Business Today Net Special

Insurance Wars

By Ranju Sarkar

Service. That's likely to be single-most important plank on which private players in the insurance business are going to differentiate themselves from the public sector major, the Life Insurance Corporation (LIC). For, an initial look at the products being launched by HDFC Standard Life Insurance and ICICI Prudential Life Insurance does not show major differences in the product offerings of the private players and the LIC. Even the products have been christened similarly.

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So, if LIC has money back policies (it's best-selling products), ICICI-Prudential calls its variant as ICICIPru CashBak and HDFC Standard Life actually calls it Money Back. Says Pankaj Seith, Head of Marketing, HDFC Standard Life: ''That's deliberate because when the company and the product is new, a customer may not be able to appreciate too innovative a product. We will soon introduce more innovative products.''

The innovations come in terms of the flexibility private players' offer; the way products can be customised to suit individual requirements. For instance, ICICI Prudential offers a set of basic products to which a consumer can add health and term (maturity period) riders and design his policy depending on his or her needs. Says Saugata Gupta, Marketing Head, ICICI Prudential: ''The basic philosophy of our product design is to give the consumer freedom to choose and pay only for what he needs.''

So, ICICI has five basic products which come with four add-on riders like Level Term Cover (double the cover), Critical Illness Benefit, Accident and Disability Benefit, and Major Surgical Assistance Benefit. The idea: a customer who buys a basic product (say, a pizza), and depending on his age and need, he can take the add-on riders (toppings) by paying a nominal premium. HDFC Standard Life provides similar flexibility.

For instance, a customer may not take a critical illness benefit if he's young and not married. But as he gets married, he may like to double his cover by taking a level term cover. As he grows old, he may take the critical illness benefit and the major surgical assistance benefit. Similarly, someone having a credit card may not need an accident benefit. A common plank that cuts across spectrum: need-based selling. What's more, the products launched by the private players are competitively priced.

LIC, though taking note of competition, doesn't seem to be too impressed with the product offerings. Says P.N. Subramanian, Executive Director (Marketing), LIC: ''The add-on riders provide a lot of flexibility to a product. Right now, we may not have products that match on a product-to-product basis with those being offered by private players. But we have 61 schemes which can be combined to offer customised solutions.''

LIC believes that a customer's prime concern in an insurance product is the kind of cover he's getting and how much is he likely to earn upon maturity. ''In some cases, while the premium instalment could be less than ours, upon maturity we offer a better maturity value,'' says Subramanian. ''They promise guaranteed additions at the end of 20 years; we offer the same. They promise guaranteed loyalty additions; we don't but we have a track record of providing loyalty additions, '' adds Subramaniun.

Any new player entering the insurance business would try to differentiate its product offering, but it's in the service delivery system, which could become the key differentiator. Both pre-sell and post-sell service. For instance, the agents (private players euphemistically call them consultants or insurance advisors) are being specially trained---after they get the 100-hour mandatory training from institutes like NIS SPARTA, ILFS-promoted Schoolnet, College of Insurance---to customise solutions after assessing individual needs.

Companies are also investing heavily in back-end infrastructure, especially IT systems. HDFC Standard Life, for instance, will connect all its branches that will allow for real-time access, enable its consultants with MIS support and premium calculator in a specially-designed 'Consultants Corner', and set up call centres. ICICI Prudential is also putting in place a host of systems to provide superior customer service. Royal & SunAlliance, which will enter the non-life insurance business, has set up an IT subsidiary, Royal & SunAlliance IT Solutions (India), which will provide back-end services for its operations worldwide.

LIC has also undertaken a major exercise to jack up its service. Already, it has put eight metropolitan cities on wide area network, and plans to add another 33 by the end of March 2001 and commence payment of premium through the internet. Says G. N. Bajpai, Chairman, LIC: ''I don't think service can be a plank. What the customer is bothered about is the returns he gets at the end of 20 years, and our returns are very good.''

But it's just the beginning of a war for the insurance premia. To improve reach, both ICICI Prudential and HDFC Standard Life, would be trying to leverage on the Indian parent's strengths. HDFC Standard Life, for instance, would like to work with the deposit agents of HDFC; it would be targeting 12,000 key partners of a 46,000-strong base of deposit agents. Similarly, ICICI Prudential would like to use the DSAs of ICICI, Prudential ICICI AMC, and ICICI Bank, which offers a huge customer base in the south after its merger with Bank of Madura.

Similarly, HDFC Standard Life, has struck an alliance with Indian Bank, through which (and HDFC Bank) it would like to sell the insurance products. Called bankassurance, this channel accounts for a substantial chunk of the insurance products sold in Europe (50 per cent in France; 20-22 per cent in the UK). Insurance products will also be peddled through financial intermediaries like Bajaj Capital or Cholamandalam Finance.

But for all this to happen a crucial regulation that will allow corporate agents to sell insurance products is expected any time now. Other key regulations also expected to be cleared soon relate to some tax benefits---the extension of the Section 80CCC pension product benefits and the ERADI Committee on tax; both of which will provide a level playing field for private players---that will put private players at par with the LIC.

As the private majors scale up---and the ones waiting in the wings launch their schemes (Birla Sunlife and Kotak are likely to launch their maiden products by February-end)---and the LIC becomes more savvy, the stage is set for the insurance war. The pie: Rs 27,000 crore (that's the premium LIC is likely to collect in this fiscal, including a first-year premium of nearly Rs 4,600 crore), which is growing at 18 per cent; this fiscal LIC would register a premium growth of 21 per cent.

According to a study by the Confederation of Indian Industry (CII), the private players are likely to corner a 10 per cent marketshare by 2010. While the market is likely to grow by 50 per cent, LIC is likely to lose its share of the market. Clearly, the entry of private players, and use of new distribution channels, will bring about a paradigm shift to the I-business. Are you ready for it?

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