Market VS Market Expansion....

Post-reform Industry Performance
How did the industry evolve in the last three years since the introduction of reforms? In 2000-01, the year in which entry of private sector ushered, six new private sector players, all of them joint ventures with renowned global players (except Reliance), registered with IRDA and started operations. Since then, two more private players entered the fray taking the total number of private players to eight.
The growth in the general insurance business during the above period is captured in Table 1. The total business in terms of gross premium income has gone up from Rs.123.8 billion in 2001-02 to Rs.157.6 billion in 03-04 (annualised) at a compounded annual growth rate (CAGR) of 15.7 per cent over the two-year period. The compounded growth for the public sector players was an unimpressive 9.3 per cent in the same period. The ÊGR for the private players was over 120 per cent, but is not extraordinary given the low base of Rs.4.6 billion in 2001-02.
The compounded growth of the industry (15.7 per cent), when viewed in the backdrop of excellent growth in the auto sector (and in turn motor insurance) and the economy, does not appear to be up to the mark. Discussions with the industry executives revealed that all the players were focused on gaining business from large institutional customers and were involved in cut-throat competition to gain market share. Mr. V. Jagannathan, Chairman and Managing Director, United India Insurance Co. wrote that4
'a major cause for concern is reports of unhealthy practices creeping into the market place for business procurement.'
Does this annual growth of about 15 per cent recorded in the general insurance industry since reforms appropriately reflect the insurance potential of India? It does not seem so, especially when compared with a much more mature industry such as banking which witnessed over 20 per cent growth during the same period. Also, more significantly the non-life insurance density in India in terms of premiums per capita in USD has not grown at all between 1999 and 2001, remaining at USD 2.4.

UNTAPPED POTENTIAL STILL REMAINS UNTAPPED
India is one of the least penetrated markets in terms of general insurance (see Table 2). Non-life insurance premium in India as per cent of GDP stands at 0.56 per cent and per capita premium at USD 2.4, which is starkly low even when compared to other developing economies like Indonesia, Brazil and China. With growth tapering off in the developed economies, global majors are keenly interested in large markets with untapped potential such as India and China.
However, a key point which appears to have been ignored by all the players so far is that the bulk of the potential is in the retail segment. India's market potential is in the estimated 250 to 350 million insurable people who lack any insurance or even insurance awareness for that matter. The fact that all the existing players have been ineffective in tapping the retail potential is evidenced by the stark reality that retail premiums accounted for just 8 to 10 percent of total premium in India, while the figure in developed countries is 70 percent!5

EXPAND THE PIE
If all the existing players fight for a share of the same pie, eventually they will be left with nothing but the crumbs! The urgent need is for expansion of the pie. In the words of P.B.Ramanujam6, Managing Director, GIC, "The (Indian) market pie is too huge. Come one, come all! There is enough and to spare." However, for these words to come true, all the existing general insurance players should make efforts to develop new markets (both in terms of new clientele and new geographical areas) and increase the size of the pie instead of fighting for the same set of institutional accounts.

STRATEGIES FOR MARKET EXPANSION
General Insurance industry players could follow one or more of the following broad strategies for expanding the market.

Diversify the Product Range
The new private sector players, when they started operations, quickly launched products that enabled them to compete with the incumbent public sector players. Many of these products were targeted to meet the needs of large institutional clients. The retail products that were launched too were the standard products in the areas of health, travel, home protection and so on.
Companies need to launch products based on detailed market research to identify latent needs of the Indian consumer and specifically designed to fulfil those needs. Some of the new private sector players have recently attempted to do this (See box on ICICI-Lombard General Insurance Co.) and this needs to gain much more momentum. The key objective that needs to be kept in mind, while designing and launching products, is the number of new customers and business that they are likely to bring under the net. Given the low percentage of the total premium that premium from retail products constitute in India, the need of the hour is a large number of new, innovative retail products. Companies' understanding of the needs of the Indian consumer and their ability to design innovative products to meet those needs is likely to emerge as a significant sustainable competitive advantage.

Expand the Reach

• i) Broaden the distribution channels:
  Most insurance companies, the world over, reach their customers through a network of intermediaries such as agents, brokers and banks. The distribution channels being tried by general insurance players in India, apart from agents, are bancassurances (distribution through banks' branch network), direct marketing and so on.
  Even if a company develops a suite of innovative products designed to fulfil the needs of a wide-ranging set of customers, it cannot grow its business unless it develops a strong and far-reaching distribution network. In a vast and diverse country like India, developing a wide-spread distribution network is a very challenging task and may take many years of effort. However, once such a network is developed it would become a rare and inimitable resource that is very hard to compete with.
  Innovative distribution strategies need to be pursued by involving intermediaries who already have a presence in rural and semi-rural areas and possess a knowledge-base of the consumer needs. ICICI Lombard has tied up with Way2Wealth, a leading investment consultancy firm, to market its range of general insurance products. One can also learn from the experience of the success of Micro Credit in India7 which was achieved by reaching India's poor through tie-ups with non-governmental organisations (NGOs).
• ii) Expand the geographical reach:
  Another way of expanding reach is by means of the companies' own physical distribution network. This is a slower strategy, but has many unique advantages; the primary one being the ability to directly interact with the customer and understand his/her needs better. In India, Tata-AIG General Insurance Co. is one such company that prefers to develop its own branch network and is planning to expand its branches from 11 cities at present to about 20 to 25 cities in one year.
  As far as reaching rural and semi-rural areas are concerned, all the players appear to be viewing it as a necessary evil and more as a statutory requirement that needs to be fulfilled. No player seems to be viewing it as an opportunity. Consider this; according to Nirmala Ayyar8, retired Chief (Data Control and Purification), LIC, "Do these (rural) people need insurance? Yes, they do. Can they pay for it? No sir, they cannot afford to pay for it?" Contrary to popular perception, rural markets can be a large opportunity9 in terms of business size as well as profitability if one is able to carefully plan and tailor an entire business value chain with a set of low-cost activities - right from product design to distribution, advertising and promotion.

Differentiate
The strategy of 'being everything to everybody' works only for industry leaders and that position is reserved for only one or two players. General insurance is such a vast business that there are sizeable opportunities in business segments within it. For example, companies can focus on business segments like health insurance or credit insurance and develop superior abilities to understand the business needs, design, develop and market products and build brand equity in those niche areas. Instead of being a me-too player in a large number of business segments, one may be able develop a more sustainable business and earn higher return for shareholders if one is able to achieve a leadership position in a specific business segment.
Consider the example of Export Credit Guarantee Corporation of India Ltd (ECGC), a government-owned company, which has been in existence since 57, primarily providing export credit insurance and credit guarantees. After reforms, ECGC got itself registered with IRDA and is repositioning itself as a specialist credit insurer offering a range of credit insurance products.

Build Awareness / Brand
The root of the under-penetration problem of insurance in India is low awareness. This in turn could be stemming from low literacy. However, the demographic trends in India indicate that major social and economic shifts are in store in the next 10 to 15 years. More than two-thirds of the population will become literate. Close to half the people will be under the age of 30. Modern telecommunication will spread to all parts of the nation including remote areas. Coupled with these trends, the real GDP growth rate is likely to accelerate to over six to seven per cent per annum. General insurance players should exploit these trends by investing in building basic awareness about the need and benefits of insurance. Today there is no evidence of any player doing it in the general insurance domain, probably due to the perception that it may not be a worthwhile investment. However, this investment to increase insurance awareness is an essential part of the development of the markets. Also, this can be done in such a way that a company's brand equity is built up in the process, which is a key source of competitive advantage in retail markets.

GOLD IS FOR THE PIONEERS
Expansion of the market in India would come primarily through penetrating the retail segment. Strategies such as the above to develop and exploit the retail opportunity may not result in quick market share gains, but give more solid results in the long run.

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