Challenges faced by public sector insurance

1. Introduction

2. Objective

3. History of insurance

4. Transition phase in insurance sector in India

5. Insurance sector reforms and Role of IRDA

6. List of public sector companies

7. Present scenario (based on financial parameters)

8. Challenges

9. Future strategies to face challenges

10.Conclusion

Introduction

With such a large population and the untapped market area of this

population Insurance happens to be a very big opportunity in India. It was

due to this immense growth that the regulations were introduced in the

insurance sector and in continuation “Malhotra Committee” was

constituted by the government in 1993 to examine the various aspects of the

industry.

Since then the insurance industry has gone through many sea changes .The

competition LIC started facing from these companies were threatening to the

existence of LIC. Since the liberalization of the industry the insurance

industry has never looked back and today stand as the one of the most

competitive and exploring industry in India. The entry of the private players

and the increased use of the new distribution are in the limelight today. The

use of new distribution techniques and the IT tools has increased the scope

of the industry in the longer run.

Due to emergence of private and foreign players in the market and also

because of increase in the use of technology, change in government policies

there has been a radical change in the insurance sector. With this change and

various other developments and issues, this project involves the study of the

challenges that the public sector face in order to survive in the market.

Indian Insurance Industry – Background/ Indian Insurance Market –

History

The insurance laws in India were developed in the footsteps of English

insurance laws. The insurance business in India started off with the marine

business as was the case in England and gradually extended to other

businesses like life and fire insurance. At that time, the English sold the

insurance policies to the businessmen of Indian origin at rates which were

above the normal prevalent rates, based on the assumption that the expected

lifespan of Indians was comparatively less and more risk-prone. In 1871, the

first Indian insurance company named `Bombay Mercantile Life Assurance

Society' commenced its business operations in India at normal rates of

premium, i.e., at the rate applicable to the English people. This was followed

by the establishment of `The Oriental Government Security Life Assurance

Company' in 1874, the `Bharat' in 1896 and the `Empire of India' in 1897.

These and several other Indian companies were started as a result of the

Swadeshi movement in the early 1900s. At this stage, in order to check the

mushrooming of the life insurance business and its agencies, the need for a

regulating authority was recognized for the first time that took shape in the

form of the `Indian LIC Act' in 1912.

The period between 1928 and 1956 held a significant aspect in the

development of insurance laws in India. During this period, serious attempts

were made to infuse professionalism in the Indian insurance sector through

innovative products and by educating the masses about the benefits of

insurance. As a result, a new Insurance Act was adopted in 1938 to monitor

the activities of life insurance companies in India. The enactment of the

Insurance Act, 1938, provided stability to the growing insurance business

and the earlier legislations were consolidated and amended to protect the

interest of the insuring public. The next significant piece of legislation that

came into effect was the introduction of the Life Insurance Act on

September 1, 1956.

The nationalization of the life insurance business in India saw the emergence

of country's only public sector life insurance company, Life Insurance

Corporation of India (LIC), which was formed as a result of the takeover of

170 companies and 75 provident fund societies. The company was formed

with an initial capital contribution of Rs. 50 mn. This initiated the rising

dominance of LIC in the Indian insurance sector that prevailed till the 1990s,

when the Government of India proposed reforms in the insurance sector to

end the monopoly of the public sector life insurance company in India.

Prompted by the impact of liberalization and globalization of the Indian

economy in the early 1990s, the Government of India appointed a high-

powered committee—Malhotra Committee—in 1993 under the

chairmanship of RN Malhotra, former Finance Secretary and Governor of

the Reserve Bank of India. The committee emphasized the private sector

participation in the life insurance business, thereby lifting the entry barriers

of private players and allowing foreign players to enter the market with

some limits (26%) on foreign direct investment.

On the basis of the Malhotra Committee recommendations, the Central

Government enacted the Insurance Regulatory and Development Authority

(IRDA) Act in 1999. With the enactment of this Act, the private sector

companies started to diversify into life insurance business in a bid to capture

the hugely untapped insurance market in India. Several public and private

sector financial institutions such as the State Bank of India (SBI), HDFC

Bank and ICICI Bank entered into the life insurance market. Also, quite a

number of multinationals like the Tatas and Birlas followed suit.

Insurance Sector Reforms and Role played by IRDA

The government in a bid to complement the reforms initiated in the financial

sector established a committee headed by former finance secretary and

Reserve Bank of India (RBI) governor, Mr. R.N. Malhotra to evaluate the

industry and to recommend its future direction. This committee suggested

the following changes:

Government stake in insurance companies be brought down to 50%.

The takeover of the holding of GIC and its subsidiaries in order to

facilitate their functioning as independent corporation.

Allowing private enterprise in the sector in companies with paid up

capital of a minimum of Rs. 100 crore.

No single entity to function in both Life and General insurance

segments.

Foreign companies to be allowed only in combination with an Indian

partner.

Changes to be made to the Insurance Act.

An independent insurance regulatory authority to be setup.

Reduction in the mandatory investments of LIC life fund in

government securities to be brought down from 75% to 50%.

GIC and its subsidiaries are not to hold more than 5% in any

company.

Rapid computerization of branches.

Payment of interest on delayed claims.

The insurance sector began its reform process with the passage of the IRDA

(the Insurance Regulatory and Development Authority) bill in parliament in

December 1999. However with the setting up of IRDA, the government has

de-regulated the sector opening it for the private players. The entry of

private players has enabled the industry to look at alternative distribution

channels. To get the maximum pie of the premium, every insurance

company is adopting new distribution and marketing strategies. The FDI

was hiked from 26% to 49% for private players of insurance sector.

PRESENT SCENARIO OF INSURANCE INDUSTRY

 

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 insurance majors. The insurance sector in India

has come to a position of very high potential and competitiveness in the

market.  Indians, 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 seeing a lot of

competition and thus improvement of the customer service in the industry.

Computerization of operations and updating of technology has 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 listed

below.

Direct selling

Corporate agents

Group selling

Brokers and cooperative societies

Bancassurance

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 as

riders from which they can choose. More customers are buying products and

services based on their true needs and not just traditional moneyback

policies, which is not considered very appropriate for long-term protection

and savings. There is lots of saving and investment plans in the market.

However, there are still some key new products yet to be introduced - e.g.

health products.

List of Public Sector Insurance Companies

Life: the largest public sector Life Insurance company in India is LIC

Non – Life: there are four public sector general insurance company in

India. They are:-

New India Assurance Company Ltd.

Established by Sir Dorab Tata in 1919, New India is the first fully Indian

owned insurance company in India. New India was a pioneer among the

Indian Companies on various fronts, right from insuring the first domestic

airlines in 1946 to satellite insurance in 1980. With a wide range of

policies New India has become one of the largest non-life insurance

companies, not only in India, but also in the Afro-Asian region.

United India Insurance Company Limited

United India Insurance Company Limited was incorporated as a Company

on 18th February 1938. General Insurance Business in India was

nationalized in 1972. 12 Indian Insurance Companies, 4 Cooperative

Insurance Societies and Indian operations of 5 Foreign Insurers, besides

General Insurance operations of southern region of Life Insurance

Corporation of India were merged with United India Insurance Company

Limited. After Nationalization United India has grown by leaps and bounds

and has 18300 work force spread across 1340 offices providing insurance

cover to more than 1 Crore policy holders. The Company has variety of

insurance products to provide insurance cover from bullock carts to

satellites.

Oriental Insurance Ltd.

The Oriental Insurance Company Ltd was incorporated at Bombay on

12th September 1947. The Company was a wholly owned subsidiary of

the Oriental Government Security Life Assurance Company Ltd and was

formed to carry out General Insurance business. The Company was a

subsidiary of Life Insurance Corporation of India from 1956 to 1973. In

2003 all shares of the company held by the General Insurance

Corporation of India has been transferred to Central Government.

Oriental specializes in devising special covers for large projects like

power plants, petrochemical, steel and chemical plants. The company has

developed various types of insurance covers to cater to the needs of both

the urban and rural population of India.

General Insurance of India Ltd.

The entire general insurance business in India was nationalized by General

Insurance Business (Nationalization) Act, 1972 (GIBNA). The Government

of India (GOI), through Nationalization took over the shares of 55 Indian

insurance companies and the undertakings of 52 insurers carrying on general

insurance business.

It was incorporated on 22 November 1972 under the Companies Act, 1956

as a private company limited by shares. GIC was formed for the purpose of

superintending, controlling and carrying on the business of general

insurance. As soon as GIC was formed, GOI transferred all the shares it

held of the general insurance companies to GIC.

Simultaneously, the nationalized undertakings were transferred to Indian

insurance companies. After a process of mergers among Indian insurance

companies, four companies were left as fully owned subsidiary companies of

GIC (1) National Insurance Company Limited, (2) The New India Assurance

Company Limited, (3) The Oriental Insurance Company Limited, and (4)

United India Insurance Company Limited. The next landmark happened on

19th April 2000, when the Insurance Regulatory and Development Authority

Act, 1999 (IRDAA) came into force. This act also introduced amendment to

GIBNA and the Insurance Act, 1938. An amendment to GIBNA removed

the exclusive privilege of GIC and its subsidiaries carrying on general

insurance in India.

In November 2000, GIC is renotified as the Indian Reinsurer and through

administrative instruction, its supervisory role over subsidiaries was ended.

With the General Insurance Business (Nationalization) Amendment Act

2002 (40 of 2002) coming into force from March 21, 2003 GIC ceased to be

a holding company of its subsidiaries. Their ownership was vested with

Government of India.

Challenges for public sector insurance

The public sector insurance companies in India has its dominance in this

sector since a long time. With the entry of foreign and private players in the

market and also because of various reforms introduced in the insurance

sector, the public sector insurance is facing various challenges to maintain

its status in the market. The following are challenges faced by public sector

insurance.

Privatization/ competition:

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 opening up of the sector

has posed new challenges for the public sector insurance companies. Due to

liberalization and globalization, insurance sector is now open to private and

foreign players. Due to this, the survival for public sector insurance

companies has come to stand. Various private and foreign players with their

best strategies and world class products has captured the maximum portion

of the uninsured sector of India. Yet there are many to be covered. The

question arises is that how would the public sector insurance company

would survive? Will the public sector insurance company be able to face the

challenge posed by private and foreign players in the market?

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. 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.

Market share

2007:

Public sector insurance companies have repeated the need for boosting

capital to meet the competition challenge from the private sector. PSU

insurers conveyed that their current capitalization is insufficient for

sustaining growth and increasing their penetration levels into the rural

markets. The combined net worth (equity plus reserves) of all the four PSU

insurers (New India Assurance, United India Insurance, National Insurance

and Oriental Insurance) was in the region of about Rs 12,000 crore in 2007.

They earned profits averaging about Rs 450 crore each per annum, as the

Sensex marched to 14,000 points. Profits from investment trading were not

sustainable and could turn out to be counter productive. Besides, with capital

constraints, PSU insurers have been conceding market share to the private

sector.

Pvt market share: Private sector's share was expanded to 35 per cent. This

situation was increasingly beginning to ring alarm bells among the PSUs.

This is despite PSU's expansive presence in the country. One of the major

factors for the loss of market share was that unlike the private sector, PSUs

were obsessed with solvency and maintaining high levels of retention.

Solvency margin: The prescribed solvency margin (the excess of capital

and value of assets over the insured liabilities) by the insurance regulator is

150 per cent.

Retention ratio: The private sector insurers have been operating at very low

retention ratios of under 50 per cent. Retention ratio implies the amount of

premium retained within the country.

Instead most of the private sector insurers were ceding business to foreign

reinsurers to maintain solvency and at the same time earning large ceding

commissions. Ceding by PSU insurers to foreign insurers was less than 30

per cent, implying retention of 70 per cent.

But reducing retention is an option before the PSUs, if the Government

maintains its opposition to the equity raising efforts.

This implies that PSUs would also consider increasing their ceding of

liabilities to maintain solvency. Such a move would have other negative

effects by way of reduction in investments within the country, including

infrastructure.

PSU non-life insurers are currently among the largest financiers of long-term

debt of state governments, domestic equity markets and rural infrastructure.

Moreover the current level of capitalization is on an insurance penetration of

less than one per cent of the Gross Domestic Product. If the penetration is to

improve to 2 per cent, the Asian average, there is little alternative to

additional infusion.

FDI in Insurance

Foreign Direct Investment (FDI) is now widely perceived as an important

resource for expediting the industrial development of developing countries

in view of the fact that it flows as a bundle of capital, technology, skills and

sometimes even market access. India's case is typical in this context. After

following a somewhat restrictive policy towards FDI, India liberalized her

FDI policy regime considerably since 1991. This liberalization has been

accompanied by increasing inflows. The liberalization has also been

accompanied by changes in the sectoral composition, sources and entry

modes of FDI.

Both Indian and foreign players find their place in this sector, though still

domestic investors have an upper hand, as foreign investors face the 26%

investment cap. Recent years have witnessed a lot of proposals being

advanced for increasing this investment cap to 49% for the foreign investors.

The government also has agreed on various occasions about this change in

the investment climate, though the investment limit still stands at 26%.

Proponents of this increase in investment cap argue that increasing the

investment cap would encourage FDI in the insurance sector and

consequently the benefits of FDI will follow. In this paper, we closely

examine the issue of increasing the foreign equity in the insurance sector.

We also suggest that time is still not ripe enough to increase FDI in the

insurance sector as this will not give heartening results.

The following are the reasons why this FDI limit should not be amplified:

New Technology - A Fairy Tale: Often the FDI hike is backed by the

arguments that it will lead to a new technology being brought to the

home country especially in the context of a developing country like

India. But this does not hold any water when we talk about insurance

sector as in the insurance sector technology is not at all significant.

The mortality rate and other principles of insurance are based on the

conditions prevailing in India, as the policy holders are Indians. The

need to bring in high technology in this sector is a mere farce and any

justification provided on these grounds is baseless. Hence, neither the

product nor the technology is required from foreign countries. Also,

even in the existing scenario of FDI up to 26%, no such inflow of

technology has been witnessed.

Disregard to the Rural Sector: Increasing foreign equity in

insurance sector will lead to an imbalanced ambience of competition,

leading to disfavoring of the rural quarter. During the year 2003-04,

the market share of 12 private companies together was 8% in terms of

number of policies while the market share of private companies in

terms of new premium income was 13%. This is because the private

companies have been targeting the urban elite and are only concerned

with earning premiums of higher denominations. Though this in itself

may not be objected to, their complete absence from rural and other

socially purposive insurance cover and investment creates an uneven

climate of competition against the public sector. It is definitely a

matter of concern that they will become much more aggressive in this

respect with the availability of increased foreign capital. Even at

present with foreign equity standing at 26%, the private sector have

distanced themselves from rural and social oriented projects. For

example, in the area of general insurance the motor third party

insurance, which is at present running in losses, is solely handled by

public sector companies. Additionally, the IRDA Annual Report

2002-2003 clearly notes that fire and engineering portfolios accounted

for 32.63% and 7% respectively for the premium underwritten by the

private players; while in respect of the public sector companies these

profit making portfolios accounted for 19.43% and 4.5% respectively.

On the other hand, motor and health contributed around 41% and

7.5% of the business underwritten by the public sector as against 27%

and 5.5% respectively for the private insurers. Hence, increase in

foreign equity would fortify the private companies without the burden

of social responsibility.

Disciplining of Private Insurance Companies: If we examine the

present FDI clout, the IRDA has been grossly unsuccessful in

monitoring the working of the private companies. The IRDA Annual

Report 2002-2003, reflects certain notices served to private

companies, but again there was no follow up of such notices. Till

today there has been no scrutiny of the working of these private

companies, although companies like American International Group

(AIG) and Prudential are involved in several charges of violation of

regulations involving malafide accounting practice. On the contrary,

Life Insurance Corporation (LIC) and public sector general insurance

are burdened with social responsibilities. This again contributes to the

situation of unhealthy competition. If this foreign clout is increased to

49%, it will only strengthen the lack of monitoring of private

companies and sets an uneven platform for competition.

Flow of Funds for Infrastructure - An Eye Wash: Arguments like

increase in FDI limit will make available the inflow of infrastructure

unsustainable, as insurance is all about mobilizing savings for long

term investment in social and infrastructural sector. For example, 95%

of the policies sold by Birla Sun Life and 80% of the policies of ICICI

Prudential are unit-linked, leading to investments of funds largely for

equity and only symbolically for infrastructure. Whereas, LIC has

invested around Rs. 40,000 cr in power generation, road transport,

water supply, housing and other social sector activities. There is no

dispute about the fact that private enterprises only target those

activities that provide reasonable opportunities for earnings and place

social welfare at a much lower priority. Hence, when the private

companies are shying away to muster funds for infrastructure at the

present 26% foreign clout, it will not be sensible to assume that this

situation will change by increasing the FDI limit. Foreign investors

would only be concerned with the returns their funds would generate

and would not in the least be concerned about the infrastructural

progress of the developing country they invest in and as a result, they

refrain from investing their funds in projects having a slow gestation

period.

Private Players and their Poor Performance: Trailing the opening

of insurance sector for private players in 1999, with foreign equity up

to 26%, 12 private companies have entered the life insurance sector.

Out of these 12 only Housing Development Finance Corporation

(HDFC) has foreign equity of 18.6%, whereas all others have foreign

equity of 26%. Likewise, eight private companies have penetrated into

general insurance, out of which six companies have foreign equity of

26%. According to an IRDA annual report, nine out of the 12

companies in life insurance and four out of eight in general insurance

have suffered huge losses. As against this, LIC and Reliance (with no

foreign equity) have registered grand profits in life and general

insurance respectively. Thus, if profitability is the criteria for judging

efficiency then private players (with 26% foreign equity) have failed

manifestly on all possible fronts. In such circumstances, increasing

this maximum value of foreign equity further may turn out to be

suicidal.

Doubtable Repute of Foreign Players: Many of the foreign players

operating in India through joint ventures have dreadful reputations in

their home countries. For e.g., the Prudential Financial Services

(ICICI's partner in India) is facing several allegations of fraud in the

US. Identical is the case of Standard Life of UK (HDFC's partner in

India). Additionally, several issues of SIGMA (a reputed Swiss

Journal on Insurance) further reflects this plight. Hence, any increase

in FDI limit will further augment this poor situation.

Distribution channels/ Marketing

The strong growth in the Indian insurance sector is primarily due to the

intense marketing strategies and techniques adopted by the insurance

companies. Further, the private insurance companies have started focusing

on untapped rural areas offering tremendous growth opportunities. This will

help in raising the private sector’s share in rural market. Private insurance

companies have a vast product portfolio in terms of maturity period and

premium amounts, giving people a large number of alternatives to choose

from as per their requirement. Also, private players have better market

capitalization over public companies as they provide high return and

aggressively market their products. Due to the adoption of aggressive

marketing techniques by private players, the competition in the sector has

further intensified, which is reducing the market share of public sector

insurance companies. However, the public sector companies have widened

their product range and improved their quality to match with those offered

by private players, giving them long term advantage.

There has been an aggressive techniques been followed by the private

insurance companies to market or distribute their products. With its new and

innovative products and with the strong strategies has able to tap the large

portion of the market. India is at the lower end of the spectrum when it

comes to penetration of the market. The main reason for low insurance

penetration in India has been the ineffective distribution and marketing

strategies adopted by the public sector insurance companies. they reportedly

never had any strategic marketing game plans and due to its monopolistic

nature the need for serious marketing efforts were never felt.

Traditionally tied agents were the single channel through which insurance

policies were sold. Insurance agents would sell policies to their family,

friends and would then direct their efforts towards people outside this circle.

the number of people that a single agent could reach was limited. Moreover,

the concept of a development officer’s position in the organization set up of

public sector lost its relevance over a period of time since the concept is

followed only on word and not in spirit with huge expenses outflows.

Apart from selling policies through agents, brokers are also used as a

distribution channel.

Taking a cue from private players, Life Insurance Corporationis focusing on

bancassurance and other alternative channels for business growth.

Bancassurance is a mode of delivery or sale of insurance products through

banks. Bancassurance — selling insurance policies through banks — was

turning out to be an unreliable model for insurance companies. This is

because banks are setting up their own insurance ventures on one hand and

changing insurance partners, lured by the hefty premium offered by a

competing insurer, on the other. Under insurance regulation, each bank can

tie up with only one insurer but the insurer can have tie-ups with more than

one bank.

Although bancassurance accounts for just 2 per cent of LIC’s new business

premium, it is bracing up for the challenge. It has hired 800 people for

referral tie-ups with several brokerages and regional rural banks. Insurance

companies are now looking at alternative channels such as brokerages and

retail chains to bridge the gap.

The insurance major generates a mere two per cent of its business (in terms

of first premium income) through alternative channels. In comparison,

private players generate 30 per cent of revenue through these channels.

While LIC has been catching up on the model of alternative distribution

network, for private players this has been a successful business model since

a long time

New and innovative technologies

Insurance in India is expanding its horizon. With India emerging as one

among the fastest growing economies in the world, and with its vast

population, there is a huge untapped potential for insurers. On the other

hand, the emergence of Internet is creating new values for both customers

and companies, which has in a way compelled insurance companies to

explore their potential as a new distribution channel. This paper attempts to

understand the customer awareness, usage and perception towards the

Internet as a channel for insurance distribution. The results indicate that

though the awareness is high, the usage is notably low. Customers perceive

trust/credibility, support, information, communication and prospecting as

significant factors affecting their decision of choosing Internet for insurance

products

Internet is dramatically changing the way business is done. Considered as a

major component of competitive advantage, market penetration, and

management competency, Internet is a technology that facilitates the

extension of an organizations' strategic capability. It is a driver which

reengineers business processes, and enhances existing distribution channels.

Organizations are utilizing the Internet to extend their image and capabilities

for reaching their old as well as new customers, thus increasing their market

size and differentiating their products and services.

The adoption of Internet-driven business models is a logical outcome of

insurers, as Internet is quickly establishing itself as a mode of

communication. The important contributing factors for the success of

Internet are: its ability to achieve transactional efficiencies, obtain wider

reach, maintain customer's interest and provide round the clock service to

customers. It also assists in reducing costs, creates faster cycle time, and

facilitates improved purchasing decisions through organized information.

Internet provides endless options for both companies and consumers. While

companies use Internet for marketing their offers, customers can say a hand

in the creation of the product that will make them satisfied. As a result

customers and companies can have a better relationship than ever before. It

is important to note that no one can satisfy fully the knowledge-empowered

customer in the world of Internet. Customers will always self-select

distribution. If Internet is to experience significant gains as a distribution

channel, then it is imperative to understand the customer's perception.

Attitudes and preferences of customers are obvious factors that impact the

adoption of Internet as a channel for distribution

Detariffing

Detariffing in the insurance industry has definitely shaken the industry. The

premium income has come down sharply, competition has intensified and

the insurers are facing the heat to retain business. The coming days will not

be easy as the insurers will have to move with a strategy to balance the

premium with risk and this will require expert risk managers to advise

clients for proper insurance coverage.

The general insurance business in India was detariffed w.e.f. January 1,

2007. Before detariffing, it was widely believed that detariffing will sharply

bring down the rates and hot up the competition in the general insurance

sector.

This belief was not untrue. Detariffing resulted into severe competition

among the general insurers. There was cut-throat competition for grabbing

the corporate portfolios. The premium came down sharply. In some cases, it

is learnt that up to 70% discount was offered to undertake the insurance

business.

The impact of detariffication would not be seen immediately, but would take

a couple of years for it to be reflected in the balance sheets of the insurers.

Insurers have had an unfortunate track record of not being able to profitably

manage even the non-tariff portfolios, with total rating controls left to them.

The theory of cross-subsidization of rates, offered as the excuse for it, is

only partly true. The insurers have refused to acknowledge that the risk

management expertise to underwrite risks was lacking in their business

models. A market that has produced underwriting losses for over 15 years in

the tariff regime is now expected to behave rationally given the rating

freedom.

Differentiation Strategies of insurance companies

It discusses with the possible strategies that can be used by insurance

companies in India to differentiate their product and service offerings from

their competitors. It also discusses with some of the new offerings by

various players, possible innovations in the insurance sector in terms of

products, customer service, and distribution network.

The objective of differentiation is to create inimitable, sustainable

competitive advantage over the competitors for a period of time. Insurance

company can differentiate themselves in the following areas:

Product

Customer service

Distribution channels

Promotion

Brand building

Hedging the insurers

Product Differentiation

It can be achieved in terms of new products, identifying new target

segments, tailored products and bundled products.

New Products

Pension products:

With companies switching to defined contribution plans from defined

benefit plans, there is a lot of scope for products that provide fixed income

or a lump sum at retirement. Insurance companies can tie up with corporate

bodies and sell their products directly to the employees.

Unit linked policy:

The investor that pays a premium every year, apart of which is allocated

towards his life cover, and the balance is invested in funds of his choice after

deduction of his certain expenses. SBI Life has recently forayed into this

segment.

Top- up- facility:

Here investor can pay additional premiums as and when it pleases him and

give instructions that the premiums be invested in existing funds.

Riders:

It is an option that allows one to enhance insurance cover. It provides the

insurance company a means to customize the product to a client’s needs and

allow customers to time rider’s purchase. Today, many of the life insurance

products offer several riders.

Example: LIC has decided to offer term assurance rider to those taking the

revised Jeevan Dhara product.

Tailored products:

Sales agents, brokers and other intermediaries can help a potential customer

identify all risks that he or she may be exposed to and also help in devising a

policy specifically tailored to customer needs. For example, an urban

residential customer may be recommended a comprehensive policy covering

fire, burglary, television and other domestic appliances, etc., policies with or

without motor accident liability.

Moreover, the terms and conditions of the policies may be different for

different customers. For instance, a rural customer is more likely to be

exposed to perils of land slide, flood,etc. as compared to an urban customer.

In such cases, either such unlikely perils may not be covered under the

policy or they may be covered at very low rates, depending on the risk

profile.

Bundled products:

Bundling refers to providing an insurance cover simultaneously with the

purchase of another financial or commodity products.

Bundling with other financial products:

The insurance products requires upfront investments and thus fights for the

share of the customer’s wallet with other financial products like stocks,

bonds, mutual funds, etc. the insurance buyers bears an opportunity cost for

purchasing the insurance product, which he would ideally like to be

reimbursed.

Most insurance companies make significant profits from their investment

activities financed by funds from insured. The insurance companies can

return the portion of the generated profits to their long standing customers

and differentiate themselves. Also, companies with good supply of funds

and efficient asset management policies in place will be able to promise and

deliver returns on the customer’s investment. Therefore, it would also help

in building competitive advantage. Life insurance companies have already

started doing it on a small scale.

Examples of bundled financial products that can be provided include:

Mutual funds ( value or growth or some index based) with multi year

health insurance, which has a fixed premium per year. The customer would

potentially get return on his investment, in addition to being insured for

health problems. The insurance company would be able to attract more

customers and lock them for multiple years, boosting their reserves and

revenues.

Mutual funds with life insurance policies, where in a certain portion of

the premium is diverted to the resource pool for asset management (mutual

fund activities), while the rest is invested for risk cover.

Mutual funds with multi year car insurance

Life plus health plus personal accident insurance. Tata AIG has

recently announced a health insurance plan with life cover called the tata aig

health first.

Home loans with insurance covering fire, burglary, etc.

Car loans with motor insurance (third party liability and own damage)

Tractor and farm equipment loans with crop and livestock insurance,

whether insurance, etc.

Some of the above bundled product may require regulatory changes. This is

likely to happen considering that the Indian insurance market is slowly

changing from a tariff based to non-tariff based market.

Bundling with commodity product:

Insurance can be automatically provided when certain commodities are sold

to the consumer. An example is automatic provision of dental insurance

when tooth paste is sold. Other commodities with which insurance products

can be tied up include:

Branded gold, P.Cs, laptops, mobile phones with burglary and third

party liability.

Branded furniture with fire insurance.

Customer service:

Ease of payment of premiums:

Payment terms and easy payment facilities can also be a powerful

differentiator. There can be a facility provided for payment of products-

atleast for the renewals- through ATMs, credit cards or the internet. This

would save a lot of time for the end customer, and also free a agents to focus

on sales. Moreover, it would also help in cutting administrative cost and

boosting the company’s bottom line.

Easier claim settlement:

World over, underwriting risk, claims management, risk surveys, etc. are

very simplified due to technology. Indian players can look into these aspects

to create differentiation.

Training of agents and customer relationship management:

Insurance is a product that is typically sold and not bought. Insurance

products need a significant amount of hand holding and explanation at least

when the customer is new to this concept or the particular insurance

category.

Agents are the face of the company and well trained agents serve not only as

a signaling mechanism regarding the company’s credibility and financial

solvency, but also as one of the most important parameters of customer

satisfaction.

The agent should earn the role of a trusted advisor and help the customer in

identifying various risks that he/ she is exposed to at different times and the

various covers available for the same. Moreover effective use of CRM tools

would help to identify cross selling opportunities- needs at various stages of

the customer’s life cycle, and also study customer behavior to identify

possible moral hazards.

Even setting up call center and help- lines to provide customers full time

service can go a long way in building relationship.

E- service:

E- service or customer service through the internet and e- mail will paly a

vital role in facilitating the process of servicing insurance products. Insurers

should realize their ability to provide superior e- service, apart from e- sales,

to their policy holders.

Distribution network

The conventional channels of distribution in the insurance industry can be

broadly classified into 3 catagories:

1. Direct

2. Indirect and

3. Partners.

The different channels within this category are listed as follows:

Channels

Direct selling Agents

Direct marketing

Financial Advisors/ consultants

Call centers (sales calls)

Indirect selling Bundled products with commodity purchase

Bundled products with other financial intruments

Partner selling Bancassurance

Postal Department

Selling through corporates

As an example of alternative distribution channel insurance companies can

tie-up with their parent financial services companies to use their network and

customer base, and offer them a range of financial products. Other new and

emerging distribution schemes include bancassurance, use of postal network,

etc.

Bancassurance:

With the evolution of inter connected financial services banks are converting

themselves into ‘one stop financial super markets’. This has promoted too

big classes of financial institutions: Banks and Insurance companies, to

combine and deliver an innovative product – bancassurance. In

bancassurance insurance products are sold through bank’s network of

branches.

Selling through India’s postal network:

India has extremely well developed postal network, which is even stronger

than the network of banks in the country. Post offices have been established

even in the interior parts of the country. Insurance companies can tie-up with

the postal department to sell and distribute various insurance covers. This

would certainly require upfront training cost, as the postal employees in turn

need to educate and sell the concept and benefits of insurance to the people

in rural areas. Such tie up would open up India’s entire hinter land, which is

largely untapped. This can be a sustainable source of growing revenues.

Brokers:

A large majority of the customers are unaware of the various risk that can be

covered by insurance policies. Therefore, brokers can serve as effective

intermediaries that help customers in identifying the exact products they

need. By spreading awareness of their products among brokers, insurance

companies can also reduce transaction cost associated with selling through

their own agents.

Marketing Strategies of Non-Life : Insurers and Their Current

Limitations

- A Lalitha

Associate Professor,

Osmania University College for Women,

Hyderabad.

The author can be reached at annamrajulalitha@yahoo.com

This article analyzes the selling strategies that the non-life insurers have

followed, prior to the detariffication of premium rates. The insurers had

behaved, more as retail sellers of insurance products than as marketers. The

insurance covers were pre-packaged and also carried fixed price tags. The

detariffication of rates has now raised the bar significantly for insurers to

justify the premium rates they quote to customers in terms of risk

management expertise and loss control advices offered, in addition to the

scope of an insurance cover.

The non-life insurance market, despite its liberalization in 2007 has

continued to perform till the end of 2006, under a strict legal regime of price

tariffs for over 70% of the market in the segments of fire, engineering, motor

and workers' compensation portfolios. The Insurance Regulatory and

Development Authority (IRDA) added on new insurance players and new

distribution channels during this period, heightening competitive pressures

for business generation resulting in unethical and undesirable practices.

Since the covers are pre-packaged with fixed price tags, the interaction

between the buyer and the seller was restricted to the choice of the insurer

and no more.

With detariffing of rates, the marketing scene has dramatically changed

involving the buyers of insurance in price negotiation and other value-added

elements. It was no more a question of selling covers, but one of marketing

involving insurers to evaluate risk exposures, price them as well as offer

advice on loss control measures. The marketing process has been activated.

But having relied in the past mainly on salaried staff to sell covers directly,

insurers have not yet been successful in building a qualified agency force.

The corporate governance and the inherited organizational structures and

processes are those that rather administered the insurance business procured

than one that created awareness for insurance and the need for it among the

vast non-customer segment. Affordability, accessibility and acceptability of

insurance covers are at the heart of any marketing strategy. The business

models of the public and private sector on marketing approach are also

different. Detariffication initiative has brought the marketing process into

focus highlighting the inadequacies of the present marketing format.

Consequent to the detariffication of the market, from January 2007, the

marketing strategies earlier employed by the non-life insurers seem to have

suddenly become sterile and outdated. In the tariff regime, the insurance

covers of the prized portfolios of fire, engineering and motor, constituting

about 70% of the total market of Rs. 28,000 cr ($7 bn) were all pre-packaged

and sold with a fixed price tag, with no negotiation possible on either. At its

very essence, the differentiation among insurers was the mythical element of

`customer service', common to all, but which none understood, what it really

meant.

The Science of Marketing has Changed

All such marketing practices and strategies seem to have suddenly changed

in the post-detariffed scenario. The premium price tags attached to insurance

covers have been removed; which means that each insurer could price each

of the covers within the product coverage, separately as per his choice. The

pricing freedom given calls upon an insurer to come up with new marketing

strategies to justify the price he wishes to charge; and to incidentally

elaborate what customer perceived value he is adding on to his product, if

any, when compared to the prices of his competitors.

Competition for acquisition or retention of business would have to be based

now on both the price and on the value additions to the product, service and

relationship, as a customer perceived them. The marketing game to be

played has suddenly become complex, challenging and even confusing.

Insurers' Marketing Dilemma-Value vs. Price

The real dilemma of insurers, post-detariffication, is not about how to

market insurance covers, but one of constructing a price to be offered, with

identifiable value additions to the product. Not having been familiar with the

applicable principles on which a rate is to be based, and unable to come up

with a measurable value proposition, an insurer finds himself in a situation,

in which he is unable to guide a customer on what the latter should really be

looking at, when evaluating the insurance offers he has received, except the

pricing element.

Inevitably, price has become a dominant factor, and often the only deciding

factor. Can anyone blame a customer for basing his decision only on the

lowest price offered? It is for an insurer to resolve the price, based on the

value proposition he has embedded in it. Highlighting the differences is the

sole responsibility of the insurer.

If an insurer is unable to precisely offer or highlight comparable superior

customer advantages in his offer—then his business processes, his risk

management and claims advisory services and practices, his corporate

governance standards and values, and the customer orientation of his staff

may have to be reworked, so as to provide additional perceived benefits that

a customer could access, as freebies and as value additions to the price

quoted. Insurers need to reframe their mental models of marketing.

Ineffective Use of Distribution Hampers Marketing

In a tariff regime, insurers were more or less performing their roles, as retail

sellers of insurance products (not even as wholesalers), selling mostly tariff

covers at tariff prices, and off the shelf. Now they have not only the pricing

freedom but also a new set of distribution channels of professional agents,

corporate agents, brokers, referrals and bancassurance through banks.

Many insurers are yet averse to use these distribution channels for reaching

out to non-customers, due to their mindset of `sticking to the old knitting'—

current customers and direct selling. Insurers are now challenged, at the

technical, marketing and managerial levels, to defend their current marketing

processes and strategies, on value-based marketing. To widen the scope of

their marketing operations, they need to sell to non-customers and enter new

marketing segments, not explored fully. Meeting these challenges calls for

professional and committed distribution channels, with differentiated

marketing strategies for execution. And building them up involves real hard

work and takes time, commitment and application.

Let me deal with a few aspects of marketing in the current free pricing

market including the objectives of marketing, the corporate approach and

responsibilities towards marketing, pricing as a negotiating tool, the use of

IT in marketing, corporate policy towards customer orientation and the

buyers' attitudes in decision-making process. A few specific new marketing

strategies would also be referred to.

Objectives of Marketing Strategies

Marketing strategies, fundamentally, have to be structured and executed

around the objectives of (i) converting non-customers into customers (ii)

retaining the present customers (iii) sell more products to current customers

(iv) convert customers of competitors to one's own and (v) enter new

segments or markets or portfolios that are now underserved and unserved.

For achieving each one of these objectives, an insurer must devise marketing

strategies that are separately crafted and identify the specific distribution

channel, most suited to execute them.

It is observed that, currently, there are no discernible corporate marketing

strategies laid down by an insurer, in the achievement of his chosen business

objectives, which are to be implemented by his selling force, except that

every insurer wants to acquire premiums, from whatever sources are

available in the market. Fuzzy thinking in defining marketing strategies,

selection of portfolio segmentation and lack of focus in enhancing the

capabilities of the distribution channels has characterized the past marketing

efforts in the tariff regime.

Marketing - Now a Strategic Approach

In a detariffed regime, an insurer should focus on the target portfolios he

wants to zero in upon. Under each such target portfolio, the various types

and categories of customers he wants to recruit should also be identified.

The selected portfolio and the types of category of customers so identified

would need different marketing strategies and specified distribution channels

to stimulate corporate marketing efforts. Accountability for execution of

plans and strategies as well as performance measurements should be fixed in

clear terms on nominated executives in terms of numbers, volumes, profits

and focus.

Marketing strategies should primarily develop the unique value-creation and

delivery for all insurance products for each category of customers and in

every portfolio of the insurer. This would make it necessary for an insurer to

ponder over what uniqueness he can exhibit, at least in one area of extreme

importance to a larger number of customers.

This process would involve identifying the special characteristics the insurer

has developed in various models, like the marketing model, the operational

model, the human resource model and the organizational model and

articulate them clearly for the customers to be aware of them. Making an

insured realize that he is buying a premium brand, for which he has to pay

slightly more, if need be, would depend upon how the above business

models are constructed and communicated to the customer. Insurers seem to

be mentally immobilized now in their communication strategies on value-

differentiation. They, less realistically, believe that the customers are only

interested in a lower price. It is not true.

In the absence of any differentiation in the value creation and service

delivery, it would only be the price that would really matter to a customer.

Insurers must know that all customers are not alike in their buying

preferences to choose only price as the deal breaker. They must also believe

in themselves that they are professionally worth the price they quote for a

deal. Customers must be made to know that worth, should it become

necessary.

Board's Marketing Responsibilities

At the Board level, the marketing priorities have to be decided segment-

wise, customer category-wise and portfolio-wise, in terms of numbers,

volumes and margins, which the enterprise has to follow. The core

competencies required for execution of such marketing plans and the

resources that are internally available to support them needs to be assessed.

The vulnerabilities of the enterprise to competitive pressures needs an

analysis and remedial action. Clarity in strategic thinking is necessary.

Leveraging available internal human resource assets and full exploitation of

databases of installed IT systems for improving informational availability

and sharing of data across departments to benefit its customer segment

should be dovetailed into marketing strategies. The quality and nature of

distribution channels to be utilized to reach the marketing goals is an

important aspect of a marketing strategy. Understanding and coping with

competition is another aspect of marketing, about which the involvement of

the Board is necessary. It is rather doubtful if the boards of insurance

companies are involved in such activities now.

More often than not, the managements do not provide their Boards with an

annual survey of past and future market trends and how competition,

regulation, international markets and customer preferences are changing.

Neither is there any course correction made at quarterly intervals. The

agendas of the Boards are filled with excuses and reasons of what and why

things have gone wrong, from the rosy pictures painted in the beginning of

the fiscal. Therein lies the lack of marketing accountability.

Should Pricing be a Marketing Strategy?

Since product differentiation has not yet gained importance in selling

insurance covers in the detariffed scenario, price has become an important

factor to a customer in making his buying decision. Insurers should

understand that the price they quote, not only includes the financial

protection offered under the product sold—common to all insurers—but also

includes the loss prevention and loss minimization services they could

render to an insured and the availability of the quality of their fair and fast

claim servicing models. Either an insurer is now unwilling to provide that

assurance or is not really capable of acting on it.

In these two segments, and in the financial security they guarantee by their

net worth, they should be able to project the differentiating benefits on offer

to a customer that would lower the ultimate costs of insurance to an insured.

But they should produce necessary evidence of their superior technical

expertise and customer-orientation to back up their claims. Insurers should

start to strengthen their capabilities in these areas to educate the customer of

the benefits of superior risk handling and in the realization of the use of

insurance cover, as a quicker financial remedy, should an accident

unfortunately occur.

An insurer's pricing model in the current detariffed scenario is seen to be

based on three approaches: penetration pricing, defensive pricing and risk-

based pricing. To get a new business account, an insurer's preferred pricing

approach is the penetration pricing. An insurer has to offer the lowest price

to win the account. With frequency of claim reporting at less than 10% of

such policies issued, taking chances on `no claim' occurring would seem

rather attractive, particularly if his reinsurance program too permitted it.

If it is a renewal business account, and particularly with no prior loss

experience, a holding insurer's natural inclination is to defend the account at

any price. As an ongoing relationship with a customer is in force, an insurer

does get a chance to lower his price below that of the competing insurers. If

the account were lost, it would hurt an insurer's business morale. Hence the

fight for retention is fierce.

The risk-based approach to pricing has not taken off, though such an

approach is the most appropriate and equitable one to all stakeholders. But

this approach would call for an inspection of a risk, evaluating risk

management practices of an insured and the insurers own past experience of

similar risks, based on professional expertise and technical analysis. Such

rating models are not yet a part of the underwriting policies of an insurer,

and, it may require external pressure from reinsurers to implement such

applications. Till then, penetration pricing and defensive pricing would rule

the marketing roost.

With additional insurance capacity entering the market by the entry of other

seven or eight new insurance players, the pressures on lowering prices

further would be more intense. The prospect of any recovery on the prices,

therefore, seems too remote for another few years. How would the current

players play their underwriting game? With operational costs likely to go up,

due to reduced growth rates in profitable lines of business, containing claims

costs represents another major challenge. The market environment is likely

to be more daunting for all insurers and margins would come under pressure.

Use of IT in Marketing

IT, as a marketing tool, is a concept that insurers have not yet appreciated

enough. Databases showing customer profiles that can be accessed for

additional marketing purposes have not yet been built. The profit or loss that

each customer has generated is unavailable with insurers for them to provide

differentiated customer services. IT as a medium to reduce cost structures is

not yet tried out. It could be used to sell additional covers and for making

important touch points with customers. When a substantial number of

reinsurance transactions are taking place by e-mail, insurers still seem to be

reluctant to engage in similar transactions with their own customers. IT

usage as a marketing tool would be a great strategy in years to come.

Buyer's Involvement in Current Marketing Process

In the tariff regime, the buyer did not have any perceptible degree of

involvement either in choosing the cover or its price. The two elements came

bundled together. Now with pricing freed, an insured understands the

negotiating process better, and on his terms. A buyer, therefore, is more

involved and does `reverse marketing'—as a price maker himself, for a

product that he was always routinely buying.

The logic is simple. An insured was never sold an insurance cover, in the

past, based on any differentiated value embedded in the transaction. Insurers

were not innovative enough to explain or differentiate their value delivery

mechanism, in terms of risk mitigation efforts and hassle-free claims

settlement services.

Inevitably, therefore, price has become the only negotiating issue now. It is

for an insurer to rework his marketing strategy, based on the quality of the

value delivery mechanism to make an insured pay an extra amount, for the

perceived value. If an insurer is unable to project this image, and get it

accepted by the customer, penetration and defensive pricing approaches are

the only choices available to him.

One must be aware that any marketing strategy, ultimately is to be based on

what a customer really perceives, as real value addition to the product or

service he is buying. A few customers, of course, want only cheap prices.

Yet a few others may prefer assured hassle-free claim settlements. Yet a few

others may need a free technical consultation for structuring a cost-effective

insurance program. Other customers may value loyalty and relationship of

the intermediary more and are led by them. There are customers, who may

base a purchase on brand loyalty. A lot of customers may buy because they

have close links with a particular distribution channel network like the agent.

It is difficult to say that a particular marketing strategy is the only right one

for all types of customers.

Entering a new market in personal insurance segment would require a level

of trust and confidence that only a known agent to a customer can assure.

Life insurance buying typifies the role of the individual agent in assuring

and inspiring trust and confidence of his customers in him. Referrals are

another marketing strategy to buyers with similar needs.

Customer Orientation as Marketing Strategy

Customer orientation is an important organizational cultural factor in the

implementation of all marketing strategies. The entire organization must be

imbued with eagerness, firstly, to attract customers for the enterprise and

then, secondly, to be committed to provide them with the best quality

service, in whatever function the staff may be engaged in. Ultimately, even

the support staff that works must be made aware of how their work reflects

on the customers and their convenience by assisting the frontline staff.

One of the questions the management and the staff of an enterprise should

answer is about the kinds of problems that most customers experience with

them, once they have bought their product and its service. How are they

dealing with such customer issues and are they serious in finding solutions

to them?

Any fragmentation in the spirit of customer orientation is easily seen

through by the insured. Insurers' human resource policies, by and large,

currently lack such customer orientation. Revitalizing such proactive

orientation in itself should be a part of corporate marketing strategy.

Customers are now not owned by the entire enterprise but only by a few

selected departments that directly interact with them.

Issuance of newsletters, holding discussions with customers on risk

handling, getting updates on customer business developments, building

intimacy with the officials of the customer need to be a part of building

customer relationships. Inviting important customers to address the insurer's

staff is another innovation. It is much easier to sell more to current

customers, as one knows the unfulfilled customer needs; and such sales may

also be non-competitive and are less expensive than soliciting a new

customer.

Distribution Channel Strategies

Marketing strategies must focus not only on the selected business segment to

push sales but also on the selection of the right distribution channel to do so.

It is the quality of the distribution channel employed that also adds value to

the product. The channel should primarily become a medium to solve an

insured's insurance problems.

Direct marketing, `affinity marketing' with employer groups—as resource

points, agency development, leveraging bancassurance as a distribution

medium, brokers as insured's representatives, offer of risk management and

loss control as well as disaster planning assistance tools, offering claim

advisory services to quicken claim settlements, creating alternative sources

for dispute resolution mechanisms could all form an integral part of every

marketing strategy.

It is evident that the present agency force of insurers is demotivated and is

lacking in technical and selling skills. They are compelled to function

largely on their own steam, without any guidance from any insurer's

functionary. The past mindset of contempt for agents has come to haunt

insurers; and an insurer's poor performance is due to his over-dependence on

the corporate segment for volumes and in his poor involvement in building

his agency force. In 2006-07 the agency outgo for the market dropped by

over Rs. 100 cr, despite the gross direct premium having grown by over Rs.

5,000 cr. How do insurers propose to respond to this benign neglect of the

agency force?

Conclusion

Insurers need to break out of the entrapment of the price bubble in which

they have now closeted themselves. Customers have the right to ask why

they should pay higher premiums than what their competitors are prepared to

charge for the same product. Price is a visible manifestation of value to a

customer.

It is, however, for insurers to explain the real benefits of insurance—risk

avoidance, its handling and minimization, a quick payout of a claim, when

needed, with a guaranteed assurance to do so, and backed by a gold standard

of financial security. These are the real standards of value that an insured

should look at, as invisible value elements that should be of greater concern

to him, and not mere price alone.

Financial net worth, infrastructure, empowerment of staff to settle customer

issues locally, acceptable methods of dispute resolutions, market reputation

for fairness, speed and equity in settlement of claims, superior risk

management advices, market dominance in a particular area of specialization

of importance to a customer, making it easy for a customer to do business

with the particular insurer, quality of reinsurance support, educating

customers on coverage and their rights are a few intangible differences

among insurers that a customer cannot easily spot. Insurers thus have a wide

field to work upon.

Building marketing strategies around such areas of importance, as above,

should form an integral part of an insurer's business activity and marketing

strategies. Insurers either do not possess these advantages or are unaware of

their superior internal strengths that are lying dormant and hence

unexploited.

Insurers should do more to change their corporate personalities and

reintroduce themselves to their customers with what they can deliver, in

addition to premium price. Until then, all talk on marketing strategies are

either hits or misses, with no discernible difference to the customers, who

are in the driving seat, dictating terms.

There is as yet light at the end of the tunnel for insurers. But the journey—

time-wise seems long, though the distance is short. Hence they must start

walking briskly towards the end of the tunnel. Status quo is just not a

solution in the achievement of excellence in their corporate behavior

towards their customers. Lack of focus on what they want is driving them to

frustration in deciding the road to travel. The market has moved on beyond

the management capabilities of the current set of insurers. They should

reinvent their business philosophies and function with more determined

purposes.

Competition and regulation are the main operational challenges. In the same

vein, the attitudes of the customers that treat all insurance covers as

commodities is another factor. How does one add customer perceived

economic value to the product, the service, the business process and the

corporate behavior, different from the other insurers is the biggest challenge

of all for any insurer? Here, being innovative with the product, the service,

the process, building a brand name, creation of new markets, reducing costs

are other challenges. Winning the customers' minds is the biggest challenge

of all. Cash-rich but time-poor customers' numbers are growing. Putting

account executives at customers' offices is a big challenge.

The above analysis provides a snapshot of unique opportunities available to

all insurers that are driven by dreams to win the battles of excellence.

Unfortunately, instead of the customer that should be the goal of all

attention, it is now the competitor that is focused upon almost singly. That

must change.