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Transcript of 1.1 BACKGROUND OF INDIAN INSURANCE...
CHAPTER - 1 INTRODUCTION
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1.1 BACKGROUND OF INDIAN INSURANCE INDUSTRY
The story of insurance is probably as old as the story of mankind. The same
instinct that prompts modern businessmen today to secure themselves against
loss and disaster existed in primitive men also. They too sought to avert the
evil consequences of fire, flood and loss of life and were willing to make some
sort of sacrifice in order to achieve security. Though the concept of insurance
is largely a development of the recent past, particularly after the industrial era,
yet its beginnings date back almost 6000 years1.
In India, insurance has a deep-rooted history. It finds mention in the writings
of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya
(Arthasastra). The writings talk in terms of pooling of resources that could be
re-distributed in times of calamities such as fire, floods, epidemics and
famine. This was probably a pre-cursor to modern day insurance. Ancient
Indian history has preserved the earliest traces of insurance in the form of
marine trade loans and carriers’ contracts. Insurance in India has evolved over
time heavily drawing from other countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment
of the Oriental Life Insurance Company in Calcutta. This Company however
failed in 1834. In 1829, the Madras Equitable had begun transacting life
insurance business in the Madras Presidency. 1870 saw the enactment of the
British Insurance Act and in the last three decades of the nineteenth century,
the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were
started in the Bombay Residency. This era, however, was dominated by
foreign insurance offices which did good business in India, namely Albert Life
Assurance, Royal Insurance, Liverpool and London Globe Insurance and the
Indian offices were up for hard competition from the foreign companies.
In 1914, the Government of India started publishing returns of Insurance
Companies in India. The Indian Life Assurance Companies Act, 1912 was the
first statutory measure to regulate life business. In 1928, the Indian Insurance
CHAPTER - 1 INTRODUCTION
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Companies Act was enacted to enable the Government to collect statistical
information about both life and non-life business transacted in India by
Indian and foreign insurers including provident insurance societies. In 1938,
with a view to protecting the interest of the Insurance public, the earlier
legislation was consolidated and amended by the Insurance Act, 1938 with
comprehensive provisions for effective control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished principal agencies.
However, there were a large number of insurance companies and the level of
competition was high. There were also allegations of unfair trade practices.
The Government of India, therefore, decided to nationalize insurance
business.
An Ordinance was issued on 19th January, 1956 nationalizing the life
insurance sector and Life Insurance Corporation came into existence in the
same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies—245 Indian and foreign insurers in all. The LIC had
monopoly till the late 90s until the insurance sector was reopened to the
private sector.
The process of re-opening of the sector had begun in the early 1990s and the
last decade has seen it been opened up substantially. In 1993, the government
set up a committee under the chairmanship of RN Malhotra, former Governor
of RBI, to propose recommendations for reforms in the insurance sector. The
objective was to complement the reforms initiated in the financial sector. The
committee submitted its report in 1994 wherein, among other things, it
recommended that the private sector be permitted to enter the insurance
industry. They stated that foreign companies are allowed to enter by floating
Indian companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999,
the Insurance Regulatory and Development Authority (IRDA) was constituted
as an autonomous body to regulate and develop the insurance industry. The
CHAPTER - 1 INTRODUCTION
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IRDA was incorporated as a statutory body in April, 2000. The key objectives
of the IRDA include promotion of competition so as to enhance customer
satisfaction through increased consumer choice and lower premiums, while
ensuring the financial security of the insurance market.
The IRDA opened up the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed ownership of up
to 26%. The Authority has the power to frame regulations under Section 114A
of the Insurance Act, 1938 and has from 2000 onwards framed various
regulations ranging from registration of companies for carrying on insurance
business to protection of policyholders’ interests2.
Insurance industry had ten and six entrants in life and non-life sector
respectively in the year 2000-2001. The industry again saw two and three
entrants in the life and non-life business respectively in the year 2001-2002.
One additional entrant was made both in the life and in non-life business in
2004 and 2005 respectively. At present there are fourteen companies each in
Life and General Insurance. The Funds earlier generated by the state owned
insurers have been diversified with other new insurers.
Private and Foreign entrants in the Insurance Industry made others difficult
to retain their market. Higher customer aspirations lead to new expectations
and compel him to move towards the insurer who provides him the best
service in time. It becomes less viable for them even to maintain the functional
networks or competitive standards and services. To survive in the Industry
they analyze, the emerging requirements of the policyholders and they are in
the forefront in providing essential services and introducing novel products.
Thereby, they become niche specialists, who provide the right service to the
right person in right time3.
The insurance sector is a colossal one and is growing at a speedy rate of 15-
20%. Together with banking services, insurance services add about 7% to the
country’s GDP. A well-developed and evolved insurance sector is a boon for
CHAPTER - 1 INTRODUCTION
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economic development as it provides long- term funds for infrastructure
development at the same time strengthening the risk taking ability of the
country4.
1.2 PRESENT SCENARIO OF INSURANCE IN INDIA
The insurance market has witnessed dynamic changes which includes
presence of a fairly large number of insurers both in life and non-life segment.
Most of the private insurance companies have formed joint venture partnering
with well recognized foreign players across the globe.
There are now 29 insurance companies operating in the Indian market – 14
private life insurers, nine private non-life insurers and six public sector
companies. With many more joint ventures in the offing, the insurance
industry in India today stands at a crossroads as competition intensifies and
companies prepare survival strategies in a detariffed scenario. There is
pressure from both within the country and outside on the government to
increase the foreign direct investment (FDI) limit from the current 26% to
49%, which would help JV partners to bring in funds for expansion.
There are opportunities in the pensions sector where regulations are being
framed. Less than 10 % of Indians above the age of 60 receive pensions. The
IRDA has issued the first licence for a standalone health company in the
country as many more players wait to enter. The health insurance sector has
tremendous growth potential, and as it matures and new players enter,
product innovation and enhancement will increase. The deepening of the
health database over time will also allow players to develop and price products
for larger segments of society.
India with about 200 million middle class household shows a huge untapped
potential for players in the insurance industry. Saturation of markets in many
developed economies has made the Indian market even more attractive for
global players. The insurance sector in India has come to a position of very
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high potential and competitiveness. Indians who have always seen life
insurance as a tax saving device, are now suddenly turning to the private
sector that are providing them new products and variety for their choice.
Consumers remain the most important centre of the insurance sector. After
the entry of the foreign players the industry is paying a lot of competition and
thus improvement of the customer is required service in the industry.
Computerization of operations and updating of technology have become
imperative in the current scenario. Foreign players are bringing in
international best practices in service through use of latest technologies
The insurance agents still remain the main source through which insurance
products are sold. The concept is very well established in the country like
India but still the increasing use of other sources is imperative. At present the
distribution channels that are available in the market are direct selling,
corporate agents, group selling, brokers and cooperative societies.
Customers have tremendous choice from a large variety of products from pure
term (risk) insurance to unit-linked investment products. Customers are
offered unbundled products with a variety of benefits. More customers are
buying products and services based on their true needs and not just
traditional money back policies, which are not considered very appropriate for
long-term protection and savings. There is lot of saving and investment plans
in the market. However, there are still some key new products yet to be
introduced - e.g. health products.
The rural consumer is now exhibiting an increasing propensity for insurance
products. A research conducted exhibited that the rural consumers are willing
to dole out anything between Rs 2,900 and Rs 3,500 as premium each year. In
insurance, the awareness level for life insurance is highest in rural India, but
the consumers are also aware about motor, accident and cattle insurance5.
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1.3 BACKGROUND OF HUMAN RESOURCE
MANAGEMENT
The early roots of human resource management in Indian could be traced
back to 1920’s. The Royal Commission on labor recommended in 1931 the
appointment of labor officers in order to protect workers from the evils of
jobbery and indebtedness, to check corrupt practices in recruitment and
selection in Indian industry, to act as a spokesman of labor and to promote an
amicable settlement between the workers and management. After
independence, the Factories Act 1948 made it mandatory for factories
employing 500 or more workers to appoint welfare officers. The Act also
prescribed the qualifications and duties of welfare officers.
In view of legal compulsions and the enumeration of duties, the entire
approach of organizations toward their personnel was to comply with the laws
and keep the welfare officers busy with routine functions. Meanwhile, two
professional bodies i.e., the Indian Institute of Personnel Management
(IIPM), Calcutta and National Institute of Labour Management(NILM),
Mumbai were established during the 1950’s.
In the 1970’s concern for welfare shifted towards development aspects of
human resources. In the 1980s, professional began to talk about new
technologies, HRM challenges and human resource development. The two
professionals bodies, IIPM and NILM were merged to form the National
Institute of Personnel Management (NIPM) at Calcutta. In the 1990s, the
emphasis shifted to human values and productivity through people. Reflecting
this trend, the American Society for Personnel Administration (ASPA) was
renamed as the society of Human Resouce Management (SHRM). Thus,
beginning in 1920s, the subject of HRM has grown into matured profession6.
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Table1.1 Evolution of HRM in India
EVOLUTION OF HRM IN INDIA
PERIOD DEVELOPME
NT
OUTLOOK EMPHASIS STATUS
1920-1930 Beginning Legalistic Statutory,
Welfare,
Paternalism
Clerical
1940-1960 Struggling for
Recognition
Technical Paternalism Administrati
ve and
Legalistic
1970-1980 Achieving
Sophistication
Professional
and legalistic
Regulatory
conformance
Managemen
t
1990s Promising Philosophica
l
Human values,
productivity
through people
Executive
Source: Gupta Shashi K., Joshi Rosy, “Human Resource Management”, Kalyani Publishers,
Ludhiana-Guwahati, 2006, III Revised Edition, pg 2.8.
Human resource management is the management of people at work. It
involves both the management and operative functions. Operating functions
include procurement, development, compensation, integration and
maintenance of personnel. It is a source of strength and aid. It reflects a new
outlook, which views organization manpower as its resource and assets. It is
that process of management which develops and manages human element of
the enterprises7. So, human resource is considered as an important element in
HRM thinking8.
Human resource management not only confines itself to the selection of right
type of person at right job but also helps to build a team spirit where
employees satisfy their aspirations by developing themselves and contribute to
the accomplishment of organizational goals9. The different dimensions of
human resource management are as follows: -
Manpower planning
Job analysis and job design
Recruitment
Selection
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Training and development
Job evaluation
Performance appraisal
Motivation
Morale
Communication
Leadership
1.4 LEADERSHIP DYNAMICS
“Leadership is the integrated sharing of vision, resources, and
value to induce positive change”10.
It is an important element of directing function of management. Wherever
there is an organized group of people working towards a common goal, some
type of leadership becomes essential. To be a successful leader, a manager
must possess the qualities of foresight, drive, initiative, self-confidence and
personal integrity. Different situations may demand different types of
leadership11. The leadership process is simple yet powerful. The leader
develops a vision for the organization and shares it with the other
participants. Then all participants engage in sharing vision, resources
(human/time resources, information/knowledge resources, and
financial/capital resources), and value. All of this is bound together by the
vision and its logical implementation12.
Lawrence A. Appley remarked that the time had come to substitute the word
leadership for management. Although the concern for leadership is as old as
recorded history, it has become more acute during the last few decades due to
the complexities of production methods, high degree of specialization and
social changes in modern organization13. Leadership dynamics is committed
to encourage you to develop the leader in you -- to become an active
participant in shaping your future and the future of others. In fact for most of
us, at times leadership can be a long and sometimes difficult journey - a
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strenuous uphill climb14. The two main dimensions of leadership dynamics are
as follows:
1.4.1 LEADERSHIP STYLES
Leadership style is the result of the philosophy, personality and experience of
leaders. It also depends upon the types of followers and the conditions
prevailing in an organization. According to their attitude and behavior
patterns leaders are mainly classified as under15: -
1.4.1.1 AUTOCRATIC OR AUTHORITARIAN STYLE
LEADER:
An autocratic, also known as authoritarian style of leadership implies yielding
absolute power. Under this style leader makes all the decisions that relate to
the group and is probably the only source of influence in the group’s
activities16. His most effective techniques in maintaining this leadership
position is by withholding knowledge of goals, not sharing information
required for the task, and not providing feedback to members on their
progress. As he is the only group member with complete knowledge of all
functions and accomplishments, the members are dependent upon him for
goal achievement17.
1.4.1.2 LAISSEZ-FAIRE OR FREE- REIN STYLE LEADER:
Under this type of leadership, maximum freedom is allowed to subordinates.
They are given free hand in deciding their own policies and methods to make
independent decisions. The participative process, although time-consuming,
effectively encourages each member’s input and familiarity with the
problem18. The leader gains additional information from group members as
well as a greater commitment to the decision than would occur under
authorization conditions19.
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1.4.1.3 DEMOCRATIC OR PARTICIPATIVE STYLE
LEADER:
The Democratic or Participative style of Leadership implies compromise
between the two extremes of autocratic and Laissez-faire style of leadership.
Under this style, the supervisor acts according to the mutual consent and the
decisions reached after consulting the subordinates. He allows subordinates to
make all suggestions20. His role becomes that of a general supervisor who
establishes merely the broad policies and outline of things to be done and then
delegates the implementation to his subordinates21.
1.4.2 TRADITIONAL LEADERSHIP THEORIES
Different authors hold different views on the qualities that are considered
essential for effective leadership. Some emphasis on the personal attributes
and traits of leadership, while the others emphasize on the situation in which
the leadership is to be exercised. A few theories of leadership are as follows: -
1.4.2.1 GREAT MAN THEORY:
In the early part of the 20th century, leadership traits were studied to
determine what made certain people a great leader. The theories that were
developed were called ―great man‖ theories because they focused on
identifying the innate qualities and characteristics possessed by great social,
political and military leaders (e.g., Mohandas Gandhi, Abraham Lincoln and
Nepolian). It was believed that people were born with these traits and only the
―great‖ people possessed them. During this time, research concentrated on
determining the specific traits that clearly differentiated leaders from
followers.22
1.4.2.2 TRAIT THEORY:
This theory says that some of the qualities of the leaders are inborn; others
can be developed by management through proper training programmes. There
are various researchers who described different leadership traits which are
essential to become a leader23.
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Table1.2 Trait theory
Stogdill
(1948)
Mann
(1959)
Stogdill
(1974)
Lord,
DeVader
and Alliger
(1986)
Krikpatrick
and Locke
(1991)
Intelligence
Alertness
Insight
Responsibilit
y
Initiative
Persistence
Self-
confidence
Sociability
Intelligence
Masculinity
Adjustment
Dominance
Extroversion
Conservatis
m
Achievement
Persistence
Insight
Initiative
Self-confidence
Responsibility
Cooperativenes
s
Tolerance
Influence
Sociability
Intelligence
Masculinity
Dominance
Drive
Motivation
Integrity
Confidence
Cognitive
ability
Test
knowledge
Source: Northhouse G.Peter, “Leadership theory and practice”, Response Books, Sage Publication, New Delhi, Third edition 2003, Pg18.
1.4.2.3 CONTINGENCY MODEL:
Widely respected as the father of the contingency theory of Leadership, Fred
Fiedler developed the leadership contingency model. Fielder’s theory assumes
that leaders are predisposed to a particular set of leadership behaviors.
Leaders are either task oriented or relationship oriented. He suggested that
three major situational variables determine whether a given situation is
favorable to leaders (i) their personal relations with the members of their
group (leader-member relations) (ii) the degree of structure in the task that
their group has been assigned to perform (task structure) and (iii) the power
and authority that their position provides (position power). Leader-member
relations describe the quality of the relationship between the leader and the
subordinates24.
1.4.2.4 SITUATIONAL MODEL:
Hersey-Blanchard’s situational model also advocates linking leadership styles
with various situations so as to ensure effective leadership, but its perspective
of situational variables is different as compared to Fielder’s Model. This model
was not based on any empirical studies. Hersey and Blanchard feel that the
leader has to match his style with the needs of maturity of subordinates which
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moves in stages and has a cycle. This model is also known as life cycle theory
of leadership and is based on an interaction among three factors (i) task
behavior (ii) relationship behavior (iii) the maturity level25.
1.4.2.5 PATH GOAL THEORY:
Although path goal theory and Fielder’s theory are both contingency theories,
they view the contingency relationship differently. Robert House advanced his
situational theory of leadership based on Ohio state leadership studies and
Vroom’s expectancy model of motivation. According to this theory, leaders are
effective because of their impact on follower’s motivation, ability to perform
effectively and satisfactions. The theory is called Path-Goal because its major
concern is how the leader influences the followers’ perceptions of their work
goals, personal goals and paths to goals attainment. The theory suggests that a
leader’s behavior is motivating or satisfying to the degree that the behavior
increases goal attainment and clarifies the paths to these goals26.
1.4.2.6 MANAGERIAL GRID:
Robert R. Blake and John S. Mouton developed the managerial grid which has
been used as a means of managerial training and of identifying various
combinations of leadership. : (i) Concern for people, and (ii) Concern for
production. There are five representative styles of leadership on the
managerial grid:
1.4.2.6.1 IMPROVISHED LEADERSHIP (1.1):
The first style (1.1) is the improvished management under which the manager
is least concerned with either people or production.
1.4.2.6.2 COUNTRY CLUB LEADERSHIP (1.9):
The Country club management (1.9) which means the management has great
concern for their people but lacks production orientation.
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1.4.2.6.3 TASK LEADERSHIP (9.1):
―Efficiency in operations result from arranging conditions for work in such a
way that human elements interfere to a minimum degree‖. In task
management (9.1) the managers are highly concerned for production. Their
concern for people however is minimum.
1.4.2.6.4 TEAM LEADERSHIP (9.9):
―Work accomplishment is from committed people interdependence through a
common stake in organization purpose leads to relationships of trust and
respect‖. The managers having high concern for production as well as people
fall under this style.
1.4.2.6.5 MIDDLE OF THE ROAD (5.5):
―Adequate organizational performance is possible through balancing the
necessity to get out work while maintaining morale of people at satisfactory
level‖. The managers of this style have medium concern for both people and
production and try to maintain the balance betweenthe two27.
1.4.2.7 LIKERT’S SYSTEM MANAGEMENT:
Rensis Likert was the Director of Michigan Institute of Social Research, U.S.A.
He conducted extensive research for 14 years with the help of 40 researchers
in the field of leadership. Likert treats the organization as a complex system
based on the principle of supporting relationships, in which decision-making,
leadership, motivation, communication and control move together. He
classified leadership styles into four categories:
1.4.2.7.1 EXPLOITATIVE AUTOCRATIC:
In this style, there is no participation of workers because these leaders have no
confidence and trust in subordinates.
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1.4.2.7.2 BENEVOLENT AUTOCRATIC:
There is no proper confidence in subordinates and the relationship is that of a
master and servant.
1.4.2.7.3 DEMOCRATIC:
The subordinates are allowed to participate in decisions involving their lives.
Leader does not have full confidence in them.
1.4.2.7.4 PARTICIPATIVE:
In this style the confidence and trust in subordinates is full and they
meaningfully participate in decision-making28.
1.4.3 EMERGING LEADERSHIP THEORIES:
1.4.3.1 LEADER-MEMBER EXCHANGE THEORY:
The Leader member exchange theory is called the ―Vertical dyad linkage
theory‖. According to this theory, the leaders do not treat all their
subordinates in an equitable manner. LMX theory makes the dynamic
relationship between leaders and followers. LMX theory was first described
28years ago in the works of Dansereau, Graen, and Haga (1975), Graen and
Cashman (1975), and Graen (1976)29.
Fig1.1 Dimensions of Leadership
SOURCE: Adaption from “Relationship-Based Approach to Leadership: Development of Leader-Member Exchange (LMX) theory of leadership over 25 years: Applying a Multilevel, Multi-Domain Perspective”, by G.B.Graen and M.Uhl-Bein, 1995, leadership Quarterly, 6(2), 219-247.
FOLLOWER
LEADER
DYADIC
RELATIONSHIP
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1.4.3.2 CHARISMATIC LEADERSHIP THEORY:
Robert House’s theory of Charismatic leadership developed a set of testable
propositions concerned with identifying the traits of Charismatic leaders, the
behaviors used by these leaders and the conditions under which such leaders
may merge. House contended that the identification of leader traits, leader
behaviors and situation characteristics that may result in the emergence of
charismatic leaders is important because these type of leaders have
extraordinary effects on followers30.
1.4.3.3 TRANSFORMATIONAL LEADERSHIP:
According to Bernard M. Bass, transformational leadership emphasizes four
behavioral components: idealized influence, individualized consideration,
inspirational motivation and intellectual stimulation.
1.4.3.3.1 IDEALIZED INFLUENCE:
The transformational leader serves as a role model for followers. Because
followers trust and respect the leader, they emulate the leader and internalize
his or her ideals.
1.4.3.3.2 INDIVIDUALIZED CONSIDERATION:
The transformational leader recognizes variations in skills, abilities and
desires for growth opportunities among subordinates. A key part of
individualized consideration is the degree to which the leader shows genuine
interest in the subordinates.
1.4.3.3.3 INSPIRATIONAL MOTIVATION:
Transformational leaders have a clear vision that they are able to articulate to
followers. These leaders are also able to help followers experience the same
passion and motivation to fulfill these goals.
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1.4.3.3.4 INTELLECTUAL STIMULATION:
The transformational leader’s ability to build high awareness of problems and
solutions. They stimulate their subordinates to image new and different future
states for the group31.
Every organization, whether for profit or non-profit, depends on successful
and effective leadership to provide direction. Every organizational issue, every
management decision that is made or postponed, is ultimately a product of
leadership. Find an organization achieving excellence and you will find
leadership effectiveness. Find failure, and you will find leadership failure as
well11. The concept of leadership becomes more relevant when it comes to
service sector like life insurance, where a customer requires recurring services
with utmost satisfaction. Unlike normal business of tangible products,
customer satisfaction is difficult to manage in life insurance sector, as it comes
through continuous service from an employer for years together. Be it delivery
of policy, premium deposits, death claims, payment on maturity or any other
vital updated information. This is next to impossible if organizations are not
led effectively. So, in the above context, the dynamics of leadership becomes
more crucial and would collapse if not handled properly with utmost care.
1.5 ORGANISATIONAL PROFILES:
The study incorporates two organizations representing public and private
sectors. Both the chosen organizations are leaders in their respective sectors.
A brief profile of the selected organizations can be summarized as follows:
1.5.1 LIFE INSURANCE CORPORATION OF INDIA
The Parliament of India passed the Life Insurance Corporation Act on the 19th
of June 1956, and the Life Insurance Corporation of India was created on 1st
September, 1956, with the objective of spreading life insurance much more
widely and in particular to the rural areas with a view to reach all insurable
persons in the country, providing them adequate financial cover at a
reasonable cost.
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Today, LIC functions with 2048 fully computerized branch offices, 100
divisional offices, 7 zonal offices and the corporate office. LIC’s Wide Area
Network covers 100 divisional offices and connects all the branches through a
Metro Area Network. LIC has tied up with some banks and service providers
to offer on-line premium collection facility in selected cities. LIC’s ECS and
ATM premium payment facility is an addition to customer convenience. Apart
from on-line Kiosks and IVRS, Info Centres have been commissioned at
Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi,
Pune and many other cities.
With a vision of providing easy access to its policyholders, LIC has launched
its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and
closer to the customer. The digitalized records of the satellite offices will
facilitate anywhere servicing and many other conveniences in the future. The
Corporation directly operates through its branch offices at Port Louis in
Mauritius, Suva & Lautoka in Fiji and at Wembley in the United Kingdom.
LIC continues to be the dominant life insurer even in the liberalized scenario
of Indian insurance and is moving fast on a new growth trajectory surpassing
its own past records. The organization still remains the largest life insurance
company accounting for 64% market share. The number of employees
working for the corporation as on 31st March 2009 is 1,14,916. LIC offers a
wide variety of products which fulfills the needs of different segments of the
society. As at the end of the financial year 2008-09, the corporation had 52
plans available for sale. During the year the corporation introduced 6 new
plans viz. Money Plus-1, Market Plus-1, Jeevan Bharti-1, Child Fortune Plus
and two closed ended plans viz Jeevan Astha and Jeevan Varsha32.
The corporation aimed at providing life insurance services primarily to the
rural masses and the socially and economically backward sections of the
Indian society. It also aims at promoting the people for saving their money,
and offers attractive savings features along with various insurance policies.
During the financial year 2006-07, the total number of Life Insurance
CHAPTER - 1 INTRODUCTION
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Corporation of India policy holders were more than 200 Million, which was
equal to the population of fourth largest populous country in the world at that
time.
Life Insurance Corporation of India has a number of subsidiaries which helps
it in leveraging its potential to the maximum, providing an enhanced set of
diversified services to its customers. These subsidiaries include LIC
International, LIC Nepal, LIC Lanka, LIC Housing Finance and LICHFL Care
Homes33.
1.5.2 BAJAJ ALLIANZ LIFE INSURANCE
Bajaj Allianz Life Insurance Co. Ltd. is a joint venture between two leading
conglomerates- Allianz AG, one of the world's largest insurance companies,
and Bajaj Auto, one of the biggest two and three wheeler manufacturers in the
world. Bajaj Allianz Life Insurance has over 40, 00,000 satisfied customers, a
countrywide network of 876 offices, assets under management Rs. 5,500 cr.
and shareholder capital base of Rs. 700 cr.
The company’s headquarter is in Pune. The Allianz Bajaj joint venture was
incorporated on 14th march 2001, between Allianz AG and Bajaj Auto Ltd. The
German promoter Allianz AG is one of the leading global insurance companies
with its headquarters in Munich, Germany. It was established in 1890 and has
over 700 subsidiaries and approximately 120,000 employees worldwide. The
Allianz group network extends over 70 countries in Europe, the South and
North Americas, Africa, Middle East and Asia pacific. It serves approximately
60 million clients around the world and provides some form of insurance
coverage to almost half of the fortune 500 companies; almost 60 percent of
sales are generated outside Germany. Its core business is in life insurance,
general insurance, health insurance and asset management. It is worldwide
number one on the basis of gross written premiums and worldwide number
two-bye market capitalization.
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Bajaj Allianz Life Insurance Co. Ltd. was incorporated on 12th March 2001.
The company received the Insurance Regulatory and Development Authority
(IRDA) certificate of Registration (R3) No 116 on 3rd August 2001 to conduct
Life Insurance business in India. Bajaj Allianz Life Insurance Company
Limited is a Union between Allianz SE, one of the world’s largest Life
Insurance companies and Bajaj Auto, one of the biggest two and three wheeler
manufacturers in the world. Allianz SE is a leading insurance conglomerate
globally and one of the largest asset managers in the world, managing assets
worth over a Trillion Euros (Over R. 55,00,000 crores)34.
The organization’s market share is of 7.4 per cent among private sector life
insurers in 2003-04 in terms of first year and single premium collected In the
April to July quarter of 2003-04, as per the IRDA figures, BALICL had moved
up to the 3rd position amongst private insurance companies. Bajaj Allianz Life
Insurance Co. Ltd was granted renewal of IRDA Certification on 28th March
2006.
1.6 NEED OF THE STUDY
The insurance industry has been growing between fifteen and twenty percent,
but it lags far behind its global counterparts. The main reasons are as follows:
-
1. Lack of products as per market requirements.
2. Low awareness among the general public.
3. Term- Insurance Plans are not properly promoted.
4. Returns from Insurance Products are low.
5. Inefficient management and leadership.35
There is huge competition in the Indian life insurance sector between the
public and the private players. All big companies have jumped in life
insurance like Bajaj Allianz, ING Vysya, AMP Sanmar, ICICI Prudential, Birla
Sun life, TATA AIG, Kotak Mahindra, Max New York, Met life India and many
more. There is also a high-class competition between these private players.
The two challenges that are faced by the life insurance companies are of
CHAPTER - 1 INTRODUCTION
~ 20 ~
maintenance and growth. They need to improve leadership and they need to
check their leadership dynamics36.
Since, the profile of insurance sector has changed from traditional plans to
market linked plans, there are various challenges related to changing
leadership scenario. In order and to handle uncertainties of share market, to
maintain respective position, to grow and satisfy investors and to match their
expectations, refinement and reshuffling of leadership dynamics is quite
important, hence the present topic “Changing Scenario of Leadership
in Insurance Sector: A Critical Appraisal of Life Insurance
Corporation of India and Bajaj Allianz” is contemporary and selected
for the present study.
1.7 OBJECTIVES OF THE STUDY
In the light of assumption that a new modified leadership dynamics in
organizations can encourage considerably the moral and enthusiasm of
employees, the researcher in order to make study scientific and systematic,
has framed the following objectives to be achieved:
1. To study leadership styles prevailing in L.I.C. and Bajaj Allianz.
2. To examine theories of leadership followed in the organizations.
3. To know the effectiveness of leadership in the organizations respective
performance.
4. To analyze the impact of leadership in employees’ development in both
the organizations.
5. To conduct SWOT analysis and recommend some leadership tips for
further improvement
CHAPTER - 1 INTRODUCTION
~ 21 ~
Fig1.2 Conceptual framework of Leadership
1.8 CONCEPTUAL FRAMEWORK OF LEADERSHIP
In order to achieve these objectives the researcher has developed the above
stated model depicting relationship between the three important constituents
i.e. leadership styles, performance of organizations and employees’
development. The researcher has been also intended to study to what extent
leadership style is accountable in performance of the organizations and
employees development. To have microscopic view the researcher has studied
the impact of different factors on each other.
1.8 RESEARCH METHODOLOGY
To achieve the above stated objectives the researcher has collected both
primary as well as secondary data. For collection of primary data the
researcher has framed a self structured questionnaire based on selected
Leadership parameters and administered on selected sample profile as
follows:
H02
H01
H03
LEADERSHIP STYLES
PERFORMANCE OF
ORGANIZATIONS
EMPLOYEES’
DEVELOPMENT
CHAPTER - 1 INTRODUCTION
~ 22 ~
1.8.1 SAMPLE PROFILE
Table1.3 Sample Profile
S.NO.
CATEGORY
BAJAJ ALLIANZ LIFE INSURANCE
CORPORATION OF INDIA
DESIGNATION
POPULATIO
N
SAMPLE SIZE
DESIGNATION
POPULATION
SAMPLE SIZE
1. Top level managem
ent
SM, BM, AM, SOO
52 5
SDM, ADM, SBM,
AO, BM
188 19
2.
Middle level
management
DAM, AM
88 9 ADO, PDO, DO
252 25
3. Floor level managem
ent OE, SM 1760 176 STAFF 625 63
Total 1900 190 1065 107
Source: Primary survey
GRAND TOTAL (190+107) =297
1.9 JUSTIFICATION OF SAMPLE SIZE
As far as LIC (Life Insurance Corporation) of India is concerned there are
2048 branch offices, 100 divisional offices, 8 zonal offices and the corporate
office throughout the nation. So, the researcher in order to be specific, has
chosen Agra zone for the above study, which includes Agra CBO 1, 2, 3, 4, 5, 6,
Agra CAB, Agra DBO, Auraiya, Bhartna, Etawah, Farukhabad, Fatehabad,
Fatehgarh, Firozabad1, Firozabad2, Kannauj, Mainpuri, Sikhohabad, Tundla.
In case of Bajaj Allianz the entire network has been divided into 5 Zonal
offices and 15 State offices and Area offices. The researcher has selected Agra1
(Tundla, Etawah, Mainpuri) and Agra2 under U.P. State 3 office and Lucknow
Zonal office.
Since both the organizations are leaders in their respective sector, the
researcher has chosen Agra zone and Agra1 and Agra2 zone in order to equate
the population to some extent. As leadership styles are common, the
CHAPTER - 1 INTRODUCTION
~ 23 ~
researcher perceives the same impact on the entire network of both the
organizations. To be more specific 10 percent of the population has been
selected as sample size. The researcher executed the self-structured
questionnaire to the organization personnel at the above stated places. The
respondents have been selected by using stratified random sampling method.
For secondary data all related published materials has been used. In addition
to this, the researcher has consulted various institutions, libraries where the
researches are conducted in similar areas. However, research journals,
periodicals, research thesis, newspapers, policies framed by the organizations,
special issues published by other agencies have also been taken into account
for proper analysis, interpretation and generalization of findings of the
present study.
In addition to the above stated general research methodology, the researcher
was keen to use the following specific methodology for attaining the
objectives.
Table1.4 Objectives and Methodology to be used
S.NO. OBJECTIVES METHODOLOGY TO BE USED
1. To study leadership styles of L.I.C. and Bajaj Allianz.
Data collected through self-structured tool and analyzing the various conditions prevailing in the selected organizations.
2. To examine theories of leadership followed in the organizations.
Examining various aspects of the attributes and situations by collecting relative responses of the sample size chosen.
3. To know the effectiveness of leadership in their respective performance.
Choosing parameters responsible for effectiveness of leadership and comparing them on the basis of continuum or five-point scale.
4. To analyze the impact of leadership in employees development.
Magnifying the impact of leadership programmes introduced by organizations during the last five years.
5. To conduct SWOT analysis and suggest some leadership tips for further improvement.
Collecting adequate information from primary as well as secondary sources through survey.
CHAPTER - 1 INTRODUCTION
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1.10 HYPOTHESES
In order to have scientific profile of changing scenario of leadership in related
organizations the researcher has tested the validity of the following null
hypothesis with reference to objectives and developed model:
H01 There is no difference in leadership styles prevailing in the
organizations.
To have a precise and in-depth analysis of various leadership styles, the
researcher has further categorized this null hypothesis into three sub-
hypotheses which can be stated as follows:
H01.1 There is no difference between the Autocratic style of leadership
between the two organizations.
H01.2 There is no difference between the Democratic style of leadership
between the two organizations.
H01.3 There is no difference between the Laissez-faire style of leadership
between the two organizations.
H02 Leadership styles followed in the organizations and
performance of organizations are independent to each other.
The researcher has further categorized this null hypothesis into three sub-
hypotheses which can be stated as follows:
H02.1 Autocratic style of leadership followed in the organizations and
performance of organizations is independent to each other.
H02.2 Democratic style of leadership followed in the organizations and
performance of organizations is independent to each other.
H02.3 Laissez-faire style of leadership followed in the organizations and
performance of organizations is independent to each other.
CHAPTER - 1 INTRODUCTION
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H03 Leadership styles have no relationship with the development
of employees.
In case of third null hypothesis also, the researcher has framed three sub-
hypothesis which are as follows:
H03.1 Autocratic style of leadership has no relationship with the
development of employees.
H03.2 Democratic style of leadership has no relationship with the
development of employees.
H03.3 laissez-faire style of leadership has no relationship with the
development of employees.
1.11 STATISTICAL TOOLS
To test the given hypotheses and survey findings scientifically, the researcher
is keen to analyze data by using appropriate statistical methods like weighted
average, correlation, frequency distribution and suitable tests of significance.
1.12 LIMITATIONS OF THE STUDY
As one knows, limitations are found everywhere in every walk of life. All
accomplishments in life, big or small take place with some hurdles or
obstacles. Considering this universal thought, the researcher, in spite of
putting the best effort could not escape from certain limitations, which can be
summarized as follows:
The study is confined to Indian Insurance industry and includes only
top two leading organizations in their respective segment.
The sample was drawn from Agra, Aligarh, Mathura, Firozabad,
Mainpuri, Hathras etc. only, assuming that rest of country following
the same trends of leadership.
CHAPTER - 1 INTRODUCTION
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While collecting secondary data, it was difficult for the researcher to
obtain some of the data due to some confidential or unknown
reasons.
Though the researcher has incorporated significant theories and
styles of leadership in the study, yet a few more upcoming styles and
theories could also be accommodated.
CHAPTER - 1 INTRODUCTION
~ 27 ~
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CHAPTER - 1 INTRODUCTION
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