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Services
as a Differntiator The
Case of the Personal Insurance Business
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Rinku Chaudhuri |
| Strategic
Marketing Research Team |
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With
increasing competition and changing customer preferences, companies,
both in the manufacturing and service sectors, are increasingly
focusing on services to differentiate their offerings from each
other. The need is being felt more than ever before, as the
tangible features of ‘products’ offered by manufacturers
and service providers tend to get imitated easily. This implies
that such companies will need to find certain intangibles that
can differentiate their respective ‘products’. In
the case of the General Insurance industry, the situation is
no different, and this paper dwells on the subject with reference
to the Personal Line of Insurance.
The insurance sector in India was a government-controlled industry
till very recently. As of 1998-’99, life and non-life insurance
business generated a premium of Rs 3,19,638 million (US$ 8.2
billion) which was about 2.6 per cent of the country’s
gross domestic product (GDP). However, in absolute terms, India’s
insurance business is not just small, it is miniscule compared
to the economically advanced countries. India’s share in
the world insurance market is only 0.39 per cent as against
34.17 per cent of the US, 21.02 per cent of Japan and 8.4 per
cent of the UK. |
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The
insurance sector comprises life and non-life business. During
1998-’99, the former accounted for a lion’s share
of the total insurance market with a share of 73 per cent
(US$ 6 billion). The non-life insurance business of US$ 2.2
billion was predominantly geared towards property risk, which
accounted for 85 per cent of non-life business. Of the balance
15 per cent, liability insurance accounted for three per cent
and personal non-life insurance for only 12 per cent. Though
the share of personal non-life business in the total non-life
insurance is relatively small, it has a strong growth potential
according to a CII report. This report states that the personal
non-life business is likely to grow from four thousand million
rupees in 1998-’99 to fifty thousand million rupees in
2009-’10.
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With
the passage of the IRDA Bill in October 1999, the character
of the insurance industry in general and the personal non-life
segment in particular is likely to change, specifically with
regard to raising customer expectations. Given this development,
it is imperative for existing insurance firms and new entrants
to understand customers’ changing expectations to develop
strategies for the future.
In this article we shall try to:
Understand the salient features of personal non-life insurance
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Understand
the key expectations of customers
Examine sources of customer dissatisfaction
Suggest strategies for building customer loyalty
Personal non-life insurance
Personal non-life insurance schemes can be categorised into
four major groups relating to property, health, accident and
liability. The basic objective of these schemes is to meet the
personal risk protection needs of individuals.
Insurance policies for covering property are mainly for householders—All
Risk, Baggage, Television/ VCR—and shopkeepers.
The customers for theseproducts are basically individuals who
own certain consumer items or properties.
Health-related insurance schemes cater to the needs of individuals
to protect themselves from the uncertainties of ill health/accident
at home or abroad.
Accident-related products include various policies that cover
personal accident and other specific contingencies.
The liability products offer cover to professionals.
Customer
expectations in personal line of business
Six major areas where customers expect a lot from the insurance
companies are:
Resolution
of Customer Anxiety
In a service industry, one of the factors that motivates a
customer to opt for a service is whether the service provider
is able to reduce his or her anxieties, articulated or not,
in relation to the same. In case of insurable products, many
customers are not fully aware of the benefits being offered
as well as the terms and conditions underlying the same. There
is always an apprehension in the minds of the customers that
insurance companies are only interested in collecting the
premium without explaining the conditions for seeking future
claims. Because of this fear, the general tendency is to avoid
taking insurance covers. This problem is particularly acute
in the personal line of insurance where the decision is taken
in an individual capacity.
Simplification of documents
Complex documentation acts as a deterrent to seeking services
because most customers are not knowledgeable about insurance
products. When faced with long and complicated paperwork,
an immediate reaction of the customers is to assume that the
cover is not in their favour. Simplification of documents,
therefore, is a must.Enhanced responsiveness
Though they expect superior service all the time, customers
do realise that once in a while, there can be specific problems
when service providers, such as insurance companies, are not
able to honour the predefined service standards in the normal
course. However, if a service provider is responsive to customer
needs, it goes out of its way to make up for the failure in
service offerings. The customers enjoy the special treatment
meted out by the service provider during the post-complaint
stage, and this builds loyalty.
Improve post-sale service
In a service industry, a significant amount of customer value
is created during the post-sale phase. For example, in the
insurance industry, the past experience of customers in settling
claims influences their future decision on renewals as well
as taking additional policies. Research shows that unhappy
customers tend to share a bad experience with potential customers
more than they share a good one.
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Courtesy
shown
The customer’s perception of the quality of services is
also influenced by the courtesy extended to him when he comes
face-to-face with the employees of the service provider. Lack
of friendliness, warmth and an unhelpful attitude drive away
many prospective clients despite the intrinsic quality of the
products.
Minimise
effective cost of service
This includes not only direct loss e.g. premium, but also
the hidden
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costs
such as cost of follow-up, delay in settlement of claims,
long waiting time etc. While taking a decision, customers
evaluate the total value received against the total cost as
defined, incurred by them. Insurance companies will need to
minimize the effective cost of their offerings for growing
their business.
Customer
dissatisfaction in the personal line of insurance
According to various reports available from the press, there
is a general feeling of discontentment among customers regarding
the quality of services offered by Indian insurance companies.
The dissatisfaction manifests in many areas of servicing,
a few of which are mentioned below.
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Pre-Sale
Service
Proper pre-sale service, which goes a long way in helping customers
arrive at a decision on purchasing a product, is generally not
given due importance by Indian insurers. Counselling of customers
by the intermediaries of the insurance companies regarding the
options available, the appropriate policy to be selected at
the minimum premium, the pros and cons and nuances of the policy,
the procedures to be followed in the event of claims etc. are
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generally
not upto the satisfaction of customers. As a result, the latter
dither in taking a decision or remain uncomfortable after purchasing
insurance products.
Quality of Documentation
Most proposals and policies tend to be long, complicated and
sometimes inexplicit. For example, in case of individual health
policies, certain guidelines which can affect the quantum of
premium payable are not always made clear to the customers.
Another frequent grievance aired by buyers of health insurance
is the disputes regarding ‘pre-existing diseases’
and the fact that insurance companies don’t take adequate
care to explain what a pre-existing disease is and why no claim
can be settled arising out of the same. This failure on the
part of insurance companies leads to much heartburn among customers
when their claims are rejected.n post-sale services too, Indian
insurance companies have lagged behind. The practice of sending
reminders for renewals in time is not diligently followed by
insurers. The most important feature of post-sale service, as
far as insurance products are concerned, is the handling of
claims. On an average, it takes insurance companies about one
to three months to settle a claim. Further, too many documents
and delay in settlement of claims, without payment of interest
for the delay, add to the woes of the insurance holders. Indian
insurance companies, for reasons well known, have not responded
too well to the service aspects of their offerings. The good
news is that they are now gearing up to improve their services
in order to meet the impending new competition.
Strategies for building customer loyalty
Given the current levels of dissatisfaction experienced by customers,
it is time insurance companies, both existing and new ones,
concentrated on providing high-quality services for differentiating
their offerings. Some areas on which they should concentrate
immediately are:
Gear up pre-sale services, particularly those that will help
in reducing customers’ anxieties.
Simplify documents, wherever necessary, without losing control
Enhance post-sale services in such areas as sending all renewal
notices in time, expeditious settlement of claims and refunds
etc.
Customize products to cater to the needs of each individual
Empathise with the customers. Employees coming in contact with
customers must show courtesy and good behaviour.
To deliver the above, insurance companies will need to build
a suitable organisation with an appropriate management system,
optimum physical infrastructure and a culture of innovation,
productivity and customer-orientation that will enable them
to survive and grow in the exciting and fast-growing line of
personal insurance. |
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