Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector

Transcription

1 406 ATHENAEUM 2010 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector Ganesh Dash and M. Basheer Ahmed Khan Department of Management Studies School of Management, Pondicherry University ABSTRACT Indian life insurance industry has witnessed an eventful decade since the doors of privatisation were opened. With the IRDA act coming in to effect, numerous private players joined the booming industry. Major watchers of the world insurance industry have predicted India as the next insurance giant. Since 2001, the industry has seen a phenomenal growth till the last year when the tremors of global financial meltdown has reached Indian shore. Particularly, the finance sector has begun to feel the pinch of the recession. Indian life insurance sector could not remain immune to these adverse circumstances for long and registered a negative growth rate in the last financial year for the first time since liberalisation. This paper focuses on the impacts of global recession on this industry in terms of premiums and policies. This paper also describes the different elements of the modern services marketing mix and their applications being carried out by the various companies involved in the Indian life insurance market. All the traditional elements of the mix as well as the new elements specifically developed for the services sector are discussed with utmost importance in this study. Keywords: Services, Marketing, Life, Insurance, India, Recession, Mix INTRODUCTION Life insurance as a product has been introduced to the humanity long ago. The concept of insuring the lives of people was developed to check the losses suffered due to a person s untimely death. Over the last few centuries, this fundamental concept has gone under huge changes caused by various evolving theories concerned with the living patterns of a human being. In

2 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 407 recent years, the basic nature of life insurance has become a service rather than a mere product. Hence the use of the traditional marketing mix has become obsolete for selling life insurance. Therefore, the concept of modern extended (services) marketing mix came in to picture. This study describes the impact of global financial meltdown on the Indian life insurance sector and the application of the modern marketing mix in checking the negative impacts of the recession on it. By compiling secondary data from various authentic sources, this study has gone through exhaustive analysis to examine the impact of global recession on this industry. Further, it explains the present scenario of Indian life insurance industry followed by the various elements of the extended marketing mix and their applicability as adopted by the various players active in Indian life insurance sector. OBJECTIVES OF THE STUDY 1. To study the impact of the global financial meltdown on Indian life insurance sector in terms of premiums and policies 2. To study the use of the modern services marketing mix in the recessionhit life insurance industry in India. 3. To examine the individual performances of different P s ( of the mix) in solving the problems of marketing during the recession LIFE INSURANCE IN INDIA Life insurance in India has its origins as early as 1818 when the Oriental Life Insurance company started business in Kolkata. The Bombay Mutual Life Insurance Society started its business in The first general insurance company- Triton Insurance Company Limited was established in The life insurance regulation formally began in India in 1912 after the passage of The Life Insurance Companies Act of 1912 and the Provident Fund Act of By the year 1938, number of insurance companies was 176. The first comprehensive legislation was passed with the Insurance Act of 1938; this Act provided for strict State Control over insurance business. In 1956, The Government of India brought together 245 entities (154 Indian insurers, 16 non Indian insurers and 75 provident societies) under one nationalised

3 408 ATHENAEUM 2010 corporation, which was named as Life Insurance Corporation of India (LIC). But, the non-life insurance business continued in private sector and was nationalised in Finally, the Government of India liberalised the insurance sector in March 2000, with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. This act aims at lifting all entry barriers for private companies and allows foreign companies to enter the market with limitations on direct foreign ownership. Once the door of privatization was opened, in the last decade more than twenty players have joined the Indian life insurance industry. In 2000, Indian insurance market size was $21.71 billion. Between 2000 and 2007, it had an increase of 120% and reached $47.89 billion. Between 2000 and 2007, total premiums maintained an average growth rate of 11.96%. It was one of the most consistent growth patterns we have noticed in any other emerging economies in Asian as well as Global markets. 1 (See Figure-1) e-estimated, f-forecast Fig. 1: India Insurance Market Source: The Knowledge Centre 1 Source: the knowledge centre

4 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 409 Global Financial Crisis and its Impact on Indian Life Insurance Industry The global recession originated in the USA with the sub-prime crisis. The origins of this crisis go back to the middle of 2007 when evidence that homeowners who had borrowed to finance the property they purchased had begun defaulting on their debt.. It bankrupted a host of mortgage finance companies, banks, investment banks and insurance companies, including big players like Bear Sterns, Lehman Brothers and AIG. It resulted in a huge pull out of capital from the emerging markets. Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy has lost between 1 to 2 percentage points in GDP growth in the last fiscal year. As the impacts of the global financial downturn reached the shores of India, the financial services sector also got affected lately. For the first year of the crisis Indian life insurance sector withstood the adverse effects of recession and posted an impressive growth rate. But coming to the second year it started feeling the tentacles of the crisis plaguing the whole world. The total first year premium collections registered a slight dip in The industry collections stood at Rs cr (08) as against Rs cr one year ago. The private players posted an impressive growth while the LIC brought the growth rate down. Private companies collected Rs cr in 2008 as against Rs cr in LIC managed to collect Rs cr in this period as against Rs cr one year ago. The total number of policies/schemes achieved by the industry registered a marginal growth in over the last year. Total policies made by the industry stood at in 2008 as against policies made in Here also, private sector posted an impressive growth while LIC lagged behind and moved southwards. Total policies made by the private parties stood at (08) as against one year ago. In the same period, LIC posted a negative growth from policies in 2007 to in (See Figure-2 & Table-A & B)

5 410 ATHENAEUM 2010 Fig. 2: First Year Premiums and Number of Policies (Last 3 Years) Source: Irda Annual Reports (Various Years) Table A: First Year Premium Collections (In Crores) Year LIC Private Total Source: IRDA Annual Reports (Various Years) Table B: Number of Policies YEAR LIC PRIVATE TOTAL

6 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector Source: IRDA Annual Reports (Various Years) Though the Indian life insurance sector has registered a huge growth rate over the last few years, coming to the year it has started to experience the heat of the global financial meltdown. Though the current financial year prospects are not so encouraging, the coming years hold a brighter picture for this industry. SERVICES MARKETING MIX (EXTENDED) A service is the action of doing something for someone or something. It is largely intangible i.e. not material. A product is tangible i.e. material since we can touch it and own it. A service tends to be an experience that is consumed at the point where it is purchased, and cannot be owned since is quickly perishes. A service has following characteristics: Inseparable - from the point where it is consumed, and from the provider of the service. Intangible - cannot have a real, physical presence as does a product. Perishable - once it has occurred it cannot be repeated in exactly the same way. Variability- no two services will be completely identical. Right of ownership - is not taken to the service, since one merely experiences it. Major economies have seen deterioration in their traditional manufacturing industries, and a growth in their service economies. Therefore the marketing mix has seen an extension and adaptation into the extended marketing mix for services, also known as the 8P's. The Modern Extended Marketing Mix 2 Earlier, there were only four P s in the traditional marketing mix suitable for the manufacturing industries. But in this modern world, not only the meaning of the various P s has changed but another four P s were also added to suit the 2 The 8P s concept has been taken from principles of service marketing and management by C. Lovelock & L. Wright

7 412 ATHENAEUM 2010 service industries. While making strategies to market manufactured goods, marketers usually address four basic strategic elements: product, price, place (or distribution), and promotion (or communication). These four categories are often referred to as the "4Ps" of the marketing mix. But in order to include the services sector, the marketing mix has added four more P s: process, people, physical evidence and productivity. Hence the services marketing mix consists of 8Ps rather than the 4Ps in the earlier marketing mix. Even the first four P s have got a new meaning with respect to the services sector. (See Figure-3) PLACE PRODUCT PROMOTION PRODUCTI- VITY MARKETING PRICE PHYSICAL EVIDENCE PEOPLE PROCESS Fig. 3: The 8 P s of Services Marketing Mix APPLYING 8 P S IN INDIAN LIFE INSURANCE SECTOR

8 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 413 In this chapter, we will discuss the various practical applications of the eight P s of the services marketing mix as being adapted by the Indian life insurance companies in this period of uncertainty. I. PRODUCT All components of the service performance that create value for customers should be included. When a person or an organisation buys an Insurance policy from the insurance company, he not only buys a policy, but along with it the assistance and advice of the agent and the facilities of claims and compensation. It is natural that the users expect a reasonable return for their investment and the insurance companies want to maximize their profitability. Hence, while deciding the product portfolio or the product-mix, the services or the schemes should be motivational. The Group Insurance scheme is required to be promoted and the new schemes and policies for the villagers or the rural population are to be included. The Life Insurance Corporation has intensified efforts to promote urban savings, but as far as rural savings are concerned, it is not that impressive. The introduction of Rural Career Agents Scheme has been found instrumental in inducing the rural prospects but the process is at infant stage and requires more professional excellence. It would be prudent that the LIC is allowed to pursue a policy of direct investment for rural development. Investment in Government securities should be stopped and the investment should be channelized in private sector for maximizing profits. In short, the formulation of product-mix should be in the face of innovative product strategy. While initiating the innovative process, it is necessary to take into consideration the strategies adopted by private and foreign insurance companies. The various life insurance products offered by the Indian companies are perfectly catering to the needs of the common Indian customers. Let us discuss some products offered by the Indian companies which are addressing the specific needs of different types of customers. Plans for children: these plans are specifically targeted at the children. Various plans have been developed to cater to the different types of needs

9 414 ATHENAEUM 2010 arising in the market. Some of the plans are as follows: Child Career Plan, Child Fortune Plus, Child Future Plan, Children's Deferred Endowment Assurance Plan, Jeevan Anurag, Jeevan Chhaya, Jeevan Kishore, komal jeevan, Marriage Endowment or Educational Annuity Plan etc. Decreasing term assurance to cover home loan repayments: The Mortgage Redemption Assurance policy (without profits) plan is designed to meet the requirements of the policy holding individual who seeks to ensure that all his outstanding loans and debts are automatically paid up in the event of his demise. Under the Mortgage Redemption Assurance policy (without profits) the proponent will have to bear the cost of the mandatory medical examination. All loans must be liquidated by the time the borrower attains the age of 65.The policies bear no surrender value. Endowment assurance plans: This policy not only makes provisions for the family of the Life Assured in event of his early death but also assures a lump sum at a desired age. The lump sum can be reinvested to provide an annuity during the remainder of his life or in any other way considered suitable at that time. Premiums are usually payable for the selected term of years or until death if it occurs during the term period. Joint life plans: This is an Endowment Assurance Plan issued on the lives of husband and wife. The plan provides financial protection against death of both the lives. It pays the maturity amount on survival of one or both the lives to the end of the policy term. Money back plans: Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the endowment period, this scheme provides for periodic payments of partial survival benefits as follows during the term of the policy, of course so long as the policy holder is alive. Term assurance plans: These types of policies are meant for a specific term. Basically, these policies are made for investments for the future along with life cover. Whole life plans: This plan is mainly devised to create an estate for the heirs of the policyholder as the plan basically provides for payment of sum assured

10 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 415 plus bonuses on the death of the policyholder. However, considering the increased longevity of the Indian population, the Corporation has amended the above provision, thereby providing for payment of sum assured plus bonuses in the form of maturity claim on completion of age 80 years or on expiry of term of 40 years from date of commencement of the policy whichever is later. Along with the above mentioned products, there are various other products are being provided in India to take care of the specific needs of the customers. So we can say that from the product point of view, the Indian life insurance sector is doing its best to provide the best services available today. II. PLACE This P deals with the distribution channels available in the Indian life insurance sector. This component of the marketing mix is related to two important facets Managing the insurance personnel and locating a branch. The management of agents and insurance personnel is found significant with the viewpoint of maintaining the norms for offering the services. This is also to process the services to the end user in such a way that a gap between the services- promised and services offered is narrowed down. In a majority of the service generating organizations, such a gap is found existent which has been instrumental in making worse the image problem. The transformation of potential policyholders to the actual policyholders is a difficult task that depends upon the professional excellence of the personnel. The agents and the rural career agents acting as a link, lack professionalism. The front-line staff and the branch managers also are found lacking. The insurance personnel if not managed properly would make all efforts insensitive. Even if the policy makers make provision for the quality up-gradation, the promised services hardly reach to the end users. It is also essential that they have rural orientation and are well aware of the lifestyles of the prospects or users. While recruiting agents, the branch managers need to prefer local persons and provide them training and conduct seminars. Another important dimension to the Place Mix is related to the location of the insurance branches. While locating branches, the branch manager needs to consider a number of factors,

11 416 ATHENAEUM 2010 such as smooth accessibility, availability of infrastructural facilities and the management of branch offices and premises. In addition it is also significant to provide safety measures and also factors like office furnishing, civic amenities and facilities, parking facilities and interior office decoration should be given proper attention. Thus the place management of insurance branch offices needs a new vision, distinct approach and an innovative style. This is essential to make the work place conducive, attractive and proactive for the generation of efficiency among employees. The branch managers need professional excellence to make place decisions productive. Indian life insurance companies are using every available distribution channels to reach to the customers in an effective way to fend off recessional impacts. Major futuristic distribution channels in use today are as follows: Bancassurance: According to IRDA, bancassurance refers to banks acting as corporate agents for insurers to distribute insurance products. Insurer is responsible for manufacturing or underwriting. Banks are serving as distribution channel. India has high saving rate - huge insurance potential. Banks are major players in the financial sector. It enhances complementarities between banking and insurance products. Credit risk can be better managed with insurance. Banks can increase revenue also. Wide ranges of products/services of the banks provide a competitive edge. Bancassurance improves productivity and economies of scale. Currently, almost all the life insurance players are using this channel to reach the customers. Shopassurance: it is the simplest way of distribution of Insurance products through a retail outlet. It is basically selling Insurance products and services by leveraging the vast customer base of retailers and fulfills the retailers and Insurance needs of the customers at the same time. It takes the various forms depending upon the demography, economic and legislative climate of the country. For example, future group, the patron of big bazaar chains is also the partner in the Future Generali life insurance company. Telcassurance: Considering the vast growth in the telecom industry across the length and breadth of the country, telecom distribution will be the one

12 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 417 distribution model to look for in the years to come. Tele-density in India now exceeds 35% of the total population; over 400 mn. people have some form of telephone connection (mobile or wire line). The various distribution channels used in this model are as: Exclusive franchised stores, Non-exclusive mass retail, Micro-savings and insurance, Affinity programs, Loyalty programs etc. 3 Postassurance: it can be defined as using postal network and products to sell insurance products. India has a huge postal network with an enormous number of branches across the country. Postal penetration is almost everywhere in the country, both urban and rural. Indian life insurance companies can take benefit of this already available network to sell their products. This concept has a great future in India. Along with these distribution channels, there are numerous models are in operation today, e.g. selling through agents, direct selling, tele-calling, holding awareness programmes, e-marketing etc. though currently it is mostly agent driven business in coming years, the above mentioned distribution channels will gain ground. Hence, we can say that Indian life insurance companies are providing the best available distribution channels to meet the various needs of the customers. III. PROMOTION This P deals with the various promotional measures taken up by the life insurance companies to educate the consumers. The insurance services depend on effective promotional measures. In a country like India, the rate of illiteracy is very high and the rural economy has dominance in the national economy. It is essential to have both personal and impersonal promotion 3 Various real life models as described by Karunagaran A. details of this article is mentioned in the references section Cover page-1 page Abstract-1 page Full paper-16 pages Tables & figures- 3 pages

13 418 ATHENAEUM 2010 strategies. Due attention should be given in selecting the promotional tools for agents and rural career agents and even for the branch managers and front line staff. They also have to be given proper training in order to create impulse buying. Advertising and publicity, organisation of conferences and seminars, incentive to policyholders, arranging road shows, exhibitions, participation in fairs and festivals, rural wall paintings and publicity drive through the mobile publicity van units would be effective in creating the impulse buying and the rural prospects would be easily transformed into actual policyholders. There are various types of promotion methods available in the market such as: 1. A very common way to promote a Life insurance company is to make the name of the company familiar to others by means of television commercials, handling out pamphlets, hanging banners in populated areas and by providing exciting offers. 2. Telephone marketing is another way. One can see the telephone companies send messages about various offers and they even make phone calls. Web Insurance Marketing is another good strategy to promote insurance policies. 3. Word of mouth, i.e. to listen from the existing customers. 4. Community Life Insurance Marketing is another different way to get promotion and a high recognition for the Life insurance Company. 5. The most crucial thing in insurance marketing is to always speak about unity and honesty while dealing with a business. Above all, the most important promotional strategy is to educate the customers about the details and legal complications of the policies by holding one-to-one meetings. Some of the media strategies adopted by the Indian life insurance sector are as follows: 1. Targeting an ideal mix of medium to high net worth individuals: The consumers most disposed towards buying life insurance. 2. Creative strategy: To get the consumer to re look at Insurance as a means to lead a worry free life and not as a necessary evil. 3. Building image and creating a differential in the most creative and compelling manner.

14 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector Giving the consumer a rational and tangible reason to buy insurance first and secondly from the company. All the players in the market are spending a huge volume of money in promoting and advertising the products and the company itself. But with the onslaught of recession, the companies are cutting costs and have reduced advertising spending. Further, they have moved to contact the potential customer in an individual manner. IV. PRICE This component addresses management of the outlays incurred by customers in obtaining benefits from the service product. In the insurance business the pricing decisions are concerned with: I) the premium charged against the policies, II) interest charged for defaulting in the payment of premium and credit facility and III) commission charged for underwriting and consultancy activities. With a view of influencing the target market or prospects the formulation of pricing strategy becomes significant. In a developing country like India where the disposable income in the hands of prospects is low, the pricing decision also governs the transformation of potential policyholders into actual policyholders. The strategies may be high or low pricing keeping in view the level or standard of customers or the policyholders. The pricing in insurance is in the form of premium rates. The three main factors used for determining the premium rates under a life insurance plan are mortality (deaths in a particular area), expense (cost of processing, commission to agents, reinsurance companies as well as registration) and interest (people would not be willing to invest in insurance business if the interest rates provided by other financial institutions are much greater than the perceived returns from the insurance premiums). The premium rates are revised if there are any significant changes in any of these factors. Any life insurance product should have a clearly laid price structure which can be understood by the consumer. There should not be any hidden cost which is most rampant in India. Now, almost all the companies are moving towards a low-premium era making the poorer sections eligible to buy a

15 420 ATHENAEUM 2010 policy. They are providing the costs and benefits of the policies and justification for the pricing. They are making the products worthy of their buying price. They are also adding lot of add-on benefits to the products to attract the recession-hit cash-strapped customers. V. PROCESS A process describes the method and sequence in which service operating systems work. The process should be customer friendly in insurance industry. The speed and accuracy of payment is of great importance. The processing method should be easy and convenient to the customers. Installment schemes should be streamlined to cater to the ever growing demands of the customers. IT & Data Warehousing will make the process flow easier. IT will help in servicing large number of customers efficiently and bringing down overheads. Technology can either complement or supplement the channels of distribution cost effectively. It can also help to improve customer service levels. The use of data warehousing management and mining will help to find out the profitability and potential of various customer product segments. VI. PEOPLE Understanding the customer better allows designing appropriate products. Being a service industry which involves a high level of people interaction, it is very important to use this resource efficiently in order to satisfy customers. Training, development and strong relationships with intermediaries are the key areas to be kept under consideration. Training the employees, use of IT for efficiency, both at the staff and agent level, is one of the important areas to look into. Here both the customers and the employees are considered as people. VII. PHYSICAL EVIDENCE The appearance of buildings, landscaping, vehicles, interior furnishing, equipment, staff members, signs, printed materials, and other visible cues all provide tangible evidence of a firm's service style and quality. Service firms need to manage physical evidence carefully because it can have a profound

16 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 421 impact on customers' impressions. In this time of global recession, the customers think about the safety of their investments all the time. They get the courage to buy policies by looking at all the physical evidences the company exhibits to them. In this case, size does matter. The customer becomes sure of getting his investment back as he is well aware of the physical assets of the company which are giving a guarantee of the company s financial position. VIII. PRODUCTIVITY AND QUALITY Improved productivity is essential to keep costs under control but managers must beware of making inappropriate cuts in service levels that are resented by both customers and employees. Service quality is essential for product differentiation and for building customer loyalty. The product should be worthy of its buying price. The services quality of the company as well as the qualities of its products should be better than other competitors. Now-a-days, customers keep comparing the services and products of all providers and ultimately, they choose the best service provider whose services and products are value for their money. Through all these elements of the modern services marketing mix, the Indian life insurance companies are trying to get more customers and more business. Though the impact of recession was minimal on the private companies, the L.I.C.I has suffered a lot by losing business and market share to the private players. Hence applying these 8P s in formulating their business strategies, they can fend off the negative effects of the global financial meltdown on their businesses. CONCLUSIONS AND FURTHER SUGGESTIONS Indian life insurance sector has managed to resist the negative impacts of the global financial crisis and kept it to minimum. In the same time, the concept of life insurance for a common man has changed a lot in the last decade. As the global economic prospects are bouncing back to normalcy, the future of life insurance sector holds a great potential for Indian economy. In coming years, more and more private players are going to join the bandwagon making

17 422 ATHENAEUM 2010 the customers the focus of the industry. With the proposal for increased foreign holdings in these companies gaining momentum, one can hope for large capital inflows in near future. But all the parties in this industry have to take care of a perfect marketing strategy which involves all the elements of services marketing mix. From product to productivity, all these elements should be mixed in such a way that the target customers cannot afford to not having the product in their list of purchased items. Applying all the P s discussed in this study (with required proportions) to sell the life insurance products can surely make India the next insurance giant in the coming decade. REFERENCES [1] Lovelock, Christopher H. (1992), Managing Services: Marketing, Operations, and Human Resources (Second ed.). Englewood Cliffs: Prentice Hall. [2] Lovelock, Christopher (2001), Service Marketing: People, Technology, Strategy (Fourth ed.). Upper Saddle River, New Jersey: Prentice Hall. [3] Lovelock, Christopher and Lauren Wright (2002), Principles of Service Marketing and Management (Second ed.). Upper Saddle River, New Jersey: Prentice Hall. [4] Palande P.S., Shah R.S., Lunawat M.L. (2007) Insurance in India: Changing Policies And Emerging Opportunities. New Delhi, Response Books/ Sage Publications [5] Bodla B.S., Garg M.C., Singh K.P. (2004) Insurance: Fundamentals, Environment and Procedures. New Delhi, Deep & Deep Publications Pvt. Ltd. [6] Sinha tapen (2000), Privatization of the Insurance Market in India: From the British Raj to Monopoly Raj to Swaraj. CRIS Discussion Paper Series 2002.X [7] Gholap K.V., Sitaswad Rohit, Khandelwal Puja (2008) Understanding Retailing In Insurance: Shopassurance. Available on scribd.com [8] Karunagaran A. (Winter 2006) Bancassurance: A Feasible Strategy for Banks in India? RBI Occasional Papers, Vol.27, No.3, Pp [9] Asthana Nitish. (May 2009) The Next Frontier: Telcassurance. IRDA Journal, Vol.7, Issue. 5, Pp [10] Zeithaml, Valarie A. and Mary Jo Bitner (2000), Services Marketing: Integrating Customer Focus Across the Firm (2nd ed.). Boston, MA: McGraw- Hill.

18 Applying Services Marketing Mix in Recession Hit Indian Life Insurance Sector 423 WEBLIOGRAPHY licindia.com jccc-ugcinfonet.com economywatch.com scribd.com irda.gov.in swissre.org