Service Sector Marketing – Insurance _______________________________________________________________________ _ Origin of Insurance Whenever there is uncertainty there is risk. We do not have any control over uncertainties which involves financial losses. The risk may be certain events like death, pension, retirement or uncertain events like theft, fire, accident, etc. Insurance is a financial service for collecting the savings of the public and providing them with risk coverage. It comes under service sector and while marketing this service due care is taken in quality product and customer satisfaction. The main function of the Insurance is to provide protection against the possible chances of generating losses. Around 6000 years ago, Babylonians, whose home was in the Tigris – Euphrates valley, the crossroads of early world traffic, had developed business practices to a high degree. Babylon had become the clearinghouse of trade, as all the important land trade routes converged in that territory. From Armenia in the north, China and India in the east, Egypt in the west, caravans came laden with merchandise. Though Babylon built up a great commercial system, and her people were the first to enjoy the fruits of political economy, their territory was surrounded by huge tracts of desert. The travelers by land were exposed to the risk of robbery, which then was considered not so abominable a means of livelihood and the same view held good for the piracy on the high seas. Besides, during those days, the ships were entirely at the mercy of the winds. Under such conditions, till the goods reached their destination, the consignor was constantly worried about its safety.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ In fact, many traders could not meet the obligations of the principals and, as per their contracts, were forced to become slaves along with their families. Human ingenuity was set to work and, in course of time, a practice developed that debt of the trader, both principal and interest, should be absolved if certain specified contingencies occur. Research scholars claim that insurance was known and practiced in India even during the ancient Vedic times. In Rig-Veda the references are made to the concept of ‘Yogakshema’ which is more or less akin to the well being and security of people. Manu the ancient scholar and lawgiver enjoined that a special change be made on goods carried from one place to another to ensure their safe carriage, until it was finally handed over to the consignee at the destination. This makes it clear that the traces for sharing the future losses were available even in ancient India. Recorded evidences testify that ancient India was a prominent maritime power. There were busy seaports on the west coast at Broach, at Kaveripumpatnam in the south and Banga in the east. Traders expressed difficulties in realizing money for the goods sent abroad. Loans were advanced to traders at specified rates of interest depending on the risk run and the duration of time for which money was required. Men skilled in sea voyages worked out risk premium rates. On successful conclusion of the voyage, the borrower returned the loan along with interest, when the eventuality insured against did not materialize but it often happened that he was unable to deliver the goods in sound condition at the time and place specified or if he was robbed, he was absolved of his liability.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ If the cargo was lost due to the negligence of the crew, the loss was to be borne by all the crewmembers, but when loss was caused by natural calamity, the members of the crew were not held responsible. A carrier who failed to reach the destination, could not claim freight, but was exempted from responsibility if loss was occasioned by an act of God. If the loss was due to “Piracy”, the cashier was not protected. The modern form of insurance with documentation et all started in London, England in 1666 after a catastrophe of a large extent. ‘The great fire of London’ resulted in the burning of 85% of the houses. The ashes injected life, strength, and emergence to the concept of fire insurance.The General Insurance company was started. With the colonial development of England, the system of documented insurance spread all over the world. The instance of first life insurance policy is found in England in the 17th century with the policy of life of William Gybbons on June 18, 1633 as the first recorded evidence. The first recorded life office was the ‘HandIn – Hand society’ which was established in 1696. We live in exciting times with changes and upheavals all around. New technologies, new inventions and changes in the economic and financial scenario, all have thrown up new insurance needs; needs never felt or heard before. This type of evolutionary process, in the last few decades, has given hope to new types of need-based insurance covers; public liability insurance, indemnity for medical practitioners for negligence, indemnity for chartered accountants and auditors for professional lapses, etc. Further, covers are engineering insurance, erection insurance, loss of profit, cover against atomic radiation and space travel and contracting AIDS.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ We have had bizarre insurance covers. Lizza Minnelli the singing sensation had insured her voice and so have Boy George and Michael Jackson. Mariene Dietrich and Betty Grable, Hollywood’s leading ladies have insured their legs. A well-known comedian in the USA had a policy insuring those in his audience, against anyone dying of laughter after hearing his Jokes! Mark Twain, the great American humorist said in his speech on Accident Insurance, “There is nothing more beneficent than accident insurance. I’ve seen an entire family lifted out of poverty and into affluence by the simple boon of a broken leg. I’ve had people come to me on crutches, with tears in their eyes, to bless this beneficent institution. In all my experience of life, I have seen nothing so seraphic as the look that comes into a freshly mutilated man’s face when he feels his vest pocket with his remaining hand and finds his accident ticket all right.”
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Service Sector Marketing – Insurance _______________________________________________________________________ _
The Indian Scenario Some important milestones in the life insurance business in India are: • • • 1818: The first Life Insurance Company known as the Orient Life Insurance Company was established 1912: Indian Life Assurance Companies Act – first statute to regulate the life insurance business. 1928: Indian Insurance Companies Act – government to collect statistical information about both life and non-life insurance business. • • 1938: Protecting the interest of the insuring public. 1956: 245 Indian and Foreign insurers and provident societies – central government and nationalized Some important milestones in the General Insurance business in India are: • • • 1907: The Indian Mercantile Insurance Ltd. – transacts all classes of general insurance business. 1957: General Insurance Council – frames a code of conduct. 1968: The Insurance Act – regulates investment & set minimum solvency margins.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ After Nationalization, a number of steps had to be taken to spread the insurance business much more widely to the rural areas and especially to the socially and economically backward regions with a view to reaching all the potential users of the services. For the expansion of insurance business it was essential to identify potential policy holders and to use marketing resources to transform them into the actual users. For this a strong sense of professional excellence and determination was required. The ambitious objectives of the Corporation necessitated a change in its management, which made a strong advocacy in favour of practicing the marketing principles. We intend to throw light upon the same in our presentation. In India the Life Insurance Corporation [LIC] and the General Insurance Corporation [GIC] are the biggest government controlled players in the field. We shall concentrate more on LIC whose insurance network has gained momentum and about which even the rural masses are well aware of.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Users An individual or an institution, a person or a group of persons availing the services are termed to be actual users of the insurance organizations. Both the categories of prospects having the potentials, bearing the willingness but not using the services right now are termed to be the potential users. Four reasons for buying insurance products/Turning into a user: Ask individuals wanting to buy life insurance, about how they do their tax planning and the first reply will be - insurance policy. Such is the nature of life insurance. It is bought by almost everyone right from the bigwigs of the business world to small retail investors. And most buy it for one core reason - to save tax. But this is not the only reason. • Passing away early:
One is never sure about life. We often come across people claiming that nothing is going to happen to them; that they are too young to pass away. But do they really know what the future holds for them? We can assure you they don't, because the question `What if?' has probably never crossed their minds. We only have to read newspaper headlines about the recent Tsunami, the earthquake that took place
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Service Sector Marketing – Insurance _______________________________________________________________________ _ not so long ago and such other natural calamities to understand how the future can be unpredictable. Individuals need to insure themselves to secure the future of those who are dependant on them; especially so if they happen to be the sole breadwinners. You wouldn't want them to go through hardships or rely on others/relatives, etc. This, in fact, is the prime reason why one should buy an insurance policy. • Living too long: Advances in the field of medicine have grown by leaps and bounds over the past few decades. Due to this, life expectancies have gone up. This poses another problem for individuals. It is generally observed that individuals who tend to live way beyond their earning years like say, till the age of 85 or 90, usually face a problem coming to terms with increasing costs of living. And that is not taking into account the manifold increase in medical expenses of course. This takes place largely due to imprudent financial planning by individuals during their earning years. Insurance, if bought at the right time for the right amount, acts as a saviour in such times. Individuals could opt for a pension plan offered by insurance companies, which suits their profile in terms of income, proposed retirement age and proposed expenses post-retirement. Such plans provide an annuity, which means that individuals keep getting a fixed sum every month/year after they have retired. • Painful existence:
Maybe an individual has planned well during his earning years to secure himself financially. He has also designed his financial portfolio in such a way that he is drawing a comfortable monthly income to support his family expenditure. But what if an individual were to have a health problem afflicting him or his spouse? What if the remedy to this
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Service Sector Marketing – Insurance _______________________________________________________________________ _ ailment were to cost him a sum beyond his financial capacity? Here again, life insurance can act as the saving grace in two ways. One, by way of a medical rider like the accidental death benefit rider, permanent disability benefit rider, critical illness benefit rider. These riders are taken along with the life insurance plan and help cover the medical expenses. And secondly by allowing the individual to surrender the insurance policy. Of course this should be done only in case of an urgent need like a serious health problem and even then, after all other sources have been exhausted. Surrendering the policy will help in the generation of a lumpsum amount that can be used for covering the high cost of medical expenses. • Tax benefits:
Do we need to elaborate on this any further? Traditionally, life insurance has always been bought more for tax benefits than for what it is actually purported to do; i.e. insure human life. But the role of life insurance in an individual's tax planning cannot, in any way, be undermined. Under the new regime, individuals can now invest upto Rs 100,000 in insurance premia to avail of a deduction from taxable income. The tax sops provided on insurance help `increase' the individual's disposable income and make him consider taking a life insurance plan which he otherwise may not have done.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
PEST Analysis There are several forces at work in every sector and every industry of an economy. The dynamic nature of every industry keeps the pulses of the companies operating in each sector racing. PEST refers to all political, economic, social and technological factors affecting any industry. Following are the different factors affecting the insurance sector: Political: • Malhotra Committee:
Till the year 1993, the insurance sector accounted to just 2% of the GDP whereas the world average was 8%. To improve the penetration of insurance as a percentage of GDP, the government set up a committee called as the Malhotra Committee in 1993. In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at “creating a more efficient
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Service Sector Marketing – Insurance _______________________________________________________________________ _ and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reform.” In 1994, the committee submitted the report and some of the key recommendations included: o Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry o Foreign companies may be allowed to enter the industry in collaboration with the domestic companies o Only one State Level Life Insurance Company should be allowed to operate in each state The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body. • The Insurance Regulatory and Development Authority
(IRDA):
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA’s online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. The IRDA since its incorporation as a statutory body has been framing regulations and registering the private sector insurance companies. IRDA being an independent statutory body has put a framework of globally compatible regulations. • Privatization of Insurance sector:
The introduction of private players in the industry has added to the colours in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was
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Service Sector Marketing – Insurance _______________________________________________________________________ _ distributed among the private players. Though LIC still holds the 80% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. • FDI in insurance sector:
Then, the issue came of amount of FDI to be allowed by a foreign player in the insurance sector. The government had allowed the private players to have foreign equity up to just 26 %. Efforts are going on to raise this to 49 %. After the opening up of the sector, a total of 18 private sector companies have entered the life insurance business and all of them have entered with a foreign partner. Economical: • Indian economy – growth projections:
By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. All these facts or forecasts only drive at one point. India is booming as a market. The global insurance industry has a big eye on India owing to its big opportunity. India is the next big thing in the global insurance industry. Many new insurance companies are planning to enter Indian markets. South African major Sanlam recently announced a tie up with
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Chennai based Shriram Group for life insurance business. French multinational Axa, which has been studying the Indian market for long, is expected to finalize its plan this year. Dutch insurer Aegon, on its second visit to the country after a gap of four years, is scouting for a partner and has set up an office. Korean giant Samsung, the newest kid on the block, also has set up a representative office. • Growing premiums:
Growing premiums are obviously attracting the new players. During the financial 2004 05 alone, the life insurance premium grew by 35% to over US $ 13.5 billion in 2004-05. According to Mumbai based research agency Crystalise Research, over the next five years, Crystalise believes this figure to zoom past the US $ 33.5 billion mark. The numbers at the industry level perhaps tell only one part of the story. The entry of private insurers in India has changed the way in which life insurance business has been done in India. Premiums of each of the dozen private players has gone up significantly within two years of operations, and the incumbent, LIC is being forced to pull up its socks. SBI Life Insurance reported a rise of 166% in its premium income to US $ 138 million for the financial year 2004-05, compared with US $ 53 million it collected in 2003-04. HDFC Standard Life’s premium incomes went up from US $ 67 million to US $ 113 million for fiscal 2004-05. In terms of first year premium revenue, the biggest gainer has been Bajaj Allianz, with a growth of 446.9%. The increasing premium rates are a reason why multinational insurers are flocking to India. • Per capita GDP:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ According to a study by Swiss Re, a leading global reinsurance company, once per capita GDP touches $10,000, life insurance premium collection takes off. India’s per capita GDP is hovering around $ 3000 but is expected to go up steeply given the economic growth projections. Also, India, despite being the second largest in terms of population and insured lives, posts a very low figure in terms of the country’s share of life insurance premium in the world’s total life premium collection – about 0.8%. This shows that the insurance sector provides ample untapped market for insurers.
•
Bancassurance:
Bancassurance - selling life insurance through bank branches - has also driven life insurance business over the two years. Here’s why. First, banks’ deposits as a percentage of total financial assets of the household sector have gone down from about 46% in 1980 to about 30% now. This means that banks have to seek other avenues, beyond just interest income, to remain profitable. Banks have found that selling life insurance policies is a great way to make profits. LIC distributes over US $ 1.6 billion as commission to its sales force every year. Even if banks succeed in capturing 10% of this amount, they would have revenue opportunities in the range of US $ 162 million, not a small sum for many banks. Result: As many as 32 banks have tied up with LIC to sell its life covers to their customers. LIC may have begun firming up its relations with banks, but by way of bank assurance, it has collected only around US $ 335 million, which is less than 1% of what the corporation collected by way of first premium
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Service Sector Marketing – Insurance _______________________________________________________________________ _ income last fiscal year. In contrast, private players have excelled in bankassurance. SBI Life, which has vaulted to the second position among private players, owes as much as 67% of its premium income to bankassurance. SBI Life has tied up its promoter and India’s largest commercial bank, State Bank of India, which has more than 10,000 branches spread across the country, for selling its policies. Account holders with the bank are offered life covers for as little as Re 1 per month. For most of the private insurance firms, bankassurance has contributed to about 50% of premium income.
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Tax benefits:
Payment of insurance premium had also been included in the service tax net in the 2004 budget. Although 2004 seemed to be a dampener for individuals insured, the Budget 2005 was a delight. Section 88 benefits have been scrapped. This means that tax rebate under Section 88 will not be applicable to an individual anymore. It has now been replaced by Section 80C. Under Section 80C, one can now invest a sum of up to Rs 100,000 in investment avenues like NSC, PPF, infrastructure bonds and/or life insurance and the same will be deducted from an individual’s taxable income. This is a welcome move. For one, there was a limit of Rs 70,000 on life insurance premium to avail of Section 88 benefits. This ceiling has now been raised to Rs 100,000. An individual can now allocate an enhanced amount to insure himself adequately and still get a tax benefit. He can also manage his portfolio better without having to worry about tax benefits. For example, he can increase his insurance coverage by
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Service Sector Marketing – Insurance _______________________________________________________________________ _ buying a term plan (pure risk cover plan) and allocate a sizable amount from his portfolio towards retirement planning. The changes in this year’s budget have also come as a welcome move for individuals whose annual earnings exceed Rs 500,000. Until now, these individuals did not benefit from the tax-saving on account of paying a life insurance premium. But this year’s budget has removed this anomaly and they too can now look at life insurance up to a ceiling of Rs 100,000 premium to avail of tax benefit.
Social: • Life expectancy & Mortality rate:
The life expectancy is defined as the number of years for which a new born baby will live in the prevailing mortality condition ns of that particular year. The mortality or crude death rate refers to the number deaths per thousand people. Both these factors are very important as they are used to derive the premium of a particular policy. All the insurance companies follow a set standard table referring to which they decide upon the premium rates. This is generally prescribed by the government. Following is the life expectancy and death rate in India:
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Service Sector Marketing – Insurance _______________________________________________________________________ _
•
Demographics:
One of the major influences on the premiums or prices charged by insurance companies is on the basis of the demographics. Premium rates largely depend on the age, sex of the individual insured. All the insurance policies have a different rate of premiums to be paid. This is mainly due to the difference in the risk involved of different individuals insured. • Gender discrimination: Gender based discrimination is rampant in any industry. In the insurance industry the companies have different premium rates for men and women. This cannot be actually called as gender discrimination. As is said earlier the premium depends on the life expectancy in the particular country. More often than not the life expectancy is different for men and women. Usually the women are expected to live more than the men and the difference is 5 years and greater. Hence, what the insurers argue is that the women are a relative less risk than the men and hence the premium charged is more for women. Insurers are providing cover against risk In order to provide them with cover against potential liabilities (that they can pay claims or the right level of benefits), pricing would have to be biased towards the most
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Service Sector Marketing – Insurance _______________________________________________________________________ _ secure -and often least favorable- variant. This is to allow insurers to fulfill all their commitments. "Gender-neutral" insurance in the true meaning of the word is impossible in voluntary insurance products. • Religion – Islam:
In its modern form, insurance was introduced in Muslim countries when many of them were occupied by Western powers, or when they came under Western influence. In some cases, its introduction was delayed in a country until its international business flourished. Like every thing that came with a “colonial” or Western color, insurance was first viewed by Muslim scholars with grave suspicion. A verdict of disapproval was common to most things thought to be introduced by non-Muslims. Muslim scholars are divided on the subject of the permissibility of life insurance. Some consider it forbidden on the assumption that it involves a kind of gambling and it goes against the principle of taqdir in Islam. Most of the insurance organizations today are involved in riba and other islamically prohibited transactions. It is for this reason important that Muslims should have their own insurance companies based on Islamic economic principles. Insurance can be re-organized under Islamic principles so that it is free from all prohibited practices. After Islamic banking, it’s the turn of Islamic insurance. Even as the Reserve Bank of India is exploring Islamic banking opportunities for Indian banks, the Life Insurance Corporation of India has set the ball rolling on takaful (Islamic insurance). LIC’s new international joint venture company - Indo-Saudi Insurance Company — will be the first to introduce takaful. This Arabic word
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Service Sector Marketing – Insurance _______________________________________________________________________ _ means ‘guaranteeing each other’ or joint guarantee. The entire pricing will be different as the benefits differ from conventional insurance policies. Its actuarial team has started working on the pricing mechanism and senior officials have been sent to Saudi Arabia to look into the product, he added. Takaful can be described as cooperative insurance where policyholders contribute a certain amount of money to a common pool. Each member pays his subscription (premium) to help those that need assistance. • Insurance insurance: Community-based schemes are typically targeted at poorer populations living in communities, in which they are involved in defining contribution level and collecting mechanisms, defining the content of the benefit package, and / or allocating the schemes, financial resources. Such schemes are generally run by trust hospitals or nongovernmental organizations (NGOs). The benefits offered are mainly in terms of preventive care, though ambulatory and in-patient care is also covered. Such schemes tend to be financed through patient collection, government grants and donations. With these community based insurers mainly in the rural areas, the rural people have good faith on them. This is one of the main reasons why the rural areas remain untapped by most of the insurance companies. The rural population associate themselves well with these community based insurers which makes life difficult for the big companies waiting to enter the rural areas. offered by NGO’s/ community based health
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Improving standard of living: If, by 2030 AD 50% Indian population reaches the level of middle class, Indian market for Insurance Sector will reach the level of 600 million from conservatively estimated present level of 100 million. Even at the present level of 100 million, Indian market is big enough by global standards for vigorous development as the premium density is only 0.6% as compared to 3 to 5% for developed markets. Prospects for conventional insurance development in Indian market in 21st Century are bright provided its transformation takes place in the right form and right type of strategy is developed to transform hidden potential into business. • Consumer attitude and preferences:
Insurance was always viewed by people as a safety net. Indians specially are very emotional as far as family members, security, social status and other such issues are concerned. The insurance industry is primarily based on the fact that people live their family their belongings and hence want them to be with them forever. This is the basic attitude of people towards insurance. The Indians, hence, are more vulnerable and tend to pay more attention towards the insurance advertisements and insurance products. • Other factors:
There are many other social factors that affect the insurance industry. The consumer’s mindset is such that insurance is viewed as a liability. This happens because, the policyholders have to pay regular premiums in the policy and as long as they live there is no benefit. Thus, this is a classic irony of insurance. One has to die to avail of the benefits. This brings about a negative picture of insurance as a product.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Technological: • Computerization:
Initially, in the late 1950’s the insurance companies used Unit Record Machines (Electro Magnetic Machines) to process data punched into cards. Computers were introduces in the mid 1960’s and by the 1980’s the Unit Phased Machines were phased out and the entire process was computerized. This brought about greater efficiency and quick service delivery. • Internet:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Internet usage has drastically improved in the last decade. There was a tremendous increase in the use of technology by LIC during the late 1990’s. The company launched its website www.licindia.com in the mid 1990’s to offer basic services such as modifying policies (change of address, change of nominee, etc) and querying the status of the policy. But today, the internet has completely changed the service delivery process. Internet is today used to even sell insurance policies. Internet is, in fact, proving to be one of the widely used distribution networks for selling insurance policies. Also internet is used for sending premium notices to policy holders through e-mails. Also LIC has a special feature on its website. It has a premium calculator which accurately displays the amount of premium month wise and the remaining balance. One just has to enter the age, name of the insurance policy, the sum assured and whether there is an accident cover or not. By keying in this information, the entire premium amounts are shown within no time. This has helped the customer in a way so that he/she doesn’t have to travel all the way to the branch to ascertain the amount of premium to be paid. • Metropolitan Area Network (MAN) and Wide Area Network (WAN): LIC has commissioned a MAN connecting more than 75 branches in Mumbai. This enabled the policy holders to pay their premiums and get their status report, surrender value quotations and loan quotation, from any branch in the city. Following the MAN in Mumbai, seven MAN centers (Chennai, Bangalore, Delhi, Calcutta, Pune, Hyderabad, and Ahmedabad) became operational.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ These MAN centers were connected to each other by a WAN network. This WAN was designed for distributed processing without a central database – each division maintained a database of the policyholders. The central office in Mumbai maintained an index of policy numbers and the corresponding IP addresses of the servers where the details of the policy were maintained. • Electronic Clearance Service (ECS):
Almost all the big organizations today provide the ECS facility to its customers. A policy holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. The advantage here is that once the option is exercised, the policy holder need not visit a branch for paying the premium or collecting the receipts. On the day indicated by the policy holder, the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office.
•
Bank ATM’s:
Many insurance companies have a tie-up with commercial banks so as to enable policyholders to use the facility of paying premiums through the bank ATM’s. ICICI Prudential has a tie up with ICICI bank; LIC has a tie-up with Corporation bank and UTI Bank. • Call Centres and SMS services:
Almost all the insurance companies have their own call centres which cater to the phone based queries of the policyholders. This service is
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 24x7 and they have the Interactive Voice Response (IVR) systems at all the branches. Also, LIC and other companies now provide SMS services going with the new trends like SMS banking in the banking sector.
26/7/2005 – Mumbai under water Mumbai will never be the same again. And so will the insurance sector in Mumbai after the 26/7 floods. Torrential rains which killed thousands and rendered many homeless, also led to loss of business and vehicles. • The facts:
As fallout of the torrential rains, the non-life insurance sector was flooded with more than 10000 claims totaling over Rs. 2000 crores.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ However, these did not include the 50000 cars that have been damaged in Maharashtra. While the top four private sector general insurance companies, ICICI Lombard General Insurance, Bajaj Allianz General Insurance, Iffco Tokio General Insurance and Tata AIG have together received claims worth over Rs 1,000 crore; the four state-owned general insurance companies New India Insurance, Oriental Insurance, United Insurance and National Insurance received claims close to Rs 1,500 crore. Private insurer, Bajaj Allianz General Insurance Company Ltd (BAGICL) alone had received claims for at least 10,000 motor vehicles after the recent floods in Mumbai. As several companies temporarily closed down their operations and godown stocks went missing, corporate claims were the highest, in terms of value. Next came claims for cars and household goods and from shopkeepers and traders for their warehouses. A majority of individuals and small and medium entrepreneurs also submitted claims. ONGC's insurance claim is considered to be the largest given its loss of $ 500 million after fire gutted the Bombay High rig. Insurance firms set up special cells to visit victims and settle claims. In many firms, the special teams worked round-the-clock to take stock of the loss and speed up the settlement process. Bajaj Allianz settled claims worth about Rs 200 crore without any documentation, to the victims of the recent floods in Mumbai.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ After the natural calamity, the Finance Minister sought speedy redressal of claims. He directed the Chairmen and Managing Directors of the four public sector general insurance companies that claims below Rs 50,000, arising out of the recent floods in Maharashtra and Gujarat, should be settled by August 31. Public sector player, National Insurance Company received 3,000 claims for Rs 350 crore from its customers in Mumbai for damage to property caused by the recent rains. While some insurers had taken a re-insurance cover, some have not. Mumbai floods brought to fore the ill-preparedness both among the mega polis administrative officials and the insurance sector. While the latter seems to have realized the damages, the former is still grappling with the situation. As death toll continues to rise, insurance firms have realized the need to better manage natural calamities. The premium for flood covers may rise in coming years.
•
The effect:
Here’s a warning to the lakhs of Mumbaikars who are planning to insure their houses in the wake of the recent deluge. One will have to read the fine print carefully. Public sector insurance firms are quietly planning to drop the word ‘flood’ from the policy. As of now, a household insurance policy is basically a fire insurance policy, which also incorporates a flood insurance policy. However, with 10,000 policy-holders filing claims totaling Rs 1,500 crores, insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ firms are looking at new ways to keep their heads above water. After the last calamity—the Latur quake of 1993— insurance firms had dropped earthquakes from the household insurance policy. Those wanting to insure their homes against flooding may now have to pay a separate premium. The insurance sector has suffered losses of about Rs 1,500 crore. These companies may not get re-insurance for these policies as they had not taken re-insurance for these small individual polices.
Product Mix A product is anything that can be offered to a market to satisfy a want or a need. A product mix is the set of all products and items that a particular seller offers for sale. In case of insurance sector, the product mix comprises of Life and Non – life insurance policies that are offered to the customer by the company. A company’s product mix has certain width, length and depth.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • The Width of a product mix: It refers to how many different product lines are available. In case of insurance sector, there are generally three different product lines i.e. Life Insurance, Marine Insurance and Fire Insurance. Life Insurance: Life insurance is a financial resource for your family and loved ones in case of your death. It is a contract between you and an insurance company in which the company provides your beneficiary (ies) with a certain amount of money upon your death. In return, you make periodic payments (premiums) in an amount that depends on medical history, age, gender, and occupation. General Insurance: The term general insurance essentially applies to the insurance risk that is not life insurance or health insurance risk and so the term covers familiar forms of personal insurance motor vehicle insurance, fire insurance and travel insurance. • The length of a product mix:
It refers to the total number of items in the mix. In case of insurance sector, the following is the length of product mix:
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Service Sector Marketing – Insurance _______________________________________________________________________ _
INSURANCE
LIFE INSURANCE
GENERAL INSURANCE
Whole Life Policy
Fire Insurance
Limited Payment Life Convertible Whole Life Policy
Marine Insurance
Joint Life Endowment Policy
Motor Insurance
Double Endowment Policy Jeevan Saathi
Business Risk
Burglary Insurance Money Back Policy
Annuity Plans
Group Insurance Policy Bima Sandesh
With or Without Profit Policy, etc.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • The depth of a product mix: The various products and various types of the products with distinct features. In the insurance sector, one policy can be made available in different variations. Some of the examples are as follows: Life Insurance:
Whole Life Insurance
Whole Life With Profit Policy
Limited Payment Whole Life Policy
Single Premium Whole Life Policy
These product mix dimensions permit the company to expand its business. E.g.: It can add new product lines thus widening its product mix. General Insurance:
Marine Insurance
Time Insurance
Voyage Insurance
Port Risk Insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Product Mix of LIC: (Product Width) Individual plan Group scheme (Product Length) Pension plan
Whole life scheme Nidhi Term assurance plan Joint life investment plan Capital market linked plan
Periodic money back plan
Jeevan Jeevan Akshay
(Product Depth)
(Depth of whole life schemes) Whole life without profit Limited payment whole life Single premium whole life.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Product levels: In this figure there is a nucleus or core in the center, which is supported by series of tangible and intangible features and benefits and these form a cluster around the core product.
EXP ECT ED
AUGMENTED
CORE
POTENTIAL
Leve l 1
Type service Core service
of Contents Basic service product
Insurance sector • Life • Non-life insurance
2
Expected service
policy Basic product and minimum • After sales service purchase conditions that • Low claim settling must be met. period. Something different, which • Technology
3
Augmente
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Service Sector Marketing – Insurance _______________________________________________________________________ _ d service enables one product to be • Online premium differentiated from other payment • Payment credit cards • Standing instruction 4 Potential service to bank Features that attract the • Maturity customers and are useful to them. claims through
settled on or before the maturity date. • Loans
The core product of insurance company is insuring life and non life products. People opt for this service as they want to secure their life, people dependent on them and other valuable things in life. The time factor plays an important role while providing service to the customer. The customer expects that the procedures for settling the claim should be short and not much time consuming. They should get the benefits of the service as soon as possible. Today the technology is boosting in each and every field. Insurance is not an exception. Companies have started providing customers facility of online payment of premium through their websites. They also provide online assistant to the customer the policy status and how to calculate the premium. To calculate the premium they just need the present age, the type of police, sum assured, and accident covered if any. By filling in this information you can calculate the amount of premium you have to pay. The customer can pay their premiums by means of credit cards or can also give standing instruction to the bank in order to pay their monthly premiums. ____________________________________________________________________ 34
Service Sector Marketing – Insurance _______________________________________________________________________ _ The insurance companies also provide loan facilities against their policies. At present loans are granted on unencumbered polices as follows: • • Up to 90% of the Surrender Value for policies, where the premium due is fully paid-up, and Up to 85% of the Surrender Value for policies where the premium due is partly paid-up. The minimum amount for which a loan can be granted under a policy is Rs150. The rate of interest charged is 10.5% p.a., payable half-yearly. Loans are not granted for a period shorter than six months, or on the security of lost policies (the assured must have the duplicate policies) or on policies issued under certain plans. Certain types of policies are, however, without loan facility.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Price Mix Price is one element in the marketing mix that produces revenue; all the other elements produce costs. Prices are easiest marketing mix elements to adjust; product features, channels and even promotion take more time. Price also communicates to the market the company’s intended value positioning of its product or brand. In the insurance business, the pricing decisions are concerned with the premium charged against the policies, interest charged for defaulting the payment of premiums & credit facilities, commission charged for underwriting & consultancy services Premium: Premiums are the periodic payments usually monthly or quarterly that the policy holder pays to the insurance company to purchase and keep a policy in force. For example in case of life insurance according to the policy it may be the amount payable during the endowment term of the policy or until the death of the life assured whichever is earlier. The common query raised by clients with their insurance agent is – why does his insurance company charge more premium for the same cover and tenure? We have tried to address this query below. Insurance is essentially a matter of sharing risk. A thousand people contribute a certain fixed amount (i.e. premium) and in future if something were to go wrong with any of the mass contributors, the lump sum collected as premiums is used to compensate for the loss. ____________________________________________________________________ 36
Service Sector Marketing – Insurance _______________________________________________________________________ _ The basis on which the insurance company decides the amount of premium to be paid by each person is determined mainly by 3 factors: • Mortality Tables:
All insurance companies refer to different mortality tables. These tables differ from country to country. The mortality table indicates the probability of a person dying in a particular age group. For e.g. in an age group of 25-30 years, the probability might be just two, but this probability would increase for a higher age group of 45-50 years. Life Insurance Company (LIC) with its long-standing presence has a mortality table, which is grossly outdated. Some other insurance companies have got their own tables but they are more or less in line with that of LIC. • Expected Surplus:
The premiums collected by the insurer are invested in capital markets. There is a fixed investment pattern for the insurer. Out of the surplus earned on the premiums invested, 95% is distributed to the policyholders and the insurance company retains the balance 5%. If an insurer expects to earn more return on his investment then he would charge more premiums to his investor. It also depends on the nature of return (compounded or simple) the insurer is planning to give to his policyholders. A compounded return would mean higher premium for the life to be assured.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Expenses: An insurance company has to incur expenses in the form of commission to agents, office expense, advertising expense, salaries to employees. These expenses are to be managed by the company in the 5% surplus earning which they earn as mentioned above. In order to meet the above expenses the insurer has to collect more premiums so that there is more surplus from which expenses can be met. Therefore even if an insurer’s premiums are a bit higher compared to others it is justified for the security of its policyholders and basically for its survival in the long run. Now the criteria’s on which the premium amounts are fixed are different from different types of Insurance’s. Life Insurance Pricing: The pricing in case of life insurance is done on the basis of: • Life Expectancy:
In case of life insurance, the premium amount tends to be different for different customers. This differentiation is on the basis of age, medical history of a person. Age E.g.: Low premium is charged for children and youngsters as it is assumed that they are at a lesser risk of death as compared to the aged people.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Medical History The medical history should be revealed to the insurance company by the customer in Utmost Good Faith i.e. the insured must provide to the insurer complete, correct and clear information of the subject matter of insurance. E.g.: If in the medical history it is mentioned that the person has suffered from heart attack in the past or if he is suffering from any terminal disease like cancer or AIDS then, he is at a higher risk of death and hence higher premium is charged. However, if the insured doesn’t reveal that he is suffering from terminal disease or has suffered a heart attack previously and he dies due to the disease or heart attack then, the insurance company does not pay the claim for the same. Motor Vehicle Insurance: Car insurance companies take many factors into account when determining what premiums the insured will pay. Everybody does not pay the same premium. You pay a premium based on what the company assesses as the possible risk you pose. The major factor is the age and condition of the car. The other factors are as follows:• Multiple cars or policies:
When you have more than one car on an insurance policy, most companies will give you what is known as a multiple line discount. Because you use the company for all of your auto insurance needs, they reward you. Plus, multiple vehicles mean that chance of you getting into an accident with one particular car is reduced. In addition to cars, many insurance companies offer life insurance and home or
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Service Sector Marketing – Insurance _______________________________________________________________________ _ renters insurance. Buying multiple policies from one insurance company can lead to discounts on all of your premiums. • Distance and amount of driving you do:
Most car insurance companies ask prospective clients how far, and to where, they do most of their driving in a day. The thinking is that further you have to drive, and the more often you do it, the more likely you are to have an accident. The person who commutes 45 minutes to work every day is going to pay more than the person who drives 10 minutes to work. Likewise, a college student who walks to class, and drives home three or four times a year will cost less than the college student who spends 30 minutes commuting to and from campus each day. • Location of your car:
Car insurance companies rate areas according to the number of accidents or thefts that occur in a specified amount of time in that area. Sometimes, the company can even pinpoint a neighborhood. If you live in a large city, your rates will be higher than if you live in a town. Additionally, if there are multiple thefts or car vandalisms in the area in which you live, you are more likely to pay a higher amount of insurance premium. However, if you know what car insurance companies consider when setting premiums, you have a better idea of the things you can do to reduce your premiums. For the most part, being a safe and responsible driver, and taking good car of your car, will help you keep your premiums low.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Fire and Marine Insurance Pricing: The principle of utmost good faith is applicable even for fire and marine insurance. E.g.: If a trader while taking a fire insurance policy does not disclose the previous occurrence of fire in the factory, and subsequently after taking policy, there is another fire, the insurance company may refuse to pay the compensation if it learns about the previous occurrence of fire which was not disclosed at the time of taking the policy. The pricing in case of fire and marine insurance is done on the basis of: • Type of Building:
In case of a building the rate of premium also depends on the type of construction. If it is wood construction the insurance premium is low as the cost in constructing a wood building is low in comparison to a concrete building which has higher premium amount • Past Experience:
If a fire or marine insurance company has a past experience of settling a claim successfully then, the credibility of the company increases and it charges higher premium for similar policies. The customers are assured that the company will be able to handle the claim well as it was done in past and hence they are ready to pay higher premium.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Discount Pricing: In insurance sector, discount is offered if group insurance is opted for. Group Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is very low. Discount is given on group insurance scheme because the insurance company gets a large number of customers at a time and hence it saves expenses on promotion and advertisement, which are to be incurred to attract new customers. Thus, discount is given in order to attract more customers at a time by this group insurance scheme. The cost incurred on giving discount is much less as compared to the cost spend and advertising and promotion. Hence discounting is much more profitable for the company However, 65 per cent of the pricing is still determined by the government that is the Tariff Advisory Committee. So the rates of premium are more or less the same. It is going to change over the next few years. In non-tariff products like personal accident etc there is a lot of pressure on pricing. Companies will have to be reasonable while determining a pricing structure because, across the globe, there are instances of companies going bust while playing the game of undercutting state-run companies.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Place Mix Place mix can be defined as the “Physical distribution i.e. the delivery of goods/ services at the right time at the right place to the customers.” Place decisions involve building relationships with the wholesalers, retailers and through these intermediaries building relationships with the customers. Products and services must be at the right place, at the right time in order to be consumed. Probably the best way to perceive place is to think of the flow of products from manufacturer through intermediaries to the consumer or user. This flow can be thought of as a channel used to move goods and services. The channel of distribution is a component of the place mix: Channels: According to Philip Kotler, “Channels are sets of
interdependent organizations involved in the process of making the product or service available for use or consumption” Marketing channel decisions are among the most critical decisions facing the management.” The channels chosen intimately affect all the other marketing decisions. In case of insurance sector, the following channel of distribution is followed according to the target market: CHANNELS
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Direct Selling ? Agents ? Financial Advisors ? Call Centers Partner Selling ? Bancassurance ? Postal Department ? Selling through Corporates Direct Selling: • Agents:
The agents are selected and recruited by the development officer of the insurance company. These agents inform the customers about the various insurance policies offered by the company and convince them to buy these policies. • Financial Advisors:
The financial advisors are also consulted by the customers regarding their financial matters. These advisors suggest their clients to get their goods insured against any calamity or risk. Hence they act as a channel in distribution of insurance. • Call centers:
The people who require insurance call up the call centers. These call centers send their direct marketing agents who go to the customer’s place and sell the insurance policy. Partner Selling: • Bancassurance:
With the evolution of interconnected financial services, banks are converting themselves into ‘one stop financial supermarkets’. This has ____________________________________________________________________ 44
Service Sector Marketing – Insurance _______________________________________________________________________ _ promoted two big classes of financial institutions: banks and insurance companies to combine and deliver an innovative product i.e. Bancassurance. In bancassurance, the insurance products are sold through the banks network of branches. Om Kotak Mahindra has tie-up with Dena bank, by which former doesn't entertain bancassurance with any other bank and the latter also doesn't distribute policies of any other insurance company • Postal Department:
India has an extremely well developed postal network, which is even stronger than the network of banks in the country. Post offices have been established even in the interior parts of the country. Insurance companies can tie up with the postal department to sell and distribute various insurance covers. This would certainly require upfront training costs, as the postal employees in turn need to educate and sell the concept and benefits of insurance to the people in rural areas. Such a tie up with the postal department would open up India’s rural areas, which are largely untapped for insurance sector. This can prove to be a sustainable source of growing revenues. • Selling Through Corporates:
Insurance can be sold through corporates too. E.g.: When a customer purchases a Maruti car, he gets the insurance of the car free from the Maruti Company itself. Thus this is termed as selling insurance through corporates. Electronic Channels:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ In the last decade, numbers of technological advances have taken place due to immense use of EDI (Electronic Data Interchange)
CHANNEL Electronic channels
? LIC on internet ? Information Kiosks ? SMS
•
LIC on Internet:
They have their own site, which is very informative. They display information about them and its subsidiaries, the product they offer. The addresses/e-mail Ids of their zonal offices, zonal training centers, management development centers, overseas branches, Divisional offices and also all Branch offices with a view to speed up the communication process. • Information kiosks:
LIC have set up 150 interactive Touch screen multimedia KIOSKS in prime locations in metros and some major cities for dissemination information to general public on our products and services. These KIOSKS are enabling to provide policy details and accept premium payments. • SMS:
SMS through mobile phone is recently new technology introduced by the LIC to promote their product.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Location: In insurance, location, the place where office situated is not as important as mostly the agents of the insurance company goes to the place of the customers for doing most of that customers work. However they situate their office branches at important location, which is convenient for the customer to visit. (May be near station or near commercial area).
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Physical Evidence Physical evidence is the environment in which the service is delivered and where the company and the customers interact and any tangible goods that facilitate the performance and communication of the service. Services are intangible and heterogeneous. Intangibility means that services cannot be displayed, physically demonstrated or illustrated; heterogeneity means that consumers cannot be certain about performance on any given day. It plays a major role in enhancing customers’ perception of the service quality. However, in case of insurance sector, the customer rarely visits the insurance company. The customer comes mostly only in contact with the service provider. Insurance Service 1 2 3 4 5 6 Tangibles as Physical Evidences Policy Documents Brochures Periodic Statements Renewal Notices Business Cards Stationary
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 7 Calendar, Diaries 8 9 Letters/Cards Website
People Mix. Employees: Employees are very crucial because: They are the service They are the brand They are the marketers They are the organization in the eyes of the customers. The various employees involved in providing service to the customer in insurance sector are: • Customer service representatives: process insurance policy applications, changes, and
They,
cancellations. They review applications for completeness, compile data on policy changes, and verify the accuracy of insurance company records. They may also process claims and sell new policies to existing clients. Nowadays, these workers are taking on increased responsibilities in insurance offices, such as handling most of the continuing contact with clients. A growing number of customer service representatives work in call centers that are open 24 hours a day, 7 days a week, where they answer clients’ questions, update policy
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Service Sector Marketing – Insurance _______________________________________________________________________ _ information, and providing potential clients with information regarding the types of policies the company issues. More than 28 percent of insurance workers are in management or business and financial operations occupations.
•
Marketing and sales managers:
These constitute the majority of managers in carriers’ local sales offices and in the insurance sales agents segment. These employees sell insurance products, work with clients, and supervise staff. Other managers who work in their companies' home offices are in charge of functions such as actuarial calculations, policy issuance, accounting, and investments. • Claims adjusters, appraisers, examiners, and investigators:
These decide whether claims are covered by the customer’s policy, confirm payment, and, when necessary, investigate the circumstances surrounding a claim. Claims adjusters work for property and liability insurance carriers or for independent adjusting firms. They inspect property damage, estimate how much it will cost to repair, and determine the extent of the insurance company’s liability; in some cases, they may help the claimant receive assistance quickly in order to prevent further damage and begin repairs. Adjusters plan and schedule the work required to process claims, which may include interviewing the claimant and witnesses and consulting police and hospital records. In some property-casualty companies, claims adjusters are called claims examiners, but in other companies, a claims examiner’s primary job is to review claims to ensure that proper guidelines have been followed. Only occasionally—especially when
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Service Sector Marketing – Insurance _______________________________________________________________________ _ disasters suddenly increase the volume of claims—do these examiners aid adjusters with complicated claims. In the offices of life and health insurance carriers, claims examiners are the counterparts of the claims adjuster who works in a property and casualty insurance firm. Examiners in the health insurance field review health-related claims to see whether the costs are reasonable based on the diagnosis. Examiners check claim applications for completeness and accuracy, interview medical specialists, and consult policy files to verify information on a claim. Claims examiners in the life insurance field review causes of death and also may review new applications for life insurance to make sure that the applicants have no serious illnesses that would prevent them from qualifying for insurance. Insurance investigators handle claims in which companies suspect fraudulent or criminal activity, such as suspicious fires, questionable workers’ disability claims, difficult-to-explain accidents, and dubious medical treatment. Investigators usually perform database searches on suspects to determine whether they have a history of attempted or successful insurance fraud. Then, the investigators may visit claimants and witnesses to obtain a recorded statement, take photographs, inspect facilities, and conduct surveillance on suspects. Investigators often consult with legal counsel and are sometimes called to testify as expert witnesses in court cases. Auto damage appraisers usually are hired by insurance companies and independent adjusting firms to inspect the damage to a motor vehicle after an accident and to provide unbiased estimates of repair cost. Claims adjusters and auto damage appraisers can work for insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ companies, or they can be independent or public adjusters. Insurance companies hire independent adjusters to represent their interests while assisting the insured, whereas public adjusters are hired to represent the insured’s interests against insurance carriers. Loss control representatives assess various risks faced by insurance companies. These workers inspect the business operations of insurance applicants, analyze historical data regarding workplace injuries and automobile accidents, and assess the potential for natural hazards, dangerous business practices, and unsafe workplace conditions that may result in injuries or catastrophic physical and financial loss. They might then recommend, for example, that a factory add safety equipment, that a house be reinforced to withstand environmental catastrophes, or that incentives be implemented to encourage automobile owners to install air bags in their cars or take more effective measures to prevent theft. Because the changes they recommend can greatly reduce the probability of loss, loss control representatives are increasingly important to both insurance companies and the insured. • Underwriters:
Underwriting is another important management and business and financial occupation in insurance. Underwriters evaluate insurance applications to determine the risk involved in issuing a policy. They decide whether to accept or reject an application, and they determine the appropriate premium for each policy. • Insurance sales agents:
About 15 percent of wage and salary employees in the industry are sales workers, selling policies to individuals and businesses. Insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ sales agents, also referred to as producers, may work as exclusive agents, or captive agents, selling for one company, or as independent agents selling for several companies. Through regular contact with clients, agents are able to update coverage, assist with claims, ensure customer satisfaction, and obtain referrals. Insurance sales agents may sell many types of insurance, including life, annuities, propertycasualty, health, and disability insurance. Many insurance sales agents are involved in “cross-selling” or “total account development,” which means that, besides offering insurance, they have become licensed to sell mutual funds, annuities, and other securities. These agents usually find their own customers and ensure that the policies sold meet the specific needs of their policyholders. • Lawyers:
The insurance industry employs relatively few people in professional or related occupations, but those who are so employed are essential to company operations. For example, insurance companies’ lawyers defend clients who are sued, especially when large claims may be involved. These lawyers also review regulations and policy contracts. Nurses and other medical professionals advise clients on wellness issues and on medical procedures covered by the company’s managed-care plan. • Computer systems analysts, computer programmers, and computer support specialists: These are needed to analyze, design, develop, and program the systems that support the day-to-day operations of the insurance company. • Actuaries:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ These represent a relatively small proportion of employment in the insurance industry, but they are vital to the industry’s profitability. Actuaries study the probability of an insured loss and determine premium rates. They must set the rates so that there is a high probability that premiums paid by customers will cover claims, but not so high that their company loses business to competitors. As most services are provided by people i.e. the employees, the selection, training and motivation can make a huge difference in customer satisfaction. Ideally, employees should exhibit competence, a caring attitude, responsiveness, initiative, problem solving ability and goodwill. In case of insurance sector, the people mix plays a very important role as there is high level of interaction between the service providers i.e. the insurance agent and the customer at every step of providing service. It is the insurance agents who find the customers and convince them to buy the insurance policies. The insurance agents also collect the premium of the policy and settle the claims. Thus, in order to improve the quality of the service, it is essential to recruit the right candidates to become insurance agents, train them and motivate them. Eg. In LIC (India) Customers: People mix not only includes employees but also customers. The customers are to be treated with respect and courtesy.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Process Mix In case of insurance sector, the process mix includes the various interactions that take place between the insurance agent and the customer in the process of selling the policy to the customer till the settlement of claims. The following process mix is followed by insurance companies in case of life insurance: 1. The insurance agent calls up the customer and informs him about the different policies offered by the company and the price mix of all the policies. If, the customer seems interested in taking the policy then, he fixes an appointment with the customer.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 2. The insurance agent meets the customer and gives him some information about the insurance company and also about the benefits of the policy. 3. The customer is then asked to fill a financial review form (FRF) and the agent is asked to find out the standard of living of the customer so that the insurance company gets a clear picture about the financial condition of the customer and what kind of policy he can afford. 4. The insurance company offers various policies but they might not be suitable for the customer hence, on the basis of his requirements and financial status, the insurance agent suggests two or three policies to the customer, which will be suitable for him. 5. The insurance agent explains the different policy plans in detail to the customer i.e. the amount of premium to be paid, the time interval at which the premium is to be paid, the benefits of each of the policy etc. A brochure is also provided to the customer wherein the entire description of all the policies is given. 6. Then, the insurance agent provides a feedback form to the customer and asks him to give his feedback regarding the policies that he has been informed about. This feedback is taken in order to find out whether the customer is satisfied with the plans of the policy or whether the company needs to make the policy plans more attractive so that it may appeal to its future customers. 7. Then, the next appointment is fixed by the insurance agent with the customer and in this meeting; the customer selects the policy
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Service Sector Marketing – Insurance _______________________________________________________________________ _ plan, which appeals to him. The customer is then asked to fill up the proposal form which contains various details of the payment and he is asked to make the first premium payment. 8. Then, the insurance agent submits the duly filled and signed form in the insurance office along with the other necessary documents. E.g.: Medical Reports in case of Life Insurance. Submission of Age Proof is essential as the rate of premium payable on a life insurance policy generally varies with age, and therefore age is one of the most important factors in determining the rate of premium payable in an individual case. The following is accepted as age proof: o Certified extract from municipal or local body’s records made at the time of birth. o Certificate of Baptism if it contains date of birth o Passport issued by passport authorities in India. o Certified Extract from school or college records, if date of birth is mentioned. The customer must get himself examined from the approved doctor of LIC. The medical examination is necessary to determine the physical fitness of the customer. If the medical report is favourable, then only LIC will issue the policy. 9. An average twelve days time is taken by the company to verify the submitted documents. After the twelve days period, the insurance agent meets the customer to provide him a policy document, which consists of the terms and conditions of the policy. This is because terms and conditions of the policy differ for different customers due to differences in medical conditions of
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Service Sector Marketing – Insurance _______________________________________________________________________ _ customers in case of life insurance and due to differences in nature of goods and mode of transportation in case of marine and fire insurance. 10. Then, a reconfirmation is taken by the agent from the customer that he agrees with the terms and conditions of the policy. 11. The insurance agent then regularly collects the premium from the customer whenever the premium becomes due.
Claim settling Process: (Life Insurance) • Claim by maturity/ Installment Payment:
The company strives to settle maturity claims and make periodic payments, as in case of Money Back Policies, on date itself. The office which services the policy sends out an intimation regarding the payment along with the necessary discharge voucher for the execution by the assured approximately two months before the due date of such payment.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Death Claim: In the event of the death of the policy holder, the claimant or the nominee should immediately intimate the branch office where the policy is serviced, the fact of such death, along with the following particulars: (a) Policy number, (b) name of the life assured, (c) Date of death and (d) claimant’s relationship with the assured. 2. Claim Forms: Soon after the receipt of the intimation of death, the branch office will send the necessary claim forms for completion along with instructions regarding the procedure to be followed by the claimant. 3. Evidence of Title: The claim is usually payable to the nominee as the case may be. However, if the deceased policy holder has not nominated or hasn’t made a suitable provision regarding the policy money by the way of will, the claim is payable to the holder of a succession certificate or some such evidence of title from a court of law. 4. Payment of Claim: The Company then makes payment to the rightful recipient. Claim Settling Process (Fire and Marine Insurance): 1. Intimation to Insurance Company: The insured must give immediate intimation to the insurance company regarding the loss. The necessary details like the day, date, time and causes of fire and in case of marine insurance, ship and voyage taken should be mentioned.
1. Intimation of Death:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 2. Assessment of the loss: The insured makes an assessment of the actual loss. Such assessment is required to fill the claim forms correctly in respect of the loss of goods or property. 3. Submission of the claim form: the insured must fill all possible details in the claim form. He must lodge the claim form within 15 days of the fire to claim compensation. In case of marine insurance, the insured should lodge a claim with the following documents: o Original Insurance Policy o Copy of Bill of Lading o A copy of commercial Invoice o A copy of packing list o Survey repot o Claim Bill Delay in submission of claim form may result in non-acceptance of the claim. 4. Evidence of Claim: Along with the claim form, the insured must send certain proof of fire and other records, if available and if necessary. The evidence should enable the insurance company to determine the amount of loss.
5. Verification of Form: The claim form along with the supporting evidence is verified by the insurance company. The insurance company then appoints the surveyors to conduct an assessment of the actual loss. 6. Survey:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ After the receipt of the form, and necessary verification, the insurance company appoints the surveyors to assess the actual loss. The surveyors conduct the necessary investigations. They investigate into the cause of fire, the actual amount of property lost and other relevant details. The surveyors then make the report of their findings and assessment of the loss. 7. Landing Remarks: In case of marine insurance, the insured should obtain landing remarks, from the port authorities, if survey report is not obtained. 8. Appointment of the arbitrator: There may be a dispute regarding the amount of claim. In such a case, an arbitrator is appointed, acceptable to both the parties, to settle the amount of the loss. 9. Settlement of Claims: If there is no dispute between the two parties, as to the amount of loss, the insurance company then makes necessary payment to the insured. In case of marine insurance, the amount of money is paid to India Exporter in Indian rupees. If the claimant is not a resident of India, payment maybe made in foreign currency.
Promotion Mix ‘Promotion’ is a descriptive term for the mix of communication activities, which a service organization carries out in order to influence the target customers on whom their sales depend. It is an element in
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Service Sector Marketing – Insurance _______________________________________________________________________ _ an organization’s marketing mix that serves to inform, persuade, or/ and remind people about an organization or individual goods, service, image, ideas, community involvement or impact on the society. It is used in hopes of influencing the recipients feeling, belief or behavior through any form of communication. Basically there are 4 steps to be followed before selecting a promotional strategy. These steps are as follows: 1. Identification of Target Market: The target market is the focus of deciding the promotion mix. The total number of groups is analyzed and decision is taken regarding which segment is to be targeted. Example: LIC (India) has introduced a new life insurance policy especially for children’s (JEEVAN ANURAG). 2. Determination and Setting Objectives: Service marketers employ a range of promotional methods, so it is essential to ‘What the promotion has to achieve’. It is necessary to define marketing objectives clearly so that most effective type of promotion is designed and utilized. In case of insurance sector, the main objectives of a promotion campaign will be: o To make all or maximum population aware of the various insurance policies of the company. o To promote the advantages of all the insurance policies. o To make the people aware of the risks involved and the importance of taking insurance.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Example: LIC (India) conducts seminars and mass marketing
campaigns in order to make the customers aware of insurance and why it is needed. 3. Message development for right communication effect: The message is an instrument for converting a suspect into a prospect. To obtain an effective response from the target market, there is always need to plan an effective message such that promotional efforts cause: o Building of brand image o Service awareness The promotional message should aim: o To provide knowledge for service o To ensure that customer will have a positive perception for service promoted o To build up preference for service offered In the insurance sector, LIC (India) and MetLife Insurance are examples of companies who have used promotion mix to promote insurance. Eg: LIC (India) promotes its life insurance policies using the slogan “Zindagi ke saath bhi, zindagi ke baad bhi” This creates awareness of risk of death as well as the importance of insurance. The slogan creates a positive perception about life insurance in the minds of people. 4. Selection of promotion mix:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ There should be a careful blend of promotion mix with the marketing strategy of the firm and each situation should be examined for its merits and demerits. The following criteria should be considered while devising different promotional techniques: o Overall marketing objectives o Activities of the competitors o Characteristic of target customer o Cost effectiveness, etc. The types of promotional methods used in insurance sector are as follows: o Advertising o Public relations o Sales Promotion o Personal Selling o Word of Mouth. • Advertising:
It is a paid form of non-personal communication. It is used to create awareness and transmit information in order to gain a response from the target market. Forms of advertising are as follows: o News Papers and Magazines: LIC give ads in the news papers and magazines round the year to continue its brand image and also when new products are introduced. Normally its ads are published in Times of India. o Electronic media: ____________________________________________________________________ 64
Service Sector Marketing – Insurance _______________________________________________________________________ _ Insurance companies also advertise its services in the Electronic media like: Internet (Websites): like LIC (www.licindia.com), ICICI
?
Companies
(www.iciciprudential.com) all have websites from which people can get the information about their products, prices, various schemes, and lots of other information. People can also purchase the product through this website. Television:
?
Companies like LIC, Met Life India, advertise on television to make people aware of their products and services. Radio:
?
ICICI Prudential advertises on 92.5 red Fm. o Hoardings: LIC put its hoardings where there is a mass flow of people, especially outside the railway station or at the backside of the bus. When Met Life was introduced it has put his hoardings on the side of the train, to target huge number of people. o Brochures: Companies provide brochures to the customers so that they can have a look on various schemes and their prices. Eg: LIC have brochures of various schemes that are available different languages i.e. Hindi, Marathi, English, and other regional
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Service Sector Marketing – Insurance _______________________________________________________________________ _ languages. They provide the brochure of the scheme the customer has chosen, in the language which they understand. Brochure will provide the customer the information like features of the scheme, amount of premium to be paid, rebates (if any), etc. • Public relations:
Public relations are helpful for the companies to build their brand image, to maintain good relationship with customers, to make the people aware of its recent happenings, etc. Mediums of Public relations are: o Press releases: This helps the company to convey its message to its customers and other people. o Seminars: These are held to provide information about the new product launched, position of the company in the market, etc. • Sales Promotion: o Gifts: LIC provides diaries, pens, booklets, etc to its customers. o Sponsoring Events: Eg: Max New York Life Insurance Company has sponsored the recent India-Zimbabwe-New Zealand tri series.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Personal selling: o Agents: It is the most widely used method of promotion by all insurance companies. They recruit, train and motivate the insurance agents to convince the customers to buy insurance policies of that particular company. The agent also collects the monthly premium and settles the claims of the customers. o Role and selection of agents in LIC: LIC policies are sold and not purchased and this selling is done by agents. Agents constitute around more than 75% of the LIC sales, so agents are very important for LIC. LIC selects the agents on the following basis: ? ? ? Minimum education upto HSC. Has to undergo 100hrs training. Pass the test with more than 50%, conducted immediately after training. ? Then he gets the license for 3 yrs. After 3 yrs he has to renew the license. ? He has to sell 12 policies or policies worth minimum 1lac in 1 yr. ? He receives commission per policy; normally it ranges upto 15%-25% of the premium paid. o Staff: Staff should be adequately trained so that they help in increase in sales.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Word of Mouth:
Word of Mouth promotion plays the role of hidden sales force. The word of mouth promotion is normally carried out by customers, agents and employees. It can be positive or negative depending upon the service or experience they receive. o Customers: It is important for the organization to provide customers with quality service so that he is satisfied and spread the good word of mouth. On the contrary if the customer is not satisfied with the service or experience he spreads bad word of mouth. Eg: LIC settles the claims of the customers within 1-2 days, which is fastest in the world and thereby providing them with quality service so that customers is satisfied and spread good word of mouth. It also maintains good relationship with their customers. o Agents: LIC maintains good relationship with their agents. If they complete certain target assigned to them LIC gives them extra % on premium. Thereby keeping them happy so that they spread good word of mouth to their clients.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Promotion done by LIC in rural areas:
LIC market may be reducing in urban areas but it is still 100% in rural areas. This is because of the promotion strategy adopted by LIC. What LIC does in rural areas is: o LIC does the promotion when the panchayat meetings are held, as all the people meet in the panchayat meeting LIC can communicate to a huge mass of people to promote its policies. o People in the village are hugely influenced by the word of mouth promotion so what LIC does is, it gives some money to the sarpanch (head of the village) of the village to spread good word of mouth of the company. So people are easily influenced and purchase the policy of LIC. o LIC also keeps low premium of the policy so that each villager can afford it.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Punch lines and logos:
It helps to create awareness about the brand among the target audience. It also helps the company to convey its message to the customer. Brand LIC Oriental Insurance Max New York ICICI Lombard Birla Sunlife ING Vyasya ICICI Prudential Aviva Royal Sundaram Bajaj Allianz Positioning: Tag Line Zindagi ke saath bhi, zindagi ke baad bhi Prithvi, Agni, Jal, Aakash, Sabki suraksha hamare paas Your partner for life Business Uninterrupted Your dreams, our commitment Adding life to insurance We cover you at every step in life. Kal par control Beyond Expectations Haske Jeeyo Yaar
Flower of Services
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Flower of services refer to a well-formed package of total services with all the supplementary services being well formulated along with the core services. The various petals of the flower are:
•
Information:
A marketer needs to provide adequate information to his employees and his customers. This information is general information provided through various communication channels. In the insurance industry information is provided to the customers with the help of: ____________________________________________________________________ 71
Service Sector Marketing – Insurance _______________________________________________________________________ _ o Agents o Seminars o Web sites o Print media o Radio o Television, etc. • Consultancy:
This is additional customized information provided to the potential customers by the service provider. In the insurance industry it is provided by company’s staff and agents. Example: In LIC when a customer enters asking of information about the policy, he is directed towards the assistant sales manager. Assistant sales manager will listen to the customer’s requirement and as per his requirement list the number of policies that are available. He will also ask the customer about the price and limit the number of options for the customer, so that he can easily choose the policy without confusion. • Order taking:
Order taking should be done without mistakes. In LIC order taking is generally done by: o By Agents o On Web site (www.licindia.com) o By Assistant sales manager directly in the office.
•
Hospitality: 72
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Hospitality is a very pretty petal, reflecting pleasure at meeting new customers and greeting old ones when they return. Hospitality finds its full expression in face-to-face encounters. In LIC customers directly come in contact with the sales manager. The customers are treated as guests. The sales managers of LIC are given special training of how to sell the policies to the clients. It is only in LIC that a customer can meet the chairman directly without any appointment. • Safe keeping:
It is in the process and procedures used by marketers to safe guard and to maintain secrecy. In LIC the data of the customers is very important. They feed the data of the customers in their Front and Application Program Software which is connected with all the branches of LIC. The data is only available with the sales people and not shown to any person. • Exceptional:
Exceptional service means service over and above customer’s expectations. LIC has the fastest claim settlement in the world thereby providing exceptional service. LIC also solves complains of the customers within 7days.
•
Payment:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The payment of premium is normally through cheques. Customer can make payment in LIC through: o Agents o Loans o Web sites o Standing instruction to banks: In this the account holder will give standing instruction to his bank to pay the amount of premium every month without his consent on the given date directly to LIC. • Billing:
The billing should be done in such a way that there are no mistakes and if there are any they must be immediately rectified. The billing should provide break-ups of premium charged, service charges, etc.
“Insurance is no more a public sector monopoly in India”
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Till the late 1990’s the Indian Life Insurance Industry was completely in the hands of LIC. • After 40 years of nationalization, only 25% of the insurable population was covered. This was one of the major reasons for opening up the sector to allow private players. • Per capita premium for life insurance is as low as $6 and that for non life insurance is $2. This accounts for 2% of the GDP compared to the world average of 7.8% • Developed economies particularly from Western Europe and the U.S find the Indian market as having greater growth potential than their domestic markets. • The insurance sector has been opened upto the private sector, with a view to making available long-term funds for infrastructure, introducing new and innovative products and effecting improvement in quality of service to customers. • The Insurance Regulatory and Development Authority (IRDA) was setup on 19th April 2000. It has so far issued licenses to 10 companies.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ List of 10 foreign players entering the Indian Insurance Sector and their Indian Partners who are approved:
COMPANY HDFC-STANDARD LIFE ICICIPRUDENTIAL BIRLA SUN LIFE
INDIAN PARTNER HDFC ICICI ADITYA
FOREIGN INSURER STANDARD LIFE-
U.K PRUDENTIAL- U.K BIRLA SUN LIFE- CANADA NEW YORK LIFE-
GROUP MAX NEW YORK MAX INDIA LIFE OM KOTAK SBI INSURANCE ING VYSYA TATA-AIG MET LIFE INDIA ALLIANZ-BAJAJ
U.S.A KOTAK MAHINDRA OLD MUTUAL- S.A FINANCE LIFE SBI VYSYA BANK TATA JAMMU CARDIFF- FRANCE ING INSURANCE-
NETHERLANDS AIG- U.S.A AND MET LIFE- U.S.A ALLIANZ
KASHMIR BANK BAJAJ AUTO
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Joint Venture between India’s largest housing finance provider – HDFC and Europe’s largest mutual life assurance company – The Standard Life Assurance Company (UK) • HDFC Standard Life Insurance Company is the First Private Sector Life Insurance Company to be granted a license Products Offered are: o Endowment Assurance Plan o Money Back Plan o Development Insurance Plan
• • •
Joint Venture between the ICICI Group and Prudential (UK) Came together in 1993 Prudential is the largest life insurance company in UK
Products Offered: o Endowment Assurance Plans o Protection Plans
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Coming together of the Aditya Birla Group and Sun Life Financial of Canada • The Sun Life Financial Group of companies and partners are represented globally in Canada, Philippines, Japan, Indonesia, India and Bermuda Products Offered: o Endowment Plan o Money Back Plan o Whole Life Plan
The influence of private players has created the following benefits: • Benefits to customers:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ o Reduction in the price of product under competitive market. o More innovative products to be available in a competitive market. o Improved management of investment portfolio. o Improved quality of service due to use of IT and multi distribution channels. • Benefits to Industry: o New Insurers to earn high profit in the initial stages due to large size of Indian insurance market. o Insurance intermediaries will include agents, Brokers, Independent Financial Consultants etc. The commission paid may exceed Rs.46000 crores in a period of 10 yrs annually. o Advertising campaigns may reap benefits as an additional advt market for Rs.10000 crores will be opened in 10 yrs directly related to the insurance sector. o Computer industries will benefit. o Placement services, management institutes & training institutes will also be benefited as the insurance sector after opening up will require many people thus increasing the employment opportunities.
Impact of Liberalization on LIC:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The introduction of private players in the industry has added to the colors in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed among the private players. Though LIC still holds the 80% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 81 %( 200405). The following companies have the rest of the market share of the insurance industry.
Market share of the companies in Insurance industry:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Name of the company LIC ICICI PRUDENTIAL BIRLA SUN LIFE BAJA ALLIANZ SBI LIFE HDFC STANDARD TATA AIG MAX NEW YORK AVIVA OM KOTAK MAHINDRA ING VYASA AMP SANMAR METLIFE Market share % 81.3 6.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79 0.51 0.37 0.26 0.21
Dimensions of Quality Dimensions of quality Reliability: Ability to perform the promised Insurances’ point of view • Prompt delivery of premium by agents • Short claim settling periods
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Service Sector Marketing – Insurance _______________________________________________________________________ _ service dependably and accurately • Adhering to the time factor • Availability of information when desired Assurance: Knowledge, honesty & ability to perform the service by the front office staff to convey trust and confidence Courtesy? Respect friendliness and consideration, • Helping company • Birthday greetings • Condolences during death • Honest advice Credibility? Trustworthiness and believability • Depends Security? Freedom from danger • Trained agents Competence? Existence of required knowledge and skills Tangibility: Appearance equipments, of physical personnel facilities, and • Good communication skills • Agents must be well aware of company and its policies • Less number of forms • Brochures information • Feedback forms • Receipt and identity cards with adequate reliability on credibility and • Settling claims with least hurdles layman entering the
communication materials.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Empathy: Ability to provide caring • Convincing power of the • Talk in terms of customers’ language individualized attention Communication? Informing and explaining services offered
Understanding the customer? Making an effort to understands customers’ needs
• Welcoming the customer • Knowing the capacity to pay premium and then providing best alternative
Access? Ease of contact
• Help
lines,
call
centers
and
internet etc. • Mobile insurance vans • Information centers stretched across the country • Reminders for premiums.
Responsiveness: Willingness and readiness to help along with timeliness of service
• Regular contacts with customers. • Responding to a customer enquiry and prompt service. • No official hazards and handling problems promptly. Service Marketing Triangle
The Service Marketing Triangle is?????????? Rather than going for textual Concepts let us try to understand the Service Marketing Triangle with a totally different view.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
•
The Company/ Brain
The Company could be well represented in form of the Brain of the body. As the Brain controls all the bodily functions, the same way it’s the Company that undertakes all kinds functions through different medium. It could be assumed that as the brain makes promises to the heart of regularly pumping it with blood and oxygen supply, the same way the Company makes promises to its customer of regularly providing with the expected Service through External Marketing. The Brain also works as a coordinator between the heart and the Arteries and veins. The Company too co-ordinates all the External and the Internal Activities and links the Employees to the Customer. ____________________________________________________________________ 84
Service Sector Marketing – Insurance _______________________________________________________________________ _ • The Heart / Customers
The Customer could be best re-presented in form of the Heart of the Body. As we all know a body cannot function without the Heart, the same way a Company cannot function without its Customer. The Body is alive as long as the Heart is pumping. Once the Heart stops pumping the body will perish. The same way the Company is alive as long as there is a continues flow of Customers. Once the Customer flow stops, the Company will slowly start perishing. There are great chances of “Heart Attack” if there is no concern regarding the food intake and health issues. The first Heart Attack is generally a milder one, the second one a stronger one and there are very few chances that the person may survive after the third one. The same way the Company needs to take regular care and feedback of its customers. They should respond to Customer Complain as quickly as possible or else the Company may loose its Customers. The Company could get feedback from its Customers and could make promises accordingly. • Arteries & Veins / Employees & Agents:
And finally the Arteries & veins. May the Brain be the smartest one or the Heart be a very productive one, the main work which keeps the heart pumping is done by the Arteries and the Veins. Same is the case for the Employees of the Company who performs the main as well as the supporting activities which helps the Customer to be satisfied with the Company.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ As mentioned earlier, the Brain makes promises to the Heart for regular supply of blood and oxygen, but finally it’s the Arteries & Veins who fulfils the promise and supply it to the Heart. Similarly the Company makes promises to its customer but it’s the Employees and Agents of the Company that helps the Company to keep its commitments. So its very much clear from the above illustration of the Service Marketing Triangle, that as each and every part of the body (whether visible or not; big or small) is important as per its functions, the same way each and every element of the Service Marketing Triangle (Company, Employees and Customers) are important and each one has different role to play. Service Marketing Triangle in Insurance: The Service Marketing Triangle explains the concept of three types of marketing. The diagram explains the services triangle with its three constituents, namely, the company, the provider and the consumer. Given below is the Service Marketing Triangle of the LIC Company. The elements of the diagram i.e. Company/Agents; Employees; Customers and the related Marketing has been explained as under:
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Service Sector Marketing – Insurance _______________________________________________________________________ _
•
Company:
The company makes various promises to its customers through External Marketing. The external marketing function relates to anything that is communicated to the customer before the service is delivered. There are many factors beyond the traditional marketing mix that communicate to the customers in case of LIC. The Marketing Mix i.e. the product, price, place and promotion of LIC is been already explained the 7 P’s. However, the important role of Agents in LIC cannot be neglected. • Agents:
LIC is a kind of organization where Agents play one of the most prominent roles. No customer could get an insurance policy without ____________________________________________________________________ 87
Service Sector Marketing – Insurance _______________________________________________________________________ _ the help of an Agent. In fact, LIC has rule of getting policies of the customer only through its Agents. So in the above diagram the Agents are considered on the both the levels (Company & Employee level) as per their role. External Marketing is generally undertaken by the Company whereby the Company makes certain promises to the Customer through Marketing Mix. But LIC is an exception. Here even the Agents sometimes work as the Company itself i.e. they themselves carry out External Marketing and commit certain promises to its potential customers. No doubt, that the Agents do it on behalf of LIC, but there are many cases whereby the Agents do major part of the External Marketing and it’s the Company and the other Employees that help the Agents to keep their promises In LIC, the customer may come to know about the different polices through the External Marketing conducted by the Company as well as the agents, the customer has major interactions only with the Agent rather than the company itself. The Agents explain various types of policies available to the customer and convince them to purchase that. Even an aspect of the Company is not covered through External Marketing; it’s finally the Agents that convey different aspects through their own personal efforts and contacts. It is very clear that LIC would be handicapped without the Agents and the Agents not only work as the employees of the Company but also as the representatives of the Company as well.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Employees: The agents and the development officers act as the front-line staff and they are in direct contact with the potential or existing customers. They are the ones who keep or satisfy the promises made by the company. The marketing of insurance basically comes under concept selling. The agents are thus given various incentives, rewards, commissions and all the necessary training required. As regards incentive, they receive PLI (Productivity Linked Incentive), which is based on the increase in premium amount and the sums assured by the agent. They are also given extra commissions in case of policies, which are of high value. There are normal promotions for any good work done on a regular basis. The agents generally work under the training and guidance of their respective development officers. These incentives provided to the Agents and other employees are a part of Internal Marketing. Internal Marketing relates to meeting the needs of the employees so they can meet the needs of their customer. As explained above, the company tries to meet the needs of the employees or try to motivate them through their needs there by satisfying customer needs. Internal Marketing plays a very important role in LIC as the Agents are the heart of the company without whom the Company can’t get a single policy. • Consumers:
The consumers are the policyholders. Apart from the routine life insurance policies other services like housing finance, mutual funds,
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Service Sector Marketing – Insurance _______________________________________________________________________ _ pension and group insurance. Thus the range of consumers is far and wide. The employees of the Company need to convince the Customers through Interactive Marketing. Interactive Marketing is nothing but implementation of a marketing policy that is founded on direct interactive contact with the customer or the desired customer. It is done through different types of Employee-Customer communication, Customer Oriented Programmes, after sales services etc. As explained earlier, the LIC Agents try to convince the customers to get the appropriate policy provided by the Company. Word of mouth promotion and Personal Approach is one of the major aspects of Interactive Marketing in any Insurance Company.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The 4 I’s of Insurance Service The 4 I’s refers to the different dimensions/ characteristics of any service. Unlike pure product, services have its own characteristics and its related problems. So the service provider needs to deal with these problems accordingly. The service provider has to design different strategies according the varying feature of the service. These 4 I’s not only represent the characteristics of different services but also the problems and advantages attached to it. These 4 I’s can be broadly classified as: • • • • Intangibility Inconsistency Inseparability Inventory
Intangibility: Insurance is a guarantee against risk and neither the risk nor the guarantee is tangible. Hence, insurance rightly come under services, which are intangible. Efforts have been made by the insurance companies to make insurance tangible to some extent by including letters and forms Problems Cannot be displayed I.e. Any insurance Strategy followed by LIC Provide tangibility company Stimulates word of mouth encourages its agents to
cannot give physical evidence L.I.C
of the kind of service they are explain new and updated policies providing to their customers. for the existing policy holder as
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The Insurance Company cannot well as their family members i.e. promote its service by a mere indirectly marketing the service display; it needs to explain it to through word of mouth their consumers. Cannot be Patented Any Insurance Company could not patent its policy. The two companies could have same policies with variation in terms & two conditions, companies its payment same procedures, its benefits etc; the have policies without any variation
•
Inconsistency
Service quality is often inconsistent. This is because service personnel have different capabilities, which vary in performance from day to day. This problem of inconsistency in service quality can be reduced through standardization, training and mechanization. Problems Standardization is difficult Standardization too Strategy followed by LIC Training the Agents
some After appointing any employee as
extent is easy in case of Non- an Agent, the first thing that LIC life Insurance Policies as it deals does is to train them. with loss of goods that could be expressed in TERMS OF MONEY. LIC has a tradition of training the However, in case of Life recruited Agent atleast for 1
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Insurance it is very difficult month. to Standardize, as it deals with human beings which are highly irrational. This ensures and that all newly a quality appointed consistent standardization is, different Agents provide
same
The other reason for difficulty in service to all the policy holders. individuals opt for different Training back line staff policies, and some even ask Apart from Agents LIC also trains for customized policies which the back office employees to to suites their requirements. Each ensure consistency in the final policy has the policy value as product per the nature, period and customer. premium of the policy. Hence, only the procedures could be E.g. clearance of claims, premium standardized. Difficult to set up Quality control The any main representatives Insurance Focuses of Evaluation has another tradition of evaluating their Company LIC on Performance payment procedures, verification of documents etc. provided their
especially L.I.C. are its agents critically service provider and the service Agents receiver. product is Here, not the a Raw
who co-ordinate between the employee’s performance esp. the
material as well as the final LIC keeps a regular check on the physical performance of their agents within product (intangible). It is very a span of time difficult to set up Quality Control in case of Insurance E.g. No of policies sold by each
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Service Sector Marketing – Insurance _______________________________________________________________________ _ as the main elements of the agent in a month. product/service Beings. are Human Based on the evaluation LIC also provides determine after service is provided. However the major reason behind As mentioned above, it is very this is to increase the no. of policy difficult to maintain a certain holders. standards as well as to set up quality control. So the only Mechanization of Processes tries to mechanize ever to can it its is of cut be where helps customers thing the Insurance Company LIC quality of their after service the incentives to the
Can only predict Quality or deserving Agents.
could do is either to predict the processes or possible. determine provided. service processes Eg: the
Mechanization
inconsistency due to human errors.
For e.g. LIC gives training to reminded about the payment of each recruited agent for a fixed premium through e-mails and sms period before actually instead of agents. LIC also have computerized billing With these kinds of measures System the Company could ensure premium certain Standards and predict recorded the Quality of the service. where paid in the is amount of for automatically computer deploying them in the market.
the
future reference
•
Inseparability
Services are produced and consumed simultaneously. Consumers cannot and do not separate the deliverer of the service from the ____________________________________________________________________ 94
Service Sector Marketing – Insurance _______________________________________________________________________ _ service itself. Interaction between consumer and the service provider varies based on whether consumer must be physically present to receive the service. Problems Harder to Mass Produce Unlike, other services Strategy followed by LIC Training Programs like As Inseparability deals with the attachment of the
Catering (a group of people continues served) &
having similar taste could be service provider and the service Transportation itself, it is very much important for (where the destination can be the producer to conduct Training the same for a bulk of goods) programs on regular basis. could be mass produced up to some extent, Insurance service LIC is very difficult to produce, Insurance especially follows the regular trend of mass undertaking Training
Life Programs for their employees and agents so that they could provide a continues flow of effective
The main reason for this is that service to their customers and insurance deals with individuals ensure that there is no gap in the holding different policies and service provided having different life spans. Focuses on Personal Attention Less efficient than goods of the Policy Holders & production. It is very obvious that efficiency be maintained at Employees LIC also tries to maintain an flow and needs of of uninterrupted on the Policy the focusing
in service production could not unbroken consistent service rate as compared to goods personal production.
Holders as well as the Employees. LIC has a very strong Complaint
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Service Sector Marketing – Insurance _______________________________________________________________________ _ As compared to any other Handling and Human Relations Service Industry, Insurance has Management the The begins production when the longest individual process customers. agent team of to the cater policy needs
production/consumption period. holders as well as their internal
convinces the consumer to buy the policy and it is said to be consumed when the claim is settled and the the policyholder money. So it is very difficult to maintain a consistent efficiency for such a long period. • Inventory gets
No inventory can be maintained for services. Inventory carrying costs are more subjective and lead to idle production capacity. When the service is available but there is no demand, cost rises as, cost of paying the people and overhead remains constant even though the people are not required to provide services due to lack of demand. In the insurance sector however, commission is paid to the agents on each policy that they sell. Hence, not much inventory cost is wasted on idle inventory. As the cost of agents is directly proportionate to the policy sold. Problems Highly Perishable Strategy followed by LIC Focuses on Customer
First of all it is very difficult to Convenience by providing fast
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Service Sector Marketing – Insurance _______________________________________________________________________ _ maintain inventory due to its and timely Service highly perishable nature. Unlike LIC has understood the problem of goods, insurance services could high perishability of the customers not be stored as inventory for in form of inventory. Hence, LIC has longer period. set up simple but effective infrastructure and procedures to E.g. If an agent is able to ensure that they don’t loose their convince a customer by potential customers. Some of the promising him maximum benefit time facilities provided by LIC are from a particular policy, he need as under: to provide the same within the time, or else the customer may ECS – Electronic Clearance System switch to some other policy or to even some other Company Limited Capacity It is very obvious that every individual has its own capacity. Payment capacity of getting 12 through agents; and For e.g. an agent “X” may have many more. customers/policy annually while Incentives to Agents the other agent “Y” could do the LIC also provides different kinds of same within a period of month. incentive schemes to its Agents to ensure that maximum number of interested customer are converted All the agents as well as the into the actual users. other employees work as per their capacity, but all of them LIC also keeps track of the monthly may not be able to maintain the performance of each and every potential customers as potential agent and give incentive facilitate faster and timely payments; Fastest Claim Settlement;
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Inventory accordingly. LIC has set up certain minimum criteria as per the seniority of the agent A newly recruited agent has to get a minimum of 12 policies annually for first 3 years.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Service Recovery A disappointed customer does not just go away, but he/she goes away and might not come back at all. And there are great chances that he might take away some other existing customers or he may restrict the potential customer to be the Loyal Customer of the Company. Here lies the need for Service Recovery. It is quiet possible that at every given opportunity, he might speak about the negative experience that he had with the Company which finally affects the decision of the other customers too. In case of Insurance, it might the customer may be disappointed due various reasons like: • • • • • • • • Faulty claim settlement Lack of concern on part of the Agents/Company Lengthy and exhausting procedures Excessive number of documents for getting a policy as well as for claim Inflexibility in terms of premiums. Unavailability of required Infrastructure/ Technical Support System. (computers, printers etc) Better service quality from the competitors. And many personal reasons.
Impact of word of mouth on customer’s repurchase decision is twice as important as corporate advertising. So the Company needs to recover before things start to get worse. Insurance Companies should make sure that their customers are not dissatisfied due to service failure. And if at all they are disappointed, ____________________________________________________________________ 99
Service Sector Marketing – Insurance _______________________________________________________________________ _ they follow some basic steps to recover from the loss of Customer Dissatisfaction. Some of the steps are: • Apologise or Acknowledge:
Apology rendered in first person is the most powerful tool. The magic word “I am Sorry” provides authenticity of personal involvement. LIC has realised the importance of personal involvement and has included it in the training program itself. Once the Agent is recruited he needs to undergo a compulsory training program designed by LIC. The Training Program also explains them the importance of the smallest of the customer .i.e. customer who is just seeking general information. The Agents and Employees are trained to Apologise to its customers even if they are not at fault. “SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE LIC LOGO TO COME CLOSER FOR APOLOGY”
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Listen, Emphathise and Asks Question:
Customers are looking for a good listener who allows them to vent their frustrations, shows understanding of their upset and by listening offers tactic evidence of believing the customer’s report of the error on part of the company. As mentioned earlier, Redressal Machinery LIC has established elaborate at different level as per the Grievance customer
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Service Sector Marketing – Insurance _______________________________________________________________________ _ requirement. There are Complaint cells which are specially set up to listen up to each and every customer’s problems. LIC gas also set up Policyholder Councils and Zonal Advisory Boards to understand the problems of their customer situated in any part of the city. • Offers a Fair Fix to Problem:
Customers want wrong to be set right and expects service contact employee to be skilled, empowered and interested in setting things right. This is the main reason why LIC conducts training programs for the newly recruited Agents as well as the other Employees. In any kind of breakdown situations LIC try to offer a rational explanation and demonstrate sensitivity and concern to the customer rather than defending themselves. For e.g. there is a breakdown in a computer at the payment counter. Now, these Payment Counter might be open only at a particular time of the day. So if the problem is repairable within a short period of time, than the Branch Manager would extend the timings for Payment (only for that day) so that the customer don’t have waste another day for the same purpose. • Offers Some Compensation for the Inconvenience:
Compensation here wouldn’t mean of just monetary compensation or some extreme measures like firing the Branch Manager Etc; but it is just to make-up for the loss of customer satisfaction. It could be like “it’s on us”; “free service” etc. The service provider should plan certain compensation policies in advance for various types of situations and deliver it as and when the situation is faced.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ For e.g.: Suppose there is a customer who is standing in a long queue for payment of his premium on the very last date of the permissible period. And all the payments were not accepted on the same day within office timings and hence the payment was finally delayed. There are chances that the customer may blame the employees of the Company for slow clearance of the premium. The Company could however compensate to the customer by waiving the penalty payable due to delay in payment of premium. • Keep the Promises:
It basically means that the Company should keep the promises made to the Customer before or at the time of service provision i.e. the Company should fulfill its commitments. LIC makes sure that none of the Agents provide any kind of wrong information or false promises to its customers which mislead them. LIC ask their Agents to give reasonable commitments so that they could be fulfilled by the Company or the Agent on behalf of the Company. • Follow Up:
This is the most important step in Service Recovery as it ensures that whether the implemented Service Recovery was Satisfactory or not. It would include Internal and External Follow-up. Internal Follow-up would be to ensure that the solutions they put in motion are actually executed and the External part would be to get feedback from the customer whether he is satisfied or not.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Complaint Handling In a vast Organization like LIC, catering to the various needs and aspirations of millions of policyholders, grievances of customers do arise occasionally. In order to redress these grievances LIC has established elaborate Grievance Redressal Machinery and the details are as under. • Grievance Redressal Officers:
Grievance Redressal Officers have been designated at all levels of the Organization: At the Branch level: The Sr/Branch Manager At the Divisional level: The Marketing Manager At the Zonal level: The Regional Manager (Marketing) in case of Ordinary policies The Regional Manager (Pension and Group Schemes) in case of P&GS At the Central level: The Addl. Executive Director/Chief (Marketing/Customer Services) in case of Ordinary policies Chief (Pension and Group Schemes) in case of P & GS policies o Policyholders can personally contact these designated Officials and seek redressal of their grievances. o The respective Grievance Redressal Officers are available at their Offices for personal interviews with the customers on all Mondays between 2.30 p.m. to 4.30 p.m. without prior appointment. o Customers can meet the Grievance Redressal Officers on other days also with prior appointment.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ o The names of the Grievance Redressal Officers are displayed in the respective Offices and are periodically published in the local
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Complaint Cells:
For those customers who are not in a position to meet the Grievance Redressal Officers in person, a Complaint Cell is functioning at the Central, Zonal and Divisional Offices. They can send their written complaints to these Offices. Such complaints are registered and monitored with the respective servicing units for proper redressal. • Claims Review Committee: them to safeguard the interest of the genuine
In a few cases of death claims, LIC is put to the necessity of repudiating policyholders. Claimants who are dissatisfied with the decision of repudiation of claim can approach the Claims Review Committees set up at all the seven Zonal Offices and at the Central Office. These Committees comprise of senior Officials of the Corporation and also retired High Court/District Judges and they review the claims objectively and dispassionately to rule out any miscarriage of justice to the claimant. • Complaints received through the Government:
Some of the aggrieved policyholders write directly to the Government of India seeking redressal of their grievances. Such grievances are attended to on a top priority basis. For this purpose, a special cell has been set up at the Central Office level for monitoring and for satisfactory redressal. • Policyholder Councils and Zonal Advisory Boards:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ In all the 100 Divisional Centers, Policyholders' Councils have been established. Three policyholders of the area represent the interest of the policyholders and interact with the Divisional Management on consumer concerns. Similarly, at all the seven Zonal Centers, Zonal Advisory Boards are functioning. Many consumer-activists are inducted as Members to these Forums to protect the rights of the consumers. • Consumer Affairs Committee: A Consumer Affairs Committee has been constituted at the Board level with many eminent consumer activists and members of public joining as members along with the Chairman and the Managing Directors of the Corporation. This Committee looks into various areas of consumer interests and advises the Corporation. • Citizens' Charter:
LIC has adopted a Citizens Charter through which it reiterates its commitments to the customers and the standards for general procedures, the standards for policy servicing, the standards for easy access to information for customers and the standards for fairness in dealing with the customers have been laid down.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Market Segmentation According to Philip Kotler “Market segmentation is the sub-division of a market into homogenous sub-sets of customer where any sub-set may conceivably be selected on a market target to be reached with a distinct marketing mix” Thus market segmentation is the process that segments a market into smaller sub-markets called segments. Segments are homogeneous within and desirably heterogeneous in between. The rationale of intragroup homogeneity is that people with similar attributes are likely to respond somewhat similarly to a given marketing strategy. So that they can develop special marketing strategies for particular segments. Segmentation is normally performed along with demographic, geographic, psychographic, and behavioral variables; • Demographic variables describe characteristics of populations and include age, gender, race, education, occupation, income, religion, marital status, family size, children, home ownership, socioeconomic status, and so on. • Geographic variables include various classification of geographic areas, for example, zip code, state, country, region, climate,
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Service Sector Marketing – Insurance _______________________________________________________________________ _ population, and other geographical census data. Note that this information can come from national census data. • Psychographic variables describe life style, personality, values, attitudes, and so on. • Behavioral variables include product usage rate and end, brand royalty, benefit sought, decision making units, ready-to-buy stage, and so on. This information can be extremely useful for marketing purposes. Criteria of effective segmentation: • • • • • Measurable- size, purchasing power characteristics of the segment must be measurable Substantial - The segment must be substantial enough to earn profit Accessible- The segment must be accessible Differential- The segment must be conceptually distinguishable and respond differently to different marketing mix Actionable- Effective programme must be formulated for serving the segment Insurance Market Segmentation: In insurance industry, profiling is very important in determining premium rates. Typically, insurers collect every information available. However, analyzing thoroughly is not feasible since the number of variables is normally large. The starting point is thus mass marketing. In mass marketing, the seller engages in the mass production, mass distribution and mass promotion of one product/ service for all buyers.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ A niche on other hand is a more narrowly defined group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub segments. In terms of target customers, insurance products can be broadly classified into products that can be used to indemnify perils that are faced by a few individuals or industries. These can be termed as mass market and niche market products. Also, in terms of product complexity, insurance products can be categorized into low complexity and high complexity products. Low complexity products: These are simple products with a standard set of covered risks, perils and hazards. High complexity products: They have a large number of riders and warranties and do not indemnify certain causes of loss. PRODUCT COMPLEXITY TARGET SEGMENT Niche Market LOW HIGH
1. Fire
Insurance risk for
1. Weather Insurance 2. Product Liability
(different profiles each) 2. Marine Mass Market
Insurance 1. Householder’s comprehensive Policy 2. Medical
1. Personal Accident Insurance 2. Pension
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Insurance Products
The distribution strategy should vary according to the type of policy. Insurance products with low complexity can be sold through bankassurance, but products with high complexity should not be sold through the same channels, as it would be very difficult (in terms of time, effort and cost) to train bank employees in understanding the finer details of the complex policies. Products with high complexity need a certain amount of customer hand holding in terms of explaining the terms, conditions, riders and warranties of the policy. In case of niche marketing, direct marketing can be used in the form of e-mails and direct calls through agents to specific customers belonging to the target segment. For high complexity niche products, spreading awareness and selling through financial advisors, consultants and brokers would also be a good strategy.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ PRODUCT LOW HIGH COMPLEXITY TARGET SEGMENT Niche Market
1. Direct marketing through personalized mails 2. Advertise area in specific e-
1. Well agents 2. Financial
trained
advisors/consult ants 3. Brokers
journal with toll free numbers to set appointments Mass Market 3. Agents 1. Bancassurance 2. Postal department 3. Agents 1. Well agents 2. Advertise newspapers with up appointments toll free numbers to set in trained up
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Market Segmentation in Insurance
Household class Industrial sector Trade sector
Segment
Sub segmen
Institutional sector Region wise Rural sector
Significance of Segmentation in Insurance:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Helps to understand the need and the requirement of the policyholder and accordingly helps to cater i.e. the needs and the requirement rural sector is different from the urban sector • Segmentation helps in having a microscopic study of culture language, likes and dislikes. This helps in marketing decision which indirectly helps to cater all segments like rural & urban , men & women, agriculture and industrial. • Segmentation helps to make promotional measures more creative like advertisements, personal selling, pricing/fee decision • Segmentation helps to cover maximum policy holder. It helps to identify profitable segment and helps in formulating attractive packages.
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Conclusion With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion. According to government sources, the insurance and banking services' contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the stateowned Life Insurance Corporation (LIC) for investments are 8% of GDP. Till date, only 20% of the total insurable population of India is covered under various life insurance schemes, the penetration rates of health and other non-life insurances in India is also well below the international level. These facts indicate the of immense growth potential of the insurance sector. The year 1999 saw a revolution in the Indian insurance sector, as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Though, the existing rule says that a foreign partner can hold 26% equity in an insurance company, a proposal to increase this limit to 49% is pending with the government. Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have poured into the Indian market and 21 private companies have been granted licenses.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Innovative products, smart marketing, and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. Indians, who had always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer. The life insurance industry in India grew by an impressive 36%, with premium income from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition from private insurers. The market share of the state behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest the fall in its market share, as private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04. Though the total volume of LIC's business increased in the last fiscal year (2004-2005) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to about 22% in a year's time. The figures for the first two months of the fiscal year 2005-06 also speak of the growing share of the private insurers. The share of LIC for this period has further come down to 75 percent, while the private players have grabbed over 24 percent. There are presently 12 general insurance companies with four public sector companies and eight private insurers. According to estimates, private insurance companies collectively have a 10% share of the non-life insurance market. Thus it is clear, that insurance sector is booming and is one of the most dynamically growing sectors of the Indian chapter. Growth potentials are tremendous, and in era of cutthroat competition, the best marketer can reach to dizzying heights.
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Some Important Concepts in Life Insurance Annuitant is the person who receives certain amounts at yearly / halfyearly / quarterly / monthly intervals. Assignee is the person to whom the benefits under a life policy are assigned. Assignor is the person who holds the right/title under the policy and who can make a valid assignment. Bonus is the amount added to the basic sum assured under a withprofit life insurance policy. Claim Amount is the amount payable by the insurer under a policy on a claim arising Dating Back or Back Dating is an option to the life assured to get the advantage of lower age wherein the policy is commenced from a date earlier than the date of signing of proposal form. However back dating is limited to one year. Deferred Annuity is an annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Deferment date is the date on which the deferment period ends. Deferment period is the period from the date of commencement of the policy to the date of commencement of risk on the child's life under a Children's Deferred Endowment Assurance policy. EPDB Extended Permanent Disability Benefit Female lives Category I: Women with income earned by
•
Virtue of their employment in any reputed organisation or institution eligible for Non Medical Special Schemes. Professions such as Medicine, Law, Charted Accountancy etc. and lady career agents of LIC.
•
Category II: Women with unearned income attracting payment on income tax or women holding sizeable personal properties/investments yielding income attracting assessment for income tax. First Class Life An Individual is categorised as First Class Life if is eligible to have insurance coverage at normal rates of premium. First Unpaid Premium (FUP) First unpaid premium refers to the first default in paying premium by the policy holder. On payment of the due premium a receipt is issued and this receipt indicates the date of next due. If this due premium is not paid that date becomes the date of FUP.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Guaranteed Insurance Sum (GIS) Guaranteed Insurance Sum is equal to purchase price paid for a pension along with final Jeevan Akshay Bonus. Gross Insurance Value Element (GIVE) Gross Insurance value element is the amount payable on death of a policy holder under a Jeevan Dhara Policy. Guaranteed Additions are calculated at a rate per every thousand of sum assured. They are added to the basic sum assured and are payable on admittance of claim. This benefit is allowed only for each year for which premiums are paid. Life Assured refers to the person whose life is being insured. Last Birth Day (L.B.D) Age at last Birthday Lien In some cases extra risk is expected to decrease over a period of time. In such cases proposal is considered and accepted with lien. Lien operates through out the period, on a decreasing basis.In the event of death during the lien period full sum assured is not payable. Eg: If 25% decreasing lien is imposed for 5 years. It is understood that in first year risk cover(sum assured payable) is only upto 75%, second year-80%, third year-85%, fourth year 90%, fifth year 95%, and from sixth year onwards lien is not operative. Loyalty Additions
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Under certain life policies loyalty additions are given as an additional benefit to the policyholder. The rate of addition depends on the LIC's performance and is allowed only if the policy is in full force. Moral Hazard is said to exist in the case where we notice the absence of a genuine need for a life insurance or when a proposal for insurance is submitted by an individual beyond his means. Near Birth Day (N.B.D) Age on nearest birthday Nominee Nominee is the person who is nominated to receive the amount under a policy and to give a valid discharge to the insurer on settlement of claim under a life insurance policy. Non-Standard Life Any individual, who cannot be granted a policy under normal rates of premiums but can be granted with an extra premium over normal rates of premium, is considered as a Non-Standard Life. Paid-up value is the reduced amount of sum assured paid by the insurer in case of discontinuation of the payment of premiums after paying the full premiums for the first three years. PDB Permanent Disability Benefit Premium is the amount paid to secure an insurance policy. Proposal Form
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Service Sector Marketing – Insurance _______________________________________________________________________ _ It is a form which is to be completed for securing an insurance policy. Proposer is a person who proposes the insurance policy. Premium Waiver Benefit (PWB) is the benefits which can be availed under children's policies, wherein the future premiums payable up to vesting date are waived in the event of death of the proposer. Sum assured is the amount that an insurer agrees to pay on the occurrence of an event. Surrender value is the amount payable to the policy holder on his surrendering his right under a policy and terminating the contract of insurance. Target pension is the amount of pension which one wishes to receive under a pension policy. Term is the period for which insurance coverage is given. Vesting Date This is the date from which the life assured i.e., child becomes the absolute owner of the policy. Vesting Bonus It is the Bonus, which the insurer declares after evaluating its assets and liabilities, and that is added to the sum assured under a policy. Waiting Period It is the period starting from date of commencement of a policy to the date of commencement of risk under a Jeevan Kishore Policy.
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LIC Print Ads
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doc_777943313.doc
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Service Sector Marketing – Insurance _______________________________________________________________________ _ In fact, many traders could not meet the obligations of the principals and, as per their contracts, were forced to become slaves along with their families. Human ingenuity was set to work and, in course of time, a practice developed that debt of the trader, both principal and interest, should be absolved if certain specified contingencies occur. Research scholars claim that insurance was known and practiced in India even during the ancient Vedic times. In Rig-Veda the references are made to the concept of ‘Yogakshema’ which is more or less akin to the well being and security of people. Manu the ancient scholar and lawgiver enjoined that a special change be made on goods carried from one place to another to ensure their safe carriage, until it was finally handed over to the consignee at the destination. This makes it clear that the traces for sharing the future losses were available even in ancient India. Recorded evidences testify that ancient India was a prominent maritime power. There were busy seaports on the west coast at Broach, at Kaveripumpatnam in the south and Banga in the east. Traders expressed difficulties in realizing money for the goods sent abroad. Loans were advanced to traders at specified rates of interest depending on the risk run and the duration of time for which money was required. Men skilled in sea voyages worked out risk premium rates. On successful conclusion of the voyage, the borrower returned the loan along with interest, when the eventuality insured against did not materialize but it often happened that he was unable to deliver the goods in sound condition at the time and place specified or if he was robbed, he was absolved of his liability.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ If the cargo was lost due to the negligence of the crew, the loss was to be borne by all the crewmembers, but when loss was caused by natural calamity, the members of the crew were not held responsible. A carrier who failed to reach the destination, could not claim freight, but was exempted from responsibility if loss was occasioned by an act of God. If the loss was due to “Piracy”, the cashier was not protected. The modern form of insurance with documentation et all started in London, England in 1666 after a catastrophe of a large extent. ‘The great fire of London’ resulted in the burning of 85% of the houses. The ashes injected life, strength, and emergence to the concept of fire insurance.The General Insurance company was started. With the colonial development of England, the system of documented insurance spread all over the world. The instance of first life insurance policy is found in England in the 17th century with the policy of life of William Gybbons on June 18, 1633 as the first recorded evidence. The first recorded life office was the ‘HandIn – Hand society’ which was established in 1696. We live in exciting times with changes and upheavals all around. New technologies, new inventions and changes in the economic and financial scenario, all have thrown up new insurance needs; needs never felt or heard before. This type of evolutionary process, in the last few decades, has given hope to new types of need-based insurance covers; public liability insurance, indemnity for medical practitioners for negligence, indemnity for chartered accountants and auditors for professional lapses, etc. Further, covers are engineering insurance, erection insurance, loss of profit, cover against atomic radiation and space travel and contracting AIDS.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ We have had bizarre insurance covers. Lizza Minnelli the singing sensation had insured her voice and so have Boy George and Michael Jackson. Mariene Dietrich and Betty Grable, Hollywood’s leading ladies have insured their legs. A well-known comedian in the USA had a policy insuring those in his audience, against anyone dying of laughter after hearing his Jokes! Mark Twain, the great American humorist said in his speech on Accident Insurance, “There is nothing more beneficent than accident insurance. I’ve seen an entire family lifted out of poverty and into affluence by the simple boon of a broken leg. I’ve had people come to me on crutches, with tears in their eyes, to bless this beneficent institution. In all my experience of life, I have seen nothing so seraphic as the look that comes into a freshly mutilated man’s face when he feels his vest pocket with his remaining hand and finds his accident ticket all right.”
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Service Sector Marketing – Insurance _______________________________________________________________________ _
The Indian Scenario Some important milestones in the life insurance business in India are: • • • 1818: The first Life Insurance Company known as the Orient Life Insurance Company was established 1912: Indian Life Assurance Companies Act – first statute to regulate the life insurance business. 1928: Indian Insurance Companies Act – government to collect statistical information about both life and non-life insurance business. • • 1938: Protecting the interest of the insuring public. 1956: 245 Indian and Foreign insurers and provident societies – central government and nationalized Some important milestones in the General Insurance business in India are: • • • 1907: The Indian Mercantile Insurance Ltd. – transacts all classes of general insurance business. 1957: General Insurance Council – frames a code of conduct. 1968: The Insurance Act – regulates investment & set minimum solvency margins.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ After Nationalization, a number of steps had to be taken to spread the insurance business much more widely to the rural areas and especially to the socially and economically backward regions with a view to reaching all the potential users of the services. For the expansion of insurance business it was essential to identify potential policy holders and to use marketing resources to transform them into the actual users. For this a strong sense of professional excellence and determination was required. The ambitious objectives of the Corporation necessitated a change in its management, which made a strong advocacy in favour of practicing the marketing principles. We intend to throw light upon the same in our presentation. In India the Life Insurance Corporation [LIC] and the General Insurance Corporation [GIC] are the biggest government controlled players in the field. We shall concentrate more on LIC whose insurance network has gained momentum and about which even the rural masses are well aware of.
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Users An individual or an institution, a person or a group of persons availing the services are termed to be actual users of the insurance organizations. Both the categories of prospects having the potentials, bearing the willingness but not using the services right now are termed to be the potential users. Four reasons for buying insurance products/Turning into a user: Ask individuals wanting to buy life insurance, about how they do their tax planning and the first reply will be - insurance policy. Such is the nature of life insurance. It is bought by almost everyone right from the bigwigs of the business world to small retail investors. And most buy it for one core reason - to save tax. But this is not the only reason. • Passing away early:
One is never sure about life. We often come across people claiming that nothing is going to happen to them; that they are too young to pass away. But do they really know what the future holds for them? We can assure you they don't, because the question `What if?' has probably never crossed their minds. We only have to read newspaper headlines about the recent Tsunami, the earthquake that took place
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Service Sector Marketing – Insurance _______________________________________________________________________ _ not so long ago and such other natural calamities to understand how the future can be unpredictable. Individuals need to insure themselves to secure the future of those who are dependant on them; especially so if they happen to be the sole breadwinners. You wouldn't want them to go through hardships or rely on others/relatives, etc. This, in fact, is the prime reason why one should buy an insurance policy. • Living too long: Advances in the field of medicine have grown by leaps and bounds over the past few decades. Due to this, life expectancies have gone up. This poses another problem for individuals. It is generally observed that individuals who tend to live way beyond their earning years like say, till the age of 85 or 90, usually face a problem coming to terms with increasing costs of living. And that is not taking into account the manifold increase in medical expenses of course. This takes place largely due to imprudent financial planning by individuals during their earning years. Insurance, if bought at the right time for the right amount, acts as a saviour in such times. Individuals could opt for a pension plan offered by insurance companies, which suits their profile in terms of income, proposed retirement age and proposed expenses post-retirement. Such plans provide an annuity, which means that individuals keep getting a fixed sum every month/year after they have retired. • Painful existence:
Maybe an individual has planned well during his earning years to secure himself financially. He has also designed his financial portfolio in such a way that he is drawing a comfortable monthly income to support his family expenditure. But what if an individual were to have a health problem afflicting him or his spouse? What if the remedy to this
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Service Sector Marketing – Insurance _______________________________________________________________________ _ ailment were to cost him a sum beyond his financial capacity? Here again, life insurance can act as the saving grace in two ways. One, by way of a medical rider like the accidental death benefit rider, permanent disability benefit rider, critical illness benefit rider. These riders are taken along with the life insurance plan and help cover the medical expenses. And secondly by allowing the individual to surrender the insurance policy. Of course this should be done only in case of an urgent need like a serious health problem and even then, after all other sources have been exhausted. Surrendering the policy will help in the generation of a lumpsum amount that can be used for covering the high cost of medical expenses. • Tax benefits:
Do we need to elaborate on this any further? Traditionally, life insurance has always been bought more for tax benefits than for what it is actually purported to do; i.e. insure human life. But the role of life insurance in an individual's tax planning cannot, in any way, be undermined. Under the new regime, individuals can now invest upto Rs 100,000 in insurance premia to avail of a deduction from taxable income. The tax sops provided on insurance help `increase' the individual's disposable income and make him consider taking a life insurance plan which he otherwise may not have done.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
PEST Analysis There are several forces at work in every sector and every industry of an economy. The dynamic nature of every industry keeps the pulses of the companies operating in each sector racing. PEST refers to all political, economic, social and technological factors affecting any industry. Following are the different factors affecting the insurance sector: Political: • Malhotra Committee:
Till the year 1993, the insurance sector accounted to just 2% of the GDP whereas the world average was 8%. To improve the penetration of insurance as a percentage of GDP, the government set up a committee called as the Malhotra Committee in 1993. In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at “creating a more efficient
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Service Sector Marketing – Insurance _______________________________________________________________________ _ and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reform.” In 1994, the committee submitted the report and some of the key recommendations included: o Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry o Foreign companies may be allowed to enter the industry in collaboration with the domestic companies o Only one State Level Life Insurance Company should be allowed to operate in each state The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body. • The Insurance Regulatory and Development Authority
(IRDA):
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA’s online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. The IRDA since its incorporation as a statutory body has been framing regulations and registering the private sector insurance companies. IRDA being an independent statutory body has put a framework of globally compatible regulations. • Privatization of Insurance sector:
The introduction of private players in the industry has added to the colours in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was
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Service Sector Marketing – Insurance _______________________________________________________________________ _ distributed among the private players. Though LIC still holds the 80% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. • FDI in insurance sector:
Then, the issue came of amount of FDI to be allowed by a foreign player in the insurance sector. The government had allowed the private players to have foreign equity up to just 26 %. Efforts are going on to raise this to 49 %. After the opening up of the sector, a total of 18 private sector companies have entered the life insurance business and all of them have entered with a foreign partner. Economical: • Indian economy – growth projections:
By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. All these facts or forecasts only drive at one point. India is booming as a market. The global insurance industry has a big eye on India owing to its big opportunity. India is the next big thing in the global insurance industry. Many new insurance companies are planning to enter Indian markets. South African major Sanlam recently announced a tie up with
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Chennai based Shriram Group for life insurance business. French multinational Axa, which has been studying the Indian market for long, is expected to finalize its plan this year. Dutch insurer Aegon, on its second visit to the country after a gap of four years, is scouting for a partner and has set up an office. Korean giant Samsung, the newest kid on the block, also has set up a representative office. • Growing premiums:
Growing premiums are obviously attracting the new players. During the financial 2004 05 alone, the life insurance premium grew by 35% to over US $ 13.5 billion in 2004-05. According to Mumbai based research agency Crystalise Research, over the next five years, Crystalise believes this figure to zoom past the US $ 33.5 billion mark. The numbers at the industry level perhaps tell only one part of the story. The entry of private insurers in India has changed the way in which life insurance business has been done in India. Premiums of each of the dozen private players has gone up significantly within two years of operations, and the incumbent, LIC is being forced to pull up its socks. SBI Life Insurance reported a rise of 166% in its premium income to US $ 138 million for the financial year 2004-05, compared with US $ 53 million it collected in 2003-04. HDFC Standard Life’s premium incomes went up from US $ 67 million to US $ 113 million for fiscal 2004-05. In terms of first year premium revenue, the biggest gainer has been Bajaj Allianz, with a growth of 446.9%. The increasing premium rates are a reason why multinational insurers are flocking to India. • Per capita GDP:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ According to a study by Swiss Re, a leading global reinsurance company, once per capita GDP touches $10,000, life insurance premium collection takes off. India’s per capita GDP is hovering around $ 3000 but is expected to go up steeply given the economic growth projections. Also, India, despite being the second largest in terms of population and insured lives, posts a very low figure in terms of the country’s share of life insurance premium in the world’s total life premium collection – about 0.8%. This shows that the insurance sector provides ample untapped market for insurers.
•
Bancassurance:
Bancassurance - selling life insurance through bank branches - has also driven life insurance business over the two years. Here’s why. First, banks’ deposits as a percentage of total financial assets of the household sector have gone down from about 46% in 1980 to about 30% now. This means that banks have to seek other avenues, beyond just interest income, to remain profitable. Banks have found that selling life insurance policies is a great way to make profits. LIC distributes over US $ 1.6 billion as commission to its sales force every year. Even if banks succeed in capturing 10% of this amount, they would have revenue opportunities in the range of US $ 162 million, not a small sum for many banks. Result: As many as 32 banks have tied up with LIC to sell its life covers to their customers. LIC may have begun firming up its relations with banks, but by way of bank assurance, it has collected only around US $ 335 million, which is less than 1% of what the corporation collected by way of first premium
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Service Sector Marketing – Insurance _______________________________________________________________________ _ income last fiscal year. In contrast, private players have excelled in bankassurance. SBI Life, which has vaulted to the second position among private players, owes as much as 67% of its premium income to bankassurance. SBI Life has tied up its promoter and India’s largest commercial bank, State Bank of India, which has more than 10,000 branches spread across the country, for selling its policies. Account holders with the bank are offered life covers for as little as Re 1 per month. For most of the private insurance firms, bankassurance has contributed to about 50% of premium income.
•
Tax benefits:
Payment of insurance premium had also been included in the service tax net in the 2004 budget. Although 2004 seemed to be a dampener for individuals insured, the Budget 2005 was a delight. Section 88 benefits have been scrapped. This means that tax rebate under Section 88 will not be applicable to an individual anymore. It has now been replaced by Section 80C. Under Section 80C, one can now invest a sum of up to Rs 100,000 in investment avenues like NSC, PPF, infrastructure bonds and/or life insurance and the same will be deducted from an individual’s taxable income. This is a welcome move. For one, there was a limit of Rs 70,000 on life insurance premium to avail of Section 88 benefits. This ceiling has now been raised to Rs 100,000. An individual can now allocate an enhanced amount to insure himself adequately and still get a tax benefit. He can also manage his portfolio better without having to worry about tax benefits. For example, he can increase his insurance coverage by
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Service Sector Marketing – Insurance _______________________________________________________________________ _ buying a term plan (pure risk cover plan) and allocate a sizable amount from his portfolio towards retirement planning. The changes in this year’s budget have also come as a welcome move for individuals whose annual earnings exceed Rs 500,000. Until now, these individuals did not benefit from the tax-saving on account of paying a life insurance premium. But this year’s budget has removed this anomaly and they too can now look at life insurance up to a ceiling of Rs 100,000 premium to avail of tax benefit.
Social: • Life expectancy & Mortality rate:
The life expectancy is defined as the number of years for which a new born baby will live in the prevailing mortality condition ns of that particular year. The mortality or crude death rate refers to the number deaths per thousand people. Both these factors are very important as they are used to derive the premium of a particular policy. All the insurance companies follow a set standard table referring to which they decide upon the premium rates. This is generally prescribed by the government. Following is the life expectancy and death rate in India:
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Service Sector Marketing – Insurance _______________________________________________________________________ _
•
Demographics:
One of the major influences on the premiums or prices charged by insurance companies is on the basis of the demographics. Premium rates largely depend on the age, sex of the individual insured. All the insurance policies have a different rate of premiums to be paid. This is mainly due to the difference in the risk involved of different individuals insured. • Gender discrimination: Gender based discrimination is rampant in any industry. In the insurance industry the companies have different premium rates for men and women. This cannot be actually called as gender discrimination. As is said earlier the premium depends on the life expectancy in the particular country. More often than not the life expectancy is different for men and women. Usually the women are expected to live more than the men and the difference is 5 years and greater. Hence, what the insurers argue is that the women are a relative less risk than the men and hence the premium charged is more for women. Insurers are providing cover against risk In order to provide them with cover against potential liabilities (that they can pay claims or the right level of benefits), pricing would have to be biased towards the most
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Service Sector Marketing – Insurance _______________________________________________________________________ _ secure -and often least favorable- variant. This is to allow insurers to fulfill all their commitments. "Gender-neutral" insurance in the true meaning of the word is impossible in voluntary insurance products. • Religion – Islam:
In its modern form, insurance was introduced in Muslim countries when many of them were occupied by Western powers, or when they came under Western influence. In some cases, its introduction was delayed in a country until its international business flourished. Like every thing that came with a “colonial” or Western color, insurance was first viewed by Muslim scholars with grave suspicion. A verdict of disapproval was common to most things thought to be introduced by non-Muslims. Muslim scholars are divided on the subject of the permissibility of life insurance. Some consider it forbidden on the assumption that it involves a kind of gambling and it goes against the principle of taqdir in Islam. Most of the insurance organizations today are involved in riba and other islamically prohibited transactions. It is for this reason important that Muslims should have their own insurance companies based on Islamic economic principles. Insurance can be re-organized under Islamic principles so that it is free from all prohibited practices. After Islamic banking, it’s the turn of Islamic insurance. Even as the Reserve Bank of India is exploring Islamic banking opportunities for Indian banks, the Life Insurance Corporation of India has set the ball rolling on takaful (Islamic insurance). LIC’s new international joint venture company - Indo-Saudi Insurance Company — will be the first to introduce takaful. This Arabic word
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Service Sector Marketing – Insurance _______________________________________________________________________ _ means ‘guaranteeing each other’ or joint guarantee. The entire pricing will be different as the benefits differ from conventional insurance policies. Its actuarial team has started working on the pricing mechanism and senior officials have been sent to Saudi Arabia to look into the product, he added. Takaful can be described as cooperative insurance where policyholders contribute a certain amount of money to a common pool. Each member pays his subscription (premium) to help those that need assistance. • Insurance insurance: Community-based schemes are typically targeted at poorer populations living in communities, in which they are involved in defining contribution level and collecting mechanisms, defining the content of the benefit package, and / or allocating the schemes, financial resources. Such schemes are generally run by trust hospitals or nongovernmental organizations (NGOs). The benefits offered are mainly in terms of preventive care, though ambulatory and in-patient care is also covered. Such schemes tend to be financed through patient collection, government grants and donations. With these community based insurers mainly in the rural areas, the rural people have good faith on them. This is one of the main reasons why the rural areas remain untapped by most of the insurance companies. The rural population associate themselves well with these community based insurers which makes life difficult for the big companies waiting to enter the rural areas. offered by NGO’s/ community based health
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Improving standard of living: If, by 2030 AD 50% Indian population reaches the level of middle class, Indian market for Insurance Sector will reach the level of 600 million from conservatively estimated present level of 100 million. Even at the present level of 100 million, Indian market is big enough by global standards for vigorous development as the premium density is only 0.6% as compared to 3 to 5% for developed markets. Prospects for conventional insurance development in Indian market in 21st Century are bright provided its transformation takes place in the right form and right type of strategy is developed to transform hidden potential into business. • Consumer attitude and preferences:
Insurance was always viewed by people as a safety net. Indians specially are very emotional as far as family members, security, social status and other such issues are concerned. The insurance industry is primarily based on the fact that people live their family their belongings and hence want them to be with them forever. This is the basic attitude of people towards insurance. The Indians, hence, are more vulnerable and tend to pay more attention towards the insurance advertisements and insurance products. • Other factors:
There are many other social factors that affect the insurance industry. The consumer’s mindset is such that insurance is viewed as a liability. This happens because, the policyholders have to pay regular premiums in the policy and as long as they live there is no benefit. Thus, this is a classic irony of insurance. One has to die to avail of the benefits. This brings about a negative picture of insurance as a product.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Technological: • Computerization:
Initially, in the late 1950’s the insurance companies used Unit Record Machines (Electro Magnetic Machines) to process data punched into cards. Computers were introduces in the mid 1960’s and by the 1980’s the Unit Phased Machines were phased out and the entire process was computerized. This brought about greater efficiency and quick service delivery. • Internet:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Internet usage has drastically improved in the last decade. There was a tremendous increase in the use of technology by LIC during the late 1990’s. The company launched its website www.licindia.com in the mid 1990’s to offer basic services such as modifying policies (change of address, change of nominee, etc) and querying the status of the policy. But today, the internet has completely changed the service delivery process. Internet is today used to even sell insurance policies. Internet is, in fact, proving to be one of the widely used distribution networks for selling insurance policies. Also internet is used for sending premium notices to policy holders through e-mails. Also LIC has a special feature on its website. It has a premium calculator which accurately displays the amount of premium month wise and the remaining balance. One just has to enter the age, name of the insurance policy, the sum assured and whether there is an accident cover or not. By keying in this information, the entire premium amounts are shown within no time. This has helped the customer in a way so that he/she doesn’t have to travel all the way to the branch to ascertain the amount of premium to be paid. • Metropolitan Area Network (MAN) and Wide Area Network (WAN): LIC has commissioned a MAN connecting more than 75 branches in Mumbai. This enabled the policy holders to pay their premiums and get their status report, surrender value quotations and loan quotation, from any branch in the city. Following the MAN in Mumbai, seven MAN centers (Chennai, Bangalore, Delhi, Calcutta, Pune, Hyderabad, and Ahmedabad) became operational.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ These MAN centers were connected to each other by a WAN network. This WAN was designed for distributed processing without a central database – each division maintained a database of the policyholders. The central office in Mumbai maintained an index of policy numbers and the corresponding IP addresses of the servers where the details of the policy were maintained. • Electronic Clearance Service (ECS):
Almost all the big organizations today provide the ECS facility to its customers. A policy holder having an account in any bank which is a member of the local clearing house can opt for ECS debit to pay premiums. The advantage here is that once the option is exercised, the policy holder need not visit a branch for paying the premium or collecting the receipts. On the day indicated by the policy holder, the premium amount will be directly debited to the bank account of the policyholder and the receipt will be issued by the designated branch office.
•
Bank ATM’s:
Many insurance companies have a tie-up with commercial banks so as to enable policyholders to use the facility of paying premiums through the bank ATM’s. ICICI Prudential has a tie up with ICICI bank; LIC has a tie-up with Corporation bank and UTI Bank. • Call Centres and SMS services:
Almost all the insurance companies have their own call centres which cater to the phone based queries of the policyholders. This service is
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 24x7 and they have the Interactive Voice Response (IVR) systems at all the branches. Also, LIC and other companies now provide SMS services going with the new trends like SMS banking in the banking sector.
26/7/2005 – Mumbai under water Mumbai will never be the same again. And so will the insurance sector in Mumbai after the 26/7 floods. Torrential rains which killed thousands and rendered many homeless, also led to loss of business and vehicles. • The facts:
As fallout of the torrential rains, the non-life insurance sector was flooded with more than 10000 claims totaling over Rs. 2000 crores.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ However, these did not include the 50000 cars that have been damaged in Maharashtra. While the top four private sector general insurance companies, ICICI Lombard General Insurance, Bajaj Allianz General Insurance, Iffco Tokio General Insurance and Tata AIG have together received claims worth over Rs 1,000 crore; the four state-owned general insurance companies New India Insurance, Oriental Insurance, United Insurance and National Insurance received claims close to Rs 1,500 crore. Private insurer, Bajaj Allianz General Insurance Company Ltd (BAGICL) alone had received claims for at least 10,000 motor vehicles after the recent floods in Mumbai. As several companies temporarily closed down their operations and godown stocks went missing, corporate claims were the highest, in terms of value. Next came claims for cars and household goods and from shopkeepers and traders for their warehouses. A majority of individuals and small and medium entrepreneurs also submitted claims. ONGC's insurance claim is considered to be the largest given its loss of $ 500 million after fire gutted the Bombay High rig. Insurance firms set up special cells to visit victims and settle claims. In many firms, the special teams worked round-the-clock to take stock of the loss and speed up the settlement process. Bajaj Allianz settled claims worth about Rs 200 crore without any documentation, to the victims of the recent floods in Mumbai.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ After the natural calamity, the Finance Minister sought speedy redressal of claims. He directed the Chairmen and Managing Directors of the four public sector general insurance companies that claims below Rs 50,000, arising out of the recent floods in Maharashtra and Gujarat, should be settled by August 31. Public sector player, National Insurance Company received 3,000 claims for Rs 350 crore from its customers in Mumbai for damage to property caused by the recent rains. While some insurers had taken a re-insurance cover, some have not. Mumbai floods brought to fore the ill-preparedness both among the mega polis administrative officials and the insurance sector. While the latter seems to have realized the damages, the former is still grappling with the situation. As death toll continues to rise, insurance firms have realized the need to better manage natural calamities. The premium for flood covers may rise in coming years.
•
The effect:
Here’s a warning to the lakhs of Mumbaikars who are planning to insure their houses in the wake of the recent deluge. One will have to read the fine print carefully. Public sector insurance firms are quietly planning to drop the word ‘flood’ from the policy. As of now, a household insurance policy is basically a fire insurance policy, which also incorporates a flood insurance policy. However, with 10,000 policy-holders filing claims totaling Rs 1,500 crores, insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ firms are looking at new ways to keep their heads above water. After the last calamity—the Latur quake of 1993— insurance firms had dropped earthquakes from the household insurance policy. Those wanting to insure their homes against flooding may now have to pay a separate premium. The insurance sector has suffered losses of about Rs 1,500 crore. These companies may not get re-insurance for these policies as they had not taken re-insurance for these small individual polices.
Product Mix A product is anything that can be offered to a market to satisfy a want or a need. A product mix is the set of all products and items that a particular seller offers for sale. In case of insurance sector, the product mix comprises of Life and Non – life insurance policies that are offered to the customer by the company. A company’s product mix has certain width, length and depth.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • The Width of a product mix: It refers to how many different product lines are available. In case of insurance sector, there are generally three different product lines i.e. Life Insurance, Marine Insurance and Fire Insurance. Life Insurance: Life insurance is a financial resource for your family and loved ones in case of your death. It is a contract between you and an insurance company in which the company provides your beneficiary (ies) with a certain amount of money upon your death. In return, you make periodic payments (premiums) in an amount that depends on medical history, age, gender, and occupation. General Insurance: The term general insurance essentially applies to the insurance risk that is not life insurance or health insurance risk and so the term covers familiar forms of personal insurance motor vehicle insurance, fire insurance and travel insurance. • The length of a product mix:
It refers to the total number of items in the mix. In case of insurance sector, the following is the length of product mix:
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Service Sector Marketing – Insurance _______________________________________________________________________ _
INSURANCE
LIFE INSURANCE
GENERAL INSURANCE
Whole Life Policy
Fire Insurance
Limited Payment Life Convertible Whole Life Policy
Marine Insurance
Joint Life Endowment Policy
Motor Insurance
Double Endowment Policy Jeevan Saathi
Business Risk
Burglary Insurance Money Back Policy
Annuity Plans
Group Insurance Policy Bima Sandesh
With or Without Profit Policy, etc.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • The depth of a product mix: The various products and various types of the products with distinct features. In the insurance sector, one policy can be made available in different variations. Some of the examples are as follows: Life Insurance:
Whole Life Insurance
Whole Life With Profit Policy
Limited Payment Whole Life Policy
Single Premium Whole Life Policy
These product mix dimensions permit the company to expand its business. E.g.: It can add new product lines thus widening its product mix. General Insurance:
Marine Insurance
Time Insurance
Voyage Insurance
Port Risk Insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Product Mix of LIC: (Product Width) Individual plan Group scheme (Product Length) Pension plan
Whole life scheme Nidhi Term assurance plan Joint life investment plan Capital market linked plan
Periodic money back plan
Jeevan Jeevan Akshay
(Product Depth)
(Depth of whole life schemes) Whole life without profit Limited payment whole life Single premium whole life.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Product levels: In this figure there is a nucleus or core in the center, which is supported by series of tangible and intangible features and benefits and these form a cluster around the core product.
EXP ECT ED
AUGMENTED
CORE
POTENTIAL
Leve l 1
Type service Core service
of Contents Basic service product
Insurance sector • Life • Non-life insurance
2
Expected service
policy Basic product and minimum • After sales service purchase conditions that • Low claim settling must be met. period. Something different, which • Technology
3
Augmente
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Service Sector Marketing – Insurance _______________________________________________________________________ _ d service enables one product to be • Online premium differentiated from other payment • Payment credit cards • Standing instruction 4 Potential service to bank Features that attract the • Maturity customers and are useful to them. claims through
settled on or before the maturity date. • Loans
The core product of insurance company is insuring life and non life products. People opt for this service as they want to secure their life, people dependent on them and other valuable things in life. The time factor plays an important role while providing service to the customer. The customer expects that the procedures for settling the claim should be short and not much time consuming. They should get the benefits of the service as soon as possible. Today the technology is boosting in each and every field. Insurance is not an exception. Companies have started providing customers facility of online payment of premium through their websites. They also provide online assistant to the customer the policy status and how to calculate the premium. To calculate the premium they just need the present age, the type of police, sum assured, and accident covered if any. By filling in this information you can calculate the amount of premium you have to pay. The customer can pay their premiums by means of credit cards or can also give standing instruction to the bank in order to pay their monthly premiums. ____________________________________________________________________ 34
Service Sector Marketing – Insurance _______________________________________________________________________ _ The insurance companies also provide loan facilities against their policies. At present loans are granted on unencumbered polices as follows: • • Up to 90% of the Surrender Value for policies, where the premium due is fully paid-up, and Up to 85% of the Surrender Value for policies where the premium due is partly paid-up. The minimum amount for which a loan can be granted under a policy is Rs150. The rate of interest charged is 10.5% p.a., payable half-yearly. Loans are not granted for a period shorter than six months, or on the security of lost policies (the assured must have the duplicate policies) or on policies issued under certain plans. Certain types of policies are, however, without loan facility.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Price Mix Price is one element in the marketing mix that produces revenue; all the other elements produce costs. Prices are easiest marketing mix elements to adjust; product features, channels and even promotion take more time. Price also communicates to the market the company’s intended value positioning of its product or brand. In the insurance business, the pricing decisions are concerned with the premium charged against the policies, interest charged for defaulting the payment of premiums & credit facilities, commission charged for underwriting & consultancy services Premium: Premiums are the periodic payments usually monthly or quarterly that the policy holder pays to the insurance company to purchase and keep a policy in force. For example in case of life insurance according to the policy it may be the amount payable during the endowment term of the policy or until the death of the life assured whichever is earlier. The common query raised by clients with their insurance agent is – why does his insurance company charge more premium for the same cover and tenure? We have tried to address this query below. Insurance is essentially a matter of sharing risk. A thousand people contribute a certain fixed amount (i.e. premium) and in future if something were to go wrong with any of the mass contributors, the lump sum collected as premiums is used to compensate for the loss. ____________________________________________________________________ 36
Service Sector Marketing – Insurance _______________________________________________________________________ _ The basis on which the insurance company decides the amount of premium to be paid by each person is determined mainly by 3 factors: • Mortality Tables:
All insurance companies refer to different mortality tables. These tables differ from country to country. The mortality table indicates the probability of a person dying in a particular age group. For e.g. in an age group of 25-30 years, the probability might be just two, but this probability would increase for a higher age group of 45-50 years. Life Insurance Company (LIC) with its long-standing presence has a mortality table, which is grossly outdated. Some other insurance companies have got their own tables but they are more or less in line with that of LIC. • Expected Surplus:
The premiums collected by the insurer are invested in capital markets. There is a fixed investment pattern for the insurer. Out of the surplus earned on the premiums invested, 95% is distributed to the policyholders and the insurance company retains the balance 5%. If an insurer expects to earn more return on his investment then he would charge more premiums to his investor. It also depends on the nature of return (compounded or simple) the insurer is planning to give to his policyholders. A compounded return would mean higher premium for the life to be assured.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Expenses: An insurance company has to incur expenses in the form of commission to agents, office expense, advertising expense, salaries to employees. These expenses are to be managed by the company in the 5% surplus earning which they earn as mentioned above. In order to meet the above expenses the insurer has to collect more premiums so that there is more surplus from which expenses can be met. Therefore even if an insurer’s premiums are a bit higher compared to others it is justified for the security of its policyholders and basically for its survival in the long run. Now the criteria’s on which the premium amounts are fixed are different from different types of Insurance’s. Life Insurance Pricing: The pricing in case of life insurance is done on the basis of: • Life Expectancy:
In case of life insurance, the premium amount tends to be different for different customers. This differentiation is on the basis of age, medical history of a person. Age E.g.: Low premium is charged for children and youngsters as it is assumed that they are at a lesser risk of death as compared to the aged people.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Medical History The medical history should be revealed to the insurance company by the customer in Utmost Good Faith i.e. the insured must provide to the insurer complete, correct and clear information of the subject matter of insurance. E.g.: If in the medical history it is mentioned that the person has suffered from heart attack in the past or if he is suffering from any terminal disease like cancer or AIDS then, he is at a higher risk of death and hence higher premium is charged. However, if the insured doesn’t reveal that he is suffering from terminal disease or has suffered a heart attack previously and he dies due to the disease or heart attack then, the insurance company does not pay the claim for the same. Motor Vehicle Insurance: Car insurance companies take many factors into account when determining what premiums the insured will pay. Everybody does not pay the same premium. You pay a premium based on what the company assesses as the possible risk you pose. The major factor is the age and condition of the car. The other factors are as follows:• Multiple cars or policies:
When you have more than one car on an insurance policy, most companies will give you what is known as a multiple line discount. Because you use the company for all of your auto insurance needs, they reward you. Plus, multiple vehicles mean that chance of you getting into an accident with one particular car is reduced. In addition to cars, many insurance companies offer life insurance and home or
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Service Sector Marketing – Insurance _______________________________________________________________________ _ renters insurance. Buying multiple policies from one insurance company can lead to discounts on all of your premiums. • Distance and amount of driving you do:
Most car insurance companies ask prospective clients how far, and to where, they do most of their driving in a day. The thinking is that further you have to drive, and the more often you do it, the more likely you are to have an accident. The person who commutes 45 minutes to work every day is going to pay more than the person who drives 10 minutes to work. Likewise, a college student who walks to class, and drives home three or four times a year will cost less than the college student who spends 30 minutes commuting to and from campus each day. • Location of your car:
Car insurance companies rate areas according to the number of accidents or thefts that occur in a specified amount of time in that area. Sometimes, the company can even pinpoint a neighborhood. If you live in a large city, your rates will be higher than if you live in a town. Additionally, if there are multiple thefts or car vandalisms in the area in which you live, you are more likely to pay a higher amount of insurance premium. However, if you know what car insurance companies consider when setting premiums, you have a better idea of the things you can do to reduce your premiums. For the most part, being a safe and responsible driver, and taking good car of your car, will help you keep your premiums low.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Fire and Marine Insurance Pricing: The principle of utmost good faith is applicable even for fire and marine insurance. E.g.: If a trader while taking a fire insurance policy does not disclose the previous occurrence of fire in the factory, and subsequently after taking policy, there is another fire, the insurance company may refuse to pay the compensation if it learns about the previous occurrence of fire which was not disclosed at the time of taking the policy. The pricing in case of fire and marine insurance is done on the basis of: • Type of Building:
In case of a building the rate of premium also depends on the type of construction. If it is wood construction the insurance premium is low as the cost in constructing a wood building is low in comparison to a concrete building which has higher premium amount • Past Experience:
If a fire or marine insurance company has a past experience of settling a claim successfully then, the credibility of the company increases and it charges higher premium for similar policies. The customers are assured that the company will be able to handle the claim well as it was done in past and hence they are ready to pay higher premium.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Discount Pricing: In insurance sector, discount is offered if group insurance is opted for. Group Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is very low. Discount is given on group insurance scheme because the insurance company gets a large number of customers at a time and hence it saves expenses on promotion and advertisement, which are to be incurred to attract new customers. Thus, discount is given in order to attract more customers at a time by this group insurance scheme. The cost incurred on giving discount is much less as compared to the cost spend and advertising and promotion. Hence discounting is much more profitable for the company However, 65 per cent of the pricing is still determined by the government that is the Tariff Advisory Committee. So the rates of premium are more or less the same. It is going to change over the next few years. In non-tariff products like personal accident etc there is a lot of pressure on pricing. Companies will have to be reasonable while determining a pricing structure because, across the globe, there are instances of companies going bust while playing the game of undercutting state-run companies.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Place Mix Place mix can be defined as the “Physical distribution i.e. the delivery of goods/ services at the right time at the right place to the customers.” Place decisions involve building relationships with the wholesalers, retailers and through these intermediaries building relationships with the customers. Products and services must be at the right place, at the right time in order to be consumed. Probably the best way to perceive place is to think of the flow of products from manufacturer through intermediaries to the consumer or user. This flow can be thought of as a channel used to move goods and services. The channel of distribution is a component of the place mix: Channels: According to Philip Kotler, “Channels are sets of
interdependent organizations involved in the process of making the product or service available for use or consumption” Marketing channel decisions are among the most critical decisions facing the management.” The channels chosen intimately affect all the other marketing decisions. In case of insurance sector, the following channel of distribution is followed according to the target market: CHANNELS
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Direct Selling ? Agents ? Financial Advisors ? Call Centers Partner Selling ? Bancassurance ? Postal Department ? Selling through Corporates Direct Selling: • Agents:
The agents are selected and recruited by the development officer of the insurance company. These agents inform the customers about the various insurance policies offered by the company and convince them to buy these policies. • Financial Advisors:
The financial advisors are also consulted by the customers regarding their financial matters. These advisors suggest their clients to get their goods insured against any calamity or risk. Hence they act as a channel in distribution of insurance. • Call centers:
The people who require insurance call up the call centers. These call centers send their direct marketing agents who go to the customer’s place and sell the insurance policy. Partner Selling: • Bancassurance:
With the evolution of interconnected financial services, banks are converting themselves into ‘one stop financial supermarkets’. This has ____________________________________________________________________ 44
Service Sector Marketing – Insurance _______________________________________________________________________ _ promoted two big classes of financial institutions: banks and insurance companies to combine and deliver an innovative product i.e. Bancassurance. In bancassurance, the insurance products are sold through the banks network of branches. Om Kotak Mahindra has tie-up with Dena bank, by which former doesn't entertain bancassurance with any other bank and the latter also doesn't distribute policies of any other insurance company • Postal Department:
India has an extremely well developed postal network, which is even stronger than the network of banks in the country. Post offices have been established even in the interior parts of the country. Insurance companies can tie up with the postal department to sell and distribute various insurance covers. This would certainly require upfront training costs, as the postal employees in turn need to educate and sell the concept and benefits of insurance to the people in rural areas. Such a tie up with the postal department would open up India’s rural areas, which are largely untapped for insurance sector. This can prove to be a sustainable source of growing revenues. • Selling Through Corporates:
Insurance can be sold through corporates too. E.g.: When a customer purchases a Maruti car, he gets the insurance of the car free from the Maruti Company itself. Thus this is termed as selling insurance through corporates. Electronic Channels:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ In the last decade, numbers of technological advances have taken place due to immense use of EDI (Electronic Data Interchange)
CHANNEL Electronic channels
? LIC on internet ? Information Kiosks ? SMS
•
LIC on Internet:
They have their own site, which is very informative. They display information about them and its subsidiaries, the product they offer. The addresses/e-mail Ids of their zonal offices, zonal training centers, management development centers, overseas branches, Divisional offices and also all Branch offices with a view to speed up the communication process. • Information kiosks:
LIC have set up 150 interactive Touch screen multimedia KIOSKS in prime locations in metros and some major cities for dissemination information to general public on our products and services. These KIOSKS are enabling to provide policy details and accept premium payments. • SMS:
SMS through mobile phone is recently new technology introduced by the LIC to promote their product.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Location: In insurance, location, the place where office situated is not as important as mostly the agents of the insurance company goes to the place of the customers for doing most of that customers work. However they situate their office branches at important location, which is convenient for the customer to visit. (May be near station or near commercial area).
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Physical Evidence Physical evidence is the environment in which the service is delivered and where the company and the customers interact and any tangible goods that facilitate the performance and communication of the service. Services are intangible and heterogeneous. Intangibility means that services cannot be displayed, physically demonstrated or illustrated; heterogeneity means that consumers cannot be certain about performance on any given day. It plays a major role in enhancing customers’ perception of the service quality. However, in case of insurance sector, the customer rarely visits the insurance company. The customer comes mostly only in contact with the service provider. Insurance Service 1 2 3 4 5 6 Tangibles as Physical Evidences Policy Documents Brochures Periodic Statements Renewal Notices Business Cards Stationary
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 7 Calendar, Diaries 8 9 Letters/Cards Website
People Mix. Employees: Employees are very crucial because: They are the service They are the brand They are the marketers They are the organization in the eyes of the customers. The various employees involved in providing service to the customer in insurance sector are: • Customer service representatives: process insurance policy applications, changes, and
They,
cancellations. They review applications for completeness, compile data on policy changes, and verify the accuracy of insurance company records. They may also process claims and sell new policies to existing clients. Nowadays, these workers are taking on increased responsibilities in insurance offices, such as handling most of the continuing contact with clients. A growing number of customer service representatives work in call centers that are open 24 hours a day, 7 days a week, where they answer clients’ questions, update policy
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Service Sector Marketing – Insurance _______________________________________________________________________ _ information, and providing potential clients with information regarding the types of policies the company issues. More than 28 percent of insurance workers are in management or business and financial operations occupations.
•
Marketing and sales managers:
These constitute the majority of managers in carriers’ local sales offices and in the insurance sales agents segment. These employees sell insurance products, work with clients, and supervise staff. Other managers who work in their companies' home offices are in charge of functions such as actuarial calculations, policy issuance, accounting, and investments. • Claims adjusters, appraisers, examiners, and investigators:
These decide whether claims are covered by the customer’s policy, confirm payment, and, when necessary, investigate the circumstances surrounding a claim. Claims adjusters work for property and liability insurance carriers or for independent adjusting firms. They inspect property damage, estimate how much it will cost to repair, and determine the extent of the insurance company’s liability; in some cases, they may help the claimant receive assistance quickly in order to prevent further damage and begin repairs. Adjusters plan and schedule the work required to process claims, which may include interviewing the claimant and witnesses and consulting police and hospital records. In some property-casualty companies, claims adjusters are called claims examiners, but in other companies, a claims examiner’s primary job is to review claims to ensure that proper guidelines have been followed. Only occasionally—especially when
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Service Sector Marketing – Insurance _______________________________________________________________________ _ disasters suddenly increase the volume of claims—do these examiners aid adjusters with complicated claims. In the offices of life and health insurance carriers, claims examiners are the counterparts of the claims adjuster who works in a property and casualty insurance firm. Examiners in the health insurance field review health-related claims to see whether the costs are reasonable based on the diagnosis. Examiners check claim applications for completeness and accuracy, interview medical specialists, and consult policy files to verify information on a claim. Claims examiners in the life insurance field review causes of death and also may review new applications for life insurance to make sure that the applicants have no serious illnesses that would prevent them from qualifying for insurance. Insurance investigators handle claims in which companies suspect fraudulent or criminal activity, such as suspicious fires, questionable workers’ disability claims, difficult-to-explain accidents, and dubious medical treatment. Investigators usually perform database searches on suspects to determine whether they have a history of attempted or successful insurance fraud. Then, the investigators may visit claimants and witnesses to obtain a recorded statement, take photographs, inspect facilities, and conduct surveillance on suspects. Investigators often consult with legal counsel and are sometimes called to testify as expert witnesses in court cases. Auto damage appraisers usually are hired by insurance companies and independent adjusting firms to inspect the damage to a motor vehicle after an accident and to provide unbiased estimates of repair cost. Claims adjusters and auto damage appraisers can work for insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ companies, or they can be independent or public adjusters. Insurance companies hire independent adjusters to represent their interests while assisting the insured, whereas public adjusters are hired to represent the insured’s interests against insurance carriers. Loss control representatives assess various risks faced by insurance companies. These workers inspect the business operations of insurance applicants, analyze historical data regarding workplace injuries and automobile accidents, and assess the potential for natural hazards, dangerous business practices, and unsafe workplace conditions that may result in injuries or catastrophic physical and financial loss. They might then recommend, for example, that a factory add safety equipment, that a house be reinforced to withstand environmental catastrophes, or that incentives be implemented to encourage automobile owners to install air bags in their cars or take more effective measures to prevent theft. Because the changes they recommend can greatly reduce the probability of loss, loss control representatives are increasingly important to both insurance companies and the insured. • Underwriters:
Underwriting is another important management and business and financial occupation in insurance. Underwriters evaluate insurance applications to determine the risk involved in issuing a policy. They decide whether to accept or reject an application, and they determine the appropriate premium for each policy. • Insurance sales agents:
About 15 percent of wage and salary employees in the industry are sales workers, selling policies to individuals and businesses. Insurance
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Service Sector Marketing – Insurance _______________________________________________________________________ _ sales agents, also referred to as producers, may work as exclusive agents, or captive agents, selling for one company, or as independent agents selling for several companies. Through regular contact with clients, agents are able to update coverage, assist with claims, ensure customer satisfaction, and obtain referrals. Insurance sales agents may sell many types of insurance, including life, annuities, propertycasualty, health, and disability insurance. Many insurance sales agents are involved in “cross-selling” or “total account development,” which means that, besides offering insurance, they have become licensed to sell mutual funds, annuities, and other securities. These agents usually find their own customers and ensure that the policies sold meet the specific needs of their policyholders. • Lawyers:
The insurance industry employs relatively few people in professional or related occupations, but those who are so employed are essential to company operations. For example, insurance companies’ lawyers defend clients who are sued, especially when large claims may be involved. These lawyers also review regulations and policy contracts. Nurses and other medical professionals advise clients on wellness issues and on medical procedures covered by the company’s managed-care plan. • Computer systems analysts, computer programmers, and computer support specialists: These are needed to analyze, design, develop, and program the systems that support the day-to-day operations of the insurance company. • Actuaries:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ These represent a relatively small proportion of employment in the insurance industry, but they are vital to the industry’s profitability. Actuaries study the probability of an insured loss and determine premium rates. They must set the rates so that there is a high probability that premiums paid by customers will cover claims, but not so high that their company loses business to competitors. As most services are provided by people i.e. the employees, the selection, training and motivation can make a huge difference in customer satisfaction. Ideally, employees should exhibit competence, a caring attitude, responsiveness, initiative, problem solving ability and goodwill. In case of insurance sector, the people mix plays a very important role as there is high level of interaction between the service providers i.e. the insurance agent and the customer at every step of providing service. It is the insurance agents who find the customers and convince them to buy the insurance policies. The insurance agents also collect the premium of the policy and settle the claims. Thus, in order to improve the quality of the service, it is essential to recruit the right candidates to become insurance agents, train them and motivate them. Eg. In LIC (India) Customers: People mix not only includes employees but also customers. The customers are to be treated with respect and courtesy.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Process Mix In case of insurance sector, the process mix includes the various interactions that take place between the insurance agent and the customer in the process of selling the policy to the customer till the settlement of claims. The following process mix is followed by insurance companies in case of life insurance: 1. The insurance agent calls up the customer and informs him about the different policies offered by the company and the price mix of all the policies. If, the customer seems interested in taking the policy then, he fixes an appointment with the customer.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 2. The insurance agent meets the customer and gives him some information about the insurance company and also about the benefits of the policy. 3. The customer is then asked to fill a financial review form (FRF) and the agent is asked to find out the standard of living of the customer so that the insurance company gets a clear picture about the financial condition of the customer and what kind of policy he can afford. 4. The insurance company offers various policies but they might not be suitable for the customer hence, on the basis of his requirements and financial status, the insurance agent suggests two or three policies to the customer, which will be suitable for him. 5. The insurance agent explains the different policy plans in detail to the customer i.e. the amount of premium to be paid, the time interval at which the premium is to be paid, the benefits of each of the policy etc. A brochure is also provided to the customer wherein the entire description of all the policies is given. 6. Then, the insurance agent provides a feedback form to the customer and asks him to give his feedback regarding the policies that he has been informed about. This feedback is taken in order to find out whether the customer is satisfied with the plans of the policy or whether the company needs to make the policy plans more attractive so that it may appeal to its future customers. 7. Then, the next appointment is fixed by the insurance agent with the customer and in this meeting; the customer selects the policy
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Service Sector Marketing – Insurance _______________________________________________________________________ _ plan, which appeals to him. The customer is then asked to fill up the proposal form which contains various details of the payment and he is asked to make the first premium payment. 8. Then, the insurance agent submits the duly filled and signed form in the insurance office along with the other necessary documents. E.g.: Medical Reports in case of Life Insurance. Submission of Age Proof is essential as the rate of premium payable on a life insurance policy generally varies with age, and therefore age is one of the most important factors in determining the rate of premium payable in an individual case. The following is accepted as age proof: o Certified extract from municipal or local body’s records made at the time of birth. o Certificate of Baptism if it contains date of birth o Passport issued by passport authorities in India. o Certified Extract from school or college records, if date of birth is mentioned. The customer must get himself examined from the approved doctor of LIC. The medical examination is necessary to determine the physical fitness of the customer. If the medical report is favourable, then only LIC will issue the policy. 9. An average twelve days time is taken by the company to verify the submitted documents. After the twelve days period, the insurance agent meets the customer to provide him a policy document, which consists of the terms and conditions of the policy. This is because terms and conditions of the policy differ for different customers due to differences in medical conditions of
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Service Sector Marketing – Insurance _______________________________________________________________________ _ customers in case of life insurance and due to differences in nature of goods and mode of transportation in case of marine and fire insurance. 10. Then, a reconfirmation is taken by the agent from the customer that he agrees with the terms and conditions of the policy. 11. The insurance agent then regularly collects the premium from the customer whenever the premium becomes due.
Claim settling Process: (Life Insurance) • Claim by maturity/ Installment Payment:
The company strives to settle maturity claims and make periodic payments, as in case of Money Back Policies, on date itself. The office which services the policy sends out an intimation regarding the payment along with the necessary discharge voucher for the execution by the assured approximately two months before the due date of such payment.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Death Claim: In the event of the death of the policy holder, the claimant or the nominee should immediately intimate the branch office where the policy is serviced, the fact of such death, along with the following particulars: (a) Policy number, (b) name of the life assured, (c) Date of death and (d) claimant’s relationship with the assured. 2. Claim Forms: Soon after the receipt of the intimation of death, the branch office will send the necessary claim forms for completion along with instructions regarding the procedure to be followed by the claimant. 3. Evidence of Title: The claim is usually payable to the nominee as the case may be. However, if the deceased policy holder has not nominated or hasn’t made a suitable provision regarding the policy money by the way of will, the claim is payable to the holder of a succession certificate or some such evidence of title from a court of law. 4. Payment of Claim: The Company then makes payment to the rightful recipient. Claim Settling Process (Fire and Marine Insurance): 1. Intimation to Insurance Company: The insured must give immediate intimation to the insurance company regarding the loss. The necessary details like the day, date, time and causes of fire and in case of marine insurance, ship and voyage taken should be mentioned.
1. Intimation of Death:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ 2. Assessment of the loss: The insured makes an assessment of the actual loss. Such assessment is required to fill the claim forms correctly in respect of the loss of goods or property. 3. Submission of the claim form: the insured must fill all possible details in the claim form. He must lodge the claim form within 15 days of the fire to claim compensation. In case of marine insurance, the insured should lodge a claim with the following documents: o Original Insurance Policy o Copy of Bill of Lading o A copy of commercial Invoice o A copy of packing list o Survey repot o Claim Bill Delay in submission of claim form may result in non-acceptance of the claim. 4. Evidence of Claim: Along with the claim form, the insured must send certain proof of fire and other records, if available and if necessary. The evidence should enable the insurance company to determine the amount of loss.
5. Verification of Form: The claim form along with the supporting evidence is verified by the insurance company. The insurance company then appoints the surveyors to conduct an assessment of the actual loss. 6. Survey:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ After the receipt of the form, and necessary verification, the insurance company appoints the surveyors to assess the actual loss. The surveyors conduct the necessary investigations. They investigate into the cause of fire, the actual amount of property lost and other relevant details. The surveyors then make the report of their findings and assessment of the loss. 7. Landing Remarks: In case of marine insurance, the insured should obtain landing remarks, from the port authorities, if survey report is not obtained. 8. Appointment of the arbitrator: There may be a dispute regarding the amount of claim. In such a case, an arbitrator is appointed, acceptable to both the parties, to settle the amount of the loss. 9. Settlement of Claims: If there is no dispute between the two parties, as to the amount of loss, the insurance company then makes necessary payment to the insured. In case of marine insurance, the amount of money is paid to India Exporter in Indian rupees. If the claimant is not a resident of India, payment maybe made in foreign currency.
Promotion Mix ‘Promotion’ is a descriptive term for the mix of communication activities, which a service organization carries out in order to influence the target customers on whom their sales depend. It is an element in
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Service Sector Marketing – Insurance _______________________________________________________________________ _ an organization’s marketing mix that serves to inform, persuade, or/ and remind people about an organization or individual goods, service, image, ideas, community involvement or impact on the society. It is used in hopes of influencing the recipients feeling, belief or behavior through any form of communication. Basically there are 4 steps to be followed before selecting a promotional strategy. These steps are as follows: 1. Identification of Target Market: The target market is the focus of deciding the promotion mix. The total number of groups is analyzed and decision is taken regarding which segment is to be targeted. Example: LIC (India) has introduced a new life insurance policy especially for children’s (JEEVAN ANURAG). 2. Determination and Setting Objectives: Service marketers employ a range of promotional methods, so it is essential to ‘What the promotion has to achieve’. It is necessary to define marketing objectives clearly so that most effective type of promotion is designed and utilized. In case of insurance sector, the main objectives of a promotion campaign will be: o To make all or maximum population aware of the various insurance policies of the company. o To promote the advantages of all the insurance policies. o To make the people aware of the risks involved and the importance of taking insurance.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Example: LIC (India) conducts seminars and mass marketing
campaigns in order to make the customers aware of insurance and why it is needed. 3. Message development for right communication effect: The message is an instrument for converting a suspect into a prospect. To obtain an effective response from the target market, there is always need to plan an effective message such that promotional efforts cause: o Building of brand image o Service awareness The promotional message should aim: o To provide knowledge for service o To ensure that customer will have a positive perception for service promoted o To build up preference for service offered In the insurance sector, LIC (India) and MetLife Insurance are examples of companies who have used promotion mix to promote insurance. Eg: LIC (India) promotes its life insurance policies using the slogan “Zindagi ke saath bhi, zindagi ke baad bhi” This creates awareness of risk of death as well as the importance of insurance. The slogan creates a positive perception about life insurance in the minds of people. 4. Selection of promotion mix:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ There should be a careful blend of promotion mix with the marketing strategy of the firm and each situation should be examined for its merits and demerits. The following criteria should be considered while devising different promotional techniques: o Overall marketing objectives o Activities of the competitors o Characteristic of target customer o Cost effectiveness, etc. The types of promotional methods used in insurance sector are as follows: o Advertising o Public relations o Sales Promotion o Personal Selling o Word of Mouth. • Advertising:
It is a paid form of non-personal communication. It is used to create awareness and transmit information in order to gain a response from the target market. Forms of advertising are as follows: o News Papers and Magazines: LIC give ads in the news papers and magazines round the year to continue its brand image and also when new products are introduced. Normally its ads are published in Times of India. o Electronic media: ____________________________________________________________________ 64
Service Sector Marketing – Insurance _______________________________________________________________________ _ Insurance companies also advertise its services in the Electronic media like: Internet (Websites): like LIC (www.licindia.com), ICICI
?
Companies
(www.iciciprudential.com) all have websites from which people can get the information about their products, prices, various schemes, and lots of other information. People can also purchase the product through this website. Television:
?
Companies like LIC, Met Life India, advertise on television to make people aware of their products and services. Radio:
?
ICICI Prudential advertises on 92.5 red Fm. o Hoardings: LIC put its hoardings where there is a mass flow of people, especially outside the railway station or at the backside of the bus. When Met Life was introduced it has put his hoardings on the side of the train, to target huge number of people. o Brochures: Companies provide brochures to the customers so that they can have a look on various schemes and their prices. Eg: LIC have brochures of various schemes that are available different languages i.e. Hindi, Marathi, English, and other regional
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Service Sector Marketing – Insurance _______________________________________________________________________ _ languages. They provide the brochure of the scheme the customer has chosen, in the language which they understand. Brochure will provide the customer the information like features of the scheme, amount of premium to be paid, rebates (if any), etc. • Public relations:
Public relations are helpful for the companies to build their brand image, to maintain good relationship with customers, to make the people aware of its recent happenings, etc. Mediums of Public relations are: o Press releases: This helps the company to convey its message to its customers and other people. o Seminars: These are held to provide information about the new product launched, position of the company in the market, etc. • Sales Promotion: o Gifts: LIC provides diaries, pens, booklets, etc to its customers. o Sponsoring Events: Eg: Max New York Life Insurance Company has sponsored the recent India-Zimbabwe-New Zealand tri series.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Personal selling: o Agents: It is the most widely used method of promotion by all insurance companies. They recruit, train and motivate the insurance agents to convince the customers to buy insurance policies of that particular company. The agent also collects the monthly premium and settles the claims of the customers. o Role and selection of agents in LIC: LIC policies are sold and not purchased and this selling is done by agents. Agents constitute around more than 75% of the LIC sales, so agents are very important for LIC. LIC selects the agents on the following basis: ? ? ? Minimum education upto HSC. Has to undergo 100hrs training. Pass the test with more than 50%, conducted immediately after training. ? Then he gets the license for 3 yrs. After 3 yrs he has to renew the license. ? He has to sell 12 policies or policies worth minimum 1lac in 1 yr. ? He receives commission per policy; normally it ranges upto 15%-25% of the premium paid. o Staff: Staff should be adequately trained so that they help in increase in sales.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Word of Mouth:
Word of Mouth promotion plays the role of hidden sales force. The word of mouth promotion is normally carried out by customers, agents and employees. It can be positive or negative depending upon the service or experience they receive. o Customers: It is important for the organization to provide customers with quality service so that he is satisfied and spread the good word of mouth. On the contrary if the customer is not satisfied with the service or experience he spreads bad word of mouth. Eg: LIC settles the claims of the customers within 1-2 days, which is fastest in the world and thereby providing them with quality service so that customers is satisfied and spread good word of mouth. It also maintains good relationship with their customers. o Agents: LIC maintains good relationship with their agents. If they complete certain target assigned to them LIC gives them extra % on premium. Thereby keeping them happy so that they spread good word of mouth to their clients.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Promotion done by LIC in rural areas:
LIC market may be reducing in urban areas but it is still 100% in rural areas. This is because of the promotion strategy adopted by LIC. What LIC does in rural areas is: o LIC does the promotion when the panchayat meetings are held, as all the people meet in the panchayat meeting LIC can communicate to a huge mass of people to promote its policies. o People in the village are hugely influenced by the word of mouth promotion so what LIC does is, it gives some money to the sarpanch (head of the village) of the village to spread good word of mouth of the company. So people are easily influenced and purchase the policy of LIC. o LIC also keeps low premium of the policy so that each villager can afford it.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Punch lines and logos:
It helps to create awareness about the brand among the target audience. It also helps the company to convey its message to the customer. Brand LIC Oriental Insurance Max New York ICICI Lombard Birla Sunlife ING Vyasya ICICI Prudential Aviva Royal Sundaram Bajaj Allianz Positioning: Tag Line Zindagi ke saath bhi, zindagi ke baad bhi Prithvi, Agni, Jal, Aakash, Sabki suraksha hamare paas Your partner for life Business Uninterrupted Your dreams, our commitment Adding life to insurance We cover you at every step in life. Kal par control Beyond Expectations Haske Jeeyo Yaar
Flower of Services
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Flower of services refer to a well-formed package of total services with all the supplementary services being well formulated along with the core services. The various petals of the flower are:
•
Information:
A marketer needs to provide adequate information to his employees and his customers. This information is general information provided through various communication channels. In the insurance industry information is provided to the customers with the help of: ____________________________________________________________________ 71
Service Sector Marketing – Insurance _______________________________________________________________________ _ o Agents o Seminars o Web sites o Print media o Radio o Television, etc. • Consultancy:
This is additional customized information provided to the potential customers by the service provider. In the insurance industry it is provided by company’s staff and agents. Example: In LIC when a customer enters asking of information about the policy, he is directed towards the assistant sales manager. Assistant sales manager will listen to the customer’s requirement and as per his requirement list the number of policies that are available. He will also ask the customer about the price and limit the number of options for the customer, so that he can easily choose the policy without confusion. • Order taking:
Order taking should be done without mistakes. In LIC order taking is generally done by: o By Agents o On Web site (www.licindia.com) o By Assistant sales manager directly in the office.
•
Hospitality: 72
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Hospitality is a very pretty petal, reflecting pleasure at meeting new customers and greeting old ones when they return. Hospitality finds its full expression in face-to-face encounters. In LIC customers directly come in contact with the sales manager. The customers are treated as guests. The sales managers of LIC are given special training of how to sell the policies to the clients. It is only in LIC that a customer can meet the chairman directly without any appointment. • Safe keeping:
It is in the process and procedures used by marketers to safe guard and to maintain secrecy. In LIC the data of the customers is very important. They feed the data of the customers in their Front and Application Program Software which is connected with all the branches of LIC. The data is only available with the sales people and not shown to any person. • Exceptional:
Exceptional service means service over and above customer’s expectations. LIC has the fastest claim settlement in the world thereby providing exceptional service. LIC also solves complains of the customers within 7days.
•
Payment:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The payment of premium is normally through cheques. Customer can make payment in LIC through: o Agents o Loans o Web sites o Standing instruction to banks: In this the account holder will give standing instruction to his bank to pay the amount of premium every month without his consent on the given date directly to LIC. • Billing:
The billing should be done in such a way that there are no mistakes and if there are any they must be immediately rectified. The billing should provide break-ups of premium charged, service charges, etc.
“Insurance is no more a public sector monopoly in India”
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Till the late 1990’s the Indian Life Insurance Industry was completely in the hands of LIC. • After 40 years of nationalization, only 25% of the insurable population was covered. This was one of the major reasons for opening up the sector to allow private players. • Per capita premium for life insurance is as low as $6 and that for non life insurance is $2. This accounts for 2% of the GDP compared to the world average of 7.8% • Developed economies particularly from Western Europe and the U.S find the Indian market as having greater growth potential than their domestic markets. • The insurance sector has been opened upto the private sector, with a view to making available long-term funds for infrastructure, introducing new and innovative products and effecting improvement in quality of service to customers. • The Insurance Regulatory and Development Authority (IRDA) was setup on 19th April 2000. It has so far issued licenses to 10 companies.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ List of 10 foreign players entering the Indian Insurance Sector and their Indian Partners who are approved:
COMPANY HDFC-STANDARD LIFE ICICIPRUDENTIAL BIRLA SUN LIFE
INDIAN PARTNER HDFC ICICI ADITYA
FOREIGN INSURER STANDARD LIFE-
U.K PRUDENTIAL- U.K BIRLA SUN LIFE- CANADA NEW YORK LIFE-
GROUP MAX NEW YORK MAX INDIA LIFE OM KOTAK SBI INSURANCE ING VYSYA TATA-AIG MET LIFE INDIA ALLIANZ-BAJAJ
U.S.A KOTAK MAHINDRA OLD MUTUAL- S.A FINANCE LIFE SBI VYSYA BANK TATA JAMMU CARDIFF- FRANCE ING INSURANCE-
NETHERLANDS AIG- U.S.A AND MET LIFE- U.S.A ALLIANZ
KASHMIR BANK BAJAJ AUTO
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Joint Venture between India’s largest housing finance provider – HDFC and Europe’s largest mutual life assurance company – The Standard Life Assurance Company (UK) • HDFC Standard Life Insurance Company is the First Private Sector Life Insurance Company to be granted a license Products Offered are: o Endowment Assurance Plan o Money Back Plan o Development Insurance Plan
• • •
Joint Venture between the ICICI Group and Prudential (UK) Came together in 1993 Prudential is the largest life insurance company in UK
Products Offered: o Endowment Assurance Plans o Protection Plans
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Coming together of the Aditya Birla Group and Sun Life Financial of Canada • The Sun Life Financial Group of companies and partners are represented globally in Canada, Philippines, Japan, Indonesia, India and Bermuda Products Offered: o Endowment Plan o Money Back Plan o Whole Life Plan
The influence of private players has created the following benefits: • Benefits to customers:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ o Reduction in the price of product under competitive market. o More innovative products to be available in a competitive market. o Improved management of investment portfolio. o Improved quality of service due to use of IT and multi distribution channels. • Benefits to Industry: o New Insurers to earn high profit in the initial stages due to large size of Indian insurance market. o Insurance intermediaries will include agents, Brokers, Independent Financial Consultants etc. The commission paid may exceed Rs.46000 crores in a period of 10 yrs annually. o Advertising campaigns may reap benefits as an additional advt market for Rs.10000 crores will be opened in 10 yrs directly related to the insurance sector. o Computer industries will benefit. o Placement services, management institutes & training institutes will also be benefited as the insurance sector after opening up will require many people thus increasing the employment opportunities.
Impact of Liberalization on LIC:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The introduction of private players in the industry has added to the colors in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed among the private players. Though LIC still holds the 80% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 81 %( 200405). The following companies have the rest of the market share of the insurance industry.
Market share of the companies in Insurance industry:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Name of the company LIC ICICI PRUDENTIAL BIRLA SUN LIFE BAJA ALLIANZ SBI LIFE HDFC STANDARD TATA AIG MAX NEW YORK AVIVA OM KOTAK MAHINDRA ING VYASA AMP SANMAR METLIFE Market share % 81.3 6.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79 0.51 0.37 0.26 0.21
Dimensions of Quality Dimensions of quality Reliability: Ability to perform the promised Insurances’ point of view • Prompt delivery of premium by agents • Short claim settling periods
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Service Sector Marketing – Insurance _______________________________________________________________________ _ service dependably and accurately • Adhering to the time factor • Availability of information when desired Assurance: Knowledge, honesty & ability to perform the service by the front office staff to convey trust and confidence Courtesy? Respect friendliness and consideration, • Helping company • Birthday greetings • Condolences during death • Honest advice Credibility? Trustworthiness and believability • Depends Security? Freedom from danger • Trained agents Competence? Existence of required knowledge and skills Tangibility: Appearance equipments, of physical personnel facilities, and • Good communication skills • Agents must be well aware of company and its policies • Less number of forms • Brochures information • Feedback forms • Receipt and identity cards with adequate reliability on credibility and • Settling claims with least hurdles layman entering the
communication materials.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Empathy: Ability to provide caring • Convincing power of the • Talk in terms of customers’ language individualized attention Communication? Informing and explaining services offered
Understanding the customer? Making an effort to understands customers’ needs
• Welcoming the customer • Knowing the capacity to pay premium and then providing best alternative
Access? Ease of contact
• Help
lines,
call
centers
and
internet etc. • Mobile insurance vans • Information centers stretched across the country • Reminders for premiums.
Responsiveness: Willingness and readiness to help along with timeliness of service
• Regular contacts with customers. • Responding to a customer enquiry and prompt service. • No official hazards and handling problems promptly. Service Marketing Triangle
The Service Marketing Triangle is?????????? Rather than going for textual Concepts let us try to understand the Service Marketing Triangle with a totally different view.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
•
The Company/ Brain
The Company could be well represented in form of the Brain of the body. As the Brain controls all the bodily functions, the same way it’s the Company that undertakes all kinds functions through different medium. It could be assumed that as the brain makes promises to the heart of regularly pumping it with blood and oxygen supply, the same way the Company makes promises to its customer of regularly providing with the expected Service through External Marketing. The Brain also works as a coordinator between the heart and the Arteries and veins. The Company too co-ordinates all the External and the Internal Activities and links the Employees to the Customer. ____________________________________________________________________ 84
Service Sector Marketing – Insurance _______________________________________________________________________ _ • The Heart / Customers
The Customer could be best re-presented in form of the Heart of the Body. As we all know a body cannot function without the Heart, the same way a Company cannot function without its Customer. The Body is alive as long as the Heart is pumping. Once the Heart stops pumping the body will perish. The same way the Company is alive as long as there is a continues flow of Customers. Once the Customer flow stops, the Company will slowly start perishing. There are great chances of “Heart Attack” if there is no concern regarding the food intake and health issues. The first Heart Attack is generally a milder one, the second one a stronger one and there are very few chances that the person may survive after the third one. The same way the Company needs to take regular care and feedback of its customers. They should respond to Customer Complain as quickly as possible or else the Company may loose its Customers. The Company could get feedback from its Customers and could make promises accordingly. • Arteries & Veins / Employees & Agents:
And finally the Arteries & veins. May the Brain be the smartest one or the Heart be a very productive one, the main work which keeps the heart pumping is done by the Arteries and the Veins. Same is the case for the Employees of the Company who performs the main as well as the supporting activities which helps the Customer to be satisfied with the Company.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ As mentioned earlier, the Brain makes promises to the Heart for regular supply of blood and oxygen, but finally it’s the Arteries & Veins who fulfils the promise and supply it to the Heart. Similarly the Company makes promises to its customer but it’s the Employees and Agents of the Company that helps the Company to keep its commitments. So its very much clear from the above illustration of the Service Marketing Triangle, that as each and every part of the body (whether visible or not; big or small) is important as per its functions, the same way each and every element of the Service Marketing Triangle (Company, Employees and Customers) are important and each one has different role to play. Service Marketing Triangle in Insurance: The Service Marketing Triangle explains the concept of three types of marketing. The diagram explains the services triangle with its three constituents, namely, the company, the provider and the consumer. Given below is the Service Marketing Triangle of the LIC Company. The elements of the diagram i.e. Company/Agents; Employees; Customers and the related Marketing has been explained as under:
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Service Sector Marketing – Insurance _______________________________________________________________________ _
•
Company:
The company makes various promises to its customers through External Marketing. The external marketing function relates to anything that is communicated to the customer before the service is delivered. There are many factors beyond the traditional marketing mix that communicate to the customers in case of LIC. The Marketing Mix i.e. the product, price, place and promotion of LIC is been already explained the 7 P’s. However, the important role of Agents in LIC cannot be neglected. • Agents:
LIC is a kind of organization where Agents play one of the most prominent roles. No customer could get an insurance policy without ____________________________________________________________________ 87
Service Sector Marketing – Insurance _______________________________________________________________________ _ the help of an Agent. In fact, LIC has rule of getting policies of the customer only through its Agents. So in the above diagram the Agents are considered on the both the levels (Company & Employee level) as per their role. External Marketing is generally undertaken by the Company whereby the Company makes certain promises to the Customer through Marketing Mix. But LIC is an exception. Here even the Agents sometimes work as the Company itself i.e. they themselves carry out External Marketing and commit certain promises to its potential customers. No doubt, that the Agents do it on behalf of LIC, but there are many cases whereby the Agents do major part of the External Marketing and it’s the Company and the other Employees that help the Agents to keep their promises In LIC, the customer may come to know about the different polices through the External Marketing conducted by the Company as well as the agents, the customer has major interactions only with the Agent rather than the company itself. The Agents explain various types of policies available to the customer and convince them to purchase that. Even an aspect of the Company is not covered through External Marketing; it’s finally the Agents that convey different aspects through their own personal efforts and contacts. It is very clear that LIC would be handicapped without the Agents and the Agents not only work as the employees of the Company but also as the representatives of the Company as well.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Employees: The agents and the development officers act as the front-line staff and they are in direct contact with the potential or existing customers. They are the ones who keep or satisfy the promises made by the company. The marketing of insurance basically comes under concept selling. The agents are thus given various incentives, rewards, commissions and all the necessary training required. As regards incentive, they receive PLI (Productivity Linked Incentive), which is based on the increase in premium amount and the sums assured by the agent. They are also given extra commissions in case of policies, which are of high value. There are normal promotions for any good work done on a regular basis. The agents generally work under the training and guidance of their respective development officers. These incentives provided to the Agents and other employees are a part of Internal Marketing. Internal Marketing relates to meeting the needs of the employees so they can meet the needs of their customer. As explained above, the company tries to meet the needs of the employees or try to motivate them through their needs there by satisfying customer needs. Internal Marketing plays a very important role in LIC as the Agents are the heart of the company without whom the Company can’t get a single policy. • Consumers:
The consumers are the policyholders. Apart from the routine life insurance policies other services like housing finance, mutual funds,
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Service Sector Marketing – Insurance _______________________________________________________________________ _ pension and group insurance. Thus the range of consumers is far and wide. The employees of the Company need to convince the Customers through Interactive Marketing. Interactive Marketing is nothing but implementation of a marketing policy that is founded on direct interactive contact with the customer or the desired customer. It is done through different types of Employee-Customer communication, Customer Oriented Programmes, after sales services etc. As explained earlier, the LIC Agents try to convince the customers to get the appropriate policy provided by the Company. Word of mouth promotion and Personal Approach is one of the major aspects of Interactive Marketing in any Insurance Company.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The 4 I’s of Insurance Service The 4 I’s refers to the different dimensions/ characteristics of any service. Unlike pure product, services have its own characteristics and its related problems. So the service provider needs to deal with these problems accordingly. The service provider has to design different strategies according the varying feature of the service. These 4 I’s not only represent the characteristics of different services but also the problems and advantages attached to it. These 4 I’s can be broadly classified as: • • • • Intangibility Inconsistency Inseparability Inventory
Intangibility: Insurance is a guarantee against risk and neither the risk nor the guarantee is tangible. Hence, insurance rightly come under services, which are intangible. Efforts have been made by the insurance companies to make insurance tangible to some extent by including letters and forms Problems Cannot be displayed I.e. Any insurance Strategy followed by LIC Provide tangibility company Stimulates word of mouth encourages its agents to
cannot give physical evidence L.I.C
of the kind of service they are explain new and updated policies providing to their customers. for the existing policy holder as
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Service Sector Marketing – Insurance _______________________________________________________________________ _ The Insurance Company cannot well as their family members i.e. promote its service by a mere indirectly marketing the service display; it needs to explain it to through word of mouth their consumers. Cannot be Patented Any Insurance Company could not patent its policy. The two companies could have same policies with variation in terms & two conditions, companies its payment same procedures, its benefits etc; the have policies without any variation
•
Inconsistency
Service quality is often inconsistent. This is because service personnel have different capabilities, which vary in performance from day to day. This problem of inconsistency in service quality can be reduced through standardization, training and mechanization. Problems Standardization is difficult Standardization too Strategy followed by LIC Training the Agents
some After appointing any employee as
extent is easy in case of Non- an Agent, the first thing that LIC life Insurance Policies as it deals does is to train them. with loss of goods that could be expressed in TERMS OF MONEY. LIC has a tradition of training the However, in case of Life recruited Agent atleast for 1
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Insurance it is very difficult month. to Standardize, as it deals with human beings which are highly irrational. This ensures and that all newly a quality appointed consistent standardization is, different Agents provide
same
The other reason for difficulty in service to all the policy holders. individuals opt for different Training back line staff policies, and some even ask Apart from Agents LIC also trains for customized policies which the back office employees to to suites their requirements. Each ensure consistency in the final policy has the policy value as product per the nature, period and customer. premium of the policy. Hence, only the procedures could be E.g. clearance of claims, premium standardized. Difficult to set up Quality control The any main representatives Insurance Focuses of Evaluation has another tradition of evaluating their Company LIC on Performance payment procedures, verification of documents etc. provided their
especially L.I.C. are its agents critically service provider and the service Agents receiver. product is Here, not the a Raw
who co-ordinate between the employee’s performance esp. the
material as well as the final LIC keeps a regular check on the physical performance of their agents within product (intangible). It is very a span of time difficult to set up Quality Control in case of Insurance E.g. No of policies sold by each
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Service Sector Marketing – Insurance _______________________________________________________________________ _ as the main elements of the agent in a month. product/service Beings. are Human Based on the evaluation LIC also provides determine after service is provided. However the major reason behind As mentioned above, it is very this is to increase the no. of policy difficult to maintain a certain holders. standards as well as to set up quality control. So the only Mechanization of Processes tries to mechanize ever to can it its is of cut be where helps customers thing the Insurance Company LIC quality of their after service the incentives to the
Can only predict Quality or deserving Agents.
could do is either to predict the processes or possible. determine provided. service processes Eg: the
Mechanization
inconsistency due to human errors.
For e.g. LIC gives training to reminded about the payment of each recruited agent for a fixed premium through e-mails and sms period before actually instead of agents. LIC also have computerized billing With these kinds of measures System the Company could ensure premium certain Standards and predict recorded the Quality of the service. where paid in the is amount of for automatically computer deploying them in the market.
the
future reference
•
Inseparability
Services are produced and consumed simultaneously. Consumers cannot and do not separate the deliverer of the service from the ____________________________________________________________________ 94
Service Sector Marketing – Insurance _______________________________________________________________________ _ service itself. Interaction between consumer and the service provider varies based on whether consumer must be physically present to receive the service. Problems Harder to Mass Produce Unlike, other services Strategy followed by LIC Training Programs like As Inseparability deals with the attachment of the
Catering (a group of people continues served) &
having similar taste could be service provider and the service Transportation itself, it is very much important for (where the destination can be the producer to conduct Training the same for a bulk of goods) programs on regular basis. could be mass produced up to some extent, Insurance service LIC is very difficult to produce, Insurance especially follows the regular trend of mass undertaking Training
Life Programs for their employees and agents so that they could provide a continues flow of effective
The main reason for this is that service to their customers and insurance deals with individuals ensure that there is no gap in the holding different policies and service provided having different life spans. Focuses on Personal Attention Less efficient than goods of the Policy Holders & production. It is very obvious that efficiency be maintained at Employees LIC also tries to maintain an flow and needs of of uninterrupted on the Policy the focusing
in service production could not unbroken consistent service rate as compared to goods personal production.
Holders as well as the Employees. LIC has a very strong Complaint
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Service Sector Marketing – Insurance _______________________________________________________________________ _ As compared to any other Handling and Human Relations Service Industry, Insurance has Management the The begins production when the longest individual process customers. agent team of to the cater policy needs
production/consumption period. holders as well as their internal
convinces the consumer to buy the policy and it is said to be consumed when the claim is settled and the the policyholder money. So it is very difficult to maintain a consistent efficiency for such a long period. • Inventory gets
No inventory can be maintained for services. Inventory carrying costs are more subjective and lead to idle production capacity. When the service is available but there is no demand, cost rises as, cost of paying the people and overhead remains constant even though the people are not required to provide services due to lack of demand. In the insurance sector however, commission is paid to the agents on each policy that they sell. Hence, not much inventory cost is wasted on idle inventory. As the cost of agents is directly proportionate to the policy sold. Problems Highly Perishable Strategy followed by LIC Focuses on Customer
First of all it is very difficult to Convenience by providing fast
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Service Sector Marketing – Insurance _______________________________________________________________________ _ maintain inventory due to its and timely Service highly perishable nature. Unlike LIC has understood the problem of goods, insurance services could high perishability of the customers not be stored as inventory for in form of inventory. Hence, LIC has longer period. set up simple but effective infrastructure and procedures to E.g. If an agent is able to ensure that they don’t loose their convince a customer by potential customers. Some of the promising him maximum benefit time facilities provided by LIC are from a particular policy, he need as under: to provide the same within the time, or else the customer may ECS – Electronic Clearance System switch to some other policy or to even some other Company Limited Capacity It is very obvious that every individual has its own capacity. Payment capacity of getting 12 through agents; and For e.g. an agent “X” may have many more. customers/policy annually while Incentives to Agents the other agent “Y” could do the LIC also provides different kinds of same within a period of month. incentive schemes to its Agents to ensure that maximum number of interested customer are converted All the agents as well as the into the actual users. other employees work as per their capacity, but all of them LIC also keeps track of the monthly may not be able to maintain the performance of each and every potential customers as potential agent and give incentive facilitate faster and timely payments; Fastest Claim Settlement;
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Inventory accordingly. LIC has set up certain minimum criteria as per the seniority of the agent A newly recruited agent has to get a minimum of 12 policies annually for first 3 years.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Service Recovery A disappointed customer does not just go away, but he/she goes away and might not come back at all. And there are great chances that he might take away some other existing customers or he may restrict the potential customer to be the Loyal Customer of the Company. Here lies the need for Service Recovery. It is quiet possible that at every given opportunity, he might speak about the negative experience that he had with the Company which finally affects the decision of the other customers too. In case of Insurance, it might the customer may be disappointed due various reasons like: • • • • • • • • Faulty claim settlement Lack of concern on part of the Agents/Company Lengthy and exhausting procedures Excessive number of documents for getting a policy as well as for claim Inflexibility in terms of premiums. Unavailability of required Infrastructure/ Technical Support System. (computers, printers etc) Better service quality from the competitors. And many personal reasons.
Impact of word of mouth on customer’s repurchase decision is twice as important as corporate advertising. So the Company needs to recover before things start to get worse. Insurance Companies should make sure that their customers are not dissatisfied due to service failure. And if at all they are disappointed, ____________________________________________________________________ 99
Service Sector Marketing – Insurance _______________________________________________________________________ _ they follow some basic steps to recover from the loss of Customer Dissatisfaction. Some of the steps are: • Apologise or Acknowledge:
Apology rendered in first person is the most powerful tool. The magic word “I am Sorry” provides authenticity of personal involvement. LIC has realised the importance of personal involvement and has included it in the training program itself. Once the Agent is recruited he needs to undergo a compulsory training program designed by LIC. The Training Program also explains them the importance of the smallest of the customer .i.e. customer who is just seeking general information. The Agents and Employees are trained to Apologise to its customers even if they are not at fault. “SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE LIC LOGO TO COME CLOSER FOR APOLOGY”
•
Listen, Emphathise and Asks Question:
Customers are looking for a good listener who allows them to vent their frustrations, shows understanding of their upset and by listening offers tactic evidence of believing the customer’s report of the error on part of the company. As mentioned earlier, Redressal Machinery LIC has established elaborate at different level as per the Grievance customer
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Service Sector Marketing – Insurance _______________________________________________________________________ _ requirement. There are Complaint cells which are specially set up to listen up to each and every customer’s problems. LIC gas also set up Policyholder Councils and Zonal Advisory Boards to understand the problems of their customer situated in any part of the city. • Offers a Fair Fix to Problem:
Customers want wrong to be set right and expects service contact employee to be skilled, empowered and interested in setting things right. This is the main reason why LIC conducts training programs for the newly recruited Agents as well as the other Employees. In any kind of breakdown situations LIC try to offer a rational explanation and demonstrate sensitivity and concern to the customer rather than defending themselves. For e.g. there is a breakdown in a computer at the payment counter. Now, these Payment Counter might be open only at a particular time of the day. So if the problem is repairable within a short period of time, than the Branch Manager would extend the timings for Payment (only for that day) so that the customer don’t have waste another day for the same purpose. • Offers Some Compensation for the Inconvenience:
Compensation here wouldn’t mean of just monetary compensation or some extreme measures like firing the Branch Manager Etc; but it is just to make-up for the loss of customer satisfaction. It could be like “it’s on us”; “free service” etc. The service provider should plan certain compensation policies in advance for various types of situations and deliver it as and when the situation is faced.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ For e.g.: Suppose there is a customer who is standing in a long queue for payment of his premium on the very last date of the permissible period. And all the payments were not accepted on the same day within office timings and hence the payment was finally delayed. There are chances that the customer may blame the employees of the Company for slow clearance of the premium. The Company could however compensate to the customer by waiving the penalty payable due to delay in payment of premium. • Keep the Promises:
It basically means that the Company should keep the promises made to the Customer before or at the time of service provision i.e. the Company should fulfill its commitments. LIC makes sure that none of the Agents provide any kind of wrong information or false promises to its customers which mislead them. LIC ask their Agents to give reasonable commitments so that they could be fulfilled by the Company or the Agent on behalf of the Company. • Follow Up:
This is the most important step in Service Recovery as it ensures that whether the implemented Service Recovery was Satisfactory or not. It would include Internal and External Follow-up. Internal Follow-up would be to ensure that the solutions they put in motion are actually executed and the External part would be to get feedback from the customer whether he is satisfied or not.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Complaint Handling In a vast Organization like LIC, catering to the various needs and aspirations of millions of policyholders, grievances of customers do arise occasionally. In order to redress these grievances LIC has established elaborate Grievance Redressal Machinery and the details are as under. • Grievance Redressal Officers:
Grievance Redressal Officers have been designated at all levels of the Organization: At the Branch level: The Sr/Branch Manager At the Divisional level: The Marketing Manager At the Zonal level: The Regional Manager (Marketing) in case of Ordinary policies The Regional Manager (Pension and Group Schemes) in case of P&GS At the Central level: The Addl. Executive Director/Chief (Marketing/Customer Services) in case of Ordinary policies Chief (Pension and Group Schemes) in case of P & GS policies o Policyholders can personally contact these designated Officials and seek redressal of their grievances. o The respective Grievance Redressal Officers are available at their Offices for personal interviews with the customers on all Mondays between 2.30 p.m. to 4.30 p.m. without prior appointment. o Customers can meet the Grievance Redressal Officers on other days also with prior appointment.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ o The names of the Grievance Redressal Officers are displayed in the respective Offices and are periodically published in the local
•
Complaint Cells:
For those customers who are not in a position to meet the Grievance Redressal Officers in person, a Complaint Cell is functioning at the Central, Zonal and Divisional Offices. They can send their written complaints to these Offices. Such complaints are registered and monitored with the respective servicing units for proper redressal. • Claims Review Committee: them to safeguard the interest of the genuine
In a few cases of death claims, LIC is put to the necessity of repudiating policyholders. Claimants who are dissatisfied with the decision of repudiation of claim can approach the Claims Review Committees set up at all the seven Zonal Offices and at the Central Office. These Committees comprise of senior Officials of the Corporation and also retired High Court/District Judges and they review the claims objectively and dispassionately to rule out any miscarriage of justice to the claimant. • Complaints received through the Government:
Some of the aggrieved policyholders write directly to the Government of India seeking redressal of their grievances. Such grievances are attended to on a top priority basis. For this purpose, a special cell has been set up at the Central Office level for monitoring and for satisfactory redressal. • Policyholder Councils and Zonal Advisory Boards:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ In all the 100 Divisional Centers, Policyholders' Councils have been established. Three policyholders of the area represent the interest of the policyholders and interact with the Divisional Management on consumer concerns. Similarly, at all the seven Zonal Centers, Zonal Advisory Boards are functioning. Many consumer-activists are inducted as Members to these Forums to protect the rights of the consumers. • Consumer Affairs Committee: A Consumer Affairs Committee has been constituted at the Board level with many eminent consumer activists and members of public joining as members along with the Chairman and the Managing Directors of the Corporation. This Committee looks into various areas of consumer interests and advises the Corporation. • Citizens' Charter:
LIC has adopted a Citizens Charter through which it reiterates its commitments to the customers and the standards for general procedures, the standards for policy servicing, the standards for easy access to information for customers and the standards for fairness in dealing with the customers have been laid down.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Market Segmentation According to Philip Kotler “Market segmentation is the sub-division of a market into homogenous sub-sets of customer where any sub-set may conceivably be selected on a market target to be reached with a distinct marketing mix” Thus market segmentation is the process that segments a market into smaller sub-markets called segments. Segments are homogeneous within and desirably heterogeneous in between. The rationale of intragroup homogeneity is that people with similar attributes are likely to respond somewhat similarly to a given marketing strategy. So that they can develop special marketing strategies for particular segments. Segmentation is normally performed along with demographic, geographic, psychographic, and behavioral variables; • Demographic variables describe characteristics of populations and include age, gender, race, education, occupation, income, religion, marital status, family size, children, home ownership, socioeconomic status, and so on. • Geographic variables include various classification of geographic areas, for example, zip code, state, country, region, climate,
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Service Sector Marketing – Insurance _______________________________________________________________________ _ population, and other geographical census data. Note that this information can come from national census data. • Psychographic variables describe life style, personality, values, attitudes, and so on. • Behavioral variables include product usage rate and end, brand royalty, benefit sought, decision making units, ready-to-buy stage, and so on. This information can be extremely useful for marketing purposes. Criteria of effective segmentation: • • • • • Measurable- size, purchasing power characteristics of the segment must be measurable Substantial - The segment must be substantial enough to earn profit Accessible- The segment must be accessible Differential- The segment must be conceptually distinguishable and respond differently to different marketing mix Actionable- Effective programme must be formulated for serving the segment Insurance Market Segmentation: In insurance industry, profiling is very important in determining premium rates. Typically, insurers collect every information available. However, analyzing thoroughly is not feasible since the number of variables is normally large. The starting point is thus mass marketing. In mass marketing, the seller engages in the mass production, mass distribution and mass promotion of one product/ service for all buyers.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ A niche on other hand is a more narrowly defined group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub segments. In terms of target customers, insurance products can be broadly classified into products that can be used to indemnify perils that are faced by a few individuals or industries. These can be termed as mass market and niche market products. Also, in terms of product complexity, insurance products can be categorized into low complexity and high complexity products. Low complexity products: These are simple products with a standard set of covered risks, perils and hazards. High complexity products: They have a large number of riders and warranties and do not indemnify certain causes of loss. PRODUCT COMPLEXITY TARGET SEGMENT Niche Market LOW HIGH
1. Fire
Insurance risk for
1. Weather Insurance 2. Product Liability
(different profiles each) 2. Marine Mass Market
Insurance 1. Householder’s comprehensive Policy 2. Medical
1. Personal Accident Insurance 2. Pension
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Insurance Products
The distribution strategy should vary according to the type of policy. Insurance products with low complexity can be sold through bankassurance, but products with high complexity should not be sold through the same channels, as it would be very difficult (in terms of time, effort and cost) to train bank employees in understanding the finer details of the complex policies. Products with high complexity need a certain amount of customer hand holding in terms of explaining the terms, conditions, riders and warranties of the policy. In case of niche marketing, direct marketing can be used in the form of e-mails and direct calls through agents to specific customers belonging to the target segment. For high complexity niche products, spreading awareness and selling through financial advisors, consultants and brokers would also be a good strategy.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ PRODUCT LOW HIGH COMPLEXITY TARGET SEGMENT Niche Market
1. Direct marketing through personalized mails 2. Advertise area in specific e-
1. Well agents 2. Financial
trained
advisors/consult ants 3. Brokers
journal with toll free numbers to set appointments Mass Market 3. Agents 1. Bancassurance 2. Postal department 3. Agents 1. Well agents 2. Advertise newspapers with up appointments toll free numbers to set in trained up
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Market Segmentation in Insurance
Household class Industrial sector Trade sector
Segment
Sub segmen
Institutional sector Region wise Rural sector
Significance of Segmentation in Insurance:
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Service Sector Marketing – Insurance _______________________________________________________________________ _ • Helps to understand the need and the requirement of the policyholder and accordingly helps to cater i.e. the needs and the requirement rural sector is different from the urban sector • Segmentation helps in having a microscopic study of culture language, likes and dislikes. This helps in marketing decision which indirectly helps to cater all segments like rural & urban , men & women, agriculture and industrial. • Segmentation helps to make promotional measures more creative like advertisements, personal selling, pricing/fee decision • Segmentation helps to cover maximum policy holder. It helps to identify profitable segment and helps in formulating attractive packages.
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Service Sector Marketing – Insurance _______________________________________________________________________ _
Conclusion With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion. According to government sources, the insurance and banking services' contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the stateowned Life Insurance Corporation (LIC) for investments are 8% of GDP. Till date, only 20% of the total insurable population of India is covered under various life insurance schemes, the penetration rates of health and other non-life insurances in India is also well below the international level. These facts indicate the of immense growth potential of the insurance sector. The year 1999 saw a revolution in the Indian insurance sector, as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Though, the existing rule says that a foreign partner can hold 26% equity in an insurance company, a proposal to increase this limit to 49% is pending with the government. Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have poured into the Indian market and 21 private companies have been granted licenses.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Innovative products, smart marketing, and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. Indians, who had always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer. The life insurance industry in India grew by an impressive 36%, with premium income from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition from private insurers. The market share of the state behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest the fall in its market share, as private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04. Though the total volume of LIC's business increased in the last fiscal year (2004-2005) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to about 22% in a year's time. The figures for the first two months of the fiscal year 2005-06 also speak of the growing share of the private insurers. The share of LIC for this period has further come down to 75 percent, while the private players have grabbed over 24 percent. There are presently 12 general insurance companies with four public sector companies and eight private insurers. According to estimates, private insurance companies collectively have a 10% share of the non-life insurance market. Thus it is clear, that insurance sector is booming and is one of the most dynamically growing sectors of the Indian chapter. Growth potentials are tremendous, and in era of cutthroat competition, the best marketer can reach to dizzying heights.
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Some Important Concepts in Life Insurance Annuitant is the person who receives certain amounts at yearly / halfyearly / quarterly / monthly intervals. Assignee is the person to whom the benefits under a life policy are assigned. Assignor is the person who holds the right/title under the policy and who can make a valid assignment. Bonus is the amount added to the basic sum assured under a withprofit life insurance policy. Claim Amount is the amount payable by the insurer under a policy on a claim arising Dating Back or Back Dating is an option to the life assured to get the advantage of lower age wherein the policy is commenced from a date earlier than the date of signing of proposal form. However back dating is limited to one year. Deferred Annuity is an annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Deferment date is the date on which the deferment period ends. Deferment period is the period from the date of commencement of the policy to the date of commencement of risk on the child's life under a Children's Deferred Endowment Assurance policy. EPDB Extended Permanent Disability Benefit Female lives Category I: Women with income earned by
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Virtue of their employment in any reputed organisation or institution eligible for Non Medical Special Schemes. Professions such as Medicine, Law, Charted Accountancy etc. and lady career agents of LIC.
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Category II: Women with unearned income attracting payment on income tax or women holding sizeable personal properties/investments yielding income attracting assessment for income tax. First Class Life An Individual is categorised as First Class Life if is eligible to have insurance coverage at normal rates of premium. First Unpaid Premium (FUP) First unpaid premium refers to the first default in paying premium by the policy holder. On payment of the due premium a receipt is issued and this receipt indicates the date of next due. If this due premium is not paid that date becomes the date of FUP.
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Guaranteed Insurance Sum (GIS) Guaranteed Insurance Sum is equal to purchase price paid for a pension along with final Jeevan Akshay Bonus. Gross Insurance Value Element (GIVE) Gross Insurance value element is the amount payable on death of a policy holder under a Jeevan Dhara Policy. Guaranteed Additions are calculated at a rate per every thousand of sum assured. They are added to the basic sum assured and are payable on admittance of claim. This benefit is allowed only for each year for which premiums are paid. Life Assured refers to the person whose life is being insured. Last Birth Day (L.B.D) Age at last Birthday Lien In some cases extra risk is expected to decrease over a period of time. In such cases proposal is considered and accepted with lien. Lien operates through out the period, on a decreasing basis.In the event of death during the lien period full sum assured is not payable. Eg: If 25% decreasing lien is imposed for 5 years. It is understood that in first year risk cover(sum assured payable) is only upto 75%, second year-80%, third year-85%, fourth year 90%, fifth year 95%, and from sixth year onwards lien is not operative. Loyalty Additions
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Service Sector Marketing – Insurance _______________________________________________________________________ _ Under certain life policies loyalty additions are given as an additional benefit to the policyholder. The rate of addition depends on the LIC's performance and is allowed only if the policy is in full force. Moral Hazard is said to exist in the case where we notice the absence of a genuine need for a life insurance or when a proposal for insurance is submitted by an individual beyond his means. Near Birth Day (N.B.D) Age on nearest birthday Nominee Nominee is the person who is nominated to receive the amount under a policy and to give a valid discharge to the insurer on settlement of claim under a life insurance policy. Non-Standard Life Any individual, who cannot be granted a policy under normal rates of premiums but can be granted with an extra premium over normal rates of premium, is considered as a Non-Standard Life. Paid-up value is the reduced amount of sum assured paid by the insurer in case of discontinuation of the payment of premiums after paying the full premiums for the first three years. PDB Permanent Disability Benefit Premium is the amount paid to secure an insurance policy. Proposal Form
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Service Sector Marketing – Insurance _______________________________________________________________________ _ It is a form which is to be completed for securing an insurance policy. Proposer is a person who proposes the insurance policy. Premium Waiver Benefit (PWB) is the benefits which can be availed under children's policies, wherein the future premiums payable up to vesting date are waived in the event of death of the proposer. Sum assured is the amount that an insurer agrees to pay on the occurrence of an event. Surrender value is the amount payable to the policy holder on his surrendering his right under a policy and terminating the contract of insurance. Target pension is the amount of pension which one wishes to receive under a pension policy. Term is the period for which insurance coverage is given. Vesting Date This is the date from which the life assured i.e., child becomes the absolute owner of the policy. Vesting Bonus It is the Bonus, which the insurer declares after evaluating its assets and liabilities, and that is added to the sum assured under a policy. Waiting Period It is the period starting from date of commencement of a policy to the date of commencement of risk under a Jeevan Kishore Policy.
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LIC Print Ads
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