Prior to the nationalisation of Insurance business in 1972, there were 106 companies, including the branches of foreign insurance companies, operating in India. They provided a kind of service restricted mainly to trade, commerce and industry. Besides, they were also providing the requirements of statutory insurance. The marketing set up of the said companies, spread over the country, were limited to the branch operations and a system called Inspectorates. The agency system was not a well developed intermediary.
Very few companies practiced structured training programmes for their employees and agents. Therefore, the inspectors and agents were ill-trained and ill equipped to educate the customers and provide the right insurance covers for the right requirements. Continuation of such a situation, however, came to an end with the nationalisation of general insurance industry in 1972. All the 106 Companies were taken over by the Government and constituted into 4 subsidiary companies under the ownership of General Insurance Corporation of India.
Since then, the Government intervention and the policy guidelines led to establishing a systematic marketing set up, on the lines of LIC of India. The marketing set up was constituted, at the base level, the agents, supervised by development officers who, in turn, were serviced in the matter of documentation and claim settlement by the branches/divisional offices. Further, as a matter of mandate of the nationalisation of the industry, it was a conscious decision to create branch network in almost all the districts of India. Unlike, the olden days, the potential customers could now find servicing offices of the general insurance companies, in practically in all districts of the country. Down the line, development officers (earlier known as inspector) and agents are even found at tehsil and block levels.
Exponential growth of branch network of four Government owned companies reached a strength of over 4000 and sales officers, i.e. development officers, reached a figure of 13,000. These are as many as 1.5 lakh part time agents working for the state undertakings.
No doubt, this is an achievement, worth commending, on the part of the nationalised set up, which has helped to carry benefits of the general insurance to the nook and corners of the country.
Despite this massive formation of marketing network, the penetration of general insurance industry in the lower end of the marketing remained unsatisfactory. The 4 companies, generate a gross direct premium of about 9,000 crore of which only 2% are from the rural insurance products like Cattle, JPA, GPA, Kisan package etc. There are 2.5 million mediclaim policy holders in a vast country, consciousness for accident insurance remain to be very low and personal accident policies are not yet popularised amongst the lower and middle class.
At the time of nationalisation, the Government of India intended that low cost mass-based insurance schemes should be popularised. However, this has not happened in reality. One of the reasons attributed to our failure is the poor retail network and skewed service conditions of sales officers called development officers, in the nationalised industry. One of the aberrations of the marketing policy of the nationalised industry was to keep the agents out of the purview of canvassing business which were financed by either banks, financial institutions etc. It is well known that the need for general insurance products, are in extricably linked to the world of finance. Therefore, the army of agents were deprived of income by servicing a large segment of business emanating through banks, NBFCs, project finance, hire purchase and leasing etc. the inspectors, having high targets to meet their cost of operation, themselves concentrated on commercial sector and corporate sector business.
The actual implementation of marketing policy of the general insurance industry has been responsible for keeping the clientele from the household and personal insurance sector neglected. Indeed, considering the burgeoning middle class, we are virtually sitting on a gold mine of business. While 50% of policy holders of LIC come from rural sector, the common man failed to get the flavor of the general insurance service, as no one has approached them. There has been no strategic co-operation between LIC and GIC, and they have failed to synergise their respective strengths. The so-called low cost mass insurance schemes failed to pick up, paradoxically, because they are low cost. The sales officials/agents did not feel motivated to mop up individual policies as the average premium collection per documents did not give them enough income. However, the industry as a whole, sold a large number of group accident scheme to low income groups, like fishermen, agriculture workers, municipal workers, railway passengers, railway policemen, village artisans and orgainsed groups in housing societies etc. Even banks/some NBFCs/co-operatives extended the benefits of accidental insurance to their loanees, beneficiaries and members. Some enlightened employers have also group JPA/GPA accident insurance schemes and various health insurance group policies for their employees. However, the vast majority of unorganised labour have remained outside the benefits of such schemes. Even traders, shopkeepers, self employed have not been adequately protected by insurance.
While we have seen some success in group schemes, on the other hand, some well intentioned schemes have also failed to pick up, because of the absence of right kind of intermediaries For example, suhana safar, a low cost personal insurance scheme for domestic travelers in groups, could not be launched in the market as the industry, did not permit under its rules, agency licence to the travel agents. The scheme itself was otherwise duly designed after market survey by a leading agency.
Besides, the other reason for slow development has been the cumbersome procedures for claim settlement. By and large, the impression is that the claim recovery from insurance companies are not hassle free.
It is a sad commentary on the management of nationalised industry that it has failed to simplify the procedure for a mass market, despite the avowed goal of nationalisation, i.e. to carry the benefits of general insurance to every house and homes.
While LIC of India grew by leaps and bounds, to touch upon lives of individuals, the personal insurance sectors of general insurance industry did not create the market mainly by neglecting to create a dynamic agency force.
There was, however, some attempt to develop Rural Agency Scheme in 1970s and early in 1980s. All banks, sponsoring their rural finance schemes made insurance cover a requirement. This move, on the part of banks, provided the much needed boost to the rural insurance scheme and support to the agency force. It was, unfortunately, a short-lived growth curve in rural sector. The banks exempted many of their rural finance schemes, from the requirements of insurance. The agency force that was slowly coming up, in the rural sector, started drying up. The rural branch network of state owned companies started shifting from non-traditional rural insurance to traditional forms of insurance like motor vehicle insurance. Presently, the so-called rural branches and rural development officers are mainly producing motor insurance premium. It does no credit to the marketing ability of the powerful state sector insurance industry that their network failed to nurture the market and capture a share of rural savings, on the lines of LIC’s success story.
There was a glimmer of hope when the nationalised sectors experimented with Direct Agents Branch Scheme in the late 1980s. The strategy was undoubtedly focused and the results were extremely profitable. This experiment, unfortunately, did not receive the support of the management to the desired extent. There were as many as 70 branches till last year in the four companies, with varying degrees of success. While a well meaning marketing strategy has been neglected in the state owned insurance companies, the new regulations by IRA has emphasised the need for developing agents, as the driver of Indian market in future.
The New Dawn
Amongst so many changes in Indian economy, we are also expecting for reaching changes in the insurance sector as well.
For the last 40 years in life insurance and 28 years in general insurance, the customers of insurance services have been provided service by monopoly companies. Although the monopoly has lent financial strength and ownership of the Government on the plea side, they failed in the area of customer service. The insurance sector, particularly, non-life, is a highly commercial activity. The system of Government ownership came in the way of making the companies market savvy. High potential employees failed to deliver the expected service, as they were bound by the rigid rules and regulations.
Government companies could not push through enough of internal reforms to remain market sensitive. They were tardy on technology and upgradation. The mindset up of their employees was not customer friendly. The writings on the wall was there ever since Malhotra Committee Report was published in 1994. In the absence of political consensus, the reforms in the insurance sectors had to wait till 1999. Now, we have a set of regulations governing the industry, both for the existing and new players.
Thus, thanks to the commitment of the IRDA, licence for the new insurance companies have been issued. Such companies however, have a daunting task ahead. They have to meet the high expectations of the market place. Monopoly markets have come to its end. It is now to be seen how the new players take on the challenge of the market place.
The Way Forward
Having experiences, the deficiencies of marketing under the nationalised set up, the newly licensed insurance companies are now faced with the challenge of appropriate channels of distribution, which is the key to the success of marketing insurance products, in a vast country like ours. As we have observed, historically speaking, neither during the period preceding nationlisation, i.e. prior to 1972, not after nationalisation for last 28 years, no good model exists in the matter of agency system in non-life market. The public sector companies relied on a variety of distribution system like, direct marketing from office to office, development officer as a semi-wholesaler/retailer and part time agents as casual retailers and distributors. Thus, the entire distribution machinery in non-life was unfocussed.
Uniqueness of Non-life Insurance
Unlike, life insurance business, non-life insurance is unique in the sense that the products/business is rather non-homogeneous. The range of product could vary from a small business/risk like poultry farm to the highly complicated risk like communication satellite and petro-chemical risks. Such a variety of market cannot possibly be handled by a single kind of intermediary. Therefore, world over, brokers have been acknowledged as the right medium of distribution. Because, brokers could aggregate the variety of risks in the market, pre-process the requirements of the mixed clientele and place the business proposals with appropriate underwriters. The underwriters have also the expertise to service various niche/segments in the market. In such an arrangement, the customers are satisfied that they are getting their right advice at their doorstep and the delivery mechanism is rather prompt and accurate, of course, at a price.
In India, however, we have not experienced, in the system of brokers in insurance market. Neither in the pre-nationalised period, nor after nationalisation, broking was ever introduced as a credible distribution channel. The chain of offices under the nationalised set up dovetailed the role of the brokers into their working. Insurance offices were expected to provide expert advice and guidance through development officers. However, the development officers were not thoroughly trained and supervised for fulfilling the role expected of them. Thus, the monopoly insurance services fell short of the desired level of the satisfaction, in the absence of customer focused approach.
Now, Which Way?
It is said that successful companies are market driven, which means that customers would decide what products to buy, from whom and at what price?
Keeping to the market realities, as stated above, a good marketing strategy would do well to research the products range and the channels of distribution available and determine the right mix of distribution mechanism for pushing their product line. Whatever the customers want they must get. It is up to the good marketers to choose the channel to deliver the desired service at the doorstep of the customers. As they say, a successful company seeking to expand its market share, as to beat its path to the door of the customer.
Anyone familiar with insurance would know that insurance world over, has been sold rather than purchased. It only means that there is more selling efforts necessary in insurance market than in any comparable service market. For instance, insurance buying is not yet a priority in the budget of an individual. Even in the commercial market decision on insurance is mainly on driven on the conditionality financial transactions. The hi-tech area is, however, more focused on risk management and appropriate insurance covers. No hi-tech project can ever neglect insurance.
Some people feel that general insurance products are not well known. They need to be heavily advertised to create awareness. Success in insurance marketing cannot be achieved largely by advertisement and publicity. At the most, continuous and careful planning in media publicity could build the brand image of the insurance companies. Creative product publicity could create awareness on the benefits amongst the customers and potential buyers. Advertisement and publicity alone cannot provide stimulus to the buyers of insurance. What is most needed in insurance buying is one to one selling efforts. This is possible by developing a strong agency force and broking mechanism.
The customers in insurance are to be influenced by educating them, i.e. about do’s and don’ts of insurance packages. They have to be drawn to participate in customising the product for their own good. The customers have to be well informed about their rights and obligaitions, while taking the policy and at the time of lodging the claims.
This consultancy approach in insurance sales is peculiar, for insurance is, after all, a legal contract which must insure identity of mind, at the time of concluding the contract, Both the insurer and the insured have to understand what is the risk associated with the business and how best the same could be protected by insurance product and at the appropriate price, commensurate with the risk. Much of the misunderstanding on insurance claims could be removed, if appropriate exercise is done at the time of pre-sale. Unfortunately, in most insurance transactions, the parties to the contract are rushed. There is very little application of mind.
Choice of Distribution Mechanism
Considering the nature of the insurance sales directions, the insurance companies have to determine the structure and quality of distributive channels. It is again dependent upon the business strategy of the companies for penetration into specific segments of the market. For examples, if an insurance company is planning to enter the personal insurance market in a big way, the intermediaries like full time agents would be more appropriate. Because, personal insurance development requires building up qualitative long term and one to one relationship. The customers require repeat calls by the agents to carry the conviction with the buyers. After sales service is critical to the personal insurance market, the agents must know claims procedures and guide the customer. The back office must support their agents in servicing the claims. A satisfied individual customer, could spread the good word around, for the company, and could prove to be the best advertisement medium. This would eventually result in lots of new customers, by reference, from the satisfied customers. For example, if an insurance company plans to enter the marine insurance market (both export or import), the right selection of intermediaries from within the export/import trade could serve the clientele better than by using agent who are specialising in personal/domestic insurance.
The character of the market would determine the type of intermediary and accordingly, preparations are to be made for appropriate recruitment and training strategies, before actually placing the intermediaries in the identified market segments.
There is yet another kind of strategy for penetrating the market.
The Basket Approach to Personal Insurance Product Selling
There are a number of financial products available in the market. They are mutual fund investment, small savings like postal department products, life insurance, pension schemes, company fixed deposits/debentures, small savings in banks/co-operatives/NBFCs etc.
Presently, individual customers are being solicited by agents from a variety of institutions representing their products as stated above. For instance, a young employee/professional in the early stage of his career is being sold a life policy by LIC agent. Certainly, it is the right age for taking life insurance policy. If he happens to be a travelling executive, he also needs a personal accident policy, for which, an agent from general insurance company, is approaching him for insurance. As he grows up in his profession and gets married, he needs householder policy to cover his personal assets. An agent from general insurance sells him such policies. Similar things are happening as and when he has more savings and the agents of individual mutual funds and other financial companies are pushing their intermediaries to reach out to such individuals. Thus, you will see an individual needs a variety of products which is a kind of basket of needs and he needs an advisor for specific products, at different points of time, during his productive life cycle.
In overseas markets, individuals under similar situation are being serviced by financial consultants. They are privy to the individual’s needs and requirements. They know the intricate tax individual’s needs and requirements. They know the intricate tax laws and are better equipped to advise them continually on various aspects of savings, security and investment products.
It is a Kind of One Stop Shop
Is the time ripe now in India to facilitate the emergence of such recognised financial consultants?
The distribution channels for insurance companies have got too structure themselves, according to the kind of policy holder/clientele base, they plan to cultivate. They must be focused to ensure professionalism. Accordingly, the recruitment strategy for agents/consultants/brokers have to be carefully worked out and budgeted as a component marketing cost on long term basis. Agency manager has a crucial role to play and it is no doubt challenging.
Piggy Riding Products for Sales Promotion
This is a well known approach, in the consumer durable and non-durable market. However, financial products and insurance products are resorting to the piggy riding approach in promoting sales, in a limited way. Linkage with credit cards is a clear example of this new marketing strategy in insurance. Such approach widens the distribution channels.
Some of the other ways known to be effective in widening the reach of distribution channels are as follows:
1. Tie up with C & F agents.
2. Tie up with consumer durable manufacturing companies like refrigerators, air-conditioners, water pumps, televisions, air coolers etc.
3. Tie up with stock brokers.
4. Extension/service counters at industrial estates, export processing zones, super markets could be called useful as call centres and franchisee arrangements.
5. Tie up with co-operative banks/RRB for effective rural sector marketing.
6. Kiosks at shopping malls.
7. Major railway stations, S.T. stands, extension counters.
8. Car/two wheeler dealers.
9. Tie up with mutual funds and NBFC.
10. Corporate agents, for example banks and others.
Of all these above channels for distribution, banks and financial institutions are going to play a massive role of mobilising business and creating awareness. They are fortunate to have a valuable data base of their existing clients, which could be profitably utilised for pushing insurance products. However, such institutions are more incentive nourish them not merely as point of sale but much more, by a careful vendor development programme.
The role of the social services organisation like NGO for rural marketing has not been fully utilised. This would be a new and durable channel of distribution of rural products.
Top co-operative banks and co-operative societies, housing societies are almost captive markets and they could prove to be source of a wealth of business potential.
Various associations of professionals like chartered accountants, cost accountants, medical professionals, project consultants, financial consultants could prove to be extremely useful, in creating awareness amongst their clientele.
Other miscellaneous avenues of sales are as follows:
• Real estate agents.
• Travelling agents.
• Builders network.
• Money charger/courier services.
• Various mahila samaj for households.
• Demat network/depositories.
• Religion associations/social services organisation.
Despite the availability of a variety of channels of distribution in our country, insurance service has not been fully focused and credibly firmed up. The current size of non-life business is not much to be proud of compared to advanced country, even comparable to the South East Asian Countries. The contribution of non-life premium in India, to the country’s GDP is barely .06%. Some of the problems associated with unsatisfactory insurance service could be listed as follows:
1. Absence of hi-quality man power in marketing area.
2. Absence of R and D, resulting in poor launching of products.
Most insurance products, do not satisfy the real needs of the customer groups
Weak Links in the Chain of Marketing
1. Absence of full fledged IT support, i.e. activation between customers and the servicing centre.
2. Absence of on line service.
3. Absence of dedicated back office support, to marketing services absence of effective MIS system.
If only new companies could take care of all the above within the quickest time possible, they could pose a serious threat even to existing players, despite their strong network.
The new players could ill-afford to ignore the strength of the nationalised companies. The state companies must make a fresh beginning and overcome their handicaps to good marketing.
The future of marketing in insurance, in our country holds out exciting possibilities and promises to benefit the customers. The consumer, however, is going to be the referee to determine in what measures, both, the existing and new players are going to come up to their expectations.
Let us watch the future scenario with hope and expectations.