PREFACE

Any work of this magnitude requires the inputs, efforts and encouragement of
the people from all sides. In compiling this project report, I have been fortunate
enough to get active and kind cooperation from many people without whom
my endeavors wouldn’t have been a success.

There is an old adage that says that you never really learn a project until you
practice it. So, I would like to extend my deep gratitude and heartfelt thanks to
our mentors Dr. Narinder Mohan and our project supervisor Ms. Silogi
Barthwal for extending their immense help to us in acquiring valuable
knowledge on the subject for successful completion of the project.

This Project is great source of learning, a good experience as it made me aware

of professional culture and conducts that exist in the industry. Though at the
onset of any ambitious project one always encounters certain difficulties in the
beginning, however, overcoming these difficulties, completing the project as
well as making it a success greatly depends on the encouragement, inspiration.

Last but not the least I am highly thankful to my Parents and Friends for their
extensive support and idea’s throughout the project.

1
 INTRODUCTION

MEANING AND FUNCTION OF INSURANCE:-Insurance may be

defined as covering the economical uncertainties that may occur in future.

Economical value = Assets-Liabilities

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
fire, the peril of sea, death, incident, and burglary. Any risk contingent upon
these may be insured against at a premium commensurate with the risk
involved. Insurance is actually a contract between 2 parties whereby one
party called insurer undertakes in exchange for a fixed sum called premium
to pay the other party 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.

With the help of insurance, large number of people exposed to a similar risk
make contributions to a common fund out of which the losses suffered by
the unfortunate few, due to accidental events, are made good.

The functions of Insurance can be divided into three parts:

• Primary functions
• Secondary functions

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 • Other functions

The primary functions of the insurance include the following:

Provide Protection: The primary function of insurance is to provide

protection against future risk, accidents and uncertainity. Insurance cannot
check the happening of the risk, but can certainly provide for the losses of
risk. Insurance is actually a problem 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 mean by which few losses are
shared among larger number of people. All the insured contribute the
premium towards a fund and out of which the persons exposed to a
particular risk is paid.

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

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

Provide Certainity: Insurance is a device, which helps to change from

uncertainity to certainity. Insurance is a device whereby the uncertain risk
may be made more certain.

The Secondary Functions of the Insurance include the following:

Prevention of Losses –Insurance cautions individuals and businessmen to

adopt suitable device to prevent unfortunate consequences of risk by

3
observing safety instructions; installation of automatic sparkler or alarm
systems etc. Prevention of losses cause lesser payment to the assured by the
insurer and this will encourage for more savings by way of premium.

Reduce rate of premium 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 risk and uncertainity.

Small capital to cover larger risks: Insurance relieves the businessmen

from security investments, by paying small amount of premium against
larger risk and uncertainity.

Contributes towards the development of larger industries: Insurance

provides development opportunity to those larger industries having more
risk 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 investments: Insurance serves as savings and

investments, insurance is a compulsory way of savings and it restricts the
unnecessary expenses by the insured’s for the purpose of availing income
tax exemptions also, people invest in insurance.

4
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 export insurance, which makes the
foreign trade risk free with the help of different types of policies under
marine insurance cover.

Insurance business is divided into four classes:

• Life Insurance
• Fire
• Marine
• Miscellaneous Insurance

Life insurers undertake the Life insurance business; general insurers handle
the rest. The business of insurance essentially means defraying risk attached
to an activity (including life) and sharing the risks between various entities,
both persons and organizations. Insurance companies are important players
in financial markets as they collect and invest large amounts of premiums in
various investments. Insurance offers the following benefits:

a) Protection to investors

b)Accumulation of savings

c) Channeling these savings into sectors needing huge long term

investments.

5
Insurance companies receive a steady cash stream of premium or
contributions to pension plans. Their cash flows are determined on the basis
of various actuary studies and models. Since their liabilities are long term or
contingent in nature, their investments are also long term and they are able
to maintain a healthy liquidity position. Since they offer more than the return
on savings in the shape of life cover to the investors, the rate of return on
savings in the shape of life cover to the investors, the rate of return on their
insurance policies is relatively low. Consequently, the need to seek high
rates of return on their investments is also low. Since the risk factor in the
insurance business is quite high, insurance companies usually invest in
relatively safer bets such as bonds of GOI, PSU’s state governments, local
bodies, corporate houses and mortgages of long term nature. Lately,
insurance companies have also ventured into pension schemes and mutual
funds. Life insurance constitutes the major share of the insurance business.
Life insurance depends upon the laws of mortality. Life has to end sooner or
later and claim in respect of life is certain. On the other hand, in case of
general insurance, there may never be any claim and the amount cannot be
ascertain in advance. Hence, life insurance, besides providing a cover for life
of individuals, also serves as a good source of savings as beneficiaries. The
life insurance market in India present several striking features, which appear,
for the most part, to be necessary concomitants of the underdeveloped nature
of the country’s economy. Existences of a large number of life insurance
sellers and the narrowness of the life insurance market have been the
characteristics peculiar to India. The volume of life insurance business
annually sold on the Indian life insurance market came on an average to
about Rs.160 crores. Most of these policies were sold during the phase of

6
private enterprise, by Indian organizations termed “insurers” by the Indian
Insurance Act (Act IV of 1938).

7
 COMPANY PROFILE

Reliance Life Insurance offers you products that fulfill your savings and
protection needs. Our aim is to emerge as a transnational Life Insurer of
global scale and standard.

Reliance Life Insurance is an associate company of Reliance Capital Ltd., a

part of Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of
India’s leading private sector financial services companies, and ranks among
the top 3 private sector financial services and banking companies, in terms
of net worth. Reliance Capital has interests in asset management and mutual
funds, stock broking, life and general insurance, proprietary investments,
private equity and other activities in financial services

Vision

Empowering everyone live their dreams.

Mission

Create unmatched value for everyone through dependable, effective,

transparent and profitable life insurance and pension plans.

Goal

Reliance Life Insurance would strive hard to achieve the 3 goals mentioned
below:

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Emerge as transnational Life Insurer of global scale and standard Create best
value for Customers, Shareholders and all Stake holdersAchieve impeccable
reputation and credentials through best business practices

Achievements

RLIC closed the last financial year with a New Business Premium of Rs
3513 Crores.

For 3 successive years, since inception, the Company has been amongst the
fastest growing Companies in the Life Insurance Industry achieving a
growth rate of 28% in the last financial year against a market growth of -6%.
In the Individual Business segment, the company achieved a growth rate of
59% in terms of WRP against the private industry growth of 1%.

Reliance Life has been one of the fastest gainers in market share growing
from 1.9% amongst private players in Mar'06 to 10.3% as of Mar'09. This
has resulted in the Company growing to becoming the 4th largest private
player in just two years starting at position of 11.

The Company has been the fastest company to reach the 3 million policy
mark and was the 3rd largest private insurer in terms of Policy count in
2008-09

Reliance Life has accomplished a large distribution ramp-up in the Industry

in a short span of time by opening 1145 branches in just over 2 year.

9
RLIC continues to be amongst the foremost Life Insurance companies in
India to be certified ISO 9001:2000 for all the processes.

Awarded the Jamnalal Bajaj Uchit Vyavahar Puraskar 2007- Certificate of

Merit in the Financial Services category by Council for Fair Business
Practices (CFBP).

The Company has also won the DL Shah Quality Council of India
Commendation Award in the services category in feb 2008 for its work on
promoting 'self help channels for service'

BOARD OF DIRECTORS

Gautam Doshi, Director

Satya Pal Talwar, Director

Saumen Ghosh, Group President

Malay Ghosh – President

PLANS

Protection Plans

Protect your family even when you’re not around by investing in

Reliance Protection Plans. Choose a limited period plan or a lifetime
protection plan depending on your needs.

Savings and Investment Plans

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 Reliance Savings & Investment Plans help you to set aside some
money to achieve specific goals in life, which means that you can enjoy life
and provide for your family’s daily needs.

Retirement Plans

Invest today in Reliance Retirement Plans and save money to enjoy

life even after retirement. You will never have to depend on another person
or make any compromises to maintain your current lifestyle.

Child Plans

Save systematically and secure your child’s future needs by investing

in Reliance Child Plans. You can always be there for your child when he or
she needs you.

11
 RESEARCH METHODOLOGY

The present study has exploited both the secondary as well as primary
sources of data. The secondary sources of data include the relevant corporate
documents, available literature and books and magazines pertaining to the
problem of the study. The primary sources of data is based on a set of open
ended unstructured questions directed to a list of 20 senior officials of
reliance life insurance company and a set of structured questions
administered to the customers of the reliance sector who were randomly
selected in consideration of the problem of the study. It also includes my
learning in operation department during my training period.

To be very humble, the present study is both qualitative and quantitative

and I hope this is as per the requirement of the problem of the study.

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 OPERATION MANAGEMENT

Operation management has been a key element in the improvement in

productivity in business around the world. Accounting, finance, marketing,
human resources management, purchases, logistics and engineering impact
how firms are run operationally. Creating a Competitive advantage through
operations requires an understanding of how the operations function
contributes to productive growth.

IN RELIANCE OPERATIONS IS DIVIDED INTO DIFFERENT

DEPTT.

• UNDERWRITING
• CUSTOMER CARE
• FINANCE
• DOPS (DISTRIBUTION OPERATION

UNDERWRITING

The process of verifying the level of risk in each new entrant and
determining the terms of admission is called underwriting. It is also called
selection. In reliance, sum assure is calculated 5 times of the premium in
ULIP plans except in case of Money Guarantee Plan and Secure Child Plan.

Secure Child Plan

Example

Term-10 years, Premium-10,000

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Then Sum Assured=Term X Premium/2=10 X 10,000/2=50,000

Waiver of premium

If death occurs in between the term of the policy then the rest of the
premium will be paid by the company.

Medical Test

If Sum Assured Is 50,000

Then medical will be calculated on 50,000X1.5X1.5=112500

NOTE: Premium of 50,000 can be paid in cash but if amount is more than
50,000, PAN card is mandatory.

Example- If proposer has taken a policy of 50,000 premium on his child’s

life then he can pay in cash but now if he want to take the policy on his other
child’s life then he cannot pay in cash.

Underwriting has implication of fairness to the insurer and to policyholders.

It involves

1. Checking of proposal forms.

A Proposal is an application for an insurance cover. When a proposal is

received, the insurer will not grant the cover automatically. The insurer will
make a decision to the admissibility of the proposer to the pool of the
policyholders.

2. Ensuring all guidelines pertains AML/KYC met.

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KYC (Know your Customer) norms:

Following documents are required for premium of 10000 and above:

1. Address proof (electricity bill, telephone bill, bank statement if in 6

months chain, ration card, driving license, ration card-issuance date should
be there)

NOTE: In case of electricity bill, telephone bill, it should not be more than 6
months old.

2. Photos

For more than Rs.1,00,000 , ITR or Bank Statement is required.

3. Sum Assured

For upto 15 lacs of Sum Assured, no extra document is required, documents

are required only according to the KYC guidelines.

For sum assured between 15 lacs and 20 lacs, 1 year ITR is required.

For sum assured more than 20 lacs, 2 years ITR is required with Profit and
Loss account and CA Certificate. These documents are required mainly in
term plan because premium is very less and sum at risk is very high.

For Salaried Person

Appointment letter of 2 years or bank statement because they don’t have

profit and loss account and CA certificate.

Minor life

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When child is life assured .He should not be more than 23 years.Child’s
parents will be the proposer but non-working mother cannot propose her
children. Sum assured for the life assured should not exceed to 10 lacs
except in the case of secure child plan. Medical is not required in this case.

DOCUMENTS REQUIRED

In case of minor life, only standard age proof is acceptable.

It includes
1. Municipal records
2. Report card or latest fee receipt of school.
3. ID card if minor is studying in a good school.

NOTE : KYC norms of proposer is required not of life assured.

If child is between less than 1 year then company take discharge summary
which contains weight, height and date of birth.

Non-working Female life :

In case of non-working female life, she can not be the proposer. Her husband
can be the proposer. In case female is pregnant ,she has to mention the
proper date and if proper date is not mentioned ,case will be postponed or
declined. The case can be lag in upto 5 months.

Male life and Working Female life:

16
In case of male and working female life, proposer get the tax benefit and
documents are required as per the KYC and AML norms.

4. Webtoken receipting: webtoken receipt is a receipt which is handover to

the customer when he pays the premium.

5. Create a client ID of Life assured, proposer, nominee and assignee.

Life assured: He is the person who takes the insurance on his own life.

Proposer: He is the one who takes the insurance for other person i.e. the
person who pays the premium on behalf of insured when insured is not
working.

Nomination: Section 39 of the insurance act, 1938 provides that the holder
of a policy on his own life may, at the time of taking out the policy or any
time during the term of the policy before maturity nominate a person or
persons, to whom the money secured by the policy shall be paid in the event
of his death.

Assignment: Section 38 of the insurance act , 1938 deals with the

assignment of life insurance policies. It is the transfer of rights, title and
interest of the assignor to the assignee. The assignment can be done by the
person, who owns the property and competent to contract.

6. Create contract or policy number.

7. Issuance of policy

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 CUSTOMER CARE

The main function of this department is to handle customer queries.

Queries:
1. To know about fund value.
2. To know about terms and conditions.
3. Any changes in the policy like address change request, nominee

4. change, name change.

5. Switching of funds
6. Claims

7. Assignment of policy

Assignment are of two types:

1. Absolute assignment
2. Conditional assignment

Absolute assignment: In an absolute assignment, the assignee loses all

his rights , title and interest in the policy. The assignor can deal with the
policy in any manner he likes. He does not have to take consent of the
assignor.

Conditional assignment: In conditional assignment, the rights, interests

and title in the policy automatically revert back to the assignor on the

18
occurrence of the specified condition, which may be hat the assignee
predeceases the assignor or that the assignor survives the date of maturity
or that the loan is repaid. It is possible to assign a policy in favour of 2 or
more persons.

FINANCE

This department manages day to day expenses of the company.

1.Vendor payment

Vendor are those who provides services. It includes expenses of office

boys, Landlord, water, electricity, courier service.

2. Renewals
3. Petty Cash
4. Banking

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 DISTRIBUTION OPERATIONS

It deals with all the activities related to advisors.

It involves :

1. Checking of Advisor recruitment form.

2. Webtoken receipting(for fresh form-Rs. 825,for reappear- Rs.

525)

Advisor recruitment form

1. Advisor must be major.

2. Minimum qualification

For urban areas he must be atleast 12th pass

For rural areas, he must be atleast 10th pass

3. 50 hrs. training is must which is done online only.

4. He has to clear the exam of III to get license. Minimum 50% is
required for passing. This exam could be done online as well as
manual.
7. LG(Lead Generator) code is created.
8. Yellow form, Webtoken receipt, Sponsorship letter send to the
applicant.

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9. Admit card is issued with Training competion certificate on

completion of training.
10.LG code converts into AG code.
11.Now candidate can put business in his code.
12.IRDA issues license, ID card is issued by the company with
Appointment letter by company.

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OPPORTUINITIES AND CHALLENGES FOR RELIANCE LIFE
INSURANCE IN THE INDIAN INSURANCE INDUSTRY

India’s rapid rate of economic growth over the past decade has been one
of the more significant developments in the global economy. This growth
has its roots in the introduction of economic liberalization in the early
1990’s which has allowed India to exploit its economic potential and
raise the population’ standard of living. Insurance has a very important
role in this process. Health insurance and pensions systems are
fundamental to protecting individuals against the hazards of life and
India, as the second most populous nation in the world, offers huge
potential for that type of cover.
Furthermore, fire and liability insurance are essential for corporations
to keep investment risk and infrastructure projects under control. Private
insurance systems like the insurance dominator, Reliance Life Insurance
complement social security systems and add value by matching risk with
price. Accurate risk pricing is one of the most powerful tools for setting
the right incentives for the allocation of resources, a feature which is key
to a fast developing country like India. By nature of its business,
insurance is closely related to saving and investing. Life insurance,
funded pension systems and(to a lesser extent) non-life insurance, will
accumulate huge amounts of capital over time which can be invested
productively in the economy. In developed countries (re)insurers often
own more than 25% of the capital markets. The mutual dependence of
insurance and capital markets can play a powerful role in channeling
funds and investment expertise to support the development of Indian
economy.

22
 The insurance industry in India has come a long way since the time
when businesses were tightly regulated and concentrated in the hands of
a few public sector insurers. Following the passage of the Insurance
Regulatory and Development Authority Act in 1999, India abandoned
public sector exclusivity in the insurance industry in favour of market
driven competition. The shift has brought about major changes to the
industry. The inauguration of a new era of insurance development has
seen the entry of international insurers and the private players like
Reliance Life Insurance and the proliferation of innovative products and
distribution channels, and the raising of supervisory standards.

23
WHAT WILL IT TAKE FOR RELINCE TO REALISE THIS
POTENTIAL?
While the macro-economic backdrop remains favourable to growth, there
are still more hurdles Reliance Life Insurance to overcome in order to realize
its growth potential. This thesis will cover some of the key challenges and
issues that have to be tackled by the Reliance Life Insurance for its further
boost.

• On the regulatory side, there are outstanding issues concerning

solvency regulations, further liberalising of investments rules, caps on
foreign equity shareholdings as well as the enforcement of price tariffs
in the non-life insurance sector.
• The proliferation of bank assurance is rapidly changing the way
insurance products are distributed in India. This will also have strong
implications on the process of financial convergence and capital
market development in India. Reliance Life Insurance has to be
prepared for this challenge.
• Health insurance is still underdeveloped in India but offers huge
potential, as there will be increasing needs to purchase private health
cover to supplement public programmes. Likewise, the deficiencies in
current pension schemes should offer significant opportunities to
private providers. Reliance Life Insurance has to explore this area of
insurance through product differentiation and service specification.
• With the majority of the population still residing in rural areas,the
development of rural insurance will be critical in driving overall
insurance market development over the longer term. Rural potential
has to be tapped by the Reliance Life Insurance at the earliest.

24
 • Another measure of insurance development that has to be taken into
consideration while planning insurance products and service is per
capita spending on insurance, i.e. insurance density. By this measure,
India is among the lowest-spending nations in Asia in respect of
purchasing insurance.

India’s low level of insurance penetration and density has to be

viewed in the context of the country’s early stage of economic development.
Per capita income in India is currently at around USD 600 but is expected to
increase rapidly, which could bring in an era of accelerated demand for
insurance. International experience tends to suggest that demand for
insurance will take off once per capita income has surpassed the USD 1000
mark. This income level is deemed high enough for households to consider
insurance

protection, particularly as many people begin to own their homes and cars.
The empirical relationship between insurance demand elasticity and per
capita income can be characterised as a bell-shaped curve. Elasticity remains
relatively low at a low income level but increases at an accelerated rate once
it has passed the USD 1000 level. The following chart depicts the current
position of different emerging markets as well as their expected position by
2013. Here comes the chance of private players like the Reliance Life
Insurance to improve capital mobilization and insurance density.
The life insurance landscape in India is undergoing major change. Closed
to foreign competition since nationalization in 1956, the life insurance

25
industry had been protected from the competitive pressures until the market
was opened again in late 1999/early 2000. the initial years of liberalization
have continued to see the former monopoly Life Insurance Corporation Of
India (LIC) retaining a dominant position in the market. Competition
between the LIC and the private sector insurers is intensifying and Reliance
Life insurer can be a gainer out of this competition because of its trust factor
and capital reserve ratio.While innovative products have been underpinning
private insurers’ premium growth, the threat of losing market share has also
led to more aggressive pushes by the Reliance Life Insurance to stay
competitive and to develop new distribution channels like bancassurance.
Such an increase in competition is likely to translate into faster premium
growth as well as deeper penetration for the entire market. The market is
already beginning to witness a wider range of products from players whose
numbers are set to grow. As a result, the differentiating factors among the
different players will be products, pricing and service. The twelve private
sector insurers in the life insurance market have already captured nearly 13%
of the market in terms of new business written. This should be welcome
news to an industry and particularly, Reliance Life Insurance that is in need
of a better product mix to sustain further growth. This is especially true as
the sale of traditional products suffered from lowering interest rates – new
business premiums fell by 18.6% during the 2002 financial year partly as a
result of the withdrawal of tax benefits on single premium products, which
has been instrumental in fuelling growth in preceding years. Such sensitivity
of premium growth to interest-rate cycles reflects the

26
focus on savings products in the Indian life insurance market.. It is the high
level of innovation that has been the basis of private insurers’ growing
market share over the past years. Products like critical illness riders have
helped to strengthen the risk attributes of life insurance policies and broaden
their appeal to previously untapped customer segments. While state-owned
companies still dominate segments like endowments and money-back
policies, private insurers have already wrested a significant share of the
annuity and pension products market. Furthermore, in the popular unit-
linked insurance sector, they have over 90% of customers. In addition,
private sector insurers have been able to persuade people to take out policies
on larger sums insured. The average sum insured of life policies provided by
private sector insurers is around INR 110,000–INR 120,000, which is far
higher than the industry average of around INR 80,000.At the same time, the
profile of Indian consumers is also evolving. Consumers are more actively
managing their financial assets, and are increasingly looking to integrated
financial solutions that can offer stability of returns along with more
comprehensive protection. Insurance has emerged as an attractive and stable
investment alternative that offers total protection for life, health as well as
wealth. In terms of returns, insurance products offer competitive returns
ranging between 7% and 9%. These factors have contributed to changes in
demand for insurance products. Sales of traditional life insurance products
like individual, whole life and term life remain popular, whereas sales of
new products such as single premium, investment-linked, retirement
products, variable life and annuity products are growing. Insurers will need
to constantly innovate in terms of product development to meet the ever-
changing consumer needs. Moreover, insurance companies are targeting
different market segments by affiliating with banks that focus on niche

27
banking. An example is Aviva Life. It has developed a three-layered
strategy. The first layer is an affiliation with ABN Amro and American
Express which cater to high net-worth urban customers. The second layer is
an affiliation with Canara Bank. Through this nationalised bank with 2400
branches, it reaches customers across the length and breadth of the country.
The third layer, at a regional level, is an affiliation with Lakshmi Vilas Bank
focusing on region-specific customers. This affiliation helps them to reach
customers in rural and semi-urban centres in Tamil Nadu and

Andhra Pradesh. Therefore, it may be profitable on the part of the Reliance

Life Insurance to explore these type of options for better marketing of its
products and services.

• CHALLENGES FACES BY OPERATION DEPARTMENT:

For life insurance, the first major challenge is to ensure correct product
development and the second major challenge is to stop mis-selling. The
other challenge is the lack of technical people like underwriters, claim
managers, asset managers, actuaries, and even good distribution channel
managers and product development managers. Re-skilling therefore is
very important. Also in the insurance sector, unlike the banking sector,
there has been no proper leadership cadre developed in either the public
or private sector, due to which leaders are sought from other industries

28
 such as banks, FMCG and IT firms. So there is a great need for creating a
leadership cadre through a scientific and topical approach.
Among all these challenges , challenges to the operation department
are to handle mis-selling cases, proper underwriting , and problems
related to I.T like connectivity problem.

MIS-SELLING:

Mis-selling is one of the major challenge faced by the operation department.

It affects the reputation of the company as well as the company loose money
in terms of potential income.

SOME MIS-SELLING TECHNIQUES ADOPTED BY THE AGENTS:

• Selective disclosure of past performance: In the absence of

appropriate disclosures and rigorous comparisons of past performance
by independent agencies (such as mutual fund awards for the mutual
fund industry), comparison of past fund performance becomes a
challenge in the insurance industry. This leaves large scope for the
insurance agents to selectively quote periods when their fund
performance was superior to an index performance and, thereby,
hoodwink the investor.
• Indicating much higher returns than permitted by regulator:

The insurance regulations permit benefit illustrations with returns only

between 6 per cent and 10 per cent per annum. However, many agents
provide illustrations with much higher returns with impunity - some even as

29
high as 30-40 per cent returns in equity schemes citing performance in 2006
and 2007. Even a small 2 per cent variation in annual return can show
widely divergent terminal benefits when compounded over long period of
time, luring gullible investors into believing they will be crorepatis in just a
matter of time.

• Promoting the policies that earn them highest commission:

With scant regard for the needs of the insured, some agents promote only
policies that can earn them the highest commission. Premium allocation
charges are substantially lower in single-premium products (as per
regulation) and, hence, commission earned by agents are the lowest in this
class of policies.

• Suggesting deliberate discontinuity in premium payments:

Few unscrupulous agents even suggest discontinuing existing policies and

opting for new ones, because that earns them much higher commissions. In
fact, one large insurance company had policy forfeitures of up to 30 per cent
of new policies in their second year, prompting an investigation and
reprimand by the regulator.

Many agents still promise to pay the insured some portion of their
commission earned, despite stringent regulations prohibiting this practice.
While this will apparently reduce the 'charges' borne by the investor, little do
they realise it is their own money coming back to them illegally, subverting
the good intentions of the regulator.

30
Standard Sales Pitches made by the agents:-

• Mutual funds with free insurance

This pitch draws on two things. The traditional love that we Indians have for
insurance as a tax-saving device and the new love we have developed for
mutual funds. If an agent makes this pitch, he is most probably trying to sell
you a unit-linked insurance plan (Ulip) and not a mutual fund with free
insurance.

Ulips are insurance policies that club insurance and investment. Usually an
individual taking an Ulip has 4-6 choices while choosing his investment
fund. These choices range from funds investing 100% in equity to those
investing 100% in debt securities. Other than this, the policyholder gets an
insurance cover. But there are no free lunches. For the insurance, a mortality
charge is levied. So the insurance isn't free even if the agent says it is.

• No details on the expenses involves

Most agents, while trying to sell insurance, do not tell you that Ulips have
very high upfront charges. These charges are referred to as policy
administration charges and usually vary from 15% to 71% of the premium
paid in the first year.So if you pay Rs 30,000 as an annual premium and the
Ulip has a premium allocation charge of 30%, then only Rs 21,000 (70% of
Rs 30,000) is invested. The remaining Rs 9,000 is deducted as the policy
administration charge. Most or all of this money is passed onto the agent as
commission. And since the commission involved is so high, insurance
agents do not like to tell you about the high upfront charges.

31
 • Cashback
If the agent knows that he is likely to earn a very high commission, he
may make customer a 'cashback' offer. Let us see how this works. In
the above example, the policy administration charge is 30% in the first
year or Rs 9,000 on a premium of Rs 30,000. The agent might offer to
pass on one third of this to you, as a cashback. So customer might get
Rs 3,000 back. That would be being 'penny wise and pound foolish'.
Agent is giving customer a cashback only in the first year of the
policy and not every year. If the policy spans 20 years, for a one-time
payment of Rs 3,000, customer is putting at stake Rs 6 lakh (Rs
30,000 x 20). The performance record of most Ulips remains untested
because they haven't been around long enough.
• Money doubling in three years

This is the pitch that fools most people. Who wouldn't want his or her
money to double in three years? But for this to happen, the investment fund
will have to generate a return of 26% per year for a period of three years.

While this is not impossible, remember that returns in case of Ulips are not
guaranteed. Doubling of money in 2 years means that investment plan has an
equity component of 80-100%. Thus, the returns will depend on the kind of
stocks that the fund manager chooses to invest in. so returns are not
guaranteed.

32
 Such illustrations are illegal. Industry regulator Insurance Regulatory and
Development Authority of India (Irda) only allows illustrations that assume
a return of 6% and 10%.

• Pay premiums for three years only

Most Ulips have a cover continuance option which ensures that even if the
individual is unable to continue paying premiums anytime after the first
three years, the policy continues. The insurance agents turned this into a
selling point, giving an impression that individuals have the option to stop
paying premiums after three years.

Several measures have been taken by IRDA since liberalisation. These

include the imposition of a 15-day free-look period, which allows the
policyholder to get his money back if he feels that the cover is not what was
promised.
More recently, the regulator insisted that companies obtain the customers’
certification on a copy of the illustration sheet which shows what the
policyholder can expect on maturity. But a few agents continue to mis-sell
by pushing new policies and encouraging clients to lapse older policies.
Unfortunately, mis-selling is taking place even though insurance policies are
good investment options over a long-term. If agents are mis-selling today, it
is because of the single-minded focus that the industry has on distributing
new policies. Being a super growth market, everybody, including IRDA,
talks only about new business.
This puts the focus on new policy sales rather than on increasing premium
income or growing assets under management. The industry paid out over Rs
20,000 crore in insurance commissions on new policies last year. The spirit

33
behind the high commission on first-year premium is to encourage agents to
bring new policyholders into the insurance fold. But there are no systems in
place to ensure that there is no internal churn of customers.
Also, India being a high-growth market has drawn a whole lot of new
players. New players poach sales managers from existing firms and sales
managers, in turn, bring along with them their own agents, who end up
tapping the same customer base, irrespective of the company they move to.
Some of the lapsation-related problems are growing pains that the economy
will have to go through, as individuals take time to get familiar with new
insurance products. The process can, however, be hastened by
professionalising the agency force. Some firms are discovering that they
have a higher persistency among orphaned policyholders compared to
lapsations under active agents. One reason is that agents encourage
customers to junk old policies in favour of new products.
To ensure that policies do not lapse IRDA has recommended a uniform
grace period of 30 days for policyholders paying their
premium every quarter, half-year or each year. It has also suggested
reinstatement of a policy if the premium is paid within the revival period of
two-to-five years, depending on the internal practice of the insurer.
Besides professionalising agents, insurers will also need to simplify products
to make it possible for their vast agency force to understand the features of
the product. Unless they do this, they stand to lose the distribution advantage
that they have over other potential competition which include mutual funds
and pension funds.

34
 • What can be done?

The regulator can ensure standardisation of some of the charges - for

surrender, policy administration, switching, etc., and disclose ceiling on
other charges - fund management charges, policy allocation charges, etc.
The regulator can also engage in more proactive regulation - dialogue with
insurers on specific regulatory provisions will yield better results, than
making the regulation more and more complex to address every possible
mis-selling situation.

The insurance industry can promote a self-regulatory organisation (SRO)

that compiles and discloses NAV and periodic portfolio (like AMFI does for
the mutual fund industry).

Insurance companies can promote 'risk cover' as their key offering, and give
more thrust for term assurance policies (where none of these charges are
pertinent as the entire premium belongs to the insurance company).

Insurance companies can also modify their incentive schemes for agents to
maximum the 'sum assured' - which is the main purpose of an insurance
product, rather than maximising the charges earned by the insurance
company. In fact, even shifting to 'employee' model rather than 'sales agent'
model and reducing variable pay could help insurance industry in the long
run!

The incidence of mis-selling, however, has come down a little from 14 per
cent in 2006-07 to 12 per cent in 2007-08. But still about 10 per cent of total
complaints received by the authority are on mis-selling,”

35
That’s how mis-selling is done in reliance life insurance. It is one of the
biggest challenge for operation department as when client come to know that
whatever terms and conditions told to him by channel partners are incorrect
or insufficient. He will come to branch to clarify about the product or for
cancellation of policy which they have taken. Then if operation people
would not be able to satisfy them, it will make bad reputation of the
company. The company will loose reputation and potential market. So ,it is
necessary for operation people to handle false commitment done by channel
partner to sell the product.

36
INFORMATION TECHNOLOGY PROBLEM:

It is also a very big challenge to the operation department. It directly affects

the efficiency of operation people. Reliance being a new company, it does
not have advanced software in comparison to other insurance company.
Operation people have to send all their working to Mumbai office and it will
be done by them only like in case of misselling, they do call logs and further
action is taken by them. Moreover connectivity problem in rural sector
where vpn connectivity is not there. Sometime even in urban sector,
operation people face connectivity problem and which effects the working
out there as most of their work is done on life asia, softwere which is used in
reliance. It reduces the efficiency in operations, so is a challenge in
achieving efficiency.

UNDERWRITING:

Underwriting is one of the biggest challenge for every insurance company so

as for Reliance. Underwriting is a very complex process. In reliance, paper
underwriting is done in the initial stage like checking of all the documents
according to KYC guidelines etc. and then automated underwriting is done.
This means it is a very long process and people have to wait longer for their
applications to be processed, the inefficiencies also effected their dividends.
Sometimes SM’s provide fake documents to the underwriters like age
proofs,PAN card etc which entirely change the case and to find out whether
the document is original,a big challenge for the underwriter.

37
CONSUMER DEMOGRAPHICS

60%

50%

40%

male
30% female

20%

10%

0%

CONSUMER PROFILE

(i) 55 percent male

(ii) 45 percent female

38
 45%
40%
35%
30%
<30
25%
31-45
20%
45+
15%
10%
5%
0%

(i) 30 percent belong to the age group <30

(ii) 42 percent belong to the age group of 31-45

(iii) 28 percent belong to the age group >45

39
 60%

50%

40%
graduates
30% undergraduates
professionals
20%

10%

0%

(i) 60 percent are graduates

(ii) 18 percent are undergraduates

(iii) 22 percent are having professional qualifications.

40
 60%

50%

40%
100,000-250,000
30% 250,001-500,000
<100,000

20%

10%

0%

(i) 55 percent belong to the income group of 1,00,000-2,50,000

(ii) 30 percent belong to the income group of 2,50,001-5,00,000

(iii) 15 percent belong to the income group of <1,00,000

41
 50%

45%

40%
35%

30% govt employees

private sector employees
25%
self-employed
20%
un-employed
15%

10%

5%

0%

(i) 49 percent are government employees

(ii) 49 percent are private sector employees

(iii) 7 percent are self employed

(iv) 2 percent are un-employed

INSURANCE HOLDER OR NOT

100%

80%

60% Insurance Holders

40% Non Insurance Holder

20%

0%

42
(i) 88 percent are insurance holder

(ii) 12 percent are those who do not belong to the category of insurance
holder

(iii) Out of 88 percent who are insurance holders, there are 27 percent who
are insured by the others, say parents, husbands, siblings etc.

Do you think life insurance is must for individual? If yes. Why?

80%

70%

60%

50%
Insurance is a must
40% Insurance is not a must
not aware
30%

20%

10%

0%

(i) 72 percent are of the opinion that insurance is a most for any individual.

43
(ii) 12 percent are of the opinion that insurance can not be considered as a
bare essential for an individual.

(iii) 16 percent of the respondents are either not aware or do not have any
opinion on it.

Are you aware about Reliance Life Insurance Policies?

70%

60%

50%

40% aware
Not aware
30%

20%

10%

0%

(i) 68 percent of the respondents are aware about the policies of the Reliance
Life Insurance companies.

44
(ii) 32 percent are not aware about the policies of the Reliance Life
Insurance companies.

The awareness level is high among the highly educated and the middle and
upper-middle classes and the respondents belonging to the urban areas.

The overall picture is a low awareness level among the potential customers
about the Reliance Life Insurance Company.

How do you come to know about the Reliance life Insurance Company?

60%

50%

40%
Advertisement
From Friends
30%
From Agents
From other sources
20%

10%

0%

Advertisement----------------59 percent

45
From friends------------------12 percent

From the Agents------------26 percent

From other sources--------4 percent

It suggests that a sustained advertisement campaign can help in increasing

the awareness level among the potential customers of the insurance sector. A
potentiality for the Reliance Life Insurance exists but it needs to be
unplugged.

Which Reliance Life Insurance Policies attract you?

45%

40%

35%

30%

25% Endowment Policies

Money back Policies
20% Others

15%

10%

5%

0%

46
(i) 45 percent --------- Endowment policies

(ii) 32 percent---------Money back policies particularly Child growth,

education and career oriented policies.

(iii) 23 percent -------------- others

How would you differentiate the Reliance life Insurance Company from
other life insurance companies?

45%

40%

35%

30% Reliance policies are better

25% Reliance policies are like any

other
20%
Not Sure
15%

10%

5%

0%

47
(i) 39 percent ------------ Reliance Life Insurance policies are not only
different but better than other life insurance policies in terms of return and
above all at the level of future confidence.

(ii) 43 percent ---------------- Reliance Life Insurance policies are like any
other life insurance policies and not different from others.

(iii) 18 -------------------- do not know/ can not say.

Do you think the insurance sector in India should be open to the private
players and even the foreign MNCs?

70%

60%

50%

40% Yes
No
30% Cant Say

20%

10%

0%

48
(i) 63 percent ----------- Yes

(ii) 29 percent ------------- No

(iii) 8 percent ------------- Do not know/Can not say.

Reliance Life Insurance Company has a future growth. How do you see
it?

40%

35%

30%

25% Ver good prospect

Good prospect
20% Like any other Insurance company
No future predicted
15% Not sure

10%

5%

0%

(i) 22 percent --------------It has a very good prospect

(ii) 37 percent ----------------- It has a good prospect

49
(iii) 33 percent --------------- It will be another private insurance
company

(iv) 7 percent --------------It has no future growth

(v) 1 percent ------------- Can not say/ do not know

Any measures you would like to suggest to the Reliance Life Insurance
Policies better ones?

45%

40%

35%

30% Better safety measures

25% Better return facilities
Professional management
20%
Publicity of Schemes
15% Other reasons

10%

5%

0%

(i) 25 percent ----------Better future safety measures

(ii) 45 percent -----------------Better return facility

(iii) 8 percent -------------------Professional management

50
(iv) 15 percent ------------------Publicity of the schemes

(v) 7 percent ----------------------Others

Why Reliance Life Insurance for the consumers and not any other
insurance?

60%

50%

40%

male
30% female

20%

10%

0%

(i) 88 percent ----------------it gives better return and other facilities along
with fringe benefits

(ii) 9 percent ------------------ other life insurance policies are not so lucrative
than those promote by Reliance

51
(iii) 3 percent ------------------ do not know / can not say

52
CONCLUSION AND FINDINGS

Insurers are today increasingly faced with a higher level of competition from
non-insurance business entities such as banks, mutual fund companies and
investment advisory firms. In addition to being competitive, the life
insurance industry is mature and has a fairly set of homogeneous products
and services. Profitability in the industry today depends much on the
insurer’s ability to control cost. This will be possible when we will increase
the efficiency of working. There is no company which don’t face challenges
in their working but main thing is that how we overcome it. In reliance also,
we face many challenges like misselling, underwriting, problems related to
I.T.

And among these underwriting is the biggest challenge in reliance life. In

reliance, paper underwriting is done in the initial stage like checking of all
the documents according to KYC guidelines etc. and then automated
underwriting is done. This means it is a very long process and people have
to wait longer for their applications to be processed, the inefficiencies also
effected their dividends. Study shows that in a fully automated underwriting
system 70% of applications pass through with no manual intervention,
within minutes of approval it reaches the client over internet..

• PRIORITY CASES
Instead of reviewing every application, handling only the exceptional, more
challenging and priority cases with high sum at risk is one of the moto of
automation. Today, a big part of an underwriter’s job responsibility is to
focus at HNI clients.

53
 • TRAINING

One additional responsibility an underwriter has to take in automation is to

train the life company advisors to take optimum advantage of the new
process.
But the hard part in the process of automation is finding the right balance
between maintaining the human touch in underwriting and automation of the
underwriting where the life company can gain efficiency. At the end of the
day, decision quality is more important than anything.

54
KEY RECCOMENDATIONS TO RELIANCE LIFE

• Improve Infrastructural Development

• Generate Wider Publicity
• Increase in awareness level among the people must be forced
• Public private nexus in the insurance sector in India should be
encountered tactically
• Spread the insurance culture fairly widely;
• Mobilize large savings for national development and financed socially
• Try to control the cases of misselling
• Advancement of softwares
• Fastened the underwriting process
• Acquire considerable financial strength and gained confidence of the
insuring public

55