PROFILE OF LIFE INSURANCE CORPORATION OF INDIA

Transcription

1 PROFILE OF LIFE INSURANCE CORPORATION OF INDIA INTRODUCTION The present chapter portrays the marketing activities of LIC of India and discusses briefly the business performance of the Corporation during the period before and after liberalization of the insurance sector. An attempt is made to compare the business performance of LIC with that of the private players and the impact of privatization on LIC. Life insurance business in India was being transacted by private companies until As a result of the long felt need and in the interest of insuring public, the life insurance business was nationalized in The nationalization resulted in the establishment of Life Insurance Corporation of India (LIC) by an act of the Parliament. The Corporation was formed and began to function on September1, 1956 by taking over 170 companies and 75 provident societies. The entire initial capital of Rs.5crore was contributed by the government of India. The objective of nationalization was described by the then finance minister, Dr. Deshmukh as to see that the gospel of insurance is spread as far and wide as possible so that we reach beyond the more advanced urban areas well into the hither to neglected rural areas 1. Headquartered in Mumbai, which is considered the financial capital of India, Life Insurance Corporation of India currently has 8 Zonal Offices, 101Divisional Offices, 2048 Branch Offices located in different cities and towns in India. The Corporation has a network of above one million agents for soliciting life insurance business from the public 2. It is the largest life insurance agency in the world. The LIC also transacts business abroad and

2 101 has offices in Fiji, Mauritius and United Kingdom. The Corporation is associated with joint ventures abroad in the field of insurance, namely, Ken- India Assurance Company Limited, Nairobi, United Oriental Assurance Company Limited, Kuala Lumpur and Life Insurance Corporation (International) E.C. Bahrain. As a result of the insurance sector reforms process initiated in India, the monopoly of the Corporation came to an end in The long 44 years of monopoly shows many ups and downs in the business of LIC. The Corporation has been rated as No.1 Company in net worth and net profits and No. 2 in total income in India. Objectives of the Life Insurance Corporation of India The Life Insurance Corporation of India (LIC) was set-up by the Government of India to achieve the following objectives: 3 Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. Maximize mobilization of people s savings by making insurance linked savings adequately attractive. Deploy the funds to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. Conduct business with utmost economy and with the full realization that the moneys belong to the policy holders. Act as trustees of the insured public in their individual and collective capacities. Meet the various life insurance needs of the community that would arise in the changing social and economic environment.

3 102 Involve all people working in the corporation to the best of their capabilities in furthering the interests of the insured public by providing efficient service with courtesy. Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of corporate objectives. Organizational Structure of LIC of India The Life Insurance Corporation Act, 1956 gives broadly the pattern of its organization which is given in Figure 4.1. LIFE INSURANCE CORPORATION OF INDIA BOARD OF DIRECTORS CHAIRMAN MANAGING DIRECTORS Central Office (Mumbai) Zonal Offices -8 Mumbai Hyderabad Delhi Bhopal Kanpur Patna Kolkatta Chennai Divisional Offices Branch Offices

4 103 Figure 4.1. Organizational set up of Life Insurance Corporation of India The Corporation consists of members not exceeding 15 in number appointed by the Central Government. The Chairman is the chief executive of the Corporation. Various committees of the Corporation are constituted under the Life Insurance Corporation Act and the regulations framed there under. General superintendence and direction of the affairs of business of LIC is entrusted to the Executive Committee which would be formed from among its own members not exceeding five. The Chairman of the Corporation is the Chairman of all these committees. The organizational structure envisaged by the Act consists of a four-tier structure. The central office at the top is primarily concerned with the formulation of policies. Below the central office there are zonal offices to assist the central office in the matter of development, planning and review of business and supervision of divisional offices within their jurisdiction. Divisional office is akin to a head office of an erstwhile insurer and is concerned with all activities of the insurer from procurement of new business to settlement of claims. Under each divisional office there are branch offices and suboffices. At the time of nationalization, LIC had 5 Zonal Offices, 33 Divisional Offices and 240 Branch Offices. As on 31 st March 2007, the Corporation has 8 Zonal Offices, 101 Divisional Offices, 2048 Branch Offices and 132 Satellite Offices (SOs) 4. One Divisional Office at Mumbai is functioning exclusively for business under Salary Savings Scheme. MARKETING ACTIVITIES OF LIFE INSURANCE CORPORATION OF INDIA

5 104 A life insurance company s success reflects the consolidated effort of all of its activities. These activities may be arranged into three major functional classifications marketing, investments, and administration. Of these three areas, marketing is the largest in terms of both personnel requirements and costs and is critical to success 5. Insurance marketing is an effort to transform the prospects into actual policyholders 6. The twofold goal of marketing is to attract new customers by promising superior value and to keep current customers satisfied by delivering value added services 7. Ensuring life security to an individual and his family calls for the concerted efforts at four levels, namely; (i) Insurer (LIC of India), (ii) Branch Manager, (iii) Development officer, and (iv) Agent (Intermediary). The duties and responsibilities of different functionaries of LIC of India are briefly described in the following pages. Central Office The Central Office located at Mumbai has mainly a policy making and co-ordinating role. In general, at the Central Office broad policy decisions are taken on the recommendations of the Departmental Heads by the Chairman or the appropriate committee of the Corporation or the Corporation itself. Marketing department of the Central Office deals with the planning of the development of new business, opening up of new offices. All matters relating to development officers and agents are processed by the marketing department of the Central Office, in assistance with the various operating Divisional Offices. The foreign operations cell of the marketing department handles all foreign business of the Corporation. The Corporation mobilizes peoples savings and invests the same according to the investment priorities prescribed by the IRDA Regulations and the LIC

6 105 of India Act, It acts as trustees of the policyholders. It is the duty and responsibility of the Corporation to conduct business with care. Product development and pricing are the important functions of the Corporation. It is the function of the Development Department to develop training programme for branch officials, development officers and agents. Publicity and public relations are also looked after by this department. Zonal Office The Zonal Offices of the Corporation are at Mumbai, Hyderabad, New Delhi, Bhopal, Kanpur, Patna, Kolkatta, and Chennai. Southern Zone comprises of the States of Tamil Nadu, Kerala, Union Territories of Pondicherry and Lakshadweep. A Zonal Office has under its jurisdiction a number of Divisional Offices as well as Branch Offices for effective and better services to the policyholders. The marketing department at the Zonal Office prepares marketing strategy for development of new business. Proposals on sub-standard risk and proposals beyond the limits of the divisional offices are underwritten by the Zonal Offices. It reviews the Divisional Office s budget for various departments, aids and advises Divisional Offices for better services to policyholders, conducts product research, and organizes the training programme for the Development Officers. Divisional Office A divisional office is akin to a head office of an erstwhile insurer and is concerned with all activities of the insurer from procurement of new business to settlement of claims. There are 12 Divisions in the Southern Zone; 8 in Tamil Nadu and 4 in Kerala. The Divisional Offices in Kerala are: (1) Thiruvananthapuram, (2) Kottayam, (3) Ernakulam and (4) Kozhikode. The branches in Kasargod and Kannur districts fall under the jurisdiction of Kozhikode Division.

7 106 The marketing department at Divisional Office supervises the quality of work done in various branches through its various sections. The sales section is entrusted with the functions of product research vis-à-vis the markets, review of branch plans to develop agency force, recruitment of agents, appointment of development officers, opening of branches, allocation of territories between branches, analysis and review of monthly performance of branches, conducting of training programme for Assistant Branch Managers (sales), Development Officers and Agents, deciding cases beyond the branch authority, processing of early claims, etc. As on March 31, 2007, there were 101 divisional offices in India including one salary savings scheme (SSS) division at Mumbai. Branch Office The Branch Office of the Corporation is the main operating office in the sense that this is the only office where sales of insurance products are made and services given. At the time of nationalization LIC had 240 branch offices; the number increased to 2,048 by During the period between 1998 and 2007 no single branch office was opened. But with a vision of providing easy access to its policyholders, LIC has launched as many as 132 Satellite Offices (SOs) during the period from 2005 to These satellite offices, which are attached to the respective parent branches, are basically an extension of the large parent branches for services to policyholders. Processing of new proposals and collection of renewal premium are the main functions of these offices. Each branch is given a specific area of operation and is expected to strictly adhere to the territorial limits for procuring business. New business is brought in by licensed agents, banks under the bancassurance and corporate agents. Issue or renewal of license to agents is made according

8 107 to the provisions contained in the Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, Figure 4.2 depicts the hierarchy of the marketing organization of branch offices. Senior Branch Manager Assistant Branch Manager (Sales) Development Officer (DOs) Direct Agents Agents (RCA & Others) Figure 4.2. The Marketing Organization Hierarchy at the Branch Level The Branch Manager is the chief executive officer of the branch. In large branches, the Senior Branch Manager is assisted by Manager or Assistant Branch Manager (Sales) and Assistant Branch Manager (Administration). Branch manager is responsible for overall performance of the branch. The Assistant Branch manager supervises work of the development officers and direct agents. The branch manager or the assistant branch manager meets prospects along with development officers or agents in case of joint calls. It is the duty of the branch manager to expedite the underwriting process. The branch manager should nourish

9 108 enthusiasm in employees and agents. Preparing performance budgets at the branch level, timely reporting of performance of the branch to Divisional Office, and prompt and unfailing service to the customers are the duties of the branch manager. Development Officers Development officers are the field personnel in the distribution of life insurance products. They create time, place and possession utility to insurance products. They can appoint agents and give the initial training for selling life insurance products. The duties and responsibilities of a development officer shall be: To develop and increase the production of life insurance business in a planned way as far as may be practicable in the area allotted by the Corporation. To guide, supervise and direct the activities of the agents placed under their supervision by the Corporation. To introduce suitable persons to the Corporation for appointment as new agents. To act generally in such a way as to activate existing agents and motivate new agents, so as to develop a stable agency force. To render all such services to policyholders conducive to better policy servicing. To carry out the investigation of claims, revival of lapsed policies and liaison work in connection with the Salary Savings Scheme business. It is the obligation of development officers to ensure that the agents under them conduct their work and / or business strictly in accordance with the provisions of the Insurance Act, 1938 and Rules framed there under, LIC of India (Agents) rules 1972 read with IRDA (licensing of Insurance Agents)

10 109 Regulations, 2000 as amended from time to time and in the best interest of the Corporation. Individual Agents Individual agents are the most important distribution channels in life insurance marketing. The success of an insurance company is highly dependent on the army of agents and brokers 9. The Insurance Act, 1938 defines Insurance Agent as agent licensed under section 42 being an individual 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. Individual agents are classified into Direct Agents and Career Agents. The Corporation has a scheme of career agents to promote the cause of professionalising the agency force. There are two types of Career Agents: (i) Urban Career Agents (UCAs), and (ii) Rural Career Agents (UCAs). UCAs are recruited for the Career Branch at the Divisional Office. To carry out the field operations, the Divisional Marketing Manager appoints career agents and ordinary (direct) agents on the recommendation of the Branch Manager. Direct agent s job is supervised by the Branch Manager or Assistant Branch Manager (Sales) and career agent s job is supervised by the development officer. Career agents are paid stipend for three years and they are given training at the branch office. The regulation regarding appointment, licensing and remuneration of agents are laid in the Insurance Agents Regulations, 2000 of the IRDA Act. As per the Regulation, each person aspiring to be an agent has to undergo practical training of 100 hours in life or general insurance, as the case may be. In case of composite agent, he/she should have completed at least 150 hours of practical training in life and general insurance business combined.

11 110 The training has to be conducted by an institute approved and notified by the IRDA. An agent is required to do a Minimum Business Guarantee (MBG) of 12 policies (12 lives) in a year. If he/ she can t achieve the minimum guaranteed business, agency is terminated. There is no limit regarding the number of career agents that a development officer can recruit and supervise. Similar is the case of direct agents. The functions of agents laid down in Rule 8 of the Life Insurance Corporation of India (Agents) Rules 1972 are as under 10. Every agent shall solicit and procure new life insurance business which shall not be less than the minimum prescribed in these rules and shall endeavour to conserve the business already secured. In procuring new business, an agent shall take into consideration the needs of the prospect and his premium paying capacity. The agent should make all reasonable enquiries in regard to the lives to be insured before recommending proposals for acceptance. He should bring to the notice of the Corporation any circumstances which may adversely affect the risk to be underwritten. For this purpose, Agent s Confidential Report and in all cases of large sum proposed, a Moral Hazard Report (MHR) is obtained from agents. An agent shall not interfere with any proposal introduced by any other agent. Every agent shall maintain contact with all persons who have become policyholders of the Corporation through him and shall advice every policyholder to effect nomination or assignment in respect of their policy and offer necessary assistance in this behalf.

12 111 The agent shall endeavour to ensure that the policyholder remits premium within the days of grace, and prevent lapsing of a policy or its conversion into a paid-up policy. Render all reasonable assistance to the claimants in filling claim forms. As per the Rules, agents are strictly prohibited: From advancing premium on behalf of proposers or policyholders. From printing, publishing or circulating any leaflets, handbills or advertisements, etc. relating in any way to the Corporation even at their own cost. From allowing or offering to allow directly or indirectly commission or rebate to a proposer or life assured. From collecting any moneys from proponents or policyholders. They may however collect deposits towards the first premium and renewal premium, and remit the same to the Corporation immediately. The total number of agents on roll of the Corporation was 11,03,047 as at 31 st March, 2007 against 10,52,283 as at 31 st March Agents get commission at the prescribed rate in respect of policies canvassed by them. The rate of commission is 2 percent for single premium and on regular premium policies it varies between 5 to 25 percent and depends on type of policies 11. Life insurance salesmen, unlike other salesmen, receive renewal commission on their past business. Renewal commission is paid for continued service the agent is expected to render to the policyholders. Unlike the case of other commodities, insurance customers do not normally go in search of agent or the product. The agent has to find out people, meet them, discuss with them, and convert the prospect in to customer. Different steps followed in insurance selling process are given in

13 112 figure 4.3. A sale results when the salesman takes the prospect along with him through well defined steps. These steps are not separate and clear-cut but blend into one integrated process if it can be so called. Prospecting Pre-approach and Approach Interview Solicitation Policy Preparation Underwritting Acceptance Offer- Proposal Figure 4.3. Life Insurance Selling Process Source: Yogakshema, Vol. IX, Issue 1, January Over the years on account of the trust and the huge network of agents that has been built, LIC has come to occupy a special place in the hearts of its policy holders. The impact that the agent will make on his prospect on the basis of his personality, knowledge and presentation skills will be crucial and may finally help him to close the sale. The agent will also have to work from the point of view of the best interest of the customer; his own interest will have to get relegated to secondary place 12. Table 4.1 shows the growth in the number of active agents and their average business during the last twelve years from 1996 to The total number of agents on the roll of LIC was 11,03,047 as at as against 10,52,283 as at Whereas the number of active agents was 10,28,047 as at as compared to 9,87,689 as at

14 113 Year Table 4.1 Number of Active Agents and their Average Business No. of Active Agents Increase/Decrease (in %) Average Business (Rs.) ,13,897-10,08,286 Increase / Decrease (in %) ,33, ,64, ,58, ,39, ,98, ,59, ,83, ,28, ,43, ,56, ,44, ,88, ,02, ,89,718 (-) ,03, ,80,651 (-) ,80,836 (-) ,29,881 (-) ,87, ,73, ,28, ,52, Source: LIC Annual Reports from 1997 to 2005, chairman s review 2006, and Insurance Master, June It is evident from Table 4.1 that the number of active agents increased from 5,13,897 to 10,28,047 at a growth rate of percent over a period of twelve years from 1996 to At the same time, the growth in number of active agents was not steady during the same period. The growth rate fluctuated between a high of percent in 2003 and a low of (-) 0.02 percent in The All India productivity of active agents showed an overall growth of percent over a period of twelve years from 1996 to The growth in productivity of agents was also not steady during the period under study. It fluctuated between a high of 57 percent in 2006 and a low of (-) percent in The reason for the highest negative growth in productivity in 2003 was mainly due to the sharp increase (21.26 percent) in the number of active agents over the previous year and the strong presence of private players in the market. The year 2006 showed the highest increase in productivity over a period of twelve years. This was

15 114 because of the aggressive marketing strategy followed for LIC s golden jubilee product Bima Gold and active participation of many agents in the campaign. Up on analysis of Table 4.1, one could find that the increase in number of active agents was not followed by proportionate increase in productivity. Alternative Channels Any sales process which does not involve the tied channels will be called an alternative channel 13. Channels play a pivotal role in marketing ; they perform a number of vital distribution functions. Firms rely on the marketing channels for generating customer satisfaction and for achieving differentiation over competitors. Channels are thus a vital source of competitive advantage. Agents were the only mode of distribution of life insurance products in India till Today a number of innovative alternative channels are being offered to consumers. The alternative channels became popular in India with the emergence of private players with foreign collaboration 14. Some of them are Bancassurance, Brokers, Corporate Agents, Internet Marketing, Tele Marketing, etc. The figure 4.4 gives a clear picture of the marketing channels of LIC. Marketing Channels of LIC Individual Agents Alternative Channels Bancassurance Corporate Broker Agents s Figure 4.4. Marketing Channels of LIC

16 115 Bancassurance Bancassurance in its simplest form is the distribution of insurance products though banks distribution channels. The concept of bancassurance originated in France and the first bancassurer started its operation way back in the 1970s. The success of bancassurance in France attracted the attention of banks and insurers all over the world and it spread subsequently in other parts of Europe, USA, Australia, and Asia 15. However, the concept was introduced in India in the year Basically three models are in vogue in India as shown in figure 4.5. Under the referral arrangement the bank simply refers the customers to the insurance company sale person who in turn closes the deal. The banks allow access to the insurance company for use of its data base of customers. Under the corporate agency model the banks take up the corporate agency of the insurance company. The system of corporate agency is similar to the individual agency, the only difference being the agency is in the name of bank. Under the Joint Venture model the bank enter into a joint venture with insurance company and launches an entirely new insurance company. The bank may enter in to an agreement with a local insurance company or Have tie-up with a foreign company. In India, the joint venture system is adopted by major private players such as ICICI Prudential, Bajaj Allianz, HDFC Standard,etc. The corporate agency model of bancasurance is adopted by LIC of India. Under this arrangement, the Corporation has entered into memorandum of understanding with 39 banks as at BANCASSURANCE Referral Arrangement M O D E L S Corporate Agency Joint Venture

17 116 Figure 4.5. Bancassurance Models in India Source: The Insurance Times, October Corporate Agents Many companies, firms, non-banking finance companies, cooperative societies, etc., are also taking corporate agencies to market insurance products. As on 31 st March 2007, LIC had tie up with 628 corporate agents across the country. The Kerala State Financial Enterprises Limited and District Co-operative Banks function as the corporate agents of LIC in Kannur and Kasargod districts to sell life insurance products. Brokers The institution of brokers in India is in a nascent stage. But brokers, who are professionals in the area of insurance, will be acting on behalf of the customers, rendering quality advice to them not only on the products but also on the life insurance company through which they can take such products. There were 103 brokers in the marketing network of LIC as on 31 st March, Table 4.2 reveals the percentage of new business premium underwritten by the intermediaries of LIC and private players during the four year period immediately following the year of introduction of bancassurance in India. Table 4.2 New Business Premium Underwritten through Various Intermediaries (In percent)

18 117 Year Individual Agents Bankers Others* LIC Private Players LIC Private Players LIC Private Players Source: Insurance Chronicle, August 2006 and IRDA Annual Report * Others include Corporate Agents other than Bankers, Brokers and Referral arrangements. The contribution of bankers which was a meager volume (0.11 percent) in increased to 1.24 percent in in the case of LIC. In the case of private players it increased from percent to percent during the same period. The individual agents dominated in the filed throughout the period, but their contribution decreased from percent in to percent in in the case of LIC, whereas it increased from percent to percent in the case of private players during the same period. The share of brokers and corporate agents other than bankers was insignificant in the case of LIC, whereas it decreased from percent in to percent in in the case of private players. Issues in Marketing Life Insurance Products There are many issues in marketing life insurance products. Some of the core issues are: - Product development and management, market segmentation, marketing channels, and marketing strategies. The issues

19 118 regarding marketing channels were discussed in the preceding pages. The other core issues are elaborated in the following pages. Product Development and Management In marketing, a product is anything that can be offered to a market that might satisfy a want or need. When used as a business term, a product can be either a physical, tangible good or service. A product is both what a seller has to sell and what a buyer has to buy 17. The policy is termed as product in life insurance business. Since, in insurance business the companies are engaged in selling services, and therefore, services are their products 18. Product management involves developing strategies and tactics that will increase product demand over the products life cycle. When an individual or an organization buys a policy from insurance companies, not only policies are bought but agent s assistance, advice and prestige of insurance companies and the facilities of claim are also bought 19. New product development starts with idea generation the systematic search for new-product ideas. Major sources of new-product ideas include internal sources, and external sources such as customers, competitors, agents and others. Using internal sources, the LIC find new ideas through formal research survey and development. Meetings at branch office and divisional office level with development officers, agents, and customers, etc. will be helpful in understanding their needs and requirements which will lead to development of new product ideas. Practices developed by the marketing wing will encourage generation of

20 119 new ideas which can be screened and brought up to the Zonal Office (Z.O.) and Central Office (C.O.). Procedures would also be evolved which would facilitate interaction between marketing and actuarial wing so that thorough consideration is given to feasibility of proposals vis-a-vis customer needs and pricing. Life Insurance Corporation offers a basket of schemes to meet the various needs of an individual and his family. Only individual plans are available for sale from branch offices through the intermediaries. The group schemes and social security schemes are sold through Divisional office. Under group scheme, LIC offers life insurance protection to various groups such as employer-employee, professionals, co-operatives, weaker sections of the society, etc.

21 120 L I C S P R O D U C T S I INDIVIDUAL PLANS 1. Basic Life Insurance Plans a) Whole Life Scheme b) Endowment Scheme 2. Term Assurance Plans Anmol Jeevan-I, New Bima Kiran. 3. Plans for Children Jeevan Anurag, Komal Jeevan, Jeevan kishore, Jeevan Chhaya, Marriage/Education, Deferred Endowment. 4. Pension Plans Jeevan Nidhi, Jeevan Akshay, New Jeevan Dhara, New Jeevan Suraksha, Future Plus. II GROUP SCHEMES 1. Group Term Assurance Schemes 2. Group Term Insurance in lieu of EDLI 3. Group Gratuity Scheme 4. Group Super Annuation Scheme 5. Group Savings Linked Insurance 6. Group Leave Encashment Scheme 7. Group Mortgage Redemption Insurance III SOCIAL SECURITY SCHEMES 1 Janasree Bima Yojana (JBY) 2 Shiksha Sahayog Yojana (SSY) 5. Plans for Handicapped Dependents Jeevan Adar, Jeevan Viswas. 8. Scheme for Deposit Holders of Banks 6. Joint Life Plan Jeevan Sathy. 7. Periodic Money Back Plan Jeevan Rekha, Jeevan Surabhi, Jeevan Bharathi 8. Unit Linked Plans - Bima Plus, Future Plus, Market Plus, Money Plus. 9. Other Plans. Fig 4.6. LIC s products

22 121 Figure 4.6 depicts popular plans developed by LIC. The object of Social Security Scheme is to provide insurance protection to the rural and urban poor below the poverty line or marginally above it. Under the Janashree Bima Yojana, 50 percent of the premium is subsidized from the Social Security Fund maintained by LIC and the remaining 50 percent is contributed by members / Nodal agency / State Government. Products launched by LIC before IRDA set up were 127. Products cleared by IRDA up to are 46 plus 8 rider benefit products. Unit-Linked Products of LIC Unit-Linked policy is a new generation product which became popular in Indian market after the entry of private players. Internationally, till 1960s, life insurance policies were sold as traditional or non-linked policies. A unit-linked plan provides an opportunity for the discerning investor to benefit from the returns available in the capital market without going for direct investment in the capital market. In ULIPs, the investment element, expenses and benefits are to the account of the policyholder 20. During the period from 2000 to 2007, LIC introduced five unit linked policies such as Bima Plus, Future Plus, Jeevan Plus, Market Plus, and Money Plus. Future Plus is a ULIP pension plan. The Bima Plus and Future Plus ULIPs were closed for sale in the year The Corporation grew at a rate of 23 percent in FPI during the preliberalisation period (i.e., from to ), whereas during the competition period from to , the average growth rate was 41 percent. The private sector has also performed well, growing at a rate of 105 percent 21. The analysis of the market performance indicates two specific reasons for this growth. conventional products to ULIPS. One, the market has shifted from Two, introduction of pure protection

23 122 products and riders and add-ons have changed the market. About 80 per cent of the premium income of private players was from ULIPs, whereas it was about 20 percent in the case of LIC in the year From onwards, LIC also has shifted from conventional products to ULIPs and about 45 percent of the premium income was from this segment. Life insurance companies give much importance to ULIPs because these products impose very little liability on companies compared to conventional products. As per the IRDA rules, an insurance company need to keep 1.5 times of its insurance liability as solvency margin. In the case of conventional products the entire premium amount is used for insurance coverage, whereas only 20 percent of ULIPs premium amount is used for insurance coverage. Therefore, companies are in a better position to make available insurance products with low capital. But, focusing exclusively on these could impair growth and long-term profitability for India s life insurers 22. Market Segmentation for LIC The market for life insurance business is found vast, the potential policyholders are large in number and their needs and requirements are not identical. If the market segmentation is done in a right fashion, the marketers find it convenient to identify the level of expectations of users. The main purpose of market segmentation is to know the market. Unless the Corporation knows the needs and requirements and identifies the level of expectations of the policyholders, it is difficult to formulate a sound marketing strategy.

24 123 SEGMENTS REGION WISE Sub-segments Central Zone Northern Eastern Southern Western AREA WISE Urban Area Rural Area HOUEHOLD SECTOR Salaried class Self employed Retired employees Wage earners INDUSTRIAL SECTOR Public sector Private sector Co-operative sector INSTITUTIONAL SECTOR Universities, Colleges, Schools, Institutes TRADE SECTOR Small business Big business GENDER WISE Men, Women AGE WISE Kids, Teens, Youth, Grey Figure 4.7. Market Segmentation for LIC The segmentation would help insurance professionals in making the promotional measures creative which would be very much instrumental in sensitizing the prospects. The advertisement appeals, messages, campaigns can be made proactive to the receiving capacity of the target audience. The sales promotion measures can also be innovated to get a positive response. The segmentation would help insurance companies for better product designing, identifying the agents for various segments and preparing those agents to cater to their needs. Segment wise collected

25 124 data simplifies the task of branch manager, especially while identifying a profitable segment 23. Marketing Strategies of LIC Just like manufacturing businesses, good service firm use marketing to position them strongly in chosen target markets. Since services differ from tangible products, they often require additional marketing approaches. Successful service companies focus their attention on both their customers and their employees. This suggests that services marketing also require internal and interactive marketing 24. The Corporation effectively train and motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction. The Corporation provides in house training facilities and external training opportunities to its employees. Officers in the executive cadre were trained at MDC, Mumbai, Insurance Institute of India located at 25 centres throughout India, and NIA, Pune. Depending on the training needs, LIC also expose their agents and development officers to different External Training Institutes (ETIs) for specialized training. During the year , MDC conducted a total of 87 programmes and training was imparted to 2,230 officials. Development officers and agents were trained at 8 Zonal Training Centres, 25 Sales Training Centres, 101 Divisional Training Centres, and 520 agents Training Centres. In addition to the above, meeting of managers at different levels, development officers and agents were used to be conducted frequently, at branch offices and divisional offices to evaluate the business performance and services provided to customers. One of the hottest strategies in marketing today is Customer Relationship Marketing (CRM). CRM in life insurance is about understanding the policyholders needs and encouraging this knowledge to increase sales

26 125 and improve service quality. CRM requires a team approach to serve the policyholders, which makes it easier to take care of the needs and expectations of the policyholders. At the branch offices of the Corporation, there is one Customer Relations Executive to understand the policyholders needs and behaviours. This officer is required to hold at least two meeting of customers; one before 31 st January and second before 30 th September of every year. At the divisional office, the Manager Planning is given the additional charge of Customer Relations Manager. The Manager (Planning) at the divisional office has to prepare the business budget for the branches under the control of the division, after conducting market survey. But in actual practice, the budget is prepared by adding a certain percentage (20% to 25%) to the previous year s actual performance. Designing and development of products take place at the Central Office of the Corporation. The marketing strategies for the products identified to market are also developed at the Central Office. But selection of banks and other corporate agents, signing Memorandum of Understanding (MoU) with them, etc. is done at the divisional office. Advertising and other promotional activities, excepting erection of banners and boards are done at the Zonal office level. The marketing strategies of LIC are influenced by various factors. Changes in the external and internal environment such as the Government policies, financial markets, competitors policies, customer expectations, regulatory mechanisms, technological developments, global scenario of insurance market, etc. influence the marketing strategy of the Corporation. BUSINESS PERFORMANCE OF LIC With the opening of the insurance sector in 1999, more than a score players entered into the insurance market. These new players have grown steadily over a period of time and captured more than 20 percent of the

27 126 market by the end of March LIC during the last 52 years of its existence has undergone several trials and tribulations, faced ups and downs in business growth but managed to grow and metamorphose into a giant in the industry. In the light of the above, the business performance of LIC viewed from different dimensions like new business in terms of number of products, sum assured, first premium income of products marketed, growth of rural new business, etc. is presented in the following sections. New Business Number of Products (Individual Insurance) Marketed To spread life insurance at a reasonable cost is the first and foremost objective of the Corporation. New business is a pointer towards the spread of message of insurance among those people who have never availed of the benefits of life insurance as well as the existing policyholders. LIC has its insurance business in India as well as outside India. The business outside India is negligible compared to the business in India. The new business performance of LIC in terms of number of products marketed both in and outside India for a period of twelve years from to is depicted in Table 4.3. The number of products marketed in India rose from lakhs in , which account for percent, to lakhs in , which constitute percent of total products marketed. Number of products marketed under new business individual insurance has grown at a rate of percent over a period of 12 years from to But the annual growth rate of products marketed fluctuated between a low of (-) percent in and a high of percent in The number of products marketed out of India was a meager 13,345 products in , which constitute 0.12 percent only, and it rose to 15,792 in , which constitute 0.04 per cent of total products marketed by LIC. The annual growth rate of business outside India also

28 127 fluctuated between a low of (-) percent in and a high of per cent in Table 4.3 Number of Products Marketed under New Business-Individual Insurance Annual Growth (in No. of Products Marketed Year Trend %) In India Outside (%) Total In India Outside India India ,10,20,825 13,345 1,10,34,170 (99.87 %) (0.12 %) ,22,68,476 12,296 1,22,80,772 (99.89 %) (0.11 %) (-) ,33,11,294 13,904 (99.89 (0.11 %) 1,33,25, ,48,43,687 13,356 (99.90 %) (0.10 %) 1,48,57, (-) ,69,76,782 12,648 (99.93 %) (6.07 %) 1,69,89, (-) ,96,56,663 7,911 (99.95 %) (0.05 %) 1,96,64, (-) ,24,91,304 8,695 (99.95 %) (0.05 %) 2,24,99, ,42,68,416 10,359 ((99.94 %) (0.06 %) 2,42,78, ,64,56,320 11,562 (99.56 %) (0.04 %) 2,64,67, ,18,17,967 13,807 (99.94 %) (0.06 %) 2,18,31, (-) ,15,59,177 13,370 (99.96 %) (0.04 %) 3,15,72, (-) ,81,92,783 15,792 (99.96 %) (0.04 %) 3,82,08, Source: Annual Reports of LIC of India ( to ) and Insurance Master, June Note: Figures in parenthesis shows percentage to total. The relatively low annual growth rate of products marketed in India in and the negative growth in could be attributed to various factors like the withdrawal of tax benefits on single premium bonds in , the imposition of 5 percent service tax on premium payments made which was subsequently withdrawn, the fall of interest rates and the

29 128 resultant withdrawal of guaranteed return products. The drought situation during also had adversely affected the business of LIC. The introduction of more and more Unit Linked Products by private players, decline in number of agents, severe competition from new players and strike by development officers as a result of withdrawal of certain benefits enjoyed by them previously, resulted into negative growth of business in the year The spurt growth of percent in can be attributed to: (i) aggressive marketing strategy adopted by the Corporation for marketing its golden jubilee product Bima Gold, (ii) concentration on unit linked products, and (iii) recovery of agriculture sector. Sum Assured of products Marketed Up to the year , LIC gave much emphasis for both sum assured and premium income of products marketed. But from the year onwards greater emphasis was being given for premium income and number of policies marketed. The sum assured under new business for the period from to is depicted in Table 4.4. During , the sum assured under new business in India was Rs.51, crores, which accounts percent while it was Rs crores outside India, which constitutes 0.49 percent only. Sum assured of business in India rose to Rs.2,92, crores (99.86 percent) in , while it was Rs crores (0.14 percent) outside India. In case of sum assured of products marketed in India, the performance of the Corporation has been quite satisfactory during the period under study except for two years, i.e., and when there was a fall in the amount of sum assured.

30 129 Year Table 4.4 Sum Assured under New Business - Individual Insurance Sum Assured (Rs. in Cr) In India , (99.51 %) , (99.55 %) , (99.51 %) , (99.61 %) , (99.70 %) ,24, (99.85 %) ,92, (99.89 %) ,79, (99.83 %) ,98, (99.83 %) ,79, (99.77 %) ,83, (99.85 %) Outside India (0.49 %) (0.45 %) (0.49 %) (0.39 %) (0.30 %) (0.15 %) (0.11 %) (0.17 %) (0.17 %) (0.23 %) (0.15 %) Total Growth Annual Growth (in %) Trend Outside (%) In India India 52, , (-) , , (-) , (-)4.58 1,24, (-) ,92, ,79, (-) ,99, ,79, (-) ,84, ,92, (99.86 %) (0.14 %) 2,93, Source: Annual Reports of LIC of India ( to ), Chairman s review , and Insurance Master, June The annual growth rate of sum assured in India fluctuated widely between a low of (-) 9.67 percent in and a high of percent in The annual growth rate of sum assured out side India fluctuated between a low of (-) percent in and a high of percent in Even though there was fall in business in and 2004-

31 130 05, the Corporation improved its performance in as is evident from the fact that the annual growth rate showed percent increase over the previous year. This can be attributed to the massive sale of LIC s golden jubilee policy Bima Gold and concentration on unit linked products. Premium Income from New Business Premium is the fragmented value of the sum assured payable continuously at regular intervals to the insurance company until maturity of the policy. The quantum of premium income collected is the most important indicator to assess the working results of an insurance company 27. Premium income can be classified into two: (i) first year premium, and (ii) renewal premium. Premium collected on the new business is called first year premium and premium collected on business in force is called renewal premium. First Year Premium Income (FYPI) collected is taken to assess the growth of a life insurance company 28. Premium income of LIC from new business for the year to is depicted in Table 4.5. Premium income of the Corporation has shown tremendous growth during the period under study. The first year premium income which was Rs.2, crores in increased to Rs. 44, in at a growth rate of 1474 percent. But the annual growth in first year premium income was not consistent throughout the period under study. FYPI growth fluctuated between a high of 121 percent in and a low of (-) percent in FYPI showed an increasing trend through out the period under study except the year

32 131 Table 4.5 Premium Income from New Business Year Premium (Rs.in crore) Growth Trend (%) Annual Growth (in %) , , , , , , , , (-) , , , , Source: Annual Reports of LIC ( to ), Chairman s review , and IRDA Journal, May Analysis of Table 4.5 further reveals that premium income of LIC increased by more than double in the year , i.e., the year immediately after the entry of private players and in But it is right to mention here that the Corporation was not able to keep this pace for next four years after , as is evident from Table 4.5. Rural New Business The urban markets and rural markets in India are diverse in nature and have distinguished characteristics. Further wide disparity exists between the per capita income and literacy rate, among other things, in these two market segments. The marketing policy of LIC aims at covering both urban and rural markets. Statistics show that insurance penetration in rural India is very low, at 20 percent 29. Spreading the idea of insurance among the poor, illiterate or semi-literate community is not easy. requires a great deal of sustained effort. Whether offering insurance to lowincome people is a viable business proposition is one major issue that must be tackled 30. Rural sector obligation in case of life insurer in 1 st, 2 nd, 3 rd, 4 th, and 5 th year is 7, 9, 12, 14, and 16 per cent respectively of the total number of It

33 132 policies written in rural sector 31. The rural new business is divided into two parts on the basis of time period. After the formation of IRDA in 1999, it changed the definition of rural area. This lead to a huge change in the figures related to number of products and sum assured of the rural market after Year to forms the first part and to constitutes the second part of the rural new business. Table 4.6 Growth of Rural New Business Year % Growth Rate Share of Rural New No. of Sum Assured Business to Total New Policies Sum (Rs. in cr.) Policies Business (in %) (in lakh) Assured Policies Sum Assured , , (-) , , , , , , (-)66.1 (-) , (-) , , (-) , Source: Annual Reports of LIC of India. The performance of rural new business in terms of number of products and sum assured presented in Table 4.6 reveals that the rural new business of the Corporation has increased continuously from Rs.21,571 crores under lakh policies in to Rs.44, crores under lakh policies in with percent growth in number of policies and percent growth in sum assured. But the growth declined to (-) percent in number of policies and percent in sum assured from to The annual growth rate of number and sum assured of products marketed during the six year period before opening of the sector to private players showed an increasing trend, but it fluctuated widely during the post-liberalization period.