Freny Patel: A policy of maximum coverage

Private-sector insurers have come of age and are giving the LIC a run for its money

Private players in the life insurance business are growing at a scorching pace. Within three years of their inception, they have seized about 14 per cent of the market.

Compare this to new generation private-sector banks, which took nine years for 20 per cent share in the Indian banking industry. And after seven years in the industry, in 2000, private mutual funds (MFs) accounted for just 9 per cent of a market that had been dominated by the Unit Trust of India.

There's another dimension to the insurance numbers game. While the private insurance companies have attained 13 to 14 per cent share of the overall insurance market, their share in the key metros (Mumbai and Delhi) is as high as 30 to 40 per cent.

"We have to struggle to complete a deal in the metros now, because policyholders are comparing products and asking for better deals," says S B Mathur, chairman of the Life Insurance Corporation of India (LIC).

Private insurance companies are essentially joint ventures with global insurance companies holding a maximum of 26 per cent stake. The foreign partners are investing heavily in the Indian market and, thereby, driving sales, because they see India emerging as one of the biggest markets in the Asian region.

"India will become the biggest market for us in the next three to four years," predicts Dan Bardin, Prudential Corporation Asia managing director south Asia and greater China.

Private players have certainly done their bit to increase the penetration levels of insurance, mainly by creating alternative distribution channels "" such as associations with banks, brokers and corporate agents.

"Our bancassurance channel "" with tie-ups with four banks "" contributes almost 70 per cent of our total sales," says Aviva CEO Stuart Purdy.

OM Kotak Mahindra Life, which is ranked eighth among private players, is also leaning towards alternative distribution channels that will contribute to 45 per cent of total sales, in line with the contribution from its tied agency force.

In sharp contrast, most of the LIC's policies continue to be sold through its tied-agency network. The state life corporation acknowledges that it is unable to maintain its lead in some metros: penetration by the private-sector insurers has come of age and they are giving the LIC a run for its money.

The multi-channel approach adopted by private insurance companies has proved to be a boon in terms of costing and their ability to capture business. Earlier, most private insurance companies focused their energies on the top 20 cities. Today they are moving to smaller cities.

"The potential in smaller cities is increasing and companies are moving to smaller cities and towns because these are increasingly becoming more prosperous with a rise in agricultural income. With the increase in buying power, this has fuelled growth opportunities for us," says Max New York Life CEO Anuroop Tony Singh.

AMP Sanmar, another private player, has tied up with various chit funds and transport finance companies in the country, where it is selling life policies on the back of fixed deposits and bonds. A senior company official cites the example of Vijaywada where a significant portion of the income is derived from farming activities.

 "The rural populace is managing their money well and no longer keeping it under their beds. They have mobile phones and have opened bank accounts. They are not very different from their urban counterparts when it comes to purchasing life insurance covers," he points out.

And that's making the private sector optimistic about its future in the Indian insurance market. "We [private insurers] are becoming an alternative to LIC. If a customer has already bought an LIC plan, his second policy is likely to be bought by the private insurance sector on account of various reasons "" more specifically flexibility and transparency," says OM Kotak Mahindra Life CEO Shivaji Dam.

Perhaps this partly explains why the LIC has increased its advertising spend multifold since the insurance sector was privatised. Its ad spend more than doubled to Rs 81 crore in fiscal 2003, against Rs 37 crore in 1999-2000, prior to the industry being privatised.

Of course, the private insurance sector has also been steadily increasing its ad spend, from Rs 29 crore in fiscal 2001 when the industry opened up, to Rs 92 crore the following year. In fiscal 2003, private insurers spent Rs 143 crore on advertising.

But it's not the increased spend on advertising alone that has helped private players in grabbing market share. One of the key differential factors responsible for their growing market is the 1.5-lakh odd life insurance advisors of the private insurance companies.

"The private insurance agents sell better than their counterparts at the LIC. Life insurance advisors of private sector insurance companies adopt the need-based selling approach, unlike the LIC's agency force that pushes the number of policies," says Dam.

This also gets reflected in the average sum assured by private insurance companies being higher than that of the LIC. Policies sold by the private players tend to be of a higher value.

For instance, Birla Sun Life's average premium stands at Rs 24,500, while that of OM Kotak Mahindra Life is equally high at Rs 20,400. Against this is the LIC's average premium of Rs 3,200.

Of course, there's also a difference in the target client of the private and the state-run insurance companies. While the private players are targeting the upper middle-class and high net-worth individuals, the LIC aims for the masses through its 2,048 branches spread across semi-rural and rural towns.

Meanwhile, private insurance companies are capitalising on global relationships. "Business deals are often a call away since we capitalise on AIG's global relationship with multinational companies such as GE and Kodak," says Tata AIG Life Ian Watts.

OM Kotak has gone a step further and tied up with Swiss Life International so that it can capitalise on the latter's relationship with 300 multinational subsidiaries and affiliates.

But it's not as if LIC has lost out on group insurance. The insurance major's group business reached new heights in fiscal 2004, recording a 119 per cent growth in new premium income and 50 per cent increase in the number of lives covered.

Still, new business income for private companies has grown at 146 per cent in fiscal 2004, compared to the 18 per cent average industry growth in new premium income for the same period.

"The key in product sales lies in offering unbundled and transparent products that give customer value," points out Dam.

The biggest draw in insurance in fiscal 2004 was unit-linked plans. Ninety-five per cent of the policies sold by Birla Sun Life and over 80 per cent of the 4.36 lakh policies sold by ICICI Prudential were unit-linked plans.

And even though the LIC was late (January 2004) in pushing its unit-linked product "Bima Plus", it managed to mop up a premium income of Rs 373 crore with the sale of just under 1.7-lakh unit-linked policies, the highest sales figure in the industry.

The advantage with unit-linked plans is that they offer policyholders transparency in terms of costs, annual returns and bonus calculations. With many companies guaranteeing the capital investment (some like Birla Sun Life even guarantee 3 per cent assured returns on its unit-linked plans), the interest in unit-linked plans only increased.

And the switch from traditional products to unit-linked plans gained momentum as the Sensex climbed higher: the returns on such policies are linked to the equity market.

"The stock market has helped to a certain extent and has contributed to our growth and performance," agrees Birla Sun Life CEO Nani Javeri.

Aviva has shown a compounded aggregate growth rate of 36 per cent since the inception of its fund. Returns on OM Kotak's balanced and growth funds stand at 31.79 to 43.25 per cent respectively.

Dam claims that OM Kotak has sold several policies of Rs 25 to 50 lakh since the "savvy investor thinks it best to invest in unit-linked products." He adds: "Growth is coming faster in insurance companies with unit-linked plans."