EMERGING TRENDS
Changing Scenario of Life Insurance Marketing in India
The life insurance business in India has witnessed rapid transformation since 1999, when this sector was thrown open to the private sector. Today, we have 23 companies engaged in this business, many of which are joint ventures involving foreign firms. There is a dramatic change in the numbers and variety of insurance products on offer, and the ways in which they are marketed and distributed.
Change is not the same as transition. Change is the destination. Transition is the journey.
- William Bridges
Renowned Thinker and Speaker on Change Management
Renowned Thinker and Speaker on Change Management
The life insurance market in India is undergoing tremen dous transformation. The market has progressed a great deal from the pre-liberalization era, when there was only one player, the government-run LIC (The Life Insurance Corporation of India Ltd.), to the present situation where there are 23 companies. LIC is the market leader and there are now 22 other companies in the private sector.
During the pre-liberalization era, life insurance grew at a very slow pace - with only one company enjoying monopoly. LIC was a government organization formed in 1956 by merging 256 companies. The purpose was to provide life insurance coverage to the Indian population and design and develop products/policies to suit the needs of Indians, who included a mix of the poor and the rich, with more of the former. LIC has contributed a lot towards building awareness about and developing the life insurance business in India. LIC's efforts were commendable, but it lagged behind international developments and standards, in terms of both products and services. The average penetration of life insurance globally was 3.92% in 1999, whereas in India it was only 1.42%.
All this led the Government of India to rethink about the structure of the life insurance industry and in this context, various committees such as the Malhotra Committee, Mukherjee Committee, etc., were appointed. Going by the recommendations of these committees, the life insurance sector was finally opened up to private companies in 1999. The first private company to commence operations thereafter was HDFC, in a joint venture with Standard Life of the UK. Following thereon, in just about a decade, many other companies have joined the fray to grab a slice of the Indian life insurance market. The growing interest of private companies in India's life insurance business can be gauged by the fact that there are now 22 private players, in addition to the public sector LIC. Most of the private companies are joint ventures of Indian companies with international insurance and financial service business houses, which again brings to fore the immense potential offered by the Indian life insurance market. The list of life insurance companies currently operating in India, together with their dates of registration, is presented in Exhibit 1.
The current situation also implies that there is growing competition among life insurance service providers in India, making it tough for them to grow their business and increase their profitability. The market characteristics can be summarized as follows:
Opening of the insurance sector to private companies has increased competition, and also challenged the monopoly of LIC. The journey began with HDFC and presently, there are a host of companies, including those engaged in telecommunications, various financial services, and banking - comprising both private and nationalized banks.
Foreign firms were just waiting to tap the unexplored life insurance market of India. Just after opening of the sector in 1999, several Indian private companies have forged joint ventures with one or more foreign firms from the life insurance sector. Although the maximum investment ceiling is 26% as fixed by IRDA (Insurance Regulatory and Development Authority) for foreign players, this is likely to increase in the near future. This move will promote more foreign investment and will further the penetration of life insurance among the Indian population.
During the pre-liberalization period, the life insurance business had focused primarily on tax saving, apart from, of course, providing a some security cover for the beneficiaries, in the event of untimely death of the insured. This was making the selling of life insurance a hard job. After liberalization, the scenario has altered dramatically. The positioning of life insurance has changed from that of a means to cover life risk and to save taxes, to an investment opportunity. The introduction of Unit Linked Insurance Plan (ULIP) by LIC was the starting point, which was taken up aggressively by the private companies. In fact, during recent years, ULIPs are the highest contributors to the business growth of most life insurance companies in India. However, the recent downslide of the stock market resulted in reduced returns on ULIP plans and this setback, though temporary, has forced the companies to rethink their positioning strategies and alter them according to current market requirements.
The repositioning of life insurance as an investment avenue has led to the discovery of new segments such as pension plans. The altered pension policy for its employees by the Government of India has also led to a positive impact on this segment of business for the insurance companies.
Life insurance companies are spending on advertising and brand building like never before. This has helped both the private companies and LIC to make customers better aware of their products and services. The private life insurance companies, in particular, are benefiting a great deal from their promotional efforts.
The customer in modern India is now more aware about insurance through various media. This has led the insurance companies to adopt CRM (Customer Relationship Management) packages and other tools to attract and retain customers. As pointed out by the renowned marketing guru, Philip Kotler, `Gaining one customer is 10 times more costly than maintaining an existing one.' The observation is all the more true for service industries, where dissatisfaction could result in rapid negative word-of-mouth publicity and immediate loss of business to the organization.
Life insurance is no longer sold only by agents. Other channels, like bancassurance, corporate agents and the internet, are being used by companies as important means for selling insurance products. Agency channels have their own importance, but the insurance companies are also marketing aggressively through other channels. Both LIC and private sector companies have tied up with channels other than agents, such as commercial banks and retail shops, to sell their products. SBI Life is, however, obtaining much of its business primarily from bancassurance. Exhibit 2 highlights the increasing role played by bancassurance and shopassurance in marketing of life insurance products.
The success of insurance companies today is hinged on the launching of new and innovative products. The introduction of ULIP plans, pension plans, market-linked schemes, guaranteed return schemes, etc., has altered the market composition to a significant extent. A recent product of LIC, Jeevan Astha, has contributed more than Rs. 8500 cr of business to the company. Private companies are trying to be even more innovative and are ahead in new product offerings, as compared to LIC.
Increased reach of media to the Indian population, availability of television sets even in rural India and access to cable TV, satellite TV, etc., have transformed the television viewing habits of the Indian population. Life insurance companies are taking advantage of this to build sales and increase awareness. Some of the tools used by the companies are: television, print, radio, outdoor and internet advertisements, sponsorship of television and other programs, free seminars, road shows, sales promotion activities, short films and slides in movie halls, tele-calling, SMS marketing, partnering with marketers of other consumer durable products, mobile video vans, participation in trade fairs, etc.
Today, the buzzword of is customer satisfaction. This is leading to increased use of management tools, like Customer Expectation Management and Customer Relationship Management.
Private companies have provided strong competition to the market leader, LIC, and taken away some of its market share. The monopoly market condition of only LIC for life insurance of yesteryears, has transformed into an oligopoly market. Now, insurance seekers have more options to select from, resulting in availability of better products and services.
The service sector has become one of the prime employment providers of the Indian economy and life insurance contributes significantly to this. The sector provides good employment opportunities in the form of career agents/advisors, both full-time and part-time. The trend can be easily seen from the placement programs of B-schools, where the life insurance companies seek their future managers in large numbers.
In view of these changes, it becomes essential for companies to reframe their marketing strategies and to focus on enhancing their market share, understand the requirements of customers and provide innovative products and services to cater to their needs. Some strategic solutions are delineated as under:
Conclusion
The era of monopoly in the life insurance business in India is over and no company can now afford to sit idle. The leader, LIC, is losing its market share and private players are making their presence felt. As competition in the insurance sector hots up, the future belongs to those who understand the varied requirements of the Indian populace and provide products and services to meet the same.
-- Rishi Sharma
Asst. Professor and Head,
Department of Management,
Sagar Institute of Research &
Technology - Excellence,
Bhopal.
The author can be reached at
sharmarishi10@gmail.com
Asst. Professor and Head,
Department of Management,
Sagar Institute of Research &
Technology - Excellence,
Bhopal.
The author can be reached at
sharmarishi10@gmail.com
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