The life insurance sector was opened to private players
who kicked off operations about two years back. A lot
was expected from these private players who were to give
Life Insurance Corporation (LIC) of India, till then a
monopoly, a run for its money.
two years is a bit too early to conclude whether there
has been any perceptible change in the way life insurance
business is carried out it, it is worth looking at the
changes that are slowly, but surely, going to take place.
the first place one has to admit that LIC has changed,
and how. LIC, under the stewardship of then chairman G
N Bajpai decided to get their act together and presented
a strong riposte to the new players. Almost overnight,
this public sector behemoth became the epitome of efficiency.
The branches no longer functioned like any another government
office, red-tapism was cut and the company became customer-centric.
The result was that in the first year of the opening up
of the industry, private players could not garner even
5 per cent of the business. LICs performance in
the second year, too, was strong and it suffered just
a small dent in the market share.
point to be noted is that in these two years, life insurance
business registered record levels of growth a clear
indication that India is an underinsured country and there
is tremendous scope for growth.
is not to say that the private players got their calculations
wrong and that LICs dream run will continue forever.
Insurance business is after all a marathoners run
and there is a long way to go before the new players reach
critical mass. Of course, none of the new players have
the infrastructure that LIC has, mainly a wide distribution
network and an 8-lakh agent strength.
the insuring public in his heart of heart feels that his
money is safe with LIC. And it is. LICs payment
obligations are guaranteed by the Indian government by
an Act of Parliament while this safeguard is not available
to the new players.
Another factor that is weighing heavily in the minds of
the insuring consumer is the beating which investors took
in the case of organisations like Unit Trust of India
and with Industrial Development Bank of Indias high-yielding
bonds. LIC, in this regard, is perceived as clean and
new players do not seem to enjoy this advantage despite
the fact that all of them have collaborators who are of
reputed pedigree with deep pockets.
factor which weighs in the mind of the insuring public
is that insurance is seen more as a tool for savings and
for obtaining tax incentives and not as a tool for risk
protection. A look at LICs policy portfolio shows
that just about 18 per cent of their policies are protection
policies while the savings policies are about 60 per cent.
are the barriers that the new players have to overcome
to achieve success in this business. Till now the new
players appear to remain unfazed. They point out that
their collaborators are big names in the international
scene who have the money, technology and experience to
take on LIC.
far as the agent network is concerned, it is well known
that just about 20 per cent of LICs agents account
for 80 per cent of the business. They do not have to build
up a force as large as LIC has. Moreover, with the government
permitting banks and brokers to enter this sector, tie-ups
with banks and brokers will enhance their distribution
The good news for the new players is that a recent survey
conducted by the Federation of Indian Chambers of Commerce
shows that the mindset of the Indian insuring consumer
is changing. The survey revealed that a majority of the
respondents said they insure for protection and that takes
precedence over the investment factor.
reason why the savings schemes sold more under LICs
regime is that the agents commission on these schemes
is much higher; this made them push these schemes. Thus,
the consumer basically got what the agent had to sell
which was not necessarily what he needed that is
psychological factor is also important. Life insurance
is after all about mortality and no consumer likes to
be reminded that one day he has to face death. A very
tricky issue, which needs to be handled with a great degree
of skill. Existing agents are not sufficiently trained
in this aspect of selling.
new players hope to set these anomalies right. With a
better-trained sales force and given the changing in the
ageing scenario, the new players are betting on protection
and pension schemes which LIC had missed out on and had
till now taken a second place in the life insurance sector.