A PROJECT REPORT ON RISK ANALYSIS AND RISK MANAGEMENT IN INVESTING ININSURANCE POLICES

EXECUTIVE SUMMARYAll assets in this world have some economic value and some amount of risk carrying with them. All assets have some expected life also and if its get lost or destroyed there are many chances that owner will suffer some amount of loss which can be financial or in any other form. So to protect the owner from suffering a huge amount of loss we can assure these assets.Insurance is a contract between the insurer and insured in return for a premium, the insurance company promises to pay a specified amount to the insured on the happening of a specific event.India economy is growing at the rate of 5.4% with a significant rise in working population and has a large potential for the development in the field of insurance sector. A large amount of population in India is still uninsured. It is also estimated that the sector will grow at a rate of 15-20% in next 10 years.The project has been undertaken to know about different types of risk that can covered by insurance policies and how to analyse and mange those risks as there are various types of risk that a person can suffers in his life term.The project talks about what are the various things that customer should consider before buying an insurance policy and various steps that need to consider before buying it.

IntroductionIndia is the second largest country in the world in the respect of population. The GDP growth of India was 5.4% in year 2013.the insurance sector is expected to grow at a very high rate in next 10-154 years and its contribution in GDP is going to rise in ahuge manner as a large amount of population is still uninsured especially in urban areas.What is Insurance?Insurance is a contract between the insurance company (insurer) and the policyholder (insured). In return for a consideration (the premium), the insurance company promises to pay a specified amount to the insured on the happening of a specific event. We all need insurance because it not only transfer the risk but also have other benefits like tax saving.The first Indian insurance company was formed in the year 1818 which was oriental life insurance company and the Indian life assurance companies act 1912 was the first statutory measure to regulate life business which was finally amended in the year 1938. In the year 1999 Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate all the insurance companies in India which came in power in the year April 2000. Under the current regulation a foreign companies cannot have more than 26% of stake in joint venture.

Benefits of insurance

Investment option

It is good investment option because insurer will not get the insurance cover but also the in some amount of return.

Tax benefits We can also save tax up to RS 100000.

Loan on insuranceCustomer can also take loan against insurance policies.

Habits of saving It also develops the habits of saving certain amount of money which can be helpful in future.

Employment generationAn increase in the penetration of insurance is going to generate more employment as insurance policies will require more advisors.

Social benefits It is going to help in developing the infrastructure of the counrty.

Table 1.1Types of life insurance policesThe different types of life insurance policies are following: Whole life insurance plans Endowment insurance plans Term Insurance plans Pension and savings plans Unit linked insurance plansRiskA person carries various types of risk in his life term and it can be classified in many ways. But first we need to understand the meaning of risk. It is difficult to give the exact definition of risk but it can be defined in the respect of insurance sector as the possibilities of unfavourable event happing like death or physical damage.The various types of the risks are following:

Market risk Interest rate risk Inflation risk Political risk Financial risk Pure risk Particular risk Out of all these risk the insurable risk are following: Financial risk: The outcome of risk which can be measured in financial term like loss of life etc. Pure risk: Pure risks are those risks where there is no possibility of making a profit. Particular risk: These are the three risks which can be insured by having insurance policies and the insured persons can transfer his risk to insurer.Risk analysis and Risk management:As there are different types of in insurance police in the market it becomes difficult for a customer to understand the actual value of its life i.e. Human Life Value. Before buying an insurance police a person should to knowing the purpose for which he is buying the insurance and how to analyse its value.It might be confusing for many that for what value they should buy an insurance policies i.e. how they are worth for.There are two methods to calculate the human life value Income replacement method Simple methodIncome replacement method:This method takes into consideration the future income earning potential of a person during the remaining years of their working life. It is a two-step method:Step 1: Calculate the income of person in the future working years.Step 2: this is its HLV, now take inflation in account and calculate how much should be enough for his family in case of his death.Simple method:In this method we consider the present interest rate in a fixed deposit in a bank and then we calculate that how much amount person should get insured.But we always need to keep in mind that HLV in not a onetime calculation and it should get revised from time to time.Now as there are many insurance policies in the market it becomes difficult to decide which will be suited best for you. So it is always best for anyone to take the polices which is best suited for them. Anyone can easily find out which policies best suited for them by following these three steps:Step 1: Identify your needs: you always need to understand you goals and need after considers these factors: marital status future financial goals number and age of dependants on you employment status income which includes salary, business income and income from other sources and investments existing protection, savings and retirement provisionStep 2: Quantifying needs: Then you need quantify your needs and then calculate suitable amounts that you need to save in future the future.Step 3: Priorities your needs: then you need to priorities you needs based upon your requirements. It is important because you have only a specific amount of money to invest and that money should be invested in a best product mix.Step 4: Compare: it is always best for you to compare the policies which you are going to take with all the other similar polices in the market.So this how any individual can decide on what polices is best suited for him and whether he should consider to by that specific insurance policies or not.

Industry analysis:The insurance is established a way long before and it is growing well since then. The first insurance company was formed United States in the year 1782 in South California. Since then various insurance company are founded and today hundreds on insurance companies are operating well. Top five companies in world in 2013 Japan post Insurance AXA Allianz Met life Prudential FinancialInsurance sector in India 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta but in 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. But actually grow in the insurance sector in India begun from the year 2000 with the formation on IRDA. IRDA is a regulatory body to manage working of all the insurance company in India.Foreign companies were allowed ownership of up to 26% and invest in insurance policies in India. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the countrys GDP. Life insurance Company has acquired in India.With the entry of new private players insurance sector has seen a huge growth in last five years and it is expected to grow in future.The various data which is represents the market share of top five insurance companies in India

Figure 1.1Most of the Indian population are without life insurance cover and still a huge amount of growth is possible in Indian environment. At presentpeople do not prefer to invest their saving in insurance policies but it is expected to change in future.

Company profileThe AXA GroupAXA is a world leader in financial protection and wealth management, with major operations in Western Europe, North America and the Asia/ Pacific area. AXA services 102 million customers throughout the world. In total the AXA group has approximately 160,000 employees and distributors, working in around 50 countries.The AXA group reported total revenue for the first half of 2013 of 37.8 billion. AXA group has a strong, long standing history. The group can trace its roots right back to the 18th century. After a successions of mergers, acquisitions and name changes involving some of the leading insurance companies in the UK and around the world, the name AXA was first introduced in 1985.Today, 102 million clients in the world trust AXA and the AXA name. In 2003, to provide a clearer vision of the transformation of its core business from traditional insurance to the broader concept of financial protection, the AXA group added the words financial protection as a base line to its logo.BhartiEnterprisesBharti Enterprises is a pioneer in telecom sector and the group is widening its horizons by entering new business areas such as insurance and retail. Bharti Enterprises has created a vantage position for itself in the global telecommunications sector. BhartiAirtel Limited occupies good status in mobile telephony in India while its brand 'Beetel' is the largest manufacturer and exporter of world class telecom terminals.Founder of Bharti Group is Sunil Mittal. In 1983, Sunil Mittal entered into an agreement with Germany's Siemens to manufacture the company's push-button telephone models for the Indian market. In 1986, Sunil Bharti Mittal incorporated Bharti Telecom Limited (BTL) and his company became the first in India to offer push-button telephones, establishing the basis of Bharti Enterprises. This first-mover advantage allowed Sunil Mittal to expand his manufacturing capacity elsewhere in the telecommunications market. By the early 1990s, Sunil Mittal had also launched the country's first fax machines and its first cordless telephones. In 1992, Sunil Mittal won a bid to build a cellular phone network in Delhi. In 1995, Sunil Mittal incorporated the cellular operations as Bharti Tele-Ventures and launched service in Delhi. In 1996, cellular service was extended to Himachal Pradesh. In 1999, Bharti Enterprises acquired control of JT Holdings, and extended cellular operations to Karnataka and Andhra Pradesh. In 2000, Bharti acquired control of Skycell Communications, in Chennai. In 2001, the company acquired control of Spice Cell in Calcutta. Bharti Enterprises went public in 2002, and the company was listed on Mumbai Stock Exchange and National Stock Exchange of India. In 2003, the cellular phone operations were rebranded under the single Airtel brand.

Bharti AXA life insurance Ltd.Bharti AXA Life Insurance is a joint venture between Bharti, India's leading private telecom company and AXA, world leader in financial protection and wealth management. Their philosophy is to build around the promise of making people "Life Confident"...Bharti Enterprises and AXA Asia Pacific Holdings Limited (AXA) signed an agreement to establish a joint venture named Bharti AXA Life Insurance Company Limited to carry on life insurance business in India.August 26, 2005, New Delhi : Bharti Enterprises and AXA Asia Pacific Holdings Limited (AXA) signed an agreement to establish a joint venture named Bharti AXA Life Insurance Company Limited to carry on life insurance business in India. Under the agreement AXA has a 26% equity interest in the joint venture, while Bharti holds the balance. AXA, a global leader in insurance business, enabled the company to have access to AXAs global life insurance and asset management expertise. Bharti brought its strong local market knowledge, reputation and India-wide retail presence. The insurance sector in India provides a mega opportunity for private players like BhartiAxa Despite the strong growth witnessed by the sector in the recent years, nearly 80% of the Indian population is without life insurance coverage. As one of Indias leading business conglomerates having an established brand and a significant presence in the retail space, Bharti has inherent advantages in being a part of this growth story. In AXA, Bharti has a global leader as its partner, one that is known for its expertise and best practice across the world. More importantly, this new venture also fits into our strategy of taking on projects that make a difference to the society at large. This joint venture is an opportunity for AXA to enter the Indian life insurance market, one of the most attractive emerging insurance markets. India is a fast growing economy and a huge market with more than 1.1 billion people. This coupled with a large middle class and increasing income levels will drive growth in the insurance market. Bharti is a well-established and financially strong group whose capabilities and network will be of significant value to the joint venture. The joint venture invested in the region of Rs. 500 crores (115 Million USD) over the first three to four years of operations, reflecting both partners commitment to quickly establish a strong foothold in the Indian market. The joint venture commenced business in the first half of 2006, subject to IRDA, FIPB and other statutory approvals.Company ProductsBHARTI AXA offers a range of innovative, customer-centric products that meet the needs of customers at every life stage. Its 20 products can be enhanced with up to 6 riders, to create a customized solution for each policyholder. Their products are of different categories like child plan, term plans, savings & investment plan and health plan.Child Plan: Child Plan is a plan specifically designed to take care of financial needs of your child. Child plan provides with necessary funds that will take care of childs education, marriage etc. Term Plan: A risk plan which provides comprehensive cover for your family in the unfortunate event of untimely demise. A term life insurance plan provides good cover at relatively nominal cost and has no survival benefits. Investment Plan: Popularly known as ULIP, an investment plan invests part of your savings in equity or debt market as per your preference..Group plans: With Bharti AXA Life insurance products provide financial security and protection to your loved ones. two group plans which are Bharti AXA Life Shield and Bharti AXA Life Sanjeevani.Health Plan: Slightly different from health insurance, health plan provides cover for surgery costs, critical illness. A lump sum is paid irrespective of actual hospital bill. Easy Health is Bharti AXAs health plan.SWOT analysis of Bharti AXAStrengthsUse of brand affinity of Airtel to promote insurance sales.Bharti brought its strong local market knowledge, reputation and India.Associated with AXA world leader in financial protection and wealth management, ranked No 13 in the Fortune 500 list of global companies and has enabled the company to have access to AXAs global life insurance and asset management expertise.Strong partner Bharti - provides access to customer base of more than 20 million

WeaknessLate entrant in the insurance sectorThin distribution network all over the nation Very less number of product offering in comparison to its competitorsLack of confidence among the customers as parent company does not have a financial background.

Opportunities Strong growth of unit linked market at the mass affluent end.Potentially with 20% insurance cross sale only to new telecom customers, this network can yield 48 lakh policies per year with sum assured of nearly Rs 58000 cores.

ThreatsMany more companies are lining up to enter into Indian Insurance Industry.Consumers preference is still more towards public sector insurance companies.

Research methodologyStatement of the problem:.As the insurance sector expected to grow around 15-20% in next 10 years it is important for a customer to understand the basis steps to buy an insurance policy. It is also going to help companies to understand that how can they convince there customers to buy an insurance policies.The project has been undertaken with the aim to analyse insurance firm and how to calculate your need analysis.Objective of the study: To make people aware about thesteps they should consider before buying insurance policies. To know about various analytical tools that can value an insurance policy. To find whether need analysis is compulsory before buying an insurance police.SCOPE OF THE STUDY. The scope of the study is limited to only insurance & no other financial instruments were considered .The study will help us to know the perception of customers about insurance policies. The various risks involves in buying an insurance policy and how to tackle it. It will also help us to get a basic knowledge about need analysis calculation and its requirement.Methodology:Primary data: Primary datais theone which iscollected specifically forthe purpose of the project, and can be obtained from various people working in the organization. For this study the primary data was collected from following sources. Questionnaires Discussion with manager.

Secondary data: It refers to the statistical material which is not originated by the investigator himself but obtained from someone else's records, or when Primary data is utilized for any other purpose at some subsequent enquiry it is termed as Secondary data. However, it plays a significant role in the project. For this study the secondary data was collected from the following sources. Books related to risk management and insurance Websites related to risk management and insurance.Limitations The study is limited due to constraint of time and information available Possibility of error in data collection because many of respondent may have not given actual answers of questionnaire. This project only talks about three risk analysis tools there are others tools also which can be used. The study had done only on 100 respondents.

Data analysisRisk and Need analysis As a customer you should always know your value in the market so that you can take a police according to your exact value. Three various approaches are used to determine the amount of life insurance to own:1. Human life value approach2. Needs approach3. Capital retention approach

Human life value approachHLV can be defined as the present value of the familys share of the deceased breadwinners future earnings. It can be calculated by the following steps:1. Estimate the individuals average annual earnings over his or her productive lifetime.2. Deduct federal and state income taxes, social security taxes, life and health insurance premiums and cost of self maintenance.3. Determine the number of years from persons present age to the contemplated age of retirement.4. Using a reasonable discount rate, determine the present value of the familys share of earnings for the period in the previous step.Examples: Assume that Raj, age 25 is married and has two children. He earns Rs25000 annually and plans to retire at age of 65. Of this amount Rs10000 is use for federal and state taxes, life and health insurance and his personal needs. The remaining 15000 is used to support his family. What should be value of insurance if discount rate is 6%?

Solution: Using the give discount rate the present value of Rs1 payable annual for 40 years is Rs15.05 So Raj has a human life value of (15000*15.05)= Rs225750 Needs approach The second method for estimating the amount of life insurance to own is the needs approach. The various family needs that must be met if the family head will die are analysed. The most important family needs are following:- Estate clearance fun Income during the readjustment period Income during the dependency period Life income to the surviving purpose Special needs Retirement needs

By the help of need analysis chart we can know the amount of insurance we need in the following ways-Cash needs

Funeral cost10000

Uninsured medical bills3000

Instalment debts12000

Probate cost3000

Total estate clearance fund28000

Income needs

Readjustment period14400

Dependency period108000

Total income needs122,400

Special needs

Mortgage redemption fund

Emergency Fund

College education fund

Total special need 235000

Total need385400

Checking account and savings10000

Mutual fund and Securities25,000

IRAS PLAN4200

Employer saving plan4500

Private pension death plan10000

Current life insurance50000

Total assets103400

Additional life insurance needed

Total needs 385400

Less total assets103700

Additional life insurance needed281700

The first part of worksheet shows the amount needed to meet various cash needs, income needs and special needs. The second part analyse your present financial assets for meeting these needs and the final part determine the amount of life insurance needed.

Capital retention approachThis method preserves the capital needed to provide income to the family. This methods works in following step: Prepare a personal balance sheet Determine the amount of income producing capital Determine the amount of additional capital needed

Preparing a personal balance sheet: The first step is to prepare a personal balance sheet that lists all assets and liabilities .Example AssetsHouse125000

Automobiles15000

Personal and household property45000

Securities and investment28000

Checking account 2000

Individual and group life insurance200000

Private pension death plan20000

Total435000

LiabilitiesMortgage100000

Auto loan10000

Charge a/c and other bills5000

Total115000

Determining the Amount of income-Producing Capital The next step is to determine the amount of income producing assets that can provide income to the family. This step is performed as follows:

Total assets435000

Less:

Mortgage payoff100000

Auto loan and credit

Credit card15000

Final expenses 10000

Emergency fund10000

Educational fund60000

Non income producing capital185000

Total deduction380000

Capital income now available550000

Determining the amount of capital needed The final step involves a comparison of the income objective with other sources of income such as Social security survivor benefits.ExampleIncome objective for family30000

Less:

Capital now available for income (55000*6%)-33000

Social security survivor benefits-12000

Income shortage147000

Total new capital Required(14700/00.6)245000

So these three analysis tools can be used by the customer to determine the exact value of a life insurance required customer to support their family. It will also help them to decide on which type of polices they should invest according to their requirements.It will also help in determining amount of risk in that policy.

Percentage analysisQUESTION NO. 1)Businessman54

Professional35

Students6

Housewife5

Table no. 4.1

Figure 4.1Interpretation:Out of 100 respondents, maximum respondents belong to business class,followed by professional,then studentsand the minimum respondents are from housewife.

QUESTION NO. 2)Having insurance already

S.NO.ParticularResponse

AYes92

BNo8

Table no. 4.2

Figure 4.2Interpretation:From above chart,we can infer that 92% respondents already have insurance policies, whereas 8 % does not have insurance policies.

QUESTION NO. 3)Awareness of life insurance companies

OptionParticularResponse

aPrint media20

bElectronic media25

cAgents50

dOther5

Table no. 4.3

Figure 4.3

Interpretation:From this chart we can say that majority of respondents are aware of insurance policies through agents, followed by electronic media, then print media.

QUESTION NO. 4)Main purpose to buy insurance policies

OptionParticularResponse

ATax Saving24

BSavings15

CProtection49

DPension10

EInvestment2

Table no. 4.4

Figure 4.4INTERPRETETION:On the basis of above analysis,we can interpret that main reason for buying insurance policies is because of security reasons as 49% of respondent agreed with it.

QUESTION 5)Your preference in buying Insurance policies

OptionParticularResponse

aGoodwill of the company 19

bRange of products 20

cFeatures of the product 50

dServices offered by company 6

eReturns of the bonds5

Table no. 4.5

Figure 4.5INTERPRETETION:The graph shows that 50 out of 100 respondents buy an insurance policy after looking at the features of the product which is followed by 20 respondent who looks at different range of products and 19 looks at good will of companies. So the products with good features have more demand among customers.QUESTION 6)you purchase an insurance police under someone else influence

OptionParticularResponse

aYes63

bNo37

Table no. 4.6

Figure 4.6INTERPRETETION:According to graph out of 100 respondent 63% agreed that they buy insurance due to someone else influence not according to their requirement.

QUESTION 7) Done need analysis before buying an insurance police

OptionParticularResponse

aYes33

bNo67

Table no. 4.7

Figure 4.7INTERPRETETION:According to the graph out of 100 respondent 67 customers do not prefer to do need analysis before buying insurance policies. It shows that customer do not look at their needs before buying an insurance policies

QUESTION NO. 8)Insurance plan you prefer to buys

OptionParticularResponse

aProtection plan 57

bInvestment plans9

cPension plan 10

dchildren plan 24

Table no. 4.8

Figure 4.8INTERPRETETION:On the basis of above analysis we can say that customers are more interested in protection plan and children plan only. It shows that customers do not think insurance as an investment opportunity.

QUESTION NO. 9)Expectations from life insurance companies

OptionParticularResponse

aInnovative Products 5

bAttractive Riders 2

cReasonable Premium 47

dBetter Customer Service 24

eHigh Risk Coverage 22

Table no. 4.9

Figure 4.9INERPRETETION:The graph shows out of 100 respondent 47 expect reasonable premium from insurance companies. So it shows that people prefer to buy insurance policies when the premium is low.

Question No. 10)satisfied with previous insurance plan you bought

Done need analysis

OptionParticularResponse

ayes19

bno12

ccan't say2

Table no. 4.10(a)

Not did need analysis

OptionParticularResponse

ayes20

bno44

ccan't say3

Interpretation:According to graph 20 out of 67 respondents who not did need analysis are not satisfied with their insurance plan which is 27% and 19 out of 31 respondents who did need analysis are satisfied with their insurance plan which is 61%. It shows that more percentage of people will satisfied with their police if they will do need analysis.

FindingsThe findings drawn during the project are as follows: In occupation group most of the customers werebusiness man and second most customers were self-employed and least was associated with government services. Awareness about life insurance companies were mostly done by agents. Out of 100 respondent 49% of buy an insurance policy for security purpose and 24% to save tax. Only 33% of customers do need analysis before buying an insurance policy. Most of the customers looked for a reasonable premium before buying an insurance policy. Most of the customers purchase insurance policy under the influence of someone else. Customers who do need analysis before buying an insurance policy were most satisfied with their products. Most of the respondent like to buy a protection plan polices which was followed by child plan. Knowledge about different tools that can be used to calculate need analysis.

SUGGESTIONS Customers should be made more aware of need analysis as there is low awareness level among them. Insurance companies should take more effort in spreading awareness about need analysis calculation. Insurance companies should also give training to their advisors to explain about need analysis calculation to customer properly as customer how do need analysis are more satisfied with their policies. Insurance companies should have a reasonable premium rate as most of the customers prefer so.

CONCLUSION

Insurance sector in India is growing at a very high rate and it is expected to grow more in future. This study had made an attempt to understand to understand the various risk involves in investing in insurance an how to manage those risk. I observed that most of the people buy an insurance police under someones influence and not according to their requirement. Also there is a very low awareness about need analysis calculation. Many people do not pay their premium as they did not purchase their policies according to their requirement. Customer satisfaction plays a very important role in increasing the market share of the company and it is very hard to get. So insurance companies should sell their insurance policies according to needs of customers in this way they can easily acquire customers loyalty.

NAME --------------------------------------------------------------------------- AGE ----------- Nationality ----------------------- Income --------------- Contact number --------------------------------Address----------------------------------------------------------------------------- Q1) Occupation a) Businessman [ ] b) Professional [ ] c) Students [ ] d) House wife [ ] Q.2) Do u have Insurance? a)Yes[ ] b) No[ ]Q.3) Awareness of Life Insurance Companies:- a)Print media[ ] b)Electronic media [ ]

c) Agents [ ] d) Others [ ]Q.4) what is the main purpose to buy insurance policies? a) Tax [ ] b) Saving [ ] c) Protection [ ] d) Pension [ ] e) Investment [ ]

Q.5)whatdo you look in an insurance policy before buying it?a) Goodwill of the company [ ] b) Range of products [ ] c) Features of the product [ ] d) Services offered by company [ ] f) Returns of the bonds[ ]

Q.6) Do you purchase an insurance police under someone else influence?

a) yes [ ]b) No[ ]

Q.7) I prefer to do need analysis before buying an insurance police:-a) Yes[ ]b) No [ ]Q.8)WhichInsurance plan you prefer to buys?a) Protection plan [ ]b) Investment plans [ ] c) Pension plan [ ] d) children plan [ ]

Q.9) what do you expect from life insurance companies?a) Innovative Products [ ] b) Attractive Riders [ ] c) Reasonable Premium [ ]d) Better Customer service [ ] e) High Risk Coverage [ ] Q.10) Are you satisfied with previous insurance plan you bought ? A) Customer who do need analysis:_a) yes [ ] b) no [ ]

c) cant say [ ]

B) Customer who do not did need analysis:

a) yes [ ] b) no [ ]

c) cant say [ ]

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