Impact of Innovation On Private Sector Insurance Industry in India

Impact of Innovation on the Financial Performance Of Private Sector Non-Life Insurance Companies in India
SUBMITTED BY SAI SHEKAR REDDY K (12215)

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF
MASTER OF FINANCIAL MANAGEMENT 2012-2014
DEPARTMENT OF COMMERCE
SRI SATHYA SAI INSTITUTE OF HIGHER LEARNING

(DEEMED TO BE UNIVERSITY)
BRINDAVAN CAMPUS, BANGALORE

DECEMBER, 2013
SRI SATHYA SAI INSTITIUTE OF HIGHER LEARNING

(Established Under Section 3 of the UGC Act 1956) Accredited by NAAC at A grade
DEPARTMENT OF COMMERCE
CERTIFICATE & DECLARATION

This project entitled Impact of Innovation on the Financial Performance of Insurance Companies in India is an original work done by me under the supervision of Dr. N Siva Kumar , Department of Commerce, Sri Sathya Sai Institute of Higher Learning, Brindavan campus, Bangalore in partial
fulfillment of the requirements for the award of the degree of Master of Financial Management of this Institute, and has not formed the basis for the award of any degree, diploma or any other such title by this or any other university or Institute.
Dr. N Siva Kumar (Project Guide)
Sai Shekar Reddy K (Regd. No. 12215)
Head of the Department Place : Brindavan Date: 20-12-2013
I Dedicated This Work To My Beloved Master & Guide, Bhagawan Sri Sathya Sai Baba
Acknowledgements
At the outset, I am deeply indebted to Bhagawan Sri Sathya Sai Baba, our beloved master, and my family for constantly infusing in me the will and inspiration to carry out this project on NPA Management in Banks. Teachers often play multiple roles either by being a friend, a philosopher or a guide. And I must say here that Dr. N Siva Kumar, faculty member of the Department of Commerce, has
wonderfully essayed the role of being a guide, leaving no stone unturned during the entire process. I would be failing in my duty if I do not recognize the help of the College Library and the College Computer Centre. Furthermore, I take this opportunity to express my heartfelt gratitude to the entire set of teachers of the Department of Commerce for their constant support, provision of computer facilities and their invaluable encouragement. The role of my batch mates of the II M.F.M class has been crucial in the due course of completing this project, and I am thankful to them for sharing their ideas, knowledge and feedback. In the end, I am grateful to all my well-wishers who have contributed directly or indirectly towards making this project a reality.
Table of Contents
Contents
1. Introduction and Theoretical Background ................................................................................ 17 1.1 Introduction ......................................................................................................................... 17 1.1.1 The Statement of the Problem...................................................................................... 17 1.1.2 Need and Significance of the Study ............................................................................. 18 1.2 Scope of Study .................................................................................................................... 20 1.3 Definitions........................................................................................................................... 20 1.4 Theoretical Background ...................................................................................................... 21 1.4.1 Types of Innovation ..................................................................................................... 21 1.4.2 Innovation Theories ..................................................................................................... 21 1.4.3 Innovation Styles ......................................................................................................... 23 1.4.3.1 Visioning Style...................................................................................................... 24 1.4.3.2 Exploring Style ..................................................................................................... 25 1.4.3.3 Experimenting Style.............................................................................................. 26 1.4.3.4 Modifying Style .................................................................................................... 28 1.5 Scheme of Chapterisation ................................................................................................... 29 2. Literature Review...................................................................................................................... 35 2.1 Studies on Insurance ........................................................................................................... 35 2.2 Studies on Innovation ......................................................................................................... 37 2.3 Studies on innovation in Insurance ..................................................................................... 39 2.4 Studies on factors promoting Innovation ............................................................................ 42 2.5 Summary of the literature review ....................................................................................... 43 3. Data Collection and Methodology ............................................................................................ 49 3.1 Nature of the Study ............................................................................................................. 49 3.2 Objectives of the Study ....................................................................................................... 49 3.3 Hypothesis........................................................................................................................... 49 3.4 Sampling Procedure ............................................................................................................ 50 3.4.1 Sample of the Study ......................................................................................................... 50
Table of Contents
3.5 Data Sources ....................................................................................................................... 51 3.6 Data Analysis Techniques................................................................................................... 52 3.6.1 Quantum of Innovation ................................................................................................ 52 3.6.2 Statistical Analysis ....................................................................................................... 57 3.7 Limitations .......................................................................................................................... 58 4. Data Analysis and Interpretation .............................................................................................. 63 4.1 Qualitative Analysis ............................................................................................................ 63 4.1.1 Product Innovation ....................................................................................................... 63 4.1.2 Services Innovation ...................................................................................................... 67 4.1.3 Process Innovation ....................................................................................................... 70 4.1.4 Business Model Innovation.......................................................................................... 71 4.2 Quantitative Data Analysis ................................................................................................. 74 4.2.1 Regression Analysis ..................................................................................................... 74 4.2.1.1 Impact of Innovation on Premium ........................................................................ 74 4.2.1.2 Impact of Innovation on Claims ........................................................................... 77 4.2.1.3 Impact of Innovation on Claims Ratio .................................................................. 80 4.2.1.4 Impact of Innovation on Reserve for Unexpired Risk .......................................... 84 4.2.1.5 Impact of Innovation on Profit Before Tax ........................................................... 84 4.2.1.6 Impact of Innovation on Net Profit After Tax ...................................................... 85 4.2.1.7 Impact of Innovation on Commission & Management Expenses ........................ 86 4.2.1.8 Impact of Innovation on Underwriting Profit/Loss .............................................. 86 4.2.1.9 Impact of Innovation on Operating Profit ............................................................. 87 4.2.1.10 Impact of Innovation on Operating Expenses ..................................................... 89 4.2.2 t-test Results ................................................................................................................. 91 4.3 Interpretation of Results ...................................................................................................... 96 5. Conclusions and Recommendations ....................................................................................... 102 5.1 Conclusions ....................................................................................................................... 102 5.2 Implications of the Study .................................................................................................. 102 5.3 Scope for further Study ..................................................................................................... 103 Bibliography ............................................................................................................................... 108 References ................................................................................................................................... 111
Abstract
Insurance industry plays an important role in the development of any economy, more so in an emerging economy. This industry is one of the single largest industry that mobilizes the savings towards infrastructure development in the economy. Therefore, growth in this industry is a necessity. In the past innovation has played an important role in the development of an industry. So too now with the rise of a new millennium innovation is playing an important role in the growth of insurance industry. This study attempts to find the impact of innovation on the financial performance of Indian private sector non-life insurance companies. Study is limited to product innovation, service innovation, process innovation and business model innovation. Result of the study shows that different types of innovation have a significant impact on different financial performance parameters. Therefore, a company must promote that specific innovation type based on the need. Also, a company shouldnt emphasize on immediate results from investments in innovation for these are long-term investments for a company.
Chapter 1 Introduction and Theoretical Background
Introduction and Theoretical Background
1. Introduction and Theoretical Background

1.1 Introduction
1.1.1 The Statement of the Problem
The Indian economy is the tenth largest economy in the world on the basis of nominal GDP, and third largest on the lines of purchasing power parity (PPP). Based on per-capita-income, India is ranked 141st by nominal GDP and 130th by GDP (PPP) in 2012, as per IMF. India still remains the 19th largest exporter and 10th largest importer in the entire world. The economy slowed down to 5% in the year 2012-13 fiscal year in comparison to the previous fiscal years 6.2%. On August 28th, 2013 the Indian rupee touched all time low of 68.8 against the USD. The government introduced control on investments outside India by corporate as well as individuals. India grew at 9% in the year 2010-2011; thus the growth has reduced to half of 9% in just three years. Wile the Government of India expects the growth rate to be anywhere around 6.1%-6.7% for the year 2013-14, while the apex bank of the country, the RBI expects it to be around 5.7%. Macroeconomic imbalance can be corrected through policy steps that are material to stimulate growth. Investments are necessary for the growth of an economy; savings of the economy contribute towards the investments. Insurance companies are a major source for mobilization of savings from middle and lower income groups of the economy. Insurance serves a number of important economic functions that are, to a large extent, distinct from other financial intermediaries. In the recent few years, many lines of research have begun to chart the specific role of insurance in the economic growth process and as well as in the well-being of the poor. Research outcomes have shown that insurance contributes significantly to economic growth by improving investment climate and promoting a more efficient blend of activities than would be undertaken in the nonexistence of risk management instruments. This contribution is increased by the complementary improvement of banking and other financial instruments. Research has shown that non-life insurance contribution towards growth in emerging economies at various levels of development. Impact of innovation on insurance companies Page 17

While life insurance makes a significant contribution to growth mainly in developed countries, because life insurance forms a smaller part of the total insurance market in low or middle income countries. Without insurance, business and trade and commerce will find it hard to face the brunt of major perils like fire, floods, earthquake, loss of key personnel etc. Financial institutions would crumble down if the manufacturing units financed by them are reduced to ashes by any natural disaster. The financial institutions are also covered if the borrowers default on their loans.
1.1.2 Need and Significance of the Study

Many CEOs are under the impression that innovation leads to growth and therefore its very important to a company. Growth takes place only in the absence of misconceptions regarding innovation are cleared. The misconceptions are: Innovation can be delegated. Middle management is an ally of innovation. Innovative people work for money. Innovation is lucky accident. The more open the innovation process, the less disciplined. (Fisher, 2011)
In a very competitive world its necessary to innovate. Today, you may introduce a new product and patent it, but within six months or so some company in some other part of the world may produce something similar to your product. The only way out is to be relentlessly innovative. Companies that challenge what they do, challenge themselves to come out with new products and different ways of doing things, and constantly improve on the things they already do will survive this competition. Examples in this area are Apple and Samsung. They have been very good at innovating (Balasubramanian, 2013). Innovation is important for insurance industry in India because it being one of the largest sources of savings it must improve its contribution. The industry needs to improve its contribution as the government requires these saving of the public for economic development through investment in infrastructure development projects. Innovation is the basis of economic development as such it
Impact of innovation on insurance companies
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is instrumental for any developing country. Study shows that intellectual property protection is not the basis for innovation in these countries (Moldaschl 2010). Liberalization helped open up to investments, development of sectors like aviation, liability and credit; fast growing auto industry; new products in health insurance; growing reach of internet and information technology have contributed to the growth of this industry. While the challenges to the industry are its a price driven competition, delay in introduction of new products, low focus on understanding the customer, lack of skilled resources, costly traditional channels (ICICI Lombard, 2011). Therefore innovation regarding product, process, service and business model are a must for an insurance company. These innovations are likely to increase the premium growth, reduce the speed of claims settlement, and increase convenience to customers. The penetration level in India is as low as 0.6% of GDP, therefore product innovation and business model innovation is the necessity of the hour to improve the penetration levels in India by meeting the needs of the customers from all segments of the society, especially the last mile. Therefore this study has been conducted with the following objectives: 1. To understand the different types of innovation in Indian non-life insurance companies. 2. To study the impact innovation has on the financial performance of Indian non-life insurance companies. The financial performance parameters studied are:o Total premium o Total claims o Claims ratio o Reserve for unexpired risk o Profit before tax o Net profit o Commission and management expenses o Under writing profit /loss o Operating profit o Operating expenses
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1.2 Scope of Study

1. The study is limited to non-life insurance companies in India. 2. The study is carried out for the period 2003-2012. 3. The study is limited to understanding the impact of innovation on the financial performance of insurance companies.
1.3 Definitions
Innovation can be defined aso anything that provides a new perceived benefit to a customer or employee; o conversion of knowledge and ideas into a benefit, which may be for commercial use or for the public good; the benefit may be new or improved products, processes or services; o innovation is the result of -a shock (a major failure) to the system, problematic search, random variability in experimentation, deliberate decision to invest in learning, match between a need and ideas which already exist, formal vehicles for stimulating innovation such as research and development, managerial risk seeking or risk averse behaviour, availability of slack resources, management philosophy and organizational climate, and customer needs (Ijuri and Kuhn, 1988). Product innovation is achieved through either of the followingo Product extension (same base product with slight modifications; identical product in a new segment) o New platform product (net product from which product extensions are possible) o New-to-the-company products and o New-to-the-world (never been done before; no market exists)
Process innovation innovations that change the way a product or service is delivered. Business model innovation This is the sense of innovation in the broader context of companies and markets. Innovations meaning here is to alter the landscape of business.
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Ray Meads says that a patentable solution that changes the basis of business for that specific industry sector is called business model innovation Unexpired risk A reserve account opened at the discretion of the insurer if it believes the amount of funds kept in the unearned premium reserve account is not sufficient to cover the amount of risk perceived. While unearned premium reserve minimums are set by law, an unexpired risk reserve is voluntary (www.businessdictionary.com, 2013).
1.4 Theoretical Background

1.4.1 Types of Innovation
Fig 1: Innovation Types Innovation is spoken of usually in the area of product, service, process and business model. Product innovation refers to launch of new products that are radically new in the market or are incrementally changed from the existing ones. Service innovation refers to the idea of enhancing the relationship between the customer and the company. The process innovation refers to reduction in paper work for the company and easy ways to store and extract data and also the way a service or product is delivered. Business model innovation refers to changes in the way a company conducts its business, example while all other health insurance companies are going in for a TPA model Max Bupa Health Insurance Company is eliminating them (Economic Times, 2010).
1.4.2 Innovation Theories

Joseph Schumpeter (1930), Austrian economist, a pioneer in the field of innovation and innovation management, studied the impact of market innovation on capitalist system. In his Impact of innovation on insurance companies Page 21

book Capitalism, Socialism and Democracy he described a process where the opening up of new markets and the organizational development.illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, destroying the old one and creating a new one. He coined this process creative destruction. On studying this he concluded that the ability of the company to innovate depends on the size of the company. This he believed to be true due to the flexibility of companies smaller in size, but he changed his view years later because these companies have larger resources and more market power. This innovation theory suffers from the lack of empirical evidence. This lack of evidence led academics over the next few decades to explore other variables that could explain what companies would be in a position to innovate and the circumstances under which they would innovate. Therefore, in the late 1970s, the Incremental-Radical dichotomy was one of the first theories of innovation to emerge. Pioneer of the Incremental-Radical innovation dichotomy is unknown, but many authors have expressed the same thing in many different terminology. Abernathy (1978) gave the difference between incremental and radical innovation, while Michel Porter illustrated this concept in the form of continuous and discontinuous technological changes. To differentiate Incremental innovation from Radical innovation two dimensions can be used, namely- internal and external dimension. The internal dimension is based on knowledge and resources available and involved. Incremental innovation builds on existing knowledge and resources within the company, competence-enhancing. While the radical innovation looks for new knowledge and or resources leading to competence-destroying. Therefore, incumbents will be in a comfortable position using the incremental innovation, while new entrants will be in a better position using he radical innovation because they neednt alter their knowledge background. The best example of incremental innovation is Kodak. The company was a market leader in the photography market for many years; the company strengthened its position using the incremental innovation. It was tough to fight the radical innovation to keep it position as the era of technology required a new knowledge, resources and mindset. Another innovation dichotomy is sustaining vs disruptive innovation. This is the central theme of Clayton Christensens work. The term disruptive innovation was coined by Clayton Christensen Impact of innovation on insurance companies Page 22

(1997) in the book The Innovators Dilemma. His study showed that innovations that were radical still reinforced the incumbents position in certain industries. This is contrary to the previous models of innovation. Sustaining innovation most often doesnt result in downfall of established companies because it adds to the performance of the existing products by adding value to the customers. While the disruptive innovation provide what the traditional customers might not want, at least to begin with. Chesbrough (2003) came up with another innovation type called the open innovation. Ideas are generated both in and out of the company, so a new innovation model is required. Open innovation is the use of purposive inflow and outflow of information to accelerate internal innovation, and expand the markets for external use of innovation. The locus of innovation is the firm, as a combiner of ideas, technology and knowledge. Having noted some of the prominent theories of innovation lets have a look at various styles of innovation
1.4.3 Innovation Styles

Each one of us has different ways of expressing our talents, knowledge, values and interests. As humans we all have a colossal ability to be creative and innovative, but we express this potential differently. The individual approach towards innovation and change is a blend of four Innovation Styles namely-visioning, exploring, experimenting, and modifying. Each of the four innovation styles is a different approach towards the process of innovation and change: taking on challenges, reaching breakthroughs, implementing them and making a valid contribution through your work. This is a much broader concept than the creative thinking style that educates "left-brain" and "right-brain" way of thinking. Each individual has an inclination towards one of the four innovation styles but, the seeds of the remaining styles are dormant in every individual. Every innovation style is similar to a language, while one may easily express oneself in one or two styles, one should learn to use all four. Knowing the Styles helps to... Leverage your strengths as individuals and as a team; Generate a more comprehensive as well as creative set of ideas; Page 23

Depersonalize interpersonal conflict and build more synergistic work teams with diverse people; Present your creative ideas and innovations more effectively; Lead better creativity sessions; Manage change more effectively.
Individuals who use the modifying and experimenting styles most prefer to gather facts first then use their intuition to make sense out of the data. Individuals who prefer the visioning and exploring styles have an inclination to use their intuition to build up hypotheses first and then gather facts to support those insights.
1.4.3.1 Visioning Style

Some people like to focus on the end result. They have a vision of what they desire to create. They let their goals be their guide. They provide individuals of the team with direction, inspiration and momentum. They emphasize Visioning. www.creativeadvantage.com People favouring the visioning style trust their instincts and prefer to make choice. They look for solutions that focus on maximizing potential rather than focusing on what has gone on in the past. Driven by their long-term goals and the organization's mission, they solve problems by relying on their vision of the future to guide them. This style is characterized by people who are persistent, determined, hardworking, and visionary. The visioning style supports innovation in the following manner: It provides the "big picture" and long-term direction; It focuses on the vision / goal though the path to get there is uncertain; and By being in touch with what people really want.
Over emphasis on visioning style can hinder innovation in the following manner: By not considering options that may differ from the visionarys goals / focus; Impatience with no change taking place;
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Unrealistic view about the level of change and resistance involved in manifesting their vision. Important questions the visioning style answers are: What is the purpose to be achieved ? What do we wish could happen? What is the right thing to do?
The visioning style may not bring about the required result if the individual is Not having an opportunity to dream; Implementation details; Focusing on the obstacles.
The visioning style's favourite idea killer That idea is too timid; it's not bold enough. Myth: There exist creative people who are early adopters, and less creative people who oppose change. Truth: To create change, you need to engage all of the styles.
1.4.3.2
Exploring
Style
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Some people like to look at unexplored territory. They thrive on the unfamiliar and unpredictable path. They come up with fresh ideas from the thin air. They tend to add a sense of adventure to any project and open up the potential for dramatic breakthroughs. They emphasize Exploring. People favouring the Exploring Style prefer to use their insights to guide them. They question suppositions and often put into practice their ideas despite resistance. They are adventurous, dislike routine, and like to be met head-on. This style supports innovation in the following manner-
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By challenging accepted ways of seeing things and seeking out novel approaches to problems;
By tackling the confused change with their own intestinal fortitude; By being risk-takers, often jumping before they look.
Over emphasis on this style can hinder innovation
By thinking of "blue sky" possibilities and ignoring details; By discounting work that has been done.
This style answers these questions about a problem

What if? Have you thought to start from beginning? Assumptions that are taken for granted?
This style can go wrong because of reasons like
Rejecting ideas because they don't relate to current reality; Rules and structure; Having to finish what they start.
This style's favourite idea killer Idea is too conventional, not out of the box enough. Myth- To come up with breakthrough ideas, you should try to be "original". Truth-Ttrying to be "original" is another way of censoring our ideas. Breakthrough ideas come when we just let all the ideas flow www.creativeadvantage.com.
1.4.3.3 Experimenting Style

Some people like to experiment. Once they agree on a common process or way of thinking, they can troubleshoot anything. They contribute to the team by adding careful testing and getting input from all concerned in order to confirm ideas. They emphasize Experimenting. Impact of innovation on insurance companies Page 26

When people use the Experimenting Style, they emphasize fact finding and information gathering. They seek solutions by applying pre-established processes and trial and error. As problem solvers, they like to collect as many facts and opinions as possible before they make their decision. They are curious, practical, and good team players. This style supports innovation
By providing methods and / or systems to take risks in stages (i.e., with a good research design) even when the outcome / goal is uncertain;
By getting people to collaborate and become involved in the decision making; By developing a process of planning and working together; By leveraging existing technologies or methods in new ways.
Over emphasis on this style can hinder innovation

By getting lost in the details of implementation or being too concerned with the process; By overemphasizing testing over action; By losing perspective on what really matters.
This style answers the following questions about a problem

What are some ways to find some immediate steps to take? How can we get other people's creative input on this? What are the components of this problem?
This style can go haywire because of
Ignoring risks and not paying attention to implementation requirements; Not having a clear goal or purpose; Alternatively, spending a lot of time discussing possible goals.
This style's favourite idea killer That idea is too idealistic; it could never happen. Myth- There is a right way to be creative. Impact of innovation on insurance companies Page 27

Truth- Einstein and Edison were both very creative, with very different styles. Einstein had a preference for exploring and visioning. Edison had a preference for experimenting www.creativeadvantage.com.
1.4.3.4 Modifying Style

Some people feel comfortable moving forward one step at a time; they like to build on what they already know is true and proven. They provide a team with the stability and thoroughness it needs to do a quality job. They emphasize Modifying. People who take a modifying approach to innovation are most comfortable working with facts and making decisions. They like to solve problems. They seek solutions by applying methods that have worked in the past. These people tend to be precise, reliable, efficient, and disciplined. This style supports innovation

By being responsive to immediate needs and maximizing available resources; By helping the short-term motivation of groups by finding practical ways of getting immediate success;
By keeping the change relevant to current needs.
This style can hinder innovation if it is overemphasized

By being too tied to present circumstances and not recognizing far-reaching goals; By missing less obvious opportunities; By verbalizing obstacles and constraints too early in the process, when divergent thinking is needed.
Important questions about a problem that are answered by this style

How can we improve on this? What has been done before? What doesn't work about this?
This style can backfire on the grounds of Impact of innovation on insurance companies Page 28

Changing direction in midstream or pursuing ideas that have not been thought through; Lack of follow-through.
This style's favourite idea killerThat idea is too crazy; it's not worthy of consideration. Myth- Some people are not creative, and they can't be taught to be creative. Truth- Everyone has the capacity for creative ideas. The trick is to distract ourselves from our natural blocks to creative expressionwww.creativeadvantage.com.
1.5 Scheme of Chapterisation

Chapter 1 Introduction: This chapter gives an introduction about the Indian economy and the importance of insurance for the growth of the economy. This chapter also includes the objective, scope, need and significance of the study undertaken and theoretical background. Chapter 2 Literature Review: This chapter includes the review of relevant literature regarding innovation in insurance industry. Chapter 3 Data and Methodology: This chapter explains the methodology of data collection, sources of data collection and methodology of data analysis. Chapter 4 Analysis and Findings: This chapter contains the analysis of the data and also reports the findings. Chapter 5 Summary and Conclusions: This chapter summarizes the study and gives the conclusions of the entire study.
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Chapter 2 LITERATURE REVIEW
Literature Review
2. Literature Review
The importance of this study in relation to innovation has already been stressed in the previous chapter. The review of literature attempted in this chapter has been carried out and presented with the objectives of: a) providing a reasonably self explanatory overview of the previous work done in this area, and b) developing the base for this work. Keeping this in mind, the following sequence has been adopted to present the review of related literature: 1. Studies on Insurance 2. Studies on Innovation 3. Studies on Innovation in Insurance 4. Studies on Factors Promoting Innovation
2.1 Studies on Insurance

Outreville (1990) has determine relationship between financial and economic development and property-liability insurance premium written. In order to prove this hypothesis the propertyliability insurance industry across 55 developing countries was studied. The result showed a positive relationship between GDP per capita and property-liability premia per capita. The result also showed that a percent rise in GDP caused more than a percent rise in demand for insurance products. Second objective was to prove a positive relationship between insurance development (defined as insurance penetration or ratio of Insurance premia to GDP) and financial development (ratio of M2 to GDP). By using penetration as a proxy for insurance development and ratio of M2 to GDP as a proxy for financial development OLS (ordinary least squares) method of regression was conducted and the results yielded a positive to the hypothesis. This further emphasizes that for insurance demand financial development is an important factor. Third objective was to prove that the demand for property-liability insurance premium per capita as a function of GDP per capita. The results state that the elasticity of demand is greater than one and
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Literature Review
there exists a positive relationship between demand for insurance and financial development. Price is statistically insignificant variable. ICICI Lombard (2011) has revealed that India has large young population, a growing economy with projected growth rate for the next three to four years being 9%; currently it has slowed down for various reasons, huge investment in infrastructure and low insurance penetration just about 0.6% of GDP. We did much better than many other countries during the financial crisis. Motor insurance is the largest portfolio (40%) and health insurance (27%) is growing fast behind motor. Coming to the distribution channels individual agents contributed the maximum while the other modes of distribution are still getting popular. Liberalization helped open up to
investments, development of sectors like aviation, liability and credit; fast growing auto industry; new products in health insurance; growing reach of internet and information technology have contributed to the growth of this industry. While the challenges to the industry are its a price driven competition, delay in introduction of new products, low focus on understanding the customer, lack of skilled resources, costly traditional channels. Kramer (1997) suggests that to protect the interest of policyholders the solvency of the insurer should be constantly under check. Every insurer must be evaluated on three rounds-1) verification round involves consistency check & solvency check; 2) assessment round analyses the financial statements thoroughly and 3) evaluation by account manager. The assessment can be done using N.E.W.S (non-life early warning system) which is a combination of traditional statistical tools with artificial intelligence-techniques (neural network and expert system). This model classifies firms based on the insurers degree of risk. This is another innovation. Vishwanath (2003) focuses mainly on demutualization process of insurance companies and identifies the reasons why some mutuals take to organizational structure change. It found that the primary reason for demutualization is the need for capital. By statute mutuals are limited in their capital raising activities while stock firm can raise funds through variety of equity & debt offerings. Property-liability mutuals exhibit lower surplus to asset ratio prior to demutualization, this is eased after the demutualization. Demutualization prevents future financial distress. Li, Moshirian, & Sim, (2003) is the first to study the determinants of intra industry trade (IIT) in insurance services in light of growing significance of trade in financial services. The article Impact of innovation on insurance companies Page 36
Literature Review
analyzes and measures the magnitude of IIT in insurance services for the United States. The empirical results of the determinants of IIT indicate that foreign direct investment in insurance services (FDI) is a significant contributor to the volume of trade in insurance services. These empirical findings confirm the new theoretical trade models that, unlike the traditional trade theory that considered trade and foreign direct investment in insurance services as substitutes, trade and FDI complement each other and hence multinational insurance companies are contributing to an increase in the volume of trade in insurance services. Furthermore, this study shows that trade intensity between the United States and its trading partners leads to product differentiation in insurance services and hence an increase in consumer welfare.
2.2 Studies on Innovation

Kanter (2008) has stated that innovation is a buzz word every few years; it resurfaces as a prime focus of growth strategy. When it does companies make same old mistakes. Kanter tells us how to avoid these errors. Many existing companies fuel growth by discovering new products & services. Yet many companies make the same mistakes which hinder the growth in their effort to innovate. E.g.: some companies invest only in those ideas they think are blockbusters. Result? Small ideas that could have generated big profits get rejected. Other companies err on the side of process strangling innovation by subjecting them to strict performance criteria that the existing business follows. Consequence? Retrofitted versions of old ideas. To avoid such traps Kanter suggests applying lessons from past failures, e.g.: augment potential big bets with promising midrange ideas & incremental innovations; add flexibility to innovation planning, budgeting, & reviews. Some others make structure mistakes- isolating innovators & main stream business managers. The remedy is to create or tighten the human connections between innovators & managers. Another mistake is the skills mistake, shuffling of innovators from team to team & assuming that technical people should lead the team. Solution for this mistake is to select innovation leaders with strong interpersonal skills. Theyll keep the team intact & help embrace collective goals, leverage on anothers strength & share knowledge when innovation is under development. Tubiana () studies that due to the conservative nature of the industry it enjoys innovation and innovation is unnoticed. From the first written insurance in Babylon by King Hammurabis men Impact of innovation on insurance companies Page 37
Literature Review
to the industrys current use of big data to cut cost & improve results. According to Clayton Christensen innovation can be of three types: Empowering innovations move products from costly items available to the few to mass-market items available to many. These expand the market. E.g. L & T general insurance company that came out with an innovative idea which had at its core the objective to become & remain a company that depends on mobile solutions right from day one. Mobile insurance has broken the trade-offs that limited the affordability & distribution of insurance products in many of the developing nations. Sustaining innovations are essentially product replacements, moving from one model to another that may be better, but has a basic similarity. E.g. Insurance Telematics is the integrated use of user- generated source data. Use of telecommunication & analytics support insurance related products & services, this involves collection, transmission, normalization, & analysis of vehicle &/or the driving behavioral data, through interactive cellular or satellite service connections & often with dedicated collection devices, although smart phones & mobile apps are gaining momentum. Efficiency innovations reduce production or distribution costs.
Rose (2009) studied that innovation has been recognized as an important driver of growth; many empirical studies point out that innovation has led to introduction of new products & services with lower prices. Historically, innovation was treated as a residual measure of growth; this article helps to understand growth by measuring innovation. New services & products due to innovation are captured in the GDP & NI and product accounts, but the investment to achieve innovation is not captured. This information is required to improve our understanding of economic growth. This paper discusses two frameworks for measuring innovation: 1) innovation activity can be measured by measuring the intangible assets that are created by & fed back into the innovation process at the firm or organizational level, which can then be scaled up to national level. Intangible assets can be categorized into three types-human capital, intellectual capital, and organizational capital. Framework 2 measures innovation investments, especially the broader investments that set the stage for innovation. Impact of innovation on insurance companies Page 38
Literature Review
Huston, L., & Sakkab, N. (2006) a company must drive top line growth to stay in competition. And innovation is the engine for growth, but relying only on internal innovation i.e. companys own R&D, the engine may sputter. Why? One may ask. Many of the companies R&D productivity are flattening & innovation budgets are on the climb.
2.3 Studies on innovation in Insurance

Merton (2013) has studied that new products & services are created to enable people to do a task better than they previously could do or couldnt-e.g. cashless hospitalization is available by using a health insurance product. But innovations carry risk; riskiness depends on the choice people make in using it. Like investment, innovation also deals with risk & return. Five rules of thumb to be aware of while thinking of innovation & its effect are: To make a judgment on the risk & return a mathematical model is needed Acknowledge the models limits Expect the unexpected Understand the use & the user Check the infrastructure
Moshirian, (1999) analyzes international insurance services. He defines international insurance services in the context of the new definition of trade in financial services. Cross-border trade and foreign direct investment in insurance services are categorized into four distinct groups, based on the movement of providers and receivers of insurance services. The empirical results of a model of the movement of providers in insurance services indicate that insurance premiums and the national income of the host countries contribute to the expansion of multinational insurance companies. Furthermore, bilateral trade, labor costs, economic growth and the cost of capital also contributing to the expansion of international insurance services. In addition, the empirical results indicate that FDI in banking is a complement to the expansion of international insurance services. Accenture insurance survey (2012) the results of this survey indicate that innovation is the key to customer acquisition and retention in the evolving market place. The market place is no more the same way as it was a decade ago; it has become more Impact of innovation on insurance companies competitive, changing customer needs Page 39
Literature Review
And the insurance industry is moving from a push side to pull side industry. Consumers have high expectations on their current insurers, in terms of new products, services, process-ease of procuring policies, easy to understand policies etc. More than half of the consumers surveyed were willing to pay more for customised products, implying a huge demand for personalized products and relevant services. And many insurers have responded to this change. At a time when the industry is at a turning point, its necessary to concentrate on customer driven innovation to achieve differentiation. For instance to attract the Gen Y the companies need to invest huge sums of money in the next Gen distribution channels. The survey has come out with some steps for profitable growth Deep understanding of the customer, An integrated multi-channel capability that meets customers preferences, Effective digital marketing that capitalizes on social media, Retailization learning from the success of innovative retailers, & An efficient underlying infrastructure that enables agility.
Anand (n.d.) Out of the box ideas are either developed internally or externally acquired from the outside environment. Joint venture is one such mode of taking to innovative ideas from the external environment. This is a mode of growth & expansion in the target market by applying Resolve or involve ideology, even though there is a study that suggests 50% of JVs are unsuccessful. The indigenous factors of growth that are currently seen in Indian insurance industry can be attributed to innovative techniques, products, processes introduced & applied by Indian & foreign JV entrants. Bhattad (2013)To reach out to customers & provide them with a consistent & positive experience, the insurers are leveraging on the new & multiple distribution channelsbancassurance, social media, online purchase, mobile, & call centre. These are used to better reach customers & improve operational performance. Moreover, these channels are rapidly gaining momentum with the present generation of youth who are tech savvy. As these channels are gaining momentum & prominence, though less than initial expectations, customers in many markets still consider taking an advice from their agents to buy a life insurance policy. But this is Impact of innovation on insurance companies Page 40
Literature Review
not the case with non-life insurance products. Insures are leveraging on growing technology to reach customers & to incorporate their feedback quickly. Insurers are also focusing on creating an effective & comprehensive distribution channel while simultaneously working to break-down the entire sales process so that components to be automated can be identified. Trends identified across insurance industry: Rise in use of internet among customers to buy insurance products. Rise in use of social media as a distribution channel. Rise in use of SaaS solutions to enable insurance distribution process across multiple channels Rise in use of technological solutions to automate the underwriting process & direct sales. Jtting, J. (2009) for any developing nation affordable health care is a must, but it remains a dream for many of the people. The root cause- cost of health care. In recent past many business models have come up to cater to this problem. Some of them are insurance through microfinance institutions & community-based health insurance (CBHI). In a CBHI scheme, the risk is transferred to a community based organization to cover the health cost. This has reduced the cost of insuring the poor as the adversity in selection is reduced. This has been started by health providers, in addition to mobilizing resources to address health risks. These schemes are important tools for protecting people from falling into poverty as a result of their health expenditure. Deloitte (2011) studied that in the past insurers achieved new business revenue growth through a product driven growth strategy but now the forward thinking insurers are concentrating on leveraging distribution channels. Other areas of growth are cross selling through bancassurance, takaful insurance, and other Islamic financial products, telemarketing, and virtual marketing to sell insurance products. Some alternate channels to increase penetration are worksite marketingmarketing financial products, paid for by the employee, facilitated and endorsed by the employer. Its success depends on the education and training of the agents& brokers, cost & convenience and employers cooperation. Some of the Indian companies that have considered this channel are Tata AIG, HDFC Standard Life, ICICI Lombard, Kotak, and Reliance. This is Impact of innovation on insurance companies Page 41
Literature Review
an opportunity for emerging economies; the ever expanding work force in developing countries is to increase from 54% in 2000 to 91% by 2030, with citizens from china & India accounting for 44%. Micro insurance being the other channel operates through three models: partner-agent model, provider driven model, and community based model. E.g. Bajaj Allianz covers more than 2 million people in the rural India. Village coverage is policy which covers the entire village for an umbrella sum assured for all the inhabitants. Telemarketing is another mode of distribution that is gaining popularity in the developing economies which have high mobile connectionsIndia. With increasing sales of smart phones in the developing countries (BRICs) insurance products can be sold & serviced using these phones. Kiosks are another mode of distribution, through bancassurance insurers can service the needs of HNIs customized products. Setting up of insurance shops on the road side is another distribution channel.
2.4 Studies on factors promoting Innovation

Haak (2013) analysed that for companies to build their competitiveness using their competences its necessary to have a sound corporate R&D centre. These centres provide the companies with breakthrough innovation & help them leverage on their competences. Companies like-IBM, GE, AT&T have wonderful centralized corporate R&D centres. In any business, these centres take up long-term, innovative, radical projects. While decentralized centres are more responsible & accountable, leading to short-term bias & suboptimal use of scarce resources. To manage longterm projects & radical innovation its necessary to have a centralized R&D centre. For an innovation to be successfully implemented there should be integration of R&D with other functions of the organization; otherwise the innovation ideas dont kick-off well. Since innovation is based on invention its not possible for breakthrough or incremental innovation to take place without it. A study states that management, policies, resources & incentives system are key areas for an organization to look after to stimulate innovation. CIFP (2013) The opportunity for Indian insurers to expand on a large scale is through the use of bancassurance, this will prove to be a new medium that give the push to reach new customers as India is the 6th most densely banked nation in the world. The potential for this distribution channel is huge. This has to replace the face to face channel which is huge cost contributor. Align the distribution channels based on the segmentation of customers: HNIs-private wealth Impact of innovation on insurance companies Page 42
Literature Review
managers, registered investment advisors; for affluent-insurance brokers/dealers, independent agents, lawyers and CAs, CFPs; middle market-banks, worksite marketing; mass market-call centers, direct mail, and internet. IT innovation power new solutions for insurance- mobile phone insurance, radio-frequency identification (RFID): its a tracking technology that gives a more accurate method of assessing claims & minimizes risks. GPS & Telematics, Health infomatics: with increasing use of technology in hospitals to store patients information its easier to sell products based on the available info (http://www.cifplearning.com).
2.5 Summary of the literature review

Growth of insurance industry is a must in every economy, more so in a developing economy. Importance of the growth of insurance industry is highlighted by the need for funds to develop infrastructure in the economy. Therefore innovation is necessary in insurance industry, more so in a developing country. The innovation must have a significant impact on the financial performance parameters to justify the need for innovation. This literature above highlights this aspect. The study in the further chapters highlights the impact on the financial performance of the private sector non-life insurance companies in India.
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Chapter 3 DATA COLLECTION & METHODOLOGY
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Data collection and Methodology
3. Data Collection and Methodology

3.1 Nature of the Study
1. The study is quantitative in nature. The current study is an empirical attempt to understand innovation and the impact it has on the financial performance of insurance companies in India. 2. The study is partly qualitative to the extent it describes the different innovations in Indian non-life insurance companies.
3.2 Objectives of the Study

1. To understand the different types of innovation in Indian private sector non-life insurance companies. 2. To study the impact of innovation on the financial performance of Indian private sector non-life insurance companies. The financial performance parameters studied are:o Total premium o Total claims o Claims ratio o Reserve for unexpired risk o Profit before tax o Net profit o Commission and management expenses o Under writing profit /loss o Operating profit o Operating expenses
3.3 Hypothesis
The following hypothesis has been developed for this study: There is no significant relationship between innovation and financial performance in Indian nonlife insurance sector. Impact of innovation on insurance companies Page 49
3.4 Sampling Procedure

The following sampling procedure has been adopted for this study:
3.4.1 Sample of the Study

The study includes all private sector non-life insurance companies in India as on June 1st 2013, registered with Insurance Regulatory and Development Authority (IRDA), India. Therefore the companies studied are: Bajaj Allianz General Insurance Bharti AXA General Insurance Cholamandalam MS General Insurance Future Generali General Insurance HDFC ERGO General Insurance ICICI Lombard General Insurance IFFCO Tokio General Insurance L & T General Insurance Reliance General Insurance Royal Sundaram General Insurance SBI General Insurance Shriram General Insurance Tata AIG General Insurance Universal Sompo General Insurance Apollo Munich health Insurance Max Bupa Health Insurance Religare health Insurance
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Based on past studies (Rose, 2009), the following financial parameters were selected for analysis: o Total premium o Total claims o Claims ratio o Reserve for unexpired risk o Profit before tax o Net profit o Commission and management expenses o Under writing profit /loss o Operating profit o Operating expenses
3.5 Data Sources

Quantitative data was obtained from secondary data sources as follows: 1. Indian insurance statistics, 2011-2012 published by the Insurance Regulatory and Development Authority, India. 2. Official websites of the selected companies. Qualitative data regarding the innovations of private sector non-life insurance companies was obtained from: 3. Economic Times website. 4. Articles and papers published in professional journals. 5. Official websites of the selected companies.
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3.6 Data Analysis Techniques

3.6.1 Quantum of Innovation
Using a content analysis of innovations in private sector non-life insurance companies, the quantum of service, process and business model innovations were identified between 2003 and 2012. The number of product notifications of selected companies with the IRDA was taken as a proxy for product innovation. The innovations data was tabulated as follows: Table 3.1 Quantum of different types of innovations in the selected companies Innovation Type Company Year 2009 2010 Apollo Munich 2011 2012 2013 2003 2004 2005 2006 2007 Bajaj Allianz 2008 2009 2010 2011 2012 Bharti AXA 2009 0 0 0 2 9 36 0 2 0 0 0 0 0 0 0 0 0 0 1 1 1 0 0 0 1 3 1 2 9 36 Product 4 1 3 0 0 0 1 0 0 0 Services 0 0 0 0 1 0 0 0 0 0 Process 0 0 0 0 0 0 0 0 0 0 Model 0 0 2 0 0 0 0 0 0 0 Total 4 1 5 0 1 0 1 0 0 0
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2010 2011 2012 2004 2005 2006 2007 Cholamandalam MS 2008 2009 2010 2011 2012 2008 2009 Future Generali 2010 2011 2012 2004 2005 2006 HDFC ERGO 2007 2008 2009 2010 14 3 0 0 0 3 6 0 0 0 5 8 3 12 10 3 14 4 10 1 5 0 3 8 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 14 3 1 0 0 3 7 0 0 0 5 8 3 13 10 3 14 4 10 1 5 0 3 8
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2011 2012 2003 2004 2005 2006 2007 ICICI Lombard 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 IFFCO Tokio 2008 2009 2010 2011 2012 2011 L&T 2012 7 0 0 1 8 5 6 3 1 3 27 0 0 0 0 0 0 0 0 0 0 0 0 2 0 1 0 0 1 7 6 4 1 3 28 6 3 1 2 12 3 2 3 1 5 1 0 0 0 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1 0 0 1 1 0 0 0 0 0 8 3 2 3 14 3 2 3 1 5 8 8 7 3 4 1 4 1 0 2 2 0 0 1 1 0 0 1 0 0 3 0 0 3 1 0 1 0 10 8 12 7 4 2 8
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2010 Max Bupa Health 2011 2012 2010 Raheja QBE 2011 2012 2003 2004 2005 2006 2007 Reliance General 2008 2009 2010 2011 2012 2003 2004 2005 2006 Royal Sundaram 2007 2008 2009 2010 3 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 1 0 11 3 3 4 0 0 0 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 11 3 3 4 0 0 2 1 2 1 2 5 26 5 7 0 1 0 1 9 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 6 26 5 7 0 1 0 1 9
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2011 2012 2011 SBI General 2012 2009 2010 Shriram 2011 2012 2007 2008 2009 Star Health 2010 2011 2012 2003 2004 2005 2006 2007 Tata AIG 2008 2009 2010 2011 2012 3 0 2 7 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 2 7 6 0 0 5 8 6 0 1 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 8 6 0 1 7 12 3 9 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 3 9 1 2 21 20 4 0 0 0 0 0 0 0 0 0 21 20 4 8 3 19 0 0 0 0 0 0 1 0 0 9 3 19
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2008 2009 Universal Sompo 2010 2011 2012 8 31 4 5 12 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 31 4 5 12
3.6.2 Statistical Analysis

Regression Analysis: Regression analysis was performed using the following generalised format:
Y=+X+
Where Y (dependent variable) = Growth in selected financial performance parameters. X (independent variable) = Magnitude Change in innovation type. and are regression coefficients, and is residual error. The following table shows details of the various regression equations developed for the study.
Independent variable: Magnitude change in innovation type Dependent variable - Growth in Total Premium Fire Premium Marine Premium Miscellaneous Premium Health Premium Total Claims Fire Claims Marine Claims Miscellaneous Claims Impact of innovation on insurance companies Page 57

Health Claims Total Claims Ratio Fire Claims Ratio Marine Claims Ratio Miscellaneous Claims Ratio Health Claims Ratio Reserve For Unexpired Risk Profit Before Tax Net Profit Commission And Management Expenses Underwriting profit/loss Operating Profit Operating Expenses Separate regressions were performed for each of the innovation types. t-test The selected companies were classified into two groups based on their innovation magnitude change as innovation companies and no innovation companies. t-tests were performed to compare the financial performance of each of these groups for the following parameters: Total Premium Total Claims Total Claims Ratio Commission and Management Expenses Net Profit Reserve for Unexpired Risk Total Operating Expenses
Separate t-tests were performed for each of the innovation types.
3.7 Limitations
The study is limited to studying innovation in Indian Non-Life Insurance Companies, including Health Insurance Companies. The study is limited to private insurance companies. The study is limited to product, service, process and business model innovation.
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Chapter 4 DATA ANALYSIS & INTERPRETATION
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Data Analysis and Interpretation
4. Data Analysis and Interpretation

In this chapter the results of data analysis have been presented and interpreted.
4.1 Qualitative Analysis

In this section the various types of innovations implemented by different companies have been described.
4.1.1 Product Innovation

Ten years after privatization, the insurance industry has undergone a significant change. The changes may have gone unobserved year on year, but a closer look at the performance in the year 2001 & 2011, there certainly has been a noteworthy change. The industry has taken a step further on numerous front- in terms of increased penetration-even though this is far behind many of the other developed countries- increased coverage of property/lives, more customer friendly products, a rapid growth in distribution channels, better reach, better competitiveness in the market, this has laid the pathway to innovation in this industry. The most commonly understood form of product innovation is that which introduces or improves a product or service a change in what is offered to end users. There has been a remarkable change in the type of products available over the last one decade. Products that were not available or the customer were least aware of are now available and have become very popular as they offer real value to the customer. Also, earlier the insurance market was more of a sellers market, but with growing financial literacy the Indian insurance market is turning into a buyers market. Some of the example of product innovation are as follows:- In the year 2012, Apollo Munich Health Insurance a standalone health insurance company launched a novel health insurance products which no other insurer in the industry was offering -Optima Restore. This is product with never-before feature and benefits. The product includes cashless hospitalization care, quick settlement of claims; also this product covers the insured for life time. Did any other health Impact of innovation on insurance companies Page 63

insurer ever think of insuring the insured for life time? No, but this company did. Apart from providing financial help on hospitalization, it provides for reinstatement of the basic sum insured if it were to exhaust during the hospital treatment. This is the restore benefit. on availing the insurance amount once it reinstates the sum insured completely without additional charges. For the first claim free year the company gives bonus by way of 50% increase of the basic sum insured, however it increases to 100% of the basic sum insured. With this multiplier benefit that doubles the health cover in just two years, the product is new compared to other health products. Also, this product provides a benefit of no sublimit on the room rent and it takes care of the additional expenses that stand as a peril towards quality medical treatment. In the health insurance industry the insurers have come out with products that include out-patient department expenses, disease management, and wellness offering. The auto industry has moved from providing standard products to products that provide assistance services- such as towing services, replacement vehicles, and emergency support service. Some others have moved on to provide products which offer the customer with the facility of pay-as-you-drive, road side coverage. In the year ending 2003, Tata AIG had come out with a policy to protect accountants from clients claims. General professional indemnity cover, in India until 2003, was available for professionals providing fee-based services, but TATA AIG was the first to bring out a tailormade product that covered the accounting profession. This policy was designed with the assistance of the Bombay Chartered Accountants Society and KM Dastur, insurance brokers. The policy covers claims that are pertaining to professional negligence, wrongful acts committed, or alleged to have committed to have committed in the performance of the professionals duties. It also covers legal expenses incurred in defending such claims; however it will not cover the claims from regulators, but will limit the cover to defending the accountants from their own clients. Unlike other professional indemnity policies which restrict their claim to 25% of the aggregate limit, this product pays 100% of the limit liability. In addition to this it is the duty the policy to defend wording, meaning TATA AIG will handle the entire defence till the lawsuit reaches a logical conclusion. The policy also covers the claims arising out of the fraudulent or dishonest conduct of any of his/her employee for which the insured is held liable, provided the insured is not involved in the act (http://articles.economictimes.indiatimes.com). Impact of innovation on insurance companies Page 64

TATA AIG also came up with another product Green Channel Settlement which makes vehicle accident repairs and claims easier for the insured. It also provides warranty on accident repairs to those customers having TATA AIGs auto insurance. Customers having the TATA AIG auto insurance policy can avail free-pick-up of their vehicle from their doorstep, get repairing facility at any of their 100 company accredited garages (http://articles.economictimes.indiatimes.com). Bajaj Allianz General Insurance launched a new insurance product that covers cancellation or postponement of a wedding due to fire and other perils, in the year 2004-2005. The company was the first in the industry to introduce this unique product. The package covers the monetary loss following the cancellation or postponement of wedding due to fire and allied perils, accident to bride/groom, accident to blood relatives resulting in hospitalization within 7 days prior to the printed/declared wedding date, damage to property, money in safe, burglary and public liability (http://articles.economictimes.indiatimes.com). Also, it launched e-opinion Rider in the year 2005, which covers the expenses of 2nd opinion e-consultation services for serious illness in India. This product- a rider with Personal Accident cover is provided through an association with worldcare Inc.-a pioneer and leader in the development and distribution of global health care services and solutions. Such e-consultation is rendered by three of Americas best academic medical centers, and policy holders can obtain only three expert e-consultations in a year (http://articles.economictimes.indiatimes.com). On Dec 28, 2005, Chola MS launched Jewelers Block to provide comprehensive risk coverage for the gems and jewelry trading industry. The policy provides risk cover for diamond dealers and jewelry manufacturers to meet the specific needs of the trade. Coverage includes all transactions in diamonds, precious stones, jewelry and bullion. It also provides cover for insured gems and jewelry during domestic and international exhibitions. The product offers additional coverage to include boiling and casting operations outside of business hours, while the insurance industry practice does not cover diamonds not stored in safe vaults outside of business hours (http://articles.economictimes.indiatimes.com). Some situations in the society lead to the birth of new products, and thats what the insurance industry is deliberating on to meet the needs of the customers. With the recent protest by Anna Hazare, demanding strict legislation to curb corruption a new opportunity is staring in the face of insurers. Shopkeepers like Mohindar Sagar of Janpath Bhavan market felt the need to be Impact of innovation on insurance companies Page 65

protected against disruptions to sales caused by mass protests. Sales in many of the shops in the Jantar Mantar area fell due to this protest, as hundreds of people crowded in support of Hazare (http://articles.economictimes.indiatimes.com). Religare Health Insurance launched Care with highest cover of up to rs.60 lakhs, in the year 2011-2012. This is the highest sum assured offered on any health insurance product. The idea of launching this product was to suit the customized requirements of every customer segment; and even the choice of availing specialized treatment anywhere in the world. This product gives access to medical treatments outside India for those individuals opting for a sum assured of above rs 50 lakh (http://articles.economictimes.indiatimes.com). ICICI Lombard General Insurance and Broking House ICICI Securities recently launched Secure Mind, meant for the latters mutual fund SIP investors, in the year 2012-2013. This product insures those investing in the mutual fund SIPs through ICICIdirect.com against job loss, accidental death, permanent total disability and nine critical illnesses. Instead of discontinuing or redeeming the fund investments to fund the hospitalization expenses, investors can make a claim under the insurance policy. Buying this cover will help to avoid situations where the investment need not be redeemed to pay the hospitalization expenses. Also, those over 45 need not undergo medical tests in this case. But this product has a down side-like any bundled insurance product, continuation of the cover is linked to the tenure of the investment. The cover ceases to exist once a claim is made or the investment is redeemed, unlike other independent covers. (http://articles.economictimes.indiatimes.com). Oct 22, 2013,Cholamandalam MS launched an insurance product called Chola protect for Trucks, its Indias first packaged complete protection policy for trucks that offer maximum coverage and service to customers. The value-added insurance product also offers complete protection with unique features like 100 per cent depreciation waiver, reinstatement value in case of total loss, monetary compensation for loss of key, driving license, registration certificate, permit, payment for road tax, registration and insurance cost. The company also launched India's first 'Emergency Roadside Service' for trucks in a tie-up with Mapfre Asistencia (http://articles.economictimes.indiatimes.com).
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HDFC ERGO general Insurance, has included some add-ons in its motor insurance portfolio. One among them is the Engine and Gear Box Protector which is beneficial to the customer during the monsoon. This add-on is offered for the consequential damage to the internal child parts of the engine and/or gear box of the insured vehicle, arising out of: water ingression or leakage of lubricating oil and/or damage to the engine and/or gear box of the insured vehicle arising out of leakage of lubricating oil due to accidental means (http://www.pr.com).
4.1.2 Services Innovation

Providing service to the customer before or after sales is important to have a captive customer base. The services provided are different from company to company depending on the industry they are present. For a company that provides tangible products after-sale services take a back seat-meaning the company needs to spend more time on providing the best product, user friendly product, & availability of the product. But when it comes to a service provider, especially a financial service provider, servicing is very important to retain the customer. It becomes important because a financial service provider provides financial security- bank, insurance company, mutual fund Company etc... An insurance company provides services like intimating the customer of annual premium payments, addressing the changes in -addresses, nominations, phone numbers; claims settlement in the least possible time, time taken to procure a policy from the company. In insurance or for that matter in any financial service institution service is of the utmost importance. Services provide have to be newer and there should be continuous improvement & innovation in them. Innovation is a must because through services the company is in constant touch with the customer, this will provide information regarding the customers need points or their distress point that need to be addressed. Therefore, service is a function which has constant interaction with the customer. With evolution in technology and every organization is seamlessly connected to the customer making it easier to interact and respond to their problems or provide reminders about their premium payments or provide platforms to pay from anywhere in the world with evolution in smart phone technology and mobile Apps development. As the years have passed by every insurance company has and is adopting technology for survival in the competitive industry. Impact of innovation on insurance companies Page 67

There are plenty of service innovation that has taken place with the advent and advance of technology. Some of the innovations with regard to services are discussed below. Bajaj Allianz in the year ending 2013 won the Best service company of the year. Unlike all other companies that have centralized claims settlement and management model, this company has come out with a new decentralized claims management model. The result, it has shown the highest efficiency in claims settlement. This has been demonstrated through the total claims settlement ratio as well as average turnaround times for claims settlement. For any claims settlement the customer is expected to come to the local office/branch of the company, this is very tiring or may not be possible for the customer to come to the office to make a claim on the insurer. Therefore, Bharti AXA came up with a solution in the year 2012-claims settlement at home. The insurer has taken the responsibility of ensuring customer satisfaction, by assuring claims settlement on intimation. Future Generali general insurance company with its large chain of malls under the Future group has brought a new concept of mallassurance in 2009. Any mall today has a very large population of people from various backgrounds, age groups that visits for variety of reasons. To capture this population the easiest way was by introducing this concept of mallassurance wherein an insurance policy is bought by the customer in a mall and the formalities to complete the contract are very limited. In 2011,HDFC ERGO came out with cashless claim service at any of their 1600+ authorized network of garages for motor insurance policy holders. Also they have launched a website to purchase policies online with only three clicks of a button. ICICI has always been a leader on technology front is it in banking or insurance industry. o ICICI Lombard embraced technology from the very beginning of its existence, in the year 2003 it took a decision to deliver insurance using technology.
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o In the same year 2003, it decided to provide customized solutions to every customer of theirs to maintain their service quality. o ICICI Lombard offers the facility of Online Manager, a web-based interface that enables its customers and intermediaries to independently process insurance transactions. With this it is able to provide insurance cover immediately as the premium paid instantly if the product suits the customer via online payments. o In the year 2006, ICICI Lombard has strengthened its servicing capabilities across all distribution channels. A web based policy administration system has been implemented for retail products which provide scalability, flexibility and ease of use. Point-of-Sale (POS) solutions that allow transactions even in the off line mode were developed and deployed, thereby reducing the dependency on internet connectivity and enhancing the reach of the organization. o Instant issuance of policies with the least number of steps in the process. o Road side cover assistance in case of unexpected breakdowns. o ICICI Lombard launches mobile application 'Insure' o A 12-inch sized instrument akin to the machines that are used to swipe debit and credit cards at merchant establishments may well change the way the Indian health insurance industry functions. L&T GI launches MediCash Card for cashless claim verification- The card is launched in association with E-Meditek Global and helps reduce the authorization time significantly. The MediCash card allows instant authorization and on- the-spot payment, making the crucial period of wait almost negligible. This card will significantly reduce the time required to get cashless approval compared to the existing. The new facility will be available for corporate group health customers as of now and will be rolled out for retail customers in future approval models. Max Bupa Health Insurance, a 74:26 ratio joint venture between Max India and international healthcare provider Bupa has about three years of presence in the country. It currently has a network of 20 offices across 12 cities. In the year ending 2012, Max Bupa Health Insurance today launched its online insurance product that will offer differential pricing based on the place of residence of the customer. "The pricing of this product is Impact of innovation on insurance companies Page 69

very competitive and is the first of its kind in the industry. The product will only be available online," Max Bupa CEO Manasije Mishra. Customers living in non-metro cities would be paying a lower premium for the product -- Health@Companion -- which is reflective of healthcare costs in that area. Technology Maturity SBI General Insurance Company has launched a Customer 360 Degree View solution with the objective of providing entire information about the customer at the fingertips of every employee interacting with customer and intermediaries. The solution has resulted in increased customer satisfaction, reduced costs and differentiation in a competitive marketplace. The company has also run an intensive data quality programme and has managed to improve data quality scores significantly. Technology Innovation- Religare Health Insurance introduced a Mobile App to overcome challenges such as inaccuracy in premium calculations and excessive paperwork leading to high business applied-to-issued ratios. The application now serves as a ready reckoner for premium calculation, payment realization, network hospital checklist and others for the sales staff during customer interactions. Wellness apps on mobile this app helps insured to track his sugar levels, diet control, BP, track hospitals-branches-pharmacies. With this Wellness portal the company is in constant & continuous contact with the customer. This it has achieved through the Apollo ecosystem which includes hospitals, pharmacies, and insurance. Technology Innovation New India Assurance Company launched a Mobile App that is available on Google Play Store for its policy holders. Customers can download this App and use it for renewing and paying premium for their policies. This App gives the customer to pay his premiums from where ever he/she is. The customer need not travel to the designated offices or branches leaving behind his/her important work. All this can be done with the click of a button on the mobile. Thanks to technology.
4.1.3 Process Innovation

Process innovation is important as this kind of innovation helps change the way a service or product is delivered to the final customer. In some cases this innovation can lead to paperless business, while in some others it helps to procure the desired product or service in the least time possible, for example some of the insurers provide a policy cover with in two minutes or the Impact of innovation on insurance companies Page 70

entire process is complete within three steps using the internet or mobile Apps. This kind of innovation has taken the insurance industry much ahead compared to the 1980s and the 1990s
4.1.4 Business Model Innovation

Business model is a plan that is implemented by a company to generate revenue and make profits from the business operations (http://www.investopedia.com). Business model was the buzzword in dotcom boom, it was used by everybody. A business model can be simple or complex. A restaurants business model is to earn money by providing the food to its customers, while that of a websites model might be or might not be clear, as there are many ways of earning money for these companies. Therefore, business model innovation is a must for sustainable growth. Business innovation means a businesss attempt to reinvent itself in order to obtain a competitive edge and stimulate company growth (http://www.ehow.com). With the rise in technology the term business model came to prominence. The rise is closely related to the emergence and diffusion of commercial activity on the internet. Its a way to differentiate oneself and to explain their competitive position. One of the first people to use the term business model were Konczal (1975) and Dottore (1977). Both used in the area of data and process modeling. Closely related to the word business model is in the information management the word architecture of an information system. Architecture information system is the master plan of an information system with all its components and relationships among the components. Besides being the basis for an information system Eriksson and penker have given some purposes of the word business model To better understand the existing business A basis for changing or improving the existing business structure and operations To experiment with a new business concept or to emulate or study a concept that is used by the competitor To look out for out sourcing opportunities
The word business model is being used widely now days. While the term refers to the model of an existing business in information management, the term can also mean a plan to describe or design a new business. Impact of innovation on insurance companies Page 71

Most companies for a sustainable growth have concentrated on efficiency or just good marketing. It was either through streamlining processes or introducing new products to ensure growth by achieving smaller environmental footprint. Product or process innovation is a must and helps the company to move closer to sustainable development, but they dont address the underlying value structure of the company. These innovations are incrementally better, but not transformative. Product or process innovation shouldnt be mistaken for business model innovation. Smaller companies are more likely to take to business model innovation. Focus on consumer consumption also makes an impact on the business model as firms find ways to create value to address these customer consumption needs without the use of additional resources. A few examples of business model are given below. In the year 2012, May 18, SBI General Insurance has entered into a corporate agency agreement, a strategic partnership with State Bank of Hyderabad to ensure sales of the former in all its branches (http://www.thehindubusinessline.com). Also the parent company, State Bank of India has collaborated with SBI General Insurance to provide personal accident cover to around 7 million account holders within a span of 10 months. Also, this plan is being extended to account holders of SBI associates, and its planning to cover at least 10 million account holders by the end of March, 2013 (http://articles.economictimes.indiatimes.com). SBI has entered into a multi-contract with Maveric Systems. Maveric Systems is an independent software testing provider which has proficiency in the BFSI sector. With this in place, SBI has launched many new online corporate and retail products to achieve larger footprint in the online business (http://www.cxotoday.com). Future Generali General Insurance has come out with a new business model mallassurance. The company is making the best use of its parent companys business model of retail stores business. Bajaj Allianz General Insurance has entered into an agreement with the MSCB of Maharashtra to sell its health insurance products in the rural pats of Maharashtra; this was in the year 2008. In the year 2009, the company entered into an agreement with Impact of innovation on insurance companies Page 72

Dhanalakshmi Bank of Kerala to provide bancassurance, to sell the formers products to its customers through the process of cross-selling. In the very next year, 2010, the company tied up with YES Bank to launch JIYO FIT ACCOUNT. This account gives various benefits that are unique in comparison to other banks; this also acts as an attraction point, a differentiator point. National Insurance corporation, which has always been in the forefront of providing service delivery to fulfill its mission of reaching out to every nook and corner of the country, has come out with another service office-on-wheels. With this concept the company is making the general insurance service available to every citizen of the country, thus implementing the concept of inclusive growth. The company has taken on itself to serve the under-served or the un-served of the society. For its noble thought of ensuring general insurance service to the customers of the last mile and bring a smile on their faces the company has got many awards, one among them is the
SKOCH DIGITAL Inclusion Award (The Bengal Chamber of Commerce and Industry in Association with JIS Group Educational Initiatives, 2013). Cholamandalam MS general insurance company has entered into an agreement with Indus Bank in which it has asked Indus Bank to solely sell only its products. This is again another bancassurance model in which only one companys products are sold. This enhances the sales of its products. To ensure financial inclusion in our country by the government alone is really tough given the size of the country population, so ICICI Lombard General insurance company has taken on itself to serve at least 26% of the population of the country by partnering with the government in the year ending 2006. o The business of this company is heavily technology dependent; it has made heavy investment in technology infrastructure to provide front-end & back-end services to its customers. ICICI Lombard also offers the facility of Online Manager, a web-based interface that enables its customers and intermediaries to independently process insurance transactions. This was in the year ending 2002. o Like every other general insurance company the company has a very broad network of self-help groups, banks which undertake the bancassurance business,
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the agents. The self-help groups under take the responsibility under-served and the un-served segment. to serve the
4.2 Quantitative Data Analysis

4.2.1 Regression Analysis
4.2.1.1 Impact of Innovation on Premium
Total premium Table 4.1 shows results of regression analysis between magnitude changes in innovation with total premium. Table 4.1 regression analysis of impact of changes in magnitude of innovation on total premium
Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model
Coefficients -141.97 -1896.65 -8096.78
P-value 0.39 0.44 0.00
975.35 -174.37
0.54 0.28
An analysis of the above table shows that processes innovation magnitude has a significant impact on premium growth. The cell highlighted in grey represents significance at 95%. Fire premium Table 4.2 shows the analysis of regression of change in innovation magnitude with that of growth in fire premium.
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Table 4.2 shows results of regression analysis between magnitude changes in innovation with fire premium. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 156.78 5.35 0.28 0.70 Coefficients 4.08 147.19 -139.50 P-value 0.77 0.48 0.48
An analysis of the above table shows that innovation magnitude has no significant impact on premium growth. Marine premium Table 4.3 shows the analysis of regression of change in innovation magnitude with that of growth in marine premium. Table 4.3: Regression analysis between magnitude changes in innovation with marine premium. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 5.53 13.08 0.96 0.21 Coefficients 13.30 118.22 -50.04 P-value 0.21 0.46 0.72
An analysis of the above table shows that innovation magnitude has no significant impact on premium growth. Impact of innovation on insurance companies Page 75

Health premium Table 4.4 shows the analysis of regression of change in innovation magnitude with that of growth in health premium. Table 4.4:- shows results of regression analysis between magnitude changes in innovation with health premium. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 211.62 24.61 0.88 0.89 Coefficients 48.89 -545.81 -2690.62 P-value 0.79 0.79 0.18
An analysis of the above table shows that innovation magnitude has no significant impact on premium growth. Miscellaneous Premium Table 4.5 shows the analysis of regression of change in innovation magnitude with that of growth in miscellaneous premium. Table 4.5:- shows results of regression analysis between magnitude changes in innovation with miscellaneous premium. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 1240.65 -253.64 0.51 0.15 Coefficients -212.70 -3368.95 -8299.17 P-value 0.23 0.22 0.00
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An analysis of the above table shows that processes innovation magnitude has a significant impact on premium growth. The cell highlighted in grey represents significance at 95%.
4.2.1.2 Impact of Innovation on Claims

Total claims Table 4.6 shows the analysis of regression of change in innovation magnitude with that of growth in total claims incurred. Table 4.6:- shows results of regression analysis between magnitude changes in innovation with net total claims incurred. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 884.49 -143.50 0.51 0.41 Coefficients -117.89 -1345.62 -4809.56 P-value 0.51 0.51 0.01
An analysis of the above table shows that processes innovation magnitude has a significant impact on growth in total claims incurred. The cell highlighted in grey represents significance at 95%.
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Fire claims Table 4.7 shows the analysis of regression of change in innovation magnitude with that of growth in fire claims incurred. Table 4.7:- shows results of regression analysis between magnitude changes in innovation with net fire claims incurred. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 64.14 -5.59 0.68 0.78 Coefficients -1.00 -45.95 -605.17 P-value 0.96 0.84 0.00
An analysis of the above table shows that processes innovation magnitude has a significant impact on growth in net fire claims incurred. The cell highlighted in grey represents significance at 95%. Marine claims Table 4.8 shows the analysis of regression of change in innovation magnitude with that of growth in marine claims incurred.
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Table 4.8:- shows results of regression analysis between magnitude changes in innovation with net marine claims incurred. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 43.83 3.36 0.77 0.83 Coefficients 8.34 -62.33 -628.04 P-value 0.60 0.76 0.00
An analysis of the above table shows that processes innovation magnitude has a significant impact on growth in net marine claims incurred. The cell highlighted in grey represents significance at 95%. Health claims Table 4.9 shows the analysis of regression of change in innovation magnitude with that of growth in net health claims incurred. Table 4.9:- shows results of regression analysis between magnitude changes in innovation with net health claims incurred. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 378.24 -24.07 0.79 0.91 Coefficients 10.78 -1525.75 -1932.16 P-value 0.96 0.44 0.32
An analysis of the above table shows that innovation magnitude has no significant impact on growth in net health claims incurred. The cell highlighted in grey represents significance at 95%. Impact of innovation on insurance companies Page 79
Miscellaneous claims Table 4.10 shows the analysis of regression of change in innovation magnitude with that of growth in miscellaneous claims incurred.
Table 4.10:- shows results of regression analysis between magnitude changes in innovation with net miscellaneous claims incurred. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 967.13 -93.04 0.46 0.49 Coefficients -78.31 -1437.83 -3724.54 P-value 0.57 0.45 0.04
An analysis of the above table shows that processes innovation magnitude has a significant impact on growth in net miscellaneous claims incurred.
4.2.1.3 Impact of Innovation on Claims Ratio

Total claims ratio Table 4.11 shows the analysis of regression of change in innovation magnitude with that of growth in total claims ratio.
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Table 4.11:- shows results of regression analysis between magnitude changes in innovation with total claims ratio. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -0.84 -0.06 0.01 0.13 Coefficients -0.04 -1.40 0.00 P-value 0.28 0.01 0.99
An analysis of the above table shows that processes innovation magnitude and services innovation magnitude has a significant impact on the growth in total claims paid. The cell highlighted in grey represents significance at 95%. Fire claims ratio Table 4.12 shows the analysis of regression of change in innovation magnitude with that of growth in fire claims ratio. Table 4.12:- shows results of regression analysis between magnitude changes in innovation with fire claims ratio. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 2.75 -2.83 0.80 0.01 Coefficients -2.90 -5.09 -6.45 P-value 0.01 0.75 0.67
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An analysis of the above table shows that product innovation magnitude and total innovation magnitude has a significant impact on growth in fire claims paid. The cell highlighted in grey represents significance at 95%. Marine claims ratio Table 4.13 shows the analysis of regression of change in innovation magnitude with that of growth in marine claims ratio. Table 4.13:- shows results of regression analysis between magnitude changes in innovation with marine claims ratio. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 9.99 -5.61 0.53 0.00 Coefficients -5.63 -14.23 -40.20 P-value 0.00 0.53 0.06
An analysis of the above table shows that product innovation magnitude and total innovation magnitude has a significant impact on growth in marine claims paid. The cell highlighted in grey represents significance at 95%. Health claims ratio Table 4.14 shows the analysis of regression of change in innovation magnitude with that of growth in health claims ratio.
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Table 4.14:- shows results of regression analysis between magnitude changes in innovation with health claims ratio. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 2.63 -19.44 0.98 0.12 Coefficients -22.21 317.65 19.30 P-value 0.08 0.07 0.91
An analysis of the above table shows that innovation magnitude has no significant impact on growth in health claims paid. The cell highlighted in grey represents significance at 95%. Miscellaneous claims ratio Table 4.15 shows the analysis of regression of change in innovation magnitude with that of growth in net miscellaneous claims. Table 4.15:- shows results of regression analysis between magnitude changes in innovation with miscellaneous claims ratio. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 4809.87 33.01 0.00 0.80 Coefficients -10.69 -126.73 4.58 P-value 0.94 0.95 1.00
An analysis of the above table shows that Business model innovation magnitude has a significant impact on growth in miscellaneous claims paid. The cell highlighted in grey represents significance at 95%. Impact of innovation on insurance companies Page 83
4.2.1.4 Impact of Innovation on Reserve for Unexpired Risk
Table 4.16 shows the analysis of regression of change in innovation magnitude with that of growth in reserve for unexpired risk. Table 4.16:- shows results of regression analysis between magnitude changes in innovation with increase in reserve for unexpired risk. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -36.57 153.71 0.98 0.25 Coefficients 137.42 207.49 3540.25 P-value 0.31 0.91 0.04
An analysis of the above table shows that processes innovation magnitude has a significant impact on reserve for unexpired risk. The cell highlighted in grey represents significance at 95%.
4.2.1.5 Impact of Innovation on Profit Before Tax

Table 4.17 shows the analysis of regression of change in innovation magnitude with that of growth in profit before tax.
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Table 4.17:- shows results of regression analysis between magnitude changes in innovation with Profit Before Tax. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -23.58 -81.28 0.98 0.37 Coefficients -90.23 -402.39 1287.85 P-value 0.33 0.75 0.29
An analysis of the above table shows that innovation magnitude has no significant impact on profit before tax.
4.2.1.6 Impact of Innovation on Net Profit After Tax
Table 4.18 shows the analysis of regression of change in innovation magnitude with that of growth in net profit after tax. Table 4.18:- shows results of regression analysis between magnitude changes in innovation with net profit after Tax. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -259.16 -68.14 0.75 0.43 Coefficients -74.57 -757.76 1712.23 P-value 0.40 0.53 0.13
An analysis of the above table shows that innovation magnitude has no significant impact on net profit after tax. Impact of innovation on insurance companies Page 85

4.2.1.7 Impact of Innovation on Commission & Management Expenses
Table 4.19 shows the analysis of regression of change in innovation magnitude with that of change in the commission and management expenses. Table 4.19:- shows results of regression analysis between magnitude changes in innovation with commission & management expenses. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 126.49 73.52 0.87 0.36 Coefficients 72.75 1262.80 -666.87 P-value 0.37 0.29 0.56
An analysis of the above table shows that innovation magnitude has no significant impact on commission and management expenses.
4.2.8 Impact of Innovation on Underwriting Profit/Loss
Table 4.20 shows the analysis of regression of change in innovation magnitude with that of change in under-writing profit/loss.
Table 4.20:- shows results of regression analysis between magnitude changes in innovation with under-writing profit/loss. Impact of innovation on insurance companies Page 86

Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 343.69 -96.67 0.72 0.30 Coefficients -105.73 -740.79 1153.79 P-value 0.26 0.59 0.38
An analysis of the above table shows that innovation magnitude has no significant impact on under-writing profit/loss.
4.2.1.9 Impact of Innovation on Operating Profit

Fire Table 4.21 shows the analysis of regression of change in innovation magnitude with that of growth in operating profit from fire insurance business. Table 4.21:- shows results of regression analysis between magnitude changes in innovation with operating profit from fire insurance business. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -554.31 4.80 0.02 0.82 Coefficients 3.68 -375.94 1334.21 P-value 0.86 0.28 0.00
An analysis of the above table shows that processes innovation magnitude and service innovation magnitude has a significant impact on operating profit from fire insurance business. The cell highlighted in grey represents significance at 95%. Marine Impact of innovation on insurance companies Page 87

Table 4.22 shows the analysis of regression of change in innovation magnitude with that of growth in operating profit from marine insurance business. Table 4.22:- shows results of regression analysis between magnitude changes in innovation with operating profit from marine insurance business. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 71.63 7.39 0.70 0.66 Coefficients 2.86 -63.63 1188.46 P-value 0.87 0.81 0.00
An analysis of the above table shows that processes innovation magnitude has a significant impact on operating profit from marine insurance business. The cell highlighted in grey represents significance at 95%. Miscellaneous Table 4.23 shows the analysis of regression of change in innovation magnitude with that of growth in operating profit from miscellaneous insurance business.
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Table 4.23:- shows results of regression analysis between magnitude changes in innovation with operating profit from miscellaneous insurance business. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 683.82 20.71 0.44 0.81 Coefficients 19.71 -236.71 -694.13 P-value 0.83 0.85 0.56
An analysis of the above table shows that innovation magnitude has no significant impact on operating profit from miscellaneous insurance business.
4.2.1.10 Impact of Innovation on Operating Expenses

Total operating expenses Table 4.24 shows the analysis of regression of change in innovation magnitude with that of change in total operating expenses. Table 4.24:- shows results of regression analysis between magnitude changes in innovation with total operating expenses. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -270.31 101.74 0.75 0.23 Coefficients 98.04 1812.28 474.88 P-value 0.26 0.15 0.70
An analysis of the above table shows that innovation magnitude has no significant impact on total operating expenses. Impact of innovation on insurance companies Page 89

Fire Table 4.25 shows the analysis of regression of change in innovation magnitude with that of change in operating expenses of fire insurance business. Table 4.25:- shows results of regression analysis between magnitude changes in innovation with operating expenses of fire insurance business. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model 35.64 3.63 0.76 0.75 Coefficients 1.39 358.32 74.21 P-value 0.90 0.03 0.65
An analysis of the above table shows that service innovation magnitude has a significant impact on operating expenses of fire insurance business. The cell highlighted in grey represents significance at 95%. Marine Table 4.26 shows the analysis of regression of change in innovation magnitude with that of change in operating expenses of marine insurance business. Table 4.26:- shows results of regression analysis between magnitude changes in innovation with operating expenses of marine insurance business. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Impact of innovation on insurance companies Model -138.91 1.03 0.03 0.87 Page 90 Coefficients 2.97 10.11 -106.21 P-value 0.64 0.91 0.18
An analysis of the above table shows that business model innovation magnitude has a significant impact on operating expenses of marine insurance business. The cell highlighted in grey represents significance at 95%. Miscellaneous Table 4.27 shows the analysis of regression of change in innovation magnitude with that of change in operating expenses of miscellaneous insurance business. Table 4.27:- shows results of regression analysis between magnitude changes in innovation with operating expenses of miscellaneous insurance business. Types of Innovation Product Innovation Services Innovation Processes Innovation Business Innovation Total Innovation Model -207.79 117.60 0.82 0.20 Coefficients 113.17 1514.27 606.13 P-value 0.22 0.24 0.62
An analysis of the above table shows that innovation magnitude has no significant impact on operating expenses of miscellaneous insurance business. The cell highlighted in grey represents significance at 95%.
4.2.2 t-test Results

Table 4.28 shows the results of comparison of premium growth between the two groups of companies.
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Table 4.28:- Table showing comparison of premium growth due to innovation. Types of Innovation Mean Companies Companies with without Innovation Innovation 0.32 0.93 1.12 0.04 1.50 0.04 1.00 -0.64 0.00 0.81 P-value
Product Innovation Change Service Innovation Change Process Innovation Change Business Model Innovation Change Total Innovation Change
0.26 0.66 0.61 0.60 0.23
From the above table it can be noticed that the mean premium growth for firms with service innovation, process innovation and business model innovation is much higher than companies which have not innovated in these areas. Though the means are not statistically significantly different, it still shows the advantage innovating firms have over non-innovators. Table 4.29 shows the results of comparison of premium growth between the two groups of companies. Table 4.29:- Table showing comparison of growth in total claims paid due to innovation. Types of Innovation Mean Companies Companies with without Innovation Innovation 0.67 1.72 1.52 1.19 1.86 1.18 P-value
Product Innovation Change Service Innovation Change Process Innovation Change
0.06 0.76 0.59
Business Model Innovation Change 2.15 1.08 0.21 Total Innovation Change 0.96 1.48 0.36 From the above table it can be noticed that the mean growth in claims incurred for firms with service innovation, process innovation and business model innovation is much higher than companies which have not innovated in these areas. Though the means are not statistically significantly different, it still shows the advantage innovating firms have over non-innovators.
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Table 4.30 shows the results of comparison of premium growth between the two groups of companies. Table 4.30:- Table showing comparison of total claims ratio due to innovation. Types of Innovation Mean Companies Companies with without Innovation Innovation -0.24 -0.17 -2.37 -0.04 -0.02 -0.21 -1.19 -0.53 -0.07 0.11 P-value
0.88 0.02 0.87 0.15 0.20
From the above table it can be noticed that the mean growth in claims ratio for firms without product innovation, service innovation, business model innovation and total innovation is much higher than companies which have innovated in these areas. The means are statistically significantly different incase of service innovation but not statistically significantly different in case of product innovation, process innovation and business model innovation, it still shows that the non-innovator firms have advantage over innovating firms. The cell highlighted in grey represents significance at 95%.
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Table 4.31 shows the results of comparison of premium growth between the two groups of companies. Table 4.31:- Table showing comparison of change in commission & management expenses due to innovation. Types of Innovation Mean Companies with Innovation 0.44 0.48 0.53 0.95 0.62 Companies without Innovation 0.59 0.53 0.53 0.47 0.44 P-value
0.65 0.94 1.00 0.35 0.60
From the above table it can be noticed that the mean change in commission and management expenses for firms with business model innovation and total innovation is much higher than companies which have not innovated in these areas. Though the means are not statistically significantly different, it still shows the advantage innovating firms have over non-innovators. Table 4.32 shows the results of comparison of premium growth between the two groups of companies. Table 4.32:- Table showing comparison of growth in net profit after tax due to innovation. Types of Innovation Mean Companies with Innovation 0.04 0.26 2.64 0.10 -0.12 Companies without Innovation 0.30 0.18 0.06 0.20 0.45 P-value
0.62 0.94 0.03 0.90 0.26
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From the above table it can be noticed that the mean growth in net profit after tax for firms with service innovation and process innovation is much higher than companies which have not innovated in these areas. The means are statistically significantly different with respect to process innovation, showing the advantage innovating firms have over non-innovators. Table 4.33 shows the results of comparison of premium growth between the two groups of companies. Table 4.33:- Table showing comparison of change in reserve for unexpired risk due to innovation. Types of Innovation Companies with Innovation Product Innovation Change Service Innovation Change Process Innovation Change Business Model Innovation Change Total Innovation Change 0.27 0.56 0.64 0.78 0.31 Mean Companies without Innovation 0.63 0.47 0.47 0.44 0.62 0.55 0.94 0.91 0.72 0.61 P-value
From the above table it can be noticed that the mean increase in reserve for unexpired risk for firms with service innovation, process innovation and business model innovation is much higher than companies which have not innovated in these areas. Though the means are not statistically significantly different, it still shows the advantage innovating firms have over non-innovators.
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Table 4.34 shows the results of comparison of premium growth between the two groups of companies. Table 4.34:- Table showing comparison of total operating expenses due to innovation. Types of Innovation Mean Companies with Innovation 0.62 0.62 0.41 0.78 0.64 Companies without Innovation 0.43 0.51 0.52 0.48 0.40 P-value
0.24 0.73 0.78 0.24 0.14
From the above table it can be noticed that the mean total operating expenses for firms with product innovation, service innovation business model innovation and total innovation is much higher than companies which have not innovated in these areas. Though the means are not statistically significantly different, it still shows the advantage innovating firms have over noninnovators.
4.3 Interpretation of Results

Based on the data analysis the following interpretations are provided Product innovation has a significant impact ono Fire claims ratio o Marine claims ratio Service innovation has significant impact on o Total claims ratio o Miscellaneous claims ratio o Operating expenses of fire insurance o the total claims ratio of companies that innovate Process innovation has a significant impact ono Total premium Impact of innovation on insurance companies Page 96

o Miscellaneous premium o Total claims o Fire claims o Marine claims o Miscellaneous claims o Reserve for unexpired risk o Operating profit of fire insurance business o Operating profit of marine insurance business o The net profit of those companies that innovate Business model innovation has a significant impact ono Total claims ratio o Miscellaneous claims ratio o Operating profit of fire insurance business o Operating expenses of marine insurance business Total innovation has a significant impact ono Fire claims ratio o Marine claims ratio
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Chapter 5 Summary, Conclusion and Suggestions
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Sc&
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Conclusions
5. Conclusions and Recommendations

With the dawn of the new millennium innovation has become the buzz word in every industry. Rapid growth in information technology is the game changer in all the industries. Those companies that embrace quick changes in technology have the first mover advantage, be it manufacturing companies or financial services companies. Innovation in information technology has provided the financial services providers a new set of services, process or business models. The concept of pay-as-you-drive is a brilliant product innovation, while this is possible to take place only in the presence of information technology, this is service innovation. This product can be renewed on the go, no paper work required, a paperless transaction, a new process.
5.1 Conclusions
This study was conducted with the following hypothesisThere is no significant relationship between innovation and financial performance in Indian non-life insurance sector. Based on the results of the study it has been found that there is significant impact of individual innovation types on different financial performance parameters. Therefore the hypothesis of the study has not been found to be true.
5.2 Implications of the Study

Based on the analysis the following are the implications Different types of innovation have a significant impact on different financial performance parameters of insurance companies. Therefore, it is necessary to promote that specific type of innovation depending on the need. Innovation is a long-term investment; therefore one shouldnt expect immediate results. Firms must continue innovating in spite of short-term hiccups.
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Conclusions
5.3 Scope for further Study

This study can be carried out on the Indian life insurance companies. Comparison of Indian innovation styles in the private sector non-life insurance companies with those of global innovation styles in the non-life insurance can be studied.
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BIBLIOGRAPHY AND REFERENCES
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Bibliography and References
Bibliography
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Impact of Innovation On Private Sector Insurance Industry in India

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Impact of Innovation on the Financial Performance Of Private Sector Non-Life Insurance Companies in India

SUBMITTED BY SAI SHEKAR REDDY K (12215)

MASTER OF FINANCIAL MANAGEMENT 2012-2014

SRI SATHYA SAI INSTITUTE OF HIGHER LEARNING

BRINDAVAN CAMPUS, BANGALORE

SRI SATHYA SAI INSTITIUTE OF HIGHER LEARNING

CERTIFICATE & DECLARATION

Dr. N Siva Kumar (Project Guide)

Sai Shekar Reddy K (Regd. No. 12215)

Head of the Department Place : Brindavan Date: 20-12-2013

Chapter 1 Introduction and Theoretical Background

Introduction and Theoretical Background

1. Introduction and Theoretical Background

Introduction and Theoretical Background

1.1.2 Need and Significance of the Study

Impact of innovation on insurance companies

Introduction and Theoretical Background

Impact of innovation on insurance companies

Introduction and Theoretical Background

1.2 Scope of Study

Impact of innovation on insurance companies

Introduction and Theoretical Background

1.4 Theoretical Background

1.4.2 Innovation Theories

Introduction and Theoretical Background

Introduction and Theoretical Background

1.4.3 Innovation Styles

Impact of innovation on insurance companies

Introduction and Theoretical Background

1.4.3.1 Visioning Style

Impact of innovation on insurance companies

Introduction and Theoretical Background

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Impact of innovation on insurance companies

Introduction and Theoretical Background

Over emphasis on this style can hinder innovation

This style answers these questions about a problem

This style can go wrong because of reasons like

1.4.3.3 Experimenting Style

Introduction and Theoretical Background

Over emphasis on this style can hinder innovation

This style answers the following questions about a problem

This style can go haywire because of

Introduction and Theoretical Background

1.4.3.4 Modifying Style

By keeping the change relevant to current needs.

This style can hinder innovation if it is overemphasized

Important questions about a problem that are answered by this style

Introduction and Theoretical Background

1.5 Scheme of Chapterisation

Impact of innovation on insurance companies

Chapter 2 LITERATURE REVIEW

2.1 Studies on Insurance

Impact of innovation on insurance companies

2.2 Studies on Innovation

2.3 Studies on innovation in Insurance

2.4 Studies on factors promoting Innovation

2.5 Summary of the literature review

Impact of innovation on insurance companies

[Type the document title]

Impact of innovation on insurance companies