured of life insurance for the spouses between Rs. 10 lakh to Rs. 20 lakh, 39 respondents having sum assured of life insurance for the spouses between Rs. 20 lakh to Rs. 50 lakh and 1067 respondents have not taken any sum assured life insurance for the spouses etc.
The figure IV explains about the share of insurance sector. About 55.50% respondents have preferred public sector insurance company and 45.50% respondents have preferred private sector insurance company.
The figure V explains about the share of LIC in insurance sector. About 66.38% respondents preferred LIC for Life Insurance and 33.62% respondents preferred other insurance company for Life Insurance.
The figure VI explains about the reasons for investing in life Insurance. About 35.70% respondents have invested in life insurance due to higher risk coverage, 32.43% respondents have invested in life insurance for tax saving and 19.65% respondents have invested in life insurance due to easy way to invest.
With increase in population and income there is a wide scope in insurance sector. Insurance sector provides some security to the consumer for any type of mishappening. In this sector, IRDA plays an important role and time to time gives important guide lines to various companies. Still, LIC plays an important role and has maximum share in this sector. Recently banking sector has also moved towards insurance sector since they would get better dividends than the commission they would get by entering into partnerships with other major insurance market players. Union Bank, Federal Bank, Allahabad Bank, Bank of India, Karnataka Bank, Indian Overseas Bank, Bank of Maharashtra, Bank of Baroda, Punjab National Bank, and Dena Bank are planning to enter in this sector. Among private sectors Max New York insurance company plays a vital role. There are various factors that affect the consumer buying decision and also influence consumer thinking when they are planning to invest in insurance scheme .Major respondents generally prefer insurance like vehicle insurance, term cover insurance, medical/health insurance and they also prefer sum assured of life insurance less than Rs 10 lakh. Most of the respondents show their interest in life insurance having higher risk coverage and also for tax saving purpose.
Appendix A: Figures
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Appendix B: List of Insurance Companies in India
* General Insurance Companies In India
* Birla Sun Life Financial Services
* Birla Sun Life
* Birla Sun Life Insurance Company In India
* Bajaj Allianz Insurance Company In India
* Om Kotak Mahindra Life Insurance Company In India
* Royal Sundaram Alliance Insurance Co. Ltd
* Ing Vysya Life Insurance Co. Ltd
* Max Life Insurance Co. Ltd
* HDFC Standard Life Insurance
* Metlife Insurance
* Sahara India Life Insurance
* ANZ Insurance
* Amsure Insurance
* Cholamandalam MS General Insurance
* Employee State Insurance Corporation
* Export Credit Guarantee Corporation Of India Ltd
* ICICI Lombard
* Agriculture Insurance Company F India Ltd
* Peerless Smart Financial Solutions
* IFFCO TOKIO
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BINOD KUMAR SINGH
Alphia Institute of Business Management, Arya Business Center Jharkhand, India