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‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘ 
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This report titled  !"!‘ #$‘ !%‘ &'(&)*&#‘ (#*+‘ (! (*&"!‘
‘ !,!%#-"!‘ #$‘ $& &%‘ #'*%‘ was written and submitted as partial
fulfillment of the requirement of MBA Program of CDLU sirsa. The report was
submitted by sandeep kumar Gurgaon to the company guide
(‘ &!'‘"#,
Asst. Branch Manager, HDFC Standard Life Insurance Company Ltd. and to the
faculty guide, (#$'*(!!(‘"#(, CDLU Sirsa.
‘

‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘

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 . 
‘
My endeavour at   ‘ (‘ &$!‘ '*( !‘ #"-/‘  has had the
benefit of several benefactors. I would therefore like to take this opportunity to
acknowledge the contributions of the following people, without whose support this
project would not have been completed successfully.

Any activity in the tradition of India begins with Guru Vandana. I first seek the
blessings of my Honorable (#$‘*(!!(‘"#(‘$ *%/‘who taught me jargons of
my project during the discussion to face the ground realities of Marketing a
fraction of whose wisdom I strove to absorb.‘

I am grateful to (‘*%‘'&+ for giving me the opportunity to do my Summer

Internship Project.

I am indebted to
(‘ &!'‘ "#0‘ ''‘ ( ‘
+!(0‘ +*(+#‘ '! ‘ 12‘
( , my company guide, for his help in learning actual corporate environment.

I am extremely thankful to
(‘ 3&‘ (&'&‘ ( ‘
+!(0‘
(‘ &!'‘
"#‘ (&&+‘ +*&!0 for rendering all possible help facilitating my work in
completion of my training.‘

I would also like to thank to various respondents, who took time out of their busy
schedules and provided me with their advice, information and expertise.

Finally I would like to thank my family and friends who have been constant
sources of encouragement and support.

Regards,

  ‘

‘

ÿ
‘

 ‘‘ 

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1.1 Objectives«««««««««««««««««««««.. å
1.2 Methodology««««««««««««««««««««. å
1.3 Limitations of the Study«««««««««««««««« 9

j‘ *'(/‘(#$&%!‘ ‘
2.1 Principle of insurance««««««««««««.. 10
2.2 The concept of indemnification«««««««««««... 12
2.3 Business model««««««««««««««««««« 12
2.4 Conceptual framework«««««««««««««««««« 13

6‘ )#*‘!‘ #"-/

3.1 Fact sheet««««««««««««««««««« 17
3.2 The management««««««««««««««««««««««... 17
3.3 Corporate office««««««««««««««««««««... 1å
3.4 Company profile«««««««««««««««««« 19

8‘ !‘'*/‘#$‘!‘-(#* '‘ 21

4.1‘Traditional plan««««««««««««««««««««. 21
4.2‘ULIP plan««««««««««««««««««««««« 21
4.3‘Comparison between ULIP and Traditional««««««««««. 23

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A‘ &(! ‘ !%‘!,!%#-"!‘ 2å
A.1‘Recruitment process«««««««««««««««««««.. 2å
A.2‘Selection and placement procedure«««««««««««««« 30

9‘ !,!%#-"!‘#$‘$& &%‘ #'*%‘ 34

7.1‘Discriminant analysis««««««««««««««««««««. 35
7.2‘Correlation analysis«««««««««««««««««««««« 5å
7.3‘Regression analysis««««««««««««««««««««««. Aå
7.4‘Understand about the fund management«««««««««««««« å4
7.5‘To know risk and about average return portfolio«««««««««««.. å9

å‘ 7#‘%/'&'‘ 93
;‘ <*!'&#&(!'‘%/'&'‘ 94
1=‘&&+'‘ 111
11‘
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The service industry is one of the fastest growing sectors in India today. The
upcoming sectors which are really showing the graph towards upwards are ±
Telecom, Banking and Insurance. These sectors really have a lot of responsibility
towards the economy.

Amongst the above mentioned areas Insurance is one sector, which took a lot of
time in positioning itself. The insurance business of non- life companies was not
much in problems but the major problem was with life insurance. Life insurance
Corporation of India had monopoly for more than 45 years, but the picture then
was completely different. Previously people felt that ³Insurance is only for classes
not for masses´‘but now the picture has changed‘

With the coming of insurance reforms in 1999, IRDA was set up to regulate
insurance sector. This led to the entry of 1A new private insurance companies in
2000.

HDFC standard Life insurance company started its operations in the year 2000. It
recruits Financial Consultants for the purpose of retail sales of insurance policies to
its customers. These financial consultants act as a direct link between customer and
company. There is a separate department named Channel Development in the
company which recruits these FC¶s for it. The existing processes of recruitment are
ineffective and inadequate to recruit the right mix of people. Every year company
incurs huge cost in recruiting training and servicing FC¶s but many of them turns
out to be inefficient and do not generate any business for the company. Through

A
this research project the researcher wants to develop an effective way of recruiting
and development of fc¶s. The main purpose of this study is to do a detailed study
on the existing recruitment and retention strategies of FC¶s at HDFC SLIC.

The project aims to help understand the consumer behavior towards various
financial services like insurance and what are the factors should be taken in to
consideration before investing in Unit Linked Insurance Plans. The report enhances
the knowledge on how various financial concepts learnt in the classroom are
implemented in a real life environment.

1‘ 
  ‘

11‘)>! &,!‘#$‘!‘-(#>! ?‘‘

①Create and Enact strategies for recruitment and retention of financial

consultants to assist HDFCSLIC to development their sales distribution
channel and extend their market.‘
①To identify the challenge faced during the process of channel
development.‘
①To do a detailed studies about HDFCSLIC and its offerings traditional as
well as ULIP.‘
①To study consumer perception towards Life Insurance.‘
①To determine the need and purpose of Financial Consultants.
①To collect and analysis the information of prospect candidate in order to
make them in front of management.

1j‘
!##%#+/? Many financial consultants at HDFC standard Life Insurance
Company are under performers, inactive and ineffective. They are just a liability

·
on the company. Moreover the company is facing high attrition among its financial
consultants. This is due to lack of an appropriate recruitment and selection strategy
for financial consultants. The existing processes are inadequate and ineffective.

The following is a -(#)%!"‘'#%,&+‘(!'!( ‘its main objective is #7‘#‘(!&‘

!‘ $& &%‘ ,&'#('‘ the major problem not only in   ‘ (‘ &$!‘
'*( ! but in all insurance companies is retaining the financial advisors and
making them perform according to the company¶s norms and regulations. The
tasks involved in developing an approach to the problem are:

!#(!& %‘("!7#(3? A theoretical framework has been designed to see what
normally the financial advisors seek in a company the above is being represented
by the help of a graphical model. The following is being used by   ‘(‘
&$!‘‘&'*( !

!7(‘

& &%‘ ,&'#('‘:-! ‘

! #+&&#‘

The above takes into account that most of the financial advisors seek Rewards and
Recognition as a platform to measure their success.

There are basically two techniques adopted for obtaining information: Primary
Data and secondary Data.

(&"(/‘ #*( !?‘ Data observed or collected directly from first-hand experience
by the researcher for the purpose of research is called primary data and the source
of that data is primary source.

*(,!/‘
!#?‘ The method of collection of primary data will be direct personal
interview with the help of a structured questionnaire.

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! #(/‘#*( !? It was collected from internal sources. The secondary data was
collected on the basis of organizational file, official records, news papers,
magazines, and management books, preserved information in the company¶s
database, employee handbook and website of the company.

16‘&"&&#'‘#$‘!‘*/?‘The main limitations of this project are as follow:‘

①Due to lack of time researcher had to restrict the research to a particular

area i.e. Delhi and NCR.

①Many people are not interested to fill up the questionnaire.

①It is difficult to find the right respondent according to requirement of

research.

①HR department of the company is unwilling to support as recruitment of

financial consultants is not considered as an HR function. It is considered

as a marketing function.

①Regarding the making of questionnaire we were bound to make on the

basis of the company¶s selection criteria only. So we are not able to get
more information.

①Consumer perception towards selling insurance was a major bottleneck as

this sector is not considered respectable

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'*( !@‘‘,!(,&!7? Insurance, in law and economics, is a form of risk
management primarily used to hedge against the risk of a contingent loss.
Insurance is defined as the equitable transfer of the company selling the insurance.
The insurance rate is a factor used to determine the amount, called the premium, to
be charged for a certain amount of insurance coverage Risk management the
practice of appraising and controlling risk has evolved as a discrete field of study
and practice.

j1‘(& &-%!‘#$‘&'*( !? Commercially insurable risks typically share seven

common characteristics.

1.‘ ‘%(+!‘*")!(‘#$‘#"#+!!#*'‘!:-#'*(!‘*&' The vast majority of

insurance policies are provided for individual members of very large
classes. Automobile insurance, for example, covered about 175 million
automobiles in the united state in 2004. The existence of a large number
of a large number of homogeneous exposure units allows insurers to
benefit from the so-called ³low of large number´, which in effect states
that as the number of exposure unit¶s increase, the actual results to this
criterion. Lloyd¶s of London is famous for insuring the life of actors,
actresses and sports figures. Satellites launch insurance cover events that
are infrequent. Large commercial property policies may insure
exceptional properties for which there are no µhomogeneous¶ exposure
units. Despite failing on this criterion, many exposures like these are
generally considered to be insurable.

2.‘ !$&!‘ #'' The event that gives rise to the loss that gives rise to the
loss that is subject to insurance should at least in principle, take place at a
known time, in a known place, and from a known cause. The classic
example is death of an insured on a life insurance policy. Fire,
automobile accidents, and worker injuries may all easily meet this
criterion .other types of losses may only be definite in theory.
Occupational disease, for instance, may involve prolonged exposure to
injurious conditions where no specific time, place or cause is identifiable.
Ideally, the time place and cause of a loss should be clear enough that a
reasonable person. With sufficient information, could objectively verify
all three elements.
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3.‘ &!%‘#''. The event that constitutes the trigger of a claim should
be fortuitous, or at least outside the control of the beneficiary of the
insurance. The loss should be ³pure in´ the sense that it results from an
event for which there is only the opportunity for cast. Events that
speculative elements, such as ordinary business risks, are generally not
considered insurable.

4.‘ (+!‘ #''‘ The size of the loss must be meaningful from the
perspective of the insured. Insurance premiums need to cover both the
expected cost of losses, plus the cost of issuing and administering the
policy, adjusting losses, and supplying the capital needed to reasonably
assure that the insurer will be able to pay claims. For small losses these
latter costs may be several time the size of the protection offered has real
value to a buyer.

5.‘ $$#()%!‘-(!"&*" If the likelihood of an insured event is so high, or

the cost of event so large, that the resulting premium is large relative to
the amount of protection offered, it is not likely that anyone will buy
insurance, even if on offer. Further, as the accounting profession formally
recognize in financial accounting standard, the premium cannot be so
large that there is not a reasonable chance of a significant loss to the
insurer. If there is no such chance, the transaction may have the form of
insurance, but not the substance.

A.‘ % *%)%!‘ #'' There two elements that must be at estimable, if not
formally calculable: The probability of loss, and the attendant cost.
Probability of loss is generally an empirical exercise, while cost has more
to do with the ability of a reasonable person in possession of a copy of
the insurance policy and a proof of loss associated with a claim presented
under that policy to make a reasonably definite and objective evaluation
of the amount of the loss recoverable as a result of the claim.

7.‘ &"&!‘(&'3‘#$‘ '(#-& %%/‘%(+!‘%#''!'‘The essential risk is often

aggregation. If the same event can cause losses to numerous
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 policyholders of the same insurer, the ability of that insurer to issue
policy becomes constrained, not by the factors surrounding the individual
characteristics of a given policyholder, but by the factors surrounding the
sum of all policyholder so exposed. Typically, insurers prefer to limit
their exposure to a loss from a single event to some small portion of their
capital base, on the order of 5 percent. Where the loss can be aggregated,
or an individual policy could produce exceptionally large claim, the
capital constraint will restrict an insurer¶s appetite for additional
policyholders. The classic example is earthquake insurance, where the
ability of an underwriter to assure a new policy depends on the number
and size of the policies that it has already underwriter. Wind insurance in
hurricane zones, particularly along coast lines, is another example of this
phenomenon. In extreme cases, the aggregation can affect the entire
industry, since the combined capital of insurers and reinsurers can be
small compared to the needs of potential policyholder in areas exposed to
aggregation risk. In commercial fire insurance it is possible to find single
properties whose total exposed value is well in excess of any individual
insurer¶s capital constraint. Such properties are generally shared among
several insurers, or are insured by a single insurer who syndicates the risk
into the reinsurance market.

jj‘ !‘ # !-‘ #$‘ !"&$& &#?‘ The technical definition of ³indemnity´
means to make whole again. There are two types of insurance contracts: 1) an
³indemnity´ policy and 2) a ³pay on behalf´ or ³on behalf of´ policy. The
difference is significant on paper, but rarely material practice.

Under the same situation, a ³pay on behalf´ policy, the insurance carrier would pay
the claim and the insured (the homeowner) would not be out of pocket for
anything. Most modern liability insurance is written on the basis of ³pay on
behalf´ language.

An entity seeking to transfer risk (an individual, corporation, or association of any

type, etc.) becomes the ³insured´ party once risk is assumed by an ³insurer´ the
insuring party, by means of a contract, called an insurance µpolicy¶. Generally, an
insurance contract includes, at a minimum, the following elements: the parties(the

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insurer, the insured, the beneficiaries), the premium, the period of coverage, the
particular loss events covered, the amount of coverage(the amount to be paid to the
insured or beneficiary in the event of a loss), and exclusions (events no covered).
An insured is thus said to be ³indemnified´ against the loss events covered in the
policy.

When insured parties experience a loss for a specified peril, the coverage entitles
the policyholder to make a µclaim¶ against the insurance for covered amount of loss
as specified by the policy. The free paid by the insured to the insurer for assuming
the risk is called the µpremium¶. Insurance premiums from many insured¶s are used
to fund accounts reserved for later payment of claims-in theory for a relatively few
claimants-and for overhead costs. So long as an insurer maintains adequate funds
set aside for anticipated losses (i.e., reserves), the remaining margin is an insurer¶s
profit.

j6‘!‘*'&!''‘
#!%?‘

(#$&A!(!‘ -(!"&*"‘ B‘ &,!'"!‘ & #"!‘ C‘ & *((!‘ %#''‘ @‘ *!(7(&&+‘

!:-!'!'‘

Insurers make money in two ways(1)through underwriting process by which

insurers select the risk to insure and decide how much in premiums to charge for
accepting those risk and (2) by investing the premiums they collect from insured¶s.

The most complicated aspect of the insurance business is the underwriting of

policies. Using a wide assortment of data, insurers predict the likelihood that a
claim will be made against their policies and price products accordingly. To this
end, insurers use actuarial science to quantify the risk they are willing to assume
and the premium they will charge to assume them. Data is analyzed to accurately
project the rate of future claims based on a given risk. Actuarial science uses
statistics and probability to analyze the risks associated with the range of fairly
covered. Up on termination of a given policy, the amount of premium collected
and the investment gain there on minus the amount paid out in claims is the
insurer¶s underwriting profit on that policy. Of course, from the insurer¶s
perspective, some policies are winners (i.e., the insurance pays out less in claims
and expenses than it receives in premiums and investment income) and some are

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losers (i.e., the insurer pays out more in claims and expenses than it premiums and
investment income).

An insurance underwriting performance is measured in its combined ratio. The loss

ratio (incurred losses and loss-adjustment expenses divided by net earned
premium)is added to the expense ratio(underwriting expenses divided by net
premium written) to determine the company¶s combined ratio. The combined ratio
is a reflection of the company¶s overall underwriting profitability. A combined
ratio of less than 100 percent indicates underwriting profitability, while anything
over 100 indicates an underwriting loss.

Insurance companies also earn investment profits on ³float´. Float or available

reserve is the amount of money, at hand at any given moment, that an insurer has
collect in insurance premiums but has not been paid out in claims. Insurer¶s stare
investing insurance premiums as soon as they are collected and continue to earn
interest on them until claims are paid out.

Property and casualty insurers currently make the most money from their auto
insurance line of business. Generally better statistics are available on losses and
underwriting on this line of business has benefited greatly from advance in
computing.

Finally claims and loss handling is the materialized utility of insurance. In

managing the claims-handling function, insurers seek to balance the elements of
customer satisfaction, administrative handling expenses and claims overpayment
leakages.

j8‘ # !-*%‘("!7#(3?‘

.‘&'‘%&$!‘&'*( !D‘Life insurance is a contract providing for the payment of a

sum of money to the person assured or failing him to the person entitled to receive
the same on the happening of certain event.

Uncertainty of death is inherited in human life. It is this rise to the necessity for
some form of protection against the financial loss arise the death. The object of
insurance is normally to provide-

①Family protection

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 ①Provision for old age

./‘&$!‘'*( !D‘We have required thinking twice before taking the plunge
into buying life insurance. Is buying insurance is necessity now? Spending an extra
amount as premium at regular intervals where do you not see immediate benefits
does not see a necessity at the moment. May be later

Well we could be wrong. Buying insurance cannot be compared with any other
form of investment. Insurance gives us a life long benefits and the returns will
definitely come but only when we need it the most i.e. at the right time. Besides
buying insurance early in life is one of the wise decision you could take.

Insurance is not about how much more it can offer you when the stock market is at
the peak. It may not be an attractive investment option. But weight pros and cons
consider how much more it can offers at a small price.

Most important of all it provides you with the unique sense of security that no
other form of investment provides. It gives us a sense of financial support.
Especially during that time of crises irrespective of the fluctuation in the stock
market. Insurance provides for our career goals right from the childhood years.

If the earning member of the family is no more our child¶s education need will not
suffer. In fact his higher education too will be provided for. We need to spend
sleepless night thinking about how to save for child¶s marriage. Life insurance will
take care of that typical once in a life time spending on marriage.

An accident or a disability may be devastating but a life insurance policy can be of

utmost support for the family during such times too. Beside it provide for addition
benefits such as bonuses. We need not worry about retirement years. The rising
prices, taxes and your lifestyle will be taken care of easily. And we can relax and
spend our old age in comfort and peace.

Life insurance today¶s play a major role in once life at various stages. Considering
the benefits it offers one cannot give a thought to buying an insurance policy the
earliest.

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!!‘#$‘'*( !?‘The need for life insurance comes from the need to safeguard
our family. If we care of our family¶s need you will definitely consider insurance.

Today insurance has become from even more important due to the disintegration of
the prevalent joint family system, a system in which a number of generations co-
existed in harmony, a system in which a sense of financial security was there as
were more earning member.

Times have changed and nuclear family has emerged. Apart from other pitfalls of a
nuclear family, a high sense of insecurity is observed in it today besides, the family
has shrunk. Need are increasing with time and fulfillment of these needs is big
question mark.

How will we be able to satisfy all those needs? Better lifestyle, good education,
and your long desired house. But again- we just cannot fritter away earnings. We
need to save a part of it for the future too-a wise decision. This is where insurance
helps us.

Factors such as fewer numbers of earning members, stress, increasing competition,

higher ambitious etc are some of the reasons why insurance has gained importance
and where insurance plays a successful role.

Insurance provides a sense of security to the income earner as also to the family.
Buying insurance frees the individual from unnecessary financial burden that can
otherwise make him spend sleepless night. The individual has a sense of
consolidation that he has sometime to fall back on.

From the very beginning of your life, to your retirement age insurance can take
care of all your needs. Your child needs good education to mould him into citizen.
After his schooling he need to go for higher education, to gain a professional edge
over the others- a necessity in this age where cut throat competition is the rule. His
career needs have to be fulfilled.

Insurance is must also because of the uncertain future advertise of life. Accidents,
illness, disability etc are the facts of life, which can be extremely devastating.
OTHER than the hospitalization, medication bills these may run up it¶s the

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aftermath of the accident, the physical well being of the individual that has to taken
into consideration. Will the individual be in a position to earn as before? A
pertinent question, but if he is not? Disability can be taken care of by insurance.
Your family will not have to go through the grind due to your present inability.

Moreover, retirement, an age when every individual has almost fulfilled his
responsibilities and looks forward to relaxing can be painful if not planned
properly, Have we consider the increasing inflation and taxes? Will our investment
offer you attractive return under such circumstances? Will it take of your family
after us? An insurance policy will definitely take care of these things. Insurance
today has opened up new vistas a lot of potential. Considering how dependent our
agriculture system is on the monsoon, he farmer sees a dim future. The uncertainty
of the monsoon too can be taken care of by insurance. Looking at the advantage of
the insurance policy a number of farmers have gone into insurance. Insurance has
become necessity today.

.!‘&'‘!‘(&+‘&"!‘#‘)*/‘‘&'*( !D‘Buying life insurance cannot ever be

compared with other investment decision since it is very much contrast with those
stock market investment where you wait for the right time to buy and sell. Neither
is this like receiving tips on particular scrip doing the market and holding great
future prospects.

Buy life insurance at the earliest. Do we know when you will fall ill? Are we sure
about future income earning potential? Are we sure we will never meet an
accident? If not, buy insurance now.

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This is because the future is always uncertain. Just as buying insurance is a necessary so also
buying insurance early in life is important too. With proper financial planning one can work out
as to how much money an individual is entitled to after the end of a particular term. A policy that
fulfills your child¶s future education needs would have to be timed appropriately so that he
receives the policy amount at the time when he needs it the most.

.‘#!'‘!‘&$!‘'*( !‘-(#,&!D‘

①The proceeds accruing from life insurance policy can be utilized for.
①Final expenses resulting from death.
①Guaranteed maintenance of lifestyle.
①Replacement of income.
①Mortgage or Liquidation payment.
①Cost of education.
①Estate and other taxes.
①Continuity and security of interest.

./‘&'‘&'*( !‘*-!(&#(‘#‘#!(‘$#("‘#$‘',&+D‘

①An immediate estate is created in favor of policyholder.

①Protection in cause of death and accidents.
①Liquidity in case of need- easy loans is available.
①Tax relief- income tax, wealth tax etc.

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 ①Policies can be taken under M.P.W Act 1å74, to protect against creditors.
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Mr. Deepak S Parekh- Chairman, HDFC Standard Life Insurance

Mr. Deepak M Satwalekhar- Managing director and chief executive officer

Mr. Paresh Parashis- Executive Director and chief operating officer

Ms. Sharad Sangal- General Manager, Human Resources and Administration

Mr. Vikram Mehta- General Manager, Sales and Marketing

Mr. Prasum Gajri- Chief Investment Officer

3.3 Corporate Office:

HDFC Standard Life Insurance Company Ltd.

µTrade Star¶ 2nd floor, µA Wing¶

Junction of Kandivita and M. R. Road

Andheri- Kurla Road,

Andheri (East), Mumbai-400059

Tel No-022-A751AAAA

Fax No-022-2å222414

Email- response@hdfcinsurance.com

Website- www.hdfcinsurance.com

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68‘ #"-/‘-(#$&%!?‘

HDFC Standard Life Insurance Company Limited was one of the first companies
to be granted license by the IRDA to operate in life insurance sector. Reach of the
JV player is highly rated and been conferred with many awards. HDFC is rated
µAAA ¶ by both CRISIL and ICRA. Similarly, Standard Life is rated µAAA¶ both
by Moody¶s and Standard and Poor¶s. These reflect the efficiency with which
HDFC and Standard Life manage their asset base of Rs. 15,000 Cr and Rs. A00,000
Cr. Respectively.

HDFC Standard Life Insurance Company Ltd was incorporated

on 14th August 2000. HDFC is the majority stakeholder in the

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insurance JV with 74% stake holding. Mr. Amitabh Choudhary is the MD and
CEO of the venture.

HDFC Standard Life Insurance Company Ltd. is one of India¶s leading Private
Life Insurance Companies. It offers a range of individual and group insurance
solutions. It is a joint venture between Housing Development Finance Corporation
Limited (HDFC Ltd.) India¶s leading housing finance institution and the Standard
Life Assurance Company, a leading provider of financial services from the United
Kingdom. Both the promoters are known for their ethical dealings and financial
strength and are thus committed to being a long-term player in the life insurance
industry- all important factors to consider when choosing your insurer.

HDFC Standard Life Insurance Company Limited. is one of India's leading private
insurance companies, which offers a range of individual and group insurance
solutions. It is a joint venture between Housing Development Finance Corporation
Limited (HDFC Limited), India's leading housing finance institution and a Group
Company of the Standard Life Plc, UK. As on February 2å, 2009 HDFC Ltd. holds
72.43% and Standard Life (Mauritius Holding) 200A, Ltd. holds 2A.00% of equity
in the joint venture, while the rest is held by others.

&''&#‘'!"!?‘We aim to be the top insurance company in the market. This

does not just mean to be the largest or the most productive company in the market;
rather it is a combination of several things like-

①Customer service of the highest order

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 ①Value for money for customers
①Professionalism in carrying out business
*(‘&'&#?‘µThe most successful and admired life insurance company, which
means that we are the most trusted company, the easiest to deal with, offer the best
value for money, and set the standards in the industry.
I!‘"#'‘#),&#*'‘ #& !‘$#(‘%%J‘

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4.‘ ‘ ‘‘‘
  ‘   ‘‘


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81‘(&&#%‘G #,!&#%‘-%?‘ The conventional Insurance policies have a

fixed relationship between the premium and the sum assured.

Term assurance plan

Endowment assurance plan
Money back plan
Children plan

8j‘@%&3!‘&'*( !‘-%?‘UNIT-linked insurance plan which is popularly

known as 'ULIP' is the flavor of the season. ULIP allows the policyholder to
choose his own sum assured within certain limits, for any given premium. The
policyholder may then have the right to adjust his sum assured up or down, again
within certain limits according to his circumstances.

a .Young star super

b .Endowment super

c. Pension super

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&‘&3!‘'*( !‘#%& !'‘‘‘
‘
Unit linked guidelines were notified by IRDA on 21st December 2005. The main
intent of the guidelines was to ensure that they lead to greater transparency and
understanding of these products among the insured, especially since the investment
risk is borne by the policyholder. It is the endeavor of IRDA to enable the buyer to
make the most informed decision possible when planning for financial security.
We hope the following FAQs will enable a better insight to all buyers about the
character and features of Unit linked Products.

1‘ .‘&'‘‘D‘

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life
insurance policy which provides a combination of risk cover and investment. The
dynamics of the capital market have a direct bearing on the performance of the
ULIPs. Remember that in a ULIP, the Investment risk is generally borne by the
investor.
‘
j‘ .‘&'‘‘&‘*D‘
The allocated (invested) portions of the premiums after deducting for all the
charges and premium for risk cover under all policies in a particular fund as chosen
by the policy holders are pooled together to form a Unit fund.

6‘ .‘&'‘‘&D‘
It is a component of the Fund in a Unit Linked Policy.

8‘ ‘.‘/-!'‘#$‘*'‘#‘‘$$!(D‘

Most insurers offer a wide range of funds to suit one¶s investment objectives, risk
profile and time horizons. Different funds have different risk profiles. The potential
for returns also varies from fund to fund. The following are some of the common
types of funds available along with
an indication of their risk characteristics.

2‘ (!‘,!'"!‘
!*('‘*(!!‘&‘‘D‘

Investment returns from ULIP may not be guaranteed.´ In unit linked
products/policies, the investment risk in investment portfolio is borne by the policy
holder´. Depending upon the performance of the unit linked fund(s) chosen; the
policy holder may achieve gains or losses on his/her investments. It should also be
noted that the past returns of a fund are not necessarily indicative of the future
performance of the fund.

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 A‘ .‘(!‘!‘ (+!'0‘$!!'‘‘!* &#'‘&‘‘D‘
ULIPs offered by different insurers have varying charge structures. Broadly, the
different types of fees and charges are given below. However it may be noted that
insurers have the right to revise fees and charges over a period of time.

①(!"&*"‘ %%# &#‘ (+!? This is a percentage of the premium

appropriated towards charges before allocating the units under the policy.
This charge normally includes initial
and renewal expenses apart from commission expenses.

â‘
#(%&/‘ (+!'? These are charges to provide for the cost of insurance
coverage under the plan. Mortality charges depend on number of factors
such as age, amount
of coverage, state of health etc.

①*‘
+!"!‘ !!'? These are fees levied for management of the
fund(s) and are deducted before arriving at the Net Asset Value (NAV).

①#%& /G‘ "&&'(&#‘ (+!'? These are the fees for administration of
the plan and levied by cancellation of units. This could be flat throughout
the policy term or vary at a predetermined rate.

①*((!!(‘ (+!'? A surrender charge may be deducted for premature

partial or full encashment of units wherever applicable, as mentioned in the
policy conditions.

①*‘7& &+‘ (+!?‘Generally a limited number of fund switches may

be allowed each year without charge, with subsequent switches, subject to a
charge.

①!(,& !‘ :‘ !* &#'? Before allotment of the units the applicable
service tax is deducted from the risk portion of the premium. Investors may
note that the portion of the premium after deducting for all charges and
premium for risk cover is utilized for purchasing units.

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‘
9‘ .‘'#*%‘#!‘,!(&$/‘)!$#(!‘'&+&+‘!‘-(#-#'%D‘
One has to verify the approved sales brochure for
①all the charges deductible under the policy
①payment on premature surrender
①features and benefits
①limitations and exclusions
①lapsation and its consequences
①other disclosures
①Illustration projecting benefits payable in two scenarios of A% and 10%
returns as prescribed by the life insurance council

å‘ #7‘"* ‘#$‘!‘-(!"&*"‘&'‘*'!‘#‘-*( '!‘*&'D‘

The full amount of premium paid is not allocated to purchase units. Insurers allot
units on the portion of the premium remaining after providing for various charges,
fees and deductions. However the quantum of premium used to purchase units
varies from product to product. The total monetary value of the units allocated is
invariably less than the amount of premium paid because the charges are first
deducted from the premium collected and the remaining amount is used for
allocating units.

;‘ ‘ #!‘'!!3‘(!$*‘ #$‘-(!"&*"'‘&$‘ #‘'&'$&!‘ 7&‘!‘ -#%& /0‘$!(‘

-*( '&+‘&D‘
The policyholder can seek refund of premiums if he disagrees with the terms and
conditions of the policy, within 15 days of receipt of the policy document (Free
Look period). The policyholder shall be refunded the fund value including charges
levied through cancellation of units subject to deduction of expenses towards
medical examination, stamp duty and proportionate risk premium for the period of
cover.

1=‘.‘&'‘!‘ ''!‘%*!‘ D‘

NAV is the value of each unit of the fund on a given day. The NAV of each fund is
displayed on the website of the respective insurers.

11‘.‘ &'‘ !‘ )!!$&‘ -/)%!‘ &‘ !‘ !,!‘ #$‘ (&'3‘ # *((&+‘ *(&+‘ !‘
!("‘#$‘!‘-#%& /D‘
The Sum Assured and/or value of the fund units is normally payable to the
beneficiaries in the event of risk to the life assured during the term as per the
policy conditions.

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 1j‘.‘&'‘!‘)!!$&‘-/)%!‘#‘!‘"*(&/‘#$‘!‘-#%& /D‘
The value of the fund units with bonuses, if any is payable on maturity of the
policy.

16‘'‘ &‘ -#''&)%!‘ #‘ &,!'‘ &&#%‘ #(&)*&#‘ )#,!‘ !‘ (!+*%(‘
-(!"&*"D‘
Yes, one can invest additional contribution over and above the regular premiums as
per their choice subject to the feature being available in the product. This facility is
known as ³TOP UP´ facility.

18‘.!!(‘#!‘ ‘'7& ‘!‘&,!'"!‘$*‘$!(‘3&+‘‘‘

-#%& /D
Yes. ³SWITCH´ option provides for shifting the investments in a policy from one
fund to another provided the feature is available in the product. While a specified
number of switches are generally effected free of cost, a fee is charged for switches
made beyond the specified number.

12‘ ‘‘-(&%‘! '"!G7&(7%‘)!‘"!D‘

Yes, Products may have the ³Partial Withdrawal´ option which facilitates
withdrawal of a portion of the investment in the policy. This is done through
cancellation of a part of units.

1A‘.‘--!'‘&$‘-/"!‘#$‘-(!"&*"'‘&'‘&' #&*!D‘

‘ &' #&* !‘ 7&&‘ (!!‘ /!('‘ #$‘ #""! !"!‘ C If all the premiums
have not been paid for at least three consecutive years from inception, the
insurance cover shall cease immediately.
Insurers may give an opportunity for revival within the period allowed; if the
policy is not revived within that period, surrender value shall be paid at the end of
third policy anniversary or at the end of the period allowed for revival, whichever
is later.

)‘ &' #&* !‘ $!(‘ (!!‘ /!('‘ #$‘ #""! !"!‘ @@ At the end of the
period allowed for revival, the contract shall be terminated by paying the surrender
value. The insurer may offer to continue the insurance cover, if so opted for by the
policy holder, levying appropriate charges until the fund value is not less than one
full year¶s premium. When the fund value reaches an amount equivalent to one full
year¶s premium, the contract shall be terminated by paying the fund value.
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19‘.‘&$#("&#‘(!%!‘#‘&,!'"!'‘&'‘-(#,&!‘)/‘!‘'*(!(‘#‘!‘
-#%& /#%!(D‘
The Insurers are obliged to send an annual report, covering the fund performance
during previous financial year in relation to the economic scenario, market
developments etc. which should include fund performance analysis, investment
portfolio of the fund, investment strategies and risk control measures adopted.

86‘ #"-(&'#‘)!7!!‘&‘&3!‘%'‘‘(&&#%‘%'?‘

1‘ !' (&-&#? Unit Linked Insurance Plans offered by insurance companies allow
policy holders to direct part of their premiums into different types of funds (equity,
debt, money market, hybrid etc.) Here the risk of investment is borne by the
policyholder.

Traditional insurance plan Conventional Plans. They usually invest in low risk
return options and offer guaranteed maturity proceeds along with declared bonuses.

j‘ %!:&)&%&/‘ #$‘ &,!'"!? Unit Linked Plans give the investor flexibility to
invest as per his risk profile, financial commitments and convenience. The investor
can choose to invest either in equity, or in debt or in hybrid fund and even change
his investment strategy.
But the conventional plans do not allow him to choose investment avenues. The
funds are invested as per the strategy and discretion of the company.

6‘('-(! /? Most Unit Linked Plans allow the investor to track his portfolio.
They also regularly intimate regarding the percentage of the premium that is
invested along with the charges levied. The investors are also kept informed about
the value and number of fund units that the investor holds.

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In conventional plans, the premiums are invested in a common 'with profits' fund
and therefore the investor cannot track his individual portfolio.
‘
8‘
*(&/‘ )!!$&'‘ -/#*? At the time of maturity the investor redeems the
units collected at the prevailing unit prices. Some plans also offer loyalty or
additional units annually or at the time of maturity.
At the time of maturity the conventional investor gets the sum assured plus
bonuses, if applicable in the plan.

2‘(&%‘7&(7%? Unit Linked Plans allow the investor to make withdrawals

from his fund, provided the fund does not fall below the minimum fund value and
subject to other conditions.
Conventional plans do not allow the investor to withdraw part of your fund.
Instead, some policies offer the investor the facility to take a loan against his
investment.

A‘ 7& &+‘ #-&#'? The investor can change his investment fund decision by
switching between the funds as being offered by the policy.
Not available since the investment decision is taken by the insurance company.

9‘ (+!'‘'(* *(!?‘Unit Linked Plans specify the charges under various heads.
Conventional plans do not specify the charges involved.

5.‘ 

 ‘
K?

With the advent of private players in the insurance, companies resort to

rampant promotion. Promotion mix for this sector is as follows:

,!(&'!"!? Advertisement can be done through the telecast media,

broadcast media and print media. Insurance companies have been making
optimal use of all the three kinds. Use of World Wide Web, as media is
almost negligible and will not be very frequent in the near future considering
the fact that the majority of customer base of these companies is not yet
exposed to the Internet. The telecast media has been the most effective of all

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in case of the insurance sector. Most of the companies have their separate
advertising section to take care of this aspect. An important consideration
while making the decision as to the selection of the media is budgetary
constraint. Since the insurance companies work on a large scale, usually this
constraint does not stand as an obstacle.

*)%& &/? It is a device to promote business without making any payment

and therefore it could be also called as unpaid form of persuasive
communication bearing a high rate of sensitivity. Developing support with
the media is an important aspect of publicity. This makes it essential that the
PR officers working in the insurance organizations maintain contacts with
the media personnel, organize press conference, and offer small gifts and
memento to them. These days LGD marketing is gaining popularity the
world over. It also can be applicable here. At the apex and regional levels,
the PRO¶s bear the responsibility of projecting positive image of the
organization. Thus it is necessary to select suitable personnel for this. They
should be in particular taught to deal with people, simple things like talking,
greeting etc.

%!'‘(#"#&#? Incentives to the end users for taking the policy play an
important role in promoting the insurance business. Since the insurance
business is also related to achieving of a particular target, it is pertinent that
the policymakers assign due weight age to the same. The offering of small
gifts during a particular period, the rebate, discount, bonus can increase
business of organization by leaps and bounds. Besides, there can be gifts for
the insurance agents also.

!('#%‘!%%&+? Personal selling in case of the insurance organizations is

quite important considering the existence of the insurance agents spread at
all levels. Selection of these agents, their training is responsibility of the
organization. There is difference in urban and rural market. Rural customers
might be uneducated / uninformed etc. compared to the urban customer.
Hence the organizations will have to make selections of the rural and urban
agents accordingly.

ÿ

.#(‘ #$‘
#*? Word of mouth communications result into wider
publicity, which substantially sensitize the process of influencing the
impulse of users/prospects of the insurance services. They satisfied group of
customers, opinion leaders, the social reformists, the popular personality¶s
acts as word of mouth communicators. The advertisement slogans may be
insensitive, the publicity measures may be ineffective but the positive
feelings of friends and relations communicated cannot be ineffective. This
makes it clear that the most important thing in the promotion of any business
is the quality of services.

!%!"(3!&+?‘With the development of satellite communication facilities

and with the expansion of the television network, we find telemarketing
gaining popularity the world over. The insurance organizations in general
need to promote telemarketing. The foreign insurance companies have been
assigning due weight age to this and in India this is beginning to gain
importance with the advent of competition in this sector. The telemarketer is
supposed to be well aware of the telephonic code so that the task of
satisfying the customers/their queries will not consume much of time.

.#(%‘ .&!‘ .!)? In banking as well as insurance, more and more

importance is being given to online contact facilities whereby
complaints/comments could be sent through an email. Email is fastest
written mode of communication and since it has been recognized legally, its
use to clear doubts has been in full swing.

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 A‘ 
 ‘   ‘ 
?‘

Channel development is basically to convince the potential customer to become

advisors. Now these advisors will convince some other people and that how
channel is made. Now the channel development involves a recruitment & selection
process, which a person has to undergo in order to become an advisor.

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A1‘
! (*&"!‘(# !''‘&‘  ‘(‘&$!?‘Before an organization begins

recruiting applicants, it should form a checklist of question, which outlines a
chronological sequence for the recruitment and selection process. Same is to be
done with the HDFCSLI recruitment and selection procedure, it also forms a
checklist of questions, which are termed as the initial starter for the recruitment
procedure. The questions are given below with the specifications along with them:

1.‘ .‘3&‘#$‘!‘>#)‘&'‘#‘)!‘$&%%!D‘

This question has a wide spectrum of answers. Hence, to answer this question in to
tally following sub-questions are to be answered.

①"!‘#$‘!‘>#)?‘Life Insurance Consultant

①.#‘&'‘!‘)#''? No boss
①E#)‘ #)>! &,!?‘ To sell life insurance policies or product and achieve sales
targets.
①#7‘ $(‘ !‘ >#)‘ &'‘ -!('#%%/‘ (!'-#'&)%!‘ $#(‘  &!,&+‘ (!'*%'?‘ Job
holder will not be responsible for achieving the sales targets because in this
kind of the job there is no salary paid, no boss over them and it is totally
commission based job, so it is on the consultant whether he think himself
responsible or not.
This job is principally dealing with the end users who are interested to be
insured. HDFCSLI looking for the persons who fulfill this job
for life long because life insurance business is a life long business and will
not end till the human being is there on the earth.

①%(/‘ ‘ (!"*!(&#?‘ It is totally commission based job and

HDFCSLI provide fixed salary for this. There is much scope of getting a
huge collection of incentives in the form of gifts, trips and other service.
After getting the answer of these questions, we will move towards next
question.

2.‘ .‘'#(‘#$‘-!('#‘7#*%‘#‘!‘>#)‘'* !''$*%%/D

ÿÿ
 It is very important to know that what sort of person would do this job of Life
insurance consultant successfully. HDFCSLI specifies some qualities, which
must be there in a life insurance consultant. These qualities suggest some skills
that are listed below:

①#$&! !: This is the main skill, which a consultant must contain because
till he will not confident, he would not be able to convince the different kind
of people.
①!%$@"#&,&#? Self motivation is an essential quality, which must be,
possess by an insurance a consultant because in this job, rejection is must
more than acceptance, so an consultant has to be very strong from the heart
and should not depressed soon.
①!('*'&#? It is one of the very effective qualities, which must be there in
an insurance consultant. It shows the perceiving ability of an consultant for
his job.
①(+!‘#‘)!‘$& &%%/‘&!-!!? For a job which is commission based,
an urge should be their in an consultant to become financially independent,
then only he would be able to generate more money for himself and for the
company.
â‘
!%&#'&-‘ '3&%%'? This very necessary element of quality shown in a
consultant by the HDFCSLI because these skills help the consultant to make
good relation from his customers, which is very necessary for the future of
the company

6‘ .!(!‘7&%%‘&'‘-!('#‘)!‘$#*D‘
‘

Now, we know what the job is and what kind of person is required for the
job-only we need to find this person. The persons for this kind of job of a
life insurance consultant can be found at many places through many
resources but most of the insurance consultant chosen from the relations and
with direct contacts. The following are the sources from where we can find
out the persons who can become good life insurance consultant:
①"-%#/"!‘+! &!'? Employment agencies can be used as a wide source
for the persons to this job.

①,!(&'&+? It also plays a very effective role in finding of the persons for
becoming an insurance consultant. HDFCSLI also use this source.

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 ①* &#%‘ &'&*!'? They are also one of the main sources for the
company to find out the person as a consultant.

①&(! ‘ # ‘7&‘-!#-%!? HDFCSLI also uses direct contacts with people
and offers business opportunity to them, company representative¶s contact to
the persons and explains business opportunity presentation to them.

8‘ .& ‘-!('#‘&'‘#‘)!‘(! (*&!D‘

The simple answer to this is that the one who fits the specification and who
has the essential characteristics as defined should be recruited. This implies
a structured approach of three steps. These are:

&('0 compare company¶s specification for a consultant with that of the

prospect¶s specifications and remove all these who do not meet the essential
criteria.

! #%/0 move on to those areas where the µMeasuring Instruments¶ and an

assessment at interview are needed. For instance,

①Education, which should be at least 12TH pass.

①Age, above 1å years.
①Married people are given more importance.
①Doesn¶t matter male or female.
①He / She should possess high ambitious and zeal to become financially
independent.

&(%/0 involves the identification pattern of behavior, which will helping

in forming judgments. After all three steps have been followed and care has
been taken to see that the candidate fits into the specific job requirements
one can be sure of choosing the right candidate for the right job.

Aj‘!%! &#‘‘% !"!‘(# !*(!‘ #$‘& &%‘ #'*%?‘ As we know

that ³Recruitment involves seeking and attracting a pool of people, from which
qualified candidates for the job vacancies can be chosen. Recruitment sets out the
necessary stages to clarify what kind of person is required, where he/she might
found and how to make right choice´.
ÿD
Recruitment of life insurance consultant is also a very impressive criterion because
in this process we need to recruit and select those persons who bear some special
characteristics, which are very necessary to sell insurance. Life insurance is an
intangible product and it needs insurance advisors who are having tremendous
skills to sell an intangible product.

The key to good selection is preparation. So many people are found of their ability
to pick a good sales person and so often, that person is good but not at the
particular job which needs to be done. It is vital to be clear about what job needs
doing and what kind of person would do it best; and then to find that person. Once
the plan has been decided, the choice of candidate should be made carefully.

The effectiveness of the unit manager is dependent to great extent on the

effectiveness of the team of advisors supporting him, because an advisors works
under a unit manager. So it is very important to recruit a very good team of life
insurance advisors who can give their best to increase the effectiveness and the
profit of the company. HDFCSLI give very much stress on it and to recruit only
those people as a life insurance advisor who is having some key skills specifies by
the company. Further we will show the recruitment and selection procedure of life
insurance consultants in HDFCSL insurance company ltd, and try to analyze
whether it is the best process of recruitment or company can do certain new
modifications to enhance their recruitment processor for the increment of
company¶s effectiveness. From the next page, we will see the recruitment and
selection procedure of life insurance consultants.‘

‘A selection system is a set of successive screens at any of which an applicant

may be dropped from further consideration´. The process of selection of insurance
consultant differs from companies to companies depending upon the requirement.
In HDFCSLI the applicant goes through various stages, the chances of selection
get better as more and more stages are cleared.

!%! &#‘ -(# !*(!?‘ The following selection procedure is used by for the
selection of life insurance consultant in HDFC Standard Life insurance company-

①(!%&"&(/‘ &!(,&!7? In this interview the applicant have face-to-face

interaction with the respective Unit Manager and clear out all queries and

ÿA
 doubts about job. After this interview session, the prospects give his
conformation whether he is interesting to join the organization or not.
①#("%‘--%& &#? After the confirmation of the prospects the next step is
to filling up of application form with the submission of all necessary
documents that are listed below: ‘
‘
º‘ Birth‘certificate (10th class passing certificate, driving license, etc‘
º‘ Address proof (ration card, voter card, telephone bill, etc‘
º‘ 10 passport size color photographs.‘
º‘ Highest qualification certificates (mark sheet
º‘ A payment of Rs. å25 towards examination fees
º‘ After checking the form and all documents the operations department give
its confirmation that the prospects is genuine and is subject for further
process.

! %(&#‘ #$‘ !‘ #$‘ (&&+‘ ‘ ,!*!? After the previous step, operation
department give the details about the training date and about the venue of the
training. The training is a necessary part of the selection procedure. This training is
under the curriculum of Insurance Regulatory And Development Authority
(IRDA). The duration is 100 hours.

Full time training (10:00 AM to 05:00 PM)

!'&+? After completing the training conducted by IRDA, a test is conducted on

the same venue. This test is taken based on the training and contains the syllabus,
which is prescribed by the IRDA. The test and previous training is necessary for
every body that wants to become an insurance advisor.
①''*!‘#$‘%& !'!? After passing out the test conducted by IRDA, a license is
issued from the IRDA. This license is the proof for the insurance advisor
and an advisor can start his work just after getting this license. Getting the
license is the last step in selection process.
①''&+"!‘ #‘ !‘ 
G
‘ ? The following advisor is assigned to a
unit manager to whom he has to report about his work and about any query
concerning about insurance and about the company.
The above are the following steps which are use to select an insurance
advisors/agents. The license issued by the IRDA is the only authorized power. This

ÿ·
gives the person a right to do insurance. This license is supported to renew after
every three years.

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‘

! (*&"!‘(# !''‘#$‘ '‘‘  ‘ ?‘
‘

Check eligibility criteria

Fill up of Agency form alog with Documents

IRDA Training (50 hrs)

IRDA Exam

Fail Pass

Exit Product Training

Traditional Pr. ULIP Product

Internal Assessment

Fail Pass

Exit Certification

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 7.‘ 
‘‘   ‘  ?‘

Prosperity of an insurance company mainly depends upon how they maintain their
financial consultants and how they get back full amount of efforts from the
financial consultants so that the financial consultants can lead an insurance
company to enjoy a competitive advantage over other insurance companies. For
this purpose the insurance company should do some additional training program to
their financial consultants so that they can read the customers perception and
accordingly they can allot different financial plans to different customers. For
making the financial consultants fitted for this objective, the company should
undertake the following methodologies---

①The financial consultants should understand that how to set up

discriminant analysis to screen potential good customer (low risk)
from bad customer (high risk) and turn up the new customer in low
risk and high risk. So that he can able to provide the Company product
according their risk.

①Financial Consultant should understand the correlation analysis so that

he can understand that which factor more affecting sales of the
Company.

①Financial consultant should understand that how to make a regression

analysis to calculate the risk of a customer.

①. The financial consultants should understand about the fund

management.

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 ①The financial consultants should understand about the measurement of
risk and return of each fund available in HDFC Standard Life
Insurance Company.‘
‘

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‘
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‘
‘
‘
‘
‘
‘
º‘ 91‘ &' (&"&‘ %/'&'?‘ A Financial consultant can explain his/her
customers only if he able to classify customer under which category i.e.
whether he/she belongs to high risk or low risk group. If he is able to
classify customer as under high risk group, then he should go to ULIP
because the return of the ULIP is subject to the market risk, otherwise he
should go for traditional plans. There are many factors influenced while a
customer get the insurance policy divide him/her in to either high risk or low
risk such as income, no of dependent members, age etc.
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Discriminant:
Groups= Risk (1, 2)
Variables= Income, Age and No. of family members
Analysis all
Priors equal
Statics=Raw table
Classify=No missing Pooled.

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The above table shows the means that asked for- it gives means on each variable for people in
each sub-group, and also the overall means on each variable.

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In this table µTest of Equity of group Means¶ the results of univariate ANOVA;s carried out for
each independent variable, are presented. Here, only age differ (sig. =.000) for the two group
(income and no. of family member).

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 Unweighted Weighted

1 income 29 29.000

age 29 29.000

nofmem 29 29.000

2 income 29 29.000

age 29 29.000

nofmem 29 29.000

Total income 5å 5å.000

age 5å 5å.000

nofmem 5å 5å.000

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Box¶s M Test of Equality of Covariance Matrices:

Sig. =0.000<0.05: can reject Ho: The population covariance matrices are not equal.
The significance value of 0.000 indicates that the data differ significantly from multivariate
normal. This means one can not proceed with analysis.

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An Eigenvalue indicate the proportion of variance explained. (Between-group sums of squares

divided by with-group sums of squares). A large eigenvalues (0.973) is associated with a strong
function.

The canonical relation is correlation between the discriminate score and the levels of the
dependent variable. A high correlation indicate a function that discriminant well. The present
correlation of 0.702 is not extremely high (1.00 is perfect).
Canonical Correlation=0.702---(0.702)*(0.702)=49.2å% of the variance in the dependent
variable can be accounted for by the model(all three independents variable)

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For this purpose, I use discriminate analysis technique among 5å sample size
through which a financial consultant may identify his customers whether he
belongs to high risk or low risk and accordingly he may go for ULIP if he belongs
to high risk group or he may go traditional plans if he belongs to low risk group.
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Q. HDFC Standard Life Insurance Company wanted to give the insurance policy to
5å customers of alwar rajasthan. The company wanted to turn out to be µlow risk¶
and µhigh risk¶ customer. These data of 5å customers are given a table. I will
perform a discriminant analysis and advise HDFC Standard Life Insurance
Company on how to set up its system to screen potential good customer (low risk)
from bad customer( high risk). In particular, we will build a discriminant function
and find out:
1. The percentage of customer that it is able to classify correctly.
2. Statistical significance of the discriminant function.
3. Which variable (age, income, no. of family member) are relatively better in
discriminanting between µlow risk¶ and µhigh risk¶ applicants.
4. How to classify a new customer into of two groups- µ low risk¶ or µhigh risk¶ by
building a decision rule and a cut off score.
The code for low risk customer is 1 and the code for high rish customer is 2 in the
Risk in the table.

S.NO. RISK INCOME AGE NOFMEM

1 2 33AA1 53 5
2 2 20000 47 5
3 2 17000 39 7
4 2 2A000 54 9
5 2 23000 4A 4
A 1 20000 41 4
7 2 2A000 5A 7
å 1 17000 33 5
9 2 24000 47 å
10 1 23000 57 7
11 2 12000 24 5
12 2 19000 51 A
13 1 22000 40 2
14 2 2A000 54 4
15 2 24000 52 3
1A 2 22000 52 A
17 2 322A4 52 1
1å 1 277å2 35 5
19 2 32000 A0 14
20 2 25000 50 A

rD
21 1 25000 30 5
22 1 22000 3å 7
23 1 1å000 30 1
24 1 22000 42 5
25 2 35743 5å A
2A 1 2å000 33 3
27 2 25000 5å 2
2å 2 237AA 52 A
29 1 10000 43 4
30 1 12000 25 3
31 1 17000 30 4
32 2 17A00 50 A
33 2 3000 25 2
34 2 5000 4å 4
35 2 5000 33 2
3A 2 3000 2å 2
37 2 5000 30 5
3å 2 3500 31 5
39 2 10000 2A å
40 2 5000 2A 4
41 1 27000 23 3
42 1 10000 27 3
43 1 14000 2A 2
44 2 20000 25 21
45 1 15000 25 3
4A 1 30000 50 3
47 1 15000 32 3
4å 1 20000 2å 4
49 1 10000 22 5
50 1 20000 22 A
51 1 15000 20 3
52 1 25000 22 4
53 1 1å0000 22 3
54 1 15000 21 1
55 1 15000 21 3
5A 1 20000 22 3
57 1 20000 22 5
5å 1 20000 2å 3

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Wilks¶ lambda is the ratio of within-groups sums of squares to the total sums of squares. This is
the proportion of the total variance in the discriminant score not explaind by difference among
groups. A lambda of 1.00 occurs when observed group means are equal( all variance is explained
by factors other than difference between those means), while a small lambda occurs when
within-group variability is small compared to the total variability. A small lambda indicates that
group means apper to differ. The associate significance value indicates whether the difference is
significance. Here, lambda of 0.507 has a significant value (sig. =0.000), thus the group means
appear to differ.

The Wilks¶ Lambda=0.507(which is equivalent to chi-square=37.044with 3 df) is significant at

the 0.000 level. This means that the discriminan function computed in this procedure is
statistically significant at the 0.000 level. Only then, one can proceed to interpret the result.
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Note: The signs (+ or -) indicate a positive or a negative relation with the dependent variable.
These ³discriminant function coefficients´ work just like the beta-weights in regression.
The discriminate function (based on standarised discriminate coefficients)
Z=0.3å2*Nofmem + 0.934*Age -0 .2A0* Income

Using this equation, given someone¶ value on age, income and no. of family member, we can
calculate their score on the discriminant function. To figure out what the DF score means, look at
the +(#*-‘ !(#&'
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Structure Matrix( Discriminant Loading)-Order from highest to lowest by the absolute size of the
loading, the sign + or ± indicate onle by a positive or negative relationship with the dependant
variable.
The discriminant function (based on discriminant loading):
Z=0.å93Age + 0.37ANofmem ± 0.101Income


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The µCanonical Discriminant Function Coefficients¶ indicate the unstandardized scores
concerning the independent variables. It is the list of coefficients of the nstandardized
discriminant equation. Each subject¶s discriminant score would be computed by entering his or
her variable values (raw data) for each of the variables in the equation.
The discriminant function ( based on unstandarized discriminant coefficients):
A‘@6;6;‘B‘====‘ #"!‘B‘==;9 +!‘B‘=1j;#$"!"‘

Which Discriminant function to use and when?

①For &!(-(!&#‘ -*(-#'!0 use discriminant loading. The standardized discriminant

coefficients can also be used.
Any variable exhibiting a loading of more than +0.30 or less than -0.30 is consider a
substantive discriminant(i.e.,age)

①To calculation the discriminant Z score for the %''&$& &#‘ -*(-#'!'0 use the
unstandarized discriminant coefficient.

 
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µFunctions at Group Centroide¶ indicates the average discriminant score for subjects in the two
groups. More specifically, the discriminant score for each group when the
Variable means (rather than individual values for each subject) are entered into the discriminant
equation. Note that the two scores are equal in absolute value but have opposite signs.
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Processed 5å

Excluded Missing or out-of-range group 0

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discriminating variable

Used in Output 5å

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Cases Used in Analysis

risk Prior Unweighted Weighted

1 .500 29 29.000

2 .500 29 29.000

Total 1.000 5å 5å.000

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Predicted Group Membership

Risk 1 2 Total

Original Count 1 25 4 29

2 7 22 29

% 1 åA.2 13.å 100.0

2 24.1 75.9 100.0

a. å1.0% of original grouped cases correctly classified.

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µClassification Results¶ is a simple summary of number and percent of subjects classified
correctly and incorrectly. This table gives information about actual group membership vs.
predicted group membership.

①Overall % correctly classified= å1.0%

①Sensitivity= 25/29 = åA.2%
①Specificity= 22/29 = 75.9%

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º‘ AnalyzeëClassifyëDiscriminantëGrouping Variable (Risk)ëDefine Range (High

RISK(2),Low Risk (2) )ëIndependents (income, age and no. of family member)ëStatistics
ëClassify ëSave (check all boxes)ëMethod (Stepwise method)ëOK

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Here¶s the table that show you the steps SPSS went through. Based on this table, ³ Age´ is the
best single predictor, and ³ no. of family member´ is the next one. If we were asked ³how many
variable would we include in a model to get the best possible prediction?´ the answer would be
³two of them: age and nofmem´.

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the data just one predictor( age) or with two predictors( age and nofmem).

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If we wanted to know whether someone¶s score on this new, simpler Discriminant function
suggested that they were the high risk or low risk. we compare their score on the DF to these
centroids. If their score are closer to _ 0.937, they were probably the low risk, if their score were
closer to + 0.937, they were probably the high risk.
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To answer this question, we look at the computer output labeled Table classification result. This
is a part of the discriminantion analysis output from any computer pacage as spss, statistica, sas
and so on. For example if a priori probabilities chosen for the classification into the two groups
are equal, as we have assumed while generating this output, then we will very likely see similar
number in our output.
This classification result table also called the classification matrix( also known as the confusion
matrix), and it indicate that the discriminant function we have obtained is able to classify å1.0%
of the 5å object correctly.
More specifically, it also says that out of 32 cases predicted o be in group1, 25 were observed to
be in group1 and 7 in group 2.
Similarly, 2A cases predict in group 2, we understand that 22 were observed to be in group in2
and 4 in group 1.
Thus, on the whole, only 11(7+4) cases out of 5å were misclassified by discriminant model, thus
giving us a classification accuracy level of C‘2å@11G2å‘#(‘å1M‘

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This question is answered by looking at Wilks¶ Lambda and the probability value for he f-test
given in Wilks¶ Lambda table.

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The value of wilks¶ lambda is 0.507. This the value is between 0 and 1, and a low value indicate
better discriminant power of model. Thus, 0.507 is an indicater of the model being good.
The value of the f- test indicate that the discriminant between the two group is highly significant.
Which indicate that f- test would be significant at confidence level of up to
1@===N1==A1==M‘
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To answer this question, we look at the standardized coefficient in out put. These are given in
table. &'‘#*-*‘'#7‘‘+!‘&'‘!‘)!'‘-(!& #(0 with the coefficient of 0.934, followed
by no. of family member, with a coefficient of 0.3å2, income is the last, with a coefficient of:-
0.2A0. please recall that the absolute value of the standardized coefficient of each variable
indicates its relative importance.
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This is the most important question to be answered. Please remember why we started out with
the discriminant analysis in this problem. HDFC Standard Life Insurance Company wished to
have a decision model for screening policy applicants.
The way to do this is to use the output in table unstandardised coefficients in the discriminant
function and table means of canonical variable( function at group cenroids)

 
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The function of group centroids, gives us the new means for the transformed group centroids.
Thus, the new mean for group 1(low risk)is -0.9A9, and the mean for group 2(high risk) is
+0.9A9. this means that the midpoint of these two is 0. This is clear when we plot the two means
on a straight line, and locate their midpoint, as shown below

-‘ 0.9A9 + 0.9A9

Mean of Group 1(high risk) Mean of Group 2(high risk)

This also gives us a decision rule for classifying any new case. If the discriminant score of an
applicant falls to the right of the midpoint, we classify him as µhigh risk¶, and if the discriminant
score of an applicant falls to the left of the midpoint, we classify him as µ low risk¶. In this case,
the midpoint is 0. Therefore, any positive(greater than 0) value of discriminant score will lead to
classification as¶high risk¶ any negative( less than 0) value of the discriminant score will lead to
classification as µ low risk¶. But how do we compare the discriminant of an applicant?
We use the applicant¶s age, income and no. of family member and plug these into the
unstandardised discriminant function. This gives us his discriminant score.


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Y= -3.939 + income (0.000) + age(0.097) + nofmem(0.129)

Where Y would give us the discriminant scores of any person whose Age, Income, and No. Of
family member were known.

Let us take an !:"-%! of a policy applicant to HDFC Standard Life Insurance Company of a
person 7#‘+!‘&'‘82, has an & #"!‘#$‘
'‘6=0===‘-!(‘ "#0 ‘#‘#$‘$"&%/‘ "!")!(‘
(!‘ A Plugging these values into the discriminant function or model above, we find his
discriminant score Y to be-

Y= -3.939 + 30,000(0.000) + 45(0.097) + A(0.129)

Y= -3.939 + 0 + 4.3A5 + 0.774

Y=1.200

According to our decision, rule any discriminant score to the right of the midpoint of 0 lead to a
%''&$& &#‘ &‘ !‘ I&+‘ (&'3J‘ +(#*- Therefore, he should be denied the policy, as he is a
µhigh risk¶ customer. The same process is to be followed for any new applicant. If this
discriminant score is to the left of the midpoint of 0, we should give the policy, as he is a µlow
risk¶ customer.

Let us take an #!(‘ !:"-%! of a policy applicant to HDFC Standard Life Insurance
company of a person who +!‘ &'‘ j20 has an & #"!‘ 6=0===‘ -!(‘ "#0‘ and #‘ #$‘ $"&%/‘
"!")!(‘(!‘8 Plugging these values into discriminant function, we find his discriminant score
Y to be-

Y= -3.939 + 30,000(0.00) + 25(0.097) + A(0.129)

Y= -3.939 + 0 + 2.425 + 0.51A
Y= -0.99å

According to our decision rule any discriminan score to the left of the midpoint of lead to a
%''&$& &#‘ &‘ !‘ %#7‘ (&'3‘ +(#*-‘ We should be given the policy, as he is a µlow risk¶
customer.

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I would like to build a correlation model consisting of six variables to sales. I collect data of the
sales managers of HDFC Standard life insurance of April month. These are sales, no. of
Financial Consultant, marketing activity, competition, environment factor, personal factors,
company policies, training and motivational factors. I would like to correlate the sales of April
month with these other factors.

#((!%&#‘&'‘!‘"!'*(!‘#$‘!‘'(!+‘‘&(! &#‘#$‘!‘%&!(‘(!%&#'&-‘)!7!!‘
7#‘,(&)%!'‘

1(-&+@‘ !(-%#?‘The first step of any statistical analysis is to first graphically plot the
data. In terms of correlation graphical plots are called scatterplots. Scatterplots can show you
visually the strength of the relationship between the variable.

!%! ‘(-‘ !+ /‘ &%#+'‘‘  !(‘‘ %& 3‘'&"-%!0‘‘ !$&!‘

Move appropriate variable into the ³Yaxis´ and ³X axis´

Ar
   

 34 

    

  
   
  


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Correlation is the measure of the strength and direction of the relation between the variable

①Correlation can vary between -1 and 1.

①Direction of the relationship can be either positive or negative. A positive relationship is
indicating by positive value (0 to 1). A negative relationship is indicating by a negative
value (0 to -.1).
①Strength of the relationship is measured from 0 to 1/-.1. The farther value is away from0,
the stronger the relation. The approximate criteria for strength is 0 for no effect, .1 for a
small effect, .3 for a medium effect, and .5 for a large effect. Notice those values can be
either positive or negative, depending upon the direction of the relationship, so a .2 and -
.2 relationship indicate the same strength, but different direction.
①Another useful piece of information is R2- the coefficient of determination. This is the
amount of variance explained by another variable.
①R Square is not provided in the output, but we can calculate R square by squaring the
pearson Correlation (r).

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We are going to correlate FC, marketing activity, competition, environment factors, personal
factors, company policies, training and motivational factor with sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘ @‘
①Here is a positive correlation between the two variable, r= 0.7Aå, p= <0.05.
①R square ± the coefficient of determination is the amount of percentage of
variance explained by other variable. R square= 0.7Aå*0.7Aå = 0.591
①R square, the percentage of variance explained in FC is 59.1%. This also means
that 40.9% of the variance is unaccounted because 100-59.1= 40.9.
①Direction of the relationship is positive.
①Strength of the relationship is 0.7Aå. The value is away from 0, so the stronger the
relation and large effect on sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘"(3!&+‘ &,&/@
①Here is not correlation between the two variable, r= -0.191, p= >0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by other variable. R square= -0.191* -0.191 =0.03A
①R square, the percentage of variance explained in marketing activity is 3.A%. This
also mean that9A.4% of variance is unaccounted because 100-3.A= 9A.4
①Direction of the relationship is negative.
①Strength of the relationship is -0.191. The value is closer from 0, so the weak the
relation and small effect on sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘ #"-!&&#@‘
①Here is not correlation between the two variable, r= 0.102, p=>0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by another variable. R square= 0.102*0.102=0.01
①R square, the percentage of variance explained in competition is 1%. This also
means that 99% of the variance is unaccounted because 100-1= 99%.

·c
 ①Direction of relation is positive.
①Strength of the relationship is 0.102. The value is closer from 0, so the weak the
relationship and small effect on sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘!,&(#"!%‘$ #('@‘
①Here is not correlation between the two variable, r= 0.0AA, p=>0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by another variable. R square= 0.0AA*0.0AA=0.004
①R square, the percentage of variance explained in environmental factors is 0.4%.
This means that 99.A% of the variance is unaccounted because 100-.4= 99.A
①Direction of relation is negative.
①Strength of the relationship is 0.0AA. The value is closer from 0, so the weak the
relationship and no effect on sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘-!('#%‘$ #('@‘
①Here is not correlation between the two variable, r= 0.252, p=>0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by another variable. R square= 0.252*0.252=0.0A3
①R square, the percentage of variance explained in personal factors is A.3%. This
mean that 93.7% of variance is unaccounted because 100-A.3=93.7.
①Direction of relation is positive.
①Strength of the relationship is 0.252. The value is closer from 0, so the weak the
relationship and small effect on sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘ #"-/‘-#%& &!'@‘

①Here is not correlation between the two variable, r= 0.0A0, p=>0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by another variable. R square= 0.0A0*0.0A0=0.004
①R square, the percentage of variance explained in company policies is 4%. This
means that 9A% of variance unaccounted because 100-4=9A
①Direction of relation is positive.
①Strength of the relationship is 0.0A0. The value is closer from 0, so the weak the
relationship and no effect on sales.

·j
 º‘ #((!%&#‘)!7!!‘'%!'‘‘(&&+@‘
①Here is not correlation between the two variable, r= 0.0åA, p=>0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by another variable. R square= 0.0åA*0.0åA=0.007
①R square, the percentage of variance explained in training is 7%. This means that
93% of variance unaccounted because 100-7=93.
①Direction of relation is positive.
①Strength of the relationship is 0.0åA. The value is closer from 0, so the weak the
relationship and no effect on sales.

º‘ #((!%&#‘)!7!!‘'%!'‘‘"#&,&#%‘$ #(@‘
①Here is not correlation between the two variable, r= -0.327, p=>0.05
①R square- the coefficient of determinant is the amount of percentage of variance
explained by another variance. R square= -0.327*-0.327=0.107
①R square, in term of percentage of variance explained in motivational factor is
10.7%.This means that å9.3% variance is unaccounted because 100-10.7= å9.3
①Direction of relation is negative.
①Strength of the relationship is 0.327. The value is closer from 0, so the weak the
relationship and medium effect on sales.

‘
‘

·ÿ
96‘
!+(!''&#‘%/'&'?‘

I would like to build a regression model consisting three factors, to predict the risk of insurance
policy. The variable for which the data have collected are as follows.

Dependent variable:

Y= Risk

Independent variable:

X1= Income

X2= age

X3= no. of family member

Regression analysis:

A regression analysis is done to explain the variance (dependent variable), based on variation in
one or more other variable (Independent variable). In case there is only one variable to explain
the variance in one dependent variable, it is known as simple regression. If there are multiple
independent variable to explain the variance in a single dependent variable, it is known as a
multiple regression model.

We are going to make a multiple regression model. The linear equation commonly used for a
regression analysis is:

Y= a + bX1 + cX2 +dX3 +.....

Where, Y is the dependent variable and X1, X2, X3«are the independent variable, and b, c, d
are the coefficients of the respective independent variable.

·r
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From the above table, the equation can be written as follow:

··
Risk= 0.49å ± 2.914E-A (income) + 0.025(age) + 0.33(nofmem)

From the above equation it can be inferred, if the number of family member is increased by 1,
risk are estimated to increase by 0.033, assuming the other entire variable to be consistent.
Similarly the influence of the risk for every units increase or decrease in the given 3 factors can
be explained by their coefficients. The negative value for policy shows that as the policy of
insurance increase the risk decrease.

The measure of strength of association in the regression analysis is given by the coefficient of
determination denoted by r square. The coefficient varies between 0 and 1 and represent the
proportion of total variation in the dependent variable that is accounted for by the variation in
risk can be explained by the independent variable. From the model summery, the value R square
is 0.493 which shows that 49.3% of the variation in risk can be explained by the other
independent variable.

We also have the t-test value for the significance of individual independent variable to indicate
the significance level at 90% confidence level. From the above table we can see that only the
number of family member and age are statistically with a value of 0.4A and 0.000, which is less
than 0.1 (significant). Income is individually not significant.

From the model summery, the significance of F is 0.001. This indicates that the model is
statistically significant at a confidence level of 99.999%.

·å

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Reproduced below are the key parts of the output produced when we select the stepwise method.
When using this method we should also select the R Squared Change option in the Linear
Regression: Statistics.

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The above table shows us the order in witch the variable were entered and removed from our
Model. We can see that in this case two variable were added and none were removed.


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This table is important. The Adjusted R Square value tells us about our model accounts.

å

In the above table we can see that model 1. Which include only age accounted for 42.5% of the
variance (Adjusted R Square=0.427). The inclusion of no. of family member into model 2
resulted in an addition 3% of the being explained (Adjusted R Square=0.457).

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This table report on ANOVA, Which assesses the overall signification of our model. As p<0.05
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The Standard Beta Coefficients give a measure of the Contribution of each variable to the model.
A large value indicates that a unit change in this predictor variable has a large effect on the
criterion variable. The t and sig. (p) value give a rough indication of each predictor variable ± a
big absolute t value and small p value suggest that a predictor variable is having a large impact
on the criterion variable.
If we see in the table, which show that age has a large t-value and low sig. (p) value suggest that
the predictor variable is having a large impact on the criterion variable?
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The above table gives statistics for the variable that were excluded from each model.

The tolerance value is a measure of the correlation between the predictor variable and can vary
between 0 and 1. The closer to zero the tolerance value is for a variable, the strong the
relationship between this and the other predictor variable.

We should worry about variable that have a very low tolerance. SPSS will not include a predictor
variable in a model if I have a tolerance of less that 0.001. However, we may want to set our own
criteria rather higher- perhaps excluding any variable that has a tolerance level of less than 0.001.

åj

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When reporting the result of a multiple regression analysis, we want to inform about the portion
of variance accounted for by our model, the significance of our model and the significance of the
predictor variable. In the result section, we would write:

Using the stepwise method, Adjusted R Square=0.457; F2, 55= 24.99å, p<0.005. Significance
variable are shown below.

Predictor Variable Beta p B

Age 0.AA1 0.000 0.024

No. of family member 0.203 0.047 0.033

Constant (Intercept) 0.444

(Income is not a significance predictor in this model)

If we use the model for linear equation then it would be written as follows-

&'3A‘=888‘B‘+!N==j8‘B‘#‘#$‘$"&%/‘"!")!(N==66‘

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In forward stepwise regression the alogorithm adds one variable at a time, starting with the one
which explain most of the variation in yield(Y), adding one more variable to it, rechecking the
model to see that both variable from good model, then adding a third variable if it still adds to the
explanation of Y, and so on.

In our output of forward stepwise regression, the regression ends up with 2 out of three
independent variables remaining in the regression model. The two variables in the model are age
and no. of family member. We notice that only two significant variable (with sig. T<0.10) at
90% confidence level. The F- test for the model also indicate it is highly significant (F-24.99å,
P-0.000) and R square value for the model is .47A, witch is very close (0.493) to the three
independent variable model. If we decided to use the model from above table, it would be written
as follows:

&'3A‘=888‘B‘==j8+!‘B‘==66& #"!‘

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This procedure starts with all three variables in the model, and gradually eliminates those, one
after another, which do not explain much of the variance in Y. In our output of forward stepwise
regression, the regression ends up with 2 out of three independent variables remaining in the
regression model. The two variables in the model are age and no. of family member. We notice
that only two significant variable (with sig. T<0.10) at 90% confidence level. The F- test for the
model also indicate it is highly significant (F-24.99å, P-0.000) and R square value for the model
is .47A, witch is very close (0.493) to the three independent variable model. If we decided to use
the model from above table, it would be written as follows:

&'3A‘=888‘B‘==j8+!‘B‘==66& #"!‘

If a person age is 25 and no. of family member is 5 then risk«

Risk= 0.444 + 0.024*25 + 0.033*5

&'3A1j=;‘

åü
98‘ 
  ‘ ‘‘ ‘
 
?

For fulfilling this objective, I made analysis the following points so that I can understand how an
investor can make a balance between the risk and return of his/her chosen portfolio.

In an insurance portfolio, there is a mixer of equity and debt securities. An investor can make
minimization of risk and maximization of return of that particular portfolio by portfolio
rebalancing technique. Before understanding this technique, we should understand pros and cons
of equity and debt.

Understand the pros and cons of Equity and Debt

EQUITY

Y
 High returns , Low risk in Long term , High Liquidity


 Risky , not suitable for short term investment
‘
DEBT‘
Y
‘Stable and assured returns , Good investment for short term goals‘

? Low returns

Equity + Debt : When we combine Equity and Debt , returns are better than Debt but less
than Equity , but at the same time risk is also minimized compared to Equity and Debt ,
and when we apply technique of Portfolio Rebalancing ,both risk and returns are well
managed.

.‘&'‘#($#%&#‘
!)% &+D‘

Portfolio rebalancing is the technique through which an investor can make rearrange his portfolio
by changing equity and debt in some ratio, it may be 20:å0, 40:A0 or any ratio. The ratio depends
on a persons risk taking capability and return expectation. For an example let take the ratio to
A0:40, portfolio rebalancing is nothing but rebalancing investor¶s portfolio in same ratio, in case
the portfolio got changed after some months or years . Preferably the good time is every A
months or 1 yr , but not 15 days or 1 month.

.‘ ‘ ‘
‘ ‘D‘

Every investor should understand his/her both risk and return expectation and accordingly the
investor should proceed rebalancing his/her portfolio. An investor may use the following
concepts while rebalancing his/her portfolio-

ü

 '!‘1? Equity: Debt goes up.
&#? Decrease the Equity part and shift it to Debt so that Equity: Debt is same as earlier.

!'#? As the Equity has gone up , the investor could loose a lot of it if some thing bad
happens , he shift the excess part to Debt so that it is safe and grows at least.

'!‘j? Equity: Debt Goes Down.

&#? Decrease the Debt part and shift it to Equity, so that Equity: Debt is same as earlier.

!'#? As Equity part has decreased, the investors make sure that it is increased so that he does
not loose out on any opportunity.
‘
&"&&#'‘Lets also talk about the limitations of this strategy, once equity exposure has gone
up, if the investor rebalance and bring down his Equity Exposure, he will loose out on the Profits
if Equity provides great returns after that , or if his Equity exposure as gone down and he bring
up his exposure from Equity and if Equity does bad , then the investor will loose more.

!('&+‘!‘"!‘#$‘F*&/‘‘ !)

The primary objective of rebalancing of a portfolio is managing risk and profit is secondary .We
know that market is unexpected and it can go in any direction, so better be safe than sorry. Many
people are confused that if there equity has done very well then shall they book profits and get
out with money and wait for markets to come down so that they can reinvest. Portfolio
rebalancing is the same thing but a little different name and methodology , so once an investor
get good profit in something which was risky he transfers some part to non-risk Debt.
When we say Equity we mean shares or mutual funds which are related to Stock markets, which
tend to go up and down, if it goes up , there are high chances that it will come down and when it
comes down, its highly probable that it will move up again . !'‘ *'‘ #7‘ '!!‘ 7&‘ ‘
!:"-%!P‘

Mr. X has Rs 1,00,000 to invest and he wants to invest it for 5 yrs and the 5 yrs returns are 30% ,
-35% , 40% , A0% and -30% .Here we use two techniques i.e. without rebalancing and
rebalancing of portfolio and we will see which technique will maximize return and minimize risk
of his investment.

‘
Let¶s look at his money and its growth in 3 different modes-
- Only Equity
- Only Debt
- Equity + Debt in some ratio (without Portfolio Rebalancing)

üc
Year Return Return/100 Equity Debt@9% Equity+Debt Equity+Debt

(30:70) (70:30)

1 30 0.30 130000 109000 115300 123700

2 -35 -0.35 å4500 11åå10 10å517 94793

3 40 0.40 11å300 129503 12A142 121AA1

4 A0 0.A0 1å92å0 14115å 155595 174å43

5 -30 -0.3 13249A 153åA2 147452 13å90A

We can see here that Debt performed better than Equity, because of the uncertain movement in
returns, also the Equity+Debt performed better than Equity but not Debt.

 
‘
‘
   ‘

Let us now see the performance of Equity + Debt (with portfolio rebalance)

So now, every time our Equity and Debt ratio changes, the investor can rebalance it.

Ratio = 30:70
Investment = 1, 00,000
Equity = 30,000
Debt = 70,000

At the end of 1st year (Equity return = 30%, and debt = 9%) ?
Equity = 30,000 * (1.3) = 39,000
Debt‘= 70,000 * (1.09) = 7A,300
Total Capital = 39,000 + 7A,300 = 1,15,300

Now the investor will rebalance the portfolio

Equity‘= 30% of 115300 = 34590

Debt = 70% of 115300 = å0710

Now this is new Equity and Debt investment

üj
 At the end of 2nd year (Equity return = -35%, and debt = 9%) :
Equity = 34590 * (1-.35) = 224å4
Debt‘= å0710 * (1.09) = å7974
Total Capital = 224å4 + å7974 = 110457

Now the investor will again rebalance the portfolio

Equity‘= 30% of 110457 = 33137

Debt = 70% of 110457 = 77320

‘&'‘7/‘!‘&,!'#(‘3!!-'‘(!)% &+‘!‘-#($#%&#‘‘%!J'‘'!!‘&'‘-!($#(" !‘$#(‘2‘

/('‘

Year Return E+D E+D Equity Debt New New E+D E+D

(30:70) (70:30) Equity Debt PR* PR*

(30:70) (70:30)

1 30 115300 123700 39000 7A300 34590 å0710 115300 123700

2 -35 10å517 94793 224å4 å7974 33137 77320 110457 9A733

3 40 12A142 121AA1 4A392 å4279 39201 91470 130A71 12A431

4 A0 155595 174å43 A2722 99702 4å727 113A97 1A2424 1å2945

5 -30 147452 13å90A 34109 123930 47412 110A27 15å039 1494AA

*PR-portfolio rebalancing.

Here, we can see that the column (E+D with PR) is our main column which shows the

Performance with portfolio rebalancing- Here we have example for two ratios¶ 30:70 and 70:30 ,
we can clearly see that at the end of every year the final corpus for rebalanced portfolio is always
greater than the non-balanced portfolio for both the ratio.

From the following table, it is very clear that an Investor can get maximum return with minimum
risk if he/she follows Portfolio Rebalancing technique-

For ratio 30:70

üÿ
Year Rebalancing Without Rebalancing

1 115300 115300

2 110457 10å517

3 130A71 12A142

4 1A2424 155595

5 15å039 147452

For ratio 70:30

Year Rebalancing Without Rebalancing

1 123700 123700

2 9A733 94793

3 12A431 121AA1

4 1å2945 174å43

5 1494AA 13å90A

Also we see that for most of the years re-balanced portfolio outperformed ³Only Equity´ and
³Only Debt´ except 1st year and 4th year . 1st yr is very easy to understand why it happened and
for 4th year, the returns were positive again after 3rd year and the investor made more profit in
³Only Equity´ portfolio because of high concentration on Equity side, but we see that in 5th
year, when there was a negative return of -35% , then the ³Only Equity´ fell heavily , but the
rebalanced Portfolio fell very little because the investor has rebalanced it already and dropped
his/her Equity Exposure to be safe.

So in this way, an investor can make a balance his portfolio by using Portfolio rebalancing
technique which leads to at least minimum return on his/her investment in ULIP.

ür
 92‘‘.‘‘
‘  ‘ 
‘

‘‘
?

I also try to find out what is the risk and average return from the date of inception of each fund. It
is assumed that before expecting a minimum rate of return by an investor on his funds, he should
be expected to know what is the amount of volatility having in his/her chosen funds and what is
the average rate of return of each funds.

‘‘
!%&#'&-‘)!7!!‘!‘(&'3‘‘(!*(‘

As we know that there is always a relationship between the expected rate of return and risk. If an
investor wants to expect more return then he obviously bears higher risk and vise-versa. So , in
this regard the investor should be very carful before chosen a particular fund according to his risk
taking capacity.

Now we discus the risk and return of various funds available in HDFC Standard Life Insurance
Company Limited and which fund is suitable for which class of people and what are the factors
should be taken in to consideration will be discussed in the final report.

LIFE FUND SERIES 1

Liquid Stable Secured Defensive Balanced Growth Equity

fund Managed Managed Managed Managed Fund Fund

Risk* 0.72 0.A0 1.29 7.43 1å.å0 40.å1 41.91

Annual 9.05 å.77 å.93 15.42 2å.å9 35.å2 3A.3å

avg.
return*

*Annexure-1

Interpretation: From the above table, we can say that some funds provide more returns with more
risk and vise-versa. On the basis of more risk and return, we can give the following ranking of
the funds available under LIFE FUND SERIES 1----

1. Equity Fund

2. Growth Fund

3. Balanced Managed Fund

4. Defensive managed Fund

5. Secured Managed Fund

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A. Liquid Managed Fund

7. Stable Managed Fund

Y


  


Liquid Stable Secured Defensive Balanced Growth Equity

fund Managed Managed Managed Managed Fund Fund

Risk* 0.77 0.40 1.20 14.9å 19.4A 35.79 37.90

Annual 9.43 9.07 9.01 7.05 24.77 41.32 42.5A

avg.
return*

*Annexure- 2

Ranking of funds on the basis of High risk with High return----

1. Equity fund

2. Growth Fund

3. Balanced Managed Fund

üA
 4. Defensive Managed Fund

Y


    

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5. Secured Managed Fund

A. Liquid Fund

7. Stable Managed Fund.

2
 


Liquid Stable Secured Defensive Balanced Growth

fund Managed Managed Managed Managed Fund

Risk* 0.å4 0.2å 1.12 A.55 1å.72 A2.12

Annual 9.40 å.05 å.A4 14.å9 23.97 59.A9

avg.
return*

*Annexure- 3

Ranking of funds on the basis of High risk with High return----

1.‘ Growth Fund

2.‘ Balanced Managed

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(!+?‘

①Domestic image of HDFC supported by Prudential¶s international image is strength of the

company.
①Strong and well spread network of qualified intermediaries and sales person.
①Strong capital and reserve base.
①The company provides customer service of the highest order.
①Huge basket of product range which are suitable to all age and income groups.
①Large pool of technically skilled manpower with in depth knowledge and understanding
of the market.
①The company also provides innovative products to cater to different needs of different
customer.

.!3!''?‘

①Heavy management expenses and administrative costs.

①Low customer confidence on the private players.
①Poor retention percentage of tied up agents.

--#(*&&!'?‘

①Insurable population- According to ING only 10% of the population is insured, which
represents around 30% of the insurance population. This suggests that more than 300m
people, with the potential to by insurance, remain uninsured.
①There will be inflow of managerial and financial expertise from the world¶s leading
insurance markets. Further the burden of educating consumers will also be shared among
many players.
①International companies will help in building world class expertise in local market by
introducing the best global practices.

(!'?‘

①Other Private Insurance Companies also vying for the same un-insurance population.
①Big public sector insurance company like LIC, National insurance company Ltd,
Oriented insurance Ltd, New India Assurance Company Ltd, and United Insurance
Company Ltd. People trust them and go to them more.
①Poaching the customer by other companies.
①Most people do not understand the need or are not willing to take insurance policies in
general.

üü
 ①Alternative financial service such as mutual fund, banking services, share and securities
also pose problem and threats to the working of the life insurance sector.
9.‘ <
‘  ?

The questionnaire is made up of 19‘F*!'&#'0‘these questions have been asked to the sample
over the period of 3 months and have been recorded duly and based on various responses a
specific (-& %‘
!-(!'!&# has been done in rural and urban area.

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3.‘ Which company are you presently holding Insurance policies of?

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%/'&'?‘ Most people are still not educated enough about Insurance to know and identify its
needs, still in Insurance market its very difficult to sell one person more than 5 policies (apart
from ULIP) because traditional Insurance products don¶t give high returns and this is what most
Indian public desire.

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%/'&'?@It is really amazing to find out that most of the people still consider Insurance as an
Instrument for Tax Benefits, though according to   ‘(‘ &$!‘'*( !‘‘#!(‘
'*( !‘ #"-&!'‘ '#*%‘ )!‘ ‘ (#! &#‘ #‘ ‘ ,!'"!‘ #(‘ :‘ !!$& and since
and after ULIP plans people not only get Tax benefits but also an Investment plan, this slows
down the sales and scope of Traditional Products.

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%/'&'?‘From the data it can be seen that people consider Insurance to be a Long term financial
product and since its primarily used for Tax benefits, the short term nature of Investment is not
generally considered by the Indian public.

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%/'&'? Though most people find that Insurance Sector does not give good returns, but
it is to be noted that it is primarily a Protection and not an Investment, it is to be noted
though the majority of the people not interested in returns are mainly in for Tax Benefits.

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%/'&'?‘Most of the people don¶t know what a ULIP plan is, but more need to be aware of the
benefits and caveats of a ULIP plan. The company has made the awareness of these products so
that the customer can get benefits.

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%/'&': As it can be seen people still prefer an absolute secure position to their money.
HDFC Standard Life Insurance has identified this trend and gives the best return in
secure fund in all Indian Market.

‘
‘
‘
‘
‘
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%/'&': Its still positioned in the mind of the people that a career in Insurance is not very
rewarding, as from my basic analysis they find the career stressful and unrewarding, HDFC
Standard Life Insurance has a done a great job in educating public about the careers in Insurance,
it holds events, Career Seminars etc. which gives a proper insight into the world of Insurance
career.

cc

 ‘

1j‘‘,!‘/#*‘ #'&!(!‘)!&+‘‘& &%‘ #'*%‘&‘'*( !‘ #"-/D‘

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%/'&'? People still consider that they don¶t want to be a Financial Advisor to a company,
some consider that if its profitable they might, this is where the convincing part comes in. HDFC
Standard Life Insurance has a great scope in for of
!7(‘ ‘
! #+&&# this is what
motivates existing and prospective Financial Advisors.

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 16‘$‘/#*‘7!(!‘ #'&!(&+‘‘ (!!(‘&‘'*( !0‘7& ‘ #"-/‘7#*%‘-(!$!(‘#‘
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%/'&'? Most people still consider LIC as the most preferred place to work in the Insurance
industry, even though   ‘(‘&$!‘'*( !‘has a more diverse and fruitful Reward
and Recognition programme.

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%/'&'?‘In rural areas mostly people are not aware about HDFC Standard Life Insurance
Company. To make the awareness in rural areas the company take activity like sports events,
cultural events etc

‘
‘
‘
‘
‘

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%/'&'? As it is observed most of the company¶s public awareness comes through the Media
and colleagues, though Direct Company Interaction is good, a bit more spread can help increase
the market share.

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fund or a guaranteed investment because people are not able to take the high risk.

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%/'&': We can see that if the price rises than people are not interested to buy more but mostly are
interested to sell. Many people are not able to take risk so they do not do anything.

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 10.‘ ?

1)‘ The Indian Insurance Market is highly untapped and people still measure an Insurance
company by its advertising and not by its services, so tapping the mindset of the customer
with the Media is a start. As of now the (‘‘!‘E&/#‘campaign will help achieves
this to some extent.
2)‘ People still are not educated enough about Insurance and they need to know about, this is
can be achieved by educating the people involved in the Channel, they should know what
benefits besides life cover can an Insurance policy give.

3)‘ !(!‘&'‘#!‘-&%#'#-/‘C When a person buys a car whether it is a

!( !!'‘!4‘#(‘‘

(*&‘å==0 the first thing they do is Insure, but they don¶t find the need to Insure human
life which is priceless, such concepts have to be positioned in the mind of the consumer.

4)‘ Most Financial Advisor candidates believe that selling an Insurance policy cannot give
much and is not a respectful career; such belief has to be eradicated with the help of the
management.

5)‘ If ratios are compared 1 HDFC Standard Life Insurance earns as much as 2 others in
different companies, this is a hypothetical figure and this is account of the selection
process, which filters and takes the most eligible people, but if numbers are considered
since other insurance companies have huge number of agents they have more business,
this is the reason why ICICI, Bajaj and Max New York Life have such a huge market
share.

A)‘ It¶s the tendency of people to purchase all financial products from a single and reliable
source and hence when a company has a variety of products consumers tend to focus on
them, this includes not only Life Insurance, but General Insurance, Mutual Fund etc.
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘

cc·
 11‘
 

 ?‘

①HDFC Standard Life Insurance still has to penetrate the rural market, it needs good
channel partners or developers, since people in the rural sector are not that much
educated selection norms for Financial Advisors could be relaxed.

①The Company should try and categorize the Consultants according to their profile. For
Example ± A Consultants from a higher background should be given different
performance priorities to that of Advisors from the lower strata of the society, hence a
sector wise classification of Consultants can be done.

①It should be periodically reviewed that whether the Financial Consultants penetrate

different areas and sectors of the market, aside from their natural market, this will
enhance the channel more further into the market.

①It should be checked that whether Financial Consultants use their market area to their
fullest potential, and not concentrate on only one area of the market.
For Example ± If a Branch has 15 areas under it, it should be checked that whether the

Consultants are working in all 15 areas or just a few selected ones.

①Company should arrange small area wise customer meetings which could be conducted in
the presence of the Associate Partner; this would not only result in valuable direct
customer feedback, but also recruitment of potential Financial Consultants.

①Alternative channels like NGO¶s, Self Help Group, Retired Associations, and Ladies
Club who have huge number of members can be approached with this career.

①Every State Government in India, has a separate cabinet ministry named ³Youth and Self
Employment´ if the corresponding department can be communicated and Career
seminars be presented it can provide a huge source of Recruitment.

①Trainings such as Personality Development Programmes, Soft Skills and other

Interpersonal traits training should be emphasized.

①Career presentation should be made in such a way that they can sustain their living with
financial and social stability, and this should be compared with a professional career to
that of a doctor or a lawyer or a Chartered Accountant.

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Life insurance is also now being regarded as a versatile financial planning tool. Research
indicates that Indians have four basic financial needs during their life asset accumulation
(such as buying a house or car), protecting their family, securing their children¶s education,
and provision for their retirement.

India being a country having a huge population of around one billion people with only 32%
of the insurable population in India possessing life insurance the country has a vast potential,
which has been left untapped till now.

For life insurance company life insurance Consultants are the lifeline and a very huge asset
so each company try to recruit and select a potential force of life insurance Consultants
because this is the Consultants who generate maximum business for the insurance company.
Life insurance Consultants provide a very strong support to the insurance company and do
all possible efforts to generate huge amount of profit to the company and for him.

In HDFC recruitment Standard Life Insurance and selection procedure is really very
impressive. By the help of this process, company recruits a very good class of advisors. A
detail study is done before starting the recruitment and selection procedure that help the
company to select the best advisors. The company has witnessed a lot of success due to this,
but in a country like India where a career in Insurance is still not considered as a career, the
company should also try to relax on the selection norms to have a great business range.

Max New York Life though it still has a small share in the market, it deals with long term
customer relationships and ethical practices in work, which in turn gives them satisfied
customers and a content workforce, and if the trend follows it will not be too long before
HDFC Standard Life Insurance lives up to its new slogan of (‘!‘!‘E&/#‘

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The following questionnaire is made to know about the customer perception in insurance sector
i.e. how they take insurance sector in their minds and in which way the financial consultants take
the insurance sector as a career.

Name- Mr./Ms.___________________________________________________________

Place-___________________________________________________________________

Age-____________________________________________________________________

Monthly Income-__________________________________________________________

No. of dependent members in the family-________________________________________

Designation-_______________________________________________________________

1.‘ Which Insurance company do you normally prefer while doing an Insurance policy?

I.‘ LIC
II.‘ HDFC Standard Life Insurance
III.‘ ICICI Prudential
IV.‘ Max New York Life
V.‘ Others

2.‘ Do you have Insurance coverage?

I.‘ Yes
II.‘ No

3.‘ Which company are you presently holding Insurance policies of?

I.‘ LIC
II.‘ HDFC Standard Life Insurance
III.‘ ICICI Prudential
IV.‘ Max New York Life
V.‘ Others

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4.‘ .On a scale of 1-5what ratings will you give to the following Insurance Companies
Ratings were on the basis of Service, Products and Knowledge of Financial Advisors.

Ranting----------------------------------------------(1)----------(2)-------(3)------(4) ------ (5)

I.‘ LIC------------------------------------------( )---------( )------( )-----( )---------( )

II.‘ HGDFC Standard Life Insurance-------( )--------( )------( )------( )-------( )

III.‘ ICICI Prudential Life----------------------( )-------( )------( )-----( )-------( )

IV.‘ Max New York Life-----------------------( )------( )-------( )-----( )-------( )

V.‘ Bajaj Allianz Life Insurance--------------( )-------( )--------( )-----( )------( )

VI.‘ Kotak Life Insurance---------------------( )-------( )--------( )------( )-------( )

VII.‘ Tata AIG------------------------------------( )-------( )--------( )-------( )--------( )

5.‘ How many Insurance policies do you have?

I.‘ 1 to 3
II.‘ 4 to 5
III.‘ A to 7
IV.‘ å to 9
V.‘ 10 and above

A.‘ What is your primary motive for doing Insurance?

I.‘ Protection________%
II.‘ Investment_______%
III.‘ Tax Benefits______%

7.‘ What is the average tenure of your Investment in Insurance?

I.‘ 1 to 5
II.‘ A to 10
III.‘ 11 to 15
IV.‘ 1A to above

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å.‘ Do you think Insurance Sector is giving Good Returns?

I.‘ Yes
II.‘ No
III.‘ Not interested

9.‘ Do you have Knowledge of Unit Linked Insurance Plans (ULIP)?

I.‘ Yes
II.‘ No

10.‘What mode of Investment do you prefer in ULIP Plans?

I.‘ Secure
II.‘ Conservative
III.‘ Aggressive

11.‘. What do you think about a career in Insurance?

I.‘ Rewarding
II.‘ Not Rewarding
III.‘ Can't say

12.‘. Have you considered being a Financial Consultant in Insurance Company?

I.‘ If Profitable
II.‘ Absolutely
III.‘ Can't say

13.‘. If you were considering a career in Insurance, which company would prefer to be
associated with?

I.‘ HDFC Standard Life Insurance

II.‘ ICICI Prudential Life
III.‘ LIC
IV.‘ Max New York Life

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 V.‘ Others

14.‘ Do you know about HDFC Standard Life Insurance?

I.‘ . Yes
II.‘ No

15.‘How have you come to be aware of HDFC standard Life Insurance?

I.‘ Direct Company
II.‘ Friends
III.‘ Media
IV.‘ Others

1A.‘You are investing which is 15 years away. What would you do?

I.‘ Invest in a money market mutual found or a guaranteed investment contract

II.‘ Invest in a balanced mutual fund that has a stock: bond mix of 50:50
III.‘ Invest in an aggressive mutual fund.

17.‘You have bought a stock as part of your retirement portfolio. Its price rises by 25% after
one month. If the fundamentals of the stock have not changed, what would you do?

I.‘ Sell
II.‘ Do nothing
III.‘ Bur more

‘
‘
‘

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The following Scale is made to know the perception of sales managers of HDFC Standard Life
Insurance Company that what are the factors those are affecting the sales in insurance sector.

Name- Mr. / Ms.____________________________________________________

Place_____________________________________________________________

Sales in April month (Rs.) ____________________________________________

No. of Financial Consultant___________________________________________

S.No. Factors Total

Wattage
100%

1. Marketing activity

2. Competition

3. Environmental factor

4. Personal factors

5. Company Policies

A. Training

7. Motivational factor

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º‘ Investment Analysis and Portfolio Management--- Prasanna Chandra‘

º‘ http://www.citehr.com/9å934-questionnaire-recruitment.html

º‘ www.bseindia.com‘

º‘ www.bajajcapital.com

º‘ www.hdfcinsurance.com ‘

º‘ www.wekipedia.org‘

º‘ http://www.spss.co.in/

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