Business Today Net Special

LIC: Raring To Go

A look at how the insurance major plans retain marketshare and fend off competitors.

By R.Chandrasekhar

The Elephant Learns to Dance

By early next year, six new players would have commenced operations in the insurance industry. And all of them would be having a common rival: the Life Insurance Corporation (LIC). Tearing marketshare away from the state-owned insurer should be easy, right? Not quite.

Over the 44 years that the monopoly company has been around, it has built a vice-like grip over the Rs 30,000 crore life insurance market. Today, it has 11.5 crore policy holders, 8.5 lakh agents, and 2,048 branches all over the country. Its balance sheet shows a staggering Rs 1,60,935 crore in assets. It is also a financial powerhouse, with a presence in a range of segments including mutual funds and housing loans. Say G.N. Bajpai, Chairman, LIC: "We will be ahead of the competition."

Bajpai isn't the only one to think so. A study by the Boston-based Monitor Group claims that the LIC will continue to have 75 to 80 per cent marketshare even in 2010. That may or may not prove true. For, waiting in the wings are global competitors, with vastly more sophisticated product development and customer servicing know-how. And LIC's product portfolio, in comparison, is plain vanilla. Says Mukul Gupta, Financial Services Expert, Andersen Consulting: "The LIC needs to align its organisational structure, key business processes, and the IT plan, keeping the customer at the centre."

Recently, the Insurance Regulatory and Development Authority (IRDA) granted the first licence in life insurance to the HDFC-Standard Life combine. ICICI Prudential, and Max New York are the next in line. The IRDA reckons that there is room enough in the country for about 30 players in life insurance. A big number, which is why the LIC is taking no chances. "The LIC has always been aware of the need to rejuvenate itself as an organisation regularly," says G.P. Kohli, a former Managing Director of the corporation.

For instance, it went in for restructuring in the mid-80s. It set up an Organisation Improvement Cell and decentralised powers substantially to the zonal levels. Today, all transactions from the sale of an insurance proposal to the settlement of claims are done at the branch level. And even as the Parliament was busy debating the IRDA Act before its enactment in November, 1999, the LIC appointed consultants Booz, Allen and Hamilton to do a scenario-building exercise, suggest areas for process re-engineering, and recommend ways to sharpen customer focus.

Although the consultants' report is still under review by the LIC board, some elements of it have been put in place. "There are three areas of concern at the LIC--technology, human resources, and customer care," says Bajpai.

The Elephant's Tap Dance

LIC's top priority is to bring in over-the-counter (OTC) facilitation, aimed at serving its customers better. It has already computerised and locally networked all of its 2,048 branches. The speed of service delivery, particularly in terms of claims-settlement, has improved. The total outstanding claims are down to 2.74 per cent from 3.47 per cent in 1995, and 14.27 per cent in 1980. Besides, a metro area network (MAN) has been introduced in eight cities and, March next year, will be available in 33 cities. "That would allow 26 per cent of our policy holders to have instance service over the counter."

The next step? A countrywide area network that will match the reach of Indian Railways' IT system. At that stage, any policy holder would be able to walk into any LIC branch anywhere in the country and not only get policy updates, but also make payments and settle claims. Says M.N. Gopalakrishnan, Consultant (Insurance), Business Consulting Group: "Once the LIC is able to leverage IT to get closer to its customers, it will be able to pre-empt new players from encroaching on its territory."

The second area of concern is employee retention and strengthening the agency system, which is really the backbone of the life insurance business. The LIC has 8.5 lakh agents--outside its payrolls--who report to its development officers in branch offices. And 80 per cent of the business is raked in by just 30 per cent of the agents. Therefore, the first targets of the new private competitors would be these profitable agents. The LIC, however, says that there is no danger of its agents leaving. Says an LIC spokesman: "Our commission structure is quite competitive. We pay 35 per cent of the premium for the first year, 7.5 per cent for the next two years, and 5 per cent for the rest of the insurance period." Good for the LIC, the IRDA has disallowed agents from working for more than one insurance firm. Also, it is setting up 23 agency training centres all over the country this year alone.

The LIC is doing something similar to avoid the loss of actuaries, industry professionals who design the life insurance benefit programmes. Out of the 40,000 qualified actuaries world wide, only 150 are in India. The IRDA has made it clear that the actuary must be of Indian nationality. Which means the fight for actuaries will get fiercer. In preparation for that the LIC has recruited 65 actuarial assistants, and plans to create 200 such jobs each year.
For long, only two products have contributed to the largest sales at the LIC. Money Back Assurance policy comprised 42 per cent and the Endowment Assurance Policy 29 per cent of all policies sold in 1998-99. Both were essentially savings-linked schemes.

Now the focus is shifting towards enhancing the return to the policy-holder. On the cards, according to Bajpai, are several new products, including unit-linked products, which offer a higher return on investment. A team of 24 investment professionals has been set up with a mandate to "churn" portfolios. "There is space to make money when you start trading in government securities," says Bajpai, adding that the LIC raked in profits of Rs 800 crore late year in trading alone.

Over the years, the LIC has made money the easy way. Hereafter, it must sweat for it.

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