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Competition in insurance sector -- Will LIC still be market leader?

D. S. Narain

Change is not the same as transition. Change is the destination. Transition is the journey. -- William Bridges

THE life insurance industry has entered a new phase, with the Insurance Regulatory and Development Authority (IRDA) granting registration certificates to new life-insurers, enabling them to set up shop soon. In the next few weeks, close to a dozen compan ies are expected to get their Registration Certificates. The market is also expecting select public sector banks to get clearance -- notably, the SBI is poised to set up a life insurance subsidiary with a start-up capital of Rs 250 crore.

All eyes will be focussed not only on the early take-off of new life insurance ventures but also on the ability of the giant Life Insurance Corporation (LIC) to face the emerging pressure. The delay in ushering in competition gave the major adequate time to gear up to the challenges of competition. Among the earliest strategies adopted by LIC was a three-pronged effort to galvanise the entire organisation.

The immediate task of `upgrading the marketing skills' of its fledging mammoth marketing team was to be initiated. Also, it was felt that as the entire organisation would need to be energised, `human resource development' and renewed emphasis on `trainin g efforts' for all levels was to be put in place. To respond to the customers with speed and quality of service, the adoption of greater use of technology support for the operating unit was taken up. For a mighty organisation to accept the need to improv e the overall efficiency, manage growth and develop a mindset to accept change was indeed an onerous task.

In terms of numbers, LIC can boast of a well-spread marketing setup. With a network of over 2,300 operating units, the life insurance products are marketed with the help of over 20,000 development officers overseeing more than 600,000 agents. Ten per cen t or more of the agents are `direct' and `independent'. The challenge really is the level of professionalism of the sales force. The new business growth of an insurer is directly related to the productivity level of agents.

For fiscal 1999-00, 1.69 crore new policies were sold (average sale per agent 28 policies). The new business premium was Rs 4393 crore -- the best effort -- yet much short of what could have been achieved even if 50 per cent of the field force had been activated and utilised. The total premium income amounted to Rs 27,850 crore.

The financial strength and clout of LIC is attributable to the total life fund, put at an impressive Rs 1, 54,043 crore at end-March 2000. What, however, needs to be reviewed is whether more could have been mobilised. After all, the organisation was in t he unique position of being the only life insurer for over four decades. It had a Government guarantee, a brand image. The national economy supported insurance, particularly in the 1990s by providing new opportunities. The market presented a resurgent ec onomy, with GDP growth showing an impressive and respectable level of 7 per cent for a number of years.

To express in clear terms the future opportunities for the life insurance business, a look at the compatibility of LIC's business results with the economic indices is relevant:

*The margin of GDP growth rate in the 1990s showed an increase of 10.60 per cent over the 1980s, yet the margin in the total premium growth rate in the 1990s over the 1980s was + 2.85.

*GDP grew from Rs 6,30,772 crore in 1992-93 to Rs 15,83,604 crore in 1998-99. Life premium grew from Rs 7,987 crore (1.26 per cent to GDP) in 1992-93 to Rs 22,806 crore (1.44 per cent to GDP) in 1998-99.

*The growth pattern witnessed in non-bank deposits in the 1970s, 1980s, and 1990s was 37.90 per cent, 20.20 per cent, and 49.50 per cent respectively. The rate of growth achieved by life insurance fund for the same period was 16.10 per cent, 19.20 pe r cent, and 20.30 per cent respectively.

There could be several parameters for judging the performance of a financial institution. What really needs to be understood and appreciated is that the performance assessment is to be linked with the factors supporting economic growth. The life insuranc e industry needs to act to accelerate economic growth. It has to spearhead a marketing initiative to help expand the industry's role in the country's overall economic growth.

Countries such as South Africa, South Korea, and Japan procure a total life premium exceeding 10 per cent of the GDP. The LIC may have to accept a paradigm shift in its efforts if it is serious to retain the leadership of life insurance industry for seve ral years and assume the challenge for massive growth levels of the life insurance premium.

What are the expectations from the LIC as it makes its moves towards strategic changes in its marketing setup, approach, and attitude? Changes cannot happen merely by changing structure, systems -- a big task in itself -- but in ushering in `new t hinking' that encourages changes. LIC has a reservoir of marketing strength. If genuine change is to come about the following must happen:

*Radical steps to improve to quality of agents recruited, as better agents alone can bring in better business. The retention of agents will have to be a priority for sustained business growth. The exit to recruitment ratio has to change dramati cally.

*The IRDA regulations on agents' recruitment, qualification and training make the task easier for LIC. It need not be pushed around to recruit at any cost as it is to be more closely monitored by the regulator.*Overdue emphasis on number of sal es per agent need to make way for better customer-oriented sales. It is a matter of concern for any insurer that 35-40 per cent sales are of such low values that there is every possibility of their going out of the books.

*Training efforts for the marketing team need to focus on development of marketing skills and a professional approach. Genuine marketing efforts would lead to the creation of demand for the company's products, its distribution and services for customers who purchase the products. Skill development would lead to trained, experienced, representatives in the market. Customers would be encouraged to retain their life insurance policies and use the valuable life insu rance protection and savings.

*Renewed efforts to streamline marketing on a more scientific line. All agents cannot sell all products. Market research leading to a pointed support system for each agent would help. A lot needs to be done in relating technology to real grow th in business, product development customers' services and market awareness.

*`Face-to-face' sales efforts would be the main stay for LIC's marketing thrust. Yet the organisation needs to make conscious efforts to enlarge the profile of distribution channels to build a real marketing environment. LIC had attempted to enlarge the distribution channels by involving cooperatives and panchayats in its market areas. More needs to be done.

LIC's competitive strength can be seen only in a large market share, low-cost operations, ability to differentiate in the market by adopting flexible strategies, and developing special capabilities and competencies. The future will witness tremendous cha llenges. Changes in technology, biology, medicine, social values, demography, environment and international relations will impact the insurance markets.

The Indian insurance market is going to be extremely dynamic in the wake of an emerging stronger economy. LIC's growth and strengths in the new competitive environment would depend on whether it adopts the dictum of a distinguished American insurance age nt, who once commented that ``the people who succeed in this world are the people who get up and find the circumstances they want - and if they can't find them, they make them.''

(The author is a former member, Insurance Regulatory and Development Authority.)