Insurance sector : changing with time

K. C. Pandey

Finally Insurance Regulation Act was passed in 1999. After passage of the Act
reform process has started in Insurance Sector. Article discusses the composition
of insurance venture. New channels viz. (a) Direct marketing through dedicated
sales force (b) Banc assurance (c) Corporate agents/ Brokers (d) Independent
financial advisors (e) Telemarketing has emerged due to opening up of Insurance
Sector. Diverse and innovative products are being offered by players to the in-
sured. Services offered by the Insurance Companies has also improved.

Cost Audit

U
ntil recently, India IRDA, for the time being, pro- that the 26% level is the bargained
continued to be one of the hibits 100% foreign equity invest- solution by the privatization pro-
few remaining countries of ment in insurance sector. It re- ponents in the face of stiff politi-
the world to remain insulated from quires the Indian promoter to in- cal resistance.
the direct foreign investment in its vest either wholly or team up with
Why the rush ?
insurance sector. However, things a foreign institution, with a cap of
26% of equity for the latter, in an Although the growth rate of
are changing now with the passage
the economy has been quite im-
of Insurance Regulatory Develop- insurance venture. The Indian pro-
pressive in the last decade, the
ment Act (IRDA) by Indian Parlia- moter is permitted to divest only
insurance industry still has low
ment in late 1999. A much awaited after 10 years to the Indian public,
penetration (non-life premium has
and much debated Act, it met with through a public offering of shares,
a 0.56 per cent share of GDP, and
strong resistance from the Political at that time the equity structure
life insurance 1.50 per cent share
Institutions of India and took almost will provide for equal participation
ofGDP).1n the US, the corre-
six years to see the light of the day. between the Indian and foreign
sponding figures are around five
Though Malhotra Committee first partner with a share of 26% each
per cent share of GDP for life as
recommended Insurance Reforms in in the share capital. The underly-
well as non-life, while in the U.K.
1994, what emerged is a diluted ing tone of the 26% cap for the for-
non-life insurance premium has a
form of the original recommenda- eign insurer is to ensure that finan-
three per cent share of GDP, and
tions. However in the long awaited cial interest substantially vests
life insurance premium has nine
period of its passage, the issue was with the Indian promoter, permit- per cent share of GDP. In Japan,
nationally debated and was finally ting the foreign co-promoter a defi- it is three per cent and nine per
‘de-politicized,’ thereby confirming nite say in the direction and man- cent respectively. The per capital
that the reform path is ‘irreversible.’ agement (By Indian Company Law, insurance premium in India is also
26% is the minimum equity to below the level of advanced coun-
move a resolution or vetoing a tries. All these indicate that there
resolution in Board of Directors’ is a huge untapped potential in the
Prof., Sri Krishna College of
Engineering & Technology Meeting). It is important to note Indian insurance market. India,
which accounts for around 8 per was Rs. 79,760 million. ICICI life and non-life insurance com-
cent of Asia’s Gross Domestic Prudential was the leading private panies had entered into tie-ups
Product, constitutes for only 2 per life insurance company across a with 21 banks.
cent and 1 per cent respectively number of parameters - number of But all these banks and insur-
of Asia’s non-life and life insur- policies soJd, sum assured, pre- ance companies are not looking at
ance business. mium income, brand and ad he same model for distribution. In-
Even today only 3.5 per cent awareness, etc. It sold 104,832 surance companies are using three
of the Indian population, i.e. 35 policies and had a premium in- types of model in selling their
million in one billion, is insured. come of Rs. 1220 million and the product. In the first model some
The second most populated coun- sum assured was Rs. 27,000 mil- insurers with little marketing
try in the world ranks 23rd glo- lion as on March 31,2002. Though skills are considering referral
bally in terms of annual premium the public sector giant LIC sold model, where they will direct a
collection. Its share of the total 23.2 million policies and had a representative of the insurance
global life insurance premium is premium income ofRs.150, 000 company to their customer who
being a mere 0.34 per cent. Let million the private players are fast shows interest in buying insur-
alone the developed countries, In- catching up with it. ance. The shortcoming of this
dia fares poorly in comparison Marketing: model is that after the initial in-
with even China or Thailand. troduction the customer would
Traditionally, the life insurers
Hence the consensus is that have to interact with the insurance
have been banking solely on the
there exists a vast hidden market agency distribution force. On the cpmpany directly for all his serv-
in insurance, which remains to be contrary, the general insurance ice requirements.
tapped. According to the projec- business has depended totally on the The second model adopted by
tions by Confederation of Indian Development Officers. The new age some banks is the introduction of
Industry (CII) expert group, the private insurers are adding more deposit products which has an in-
total volume of life insurance pre- channels of distribution in the In- surance benefit thrown in through
mium, which stood at Rs 215.81 dian market parallel to existing one. a group policy provided by their
billion in 1998-99, will more than Innovation and diversification are insurance partner. These policies
double to Rs 592.51 billion by the buzzword in the business. could be in the form of a deposit
2004-05, and rise nearly seven liked insurance cover or a mort-
New channels:
times by 2010. In general insur- gage protection policy. But the
ance too, the CII expects premium a) Direct marketing through shortcoming is that these products
income to double by 2004-5. dedicated sales force: are inflexible and meet only lim-
So what was once a quiet and Direct marketing through ited insurance need of the cus-
dormant industry is becoming to- dedicated sales force has been tomer.
day’s hottest business, as on Janu- conventionally seen in the insur- The third model, which in-
ary 2003, 12 players have entered ance industry. Most of the major volves the maximum involvement
the life insurance market and 8 general insurance business, writ- of the bank, is one where the bank
players have entered the non-life ten in the country has been the obtains a corporate agency and
insurance market. outcome of direct marketing ef- appoints dedicated relationship
forts through executives called the managers, who will not only sell
Impact of Globalisation :
Development Officers (DOs). Dos insurance product to the custom-
Finance: have worked with the LIC and are ers, but also act as a single win-
Two years since liberalisation likely to continue. dow for providing all financial
the private players have made b) Bancassurance: advice under one roof.
considerable inroads into the in- c) Corporate agents/ Brokers
Although the insurance indus-
surance industry. The private com-
try was cynical of the success of Insurance broker is a profes-
panies sold 271,130 life insurance
bancassurance at first, the indus- sionally run corporate body sub-
policies as on March 31,2002.
try has realized the potential and ject to stringent regulations and
The premium earned was Rs.
the need for selling insurance code of conduct prescribed by
2,749 million and the sum assured
through banks. At last count 11 IRDA. Unlike an insurance agent,
who represents his company, a products, targeting the hitherto making a claim.
broker would offer investors a uptapped markets. Private players
Cashless Servicing of Claims:
range of products. At an indi- like Bajaj Allianz are providing
vidual level the broker will play a cover for the film industry. Apart What cashless servicing
crucial role of enabling the policy- from covering for the death of the means is that all that the insured
holders to compare rates in basic star cast, sickness etc, the insur- has to do in the event of an acci-
products. In the case of more com- ance also covers increase in inter- dent is to take his vehicle to a ga-
plex products, the broker will ex- est expense due to delay arising rage that is affiliated to his insurer
plain to the insured, which par- out of any insured events. Other and he gets his repairs and re-
ticular policy provides the widest policies like farmers package, placements without having to
cover when compared to others. shopkeepers package, group make any cash payments. The
Mediclaim or mega project same is applicable to Mediclaim
At the corporate level the bro-
insurances in infrastructure policies.
ker will not only act as an advi-
sor but also help the company in (power projects, telecom projects) On-the-spot Polices:
devising a policy to meet his cor- and unit-linked policies are being In the pre-liberalisation era a
porate clients requirements. introduced on a day to day basis. buyer had to wait for days and
The current regulations means Human Resource sometimes weeks to receive a
that banks cannot be brokers since Once dreaded by the public, copy of his insurance policy. What
a broking house cannot carry on insurance sales persons are being the new insurers have done is to
any activity other than of broking. groomed by the new private com- take the policy documentation
panies to become financial consult- right to the point of sale to the
d) Independent financial advi-
ants to manage client relationship. buyer. Bajaj Allianz for instance
sors
All new companies have commit- sells auto policies and travel in-
Independent Financial Advi- surance policies which are printed
sors (IF As) are very common in ted themselves to develop a sales
force of professionally trained in the offices of the auto dealers
overseas markets, but are new in and travel agents with whom they
India. IF As are qualified profes- agents. IRDA (Insurance Regula-
tion and Development Authority) have tie up.
sionals who can provide invalu-
able help to the customer in iden- has stipulated that all agents must Conclusion :
tifying the product that suits his pass a basic examination after go- The insurance industry has
personal requirements IF As aid ing through 100 hours of special- come off age. Two years since
the clienst/customers in selection ized training. The private players opening up of the insurance indus-
of insurance products. They are setting their own standards. try the changes are already visible.
charge for their services, in con- For example, Metlife recruits only The competition from the private
trast to the company paying com- graduates as agents. HDFC Stand- players has already made the pub-
missions. IF As are different form ard Life has MBAs who are work- lic sector giants wary. To stay in
their counterpart-brokers, who ing full-time as insurance sales- business the players need to con-
have interest in maximizing their man. All the sales people are re- stantly reinvent themselves with
commissions. ferred to as “Financial Planning the changing dynamics of the mar-
Advisor” or Financial Consultant”. ket. Globalisation has augured well
e) Telemarketing
Service: for the industry and the consum-
Telemarketing or direct re- ers. The competition can only
sponse is the sale of policies over Insurance industry being a
service sector the level of service make life easier for the consumers
toll-free lines without an interme- in the coming years.
diary. This model uses databases provided will detennine the suc-
with the aid of call centers to ap- cess of failure of a company. The Bibliography:
proach customers and explain the chances of differentiation are 1. “Insurance”, Knowledge Series, Eco-
policies and finally sell them. minimal in the insurance products nomic Times
the players are concentrating to 2. “Insurance Today”, Monthly Magazine
Products: provide the best service possible 3. Insurance Watch
The private players are com- to win over the customers, be it 4. Supplement on Insurance, Economic
Times
ing up with diverse and innovative in the selection of the policy or