challenges faced by public sector insurance[1]
TRANSCRIPT
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 [email protected]
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.