Assessing Business Environment

of
Bajaj Allianz General Insurance Company

GROUP 4
SECTION C
Aaron Lopes 2010121
Ambesh Agni 2010125
Apoorv Jain 2010128
Eshita Batta 2010136
Shashi Bhushan 2010167
Sneha Hingorani 2010170
Email- [email protected]
Mobile No. - +919545458505
 ABSTRACT

The General Insurance sector has witnessed a growth in personal/retail line products on the back
of increasing income levels and changing life styles. The report contains the study of business
environment of Bajaj Allianz General Insurance Company and the distribution channels that the
insurance industry as a whole uses to get its business. It also contains information about the
internal and the external environment factors affecting the company.

Quantitative analysis is done to evaluate the effectiveness of various distribution channels in the
industry. It also incorporates a comparative analysis of the expenses of top 5 companies in the
General Insurance Industry pertaining to the motor insurance segment which gives an idea about
the general practices that the company follows.

We would sincerely like to thank Prof. Nandi and Prof. Joy who guided us through the course of
this project.
CONTENTS
INTRODUCTION...........................................................................................................................4

1.1 INSURANCE INDUSTRY IN INDIA.............................................................................4

Insurance Sector Reforms........................................................................................................4

Market capitalization...............................................................................................................6

Size of the industry..................................................................................................................6

Total contribution to the economy/ sales.................................................................................7

1.2 General Insurance Industry....................................................................................................8

2.1 Company’s History...........................................................................................................9

2.2 Internal environment.......................................................................................................10

Values....................................................................................................................................10

Underwriting Philosophy.......................................................................................................10

Claims Philosophy.................................................................................................................11

Vision.....................................................................................................................................11

Mission..................................................................................................................................11

Recognition............................................................................................................................11

Human Resources at Bajaj Allianz........................................................................................12

Expenses Analysis of some General Insurance Companies in 2009-2010............................13

Company Image and Brand Equity........................................................................................14

2.3 External Environment.....................................................................................................15

 Major Competitors:................................................................................................................15

Growth Drivers and Opportunities................................................................................................18

3.1 Threats.............................................................................................................................19

3.2 Challenges.......................................................................................................................19

3.3 PEST Analysis................................................................................................................20

Political..................................................................................................................................20

Economical............................................................................................................................20

Social.....................................................................................................................................21

Technological........................................................................................................................21

3.4 Latest developments........................................................................................................21

Distribution Analysis.....................................................................................................................23

Distribution Modes....................................................................................................................23

Regression Model for predicting revenue from distribution channels......................................24

Summary and Findings..............................................................................................................31

5.1 The Road Ahead..............................................................................................................31

5.2 Limitations......................................................................................................................32

EXHIBITS.....................................................................................................................................33
INTRODUCTION

1.1 INSURANCE INDUSTRY IN INDIA

History of General Insurance can be traced back to the 17th century to the Industrial Revolution
in the west and the consequent growth of sea-faring trade and commerce in the 17th century. The
General Insurance has its roots in the year 1850 in Calcutta from the establishment of Triton
Insurance Company Ltd., by British. The Indian Mercantile Insurance Ltd was set up in the year
1907. As this was the first company to transact all classes of general insurance business. In the
year 1957 General Insurance Council, a wing of the Insurance Association of India was
established.

With the emergence of growing demand for insurance, more and more insurance companies are
now emerging in the Indian Insurance Industry. With the opening up of the economy, there are
several international leaders in the insurance sector that of India are trying to venture into the
India insurance industry.

Insurance Sector Reforms

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.
Malhotra was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector.

In 1994, the committee submitted the report and some of the key recommendations included:

Structure
1. Government stake in the insurance Companies to be brought down to 50%.

2. Government should take over the holdings of GLC and its subsidiaries so that these
subsidiaries can act as independent corporations.

3. All the insurance companies should be given greater freedom to operate.

Competition
1. Private Companies with a minimum paid up capital of Rs. 1 billion should be allowed to enter
the industry.

2. No Company should deal in both Life and General Insurance through a single entity.

3. Foreign companies may be allowed to enter the industry in collaboration with the domestic
companies.

4. Postal General Insurance should be allowed to operate in the rural market.

5. Only one State Level General Insurance Company should be allowed to operate in each state.

Regulatory Body
1. The Insurance Act should be changed.

2. An Insurance Regulatory body should be set up.

3. Controller of Insurance (Currently a part from the Finance Ministry) should be made
independent.

The goals of IRDA are to safeguard the interests of insurance policyholders, as well as to initiate
different policy measures to help sustain growth in the industry. This Authority has notified 27
Regulations on various issues like Registration of Insurers, Regulation on insurance agents, Re-
insurance, Solvency Margin, Obligation of Insurers to Rural and Social sector, Investment and
Accounting Procedure, Protection of policy holders' interest, etc.
Indian Insurance Industry is flourishing with several national and international players
competing and growing at rapid rates. The success comes usually from the easing of policy
regulations, and India has become more familiar with different insurance products and the period
from 2010 - 2015 is projected to be the 'Golden Age' for the Indian insurance industry.

Market capitalization
Indian Insurance Industry is a colossal one which is growing at the rate of 15-20%. Today the
Insurance Industry together with banking services add about 7% to the country’s GDP. A well-
developed and evolved insurance industry is a boon for economic development which provides
long- term funds for infrastructure development at the same time strengthening the risk taking
ability of the country.

Size of the industry

According to the Life Insurance Council, the Indian life insurance industry is considered the fifth
largest life insurance market with US$ 41-billion & growing at a rapid pace of 32-34% annually.
In March 2010 the Life Insurance Corporation of India (LIC) registered an 83% increase in new
business income, while private players posted a 47% growth in new business premium.
According to IRDA, the insurers in the year 2009-2010 sold 10.55 million new policies with LIC
selling 8.52 million and private companies 2.03 million policies. In the year March 2010, LIC
held 65% market share in terms of new business income collection with the private sector
contributing the remaining 35% share in 2009-10.

Total contribution to the economy/ sales

Indian Insurance Industry is one of the booming Industries of the economy and is growing at the
rate of 15-20 % per annum. Along with banking services, it contributes to about 7% to the
country's GDP. Insurance is a federal subject in India and is governed by Insurance Act, 1938,
the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act,
1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related
Acts.
1.2 GENERAL INSURANCE INDUSTRY
General Insurance is another segment, which has been growing at a faster pace. But as per the
current comparative statistics, the general insurance premium has been lower than life insurance.
General Insurance premium as a percentage of GDP was a mere 0.5 'per cent in 1996.

In the General Insurance Business, General Insurance Corporation (GIC) and its four subsidiaries
viz, New India Insurance, Oriental Insurance, National Insurance and United India Insurance, are
doing major business.

The General Insurance Industry has been growing at a rate of 19 percent per year. The entry of
several private insurance companies, particularly international insurance companies, through
joint ventures, will speed up the process of insurance mobilization. The competition will unleash
new schemes and benefits, which will give consumers a better Chance to save as well as insure.
The regulatory system in India is relatively new and will take some more time to make the
Insurance sector a perfectly competitive one.

IRDA issued regulations on 15 subjects which included appointed actuary, actuarial report,
insurance agents, solvency margins, reinsurance, registration of Insurers, and obligation of
insurers to rural and social sector, investment and accounting procedure. The reform in Insurance
in India is guided by factors like availability of a variety of products at a competitive price,
improvement in the quality of customer services etc. Also the employment opportunities in the
Insurance sector wil1 increase as major players set their business plans in India. The policy of
the government to open up the financial sector and the Insurance sector is expected to bring
greater FDI inflow into the country. The increase in the investment limit in this vital sector has
generated considerable business interests among the foreign Insurance companies". Their entry
wil1 certainly change the Insurance sector considerably.
 (IRDA)
(Research and Markets) (Casact) (htt) Bajaj Allianz General Insurance
Company Limited or Bajaj Allianz Insurance is a joint venture between two of the most reputed
names in the Indian insurance sector - Bajaj Finserv Limited and Allianz SE. Both of the names
are known for their strength, expertise and stability in the insurance sector. While Bajaj Finserv
Limited holds the 74% of the paid up capital of Rs. 110 crore, Allianz SE holds the remaining
26%. It can be added here that Bajaj Finserv Limited has very recently demerged from Bajaj
Auto Limited. Bajaj Allianz Insurance started its journey on May 2, 2001 when it received the
certificate of Registration from Insurance Regulatory and Development Authority (IRDA) for
conducting General Insurance business in India including Health Insurance. As on the end of
March 2009, the income of Bajaj Allianz Insurance went up to Rs. 2,866 crore with a growth of
11% over the previous year. It also registered a net profit of Rs. 95 crore, highest by any private
insurer, in the last financial year.

2.1 COMPANY’S HISTORY

Allianz AG: Allianz group was founded in 1890 and is one of the world's leading insurance
companies with over 100 years’ experience in insurance and related services. It is also the largest
insurer in Europe. Allianz group has multi-local structure and presence in over 70 countries.

The key business areas of Allianz group include General Insurance (property, engineering,
marine, motor, casualty and miscellaneous), Reinsurance, Risk Management, Life & health
insurance, Asset Management and Pension Funds Management.

Bajaj Auto Ltd.: Bajaj Auto Ltd the flagship company of Bajaj Group was incorporated in 1945
as Bachraj Trading Corporation. Initially it started by assembling two and three wheelers in
collaboration with Piaggio of Italy. After the expiry of the Agreement in 1971 the two and three
wheelers acquired the brand name of Bajaj. The strength of the company lies in its strong brand
image and ability to offer value for money products leveraging on its large-scale operations.

The Joint Venture: Bajaj Allianz General Insurance is a joint venture non-life company promoted
jointly by Bajaj Auto and German insurer- Allianz. Indian auto major holds 74% while Allianz
holds 26% in the Joint Venture, and has an authorized and paid up capital of Rs. ll0 crores. Mr.
Graham Norris is the CEO of the company. Bajaj Allianz General Insurance will leverage the
customer base and expertise of Bajaj Auto Ltd and Allianz.

Offerings: Bajaj Allianz General Insurance Company Ltd. offers a range of insurance products to
its clients.The following insurances are offered by the company:

 Motor Insurance

 Asset Insurance

 Health Insurance
 Travel Insurance
 Corporate Insurance
o Specialty Lines
 Aviation
 Marine Hull Insurance
 Project Insurance
 Sports & Entertainment Insurance
o Group insurance for Employees of various corporate
o Office
o Manufacturing Unit
o Credit Insurance

2.2 INTERNAL ENVIRONMENT

Values
 Business strategy aligned to clients' needs and trends in Indian and global economy /
industry
 Internationally experienced core team, majority with local background
 Fast, decentralized decision making
 Long-term commitment to market and clients
  Trust

Underwriting Philosophy
The Bajaj Allianz underwriting philosophy focuses on:-

 Understanding the customer's needs

 Underwriting what we understand
 Meeting the customer's requirements
 Ensuring optimal coverage at lowest cost

Claims Philosophy
The Bajaj Allianz claims philosophy focuses on:-

 Be flexible and settle fast

 Ensure no claim file to be seen by more than 3 people
 Check processes regularly against the global Allianz OPEX (Operational Excellence)
methodology that has sold over 1 million since inception

Vision
 To be the first choice insurer for customers
 To be the preferred employer for staff in the insurance industry
 To be the number one insurer for creating shareholder value

Mission
As a responsible, customer focused market leader, we will strive to understand the insurance
needs of the consumers and translate it into affordable products that deliver value for money.1

Recognition
1
(Bajaj Allianz)
Bajaj Allianz has received iAAA rating, from ICRA Limited, an associate of Moody's Investors
Service, for Claims Paying ability. This rating indicates highest claims paying ability and a
fundamentally strong position.
Bajaj Allianz General Insurance has received the prestigious "Business Leader in General
Insurance", award by NDTV Profit Business Leadership Awards 2008. The company was one of
the top three finalists for the year 2007 and 2008 in the General Insurance Company of the Year
award by Asia Insurance Review.

Human Resources at Bajaj Allianz

Starting in 2001 with some borrowed furniture from Bajaj Auto the team at Head Office was
working out of one of the halls at GE Plaza. Since then the company has seen phenomenal
growth from 16 employees to its current strength of 3500+ employees. (Oct 2010)2

Features of the HR policies at Bajaj Allianz

1. Freedom and empowerment: Encouraging experimentation and innovation and
empowering people to take responsibilities. This means removing bureaucratic hurdles
and layers of management. In terms of business, this translates to faster decision making
and more accountability from team members for their actions.
2. Open, transparent culture: Open cross-level communication. Everybody knows and
understands the goals we are working towards. Feedback is encouraged through an online
suggestion scheme and a bulletin board where any team member can post their views on
any work related issue.
3. Recognition and reward: Growth is not defined by the years of experience you have.
The measure is Performance. Performance means not just an individual s ability to
deliver on the job but also his / her ability to develop and carry a team with him / her.
Today more than half of the offices are being headed by youngsters below the age of 28.

2
(General Insurance: Bajaj Allianz)
Expenses Analysis of some General Insurance Companies in 2009-2010.
2010 2009

Refer to Exhibit 2
The above graphs show the comparison of expenses made by Bajaj Allianz with other companies
on the percentage of total expenses made by them for employee’s remuneration and benefits,
Information technology and advertisement and publicity in 2009-2010 in the motor insurance
segment. This gives a picture about the internal environment in all the companies.

 Bajaj Allianz and ICICI Lombard spend approximately 4 times the money on Employees’
remuneration & welfare benefits than all the other companies in the motor insurance
segment.
  Also Bajaj Allianz has been very aggressive and has been spending a lot on its business
development and sales promotion to beat its competitors. Both ICICI Lombard and Bajaj
are playing aggressive while Tata Aig has almost reduced its expenses on business
development and sales promotion by almost 50%.
 All the companies have been spending huge amounts on their information systems with
Bajaj Allianz spending the maximum in the year 2010.

Company Image and Brand Equity

Under extremely testing conditions during 2009-10, the Company has sought to focus on
profitability rather than growth by:

 Prudent Underwriting
 Cost control
 Focus on maintaining low combined ratio

The Company has strengthened the policy issuance process through several measures which
related to standardization of processes and strengthening the Centralized Operations Vertical.
The customer and channel partner can receive policy issuance status through SMS. Bajaj Allianz
continues to have a strong image for its claims settlement in terms of approach and response
times. They publish claims statistics in its quarterly newsletter News Track and are pioneers in
providing claims status through SMS.3

With a change in the focus from the product to the service that they’re providing Bajaj Allianz
aims to make a powerful connection with the existing and prospective clientele and all other
stakeholders through a single communication. The new campaign with a tagline of Jiyo Befikar
(live without worries) talks about how one can live a care-free life ) while the earlier campaigns
talked about products and the agent with the focus on being able to provide the policy which is
the best fit to your needs.

3
(Television Point)
2.3 EXTERNAL ENVIRONMENT
Intense Competition: In a de-tariffed environment, competition will manifest itself in prices,
products, underwriting criteria, innovative sales methods and creditworthiness. Insurance
companies will vie with each other to capture market share through better pricing and client
segmentation. The battle has so far been fought in the big urban cities, but in the next few years,
increased competition will drive insurers to rural and semi-urban markets. 4

Major Competitors 5:
ICICI Lombard: A joint venture between ICICI Bank, India's second largest bank and Fairfax
Financial Holdings Limited; a Canada based diversified financial company. Currently the
company has more than 4000 employees working in 357 branches and has issued over 4 million
insurance policies and settled over Rs. 30 Lakh in claims in 2009 alone. 

Reliance: Reliance General Insurance is one of India’s leading private general insurance
companies. The Company has launched innovative products like India’s first Over-The-Counter
health & home insurance policies. Reliance General Insurance has an extended network of over
200 offices spread across 173 cities in 22 states, a wide distribution channel network, 24x7
customer service assistance and a full-fledged website. 

IFFCO Tokio: A joint venture between the Indian Farmers Fertilizer Co-operative (IFFCO) and
Tokio Marine and Nichido Fire Group, IFFCO-TOKIO offers an extensive collection of
customized policies that cater to a wide array of customers, ranging from farmers to even the
automobile manufacturers. IFFCO TOKIO has been the pioneer in underwriting mega policies
for fertilizer as well as automobile company in India. It gets the technical support from Tokio
Marine for reinsurance and underwriting.

HDFC Ergo: HDFC ERGO General Insurance Company Limited is a 74:26 joint venture
between HDFC Limited, India’s premier Housing Finance Institution & ERGO
International AG, the primary insurance entity of Munich Re Group. HDFC ERGO has been
expanding its presence across the country and is today present across 71 cities with 78 branch

4
(IRDA)

5
(Casact)
offices with an employee base of over 950 professionals. The company has a right balance of
distribution channel comprising of Dealerships, Brokers, Retail and Corporate Agents,
Bancassurance and Direct Sales Team.

TATA AIG: Tata AIG Insurance company, one of the leading insurance company offering both
life and general insurance, is a joint initiative of the Tata Group and American International
Group,Inc(AIG). The ratio of stake holding of the respective companies is slated at 76:24. Tata
AIG has over the years has created a name for themselves in the insurance sector of India. The
company provides an extensive range of general insurance products ranging from automobile,
health, accident, property, home, travel to personal offering solutions to individuals as well as
corporates and tries to serve all sections of people. 

RSAICL: Royal Sundaram Alliance Insurance Company Limited is a leading private insurance
company in India. In fact, it is the first Indian private insurer to get license in the post
privatization era in 2001. Provides innovative insurance solutions to its customers, Royal
Sundaram Alliance Insurance Company has also been first in introducing various useful services
like cashless hospitalization, co-branded credit cards, segment specific business solutions and
industry specific proposition etc. (Bajaj Allianz)

Chola: A joint venture between Japan's Mitsui Sumitomo Insurance Group and Murugappa
Group, Cholamandalam MS General Insurance Company offers a host of customized services in
all segments of the society. 

The Murugappa Group, a conglomerate of US$ 2.4 billion have its headquarters in Chennai, with
interest in the field of engineering, abrasives, sanitaryware, fertilizers, finance, bio-products and
plantations has 29 companies under its umbrella. Mitsui Sumitomo Insurance Group is one of the
biggest insurance groups in the globe, operating in the non-life insurance, life insurance,
financial services and risk management services space.

Future Generali: Future Group is one of India’s leading business houses with multiple
businesses spanning across the country. Retail is the main business activity of Future Group.
Generali Group was established in Trieste on December 26, 1831. It is an international group
working in more than 40 countries with insurance companies, financial companies and real estate
sectors. After doing business in Central Eastern Europe, Generali Group has started to develop
business in the principal markets of the Far East, including China and India. 

Bharti Axa: Bharti has a joint venture - Bharti AXA Life Insurance Co. Ltd. - with AXA, world
leader in financial protection and wealth management. Bharti Enterprises is one of India’s
leading business groups with interests in telecom, agri business, financial services and retail.
Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its
credit. Bharti Airtel Limited, a group company, is one of India’s leading private sector providers
of telecommunications services with an aggregate of over 80 million customers as of end of June
2008. AXA Group is a worldwide leader in Financial Protection. AXA's operations are diverse
geographically, with major operations in Europe, North America and the Asia/Pacific area.6

Market Share of General Insurance Companies 2009-2010 (htt)7

6
(Research and Markets)

7
(IBEF)
GROWTH DRIVERS AND OPPORTUNITIES
 There is a high demand for insurance products due to a growing middle class, increasing
working population, rising household savings and increasing purchasing power.

 Penetration levels set to increase.

 The increasing literacy rate, especially in rural India, has spread awareness about the
need for insurance.
 Between 2006 and 2026, the working population (25–60 years) is expected to increase
from 675.8 million to 795.5 million giving rise to a favorable market for insurance
companies.
 Projected per capita GDP is expected to increase from US$ 380.8 in 2000–2001 to US$
2,097.5 in 2026, reflecting higher disposable income.
 Favorable government and regulatory initiatives are expected to increase the contribution
of the insurance industry to the overall economic development of the country.
 Fast progressing medical technology and increasing demand for better healthcare has
resulted in rising demand for health insurance. Regulatory initiatives to promote health
insurance include:
 IRDA has set up a separate department for health insurance.
 It has recommended that the government brings down capital requirements for
standalone health insurance companies to US$ 10.42 million from US$ 20.83 million.
  The government is set to raise budgetary support of US$ 28.33 billion for the health
sector during the Eleventh Plan.
 International players and life insurers have entered this segment.
 Launch of innovative products
 The non-life insurance sector has witnessed personal/retail line products pick up on
the back of increasing income levels and changing life styles.
 Emergence of new distribution channels, such as bancassurance, brokers and e-channels,
has increased outreach.
 Rise in sale of passenger cars, fuelling demand for auto insurance
 Between 2002–03 and 2008–09, the number of passenger cars has increased at a
CAGR of 14 per cent. This trend is likely to continue due to strong growth in the auto
segment resulting from an increase in consumer income levels. Between 2005–06 and
2008–09, the auto insurance premium has increased at a CAGR of 21.4 per cent.

3.1 THREATS
No of Private players is constantly increasing eating up into the market of Bajaj Allianz.
Presence of very strong competitors is also going to impact severely. Capital requirements across
the sector are likely to increase due to:

 Higher sum assured driving sum at risk

 Greater allocation to policyholders’ assets due to lower charges
 Back loading resulting in high new business strain, and expense overruns due to low
productivity of newly set distribution network will likely increase in FDI from 26 percent
to 49 percent there is a chance of new entrants into the market.

3.2 CHALLENGES
 Threat of New Entrants: The insurance industry has been budding with new entrants
every other day. Therefore the companies should carve out niche areas such that the
threat of new entrants might not be a hindrance. There is also a chance that the big
players might squeeze the small new entrants.
  Power of Suppliers: Those who are supplying the capital are not that big a threat. For
instance, if someone as a very talented insurance underwriter is presently working for a
small insurance company, there exists a chance that any big player willing to enter the
insurance industry might entice that person off.
 Power of Buyers: No individual is a big threat to the insurance industry and big
corporate houses have a lot more negotiating capability with the insurance companies.
Big corporate clients like airlines and pharmaceutical companies pay millions of dollars
every year in premiums.
 Availability of Substitutes: There exist a lot of substitutes in the insurance industry.
Majorly, the large insurance companies provide similar kinds of services – be it auto,
home, commercial, health or life insurance.

3.3 PEST ANALYSIS

Political
 IRDA and the Securities and Exchange Board of India (SEBI) are in the process of
finalising their directives and provide detailed guidelines for M&A. The Insurance Laws
(Amendment) Bill, 2008, proposes to provide for the increase in shareholdings by a
foreign company from the current limit of 26 per cent to 49 per cent.
 IRDA is drafting norms for mandatory disclosure of insurers’ financial statements,
investment portfolios at regular intervals, financial and operating ratios, actual solvency
margin, policy-lapse ratio, current financial position, risk management architecture, etc.
 Setting up of data warehouses to monitor settlement of insurance claims will also be
made compulsory.

Economical
 In the non-life insurance segment, share of the private sector in total premiums increased
from 9.5 per cent in 2002–03 to 40.9 per cent in 2009–2010.
 There is a younger consumer segment with very high disposable income which is still
untapped by the insurance companies.
Social
 Low insurance literacy and awareness, high transaction costs, limited regulations and
narrow understanding of client needs and expectations have restricted demand for micro-
insurance products.
 Increasing insurance business has increased the demand for highly skilled professionals
as well as semi-skilled and unskilled people. Due to this more and more people are
getting involved in the insurance business.
 Favorable demographics, fast progression of medical technology and increasing demand
for better healthcare have facilitated a high growth in health insurance.

Technological
 Different features of general Insurance like online buying of insurance, renewing of
insurance, settlement of claims online, free pick up of cars, early settlements, case
settlements via SMS etc. have only been due to the technological advancements and have
made insurance an easy commodity. ERP systems and other information technology have
made life easier for the insurance company and have also helped them in being more
efficient.

3.4 LATEST DEVELOPMENTS

 In November 2009 According to the industry body report publication, the medical
insurance sector would account for US$ 3 billion in the next three years.
 In the year 2008-09 the IRDA in its annual report said that the Health insurance premium
collections touched US$ 1.45 billion compared with US$ 1.13 billion in the previous
year.
 Further in 2009 the total premium between April and December was US$ 1.35 billion, up
from US$ 1.12 billion, an increase of 20 %, as per figures released by the regulator.
 According to IRDA guidance note released by IRDA, the regulator has increased the
lock-in period for all unit-linked insurance plans (ULIPS) to five years from the current
three years, which makes them long-term financial instruments and provide risk
 protection. The commission and expenses have also been reduced by evenly distributing
them throughout the lock-in period.
 In the year 2010-2011 The Indian insurance unit of Dutch financial services firm ING
plans to invest US$ 51 million to fund expansion in the country. 100 branches will be
opened by Private life insurer Future General India will expand its distribution network in
addition to its existing network of 91 branches during 2010. There will also be increase in
the agency force by 21,000 to 65,000 people.

In next five year Max Groups to invest a further US$ 134.9 Million by Max Buda, the health
insurance JV between UK's Buda.
DISTRIBUTION ANALYSIS

DISTRIBUTION MODES
 Most new entrants are targeting the Indian middle class segment estimate at over 250
million persons.
 High focus on direct selling-the preferred route is the agency network. The agency
channel constitutes 90-95% of the market.
 Alliance with banks: Insurance is using branch network s to sell insurance products. This
enable insurance to leverage on low distribution costs by using existing network. Insurers
are also targeting bank employees as per prospective customers and agent to market
products.
 Non-bank alliances: These are tie ups with non-governmental organizations (NGOs)
mainly to tap the rural market. This would be enable insurers to ensure IRDA compliance
with respect to rural coverage.
 Retail financial service distribution: This involves the tie ups with NBFCs to act as
corporate agent, and also enable insurers to cross sell with other financial services.

With the entry of private insurers, the market is already seeing a wide array of products. Insurers
today are not merely looking at offering the basic life insurance solution, but offering products
with a combination of benefits (riders) which could be bundled / customized to suit an
individual’s need. Insurance is also being promoted as a sound long-terms investment option.

In terms of returns insurance products today offer a competitive 7-9 percent. Besides return when
really increases the appeal of insurance is the benefit of life protection from insurance products
along with health cover benefits. The tax benefits are also attractive.

While the plain individual insurance (whole life, term etc.) will remain popular, sale of new
products such as single premium, unit-linked, retirement products, money back and annuity are
set to rise. With Parliament passing the Insurance Amendment Bill, non-profit products are likely
to become increasingly prevalent.
REGRESSION MODEL FOR PREDICTING REVENUE FROM DISTRIBUTION CHANNELS
We ran a regression for the total revenue earned and the contribution of each distribution
network employed by each company, four distribution channels turned out to be most significant
contributors in terms of revenue generated: brokers, individual agents, direct business and
corporate agents. Then further regression was employed to find the most significant contributors
amongst the four and the results were:

The regression equation is

total = 2689 + 1.19 Individual Agents + 0.225 Corporate Agents + 4.87 Brokers
+ 0.178 Direct Business

Predictor Coef SE Coef T P

Constant 2689 2235 1.20 0.283
Individual Agents 1.1854 0.3867 3.07 0.028
Corporate Agents 0.2253 0.4380 0.51 0.629
Brokers 4.867 2.436 2.00 0.102
Direct Business 0.1785 0.3148 0.57 0.595

S = 3558.36 R-Sq = 95.6% R-Sq(adj) = 92.0%

Analysis of Variance

Source DF SS MS F P
Regression 4 1364122181 341030545 26.93 0.001
Residual Error 5 63309636 12661927
Total 9 1427431817

Source DF Seq SS
Individual Agents 1 1090772337
Corporate Agents 1 73989481
Brokers 1 195291541
Direct Business 1 4068822
Unusual Observations

Individual
Obs Agents total Fit SE Fit Residual St Resid
8 297 14064 8427 2281 5637 2.06R

R denotes an observation with a large standardized residual.

Scatter Plot:

It was thus found that none of the variables were contributing significantly except Individual
agents. It was also found that observation point 8 was an outlier. Hence, a fresh regression was
done after removing the outlier.

The regression equation is

Total = 1251 + 1.46 Individual Agents + 0.714 Corporate Agents + 2.41 Brokers
+ 0.583 Direct Business

Predictor Coef SE Coef T P

Constant 1251 1007 1.24 0.282
Individual Agents 1.4645 0.1763 8.31 0.001
Corporate Agents 0.7142 0.2142 3.33 0.029
Brokers 2.408 1.167 2.06 0.108
Direct Business 0.5825 0.1595 3.65 0.022

S = 1530.82 R-Sq = 99.3% R-Sq(adj) = 98.7%

Analysis of Variance

Source DF SS MS F P
Regression 4 1390511584 347627896 148.34 0.000
Residual Error 4 9373650 2343412
Total 8 1399885234

Source DF Seq SS
Individual Agents 1 1079443977
Corporate Agents 1 84904250
Brokers 1 194902894
Direct Business 1 31260463

Scatter plot:

It was now found that all the variables were contributing significantly, except brokers. Hence a
final regression was done without brokers as one of the variables.

The regression equation is

total = 1930 + 1.70 Individual Agents + 1.08 Corporate Agents
+ 0.856 Direct Business

Predictor Coef SE Coef T P

Constant 1930 1223 1.58 0.175
Individual Agents 1.7029 0.1711 9.95 0.000
Corporate Agents 1.0773 0.1570 6.86 0.001
Direct Business 0.8556 0.1145 7.47 0.001

S = 1967.52 R-Sq = 98.6% R-Sq(adj) = 97.8%

Analysis of Variance

Source DF SS MS F P
Regression 3 1380529470 460176490 118.87 0.000
Residual Error 5 19355764 3871153
Total 8 1399885234

Source DF Seq SS
Individual Agents 1 1079443977
Corporate Agents 1 84904250
Direct Business 1 216181243

Scatter plot:

Thus a model was obtained which contributed significantly towards predicting the total revenues
obtained by a company if we know the premium that these four distribution channels are offering
and the number of policies that each of them would sell.

We ran a regression for the total number of policies sold and the distribution network employed
by each company, four distribution channels turned out to be most significant contributors in
terms of the number of policies sold: brokers, individual agents, direct business and corporate
agents. Then further regression was employed to find the most significant contributors amongst
the four and the results were:

The regression equation is:

Total = 19168 + 0.882 Individual Agents + 0.834 Corporate Agents + 3.25 Brokers +
0.801 Direct Business
Predictor Coef SE Coef T P
Constant 19168 33822 0.57 0.595
Individual Agents 0.8820 0.1524 5.79 0.002
Corporate Agents 0.8340 0.2256 3.70 0.014
Brokers 3.249 2.545 1.28 0.258
Direct Business 0.8007 0.2102 3.81 0.013

S = 54652.2 R-Sq = 98.6% R-Sq(adj) = 97.6%

Analysis of Variance
Source DF SS MS F P
Regression 4 1.08837E+12 2.72093E+11 91.10 0.000
Residual Error 5 14934316298 2986863260
Total 9 1.10331E+12

Source DF Seq SS
Individual Agents 1 6.54944E+11
Corporate Agents 1 2.69351E+11
Brokers 1 1.20738E+11
Direct Business 1 43336733096

Unusual Observations
Individual
Obs Agents Total Fit SE Fit Residual St Resid
8 4779 169741 76541 33067 93200 2.14R
R denotes an observation with a large standardized residual.

Durbin-Watson statistic = 2.30653

Scatter Plot:

Since ‘brokers’ was not very significant, we ran the regression without considering it. The results
obtained are:

The regression equation is

Total = 44114 + 1.03 Individual Agents + 1.09 Corporate Agents + 1.00 Direct Business

Predictor Coef SE Coef T P

Constant 44114 29016 1.52 0.179
Individual Agents 1.0324 0.1016 10.16 0.000
Corporate Agents 1.0902 0.1084 10.06 0.000
Direct Business 1.0037 0.1445 6.95 0.000

S = 57447.3 R-Sq = 98.2% R-Sq(adj) = 97.3%

Analysis of Variance
Source DF SS MS F P
Regression 3 1.08350E+12 3.61168E+11 109.44 0.000
Residual Error 6 19801162708 3300193785
Total 9 1.10331E+12

Source DF Seq SS
Individual Agents 1 6.54944E+11
Corporate Agents 1 2.69351E+11
Direct Business 1 1.59208E+11

Unusual Observations
Individual
Obs Agents Total Fit SE Fit Residual St Resid
8 4779 169741 52664 28662 117077 2.35R

R denotes an observation with a large standardized residual.

Durbin-Watson statistic = 2.63852

Scatter Plot:

The R square value decreased slightly, but now all the variables are highly significant and
contribute well towards the model. But we still run the regression once again without the outlier
and see if the R square value or significance of the variables changes positively or not.

The regression equation is

Total = 4835 + 1.06 Individual Agents + 1.15 Corporate Agents
+ 1.12 Direct Business

Predictor Coef SE Coef T P

Constant 4835 10265 0.47 0.657
Individual Agents 1.05548 0.03129 33.73 0.000
Corporate Agents 1.14769 0.03406 33.70 0.000
Direct Business 1.11957 0.04681 23.92 0.000

S = 17613.0 R-Sq = 99.9% R-Sq(adj) = 99.8%

Analysis of Variance

Source DF SS MS F P
Regression 3 1.03841E+12 3.46135E+11 1115.79 0.000
Residual Error 5 1551081158 310216232
Total 8 1.03996E+12

Source DF Seq SS
Individual Agents 1 5.98659E+11
Corporate Agents 1 2.62289E+11
Direct Business 1 1.77457E+11

The regression equation hence obtained is more significant and would be highly effective in
predicting the total number of policies that the company may expect to sell in one quarter.
SUMMARY AND FINDINGS
The report gives an overview of the insurance industry in India and focuses on the Internal and
the external business environment affecting Bajaj Allianz. It contains a comparative analysis of
the Expenses done by various companies in the segment on employees, advertisement and
publicity and also the effectiveness of the various distribution channels used in the industry.

The report also discusses the various growth drivers and opportunities in the insurance sector.

The analysis shows that Bajaj Allianz is one of the most aggressive companies when it comes to
advertising and publicity and spends almost 10% of its total expenditure for publicity. It also
invests highly in IT and has increased its expenses almost 50% in 2010 as compared to 2009. As
far as employees are concerned Bajaj Allianz spends almost 4 times the money on employee
remuneration and benefits. It spends almost 50% of its total expenses on its employees.

The distribution network has really evolved over the years with alternative channels such
bancassurance, direct selling agents, brokers, online distribution, corporate agents getting lot of
encouragement. Overall in the industry Independent agents, corporate agents and direct business
are the distribution channels that get almost 85-90 % of the business but other channels like
banks, referrals etc. are also coming up and will be contributing much more in the years to come.

5.1 THE ROAD AHEAD

The general insurance industry in India is going through a sea change after introduction of
Discounts in Motor OD and De-tariffing of Property Insurance. The premium rates have reduced
drastically while the cost of repairing/replacement has gone up considerably leading to high
incurred claim ratios.

With more and more private players coming into the industry it would be difficult for some
companies to hold their position in the market. Thus Bajaj Allianz should have a customer
focused approach and should be play aggressive as it has been till now to be one of the best
Insurance companies.
5.2 LIMITATIONS
1. The scope of study was limited as the General Insurance industry was privatized only in
2000 with most of the major players coming in 2002-2003. So we only had access to
annual reports of last 7-8 years only.
2. We were able to get only the distribution data for 1st quarter 2011; therefore the
regression analysis to evaluate the effectiveness of distribution channels was not very
significant.
 EXHIBITS
EXHIBIT 1: Distribution channels used for motor insurance 2010.

Comparisons based on Policies sold

Motor (Motor OD + TP)

2010-11 Q1 Channelwise Number of Policies

States ICICI Lombard Bajaj Allianz Reliance IFFCO Tokio HDFC Ergo TATA AIG RSA Chola Future Generali Bharti Axa Total Percentage
Individual Agents 114,813 332,434 42,132 614,119 37,307 55,059 13,971 4,779 1,257 16,853 1,232,724 30.2%
Corporate Agents 592,646 73,679 10 105,488 751 62,642 119,257 763 - - 955,236 23.4%
Banks - 40,090 - - 29,538 10,614 - 58,909 - - 139,151 3.4%
Others - - - 19 - - - 11,754 - - 11,773 0.3%
Brokers 67,156 56,068 37,445 49,630 12,363 12,131 12,791 15,484 8,843 20,074 291,985 7.1%
Referral Arrangements 44,614 - 663 8,677 - - - 75,278 - - 129,232 3.2%
Direct Business 72,814 448,877 301,572 76,538 45,218 164,596 36,173 2,774 109,555 66,951 1,325,068 32.4%
Total 892,043 951,148 381,822 854,471 125,177 305,042 182,192 169,741 119,655 103,878 4,085,169 100.0%

Comparison based on Premiums

2010-11 Q1 Channelwise Premium Rs. LAKHS

States ICICI Lombard Bajaj Allianz Reliance IFFCO Tokio HDFC Ergo TATA AIG RSA Chola Future Generali Bharti Axa Total Percentage
Individual Agents 7,351 11,735 2,063 12,078 1,259 1,962 1,280 297 60 1,449 39,535 20.8%
Corporate Agents 14,595 4,253 1 4,737 55 1,265 9,248 55 - - 34,209 18.0%
Banks - 2,071 - - 3,095 465 - 5,521 - - 11,152 5.9%
Others - - - 8,866 - - - 756 - - 9,622 5.1%
Brokers 4,222 3,832 2,984 2,467 907 604 1,626 1,096 678 1,593 20,009 10.5%
Referral Arrangements 4,615 - 20 198 - - - 6,115 - - 10,949 5.7%
Direct Business 4,165 19,245 17,899 1,878 3,060 2,858 3,995 224 6,437 5,196 64,955 34.1%
Total 34,949 41,137 22,967 30,224 8,376 7,155 16,147 14,064 7,175 8,238 190,431 100.0%
EXHIBIT 2: Expenses Incurred related to motor insurance 2009-2010

Bajaj Allianz 2010 Ratio 2010 2009 Ratio 2009 % Change

Commission Paid - Direct- TOTAL (Rs. in ‘000s)

Agents 587,333 44% 742,794 48.28% -21
Brokers 262,516 20% 344,078 22.36% -24
Corporate Agency 487,376 36% 451,676 29.36% 8
Referral - -
Total 1,337,225 1,538,548 -13

RELATED TO MOTOR INSURANCE

Operating Expenses related to insurance business (Rs. in ‘000s)
Employees’ remuneration & welfare benefits 1,130,386 54% 1,269,032 54.15% -11
Travel, conveyance and vehicle running expenses 72,455 3.45% 77,866 3.32% -7
Training expenses 2,826 0.13% 7,737 0.33% -63
Rents, rates & taxes 144,598 6.88% 164,838 7.03% -12
Repairs & maintenance 14,168 0.67% 16,370 0.70% -13
Printing & stationery 55,855 2.66% 59,111 2.52% -6
Information Technology 94,080 4.48% 79,434 3.39% 18
Communication 84,653 4.03% 107,879 4.60% -22
Legal & professional charges 33,905 1.61% 45,150 1.93% -25

Advertisement and publicity 214,063 10.18% 242,601 10.35% -12

Interest & Bank charges 14,042 0.67% 15,748 0.67% -11
Others
(a) Miscellaneous expenses 136,414 6.49% 145,652 6.21% -6
(b) Business & Sales Promotion 104,474 4.97% 112,297 4.79% -7
2,101,919 2,343,715

IFFCO TOKIO 2010 Ratio 2010 2009 Ratio 2009 % Change

RELATED TO MOTOR INSURANCE (Rs. in ‘000s)

Commission Paid - Direct
Agents 279263 63.25% 254817 63.98% 10
Brokers 51475 11.66% 73498 18.46% -30
Corporate Agency 106846 24.20% 67404 16.93% 59
Referral 3947 0.89% 2531 0.64% 56
Total 441531 398250 11

Operating Expenses related to insurance business (Rs. in ‘000s)

Employees’ remuneration & welfare benefits 235217 19.77% 216839 19.22% 8
Travel, conveyance and vehicle running expenses 50120 4.21% 49949 4.43% 0
Training expenses 3490 0.29% 8774 0.78% -60
Rents, rates & taxes 69437 5.84% 62852 5.57% 10
Repairs & maintenance 33346 2.80% 26502 2.35% 26
Printing & stationery 25116 2.11% 27982 2.48% -10
Information Technology 32178 2.70% 26561 2.35% 21
Communication 30274 2.54% 28912 2.56% 5
Legal & professional charges 591858 49.75% 547798 48.56% 8

Advertisement and publicity 57217 4.81% 64099 5.68% -11

Interest & Bank charges 15470 1.30% 10974 0.97% 41
Others
(a) Miscellaneous expenses 45922 3.86% 56850 5.04% -19
1189645 1128092
TATA AIG 2010 Ratio 2010 2009 Ratio 2009 % Change
RELATED TO MOTOR INSURANCE
Commission Paid - Direct (Rs. in ‘000s)
Agents 67,563 60.34% 54,096 42.56% 25
Brokers 14,231 12.71% 13,698 10.78% 4
Corporate Agency 30,182 26.95% 59,326 46.67% -49
Referral - -
Total 111,976 127,120 -12

Operating Expenses related to insurance business (Rs. in ‘000s)

Employees’ remuneration & welfare benefits 252,530 31.08% 251,743 22.33% 0
Travel, conveyance and vehicle running expenses 8,818 1.09% 10,665 0.95% -17
Training expenses 2,027 0.25% 6,038 0.54% -66
Rents, rates & taxes 130,523 16.06% 147,965 13.12% -12
Repairs & maintenance 6,873 0.85% 6,860 0.61% 0
Printing & stationery 9,510 1.17% 11,694 1.04% -19
Information Technology 30,242 3.72% 32,828 2.91% -8
Communication 25,141 3.09% 31,217 2.77% -19
Legal & professional charges 147,680 18.17% 451,559 40.05% -67

Advertisement and publicity 59,625 7.34% 29,494 2.62% 102

Interest & Bank charges 8,199 1.01% 2,348 0.21% 249
Others
(a) Miscellaneous expenses 8,180 1.01% 4,093 0.36% 100
(b) Direct Telemarketing costs 40,297 4.96% 57,576 5.11% -30
(c) Outsourced Operations costs 43,423 5.34% 61,638 5.47% -30
(d) Business Development Expenses 8,075 0.99% 17,252 1.53% -53
(e) Agent Training 31,502 3.88% 4,467 0.40% 605
812,645 1,127,437

ICICI Lombard 2010 Ratio 2010 2009 Ratio 2009 % Change

Commission Paid - Direct- TOTAL (Rs. in ‘000s)

Agents 371,062 19.62% 451,675 20.20% -18
Brokers 380,666 20.13% 465,762 20.83% -18
Corporate Agency 748,860 39.59% 730,832 32.68% 2
Referral 390,909 20.67% 587,770 26.29% -33
Total 1,891,497 2,236,039 -15

RELATED TO MOTOR INSURANCE

Operating Expenses related to insurance business (Rs. in ‘000s)
Employees’ remuneration & welfare benefits 1,159,705 52.60% 1,410,030 56.38% -18
Travel, conveyance and vehicle running expenses 94,689 4.29% 147,372 5.89% -36
Training expenses 6,886 0.31% 17,440 0.70% -61
Rents, rates & taxes 201,368 9.13% 178,566 7.14% 13
Repairs & maintenance 105,072 4.77% 129,098 5.16% -19
Printing & stationery 29,440 1.34% 53,436 2.14% -45
Communication 163,667 7.42% 193,049 7.72% -15
Legal & professional charges 129,294 5.86% 145,054 5.80% -11

Advertisement and publicity 78,064 3.54% 59,542 2.38% 31

Interest & Bank charges 31,194 1.41% 30,880 1.23% 1
Others
(a) Miscellaneous expenses 143,053 6.49% 66,212 2.65% 116
(b) Business & Sales Promotion 62,488 2.83% 70,375 2.81% -11
2,204,920 2,501,054
HDFC ERGO 2010 Ratio 2010 2009 Ratio 2009 % Change
RELATED TO MOTOR INSURANCE
Commission Paid - Direct (Rs. in ‘000s)
Agents 31,622 6.03% 15,514 8.59% 104
Brokers 226,199 43.10% 138,411 76.63% 63
Corporate Agency 91,661 17.47% 26,692 14.78% 243
Referral 175309 33.41% - -
Total 524,791 180,617 191

Operating Expenses related to insurance business (Rs. in ‘000s)

Employees’ remuneration & welfare benefits 303,988 37.16% 198,052 37.19% 53
Travel, conveyance and vehicle running expenses 26,507 3.24% 15,538 2.92% 71
Training expenses 8,674 1.06% 1,146 0.22% 657
Rents, rates & taxes 115,153 14.08% 95,342 17.90% 21
Repairs & maintenance 12,949 1.58% 16,760 3.15% -23
Printing & stationery 15,093 1.84% 14,230 2.67% 6
Information Technology 24,776 3.03% 38,748 7.28% -36
Communication 20,387 2.49% 11,384 2.14% 79
Legal & professional charges 233,382 28.53% 81,215 15.25% 187

Advertisement and publicity 24,654 3.01% 7,297 1.37% 238

Interest & Bank charges 3,475 0.42% 4,204 0.79% -17
Others
(a) Miscellaneous expenses 29,071 3.55% 48,690 9% -40
818,109 532,606