CHAPTER VI INSURANCE MARKETING AND DISTRIBUTION. The life insurance industry in India has a great potential to develop. It

Transcription

1 CHAPTER VI INSURANCE MARKETING AND DISTRIBUTION INTRODUCTION The life insurance industry in India has a great potential to develop. It can develop only if it accepts the problems and challenges and makes use of the significant opportunities available in the country. Particularly, the marketing strategy of insurance companies ultimately leads to a change aimed at merger and consolidation, the efficiency of the insurance system and also wider and efficient coverage. Marketing of life insurance service is considered a difficult area to be seen. It is also a more challenging phenomenon in India. The insurance selling process is required to be transparent and create educative value to the prospects. Only a professional approach to the marketing programs will serve the purpose of dealing positively with the consumers. Insurance is a business of sacrifice. This is mainly due to the fact that the sacrifice of the customer by way of paying premium is real and present. The benefits of insurance are recovered after a long period and hence it is not attractive to people. Insurance is like sand when it is bought and gold when it is realized. Given a choice, people would postpone the decision to buy insurance as they do not realize its benefit at the time it is offered. They have to be convinced 1. Insurance marketing must be considered as a positive trend by the consumers since it develops the habit of buying insurance products to protect the health of their families and also their assets at a future date. The strategies of insurance marketing are to be designed in such a way that they attract the different sections of the society by identifying the need of the 1 Neelam C.Gulati, Principles of Insurance Management, Excel Books, New Delhi, 27, p

2 prospects and also the designing of the suitability of the product. The marketing strategies should be designed for maximization of insurance gains to the customers rather than minimization of insurance risk. It needs larger investment of both time and effort besides talented marketing personnel as it is a difficult job to undertake. The marketing of life insurance is universally considered a matter of highest priority at all levels in different institutions. New marketing methods occupy a significant place among top management intelligentia. These include an aggregation of the salesmanship of the marketing personnel and the professional approach to the marketing problems by the top management. It should contemplate the concept of insurance positively by convincing the customers to make their life happier. Buying insurance by a customer needs to be a matter of their longevity. The insured will be understood through marketing that life is not about how many years he lives but about how he lives is of paramount importance. There is no product differentiation in insurance business. One company offers today may be offered by some other company tomorrow. To reduce the level of competition among insurance companies, the insurers have to stand efficiently in the area of communicating their products early to the customers through insurance marketing. The liberalization of Indian life insurance sector has created many changes in the market place. This results in massive inflow of foreign brands and also a revolutionary change in the consumer behavior. These changes require a movement of the insurance sector from production-driven marketing to the professional marketing. The market development taken place by liberalization results in many changes in the intermediary role of the distribution channels. The insurance arena has been shifted to a marketoriented environment and hence the insurance system has been adjusted to 255

3 the new changes and also major challenges of insurance distribution. Focus on the distribution channel is an important pre-requisite to an efficient sale of insurance product. The Indian insurance industry has been strongly growing for the last few years. To ensure improved penetration of insurance, the distribution system of insurance has to be more focused. And also the well established training and educational organizations should play a significant role in educating and motivating people. This provides good opportunities to improve the delivery mechanism and also tap the vast market. Marketing requires intriguing creative implying updating knowledge on the markets with global perspective which calls for availability of enough right data or information at the hands of the operating offices. It needs appropriate comprehension of markets 2. Insurance selling should not be regarded as a mere act of selling insurance policies. But, it must be regarded by the policyholders as a habit of buying insurance policies to protect the health and assets of their families at a later date. Hence, the goal of distribution management is to maximize sales, attract maximum market share, tap new markets, find out the customer needs and preferences and above all promote customer satisfaction. ROLE OF DISTRIBUTION Distribution of insurance products and efficient service delivery has been an important element of insurance business. The development taken place in the insurance sector is made possible only with the efficient role played by the distributors in delivering insurance products. A significant feature of the complete process of distribution and service delivery of insurance product is that the multiple distribution channels have yielded many service benefits not only to the company but also to customers. The process 2 Satish S.V. Life Insurance Marketing A Phenomenon, Southern Economist, February 15, 29, p

4 of channel diversification and expansion has accelerated in India since insurance liberalization. Many insurers have intensified their efforts for establishing and developing cost-efficient and result-oriented distribution strategies. Due to the emerging convergence and globalization, the entire insurance industry is undergoing rapid changes. The lower middle class customers are more concerned with savings and consequent tax planning and hence rely on insurance. Brokers, agents, direct agents and bancassurance offer good services to these customers. The rural and semi-urban customers are generally the average working class population. They can afford to save a little amount. They have little knowledge of insurance. Only agents can reach these customers. The corporate customers and institutional investors are interested in liability insurance, group insurance and healthcare insurance. They are largely situated in metropolitan centers and cities. They required altogether a different distribution strategy. Most of these customers are cost-conscious and wellinformed. Corporate agents, brokers and direct marketing are ideally suitable to attract these customers. Consequently from a single channel industry i.e., the individual agent, the industry, at present, has embraced a few well established channels and continues to experiment with a few more. In the light of severe competition amongst insurers, the new distribution strategies require complete professionalism and flexibility towards facing marketing challenges. A welltrained and plain-speaking distributor has the ability to be the best brand ambassador for any insurance player. Market expansion, consumer loyalty, consumer preferences and competition amongst life insurers will initiate innovations in the distribution segment. This ensures good capacities and capabilities on the part of distributors so that there are no practices of mis- 257

5 selling and misrepresentation of the facts. Although there is discernible difference in the marketing styles of the present day insurers, a great qualitative improvement is yet to be perceived. The marketing initiatives of the new companies have certainly helped to enhance insurance awareness in the country. 3 Insurance is a business of keeping people s hopes, aspirations and expectations through a life insurance contract. It is more important for insurance companies to be transparent at the time of selling. The policy documents should be as simplified as possible with minimal fine print 4. The distributor is the first line representative of the life insurance company and assumes greater responsibility in initial underwriting of the policies. The distributor should understand the needs of the prospective customer and recommend suitable policy that satisfies his needs. As a result, the business retention ratios will improve and the persistency ratio will increase. The distributor is well trained and equipped in identifying properly the needs of the customers. He requires to be well-versed in all matters relating to his job for favour of a proper matching between the needs of the customer and also the service delivery. A distributor is the vital link in the policy life cycle. His role begins the time he starts prospecting till settlement of claims. A life insurance agent is the key distributor. However, insurance brokers and other intermediaries also play a key role in this process 5. The insurers, at present, require immense distribution strength and tremendous manpower to reach out to the present huge customer base available for insurance service in our country. The future of distribution for insurance products is a brave new world and it will require 3 David Chandrasekharan, Marketing of Life Insurance Have Things Really Changed?, IRDA Journal, May, 29, p Anjana Agarwal, Emphasis on Trust Grievance Management in Insurance, IRDA Journal, October, 211, p Baradhwaj, C.L., Arresting the Trends Frauds in Insurance Industry, IRDA Journal, June, 211, p

6 both courage and judgment to lead an organization into the rapidly unfolding realm of possibilities 6. The insurance companies have to concentrate mostly on nontraditional and more innovative channels and also multi-level delivery systems. Under these systems, like in the West, the customers can buy an insurance product from any bank, mall, post office, internet cafes, etc. The distribution systems have been influenced significantly by cost pressures. Besides, competition for saving amounts of the consumers is also intensifying. An efficient and effective distribution strategy for life insurance products should also be mostly customer-centric. It should represent both the customer and the company goals. Customer retention marketing is a process whereby marketers look at building a long term association with their customers. This involves a continuous process of interaction with the customer at any point of time. It needs to understand the needs of the customers and provide products and services accordingly 7. One of the major challenges of insurance marketing is to identify which distribution method fits best and suitable to the business. The decisions relating to distribution strategies must be made dependent upon what the other insurers are doing. It is very common that every business insurance prospect expects to receive customized service from his insurer. But, busy agents can hardly afford any time or expense to present an individualized proposal each time. A little extra care and attention to some often overlooked talents can fill this gap and guide the insurer close to the sale 8. 6 Chari, V.G. Insurance A Re-look at the Distribution Strategy, Insurance Chronicle, March, 25, p Teena Makhija, Retention Marketing The Key to Business Performance, The Journal of Insurance Institute of India, Mumbai, January-June, 28, p Shulman, Allen L., Nine ways to get personal when selling Business Insurance, Insurance Chronicle, March, 25, p

7 Most of the private insurers are very much trying for a right channel mix for reaching the potential customers. It is the distributor who makes the difference in terms of the quality of advice for choice of product, after-sale service and settlement of claims. The distributors should become trusted financial advisors for the customers and trusted associates for the insurers. The new companies are looking for well educated, knowledgeable individuals with an interest in insurance marketing. At present, insurance companies are moving from merely selling insurance to marketing an essential financial product. New players are finding expensive and timeconsuming to bring up a distribution network of good and cost effective standards. Usage of alternate channels will help, to some extent, bring down the costs of distribution and thus, benefit the customers and insurers both. Channel conflicts may arise in some cases. But, those must be regulated to the best advantage of the customer and the insurer. The distribution strategy can t be taken up in isolation. Major elements like, the organization structure, systems, processes, employees, organizational cultures are to be taken care of by the insurer for designing the distribution strategy. The insurance companies consider this distribution channel profitable due to low customer acquisition cost, quicker reach to untapped markets, introduction of innovative products and administrative convenience and suitability. The quality of service rendered by the distributor should be made the key parameter for efficient distribution management and also persistence. INSURANCE ADVERTISING At present, insurance advertisements take up a lot of space in television or print media. The emphasis on insurance advertising is on creative and accent on awareness. The communication in advertising is modern, young, approachable and conveying the difficult product offering. The 26

8 insurance selling activity usually reaches a peak around March and it needs to be taken into account by the insurers in spending marketing budget on insurance advertising. The visual is always more effective and universal. The ICICI Prudential is the first private insurance company to recognize and use the power of TV advertising with its Sindoor campaign in 21. The retirement solution campaign of the company with the tagline Retire from work not life also has attracted a good number of customers. SBI life has 63 per cent business coming from bancassurance. Its advertisements are mostly confined towards saying people that they can buy insurance from the bank. Their advertisements consist of branch merchandising. It is more about point-of-purchase type of advertising. LIC has contemplated celebrity marketing a segment noted for the presence of high net worth individuals. Life insurance products have accounted for about 88 per cent of overall insurance advertising expenditure with Life Insurance Corporation topping the list of advertisers. LIFE INSURANCE OFFICES AND THEIR DISTRIBUTION The growth of the life insurance industry is mainly influenced by the rapid pace of insurance spread and reach to the common man. This is more reflected by an increase in the number of insurers during the last decade. Each insurer uses to cover many parts of the country. This expansion is clear from the number of life insurance offices established during the period 9. Table 6.1 gives information on the number of life insurance offices both in the public and private sector units during the years 2-1 to It may be observed from the Table that there is an increase in the number of offices established by both the sectors. There is a consistent increase in the offices of the LIC. But, with regard to the private players, the increase in the 9 As on 31 st March, 211, there are 24 life insurance companies in the country with a total branch network of 11,

9 number of offices has registered a rapid pace. With the old guidelines on ULIPs, many private companies did 9 to 95 per cent of their business on ULIPs. Only a small and a negligible percentage of the total business is done on traditional policies. This is also made possible because of a significant increase in the number of private players who have entered into the insurance market over a period of time. The total number of offices has increased dramatically during 27-8 showing a growth rate of per cent. A major portion of this expansion is in the private sector whose offices have been doubled i.e. from 372 to But, with regard to an increase in the offices of LIC, there is a modest and stable increase of around 1 per cent i.e. from 2,31 to 2,522 offices. But, during the years 28 to 21, the private insurers had to close down some of their offices as a measure of rationalization and reduction in their operating expenses. The negative growth rate is recorded with regard to private life insurance offices during 29-1, i.e per cent, as the IRDA has formulated new guidelines on ULIPs and this has made the private players to restrict their business as ULIPs are not profitable to them. The agents are also not willing to sell more ULIP policies as their commission rates have been significantly decreased by the Regulator. As there is a spur in the ULIP business of the private sector insurance units, there is a need to rationalize branch net work and hence, some branches by the private players had to close down some of their operations. As there is a consistent business on both the traditional and the ULIP policies by the LIC, the new guidelines on ULIPs have not much impact on its total business and no such rationalization of branch network entertained by the private insurers is needed by the LIC. 262

10 As regards the market share of life insurers in the total number of life insurance offices, the private players share has increased from.59 per cent to per cent and the LIC s share has declined from per cent to 27.4 per cent during the period. Over the earlier years, the number of offices of private insurers has almost doubled. Their market share in the total number of life insurance offices established has increased from.59 per cent in 2-1 to per cent in But, the LIC s share has declined from per cent to 27.4 per cent during the period. Table 6.1 GROWTH RATE AND MARKET SHARE OF LIFE INSURANCE OFFICES OF LIFE INSURERS DURING 2-1 TO 29-1 Year LIC Private Sector Total Number % Number % Number % 2-1 2, , ,19 (.18) 2,191 (.5) 2,196 (.23) 2,197 (.5) 2,22 (1.5) 2,31 (3.65) ,522 (9.6) ,3 (2.14) (792.31) 254 (118.97) 416 (63.78) 84 (93.27) 1,645 (14.6) 3,72 (86.75) 6,391 (18.4) 8,785 (37.46) ,36 (4.87) 2,445 (6.3) 2,612 (6.83) 3,1 (14.89) 3,865 (28.79) 5,373 (39.2) 8,913 (65.88) 11,815 (32.56) 3,25 8,768 12, (7.26) (-.19) (1.72) Note: Figures in brackets are annual growth rate percentage % indicates market share of the insurers Source: Compiled from the Annual Reports of IRDA

11 Statistical Analysis: i. Mean, Standard Deviation and Skewness Particulars Number of Years Mean Standard Deviation Variance Skewness Range Minimum Maximum LIC Growth Rate Private Sector Growth Rate LIC Market Share Private Sector Market Share The above table indicates that the average percentage growth rate of life insurance offices for LIC during 21-1 is 4.7 and the Private Sector is It shows that the average number of life offices of Private Sector is higher than LIC. The standard deviation for LIC is 6.77 whereas Private Sector is It connotes that LIC has stability and consistency in establishing offices over the Private Sector. The positive skewness values are 1.76 and 2.85 for LIC and also for Private Sector and the growth rates of which are stated positively skewed distributions. As regards market share, it presents that the average number of life insurance offices for LIC is and Private Sector is It shows that the average market share of Private Sector is higher than LIC. The Standard deviation for LIC is whereas Private Sector is during the period. It shows that there is stability with regard to market share of the LIC rather than Private Sector. The positive skewness values of LIC and Private Sector, i.e., 1.6 and.94 indicate that their market shares are positively skewed distributions. 264

12 The relevant line graphs of the growth rate and market share of the LIC and Private Sector are given below: Growth Rate (Per cent) LIC -2 Private Sector YEA R Figure A: Line Graph of Growth Rate of LIC and Private Sector Number of Insurance Offices YEAR LIC PRIVATE SECTOR Figure B: Line Graph of Market share of LIC and Private Sector ii. Regression Analysis Market Share Dependent Mth Rsq F Sigf b b1 LIC Sector LIN PRIVATE Sector LIN Independent Variable: Year 265

13 Regression Equations a) The linear trend forecasting equation is LIC (Market Share) = *Year The regression coefficients are interpreted as follows: The Y intercept b = is the fitted trend value reflecting the predicted mean of life insurance offices for LIC during The slope b 1 = indicates that the life insurance offices are predicted to increase by an average of offices per year. The significance value of F(.4) is smaller than.5. Then the independent variable(time: Year) do a good job explaining the variation in the dependent variable (LIC Market Share).This table displays R squared (.666). It is the proportion of variation in the dependent variable (LIC Market Share) explained by the independent variable (Year) in the regression model. b) The linear trend forecasting equation is Private Sector (Market Share) = *Year The regression coefficients are interpreted as follows: The Y intercept b = is the fitted trend value reflecting the predicted mean of life insurance offices for private sector during The slope b 1 = indicates that the life insurance offices are predicted to increase by an average of offices per year. The significance value of F (.) is smaller than.5. Then the independent variable( Time: Year) do a good job explaining the variation in the dependent variable (Private Market Share).This table displays R squared (.834). It is the proportion of variation in the dependent variable (Private Sector Market Share) explained by the independent variable (Year) in the 266

14 regression model. Hence, it is clear that for both the sectors, the significance value is less than.5 and the R squared value is close to Number of 31 insurance Offices Observed Linear Year Figure C: LIC Market Share Regression Plot Number of Insurance Offices Observe d Linear Year Figure D: Private Sector Market Share Regression Plot The above Regression Plots clearly show that the LIC and Private Sector are fitted to the linear mathematical model. The observed figures are closely related to the linear trend values. To reach the linear mathematical line, both the insurers have to maintain an increase, on an average, 16 offices for LIC and 185 offices for Private Sector in future every year. Another remarkable feature for the life insurance offices is their distribution over different areas of the country. The growth in life insurance offices is observed to be not confined mainly to metropolitan centers and 267

15 cities. The insurers have opened their branch offices in semi-urban and rural areas as a way to spread insurance service to these areas. This indicates clearly that the insurance industry has widely campaigned the insurance service in all areas and developed accordingly. Table 6.2 shows the details on the area-wise distribution of life insurance offices as on 31 st March, 21. The total number of offices established by the life insurers is 12,18. Out of which 8,768 offices are established by the private sector insurers and the remaining 3,25 offices are established by the LIC. As regards the number of offices established in metro and urban areas taken together, both the public and private sector players spread only a 28 per cent their branches. But, there is an increase in the number of offices in semi-urban and rural areas of both the sectors of the insurance players mainly to tap the insurance market in these areas. Consequently, around three-fourths, i.e. 72 per cent of the branches are established by the LIC and also the private sector units in these areas. Further, for meeting competition from the public sector giant, LIC and also for promoting the business in untapped areas, the private sector insurers also have established a good number of branches in semi-urban and rural areas. Table 6.2 Area AREA-WISE DISTRIBUTION OF LIFE INSURANCE OFFICES No. of offices AS ON 31 ST MARCH, 21 LIC Private Sector Industry Percentage to total No. of offices Percentage to total No. of offices Percentage to total Metro Urban Semi-Urban Rural TOTAL Sources: IRDA Annual Report,

16 INDIVIDUAL AGENTS The agents, a traditional and a customary form of insurance distribution, are proved to be very useful in building long-term relationships with the customers and occupied a major share of the total insurance market. They contribute significantly to its growth by making the insurance services available to every nook and corner of the country. With a gigantic strength of agents, the life insurance industry is the only financial wing to reach a good number of villages in the country. There are over 3 lakh agents who are active and these agents contribute to about 8 percent of the insurance industry s sales. The insurance agent has been the bedrock in the marketing of life insurance. He has been the link between the insurer and the insured. He has the prime duty of explaining the concepts, terms, conditions and benefits of taking an insurance policy. He has to identify the needs of the customers and select the suitable insurance products to them. All insurers have recognized the importance of agency network and they are encouraging professionalism and greater competency among agents. Under Sec.2(1) of the Insurance Act, 1938, an insurance agent means an agent licensed under section 42 who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business, including business relating to the continuance, renewal or revival of policies of insurance 1. The code of conduct for agents makes its clear that his role is not confined to soliciting and procuring insurance business for his company. He has to service the policies sold by him. With many life insurance companies operating in the market and selling almost similar products, the most distinguishing factor of the companies is the competency level of the agents. 1 Shri Krishna Laxman Karve, Principles of Life Insurance, Himalaya Publishing House, Mumbai, 29, p

17 Hence, agents training and development occupies a prominent place for increasing their competence. To accomplish the responsibility of educating and training of agents, most insurance companies have a highly organized training and development programme. The training programme covers IRDA regulations and the strategies used to protect against risk. During the programme, trainers and managers are equally responsible for a new agent s development. The curriculum is mostly designed to develop positive habits that form the basis of success of these programmes. The best practices and also the sales practices of the insurance industry form the basis of the curriculum. An agent requires to provide a good advice to the customer. He has to offer competent and professional advice right from tax planning to investment in insurance. The Life Insurance Market Research Association (LIMRA) is the best known international organization aimed at supporting and improving the marketing function of life insurers through research. The certificate programmes are available for agents and managers. The 1-hour training agenda is only a one-time intervention. In many cases it is not sufficient to meet the ongoing training needs. The agent is a self-disciplined, selfmotivated and an independent operator. He has to be well-equipped with the best practices of training and knowledge and adequately backed up by life insurers commitment to strengthen the marketing channel. He has to transform himself from a sales advisor to a financial expert. The nomenclature of insurance agent is changed as an insurance advisor with changing times. He has a prominent role in our society. The prescriptions of the regulator, like imparting training, code of conduct for the agents, etc. is to be implemented in its true spirit at all levels in the best interests of the industry. Some sort of self-discipline and regulation among all 27

18 the existing agents is very vital and this can be made possible by giving them suitable periodic training. There has been a lot of change in the approach of the insurance agent. The agent in the past established informal contacts with potential buyers and mostly depended on referrals from friends and family members. But, the new age and professionally-dominated companies insist on professional and often aggressive measures on the part of the sales personnel. The agent should be a man of trust and confidence for both the parties. The insurer appoints agents mainly to create business based on the varied advantages of different insurance products. The average attrition rate among insurance agents in our country is nearly 5 per cent. The primary cause for this high attrition is the large-scale poaching in a competitive insurance environment. While agents are an integral part of the company, the agent attrition causes greater inconvenience not only to the customers but also to the industry. For life insurers a high rate of attrition amongst agents is a significant challenge. The high attrition is a result of a short-term approach. Very often, people who have an immediate set of references are recruited and licensed as advisors. But, a lesser thought is given to whether they will consider insurance sales as a long term career option 11. Further, many agents join the insurance agencyship with enthusiasm and anxiousness. Once the potential customers such as close relatives, friends and neighbours are exhausted, meeting the minimum requirement of bringing insurance business proves very difficult. When the rejection starts, the new agents have to face hardship and failure. Then, the attrition of agents begins. Sustenance of agencyship requires constant networking and acquiring new relationships regularly for his business. This requires a lot of discipline. 11 Shanai Ghosh, Persistency Challenge The Bottoms-up Approach, IRDA Journal, September, 211, p

19 Insurance companies believe that adequate training to agents will help in solving the problems in some measure. As the agency network is a dominant distribution channel, the life insurance industry places a very high emphasis on improving knowledge, productivity and retention of agents. This network plays an important role in creating awareness, motivating purchase and rendering other important insurance services. New players also need support of at least a limited agency or advisory network for their service delivery. In many cases, the agent had not misinformed the customer, but did not explain the implications of the policy terms. This results in unethical practices at the bottom level. The gap between customer needs and their risk management through insurance can be filled by ethical practices of agents and other sales personnel. Traditionally, the life insurance industry depends mostly on the agency distribution force. Most of the companies follow the traditional route of marketing through agents. In case of private insurers, their nomenclature is changed and called insurance advisors. The success of LIC with its agency network is proved exemplary. Table 6.3 shows the information on the growth rate and market share of the number of individual agents of life insurers during the years 2-1 to The year 22-3 has an abnormal growth rate in the number of agents in both the sectors. As the authorities have granted licenses to agents to operate in the rural areas, there was a significant growth of insurance business in the country and provided lucrative employment opportunities to the youth of the country. But, there was a negative growth rate in the number of agents in 24-5 due to the reason that the IRDA issued revised guidelines for licensing of individual agents. Some restrictions were placed by the regulator on the recruitment of agents and also their on online training. As 272

20 on 31st March, 21, there were about 3 lakh agents registered with the life insurers. LIC had over 14 lakhs and the private companies had about 16 lakhs. Table 6.3 GROWTH RATE AND MARKET SHARE OF THE NUMBER OF INDIVIDUAL AGENTS OF LIFE INSURERS DURING 2-1 TO 29-1 Year LIC Private Sector Total Number % Number % Number % 2-1 1,12, , ,15, ,42,68 (291.83) ,222 (1,15.35) ,76,92 (312.13) ,47,45 (114.2) ,397 (167.7) 8.8 1,38,82 (117.82) ,41,597 (41.61) ,15,22 (135.48) ,56,817 (49.87) ,53,634 (-73.64) ,27,616 (-4.7) ,81,25 (-69.9) ,72,2 (33.47) ,49,478 (95.49) ,21,48 (49.92) ,3,47 (133.7) ,9,152 (256.81) ,93, ) ,93,744 (8.22) ,26,748 (49.5) ,2,492 (26.45) ,44,856 (12.66) ,92,579 (2.4) ,37,435 (16.54) ,2,87 (4.31) ,75,476 (-1.7) 52.9 Note: Figures in brackets are annual growth rate percentage % indicates market share of the insurers Source: Compiled from the Annual Reports of IRDA 29,78,283 (1.39)

21 Statistical Analysis: i. Mean, Standard Deviation and Skewness Particulars Number of Years Mean Standard Deviation Skewness Range Minimum Maximum LIC Growth Rate Private Sector Growth Rate LIC Market Share Private Sector Market Share The above table shows the average percentage of growth rate of number of individual agents of LIC during 21-1 which is For Private Sector, it is It indicates that the average percentage of growth rate of individual agents for Private Sector is higher than the LIC. The standard deviation for LIC is whereas Private sector is It shows that the LIC has stability in the appointment of individual agents. The positive skewness values of LIC and Private Sector are recorded as 1.29 and 2.65 and hence their growth rates are stated positively skewed distributions. The average number of individual agents of LIC is and the Private Sector is It shows that the Private Sector average market share is higher than LIC. The standard deviation for LIC is whereas Private Sector is It is meant that both the sectors are having relatively the same position with regard to their stability in the market share. A negative skewness value, i.e., -.39 indicates that the LIC s market share is negatively a skewed distribution. A positive skewness value of.689 indicates that the Private Sector s market share is a positively skewed distribution. 274

22 The relevant line graphs of the growth rate and market share of the LIC and Private Sector are given below: Growth Rate (Per cent) LIC -1-2 Private Sector Year Figure A: Line Graph of Growth Rate of LIC and Private Sector 2 Number of Insurance Agents LIC Private Sector Year Figure B: Line Graph of Market share of LIC and Private Sector ii. Regression Analysis Market Share Dependent Mth Rsq F Sigf b b1 LIC Sector LIN PRIVATE Sector LIN Independent Variable: Year 275

23 Regression Equations a) The linear trend forecasting equation is LIC (Market Share) = *Year The regression coefficients are interpreted as follows: The Y intercept b = is the fitted trend value reflecting the predicted mean of the number of individual agents of LIC during The slope b 1 = indicates that the number of individual agents are predicted to increase by an average of agents per year. The significance value of F (.22) is smaller than.5. Then the independent variable(time: Year) do a good job explaining the variation in the dependent variable (LIC Market Share).This table displays R squared (.52). It is the proportion of variation in the dependent variable (LIC Market Share) explained by the independent variable (Year) in the regression model. b) The linear trend forecasting equation is Private Sector (Market Share) = *Year The regression coefficients are interpreted as follows: The Y intercept b = is the fitted trend value reflecting the predicted mean of the number of individual agents of Private Sector during The slope b 1 = indicates that the number of individual agents are predicted to increase by an average of individual agents per year. The significance value of F(.) is smaller than.5. Then the independent variable( Time: Year) do a good job explaining the variation in the dependent variable (Private Market Share).This table displays R squared (.834). It is the proportion of variation in the dependent variable (Private 276

24 Sector Market Share) explained by the independent variable (Year) in the regression model. Hence, it is clear from the regression analysis that both the sectors have contributed a significance value which is less than.5 and the R squared values are close to 1. Number of Insurance Agents Observe d Linear Yea r Figure C: LIC Market Share Regression Plot 2 Number of Insurance Agents Observed -1 Linear Yea r Figure D: Private Sector Market Share Regression Plot The above Regression Plots show that the LIC and Private Sector are fitted to the linear mathematical model since the figures observed and collected are closely related to the linear trend values. To reach the linear mathematical line, both the LIC and Private Sector insurers have to maintain, 277

25 on an average, an increase in the number of individual agents by and respectively per year to maintain stability in business. The performance of an agent is reflected by his new business performance. Table 6.4 shows information on the new business performance by individual agent during 23-4 to Over the years, there is a significant shift away from the individual agency channel. This is made possible because of the emphasis given by the insurers on alternate channels. The new business premium procured through individual agents has come down to per cent in 29-1 from per cent in But, the share of individual agents in the new business premium of LIC has come down marginally from per cent in 23-4 to per cent in It is very clear from the Table that in LIC, the role played by the individual agents in new business performance is significantly dominating. But, in private insurance companies, the earlier share of the individual agents in the new business, at present, is shared by the corporate agents and through direct selling. But, the private insurers share was recorded as 68.8 per cent in 26-7 due to the reason that the private players have been providing added value to individual agents as a way to expand the market initially. Table 6.4 NEW BUSINESS PERFORMANCE BY INDIVIDUAL AGENT DURING 23-4 TO 29-1 (in Percentage) Year LIC Private Sector Total Source: Compiled from the Annual Reports of IRDA. 278

26 MDRT The Million Dollar Round Table (MDRT), an international association of life insurance and financial services professionals, was established in 1928 and has got members from all over the world. The MDRT membership has got tremendous value as it helps insurance advisors and consultants to build trust and bonds with customers, acquire new capacities and capabilities and also use the MDRT Logo. The members have good interaction with other high performing insurance agents across the world and share experiences. But, a high registration fee and low awareness are the major hurdles to increased membership. Some insurers sponsor only a few of their top agents by paying the membership fees and sponsoring the trip to the USA for attending the international convention. The MDRT qualification is the highest honour for insurance agents and the qualified agents can participate in the World Conference to be held in the US in June. The five-day convention is slated for June at California. Though thousands of agents qualify for the MDRT, a small number of agents attend the convention every year. They were denied visas for attending the international convention due to several reasons. Further, the costs are also too high. The MDRT membership of the insurance agents created an atmosphere of self-education by the agents and it is an encouraging trend towards informed selling and marketing methods. SBI life insurance has been ranked number-1 life insurer across the globe for the year 21 by the MDRT members. This is the second consecutive year in which the company has stopped MDRT. In 21, SBI life has 2,94 MDRT members, up from 2,677 in 29. SBI life is followed by the US New York life and Korea s Samsung life insurance in the rankings. The LIC of India is ranked 4 th with 1,218 members. 279

27 BANCASSURANCE Bancassurance is meant selling insurance products in the banks under a single window. In 198, bancassurance started in France and spread its wings over middle European countries and Asia. Bancassurance, a French term, simply denotes using banking channels to sell insurance products. By allying with a bank of good repute, the insurer can improve its own public image. Bancassurance enables the insurer to establish a relationship early in customer s life, as individuals open bank accounts at a much earlier age than they buy insurance 12. Bancassurance has played an enormous role in India as banks are offered a fee-based income for selling insurance products in addition to their responsibility. RBI and IRDA favoured bancassurance channel as many life insurers are considering commercial banks as their main distribution channel. This needs smooth flow of information between banks customer database and insurance company. Bancassurance is a combination of banking and insurance business. Bancassurance communication is expected to tangibly increase in India. The tie-ups and post-liberalization of insurance companies have increased its significance 13. Private insurers have gained most from the bancassurance channel which has played a significant role in the manner in which insurance is sold. Subsequent to the liberalization of the insurance sector, the IRDA permitted in 22 banks to enter the areas of bancassurance. On the distribution side, a pure distribution tie-up with the bank by the insurance company is considered as a corporate agent. This corporate agency model enables the banks to earn higher incomes with very little investments like 12 Sreesha, Ch. and M.A.Joseph, Bancassurance: A Case of SBI Life Insurance, Southern Economist, May 1, 21, p Ravi Kumar, V.V., The Emerging Structure of Bancassurance in India, Insurance Chronicle, December, 25, p

28 time, training and licensing. Hence, it is considered a profitable model for the banks in India. Bancassurance is an important distribution channel which is making significant impact in terms of revenue to the company because this tie-up ensures efficient distribution and delivery of the product at lower cost. Lower operation and administrative cost of the insurers in bacassurance in comparison with other channels was also the other factor for its higher importance and persistency level. The sale of insurance products by banks is proved more successful in the case of those banks that have an insurance wing of their own that are marketing the insurance products. The motives behind bancassurance vary. For banks, it is a means of product diversification and a source of additional fee income. Insurance companies see bancassurance as a tool for increasing their market penetration and premium turnover. The customer sees bancassurance as a bonanza in terms of reduced price, high quality products and delivery at doorsteps. Actually, everybody can be a winner here. 14 It would be a win-win solution for all the stakeholders. Bancassurance 15 distribution, at present, is a well established distribution phenomenon in the Indian life insurance market. After liberalization of insurance sector, almost all banks, including private, public, foreign, co-operative and regional rural banks have taken to distribute life insurance products. Sales by banks have grown faster than other distribution channels for private life insurers. The best practices in bancassurance distribution are developing a long-term relationship between the bank and the insurer and also evolving a joint bancassurance vision and assume 14 Neelamegam, R. and Pushpa Veni, Bancassurance An Emerging Concept in India, The Journal of Insurance Institute of India, Mumbai, January-June, 28, p The opposite of bancassurance is assurbanking. It is the sale of bank products, manufactured by the insurer s own bank, through the insurer s distribution channels. By and large, banks have been more active in insurance than the insurance companies into banking. 281

29 ownership of the sales process by the bank and the insurer. Under this distribution channel, the insurer makes use of the vast net worth of the bank branches and its customer base which is very important raw material for life insurance business. At present, a bank is permitted to tie up with only one insurer each from the life and non-life segments as a corporate agent. The IRDA is now likely to take this up to two or more. The panel has recommended allowing each bank to sell products of at least two life and two non-life insurers. From a bank s view point, the proposed move is likely to result in higher fee-based income. This is a more commercial proposition for banks and insurance companies. But, IRDA is very critical of banks with regard to welfare of policyholders. The IRDA came out with draft guidelines for the bancassurance business, under which insurance companies will be allowed to partner with different Banks and Non-Banking Financial Companies in different States for selling their products. The success of bancassurance in India is that these banks need not look outside their own captive customer base to sell insurance. Further banks represent a symbol of faith and trust where the customer puts his hard earned money. So, the same customer obviously trusts the bank for buying life insurance 16. The proper implementation of bancassurance still faces some problems such as poor manpower management, lack of sales culture, insufficient product promotion and insufficient incentives. Commitment and cooperation from the top management, understanding demand for new products and being adjustable to changes, development of necessary skills and expertise, best utilization of the existing customer base and imparting 16 Nalini Prava Tripathy, Bancassurance in the New Millennium in Nalini Prava Tripathy and Prabir Pal, Insurance Theory and Pracitce, Prentice-Hall of India Private Limited, New Delhi, 27, p

30 adequate training to bank people in selling insurance products are the important contributing factors to the success of bancassurance in India. A study titled Lapsation and its impact on Indian Life Insurance Industry conducted by the IRDA has revealed that bancassurance channel has a higher level of persistency among all distribution channels employed by private insurers. It has 53 per cent persistence rate. The vast reach, trust and customer loyalty to a particular bank is behind the persistency rate in bancassurance channel. The study has also revealed that the lapsation rate was as high as 47 per cent in the life insurance industry. Table 6.5 highlights information on the new business premium per corporate agent (banks) during 23-4 to The percentage share of corporate agent (banks) in the new business premium increased marginally to 1.6 in 29-1 as against 1.3 in Amongst other channels, banks increased their share in new business premium from 1.57 per cent to per cent underwritten by private insurers. The LIC has procured their new business premium through banks marginally up to 1.64 percent from.11 per cent during the period. Table 6.5 NEW BUSINESS PREMIUM PER CORPORATE AGENT (BANKS) DURING 23-4 TO 29-1 (in Percentage) Year LIC Private Sector Total Source: Compiled from the Annual Reports of IRDA. 283

31 BROKERS IRDA has created a new category of agents called brokers in terms of IRDA (Insurance Brokers) Regulations, 22. There are three types of brokers. A direct broker arranges for the placement of insurance of clients with insurers. He can be a composite broker also. A re-insurance broker authorizes to place reinsurance business of insurers with re-insurer. A composite broker authorizes to handle both direct and reinsurance business. With the liberalization of the insurance sector, a new link to the present distribution channel needs to be included i.e., the broker. He is an intermediary who acts as a consultant to the customer in many areas like identifying the risk needs of the customers, selecting the best product to meet the needs of the customer, adopting the latest technology available in the market, facilitating the consumers in the process of concluding the insurance contract. Broking companies are the institutional agencies. The companies concentrate on the spread of life insurance policies. They work on similar lines of direct marketing, mostly depending on the data base from referrals. Brokers are permitted to sell products of more than one insurer. They play a very important role both in selling life insurance products and also in servicing of life insurance claims. The brokers are not merely participating in the price but would need to make quality submissions to the insurers conveying all the material and nonmaterial aspects of the risk to be covered. He can contribute more effectively by collecting all the relevant information that will lead to the underwriter being able to give an appropriate and fair rate. This will require the broker to understand the clients requirement in totality. They help clients determine their exposures and structure of their insurance programmes. 284