Strategic choices in life insurance business
Dr ranjan Das & Raveendra C.
Indian Institute of Management Calcutta

Many may not be aware that the life insurance industry of India is as old as it is in any other part of the world. The first Indian life insurance company was the Oriental Life Insurance Company, which was started in India in 1818 at Kolkata1. A number of players (over 250 in life and about 100 in non-life) mainly with regional focus flourished all across the country. However, the Government of India, concerned by the unethical standards adopted by some players against the consumers, nationalised the industry in two phases in 1956 (life) and in 1972 (non-life). The insurance business of the country was then brought under two public sector companies, Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
In line with the economic reforms that were ushered in India in early nineties, the Government set up a Committee on Reforms (popularly called the Malhotra Committee) in April 1993 to suggest reforms in the insurance sector. The Committee recommended throwing open the sector to private players to usher in competition and bring more choice to the consumer. The objective was to improve the penetration of insurance as a percentage of GDP, which remains low in India even compared to some developing countries in Asia.
Reforms were initiated with the passage of Insurance Regulatory and Development Authority (IRDA) Bill in 1999. IRDA was set up as an independent regulatory authority, which has put in place regulations in line with global norms. So far in the private sector, 12 life insurance companies and 9 general insurance companies have been registered.
INSURANCE MARKET IN INDIA
By any yardstick, India, with about 200 million middle class households, presents a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. Table 1 reflects the low percentage and per capita penetration of insurance in India compared to other developed and developing countries2.
With the per capita income in India expected to grow at over 6% for the next 10 years and with improvement in awareness levels, the demand for insurance is expected to grow at an attractive rate in India. An independent consulting company, The Monitor Group has estimated that the life insurance market will grow from Rs.218 billion in 1998 to Rs.1003 billion by 2008 (a compounded annual growth of 16.5%)3.

WINDS OF CHANGE
Reforms have marked the entry of many of the global insurance majors into the Indian market in the form of joint ventures with Indian companies. Some of the key names are AIG, New York Life, Allianz, Prudential, Standard Life, Sun Life Canada and Old Mutual. The entry of new players has rejuvenated the erstwhile monopoly player LIC, which has responded to the competition in an admirable fashion by launching new products and improving service standards.
The following are the key winds of change brought about by privatisation.
Market Expansion: There has been an overall expansion in the market. This has been possible due to improved awareness levels thanks to the large number of advertising campaigns launched by all the players. The scope for expansion is still unlimited as virtually all the players are concentrating on large cities and towns - except by LIC to an extent there was no significant attempt to tap the rural markets.
New Product Offerings: There has been a plethora of new and innovative products offered by the new players, mainly from the stable of their international partners. Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs and not just traditional money-back policies, which is not considered very appropriate for long-term protection and savings. However, there are still some key new products yet to be introduced - e.g. health products.
Customer Service: Not unexpectedly, this was one area that witnessed the most significant change with the entry of new players. There is an attempt to bring in international best practices in service and operational efficiency through use of latest technologies. Advice and need based selling is emerging through much better trained sales force and advisors. There is improvement in response and turnaround times in specific areas such as delivery of first policy receipt, policy document, premium notice, final maturity payment, settlement of claims etc. However, there is a long way to go and various customer surveys indicate that the standards are still below customer expectation levels.
Channels of Distribution: Till two years back, the only mode of distribution of life insurance products was through Agents. While agents continue to be the predominant distribution channel, today a number of innovative alternative channels are being offered to consumers. Some of them are bancassurance, brokers, the internet and direct marketing. Though it is too early to predict, the wide spread of bank branch network in India could lead to bancassurance emerging as a significant distribution mechanism.
Table 2 below gives a snapshot of the performance for 2003-04 (up to October) of the 13 life insurance payers in India based on the first year premium figures4.
STRATEGIC ALTERNATIVES
If one analyses the history of growth of the insurance industry since reforms, it is marked by all-round growth of all players. More or less all players (including the market leader LIC) have aggressively recruited and trained advisors, appointed agents, launched new products, improved customer service standards and revamped/expanded their distribution networks. If at all there was any major difference between players it was only in time lag in launching of services. Every player would like the customers to believe that its service standards are the best or that its agents are the most informed and ethical, but is debatable whether there are any significant differences. In other words, each company is trying to be ‘everything to everybody’.
Our argument is that the strategy of being everything to everybody is risky. Some players justify the above strategy on the basis that the Indian market is huge and it can accommodate everybody. Still, in a market where it is difficult to distinguish oneself sufficiently on service or any other parameter to be able to charge a premium, it will lead to unmitigated price competition to the detriment of all players. One may achieve sales turnover, but margins and profitability will suffer severely. In the insurance industry where large amounts of capital are required, this is risky.
While there is room for a few scale players with a finger in every pie, it is profitable for other players to focus on different segments to survive and thrive in a multi-firm open environment. While each company has to choose its own unique positioning based on its unique strengths, the below-mentioned generic positioning alternatives5 appear worth considering. Needless to say the positioning choices discussed here are not mutually exclusive and can be overlapping.
Variety-based Positioning
This type of positioning is based on varieties in products and services rather than customer segments. It is a sensible strategy for those companies who have distinctive advantages or strengths in offering certain products and services.
In the insurance industry too, it is possible to achieve a unique position by focusing on certain category of products. One such example is Birla Sunlife Insurance, which has been placing particular focus on investment-related products since its launch in India6. Through its superior fund management capabilities, the insurance company can deliver better returns on its investment-linked products and thereby carve for itself a leadership position in this segment.
Then there is the entire category of pension products which is widely touted to have immense growth potential in India due to imminent pension reforms. It is possible to achieve profitable positioning by focusing and excelling in only pension products.

Needs-based Positioning
This is the most commonly understood positioning and is based on the differing needs of different groups of consumers. This can be done successfully if a company has unique strengths to service a group of customer needs better than others.
The insurance needs of customers vary significantly for different groups of customers. The insurance needs of young family with small children will be quite different from that of a family in which the income-earner is close to retirement. However, in India most of the life insurance companies have a wide variety of products tailored for different customer needs and there is no company focusing on a particular customer need.
An example would be a life insurance company that focuses only on High Net-worth Individuals (HNIs). The needs of HNIs would be quite different from those of a general consumer and would require an entirely different marketing mix right from the type of products offered and the way they are distributed, to the promotion methods employed.

Access-based Positioning
Positioning of customers can also be done by the way they are accessible. That is different groups of customers may be accessible in different ways even though they may have similar needs. Access is typically a function of customer geography or customer scale.
There is excellent opportunity in the insurance industry to employ access-based positioning by targeting the rural insurance sector. The rural market for life insurance is very different from the urban market in terms of needs, income levels and distribution (seasonality, for example), penetration of media and so on. So far except for LIC, no other player has paid any attention or focus on the rural sector. Contrary to common perception it is a big opportunity as emphasised repeatedly by such eminent strategists like C.K. Prahlad7. Rural market can be a highly profitable position if one is able to carefully plan and tailor an entire set of low-cost activities of advertising, distribution, and product design etc. to successfully exploit the potential.

CHOOSING THE RIGHT STRATEGY
The right strategic choice is not a matter of positioning choice alone. It involves the very way a company organises itself to do business. It is the configuration of the entire value chain of the company through a different set of activities to deliver unique value to consumers. The set of activities cover all upstream and downstream activities, from the selection of the product mix, the way the products are priced, promoted, the type of distribution mechanism used, the way customers are serviced and so on.
Some life insurance companies focusing on rural markets have adopted innovative means of distribution. Instead of appointing agents as is done typically, they have used gramsevaks in different villages across the country to promote life insurance and act as their sales arm. This enabled them to tap into their special knowledge of their local