about 7 per cent to the country s GDP.In spite of all this growth the statistics of the

Transcription

1 2-1: Introduction With such a large population and the untapped market area of this population, Insurance happens to be a very big opportunity in India. Today it stands as a business growing at the rate of per cent annually. Together with banking services, it adds about 7 per cent to the country s GDP.In spite of all this growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without Life insurance and the Health insurance covered. This indicates that the growth potential for the insurance sector is immense in India. Due to this immense growth the regulations were introduced in the insurance sector and also Malhotra Committee was constituted by the government in 1993 to examine the various aspects Of the industry. The key element of the reform process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive Financial system, suitable for the requirements of the economy, was the main idea behind this reform. Since then the insurance industry has gone through many main changes.the competition LIC started facing from these companies, were threatening to the existence of LIC. Since the liberalization of the industry the insurance industry has never looked back and today, it stands as one of the most competitive and exploring industry in India. The entry of the Private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the Industry in the longer run. 36

2 2-2: Insurance industry in India A brief history of insurance industry in India as follows: It begun in the year In the year 1818 The British introduced life insurance in India with the establishment of the original life insurance company in Calcutta. In 1850 Non life insurance debuts, with triton insurance company. In 1870 Bombay Mutual life assurance society is the first India-owned life insurer. In 1907 India mercantile insurance is the first India non-life insurer. In 1912 the Indian life assurance companies act enacted to regulate the life insurance Business. In1938 the insurance Act, which forms the basis for most current insurance laws, replaces earlier Act. In 1956 life insurance nationalized, Gic set up In1993 Malhotra Committee, headed by former RBI governor R.N Mahota set up to draw up a blue print for insurance sector reforms. In1994 Malhotra committee recommends re-entry of private players, autonomy to PSU insurers. In 1997 insurance regulator IRDA (insurance Regulatory and Development Authority) set up. In 2000 IRDA starts giving licenses to private insurers; ICICI potential and HDFC Standard life first private life insurance to sell a policy Royal sundaram Alliance first non-life insurance to sell a policy 2002 Banks allowed selling insurance plans; as TPAs enter the scene, insurer start setting non-life claims in the cashless mode. The insurance Regulatory 37

3 and Development Authority (IRDA) was formed to regulate the sector and oversee the process of Privatization. In 2000, the IRDA started giving out licences and a year later, the first of private player started its functioning in India. Under state control, the insurance sector, both life and non-life, grew steadily.still Indians are not adequately insured and lag behind most countries. Total insurance penetration (insurance premiums as percentage of gross domestic product) is dismal when compared to its economic standing. Just 2 per cent of the population has some form of life insurance. But in this huge gap there lies a huge opportunities, that is why private insurers are queuing up. In many Ways, the re-entry of private insurers has marked a second coming for the sector. In just three years, the sector has undergone a makeover, offering the fruits of free market: More choice, better service, quicker settlements, tighter regulation, and greater awareness. State insurers have been compelled to get their act together, and, to think of it, these are still very early days Source:' the Layman's guide to Insurance', pp 17-19, 1(1),

4 Life Insurance companies in India INSURER WEBSITE INDIAN PROMOTER FOREIGN PROMOTER Allianz Bajaj life Allianzbajaj.co.in Bajaj Auto Allianz AG Insurance AMP sanmar assurance Ampsanmar.com Sanmar Group AMP Australia Birila Sun Life Birlasunlife.com Aditya Birla Sun life financial, Insurance Group Canada Aviva Life insurance Avivaindia.com Dabur india Aviva PLC HDFC standard life Hdfcinsurance.com HDFC Standard Life insurance ICICI prudential life Iciciprulife.com ICICI Prudential PLC insurance ING vysya life Ingvysyalife.com Vysya Bank ING Group insurance Life insurance Licindia.com Government of NONE corporation India Max New York life Maxnewyorklife.com Max India New York Life insurance MetLife India Methfeindia.com J&K bank, Metropolitan life insurance Pallonji &C0 insurance OM Kotak Mahindra Omkotakmahindra.c Kotak Mahindra Old Mutual PLC life om Finance SBI Life insurance Sbilife.co.in State Bank of Cardif India Tata-AIG life Tata-aig.com Tata Group American insurance international group Table 2.1: Source: the Layman's guide to Insurance', page 21, 1(1),

5 2-3: Impact of Liberalization: The introduction of private players in the industry has added to the colors in the dull industry. The initiatives taken by the private players are very competitive and have provided immense competition to the on time monopoly of the market LIC.Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its carrer.the market share was distributed among the private players. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% ( ) to 81 %( ).The following companies acquired the rest of the market Share of the insurance industry in India. 18 Table 2.2: source: www. npan1.un.org/intradoc/groups/public/documents/apcity/ unpan pdf 18. Source:www. unpan1.un.org/intradoc/groups/public/documents/apcity/unpan pdf 40

6 Graph: 2.1: source npan1.un.org/intradoc/groups/public/documents/apcity/unpan pdf 2-4) Current Scenario of life Insurance industry: India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Innovative products and aggressive distribution have become the say of the day. Indians, have always seen life insurance as a tax saving device, are now suddenly turning to the private sector that are providing them new products and variety for their choice. Life insurance industry has huge growth potentials. Many Indian and foreign companies are waiting in the line for the green signal to start their operations. The Indian consumer should be ready now because the market is going to provide them an 41

7 array of products, different in price, features and benefits. How the customer is going to make his choice will determine the future of the industry ): Customer Service Consumers remain the most important centre of the insurance sector. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerization of operations and updating of technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies. The one time monopoly of the LIC and its agents are now going through a through revision and training programmes to catch up with the other private players. Though lot is being done for the increased customer service and adding technology to it but there is a long way to go and various customer surveys indicate that the standards are still below customer expectation levels ): Distribution channels Till date insurance agents still remain the main source through which insurance products are sold. The concept is very well established in the country like India but still the increasing use of other sources is imperative. It therefore makes sense to look at well-balanced, alternative channels of distribution. LIC has already well established and have an extensive distribution channel and presence. New players may find it expensive and time consuming to bring up a 19.source: Goldberg, Irwin W., 1997, Putting the Customer First: There Is More Profit in the Relationship Than in the Sale, LIMRA s Market Facts, Vol. 16, No. 1, pp

8 distribution network to such standards. Therefore they are looking to the diverse areas of distribution channel to have an advantage. At present the distribution channels that are available in the market are shown as follows: Direct selling Corporate agent Broker and cooperative societies 2-4-3): Bancassurance: India has an extensive bank network established over the years. What Insurance companies have to do is to just take advantage of the customers' long-standing trust and relationships with banks. This is a mutually beneficial situation as banks can also expand their range of products on offer to customers, while the insurance company will also earn profits from the exposure. Another advantage is that banks, with their network in rural areas, help to fulfill rural and social obligations stipulated by the Insurance Regulatory and Development Authority (IRDA) recently. Insurance companies should see bancassurance as a tool for increasing their market penetration in India. It is also good for the one who sees bancassurance in terms of reduced price, high quality product and delivery at doorsteps. Everybody is a winner here. The creation of bancassurance operations has made an important impact on the financial services industry at large. This is though a new concept but it has gained a lot of importance in the industry at present and has a great future. Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the customer source: 43

9 Advantages to Banks: Productivity of the employees increases. By providing customers with both the services under one roof, they can improve overall customer satisfaction resulting in higher customer retention levels. Increase in return on assets by building fee income through the sale of insurance products. Can leverage on face-to-face contacts and awareness about the financial conditions of customers to sell insurance products. Banks can cross sell insurance products Eg: Term insurance products with loans. Advantages to insurers: Insurers can exploit the banks' wide network of branches for distribution of products. The penetration of banks' branches into the rural areas can be utilized to sell products in those areas. Customer database like customers' financial standing, spending habits, investment and purchase capability can be used to customize products and sell accordingly. Since banks have already established relationship with customers, conversion ratio of leads to sales is likely to be high. Further service aspect can also be tackled easily. 44

10 Advantages to consumers: Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc. Enhanced convenience on the part of the insured Easy access for claims, as banks are a regular go. 21 Innovative and better product ranges 21.source: Grönroos, Christian, 1990b, Relationship Approach to Marketing in Service Contexts: The Marketing and Organizational Behavior Interface, in: Payne, Adrian; Martin, Christopher; Clark, Moira; Peck, Helen, 1995, Relationship Marketing for Competitive Advantage: Winning and Keeping Customers, Oxford: Butterworth- Heinemann Ltd. 45

11 Some of the Bancassurance tie-ups in India are: Insurance Company Birla Sun Life Insurance Co. Ltd. Dabur CGU Life Insurance Company Pvt. Ltd HDFC Standard Life Insurance Co. Ltd. ICICI Prudential Life Insurance Co Ltd. Life Insurance Corporation of India Met Life India Insurance Co. Ltd. Bank Bank of Rajasthan, Andhra Bank, Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank Canara Bank, Lakshmi Vilas Bank, American Express Bank and ABN AMRO Bank Union Bank of India Lord Krishna Bank, ICICI Bank, Bank of India, Citibank, Allahabad Bank, Federal Bank, South Indian Bank, and Punjab and Maharashtra Co-operative Bank. Corporation Bank, Indian Overseas Bank, Centurion Bank, Satara District Central Co-operative Bank, Janata Urban Co-operative Bank, Yeotmal Mahila Sahkari Bank, Vijaya Bank, Oriental Bank of Commerce. Karnataka Bank, Dhanalakshmi Bank and J&K Bank SBI Life Insurance Company Ltd. Bajaj Allianz General Insurance Co. Ltd. National Insurance Co. Ltd. Royal Sundaram General Insurance Company United India Insurance Co. Ltd. State Bank of India Karur Vysya Bank and Lord Krishna Bank City Union Bank Standard Chartered Bank, ABN AMRO Bank, Citibank, Amex and Repco Bank. South Indian Bank Table: 2.3: Sources: information updated from newspaper sources and websites of the respective banks and insurance companies (11 March 2004). 46

12 2-4-4): Product Innovations: There has been a plethora of new and innovative products offered by the new players. Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs and not just traditional money back policies, which is not considered very appropriate for longterm protection and savings. There is lots of saving and investment plans in the market. However, there are still some key new products yet to be introduced - e.g. health products ): Information Technology: In the insurance industry today, there is a clear trend away from selling a broad range of products to a large volume of customers in a one size-fits-all manners. Instead of focusing on their different products lines as silos (i.e., life, property and casualty etc) insurers are looking for ways to offer highly targeted insurance products that are tailored to the individuals customers with the highest propensity to buy them. There is an evolutionary change in the technology that has revolutionized the entire insurance sector. Insurance industry is a data-rich industry, and thus, there is dire need to use the data for trend analysis and personalization. With increased competition among insurers, service has become a key issue. Moreover, customers are getting increasingly sophisticated and tech-savvy. People today don t want to accept the current value propositions, they want personalized interactions and they look for more and more features and add ones and better service. The insurance companies today 47

13 must meet the need of the hour for more and more personalized approach for handling the customer. Today managing the customer intelligently is very critical for the insurer especially in the very competitive environment. Companies need to apply different set of rules and treatment strategies to different customer segments. However, to personalize interactions, insurers are required to capture customer information in an integrated system. With the explosion of Website and greater access to direct product or policy information, there is a need to developing better techniques to give customers a truly personalized experience. Personalization helps organizations to reach their customers with more impact and to generate new revenue through cross selling and up selling activities. To ensure that the customers are receiving personalized information, many organizations are incorporating knowledge databaserepositories of content that typically include a search engine and lets the customers locate the all document and information related to their queries of request for services. Customers can hereby use the knowledge database to mange their products or the company information and invoices, claim records, andhistories of the service inquiry. These products also may be able to learn from the customer s previous knowledge database and to use their information when determining the relevance to the customers search request. The insurance sector remains a very competitive market and those companies that are able to best utilize their data and provide their customer with the most personalized options will have the distinct competitive advantage. The insurers that come up to the top will be those who leverage the appropriate technology solutions effectively in order to foster customer loyalty, attract new customers and improve operational efficiency by providing common information across their lines of business source: Jim Thompson and Gautam Kakkar, Investment sectors and their potential for life 48

14 2-4-6): Mergers and acquisitions This is an era of mergers and acquisitions. Private companies including Multi national companies are amalgamating the world over to get more competitive edge. Currently, the general insurance industry has been opened up. The question here is that for over two years, eight private companies have operated and has the size of the cake expanded. We here find that this is not true. The insurers are doing enough to raise the level of risk awareness or are they merely content to compete in the markets organized and established. However sooner or later the private sector players will have to put in place strategies aimed not at winning the existing accounts of the public players but at diversifying markets penetration as a whole. The private players in the future would have to turn their attention to working in the unorganized and under served markets. 23 insurance companies, Paper presented at the Sixth Global Conference of Actuaries, February source: 49

15 Table -Life Insurance Industry in India First Year (Cumulative up to October 2003) Company Premium(In % of Policies %of total Million) total (in Million policies LIC ICICI prudential Birila sun life Tata AIG HDFC Standard Allianz Bajaj Max New York Others Total Table 2.4: source: by Rishiraj Singh The life insurance industry recorded a premium income of Rs crore during the financial year as against Rs crore in the previous financial year, recording a growth of per cent. The contribution of first year premium, single premium and renewal premium to the total premium was Rs crore (

16 per cent); Rs crore (12.47 per cent); and Rs crore (68.36 percent), respectively. In the year , when the industry was opened up to the private players, the life insurance premium was Rs.34, crore which constituted of Rs crore of first year premium, Rs crore of renewal premium and Rs crore of single premium. Post opening up, single premium had declined from Rs.9, crore in the year to Rs crore in with the withdrawal of the guaranteed return policies. Though it went up marginally in to Rs crore (4.62 per cent growth) , however, witnessed a significant shift with the single premium income raising to Rs crore showing per cent growth over Sources: Information updated from newspaper sources and websites of the respective banks and insurance companies (11 March 2004). 51

17 PREMIUM UNDERWRITTEN BY LIFE INSURERS (Rs. lakh) Insurer First year premium including Single premium LIC* (6.34) (19.05) Private Sector (152.74) (127.99) Total (14.68) (32.49) Renewal Premium LIC (19.47) (17.95) Private Sector (343.12) (218.26) Total (20.75) (20.85) Total Premium LIC (15.63) (18.25) Private Sector (178.83) (147.65) Total (18.91) (24.31) Table 2.5: source: Note: Figures in brackets indicate the growth (in per cent) 52

18 The life insurance industry underwrote first year premium (inclusive of single premium) of Rs during as against Rs crore in The industry clocked a growth of per cent driven by a significant jump in unitlinked business. Interestingly, the growth in the first year premium (other than single premium) came on the policies issued by the private insurers with a growth rate of per cent as against a negative growth exhibited by LIC at 1.25 per cent. As against this, the private insurers and LIC reported single premium growth of per cent and percent, respectively. The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in a favourable growth in total premium both for LIC (18.25 per cent) and to the new insurers ( per cent) in The higher growth for the new insurers is to be viewed in the context of a low base in However, the new insurers have improved their market share from 4.68 in to 9.33 in source: 53

19 MARKET SHARE OF LIFE INSURERS (In percent) Insurer First year premium including Single premium LIC Private Sector Total Renewal Premium LIC Private Sector Total Total Premium LIC Private Sector Total Table 2.6: source: IRDA Journal, May 2004, p Segregation of the first year premium underwritten during indicates that Life, Annuity, Pension and Health contributed 77.27; 6.7; and 0.47 percent respectively to the first year premium. As against this, 81.68; 8.62; 8.97 and 0.72 per 54

20 cent was respectively underwritten in the above segments in There is a slow but clear shift towards pension business. New policies underwritten by the industry were lakh during showing a decline of 8.44 per cent against Prior to this, in the year , the number of new policies underwritten had increased to lakh as against lakh in , exhibiting an increase of per cent. While the private insurers exhibited a growth of percent, LIC showed a negative growth of per cent. The market share of the private insurers and LIC, in terms of policies underwritten, was 8.52 per cent and per cent as against 5.79 per cent and per cent respectively in source: Calculated from the IRDA Annual Report,

21 NEW POLICIES ISSUED: LIFE INSURERS Insurer Private Sector (5.79) (8.52) LIC (94.21) (91.48) Total Table 2.7: source: Calculated from the IRDA Annual Report, Note: Figures in brackets indicate the ratio (in per cent) of respective insurer The increase in the renewal premium is a good criterion of the quality of the business underwritten by the insurers. It reflects the increase in their persistency ratio and enables insurers to reduce overall cost of business. The renewal premium underwritten by the private insurers during reflects that few of the insurers have shown a healthy growth. The average for the private insurers, examined in the context of the renewal premium to the first year premium underwritten (excluding single premium), shows an increase to as against in and a mere in Analysis of the first year premium in terms of linked and non-linked premium reflects that linked products continued to rule the roost in LIC, the public sector insurer, too underwrote significant business in this line. While premium underwritten 56

22 under the linked categories grew by per cent, the non-linked premium was almost static with growth of just per cent. The linked and non linked business accounted for per cent and per cent respectively in the year , as against 8.46 and per cent in The non-linked and linked new business premium underwritten by LIC in was per cent and per cent as against per cent and 2.29 per cent in In case of private insurers the percentages were and in as against and per cent respectively in the previous year. The data clearly reflects LIC's decision to drive its premium growth on the strength of unit linked products. The Group business has also witnessed some churning as the market has become more competitive. This has been true for the term business also. Today, Group products are offered by all the life insurers. 27 Profits of the life insurers The life insurance industry, by its very nature is capital intensive, and insurers are required to inject capital at frequent intervals to achieve growth in premium income. Given the high rate of commissions payable in the first year, expenses towards setting up operations, training costs incurred towards developing the agency force, creating a niche for it s products, achieving reasonable levels of persistency, providing for policy liabilities, and maintaining the solvency margin, make it difficult for the insurers to earn profits in the initial five to seven years of their business operations. As such, none of the new insurers have been able to generate surplus on their Revenue Account. Further, most of these insurers have injected capital to bridge the deficits in 27.source: 14 The Reserve Bank of India Weekly Statistical Supplement, 11 October 2003,P

23 the Revenue Account during the year The cumulative losses of the private insurers as on 31 st March 2005 stood at Rs crore as against Rs crore, i.e., an increase of per cent over the previous year. These losses were funded through infusion of capital by both the Indian promoters and their foreign partners. The continued financial support through equity injections reflected the promoters' commitment in stabilizing the insurers' operations. During insurers continued to declare bonus despite reporting deficit in the Revenue Account. It would be recalled that in , recognizing the need of the new insurers to declare bonuses to maintain their competitive stance in the market, the authority had permitted declaration of bonus despite non-availability of actuarial surplus. This was, however, permitted subject to compliance with the conditions imposed by the authority. LIC continued to report surplus from operations at Rs crore, as against Rs crore in , of which Rs crore were transferred to the Government of India (Rs crore in ). Given the fact that in the previous year, LIC had appropriated funds in compliance with the Authority's stipulations to meet the solvency requirements, to the extent of Rs crore (Rs crore in ), there is a decline in the post tax surplus generated prior to appropriation to the extent of per cent. The provision for taxation saw a significant increase at Rs crore as against Rs crore in (254 per cent) source: 14 The Reserve Bank of India Weekly Statistical Supplement, 11 October 2003,P

24 STATUS OF COMPLAINTS-Life insurers ( ) SI. Insurer Reported during the year Resolved during the Pending as on 31 st No. 1 HDFC STD LIFE 30 year 17 March, 13 2 AMP SANMAR TATA AIG MNYL AVIVA BSLI SBI LIFE ICICI PRU MET LIFE SAHARA LIFE BAJAJ ALLIANZ KOTAK LIFE ING VYSYA LIC TOTAL [ Table2.8: source: Jim Thompson and Gautam Kakkar, Investment sectors and their potential for life insurance companies, Paper presented at the Sixth Global Conference of Actuaries, February

25 STATUS OF COMPLAINTS-Life insurers ( ) (Half year Ended September, 2005) SI. Insurer Reported during Resolved Pending as on No. the year during the year 31 st March, 1 HDFC STD AMP LIFE TATA SANMAR AIG MNYL AVIVA BSLI SBI LIFE ICICI PRU MET LIFE SAHARA BAJAJ LIFE KOTAK ALLIANZ LIFE ING VYSYA LIC TOTAL Table2.9: source: Jim Thompson and Gautam Kakkar, Investment sectors and their potential for life insurance companies, Paper presented at the Sixth Global Conference of Actuaries, February

26 2-4-7): Customer complaints and their redressed: Insurance industry or business being service based utmost importance for customer care. The customers of insurance companies need to be paid proper attention. They may have complaints regarding premium, due date, agents services, settlements of claims, etc.it is said that complaints provides an opportunity to enhance the goodwill of the organization, provided their redressal should be proper and satisfactory to both the sides.table No 2-9 gives the details regarding the status of complaints of life insurers in the year of the complaints reported during the year are observed more in the case of LIC because of its huge volumes of transaction. But unfortunately the number of pending complaints is also huge which is a sign of lethargy in public sector. Comparatively number of pending complaints is very less in the case of private sector insurance companies which is an evidence of their efficiency and desire to satisfy their customers promptly. 2-5) Insurance in ancient Iran: Achamenian government applied many measures in those days for the welfare of their people.one of the laws sanctioned by it was one the lines of the principle or an idea of today s Insurance. Achaemenian monarchs were the first who insured their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. Achaemenians are one of the Iranian dynasties used to rule the whole world known in their times between the 6th and 3rd centuries BC. Cyrus the Great, one of the 61

27 monarchs of this dynasty, could establish the first world government in the 6th century BC after conquering the kingdoms of Babylon, Assyria, Medes, and other small governments of his era.the most important gift was presented during a special ceremony and when a gift was worth more than 10,000 Derrik (Achaemenian gold coin weighing ) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices. The aim of registering was that whenever the one who presented the gift registered by the court was in trouble, the monarch and the court would help him or her. Jahez, a historian and writer, has written in one of his books on ancient Iran: "... and whenever the owner of the present was in trouble or wanted to construct a building, set up a feast, had his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much." The insurance rule for the one, who had presented a spear, was that, whenever he was in trouble, they took the offered spear with his name on it and installed it somewhere. Then they put the kingdom dresses beside it right as high as the spear. It is worth noting that such dresses were so precious and the man could solve his problem by selling the dresses. Basically, in ancient Iran, the monarchs donated their dresses when the season changed. As written in the history, Ardeshir, son of Babak (the first Sassanid monarch - 2nd century), Bahrain Gour, Anoushirvan, and other Sassanid monarchs had ordered to take out all their dresses from the dress treasury in Norouz and Mehregan ceremonies, the beginning of spring and autumn respectively, and give them to the attendants, special people of the court, and then other people regarding their social levels. 62

28 The philosophy of such a measure was that the Iranian monarchs believed that they did not need any summer dresses in winter and vice versa and it is not the habit of monarchs to hide such dresses in the treasuries. It was noted in the law that whenever the one who has offered some presents in Mehregan or Norouz ceremonies to the court is in trouble, he should go to the court and remind the monarch of his problem and compensation regulations if he has not received any. He should not neglect the rule otherwise, in case he knowingly ignores and may not inform the court of his reward, he would be deprived of his stipend. Then his opponents, if any, may be paid instead of him as he has behaved in a way unpleasant for the monarch disgracing the country. It would be concluded that the Persian monarchs supported their peoples lawfully. It can also be claimed that Iranian executed the insurance regulation for the first time ) Insurance Markets in Iran: Historical background of insurance in Iran goes back to 80 years ago when two Russian companies ventured to open their branch offices in various cities in Iran, and following that Iran Insurance Company was established as the first independent and state owned insurance company in the Iranian market. In the early 1970s many new insurance companies were established and at the same time the Law establishing Bimeh Markazi Iran ( Central Insurance of Iran ) was passed in the Parliament. After the Islamic Revolution in 1979, the work permission of foreign insurance agencies in Iran has been withdrawn and ten of the insurance companies were merged in Dana Insurance Co. Bimeh Markazi Iran, while having the responsibility of regulating, supervising and promoting 29.source: 63

29 insurance business in Iran, is also the sole reinsure of the market and has a very reputable stand in the Middle East and various markets of the world. 30 The law of iran defined insurable goods and persons as follows : The following insurance business must exclusively be effected by insurance companies authorized to operate under this company law: a) Insurance of movable or immovable properties existing in Iran. b) Transport insurance for imported goods, the purchase agreement for which has been concluded in Iran, or for which the documentary credit has been opened in Iran. c) Insurance relating to foreign workers and employees ( with the exception of life insurance and personal injury insurance) for the duration of residence in Iran of such workers and employees. d) Insurance relating to Iranian residents. The foreign investor may obtain all types of insurance coverage in Iran from the following four insurance companies: - Iran Insurance Company - Asia Insurance Company - Alborz Insurance Company - Dana Insurance Company All the above insurance companies are supervised by Bimeh Markazi Iran. The insurance service in Iran is also presented by insurance agents and brokers both of which are authorized to act in the market after passing the relevant tests and receiving the license form Bimeh Markazi Iran. Some of these agents, at present, proceed to issue insurance policies on behalf of their 30.source: 64

30 companies. According the company law, all insurance companies operating in Iran are required to cede 25% of the total acquired policies in non-life and 50% in life insurance as legal cession ( compulsory cession ). Furthermore, the insurance companies are required to initially propose 30% of all their reinsurance contracts to Bimeh Markazi under the same conditions as those ceded to foreign reinsures; however, Bimeh Markazi has full authority to accept and/or decline such offers. The insurance companies in Iran are active in various fields in life and non- life according to the tariffs, which are approved and ratified by High Council of Insurance. The main types of the policies and coverage are as follows: 1) Fire and allied perils 2) Marine insurance (including full inland and air transport) 3) Motor insurance: 3.1 Third party liability (compulsory coverage) 3.2 motor physical damage 3.3 new T.P.L. Policy according to the Islamic principles namely DEYEH (Death in case of accident by vehicles) 3.4 passenger vehicles in case of accidents 4) Life insurance (term - endowment - whole life - annuity group and individual) 5) Personal accident (group and individual) 6) Aviation (hull - passenger - liability - cargo) 7) Engineering (including policies of Contractor All Risk (C.A.R.) And Erection All Risk (E.A.R.) and Computer coverage. 8) Money in transit and safe 9) Comprehensive general liability 65

31 10) Health insurance (various schemes of hospitalization) 11) Off- shore and in- shore coverage 12) Export insurance (including commercial risk) ) Social Security Scheme: One of the principal insurance costs of an employer is that of social insurance for his employees. Under social insurance regulation, employers are required to insure their employees with the Social Insurance Organization ( S.I.O.). Firms operating under the Law are required to insure all employees whether labourers or officers. However, coverage has not yet been expanded to include all officers working in the private sector. The insurance provides benefits for retirement, illness, industrial accidents, marriage, pregnancy and child birth. Insurance premium: The insurance premium is levied on the total of base salary or wages of the employee, but deduction of premium from family allowances, travel allowances and bonuses are not allowed. The total contribution is 30% of monthly salary as computed above; the employer deducts 7% from the employee s pay and adds 20% himself and the government contributes the remaining 3%. An additional premium of 3% is also payable by the employer for unemployment insurance which has recently been introduced by government for employees. Foreign nationals employed by Iranian firms subject to social insurance must be insured in the same manner as their Iranian counterparts. 31.source: 66

32 General provision: Within 20 days after the close of the month, the employer must submit to the Ministry of Labour and Social Insurance Organization, Tehran, the following documents: 1. Lists of employees, their respective wages or salaries and amounts deducted; 2- Payment of deducted amounts together with his own contribution : Life insurance companies in Iran: INSURER IRAN INSURNCE ASIA INSURANCE ALBORZ INSURANCE DANA INSURANCE PASAR GUD INSURANCE PARSIAN INSURANCE SAMAN INSURANCE MELLAT INSURANCE KARAFRIAN INSURANCE OMID INSURANCE WEBSITE Table 2.10: source: 32.source: 67

33 2-6-3: Sales Network in Iran Insurance Market: ITEM 1381(2002) 1382(2003) 1383(2004) Number Of Companies Number Of Branches Number Of Brokers Number Of Agencies 5,172 6,000 6,484 Number Of Policies 12,333,719 2,618,520 2,929,752 Number Of Claims 1,933,633 2,168,520 2,929,752 Table 2.11: source: 68

34 Direct premium in Iran Insurance Market Year Amount Growth Rate (%) Million IRR 1378(1999) 3,002, (2000) 4,063, (2001) 5,739, (2002) 9,178, (2003) 12,743, (2004) 17,310, Table 2.12: source: 69

35 Graph 2.2: source: 70

36 Insurance Market Paid loss Table 2.13:source: Graph: 2.3: source: 71

37 Organization Chart in Bimeh Markazi Iran: Graph 2.4: source: 72

38 2-3: Definition of Marketing: In marketing, the term market refers to the group of consumer or organization that is interested in the product, has the resource to purchase the product, and is permitted by law and other regulations to acquire the product. 33 The market definition begins with the total population and progressively narrow at shown in the following figure: Graph 2.5: source: the American Marketing Association (AMA) defined marketing as the process of planning and executing the conception, pricing, promotion, and distribution of 33. source: 73

39 ideas, goods and service to create exchanges that satisfy individual and organization objectives from this definition, we see that marketing involves an ongoing process. 34 The environment is: dynamic. This means that the market tends to change. What customers want today is not necessarily what they want tomorrow. Some of main issues involved include: Marketers help design products, finding out what customers want and what can practically be made available given technology and price constraints. Marketers distribute product: there must be some efficient way to get the products from factory to the end-customer. Marketers also promote products, and this is perhaps what we tend to think of first when we think of marketing. Promotion involves advertising and much more. Other tools to promote products include trade promotion (store sales, coupons, and rebates), obtaining favorable and visible shelf-space, and obtaining favorable press coverage. Marketer also decides price of the products to move them. We know from economics that, in most cases, sales correlate relatively with price, the higher the price, lower the quantity of demand. Marketing is applicable to service and ideas as well as to tangible products source: 35.source: 74

40 The Marketing vs. the Selling concept: Two approaches to marketing exist. The traditional selling concept emphasizes selling existing products. The philosophy here is that if a product is not selling, more aggressive measure must be taken to sell it, for example, cutting price, advertising more, or hiring more aggressive sales people. The marketing concept, in contrast, focus on getting consumers what they seek, regardless of whether this entails coming up with entirely new products : Marketing Environment: The marketing environment involves factor that, for most part, are beyond the control of the company.thus, the company must adapt to these factors. It is important to observe how the environment changes so that a firm can adopt its strategies appropriately, considering these environmental forces: Competition: competitors often creep in and threaten to take away markets from firms. Note that while competition may be frustrating for the firm, it is good for consumer. The competition today is increasingly global in scope. Economic: some firms in particular are extremely vulnerable to change in the economy. Consumers tend to put off buying a new car, going out to eat, or building new homes in bad time. In contrast, in good time, firm serving those needs may have difficulty keeping up with demand. Political: businesses are very vulnerable to changes in the political situation. Legal: firms are very vulnerable to changing laws and changing interpretations by the courts. 36.source:ww.cim.co.uk 75

41 Collusion: firms may not conspire to fix prices (agree that they will not sell below an agreed upon price) or reduce services. Predation: firms may not sell their products below their cost of production for the purpose of driving competitors out of business so that they, themselves, can raise prices when competition is reduced. Market share: firms which have an unacceptably large market share may be broken up by court order so that many smaller firms will be around to compete. Technological: changes in technology may significantly influence the demand for a product. Social: changes in customs for demographics greatly influence firms : Marketing Mix: The term marketing mix refers to the four major areas of decision making in the marketing process that are blended to obtain the results desired by the organization. The four elements of the marketing mix are sometimes referred to the four Ps of marketing. The marketing mix shapes the role of marketing within all types of organizations, both profit and nonprofit. Each element in the marketing mix product, price, promotion, and place consists of numerous subelements. Marketing managers make numerous decisions based on the various subelements of the marketing mix, all in an attempt to satisfy the needs and wants of consumers. The term marketing Mix became popularized after Neil H.borden published his 1964 article, the concept of the Marketing Mix.Borden began using the term in his 37.source: Kotler, P. (2003) Marketing Management, 11th European edition, Prentice Hall. 76

42 teaching in the late 1940 s after James Culliton had described the marketing manager as a mix of ingredients. Jerome McCarthy later group theses ingredients into four categories that today are known as the 4p S of marketing. Product Price Place(distribution) Promotion Graph 2.6: source: 77

43 2-4-1: Product: The first element in the marketing mix is the product. A product is any combination of goods and services offered to satisfy the needs and wants of consumers. Thus, a product is anything tangible or intangible that can be offered for purchase or use by consumers. A tangible product is one that consumers can actually touch, such as a computer. An intangible product is a service that cannot be touched, such as computer repair, or an office call. Other examples of products include places and ideas, etc.typically, a product is divided into three basic levels. The first level is often called the core product, what the consumer actually buys in terms of benefits. For example, consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like being able to get around in deep snow in the winter. Next is the second level, or actual product, that is built around the core product. The actual product consists of the brand name, features, packaging, parts, and styling. These components provided the benefits to consumers that they seek at the first level. The final, or third, level of the product is the augmented component. The augmented component includes additional services and benefits that surround the first two levels of the product. Examples of augmented product components are technical assistance in operating the product and service agreements. Products are classified by how long they can be used durability and their tangibility. Products that can be used repeatedly over a long period of time are called durable goods. Examples of durable goods include automobiles, furniture, and houses. By contrast, goods that are normally used or consumed quickly are called nondurable goods. Some examples of nondurable goods are food, soap, and soft drinks. In addition, services are activities and benefits that are also involved in the exchange 78

44 process but are intangible because they cannot be held or touched. Examples of intangible services included eye exams and automobile repair. Another way to categorize products is by their users. Products are classified as either consumer or industrial goods. Consumer goods are purchased by final consumers for their personal consumption. Final consumers are sometimes called the end users. The shopping patterns of consumers are also used to classify products. Products sold to the final consumer are arranged as follows: convenience, shopping, specialty, and unsought goods. Convenience goods are products and services that consumers buy frequently and with little effort. Most convenience goods are easily obtainable and low-priced, items such as bread, candy, milk, and shampoo. Convenience goods can be further divided into staple, impulse, and emergency goods. Staple goods are products, such as bread and milk, that consumers buy on a consistent basis. Impulse goods like candy and magazines are products that require little planning or search effort because they are normally available in many places. Emergency goods are bought when consumers have a pressing need. An example of an emergency good would be a shovel during the first snowstorm of the winter. Shopping goods are those products that consumers compare during the selection and purchase process. Typically, factors such as price, quality, style, and suitability are used as bases of comparison. With shopping goods, consumers usually take considerable time and effort in gathering information and making comparisons among products. Major appliances such as refrigerators and televisions are typical shopping goods. Shopping goods are further divided into uniform and nonuniform categories. Uniform shopping goods are those goods that are similar in quality but differ in price. 79