Study on Consumer Preference Towards Insurance Services and Bancassurance

49A Study on Customers’ Preference towards Insurance Services and Bancassurance

A Study on Customers’ Preferencetowards Insurance Services

and Bancassurance

Introduction

The business of insurance started with the beginning marine business. Traders, who used togather in the Lloyd’s coffee house in London, agreed to share the losses to their goods whilebeing carried by ships. The losses used to occur because of pirates who robbed on the highseas or because of bad weather spoiling the goods or sinking the ship. The first insurance policywas issued in 1583 in England. In India, insurance began in 1870 with life insurance beingtransacted by an English company, the European and the Albert. The first Indian insurancecompany was the Bombay Mutual Assurance Society Ltd., formed in 1870. This was followedby the Oriental Life Assurance Co. in 1874, the Bharat in 1896 and the Empire of India in 1897.

Later, the Hindustan Cooperative was formed in Calcutta, the United India in Madras, theBombay Life in Bombay, the National in Calcutta, the New India in Bombay, and the Jupiter inBombay and the Lakshmi in New Delhi. These were all Indian companies, started as a result ofthe swadeshi movement in the early 1900s. By the year 1956, when the life insurance businesswas nationalized and the Life Insurance Corporation of India (LIC) was formed onSeptember 1, 1956, there were 170 companies and 75 provident fund societies transacting lifeinsurance business in India. After the amendments to the relevant laws in 1999, the LIC did not

Rajkumari M *

Bancassurance is a channel of distribution of insurance products through banks.A number of insurers have already tied up with banks and some banks have alreadyflagged off bancassurance through soft launches of select risk products. Bancassurancehas been gaining momentum in the Indian market. This study is carried out tounderstand the position of private players when compared to public, and also to findthe most preferred policies with these leading companies. It also aims to analyze thesegment wise preference among different age groups. The study has been undertakenin order to identify the customers’ attitude towards purchase of insurance productsand also their knowledge on the bancassurance formats available through banks.The study concludes that there is a low level of awareness about bancassuranceamong bank customers and thereby gives suggestions to improve insurance penetrationlevels.

© 2007 The Icfai University Press. All Rights Reserved.

* Faculty Trainee, Department of MBA, St. Peters Engineering College, Chennai, India.E-mail: [email protected]

The Icfai Journal of Risk & Insurance, Vol. IV, No. 4, 200750

have the exclusive privilege of doing life insurance business in India. By March 31, 2002, 11new insurers had been registered and had begun to transact life insurance business in India.

Insurance FormatIn India, insurance business is classified primarily as life and non-life or general. Life insuranceincludes all risks related to the lives of human beings and general insurance covers the rest.General insurance has three classifications viz., Fire (dealing with all fire related risks), Marine(dealing with all transport related risks and ships) and Miscellaneous (dealing with all others likeliability, fidelity, motor, crop, personal accident, etc). Personal accident and sickness insurance,which are related to human beings, is classified as ‘non-life’ in India, but is classified as ‘life’,in many other countries. What is ‘non-life’ in India is termed ‘Property and Casualty’ in someother countries.

Bancassurance

Bancassurance, the much talked about channel of insurance distribution through banks thatoriginated in France and which has been a success story in Europe is yet to take off here. Anumber of insurers have already tied up with banks and some banks have already flagged offbancassurance through soft launches of select risk products. While reams have been writtenabout the numerous benefits of bancassurance considering the wide scale availability of riskproducts it will enable, rules and regulations regarding the same are yet to fall in place.

For banks, bancassurance is a new concept for building better and secured relationship, tosustain themselves in this present competitive world. Enter bancassurance and fee-basedincome for a risk free product that would be guaranteed.

While, on the one hand it is an economical proposition to sell risk products through thenumerous bank branches spread across the country the fact that claim settlement disputes takesome time in our country is one of the causes for worry. In such a situation will banks be ina position to fight for the cause of their clients is a major concern.

Besides all these controversies, bancassurance is gaining momentum in the Indianmarket. Insurance companies are increasingly using the banking network to improve theirdistribution system.

Objectives of the Study

• To find the customer’s preference towards Insurance services and bancassurance.

• To understand the awareness level on insurance among various segments and alsoto find the major policies preferred by people both in life and non-life.

• To find the awareness level on bancassurance provided through Centurion Bank ofPunjab.

• To find the benefits that customers get through Insurance savings.

• To find the client satisfaction among the clients of Centurion Bank’s bancassurance.

• To understand the various policies sold under non-life in Centurion Bank and thefuture trends towards bancassurance.


Statement of the Problem

The key attributes for any business to succeed depends on the customers satisfaction towardsthe company. The aim of marketing is through understanding the changing customer attitudeand their varying preferences for buying an Insurance plan. The company should be costeffective to give the best solution to the client to suit his/her position.

In Insurance field private players need to do lot of work in order to attract the people,whereas public sector companies in insurance do not face these problems mainly as publicsectors are directly controlled by the government rather than a foreign company which tie-upwith an Indian company for selling life guards. When it comes to the question of security ittakes hard to convince our people as still private sectors are considered only as a work placewhich is not assured like a government job.

This study is carried to understand the position of private players when compared to public,and also to find the most preferred policies with these leading companies. It also is to definethe problem based on the future of bancassurance which shows a growth rate of 64% accordingto this study which powers a good welcome entry in India. This study is also to analyze thesegment wise preference among different age groups.

Scope of the Study

The study has been undertaken by the researcher in order to identify the customer’s attitudetowards purchase of insurance products and also their knowledge on the bancassuranceformats available through banks. The study is also based on the awareness of the variouspolicies available through insurance, both life and non-life (general insurance).

This study is also focused on understanding the bancassurance awareness in one view, i.e.,with respect to Centurion Bank of Punjab in Chennai.

Methodology

The present study is a descriptive work based on a survey method. Based on the segment wiseconcentration, a structured questionnaire has been framed for interviewing as a tool forresearch.

A separate questionnaire was framed to concentrate the clients of Centurion Bank’sbancassurance. The collected data has been analyzed using a statistical test for finalinterpretations.

Sampling Design

The report is confined to understand the Insurance benefits to customers through differentinsurance companies for both life and non-life. It also helps to focus, based on differentsegments namely:

• Professionals – Segment 1

• Government Employees – Segment 2

• Business People – Segment 3

• Others – Segment 4 (Retail shop owners, students, etc.)


The secondary objective was based on targeting the bancassurance clients of CenturionBank through random sampling method.

Measurement of Variables and Frame Work of Analysis

• The key objective is to study the customers’ preference towards Insurance services in lifeand non-life and also to find the awareness on the bancassurance among people.

• For doing this study, percentage analysis has been used to understand the variouspreferences and cross analysis is done to analyze the factors influencing the other factors.

• Bar diagrams and Pie charts has been done to give a pictorial representation of the overallanalysis.

Research

Basic Awareness on Policies

• The common life policy that was known by the majority of the people, among the other

policies specially the money back and pension plan is much familiar with the government

employess and business people (Figure 1).

• The awareness of the child benefit policy is very low; people need more awareness in this

area.

In the general Insurance, the most commonly known policies are the motor insurance asit is mandatory that every vehicle owner should have taken the motor insurance (Figure 2).

• Apart from this, the other policies better known are the house plans, health insurance, andother insurance policies (travel insurance, oversees insurance, etc., Table 1).

• In non-life, the analysis shows that majority of them are aware on motor insurance and onan average, level of knowledge on other plans like house insurance and health insuranceis also better with government employees, IT professionals and few business people.

Figure 1: Life Insurance Awareness

908070

605040

3020

100

Policy

Perc

enta

ge

86%

45%56% 52%

Life Child Pension Money Back


Percentage of Insured People

• The analysis says that the percentage of people, who have taken either Life policy orGeneral policy, is low when compared to the percentage of people who are aware aboutInsurance plans.

• Though most people are aware on insurance, many are still hesitant to take insurancefor various reasons including social beliefs and myths (Figure 3).

• The analysis as an overall basis from all the 4 segments has showed that still some peoplehave not taken insurance for both life and non life.

• In the IT segment, most professionals concentrated in this survey were between the agegroup of 18-25 who have still not taken insurance due to less interest in taking policiesand also less awareness on the right policy to suit their career.

• But in the business segment, almost all the people have taken insurance specially moneyback is famous among them and in non-life, health insurance is much taken by them asthese people were mainly between the age group of 25-35 and 35-45.

Figure 2: Non-life Insurance Awareness

Table 1: Preference ofNon-life Insurance Products

Policies Preferred Percentage

by Customer’s Analyzed

Motor 40

Health Insurance 14

House Insurance 8

Others 4

Motor Health House

80

70

60

50

40

30

20

10

0

Perc

enta

ge

Policy

76

52 56

10

Others

Figure 3: Percentage of Insurance Coverage in Study Group

Yes

No

Level ofVariation

0% 50% 100%

84%

16%


Preferred Policies by Customers

• The key benefits that customer’s get through

availing Insurance plans were rated on a

five point scale and the top reason was

found to be Income tax reduction that they

get for paying premium towards these

policies under section 10(A), 10(D) and 80C

(Table 2). The next rating was for the

protection especially family protection and

for self protection. In this protection category, health insurance, child benefit, money back

plan, etc... are some of the policies that topped for family protection (Figure 4). Savings were

rated with a lesser percentage as insurance is not much considered for savings when Bank

options are there for savings. Only in case of few plans like pension plan which comes under

this category for retirement benefits. Some other factors also were rated with a less

percentage for certain rider benefits that people get through availing insurance plans like

accident benefits, house protection, etc.

Table 2: Benefits Availablefor Insurance Schemes

Factors Percentage Rating

Income Tax Deduction 68

Returns 34

Protection 56

Savings 52

Others 6

80

60

40

20

0

Figure 4: Commonly Preferred Policies in Life Insurance

Perc

enta

ge

Child Benefit OthersPension Money Back

Policy

Life

106

62

6

24

Awareness on Bancassurance

Bancassurance still being in nascent stage, has low awareness in our country. The data ofawareness on bancassurance and Centurion bancassurance is given in Figure 5 and Table 3


Factors Media Friends Tele Callers Marketing Executives Others

Media 14% – – – –

Friends – 26% – – –

Banks – – 50% – –

Others – – – 4% 6%

Figure 5: Data on Awareness of Bancassurance

Awareness on Bancassurance Awareness of Centurion Bancassurance

Table 3: Data on Awareness on Centurion Bank’s Bancassurance

Sources of Awareness on Centurion Bank’s Bancassurance

Figure 6: Top Preferred in Non-life Insurance Policies

Yes No0

1 02 0

3 0

4 0

5 0

6 07 0

8 0

9 010 0

60

40

20

0Motor

InsuranceHealth

InsuranceHouse

Insurance

Perc

enta

ge

22

78

Yes 64%No 36%

Perc

enta

ge

Top Preferred Policies in Centurion Bancassurance

• The analysis taken from the client data base shows that most of the policies taken through

ICICI Lombard is mainly health insurance and house insurance and motor insurance has a

very low purchase in ICICI as the vehicle dealer itself mostly arranges for motor insurance

with tie-ups with insurance companies specially as Bajaj Alliance which is one of the leading

motor insurers for most of the vehicles during the sale of a new vehicle. Health insurance

has gained a lot of exposure through the various mediclaim policies available through ICICI

due to the massive change in modern life style and food habits (Figure 6).


• House insurance is still to reach the top mainly as people are not much aware on the houseinsurance plans and also due to certain social beliefs.

Cross Analysis: Description

This cross analysis is done for a comparison with the different segments of professions, i.e., IT

professionals, government employees, etc… compared with the age group were the policies are

much in demand. The insurance preferences among the various age group people are

understood through this cross analysis (Table 4).

• In case of the IT sector most of the insured are between 18-25 and 25-35. And even among

business group this is the apt age for insurance as most people venture into business mostly

in age group of 25-35. For professionals this age is best suited as they come to a settlement

in their career and hence at this point they start investing in insurance policies. While

considering the government employees, they invest mostly from the age group of 35-55 and

above 55 especially as at this stage they decide on their retirement benefits and apart from

this the other savings are also concentrated.

Future Plans towards Life Insurance: Description

This interpretation is done to find out the percentage of clients willing to insure with Aviva Life

Insurance Company through Centurion’s bancassurance tie-up with Aviva (Figure 7).

Table 4: Segment Wise Cross Analysis

Profession Age Group

18-25 (%) 25-35 (%) 35-55 (%) Above 55 (%)

IT Professionals 65 30 5 –

Government Employees 2 28 68 2

Business People 4 75 21 –

Others – 20 50 30

Figure 7: Future Preference towards Life Insurance

Yes 66%No 34%


Statistical Test

The statistical test is applied to prove the bancassurance clients mostly do not have any previousrelation with the bank through any savings or loans. This test also shows that most of the clientshave come to know about bancassurance through the main source of tele callers. The test isdone through a combination of 3 different variables, namely: (1) Clients of bancassurancehaving previous accounts with the bank; (2) Fresh Clients of bancassurance having no previousrelation with the bank; and (3) Clients Source of awareness for availing bancassurance throughCenturion bank.

Statistical Test – Chi-square Test.

Hypothesis Setting

H0: There is a low relation of the bancassurance clients with centurion’s bank accounts.

H1: There is a relation between the bancassurance clients with centurion bank.

Savings in Bank withBancassurance/Only

Media/Friends MarketingTele Callers Total

Bancassuranceand Relatives Executives

Observed Value

Yes 5 5 6 16 (C1)

No 11 8 15 34 (C2)

Total 16 (T1) 13 (T2) 21 (T3) 50

Expected Value

Yes 5.12 4.16 6.72 16

No 10.88 8.84 14.28 34

Total 16 13 21 50

Table 5: Observed Values of Clients

Final Analysis

S.No. O E O-E (O-E)^2 (O-E)^2/E

1. 5 5.12 –0.12 0.0144 0.0028

2. 5 4.16 0.84 0.7056 0.1696

3. 6 6.72 –0.72 0.5184 0.0771

4. 11 10.88 0.12 0.0144 0.0013

5. 8 8.84 0.84 0.7056 0.0798

6. 15 14.28 0.72 0.5184 0.0360

Total 0.3660

Note: The table value of for 2 degree of freedom at 5% level is 5.991.


Result

• “Calculated value 0.366 is less than table value”.

• Thus, H0 is accepted.

• The analysis shows that there is a very less relation of the bancassurance clients with

centurion bank accounts like any savings, loans, etc.

Findings

• Insurance awareness is growing rapidly among the people though few are hesitant to insure

due to certain barriers. The interest level of the people in terms of getting insured is very

important and this importance must be made to realize through the upcoming insurance

companies.

• The life plan is the basic policy that any individual takes when reminded of insurance. The

other policies like child benefit plans, pension plans and other rider benefits have still not

reached the awareness. The future of a child in case of any mishap to the parents or

guardian forms a big question to the child’s future and hence every parent should avail this

policy to protect their child.

• The retirement benefits are mostly considered by the government employees only. Other

professionals should also have their savings towards pension plans.

• In Non-life Insurance, motor is the main insurance that is still in effect as it is mandatory

that vehicles should be insured. Apart from this mediclaim insurance and house insurance

is gaining their position.

• Mediclaim policy has not been welcomed yet as most of the employees in public sectors,

central government employees and few private company staff get medical reimbursement

for any hospitalization and out patient treatment. As they get the money back through

reimbursement’s they do not go separately for health plans.

• House Insurance has recently got its attraction through the easy loan availability for

constructing a house. But still house loans under repayment availed through banks are

exempted under income tax, and people do not opt house insurance. But still it attracts

people for any claim regarding house burglary, fire or any safety factor. Nowadays tax saver

house plans for constructions and remodeling have been brought by ICICI.

• The major reason for people availing insurance is to avoid income tax and towards future

savings. The government also has taken measure to provide tax exemption for various life

policies:


• Under Section 10(10D), any sum received under a Life Insurance policy is also exempted

from taxation. But it is wise to remember that Pensions received from Annuity plans are not

exempted from Income Tax.

• Section 80 CCC provides a deduction of up to Rs.10,000/- to an individual assessee for any

amount paid or deposited to effect or keeping in force any annuity plan of LIC for receiving

pension from the fund referred in sections 10 (23AAB). Presently LIC’s Jeevan Suraksha plan

is one such plan using such benefit.

• Bancassurance, the new term in insurance distribution has not been penetrated as most

people are not aware on this concept. The people who knew on bancassurance did not have

an idea on Centurion bank providing this facility.

• The bank officials do not have any relation with the customer after the policy is issued and

the cheque is drawn. After this procedure it is the insurer who is responsible for all the claim

settlement and enquires.

Conclusion

Insurance is a term related to assurance as the insured is repaid for the loss incurred in termsof economical returns for both life and non-life. People avail insurance mainly due to thefollowing reasons:

• Insurance creates financial provisions for the deceased’s dependents.

• Insurance provides for the policyholder’s old age benefits after his earning powerdiminishes. After all, interest rates may fall and Invested holdings may lose value and stopgaining dividends, but the value of an insurance policy once set, never reduces.

• Insurance also provides a legally authorized way to reduce the incidence of Income Tax.

Thus, all the above reasons state that insurance is for future returns and towards protectionof family and self. Hence, safety is the key factor which should be assured to public to penetratethe private insurers.

Bancassurance, regarding centurion’s bancassurance, more exposure has to be broughtthrough media and other sources.

• Online ads on bancassurance can bring a wide coverage in cost effective way.

• Banks should try to have contacts with the bancassurance clients at regular basis to builda good long standing relation. This will also be helpful to attract the clients towards openingof credit accounts with the bank.

As long it is not mandatory to seek insurance with few exceptions, it is in the hands of theinsurers to bring confidence and commitment towards Insurance services for a better

tomorrow.


Bibliography

Books

1. Beri G C (2000), Marketing Research, Tata McGraw-Hill Publishing Co. Ltd.

2. Practice of General Insurance -IC -11 - Insurance Institute of India.

Magazine

1. Escolife Newsletter.

Websites

1. www.centurionbop.co.in

2. www.licindia.com

3. www.insuremagic.com

4. www.icicilombard.com

Reference # 45J-2007-10-04-01

Study on Consumer Preference Towards Insurance Services and Bancassurance

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