Business Standard Weekend; May 11, 2002

Freny Patel

The private insurance companies have made a sizzling start and changed the rules of the business in India but the game is only starting

It was slated as a battle between an oversized Goliath and a handful of pint-sized Davids. But as the new kids on the insurance block pull out their slingshots, all the players are claiming that they've scored hits in the last one year. What's certain is that India's insurance industry is about to alter beyond recognition.

The fact is that - one year after the insurance sector was thrown open - the private players are doing better than anyone had dared to hope. The numbers tell the whole story: the three top insurance companies have together sold more than 200,000 policies in their first year. That's not even a blip compared to the industry's leviathan, the Life Insurance Corporation (LIC), but it is a great start.

Who are the winners and losers in the Great Insurance Derby? After 12 months and the first few laps, it is ICICI Prudential Life Insurance that has emerged as the front-runner. ICICI Prudential has blitzed the country with its relentless and high-profile advertising campaign starring Amitabh Bachchan.

But the figures show that it has hit the right buttons because it has scored on all three key fronts: it has sold 100,000 policies, which is more than any other private player; it emerged as a front-runner by collecting Rs 122 crore as premiums; and, finally it underwrote Rs 2,700 crore worth of business.

In second place is Delhi-based Max New York Life that has raced past the competition by focusing on risk products (that's insurance which is paid when a person dies). It moved into the second slot with Rs 43 crore premium income received on 64,000 whole-life policies sold. It has done a respectable Rs 2,100 crore worth of business in its first year of operations.

Cantering into the third spot is HDFC Standard Life, which has sold 32,000 policies. On a business portfolio of Rs 1,266 crore, it has received a premium income of Rs 36 crore.
Of course, the private players are like a speck of sand on a beach compared to the LIC. Aroused from its slumber by the threat of new competition, the LIC sold 23.2 million policies in the year ending March 2002. LIC startled the industry by aggressive salesmanship, which resulted in phenomenal growth rates of around 16 per cent.

What's more, LIC's first premium income from new policies - one indicator used to judge how an insurance company is faring - zoomed to a mindboggling Rs 14,844.05 crore. That was a growth of 137 per cent over its performance during the last fiscal. This is over and above the regular yearly premium of Rs 35,000 crore. At the same time, LIC has managed to grow its book by underwriting an additional Rs 192,575.36 crore of fresh business.

Comparisons with figures like that are almost impossible. Industry analysts reckon that the private players have sold around 300,000 policies in the first year. Some new players like ING Vysya Life started only six months ago and are still getting off the starting block.

Or, look at SBI Life that was forced to change its business plan during the last quarter because it isn't allowed to leverage its 9,000-strong branch network. While its model is expected to revolve around bancassurance (where insurance is sold through banks), SBI Life today sells products through its team of 1,000 direct agents.

But a handful of other players are also moving swiftly. Birla Sun Life Insurance has written a business size of Rs 1,600 crore. OM Kotak Mahindra Life Insurance received 13,000 proposals in fiscal 2002 and mopped up Rs 13 crore on the proposals. The sum assured at Rs 310 crore is in line with the company's expectations.

The private insurers insist that they aren't playing a numbers game and that their emphasis is on good quality portfolios and ensuring that they've created the building blocks for future growth. 'The first year for the new players has been a learning curve, with the focus being on setting up capacity and base,' said Shivaji Dam, managing director, Om Kotak Mahindra.

But the numbers by themselves don't reflect the transformation that is taking place in the entire insurance industry. The private players are forcing change swiftly on everything from the types of policies being sold to the systems of selling them. Take a look at how LIC - in anticipation of the new players bringing in higher levels of technological backing - has networked all its branches.

In addition, it has tied up with Internet companies to accept premium payments and also set up kiosks where policyholders can pick up instant information. That isn't the only change that is taking place. After years of buying whatever the LIC offered, customers are looking for new types of policies. Before the market was opened up almost 85 per cent of LIC's policies were endowment or moneyback covers. People bought insurance more as a tax-saving device rather than as life insurance. Now the private players are offering new products and packaging them differently. 'We are designing plans that meet specific needs like children's education, protection of family and assets, as well as retirement plans,' says Saugato Gupta, chief marketing officer, ICICI Prudential.

Take Max New York Life. Over 70 per cent of its business is attributed to whole life cover - insurance that is paid after a person dies. 'Insurance has been sold as a tax saver in this country. We took a bold view and didn't follow historical trends,' says Anuroop Tony Singh, chief executive officer & managing director, Max New York Life. 'Whole life and term insurance policies are increasingly becoming more popular,' says Raj Raman, senior vice president marketing, Tata AIG.

Max and the others have also bucked trends by reducing the number of policies on offer to the public. Most of the new players offer eight or nine options to buyers. But that is backed by riders (optional choices like insurance for a spouse, disability or health cover etc). This way, points out Watson Wyatt managing director Richard Holloway, buyers can get upto 250 permutations to choose from.

Customers are also looking for different types of products and that difference has become clearer once the new players came into the field. People are insuring themselves for larger sums. So, the private players are discovering that the average size of policies is going up from around Rs 50,000 to several lakhs.

'Players are making concerted effort to increase larger policy sizes. The average premium of new entrants is far higher than that of LIC's average, reflecting the state player's significant exposure to the rural and semi-rural sectors,' says Holloway.
The new players also believe they are changing the way life insurance is sold. Max, for instance, has a field force of 2,000 that has been entirely trained in-house. What's more, these agents are being trained to sell policies that cater to individual needs.

Distribution is poised to change in a big way. So far the newcomers have only tapped the tip of the Indian iceberg but they are going about it differently. In the old days insurance was sold only through LIC's tied agents. In coming years everyone will sell insurance through 'multi-channel' strategies, with bancassurance likely to be the most important channel.

Once the bancassurance model takes off, new and cheaper products will take shape. The industry is waiting for the Insurance (Amendment) Bill, 2001, to be passed. Once that goes through it will give the green signal to bancassurance as almost all the players, including LIC, have tied-up with banks.

Banks that are getting ready to jump into the business include Citibank, Standard Chartered Bank, HSBC, ABN Amro, Corporation Bank, Oriental Bank of Commerce, ICICI Bank and IDBI Bank. 'This is a marathon. And what has been run in the first year has just been the first 100 metres,' says Shah Rouf, director marketing and distribution, Dabur CGU Life Insurance.

Dabur CGU is slated to commence operations by the end of the month. One of the four top insurance companies in the UK, CGU has tie-ups with 40 major banks worldwide and 20 per cent of its total premium accounts for sales through bancassurance. Of course, the private players aren't anywhere near covering the entire country. Part of HDFC Standard Life's success is that it has set up a widely spread branch network with operations in 26 cities. That's followed by ICICI Pru, which has moved to 16 cities. Similarly, Om Kotak Mahindra is in 13 cities and Max New York Life is in nine and planning to go to 12. By contrast, LIC has a far-flung network of 2,048 branches, which will become even stronger once it is able to capitalise on its strategic alliances with Corporation Bank and Oriental Bank of Commerce.

It hasn't been all smooth sailing for the insurance sector. The steep fall in interest rates has upset a lot of calculations. As a result, companies have come under pressure to re-price their products. ICICI Prudential and OM Kotak were forced to revise downwards the interest guarantee on their single premium products. Even LIC had to reduce its guaranteed interest rates.

Shikha Sharma, managing director, ICICI Prudential, points out that part of LIC's growth comes from its high guaranteed products, which were closed down - Jeevan Suraksha, Jeevan Sneha, Jeevan Akshay, Bima Nivesh and Jeevan Shree. LIC re-introduced the plans at lower rates of interest. 'The rate of growth that LIC saw last year is not sustainable and no player can sustain these high rates of guaranteed returns,' she adds.

Also, even though the first year has gone well, there are plenty of challenges ahead for the new players. Their first task is to build up reach and expand their geographical spread.

On the plus side, most importantly, the 10 new life players have increased awareness and penetration level of insurance. 'The noise the new players have made through advertising and marketing of insurance has enhanced the awareness level significantly,' says the chief marketing officer of a Indian-European joint life venture.

How much has been spent on these marketing efforts? The insurance sector has spent in excess of Rs 200 crore on advertising alone during fiscal 2002. According to an ORG-Marg's industry survey for the period January 2001 to December 2001, LIC spent Rs 86.7 crore, ICICI Prudential Life Rs 34 crore, Max New York Life Rs 25 crore, Birla SunLife Rs 20 crore, HDFC Standard Life Rs 11 crore and OM Kotak Mahindra Rs 9 crore. Tata AIG has spent about Rs 2 crore, say company officials.

Has the state player learnt anything from the new kids on the block? Tony Singh thinks LIC has become very proactive in responding to the new environment and entry of competition. For instance, LIC has responded quickly to the market and is now energetically hawking whole life policies like Jeevan Anand.

How will the battles in the insurance industry unfold over coming years? N Rangachary, chairman, Insurance Regulatory and Development Authority of India, recently predicted that the private insurance companies would capture about 5 per cent to 7 per cent of the Indian market in the near future. Over a 10 year time-frame, he said, they would probably grab about 10 per cent to 15 per cent. What's certain is that everyone is about to face a highly competitive and tough slog in the years ahead.