While the consumer now has unprecedented choice, the industry participants-after the initial euphoria-are still struggling to find the winning formula

Ever since the nationalisation of life insurance in 1956, more than one generation of Indian consumers has lived with a state-owned monopolist as the sole provider of life insurance. With the re-opening for private participation in 2000, the insurance landscape changed completely: 12 new entrants-with one, maybe two more waiting in the wings. All new entrants have expanded rapidly and have presence in about 40 cities across the country, represented by more than 50,000 agents.

Liberalisation has expectedly been followed by a plethora of launches, each event laying claim to some variant of the "new, improved" blurb. Company launches followed by product launches and these by distribution-related announcements. While this has presented the consumer with unprecedented choice, participants-after the initial euphoria-have to grapple with major issues: What is the "winning formula" here? What degree of focus-as against a broad-based approach-is required? Will alternate channels become significant sources of business?

Some background first. To its credit, Life Insurance Corporation (LIC) did a commendable job of developing the life insurance market-penetration (ratio of premiums to the gross domestic product) of 1.3 per cent, while far from the 4 per cent plus numbers of developed economies, is higher than that of Thailand, Philippines, Indonesia, and China-countries with much higher per capita incomes than India's.

LIC achieved this by leveraging its phenomenal brand and its widespread distribution network. Products and commitments of LIC are believed by most consumers to have de facto sovereign guarantee. This coupled with a 800,000-strong agency force (though not all active) led to LIC returning far better performance than expected of a typical state-owned monopoly. These assets were fully utilised to achieve record results in 2001-02, the first year of competition (and, importantly, the last year in harness of the then Chairman-G.N. Bajpai).

The performance of the new entrants has, meanwhile, been a mixed bag. ICICI Prudential has done exceptionally well since inception (with more than 125,000 policies in force, premium income in excess of Rs 150 crore; and 16,000 agents enrolled) and is a clear leader among new entrants.

Its success is driven greatly by again actualising the familiar ICICI-standard-format-thrust in a new financial services area-aggressive distribution, leveraging existing customer base, and detailed implementation planning. Next, Max New York Life, HDFC Standard Life and Birla Sun Life combines are all reportedly in the Rs 50-60 crore premium range and form the second rung of new entrants. These companies are beyond the phase of investing in building presence and are pushing sales aggressively through their distribution networks.

The third rung of "Strong Performers" includes Tata AIG, Kotak Old Mutual and Bajaj Allianz, with premium incomes reportedly in the Rs 30-crore range. These players are marginally behind their competitors in the second rung. And a churn in some relative positions will not be a surprise. The other ventures are currently establishing their presence and will take more time to make an impact on the industry landscape.

The Product Rush

The disparity in initial performance, however, masks the marked similarity in the new entrants' route-to-market choices. A quick look at the product and distribution configurations highlights this phenomenon.

The private players have introduced 70 odd "new" products in all. A portfolio scan shows up two important conclusions-first, endowment and money-back products (historically, mainstay of LIC's business) constitute almost half of the total and second, much of the actual business transacted has been through their assured return, single premium policies. In pushing a combination of standard products and assured benefits, the new entrants have elected to tread safe ground (though the emphasis on assured return products has already invited cautionary comment from IRDA).

In distribution, the thrust of almost every new entrant has been on building up a sizeable agency force (though, in the "new, improved" era, the insurance agent is no longer just that-designations range from the basic "Insurance Advisor" to the more grandiose "Financial Planning Consultant"). Simultaneously, almost all new entrants have rushed into announcing bancassurance partnerships.

Such commonality in approach largely stems from companies that tend to focus on similar target customers-urban, upper- and-middle class population-and from not wanting to be left out of any seemingly obvious opportunities.

Over the medium-long term, these will likely lead to poor results for players other than the top two (not necessarily the current leaders) and the excess capacity will depress overall industry performance. To be able to deliver sustained, superior performance in the marketplace, players need to create and effectively deploy differentiated strategies in sales, distribution and marketing.

Not surprisingly, the starting point of such strategies is a superior understanding on part of companies of customers and the market realities. Conventional segmentation approaches utilising one or more variables of income classification, age group, and level of education sometimes succeed in identifying groups of customers who share the same basic needs and beliefs. But the segmentation is almost invariably done in a manner that no one can ever find such groups.

For instance, a study that concludes that "'self-assured' young women are looking for a high-value term policy" might have an assertion that is quite accurate on its own but will likely prompt some sales managers to-justifiably-ask: How do I find these people?

The game is to find customer segments that are relevant to the realities of the company and also economically well-defined, in the sense that all members of the same segment have similar needs and experiences concerning the product offering.

Customer segments must be both meaningful-in that they exhibit distinct behaviors, needs, and beliefs-and actionable, in that the company can conceivably do something to affect their behavior. One of these without the other won't work.

Streamlining The Channel

It is a truism that life insurance is sold, not bought. Agency force management thus becomes a critical area for companies to focus on. This is currently reflected in an emphasis on growing agency force size rapidly (ICICI intends to add 500-odd agents every month in the next year). However, in the rush for size, it is easy to forget that unless handled properly, a sales force can become an expensive option.

Companies need to design and manage their sales forces in a manner that yields both high performance and high agent retention numbers-not an easy task. Gold standard agency force management practices imply making appropriate choices in recruitment (e.g., in sync with the demographics of target segments as the most effective agents use their own networks to acquire new relationships); in roles and responsibilities (given the savings-intensive nature of life insurance in India, it may be advisable to equip-not just designate-the sales force as financial planners); in matters such as compensation (rewards tied not only to total production but also to quality of sale).

Additionally, new entrants must eschew the LIC 'lone wolf' model where the psychological contract between the agent and organisation is mostly restricted to direct and indirect compensation based on total production. Successful companies have to go much further in supporting their feet-on-the-street by measures such as creation of product and other specialists as central resources for them to draw upon or by deploying automation technologies in order to enhance effectiveness.

Interest in alternate distribution channels is also high. Given the state of communication infrastructure and low absolute cost of traditional methods, some options that are standard in developed world-e.g., telephone sales or internet-based marketing-can safely be classified as esoteric in India for anyone with mass market ambitions.

The big initiative, however, is happening around bancassurance-insurance companies partnering with banks to sell their policies on the back of a previously existing financial services relationship. Historically, bancassurance has met with varying levels of success in different economies across the world and it must be recognised that conditions in the Indian banking set-up do not augur well for the near-term development of this alternate distribution channel.

Finding The Differentiator

A recent study on key success factors in businesses identified five factors that are important in making such partnerships work. These, combined with looking at the details of current arrangements, suggest that relationships will be effectively restricted in the foreseeable future to referral arrangements rather than full-fledged bancassurance executions.

Finally, companies need to re-examine their advertising spends. New entrants have collectively spent about Rs 150 crore on advertising already. However, there is little differentiation in messaging with most players using tag lines such as "Friends for Life", "Your Partner for Life", and "With You Always". Companies need to clearly outline campaign objectives and then execute on differentiated creatives.

For campaign objectives, it would be economical to remember that most attempts at developing star brands (first choice for most, second choice for all, transcending functional relationship, commanding leading presence, visibility, and pricing power in their respective markets) comparable to those in the other sectors have been ineffective in financial services and taking a standard/parity position (customers consider the brand to be an acceptable endorsement), is more often than not the optimal brand positioning. Regarding differentiated creatives, it is high time that Indian marketing and advertising professionals refocused talent towards financial services, as this sector will likely be a long-term growth engine for them.

There are exciting times ahead, therefore, for all players in this industry. However, for a company to establish and maintain itself in a dominant position, it needs to chart out a differentiated approach for sales, distribution and marketing-not only on paper but also as reflected in its choices and on-the-ground actions. Such differentiated strategies will be most effective in contributing to a sustainable, robust business when driven by an in-depth understanding of the customers.

Nikhil Prasad Ojha is a Senior Principal at The Monitor Group-a global strategy consulting firm founded by Michael Porter. He is based in Mumbai and can be reached at Nikhil_Ojha@Monitor.com