INDUSTRY DYNAMICS
Four key drivers will shape the industry in the years ahead - competitive activity, evolution of the distribution channels, growth of the pension sector and the necessity of moving away from guaranteed products. The entry of new players has brought in an increased product range including insurance and pension products and therefore more choices for the customer. There has also been a significant improvement in the level of customer service by the existing player on account of the high level of service from new companies. All of this has benefited the customer.
The changed regulatory and competitive environment will lead to significant changes in the retail distribution channels. Unlike other financial products, insurance is a complex product and one which plays a key role in the long term financial well being of a customer. Before the agents can advise their clients on which insurance solution is most appropriate for them, they will have to understand the financial standing of their customer, his financial commitments, his risk profile, etc. It is for this very reason that, as per IRDA, all agents need to undergo some mandatory training before being allowed to sell a life insurance product. The 100-hour training pre-licensing covers the technical aspects of insurance and the selling/advisory skills required to be an agent. At HDFC Standard Life, we refer to our agents as financial consultants, as they will need to play more of an advisory role than ever before. The key to success is in providing insurance/pension solutions and not standardised insurance/pension products. New channels like corporate agents and brokers are expected to emerge in a big way. This will also include banks and this will lead to a significant increase in the width of distribution of insurance and pension products. Channels like internet and telephone are likely to emerge as information disseminating channels and as servicing channels rather than sales oriented channels. The rural obligations of all insurance companies will also drive the evolution of a rural delivery channel.
The third key driver will be the pension plans. There will be a lot of innovation on this front for both type of pension products i.e. products for individuals and products for groups. In the absence of a national safety net, it is important that individuals are encouraged to provide for their retirement income. Given the low percentage of people covered today and the social changes like breakdown of the joint family system and increasing life spans of people, this is very important. While all the uncovered working force will not come under coverage immediately, the percentage of people covered will certainly go up. The pension market is expected to grow at a faster rate than the life insurance market over the next few years at a rate of 25-30% compared to the life insurance market’s growth rates of 18-20%.
Pre-1991 it would have been possible to predict interest rates with a fair degree of certainty, as they were administered rates. However, today it is difficult to say what interest rates will be in the next six months, let alone over the next 20 to 30 years of the life of the policy. In this scenario, giving guarantees will be difficult as well as risky for any insurance company. In the recent past we have had several instances of banks and institutions going back on their promise of guaranteed returns and thereby leaving the small investor high and dry. Hence companies such as ours have chosen not to assure guaranteed returns as offering guaranteed returns in the long term is not a very viable option.

MARKET SEGMENTS
The life insurance and pension business has two distinct customers segments - individuals and corporates. In case of the retail business for individuals, the 4 sub-segments are - protection, investment, savings and pension. Apart from the existing leader LIC, new companies such as HDFC Standard Life, TATA AIG, ICICI Prudential and more will seek to be present across all the segments of the market.
Among the retail products for individuals, pure risk protection products have been introduced by some of the new life insurance companies in the market. As these products have no savings component to it, the premiums are very low compared to other products. Investment products provide long term investment growth and insurance cover. This segment is growing rapidly. Savings products like Endowments and Money-Backs provide a combination of protection and investment benefits. The last segment of pension includes products that are aimed at offering customers an income during their retirement years.
In case of the group business, there are three sub-segments - protection, statutory savings and pension. Group insurance products are taken to provide low cost life insurance cover to a group of people. Group insurance can be taken to provide low cost life insurance cover as part of employee benefit packages to motivate employees or to cover the housing or vehicle loan given by employer to employee. It can also be used as a substitute for the statutory EDLI subject to approval by the Regional Provident Fund Commissioner. The statutory savings segment essentially comprises of the gratuity products for companies. The pension segment will include products like group superannuation, which will enable a company to benefit from the actuarial, investment and operational expertise of a specialist company to manage its superannuation funds.
Source: CII Insurance Committee Report 1999

MARKETING MIX POLICIES
Different companies can choose to position themselves differently and hence the marketing mix would be different. However, there are certain common characteristics that one can cull out from the possible strategies that companies can adopt.
Product: The development of flexible products to suit individual requirements is what will differentiate the winners from the also-rans. The key to success is in providing insurance solutions, not standardised insurance products. The concept of riders/optional benefits has already been a huge innovation brought about by the new players, which has led to customisation of products for individual needs. However, companies may differentiate themselves on the basis of product segments that they choose to focus on and excel in.
Distribution: Different companies may however choose different channels and different geographies to focus on. The channel options are - tied agency force, corporate agents and brokers and this is an area where different companies will make different choices. Many companies like HDFC Standard Life are focussing on all channels whereas companies like Max New York Life are focussing on the tied agency force only. Customer interface will be a key challenge for life insurance companies and includes every that interaction that the customer has with the company, such as sales, new business underwriting, policy servicing, premium payments, claim processing and so on. Technology can play a crucial role in delivering the highest standards of service set by the company and it will be imperative for any serious player to excel in all of these.
Price: Price is a relevant differentiator only in two segments - pure term insurance and in pure annuities. Here too, service delivery and financial strength will need to be present at a minimum acceptable level for price to be a relevant differentiator. In case of savings oriented products, long term returns generated will be more relevant than just the price of the product. A focus on generating good investment performance and keeping a tight control on costs will help in generating good long-term maturity value for customers. Norms have been laid down on all of these by IRDA and adhering to these while delivering good returns will be a challenge.
Advertising and promotion: The level of demand is latent and will have to be activated considerably. The market needs to be developed. Greater awareness of insurance and the need to have it as a protection tool rather than as a tax planning measure needs to be appreciated by the Indian people. Various communication tools including advertising, direct marketing and road shows will contribute to all this and different companies will take different approaches on these.

SUMMARY
Overall, the life insurance and pension sector is set for rapid changes and growth in the years ahead. Delivering service, building trust and being innovative are key areas in which any company will have to excel in order to do well in the long road ahead. Different companies will take different approaches and it would be myriad of solutions that will be found to delight the Indian customer.

Questions
1. What are the various possibilities for differentiation in the Life Insurance Sector?
2. What factors will you keep in mind while designing the media mix for a Life Insurance product aimed at individuals?

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