Business Today: June 8, 2003

New products, innovative distribution, and better use of technology are helping the new breed of private life insurers take marketshare away from the monopolist of yesterday.

Time was, if you wanted to buy a life insurance policy, you called a Life Insurance Corporation agent referred to you by a friend or a relative. And as you sat him down in your drawing room one Sunday morning (and your wife went away to make him some tea), he would pull out a sheaf of papers, rattle off details for a variety of schemes, and calculate the premium from a small white book. And since that''s the way the whole country bought insurance, you bought one too.

These days, you don''t have to go in search of an agent. He comes after you. Shopped at any of the Westside stores recently or stopped by at a Bharat Petroleum to tank up? If yes, expect a call from one of the direct marketers selling ICICI Prudential Life Insurance pension policy or child solutions. Using what it calls 'alliance marketing' ICICI Pru mines databases of retail chains and credit card companies to identify potential customers.

Such aggressive selling strategies are beginning to pay off for ICICI Pru and the 11 other new private life insurers. In the two years since life insurance was opened up, the new players have grabbed nearly 9 per cent of the total insurance market in terms of premium income and nearly 33 per cent of the pension products market. ICICI Pru is the leader, having sold 3.5 lakh policies till date. Last fiscal, it raked in Rs 365 crore in premium income-a 200 per cent jump over the previous year. Not too far behind is Birla Sun Life, with premium income of Rs 170 crore in 2002-03, and HDFC Standard Life at Rs 133 crore. Put the numbers of the dozen players together, and you are looking at a new life insurance market (in terms of total premium) of Rs 1,021 crore last year alone.

More and Better

So what explains the quick rise of the new comers? 'There is a clear shift from the one-size-fits-all strategy of yore to a more flexible, customer-centric one that we have adopted,' says Shikha Sharma, CEO, ICICI Pru. Until the new players came along, what passed in the name of life insurance was a tax-saver tool with insurance wrapped around it. But a true insurance product, experts say, must offer an optimal balance between protection and savings. And that''s a formula, like ICICI Pru, the new insurers have cottoned on to. On offer from them is an array of products ranging from traditional term endowments and money back policies to contemporary whole life and pension plans. Max New York Life, for instance, has 11 products and nine riders that can be customised to make more than 250 different combinations, and Tata-AIG has eight products with six riders. Says Ian Watts, CEO, Tata-AIG: 'The customer has the option of combining base products with a number of riders.'

The idea behind product flexibility is to cover as many customers as possible. At ICICI Pru, marketing involves doing a life-stage segmentation so that opportunities to up-sell products can be tapped. Consider a situation where a 20-something takes a Rs 5 lakh cover, and on becoming a parent takes a child cover as well. As the child turns into an adolescent, the now middle-aged customer may want to reduce risk cover and instead buy a retirement plan. For ICICI Pru (and others who do need-based analysis), it is possible to sell him a product at every stage of his life. Others like Birla Sun Life focussed early on unit-linked insurance instead of 'me-too' products such as term assurance. The unit-linked products, where the premium is demarcated between insurance and investment, come with minimum guaranteed returns. The customer is given three investment options, which carry various levels of risk. (Thus far, the returns in unit-linked plans have ranged from 7.61 per cent in the case of low-risk products to 11.56 per cent for high-risk products.) HDFC Standard Life, on the other hand, gets almost half of its business from term assurance plans, where the sum assured is large but premiums are low. Says Deepak Satwalekar, the company''s CEO: 'We believe insurance is all about protection and then savings and investment. It''s a tough market in which to sell term assurance.' Why? At the end of the day, the customer wants to know the returns. Points out Anuroop 'Tony' Singh, CEO, Max New York Life: 'Whole life policies offer the right balance between protection and savings.'

Crucial to the customer-insurer relationship is servicing. As customers become more discerning, the insurers have to become more sensitive to their needs; listening to their concerns and translating that into an intelligent product solution. ICICI Pru, for instance, offers premium holiday to policy holders in case of contingencies or sudden expenses in the family.

Some others are being more selective in terms of the risk. OM Kotak offers up to 30 per cent cheaper premium rates on term policies for non-smokers and women. Now it is working out a scheme for smokers who-if they quit and meet certain health benchmarks-would also be eligible for discounts in premium. Explains Asuthosh Bishnoi, Marketing Chief, OM Kotak: 'Term by itself is not a hugely popular product and innovative features like this one help in getting immediate attention.'

Anytime Insurance

Doing the talking to consumers is still the agent, but information technology has helped arm both the agent and the consumer with instant information, anywhere, anytime. ICICI Pru''s website offers not just product information, but delivers quotations online. It allows the channel partners to manage their whole business on the web through premium alerts, client diary, and premium calculator. The customer can access policy and payment details, send in the premium online. Apparently, at least a quarter of ICICI Pru''s 18,000-odd agents log on to the website at least 15 times a month. And given that the industry still relies on agents to do the selling, the players are investing in a lot of training. Says Venkatesh Mysore, CEO, Metlife India: 'We have intensive training for our advisors before they are put on the field.' Adds Nani Jhaveri, CEO, Birla Sun Life: 'We believe our advisors are our brand ambassadors.'

But the distribution strategy is also a function of the player''s own strengths. SBI Life, for example, is piggy-backing on the parent bank to sell its products. It is selling insurance products to SBI''s deposit holders at Rs 25 a month for a Rs 1 lakh cover, and has tapped 3.5 lakh account holders so far. For villagers, the premium is Rs 10 per month for a Rs 25,000 cover. Says R Krishnamurthy, the company''s CEO: 'Our strategy is to weave life on the back of bank products as a quick way to penetrate and avoid adverse selection.' Similarly, Aviva (formerly Dabur-CGU) has combined Easylife Plus (an endowment policy) with the treasure account (a savings account for children) offered by ABN Amro to launch a bundled product called Treasure Plus.

A relatively new entrant, amp Sanmar picks its customers differently. It sees its differentiation in the fact that it is targeting sec B and C centres, where awareness about insurance is low and marketing begins with educating the customers. In several of such centres, amp Sanmar has been the first private insurer to enter. For example, P. Murgesan, an insurance advisor with the company, makes a special trip to Ootamalai, a village in Hoganekal (Tamil Nadu) with a population of 500. He can only access the village by hitching a ride on a coracle, but that doesn''t stop him from visiting this hamlet once every 10 days. Says amp Sanmar Vice Chairman S.V. Mony: 'We see this as a big opportunity.'

The point that the insurers are veering round to: 'Products can be cloned, but not the customer experience,' says Saugata Gupta, Chief of Marketing, ICICI Pru. About a year ago, the company launched a six sigma initiative to help understand and fulfill customer needs better, set industry benchmarks, and make its operations scalable, with focus on customers and costs. The result has been a reduction in the length of forms, use of technology like SMS for contest announcement and advisor communication, improved advisory section on its website and greater convenience in payment of premium.

All the sweat is aimed at producing one thing: a greater number of customers. And as things stand today, the forecast is optimistic. Says Singh of Max New York Life: 'I expect the private life insurance companies to grow at the rate of 75 to 100 per cent CAGR over the next five years.' ICICI Pru, while not in favour of reckless geographic expansion, plans to grow from 27 towns at present to 100. Birla Sun Life is adding 11 branches by June to its existing 22, and intends to sell 1.8 lakh policies in the current year with a premium income of Rs 450 crore. In a market largely underinsured, everybody else is talking of growth as well. Notes Watts of Tata-AIG: 'A bundle of innovative products and an efficient delivery system are the two aspects that have to be developed to penetrate the market.' No doubt.

But some questions about the Great Indian Insurance Race are already cropping up. For example, is market share the real parameter of growth for insurance companies? Not everybody thinks so. 'If you are a long-term player, you will not kill yourself for market share,' says Satwalekar of HDFC Standard.

Translated, that means the composition of policies sold and risk assumed on balance sheets of these companies will be crucial. Points out Ashvin Parekh, Executive Director, Deloitte Touche: 'The crunch will come to the core when companies will have to manage policy-holder perceptions about guaranteed returns and bonuses in a falling interest rate regime.'

No doubt these are issues the new jockeys on the track will grapple with as they push ahead. But don''t expect the Great Indian Insurance Race to lose steam. At least not anytime soon.