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India is poised to experience major changes in its insurance markets as insurers operate in an increasingly liberalised environment. It means new products, better packaging and improved customer service. Also, public sector companies are expected to maintain their dominant positions in the foreseeable future. A look at the changing scenario.
The insurance landscape in India is undergoing major change. Closed to foreign competition since nationalisation in 1956, the life insurance industry had been secluded from competitive pressures. Now, with the re-opening of the sector, several new players have entered the scene. The game is old but the rules are new and still developing. Embedded in a monopoly run from the nationalisation days, the insurance industry has indeed awakened to a deregulated environment in which several private players have partnered with multinational insurance giants. As the recent trends showing an upsurge in consumer awareness, insurance industry is enduring an immense and unavoidable pressure. A lifting of the bar on composite insurance, where companies are permitted to do only life or non-life business today, can also be expected. Instead of categorising insurance by class, the focus may shift more to the period for which the cover was offered and the risk underwritten. Already there is demand for permitting the industry to underwrite pure risk and leaving investment decisions to policyholders. With the entry of competition, the rules of the game are set to change. The market is already beginning to witness a wide array of products from players whose number is set to grow. In such a scenario, the differentiators among the different players are the products, pricing, and service. Meanwhile, the profile of the Indian consumer is also evolving. Consumers are increasingly more aware and are actively managing their financial affairs. Today, while boundaries between various financial products are blurring, people are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total protection. To satisfy these myriad needs of customers, insurance products will need to be customised. Insurance today has emerged as an attractive and stable investment alternative that offers total protection - Life, Health and Wealth. In terms of returns, insurance products today offer competitive returns ranging between 7 per cent and 9 per cent. Besides returns, what really increases the appeal of insurance is the benefit of life protection from insurance products along with health cover benefits. The intermediaries in the insurance business and the distribution channels used by carriers will perhaps be the strongest drivers of growth in the sector. Multi-channel distribution and marketing of insurance products will be the smart strategy for the Indian market. While tied agents will continue to play an important role in distribution, alternative channels like corporate agents and brokers will play a greater role in distribution. Firms will need to forge relationships with the partners for strategic advantage. They need to have strong partner relationship management. It must be borne in mind that India is a predominantly rural country and will continue to be so in the near future. New players may tend to favour the "creamy" layer of the urban population. But, in doing so, they may well miss a large chunk of the insurable population. A strong case in point is the current business composition of predominant market leader - the Life Insurance Corporation of India. The lion's share of its new business comes from the rural and semi-rural markets. In a country of 1 billion people, mass marketing is always a profitable and cost-effective option for gaining market share. The rural sector is a perfect case for mass marketing. The scenario in Indian insurance sector is ready for a change with public sector players likely to lose market share. But some industry analysts believe that they would continue to hold a strong market position on account of their well-established brand equity and distribution network. However at the same time, it must be noted that major public sector banks such as SBI, Bank of Baroda, Punjab National Bank and other large public-sector banks also have established brand equity and distribution strength. Bancassurance is likely to catch on in India, the same way it has done globally.
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