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Ravi Bhargava (Bhargava),Assistant Marketing Manager, Life Insurance Corporation of India (LIC) was disconcerted by the full-page advertisement in the newspaper. The advertisement, by an Indian company in alliance with a US insurance company declared, 'Till now we were all buying insurance blindfolded, wake up. Experience the new phenomenon, one giving shape to all your dreams and driving away all your fears.'On the next page was another advertisement by an Indian bank, inviting applications from agency managers, promising a very good work atmosphere and 'best in the industry'remuneration. Bhargava had been Marketing Manager at LIC for the past eighteen months and eight of his best performing agents had submitted their resignations. He feared more would follow suit. The new players in the life insurance market were already affecting LIC.
The Monitor Group, a Boston-based strategy consulting firm, which studied the trends in the Indian insurance market after it was thrown open to private players, predicted that LIC would find the going tough.
But Prakash Sharma, (GM, Marketing Division) was more optimistic: "It is obvious they will look for the best of our people, but we are not unduly worried. LIC offers a commission of 35% of the premiums for the first year and 7.5% for the next two years, and 5% for the rest of the period for which the sum is assured. At the most, the new players will be able to offer 40% - not good enough to attract our people. These are all new players and none can beat our 44 years of experience." But Bhargava and Sharma knew that the issues involved were not that simple.
BACKGROUND NOTE
In 1956, there were 154 Indian insurers, 16 foreign insurers and 75 provident societies in the life insurance[1] sector in the country. The life insurance business was concentrated in urban areas and served only the wealthy sections. In January 1956, the management of the 245 Indian and foreign insurers and provident societies was taken over by the Central Government. Life Insurance Corporation was formed as a government regulated monopoly in September 1956 by an Act of Parliament, (LIC Act 1956) with a capital contribution of Rs 50 million. Over the years, LIC built a strong distribution and agent network. By 2000, LIC had 2048 branches and 500,000 agents across the country. With income from premiums totalling Rs 6,262 crore and a Rs 1,60,935 crore asset base for fiscal 2001, LIC was a financial powerhouse, with a presence in mutual funds and housing loans besides life insurance (Refer Table I for LIC's growth statistics).
The company had insured more than 11.5 crore people in the country through its individual and group schemes. Of the 60-80 million life insurance policies outstanding, 48% were from the rural and semi urban areas. This was very impressive since no company in any other industry had been able to tap the rural market to this extent. LIC's annual revenue growth rate was 8.8% during 1993-2000.
TABLE I
LIC'S GROWTH OVER THE YEARS
1957
1974-75
1979-80
1996-97
Business in Force -
Individuals (Rs billion)
14.7
118.52
192.43
344.62
Group (Rs billion)
0.05
14.57
61.37
64.61
No. of policies in force (million)
5.69
18.8
22.09
77.75
No. of lives covered under -
Group business (million)
n.a.
2.33
5.84
24.45
Life fund (Rs billion)
4.1
30.34
58.18
877.59
BACKGROUND NOTE contd...
The opening up of the insurance sector had been the subject of debate for many years[2] . The Insurance Regulatory and Development Authority (IRDA) bill, which was tabled in Parliament, contained detailed guidelines for inviting private players into the insurance sector. In December 1999, the Government approved the IRDA Act, making IRDA the authority to protect the interests of policyholders, and to regulate, promote and ensure the systematic growth of insurance industry.
After August 2000, private licenses were given to HDFC-Standard Life, ICICI Prudential and Max New York. International companies that entered the sector included Lombard, Zurich, Allianz, Royal & Sun Alliance, Chubb Insurance, AIG, ING and CGNU, while ICICI, Hero Honda, Dabur, the Tatas, the Birlas, SBI, HDFC and Reliance were the major Indian players. With the opening up of the insurance sector, media reports predicted tough times ahead for LIC. A report revealed that LIC was 70% over-staffed, which meant that its competitors would have substantial labor-cost advantages. The report also predicted that LIC might find it difficult to retain and protect its extensive agent network and, in particular, to ensure that the most talented and influential agents stayed with it. LIC was also expected to face fierce competition on the new product development front.
LIC � AFTER IRDA
In November 1999, even as the IRDA Act was being debated in Parliament, LIC begun preparations for meeting the threat posed by private players. The company appointed consultants Booz, Allen and Hamilton to do a scenario-building exercise, suggest areas for process re-engineering, and recommend ways to sharpen customer focus.
LIC gave top priority to introducing over-the-counter (OTC) facilities that would help it serve its customers better. By 2000 it had computerized and locally networked all its 2,048 branches. The speed of service delivery, particularly in the case of claims-settlement, had also improved. The total outstanding claims were brought down to 2.74% in 2000 from 3.47% in 1995.
LIC realized that to be able to retain its position, it would have to be match the technological sophistication of the multinationals. LIC extended its Metropolitan Area Network (MAN) system from Mumbai, Delhi and Bangalore to Ahmedabad, Pune, Hyderabad, and Calcutta. This enabled LIC customers to pay premiums and get status reports from any of its branches in these cities. LIC planned to eventually connect upto 27 cities in a Wide Area Network (WAN). E-mail and Internet facility were introduced at over 600 additional branches. A mechanism was put in place to facilitate insurance premium payment over the Internet in cities that were covered by the WAN.
Over 98% of LIC's branches had begun providing software assistance that helped the policyholders track premium payments, loans and claims positions. Information kiosks were set up in over 50 places across the country. The company also started an Interactive Voice Response System, to help customers get details of various policies over the telephone. LIC planned to tie up with corporate agents to enable customers to buy insurance products at banks or financial services companies or while buying a consumer durable. LIC also intended to use the services of brokers once brokerage concerns were allowed to operate in India.
LIC initiated measures to revamp its service network and to open 600 new training centers. The new centers were to have a new training modules in the curriculum which focused on marketing. It intensified its research activities in order to get market feedback and tailor its products according to customer needs. LIC also planned to offer new products and schemes and enter new markets, especially in the global arena. LIC began exploring the possibility of entering the Nepalese, African, Middle-East, Mauritius, US and UK markets.
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