Ian J. Watts*

India’s insurance industry has moved into competitive and exciting times with the arrival of private players in the market. Although the Life Insurance Corporation of India (LIC) reigns supreme in terms of market share, private insurance companies are gearing up to woo the consumer.

A recent ORG-MARG study indicates that ICICI Prudential, HDFC Standard Life and Tata AIG have experienced an increase in their market shares by 8, 3 and 2 per cent respectively. This is a remarkable achievement, considering that the doors were thrown open to private players only in 2000. Private players have recorded a 312 per cent growth this fiscal, and are expecting over 20 per cent year-on-year growth over the next three years.

At the moment, India is one of the best markets to be in. Over 75 per cent of its vast population has no insurance. Global reinsurance major, Swiss Re, points out that the industry will touch a growth of up to $50 billion in the next 10 years, with individual life insurance accounting for almost $40 billion. Little wonder, then, that top global names such as AIG, Allianz, AMR Aviva, ING, Metlife, New YorkLife, Old Mutual, Prudential, Standard Life and Sun Life are here in joint ventures with eminent Indian companies such as Tata, Birla, HDFC, Kotak and ICICI, among others. The Insurance Regulatory and Development Authority (IRDA) regulations too encourage best practices in the marketplace.

The Indian customer, like his global counterpart, buys policies for tax benefits and to ensure secure savings for the future. Although he is price sensitive, he still deserves value and sound services for his money. This has not been available to him. To fill this void, many private players have initiated education campaigns explaining the benefits and need for insurance.

In its first year Tata AIG sold 33,000 policies. This fiscal the company is expected to sell more than 1 lakh policies. The success of private players has been attributed to their innovative offers, customer-centric products, increasing awareness levels of consumers through a need-based, structured approach of selling, sound risk-management practices, enhanced service standards, reaching out to the customer through a number of distribution and communications channels, and providing advice to the customer.

The customer challenge
It is believed that one needs to protect 10 times of one’s present income through insurance, so that the family can be free of financial difficulties in the event of the insurer’s untimely death. Few in this country can provide this kind of security. The concept of a customer buying more than one policy has not taken off yet. Herein lies the challenge of the insurance company: to retain business and ensure that customer service transfers into customer comfort.

Today most products offered by private players are homogeneously packaged, but they are distinct at the micro level. For instance, most endowment plans offered by private companies offer different benefits, but the overall structure remains largely similar. However, each product has certain unique features. In Tata AIG’s whole life policy, Maha Life, the company pays 5 per cent of the sum assured as income to the policyholder through the policy period after the 12-year premium payment term. Other private players lack this feature, thereby making Maha Life a niche product of sorts.

Tata AIG Life has forayed into the corporate pension management business, where a corporate house can outsource its pension management system to the insurance company. Companies are also introducing investment-linked company schemes and credit-card insurance, where the bill is insured against death of the cardholder. These product innovations were not available in the past.

As the market grows, more generic products will be put out, but there will be a differentiation in individual products as compared to similar products in endowment policies, whole life and pension plans. Currently, LIC dominates the endowment market. Private players are major stakeholders in whole life insurance, pensions plans and term insurance. They have made a sizable dent by capturing 40 per cent of the market.

Efficient customer service channels differentiate private players from the traditional model. Many companies provide better service today than they did two years ago. The customer gets quicker turnaround of claims and has access to faster processing. This is a welcome change for a customer who was used only to LIC previously.

Agents of change
Insurance is a private affair. In the US and Japan, almost 90 per cent policies are sold through one-to-one discussions. Insurance agents will remain key figures in the industry. The profile of the insurance agent too has undergone a transformation, with private players in the marketplace. Companies have strengthened their internal regulatory training programmes.

Agents spend 100 hours of training here, and a further 50 hours are spent in securing higher education. This covers the rudiments of insurance, claims, policy protection and an exhaustive background study on the insurance industry. Later these agents are trained to interact with the customer. Private players have full-time, ongoing training programmes across the country. It is essential to impart uniform training because agents come from disparate walks of life.

The task at hand is not to merely sell policies. Instead, it is up to the agent to gauge the customer’s need and to guide him towards the right choice. Eventually, the customer must have confidence in the ability of the agent. LIC has close to 8.50 lakh agents and is adding more, while private players like Tata AIG are planning to grow to 20,000 agents by the end of 2003.

In sharp contrast to LIC, private players have invested in multiple and innovative distribution strategies. Internet and direct mailers are the easiest ways to reach the consumer. Bancassuarance, or distribution of insurance products through the branches and multiple communication channels of banks, including ATMs, tele-banking and Internet banking, is slowly gaining popularity. India’s 27 public sector banks account for almost 92 per cent of the entire network spread. This network has 33,000 rural and 14,000 semi-urban branches, where insurance penetration remains largely untapped. The link-up saves the insurance company distribution costs and helps increase the customer product offerings for the bank. The credibility of the bank makes it easier to win customers.

Rural difference
The majority of India is rural. This market cannot be ignored. In small markets, the credibility of the Indian partner goes a long way. The Tata name is valuable here. However, since the level of awareness is much lower than in urban India, the distributing strategy has to different. Distinct strategies have to be formulated for cash collection and medical facilities. In the absence of this, companies tend to offer simple and easy to buy and sell policies in most centres. This market demands tailored and dedicated products. Insurance, for them, is a matter of secure savings for the future.

Mindsets are changing, but purchase patterns are not. The months of February and March still are the busiest at LIC. The traditional hook of tax incentives and savings will take a long time to change. Private players need to step up their selling in terms of need and protection.

The life insurance industry is growing at 15 to 20 per cent, and that there is enough space for all players to thrive — because there is no such thing as too much insurance.

*Mr Watts, managing director, Tata-AIG Life, spoke to Shobha Ramswamy

Uploaded on May 27, 2003