INTRODUCTION: Wherever there is an uncertainty there is risk. We do not have any control over uncertainties which involves financial losses. The risk may be certain events like death, pension, retirement or uncertain events like theft, fire, accident, etc. Insurance is a financial service for collecting the savings of public and providing them with risk coverage. The main function of insurance is to provide protection against the possible chances of generating losses. It eliminates worries and miseries of losses by destruction of property and death.
It also provides capital to the society as the funds accumulated are invested in productive heads. Insurance comes under the service sector and while marketing this service due care is to be taken in quality product and customer satisfaction. While marketing the services, it is also pertinent that they think about the innovative promotional measures. It is not sufficient that you perform well but it is also important that you let others know about the quality of your positive contributions.
The creativity in the promotional measures is the need of the hour. The advertisement, public relations, word of mouth communication needs due care and personal selling requires our intensive care. Insurance companies tend towards having a strong sales orientation. Since the services they sell, although certainly are ones that rarely sells themselves. Potential customers are usually reluctant to think about disaster or death. So, they postpone planning for these possibilities, until they are contacted and influenced by agents or company representatives.
The insurance business is based on the skill and excellence of agents and this makes a strong case in favor of personal selling. ORIGIN AND GROWTH OF INSURANCE SECTOR: Insurance in the modern form originated in the Mediterranean during the 13th century. The earliest reference to insurance has been found in Babylonia, Greece and the Rome. Marine Insurance is the oldest form of Insurance followed by Life Insurance and Fire Insurance. Life Insurance activity to its modern form started in India in 1818 to provide insurance for English widows.
Oriental Life Insurance Company was incorporated in Calcutta, followed by Bombay Life Insurance Company in 1823 and Triton Insurance Company for general insurance in 1850. Insurance regulation formally began in India through the sparking of two Acts, the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. However, the first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict state control over insurance business in the country. After independence, the business of insurance grew at a faster pace as complication among all the Indian companies intensified.
The decision of nationalization of Life Insurance business was taken in 1956 when 245 Indian and foreign Insurance Provident Societies were first merged and then nationalized. INSURANCE MARKETING: The term Insurance Marketing refers to the marketing of Insurance services with the aim to create customer and generate profit through customer satisfaction. It means knowing the market and developing a need oriented product, formulating the product mix, making suitable pricing decisions, designing sensitive promotional strategies and effective distribution.
It also involves a scientific approach to management of agents, who distribute insurance product, so that qualitative improvements are made possible. The insurance marketing focuses on the formulation of an ideal mix for Insurance business so that the insurance organization survives and thrives in the right perspective. USERS OF INSURANCE SERVICES: The main users of insurance services are individuals, corporate, industries, institutions and various other groups. The insurance industries lay considerable emphasis on the policy holders. Therefore, the individuals or he institutions who are already members of the scheme are called actual policyholders, and the individuals or institutions who have an implicit or explicit requirements of risk coverage would be known as a potential policyholder. Marketing strategies are used to influence or motivate the potential policyholder’s. Since users play an important role in insurance services, insurance Corporation needs to expand their business through them. The jobs of expanding the business can be successfully accomplished, if they can study the user’s behavior, and then frame their marketing mix for changing needs and requirements.
The behavior of the users governs the success of a marketing program. From the customer’s point of view, the company that offers the product or service, he wants, with the quality he desires, for the lowest cost he would be the company to purchase insurance from regardless of its organizational form. Hence, potential customers would base their purchasing decision on factors other than the financial quality of the firm or its geography to reach. In order to study the behavior of the actual and potential policyholders one has considered to categorize them properly and understands the needs of each segment separately.
There is a difference in the needs and wants of urban and rural population, because of the differences in the environmental taste and temperament. It is easier to influence urban people than rural people, because of their awareness of insurance products and their utility. Moreover, they live in an environment which is relatively more unsafe than to a rural environment. This makes the urban prospects understand better the advantages of an insurance cover. However, it is important to make them understand the message in the right way.
Investment in insurance is exempt from tax. The urban class may also be motivated take insurance to avail of the tax concession and other incentives. On the other hand, the needs of the rural class would be considerably different either due to their lower awareness or because of their income priorities. Things like insurance take back seat for most of them. It may also be due to less concentration of insurance companies in rural areas. Insurance services should analyze and anticipate the needs and requirements of industrial users.
In case of industrial users, products like fire, marine, motor and miscellaneous policies are important. Industrial customers are generally well aware of the products available in the market, and hence selling takes precedence over marketing here. MARKETING-MIX FOR INSURANCE ORGANIZATION: The insurance business deals in selling services and therefore due weight age in the formulation of marketing mix for the Insurance business is needed. The marketing mix includes sub-mixes of marketing such as the people, the process and the physical attraction.
The public sector insurance organizations have not been formulating and innovating the marketing mix to cater to the changing needs and requirements and increasing level of satisfaction of the users. Majority of the policy-holders are dissatisfied with the service-profile and they often complain regarding the detonating quality of services. Due to this the foreign insurance companies and private insurance players are snatching away the business of the public sector insurance organization PRODUCT: A product means what we produce.
If we produce goods, it means tangible product and when we produce or generate services, it means intangible service product. The insurance organization generates services in different forms. A product is both what a seller has to sell and a buyer has to buy. Thus, any enterprise that has something to sell, tangible or intangible is selling a product. An Insurance Company sells services and therefore services are their product. Thus, a product is also called a bundle of utilities consisting of various product features and accompanying services.
When a person or an organization buys an Insurance policy from the insurance company, he not only buys a policy, but along with it the assistance and advice of the agent, the prestige of the insurance company and the facilities of claims and compensation. In India, the Life Insurance Corporation of India and the General Insurance Corporation are the two leading companies offering insurance services to the users. Apart from offering life insurance policies, they also offer underwriting and consultancy services.
It is natural that the users expect a reasonable return for their investment and the insurance companies want to maximize their profitability. While deciding the product portfolio or the product-mix the services or the schemes should be motivational. The Group Insurance scheme is required to be promoted, the Crop insurance is required to be expanded and the new schemes and policies for the villagers or the rural population are to be included. We know that majority of the Indian population live in villages.
The landless laborers, the unemployed youth, the rural artisans, potters, fishermen, etc. deserve due care. It is a known fact that the main objective of the insurance business is mobilization of savings and channelization of investment. Hence, it is essential than the insurance business is made lucrative so that the users or the potential users get incentives to buy a policy or to invest in the insurance organization. The Life Insurance Corporation has intensified efforts to promote urban savings, but as far as rural savings are concerned, it is not that impressive.
The introduction of Rural Career Agents Scheme has been found instrumental in inducing the rural prospects but the process is at infant stage and requires more professional excellence. The policy makers are required to activate the efforts. It would be prudent that the LIC is allowed to pursue a policy of Direct Investment for rural development. Investment in government securities should be stopped and the investment should be channelized in private sector for maximizing profits. In short, the formulation of product-mix should be in the face of innovative product strategy.
While initiating the innovative process it is necessary to take into consideration the strategies adopted by private and foreign insurance companies. PRICING In the insurance business the pricing decisions are concerned with: • The premium charged against the policies, • Interest charged for defaulting the payment of premium and credit facilities, and • Commission charged for underwriting and consultancy activities. With a view of influencing the target market or prospects the formulation of pricing strategy becomes significant.
In a developing country like India where the disposable income in the hands of prospects is low, the pricing decision also governs the transformation of potential policy-holders into actual policy-holders. The strategies may be high or low pricing keeping in view the level or standard of customers or the policy-holders. The pricing in insurance is in the form of premium rates. The three main factors used for determining the premium rates under a life insurance plan are mortality, expense and interest. The premium rates are revised if there are any significant changes in any of these factors. Mortality: When deciding upon the pricing strategy the average rate of mortality is one of the main considerations. In a country like South Africa the threat to life is very important as it is played by host of diseases. • Expenses: The cost of processing, commission to agents, reinsurance companies as well as registration are all incorporated into the cost of installments and premium sum and forms the integral part of the pricing strategy. • Interest: The rate of interest is one of the major factors which determines people’s willingness to invest in insurance.
People would not be willing to put their funds in insurance business if the interest rates provided by the banks or other financial instruments are much greater than the perceived returns from the insurance premiums. Hence, to be a low cost service provider to its customers, an insurance firm has to minimize its cost of functioning and maximize the return arising from its investment. PROMOTION: The insurance services depend on effective promotional measures. The magnitude of dependence in case of insurance services is high. Creation of awareness is found very much instrumental in the generation of impulse buying.
In a country like India, the rate of illiteracy is very high and the rural economy has dominance in the national economy. It is essential to have both personal and impersonal promotion strategies. In promoting insurance business, the agents and the rural agents play an important role. We need to promote them in order to get more business. Due attention should be given in selecting the promotional tools for agents and rural career agents and even for the branch managers and front line staff. They also have been given proper training in order to create impulse buying.
The following are the different components of promotion: • Advertising: Advertising is a paid form of persuasive communication, which is found important to promote the insurance business. Advertising is now treated as a profession and the advertising professional bear the responsibility of making the advertisement slogans, appeals, campaigns, creative, so that the process of sensitizing the prospects is found proactive. Advertising can be done through telecast media, broadcast media and the print media. Telecast media is more effective in the sensitizing process.
With the help of audio/visual exposure, the rate of acceptability of the messages can be increased. We cannot deny that the telecast media is expensive, but in order to promote the insurance business we do not have any option, but to assign due weight age to the same The broadcast media can also be used for that very purpose. We have a big transmission network and well-developed system, which insurance organization can use. If the message is sensitive, the rate of acceptability would be high. Another benefit of this media is to reach the messages even to the remotest parts of the country.
It is also an economical media. The cheapest among the three is the print media. As it is economic in nature, and impressive in expression the print media, of late has made the media more attractive. • Publicity: The advertisements may be insensitive, but we find that the publicity is more effective since the messages, views, opinions, facts, figures are published by media. It is a device to promote business without making any payment, and therefore we also call it an unpaid form of persuasive communication. Developing rapport with the media is in another important aspect of publicity.
This makes it essential that the public relations officers working in the insurance organization or the branch managers or even the senior executives should develop a rapport with the media people, organize a press conference, distribute to them small gifts, and even offer them lunch or dinner. They may be persuaded to write something in the favor of the insurance company by making a story or in the form of a news cover. • Sales Promotion: In the insurance business, the incentives to the policy-holders or to the agents or even to the insurance personal for promoting the business are the sales promotion tools.
Since the business environment is likely to be more competitive, it is necessary that the insurance companies offer innovative tools of sales promotion in order to increase their business. Incentives to the end-users for taking a policy play an important role in promoting the insurance business. Since the insurance business is also related to the achievement of a particular target. It is necessary that the insurance company give due weight age to the incentives, to the agents and to the executives. • Personal Selling: Personal selling occupies an important place in the promotion mix.
This is because the insurance business is substantially influenced by the instrumentality of agents and the rural career agents. If they are aware of the art of informing, sensing and persuading the potential policy-holders, the task of insurance organization can be simplified considerably. Personal selling is based on the excellence of an individuals communication skill. This makes it significant that the agents as well as the rural career agents have certain outstanding attributes of qualities such as attractive personality, communicative ability, patience and commitment to the profession.
Arranging exhibitions, participation in fairs and festivals, rural wall paintings and publicity drive through the mobile publicity van units would be effective in creating the impulse buying and the rural prospects would be easily transformed into actual policy-holders. PHYSICAL DISTRIBUTION: Distribution is a key determinant of success for all insurance companies. Today the nationalized insurers have a large reach and presence in India. New entrants cannot duplicate such a network. Building a distribution network is very expensive and time consuming.
If the insurers are willing to take advantage of India’s large population and reach a profitable mass of customers then new distribution avenues and alliances will be necessary. This is also true for nationalized corporations which have to find fresh avenues to reach new and existing customers. Initially insurance was looked upon as a complex product with a high advice and service component. Buyers prefer a face-to-face interaction and they place a high premium on brand names and reliability. As the awareness increases, the product becomes simpler and they become off-the-shelf commodity products.
Today, various intermediaries’ not necessarily insurance companies are selling insurance. For an example in UK, retailer like Marks and Spencer sell insurance products. Brand loyalty could now shift from insurer to seller. The financial services industries have successfully used remote distribution channels such as telephone or internet so as to reach more customers, avoid intermediaries, bring down overheads and increase profitability. A good example is UK insurer direct line. It relied on telephone sales and low pricing. Today it is one of the largest motor insurance operator.
In India, life insurance is still a service product. Technology will not replace a distribution network though it will offer advantages like better customer service. Finance companies and banks can emerge as an attractive distribution channel for insurance in India. In Europe, the banks are entering the insurance business. The Netherlands led with financial services firms provide an entire range of products including bank accounts, motor, home and life insurance and pensions. In France, half of the life insurance sales are made through banks.
In India also, banks hope to maximize expensive existing networks by selling a range of products. It is anticipated that rather than formal ownership arrangements, a loose network of alliance between insurers and banks will emerge. In the US, space is leased to insurers within their bank branches or retail products for multiple insurers. Another innovative distribution channel that could be used are the non-financial organizations. For an example, insurance for consumer items like fridge and TV can be offered at the point of sale. This increases the likelihood of insurance sales.
Alliances with manufacturers or retailers of consumer goods will be possible and insurance can be one of the various incentives offered. Another potential channel is worksite marketing. Insurers will be able to market pensions, health insurance and even other products through employers to their employees. These products may be purchased by the employer or simply marketed at the workplace with the co-operation of the employees. PROCESS: The process should be customer friendly in insurance industry. The speed and accuracy of payment is of great importance. The processing method should be easy and convenient to the customers.
Installment schemes should be streamlined to cater to the ever growing demands of the customers. IT and data warehousing will smoothen the process flow. Information Technology will help in servicing large number of customers efficiently and bring down overheads. Technology can either complement or supplement the channels of distribution cost effectively. It can also help to improve customer service levels. The use of data warehousing management and mining will help to find out the profitability and potential of various customers and product segments. PEOPLE: Understanding the customer better allows to design appropriate products.
Being a service industry which involves a high level of people interaction, it is very important to use this resource efficiently in order to satisfy customers. Training, development and strong relationships with the intermediaries are the key areas to be kept under consideration. Training the employees, use of Information Technology for efficiency both at the staff and agent level is one of the important areas to look into. Building a strong relationship with intermediaries will help in meeting the needs of the customers in a better way and serve them effectively.
MARKET SEGMENTATION IN INSURANCE SERVICE: In Insurance services, the task of formulating the overall marketing strategy cannot be performed satisfactorily till the market segmentation. This is because the market is vast, the potential policy-holders are in a large number and their needs and requirements are diverse. There are a number of similarities in the market segmentation of banking and insurance services. Insurance market segmentation is done on the basis of region. The entire nation is divided into four zones viz. Central, Eastern, Western and Northern Zone.
If the market segmentation is done in the right way the marketer finds it convenient to identify the market. The main purpose of segmentation is to know the policy-holder. It is natural that the needs and requirements of potential policy-holders belonging to different zones or regions can’t be uniform. Particularly in the Indian environment we find a large number of rural prospects. In order to transform them into actual policy-holders, the establishment of the rural sector is felt. The region wise segmentation simplifies the task of having detailed idea of the language, culture, taste and preferences.
This will help in making the market appeal creative, sensitive and proactive. It is necessary that the insurer attempts to cover the entire market. It is not sufficient that only the employed persons are covered. Our efforts should be to cover the self employed too irrespective of their level of income. It is not proper that the insurance business remains confined to the industrial sector only. Though crop insurance and cattle insurance facilities have been introduced for furthering the interest of the farm sector, still there is ample scope for expanding the insurance facilities to some more areas and regions.
To make the segmentation sensitive, it is essential that market planning should be done at zonal level. The aim of insurance business is to cover the maximum possible potential policy-holders. Besides it is also important that liquidity, safety and profitability are given due consideration. Mobilization of savings and channelization of investment if done properly can make the services productive. In the Indian perspective, we find the rural markets to be more profitable ones for both banks and insurance in the 21st century. Hence, due weight age should be given to the rural segment.
INSURANCE MARKETING IN INDIAN ENVIRONMENT: The nature and behavior of business is governed by environmental changes. In a developing economy where financial institutions are expected to shoulder multi-faceted social burdens in addition to the task of mobilizing and channelizing resources, it is necessary that professionalism should be developed. Due to mounting problems of regional backwardness and regional imbalances like making of marketing decisions are complicated in insurance business. Risk and uncertainties move upward due to increased sophistication.
After the nationalization of LIC in 1956 and GIC in 1974 there have been changes in the organizational objectives. It was in this background that insurance business was attempted to be expanded in rural areas. The purpose was to reach all the potential users of the services. In this context it is significant to mention that the extent of dependence of insurance business on the services of agent and rural career agents is of high magnitude. The service conditions of rural agents and agents in general are to be enriched. In the Indian condition the task of motivating the rural prospects is more difficult as majority of them are illiterate.
Marketing of insurance services needs a rational approach which means the following: • Knowing the market. • Suitable pricing decisions. • Product to be developed as per needs. • Designing of sensitive promotional strategy. • Scientific management of agents. • Proficiency in management. • Cost effectiveness. • Professionalism and • Profitable investment. Privatization of Insurance Sector: The new millennium has exposed the insurance sector to new challenges of competition and struggle for survival in this era of privatization, liberalization, deregulation and globalization.
The Indian government nationalized private insurance companies in 1956 [Life Insurance Corporation of India (LIC) followed by General Insurance in 1972] to bring this sector under government control. Two governments fell over the issue of liberalization of insurance sector. After 40 years of government protectionism of this massive sector, the present government has initiated the process of opening this sector to private Indian business houses as well as international players. Although the growth of the Indian insurance industry has been slow for the last four decades the state owned insurance companies have grown creating only inefficiency.
The idea of insurance was first conceptualized in the 12th century. At that time it was used more as a tool for protection against financial loss of seafarers involved in foreign trade. Since then, the concept has undergone several changes. It is basically the unforeseen contingencies of human life that have given a totally new look to the industry. Gradually as competition increased, the benefits given by the industry to its customers improved by leaps and bounds. The opening up of the sector has posed new challenges for the public sector insurance companies.
Prior to liberalization, the regulatory environment was primarily based on consolidated provision of the Insurance Act, 1938 and the Controller of Insurance had wide ranging powers. After nationalization, much of the powers of the Controller of Insurance were abridged for operational convenience of state owned LIC and GIC. In 1993, Malhotra Committee was constituted to review insurance regulations and carry out reforms. All attempts to even suggest letting private players into vital sector were met with resistance from the powerful insurance employees unions.
Despite several developments that have taken place in the industry in the post-liberalization era, per capita premium for life insurance is as low as $6 and that for non life insurance is at level of $2. It accounts for 2 percent of the GDP compared to the world average of 7. 8 percent. Insurance investors developed economies, particularly from Western Europe and the US, find Indian market as having greater growth potential than their domestic markets. Therefore, a high level of interest exists for these companies to acquire insurance concerns.
Many international players are eyeing the vast potential of the Indian market and are already making plans to enter. The entry of the foreign players in the sector with more financial resources, better experience and lower operational costs will have an advantage over the Indian companies involved in the business. The bigger private players claim that opening up insurance will give policyholders better products and service, the opponents of privatization argue that in a poor country like India insurance needs to have social objectives and newcomers will not have that commitment.
Better experience provides them with the wherewithal to have a better product mix and more operational flexibility. Moreover, they will operate with a lean staff and lower operational cost. The domestic insurance industry will as a result, have to face a greater competition. But the resources with the foreign players are limited, as they can invest upto 40 per-cent of the equity of their joint-venture with Indian firms. This is a great hindrance for them to perform at their optimum level. IRDA is working out to gradually dismantle the tariff structure.
Not much threat is perceived as to any price war since the new companies will stress more on the non-actuarial product differentiation. However, the Indian insurers due to their extensive branch networking and long standing association with the client still have an advantage. Further, insurance products can become a competing investment product vis-a-vis other saving, etc. Already LIC has launched Equity linked Indexed Insurance Policies, which have been received quite well. The new players are expected to bring in spate of such products.
Insurance is viewed as a tax saving instrument rather than protecting ones own kith and kin from the vagaries of the future. The rush for insurance policies to save tax bills can be seen at the end of the financial year. With the entry of private and global players like HDFC Standard Life, ICICI Prudential, Kotak Mahindra Club Insurance, Hindustan Times Commercial Union to name a few, the insurance industry is going to provide many jobs and is going to witness phenomenal growth. BANCASSURANCE: Bancassurance symbolizes the convergence of banking and insurance. The term involves distribution of Insurance products through a banks branch network.
In concrete terms, bancassurance, which is also known as Allfinanz – describes a package of financial services that can fulfill both banking and insurance needs at the same time. While Bancassurance has become a success story in Europe, it is relatively a new concept in Asia. For instance, Bancassurance represents over 65% of the premium income in life insurance in Spain, 60% in France, 50% in Belgium and Italy. Bancassurance penetration is expected to substantially increase in Asia over the next five years, potentially accounting for 13% of life insurance premiums.
A key factor driving the development of Bancassurance in Asia is the relaxation of stringent regulations. Markets where Bancassurance was previously prohibited, including Japan, South Korea and the Philippines are taking a more accommodating stance towards bank distribution of insurance products. Bancassurance as a means of distribution of insurance product is already in force in India in some form or the other. Banks are selling personal accident and baggage insurance directly to their customers as a value addition to their products.
Banks are also participating in the distribution of mortgage linked insurance products like fire, motor or cattle insurance to their customers. Even IRDA Bill in India has stimulated the growth of Bancassurance by allowing the use of multiple distribution channels by banks and insurance companies. Benefits of Bancassurance: Insurance companies see Bancassurance as a tool for increasing their market penetration and premium turnover. The customer sees Bancassurance as a bonanza in terms of reduced prize, high quality product and delivery at doorsteps. Banks and Insurance companies have complementary strengths.
In their natural and traditional roles and with their current skills, neither banks nor insurance companies could effectively mount a Bancassurance start-up alone. Collaboration is the key to making this new channel work. For banks, Bancassurance is a means of product diversification and a source of additional fee income. Insurance companies see it as a tool for increasing their market penetration and premium turnover. Expenses ratio in insurance activities through Bancassurance is very low. Banks and the insurance companies benefit from the same distribution channels and people.
Above all a back-of-the-envelope calculation taking into account only the existing customer base shows that banks could collectively be looking at a fee-based income of anywhere between Rs. 13,500 crore and Rs. 22,000 crore over the next five years. Banks are thus looking at tie-ups with insurance companies to boost their non-interest income. In turn, insurance companies are keenly eyeing the spread of bank branches and the potential to tap 18 crore customer accounts. SBI Life Insurance company, a predominant player in Bancassurance, is positive about the channel bringing about a transformation in the way insurance has been sold so far.
The company is banking heavily on Bancassurance and plans to explore the potential of State Bank of India’s 9,000 plus branches spread across the country and also its 4,000 plus associate banks. OM Kotak Mahindra Life Insurance has tied up with Dena bank besides its own Kotak bank for Bancassurance. The company is targeting around 10% of the business during its startup phase. Bancassurance makes use of various distribution channels like salaried agents, bank employees, brokerage firms, direct response, internet etc. Insurance companies have complementary strengths.
In their natural and traditional roles Bancassurance is of great benefit to the customers. It leads to the creation of one-shop where a customer can apply for mortgage, pensions, savings and insurance products. The customer gains from both the sides as costs get reduced. Bancassurance for the customer is a bonanza in terms of reduced premium charges, a high quality product and delivery at the doorstep. CHANGING HORIZON OF INSURANCE SECTOR: Future Strategies foe promoting Insurance in India: The insurance landscape in India is undergoing a major change.
With the re-opening of the sector, several new players have entered the scene, offering plethora of professional opportunities. It is high time for the professionals to take note of it and update themselves with the latest goings on this arena. This article is an attempt in that direction. The four main challenges facing the industry are product innovation, distribution, customer service, and investments. Unit-linked personal insurance products might find greater acceptability with rising customer awareness about customized, personalized and flexible products.
Looking Ahead: Today, a combination of the upsurge in consumer awareness and other developments has put the insurance sector under pressure. The lifting of the bar on composite insurance, where companies are allowed to do only life or non-life business today, can also be expected. And thus, instead of categorizing insurance by class, the focus may shift more to the period for which the cover was offered and the risk underwritten. Already, there is a demand for permitting the industry to underwrite pure risk and leaving investment decisions to policyholders.
The increasingly tough competition has actually changed the rules of the game. The market is flooded with an array of products. In such a scenario, the differentiators among different players are the products, pricing, and service. Meanwhile, the profile of the Indian consumer is also evolving. Consumers are increasingly more aware and are actively managing their financial affairs. Today, while boundaries between various financial products are blurring, people are increasingly looking not just at products, but also at integrated financial solutions that can offer stability of returns along with the total protection.
To cater to these myriad needs of customers, insurance products need to be further customized. Insurance today has emerged as an attractive and stable investment alternative that offers total protection – Life, Health and Wealth. In terms of returns, insurance products today offer competitive returns ranging between 7% and 9%. Besides returns, what really increases the appeal of insurance is the benefit of life protection from insurance products along with health cover benefits. Consumers today also seek products that offer flexible options.
The customers now prefer products with benefits unbundled and customizable to suit their diverse needs. Further, the trends of the developed economies where people not only live longer but also retire earlier are now catching up in India too. Earlier, the fear of an early death primarily necessitated insurance. Today, the fear is also of outliving one’s assets in the wake down of traditional forms of social security like joint family system, consumers are now focusing on the needs of a comfortable retired life. The long-term decline in interest rates has further pushed this trend.
This all adds up to major change in demand for insurance products. While sale of traditional life insurance products like individual, whole life and term will remain popular, the new products like single premium, investment linked, retirement products, variable life and annuity products will also arise in the times to come. Firms will need to constantly innovate in terms of product development to meet ever-changing consumer needs. However, product innovations are quickly and easily cloned and pricing will also not vary significantly, with most product premiums hovering around a narrow band.
In this backdrop, a key difference will be the customer experience that each life insurance player can offer, in terms of quality of advice on product choice, policy servicing as well as settlement of claims. Long-term growth in business will depend greatly on distribution network where the emphasis must only be just on selling insurance but also on acting as financial advisors. This calls for a strong focus on training of the distribution force to act as financial consultants and build a long lasting relationship with customer. The Intermediaries:
The intermediaries in insurance business and the distribution channels used by carriers will perhaps be the strongest drivers of growth in the sector. Multi-channel distribution and marketing of insurance products will be the smart strategy for the Indian market. While tied agents will continue to play an important role in distribution, alternative channels like corporate agents, brokers, and Bancassurance will play a greater role in the distribution. Firms will need to forge relationships with the partners for strategic advantage. They need to have strong partner relationship management.
For example, local partners may have strong distribution channel in their line of business. That can be used to sell insurance also in a cost-effective manner. The time has come for the industry to gradually move from traditional individual agents towards new distribution channels. There are 850,000 insurance agents in India and the qualitative selection of agents by companies is imperative to gain the cutting edge. Work-site Marketing: Relatively inexpensive and easy to launch, the work-site marketing is one potential distribution channel.
In this scenario, sale of financial products and other services to employees is done through work-place-participation and is entirely on a voluntary basis where the employee pays for the products generally through a payroll deduction. Companies must constantly explore avenues to increase the number of distribution channels through a variety of distribution patterns, particularly given the rapidly changing customer profile. Traditional intermediaries have played a very important role as a distribution outlet for insurance services and products. The internet and telemarketing will play an increasingly critical role in customer relationship.
Bancassurance is an effective and upcoming distribution channel for Insurance products and companies. In countries like Italy, France and Spain, insurance companies have taken advantage of customers’ typical loyalty to single banks and pattern of long-term banking relationships by successfully selling their products through these banks. Here banks can leverage their existing resources and earn supplementary fees while widening their range of available services. At present, 12% of the world’s insurance products are sold through the Internet, a figure likely to grow exponentially with a likely increase in customer usage of the Internet.
Rural and semi urban sectors are the ones that could be serviced by the Bancassurance model. However, there are some reservations against the efficacy of insurance distribution through public sector banks as these banks do not have deep relationships with their customers. Other approaches, like call-centre, direct marketing, and the Internet will grow dramatically in importance over the next several years and will enable firms to acquire, retain and build loyalty among customers while lowering transaction costs. A customer accessing any channel should be recognized as a client and not required to provide information again.
What’s more, a client should be able to move easily from one mode of service to another (for example, from on-line to face-to-face to on-line) without disruption in service. The Challenges: The four main challenges facing the industry are product innovation, distribution, customer service, and investments. Unit-linked personal insurance products might find greater acceptability with rising customer awareness about customized, personalized and flexible products. Flexible products and new technology will play a crucial role in reducing the cost and, therefore, the price of insurance products.
Finding the niche markets, having the right product mix through add-on benefits and riders, effective branding of products and services and product differentiation from competitors’ offering will be the key challenges for the new companies. IT in Insurance: In today’s highly competitive financial services environment, effective organizations employ technology in a strategic role to achieve competitive edge. Technology plays an increasing role in aiding design and administering of products, as well in efforts to build life-long customer relationships.
At the same time, technology investment will only help as long as firms find the right people: people with the right attitude, values, and ethics, commitment to excellence, and focus on customer service. The critical success factor is a top-down emphasis on exceeding customer expectations with quality people, excellent products, and legendary service. Rural – Urban Mix: It must be borne in mind that India is a predominantly rural country and will continue to be so in near future. New players tend to favor the “creamy” layer of the urban population.
But, in doing so, they are missing a large chunk of the insurable population. A strong case in point is the current business composition of predominant market leader – the Life Insurance Corporation of India. The lion’s share of its new business comes from the rural and semi-rural markets. In a country of 1 billion people, mass marketing is always a profitable and cost-effective option for gaining market share. The rural sector is a perfect case for mass marketing. Competition in rural areas tend to be “kinder and gentler” than that in urban areas, which can easily be termed cutthroat.
Rural insurance should be looked upon as an opportunity and not an obligation. A smaller bundle of innovative products in sync with rural needs and perception and an efficient delivery system are the two aspects that have to be developed in order to penetrate the rural markets. Impending Reforms: Pension reforms: The two issues that urgently need to be addressed are the escalating burden of the unfunded government pension and the coverage for building retirement income for the non-salaried work-force.
The Insurance Regulatory Development Authority – the regulatory authority in Insurance, has already submitted a road map for pension reforms to the government. The new pension authority would fix the minimum capital requirement for new entrants including mutual funds and banks. Players would need to convince potential of their long-term commitment and responsibility and make known all components of options they intend to offer in pension products. Some feel that in order to maximize pension fund efficacy, management should be given over to insurance carriers, banks, and mutual funds.
They also recommend against auctioning the management of Pension Funds, proposing instead that entities with impeccable reputations, experience, and financial strengths should be entrusted with this important task. INSURANCE SECTOR HURDLES: The Insurance Industry has been growing between 15 and 20 percent, but it lags far behind in its global counteracts. This is due to the following reasons: • Insurance companies create products and go out to find customers. They do not create products that the market wants. • Insurance awareness among the General Public is low. The Term – Insurance Plans are not promoted. • Unit linked assurances are not available. • Insurance covers are expensive. Inefficient management and low investments yield are responsible for the high premium charged by Indian Insurance Companies. Investment restrictions have been responsible for low yields. • Returns from Insurance products are low. • There is a dearth of innovation and buyer-friendly insurance products. • Most agents and development officers are interested only in producing new business instead of servicing existing customers satisfactorily.