Assuring multiple choice

If you've ordered a 14-inch Domino's Pizza, don't be surprised if you get a call from insurance company ICICI-Prudential. Nope. This isn't a joke about needing life insurance after munching through a 14-inch pizza. It's just that senior executives at ICICI-Pru are convinced anyone who buys a 14-inch pizza may be a potential customer.

How have they figured this out? "A customer ordering a 14-inch pizza must have a family because it's unlikely that a bachelor or a child will order a large pizza. And he is the target customer for an insurance policy," says a senior ICICI executive. That's why ICICI-Pru has tied up with the food chain and is using its order list in an aggressive drive for new customers.

Innovative products, smart marketing and aggressive distribution. That's the triple-whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected.

Indians, who've 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. Says Vivek Khanna, director, marketing, Aviva: "In the next three years, private insurers should have a quarter of the market in areas where they operate."

The success of the aggressive selling tactics used by private insurers can be gauged by the numbers. It's only two-and-a-half years since the private insurers started selling their first policies in the Indian market.

But the 12 private insurers have already grabbed nearly 9 per cent of the life insurance market (in terms of premium income). What's more amazing is that the new business premiums of the 12 private players has tripled to Rs 1,000 crore (Rs 10 billion) in 2002-3 over last year. Meanwhile, state-owned LIC's new premium business has fallen.

The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they've introduced. The state-owned companies still dominate segments like endowments and money back policies.

But in the annuity or pension products business, the private insurers have already wrested over 33 per cent of the market. And in the popular unit-linked insurance schemes they have a virtual monopoly, with over 90 per cent of the customers.

The private insurers also seem to be scoring big in other ways -- they're persuading people to take out bigger policies. For instance, the average size of a life insurance policy before privatisation was around Rs 50,000. That has risen to about Rs 80,000.

But the private insurers are ahead in this game and the average size of their policies is around Rs 110,000 to Rs 120,000 -- way bigger than the industry average.

More importantly the big boys are aiming even bigger. The average cover size of ICICI-Prudential is 40 per cent higher than the industry average. Om Kotak is targeting customers at covers of Rs 200,000  to Rs 250,000. While the average premium size of Birla Sun Life was an impressive Rs 19,500 (compared to the industry average of only Rs 8,000 per annum).

That's not all. Buoyed by their quicker-than-expected success, nearly all private insurers are fast-forwarding the second phase of their expansion plans. Birla Sun Life, for instance, is planning to expand to 11 new cities this financial year.

That means it will be in 52 cities. Says Nani Javeri, chief executive officer, Birla Sun Life Insurance Company: "We've also targeted to dramatically increase our annualised premium income to Rs 450 crore (Rs 4.5 billion) from the Rs170 crore (Rs 1.7 billion) that we achieved this year."

Moving in the same direction is Tata-AIG, which will be selling policies in four more cities this year. The company expects to grow by over 100 per cent and is drawing up plans to boost its agents sales force from 13,000 to 20,000 this year.

Says Ian J Watts, managing director, Tata AIG Life Insurance Company: "It's an underdeveloped market that till now was only tapped by LIC. The penetration of life insurance products was 19 per cent of the total 400 million of insurable population."

The expansion bug has caught other private insurers too. In the first quarter of this year, Max New York Life entered five new cities -- which included Coimbatore and Surat.

Om Kotak, which is targeting 40 cities, is already present in 20 and is making a special push in Gujarat and Maharashtra, leveraging its strong network in these regions. And Aviva -- the last private insurer to enter the fray -- hopes to expand its reach from 12 cities to at least 17 by year-end.

So, how are private insurance companies redefining the market? Says Saugata Gupta, chief, marketing, ICICI-Prudential: "Earlier, state-owned companies sold insurance as a tax instrument, not as a product giving protection. There was no flexibility or transparency in the products and most customers were under-insured. Private insurers are changing the game."

Certainly, they seem to have moved the goalposts by introducing new products backed by new selling methods. Aviva, for instance, realised customers had no idea of why they needed to be insured.

So it's introduced a "Financial health check" scheme under which potential clients fill up a form giving details of their income, needs and saving patterns.

Financial Health Check, a proprietary software developed by the company, scans the information and offers advice to the client. It looks at whether the client is under-insured, in which areas protection is needed and which products would be suitable.

That's not all. Sensing clients need to hedge against inflation, the company has introduced an "indexation" facility under which customers can boost their premium and sum assured to keep pace with inflation.

Says Aviva's Khanna: "The whole idea is to understand the needs of the customer and offer him the right solution. So we offer him advice through indexation to make sure that his cover is inflation-proof."

There are others who've gambled with new products that were virtually unknown in India. Birla Sun Life, for instance, pioneered unit-linked life insurance products that have performed strongly.

Aimed at meeting both the protection and investment needs of customers, these products come with a minimum guaranteed return. Part of the money paid by clients is invested in equities or other growth instruments. However, some insurers are critical of unit-linked policies because the risk element is higher.

Says Jhaveri: "This was the major differentiating factor. Worldwide the trend is for insurers to move from traditional insurance products to unit-linked products."

Certainly, it looks as if Birla Sun Life's gamble has paid off: some 95 per cent of its annualised premium came from sales of unit-linked products.

It's not only the products that are new. Private insurers are wooing customers in innovative ways. For instance, Om Kotak offers preferential premium rates on policies for non-smokers and women.

Says Asuthosh Bishnoi chief marketing officer, Om Kotak: "The premiums are lower by 20 per cent to 25 per cent and what we're doing is an international trend where these segments are considered to be lower risk. It's a new way to segment the market."

ICICI-Prudential, on the other hand, offers a "premium holiday" to policyholders. That's for customers who face sudden, heavy expenses in one year and want to stall their insurance payments.

A senior executive says company research shows customers may not have enough money one year and would be keen to use this scheme.

Similarly, Max New York provides policyholders with the flexibility to take the bonus in cash every year rather than accumulate it after the policy period lapses.

In fact, private insurers are borrowing heavily from the FMCG companies to sell their products. Om Kotak, for instance, has launched a "Back to school" campaign under which agents are being encouraged to return to their alma maters to sell insurance products aimed at saving for children.

Bishnoi says the company hopes to cover as many as 500-600 schools this year and hopes to educate parents through parent- teacher groups.

Bishnoi and his team are also tapping housing societies in Mumbai with over 100 members, with an offer for free health check-ups. Anyone who clears the check-up won't have to go through one again if they buy a policy from Kotak later.

Says Bishnoi: "If it succeeds, we'll roll out this scheme in the top 20 cities. This will provide us with on the ground awareness of our brand and products amongst potential customers."

Many insurance companies are devising new ways to reach the rural market -- and this isn't only to meet statutory requirements. Max New York Life, for instance, has appointed gram sahayaks in some rural locales who've been trained to identify and sell specialised insurance products.

Says Debashis Sarkar, senior vice president, Max: "We're tapping opinion leaders in the village like schoolteachers, social workers and chemists, and creating products which suit rural needs."

For instance, the company has introduced EasyLife aimed at rural customers, which requires a Rs 100 premium and offers cover of only Rs 10,000.

Clearly, these private insurers aren't depending wholly on agents to grab new business. ICICI Prudential, for example, is using direct marketing as a tool to identify new customers.

The company claims it had 70,000 calls on its toll-free number during the first year of operation. Direct marketing accounts for 2 per cent of total business.

The company has also tied up with Shoppers' Stop and is reaching out to customers who hold the chain's "First Citizen" discount card and who buy children's clothes more than once a month. Says a company executive: "These are obviously parents with kids and they can be tapped for child saving schemes."

Birla Sun Life has used its web site to bring about leads on potential clients which are passed on to the sale channels for execution. The conversion percentage of leads generated through the net has been an impressive 15.18 per cent.

But the big bucks are coming from tie-ups with the banks. For instance, alternate channels (like banks and corporate agents) have contributed 24 per cent of Birla's annualised premium.

"SBI Life is leveraging its own groups large bank network to sell products, says R Krishnamurthy, managing director and CEO of SBI Life, "we are heavily banking on bank assurance to be the main backbone."

Aviva, which gets 50 per cent of its business from the banks, is even going a step further -- it's offering products bundled with those of the bank.

The company has tied up with ABN Amro to offer a product called Treasure Plus. This is a combination of a Treasure account (a savings account for children) with Aviva's Easylife (an endowment policy).

Some insurers are playing their cards carefully. Metlife, for instance, is hiring only a small number of agents but trying to ensure higher productivity from them.

Says Venkatesh Mysore, managing director, Metlife, "We have limited the number of agents to only a thousand, but their productivity is two-and-a-half times more than the industry average. They are with the company on a full-time basis and are trained to customise insurance for the individual's needs."

It probably goes without saying the private insurers are hoping to offer better service than LIC. Max New York Life, for instance, has fixed benchmarks on claim processing time, processing of complaints and customer satisfaction and monitors these regularly.

Says Sarkar: "One key differentiator between insurance companies will be how well they can leverage technology to offer better service than their competitors."

So, Allianz Bajaj has built an IT system which is capable of processing an application and issuing policy within five minutes. And Tata-AIG settles claims within five to seven working days.

No doubt the aggressive stance of private insurers is already paying rich dividends. But a rejuvenated LIC is also trying to fight back to woo new customers.

Says Khanna: "In the next three years, private insurers should have a quarter of the market in areas they operate." That should not be difficult considering the low penetration of insurance in the country -- where there's room for all innovators.