Perspectives on Life Insurance Industry In India

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Synopsis

1                    Background of the Insurance Sector

2                    Snapshot of the Performance of the Life Insurance Sector post Liberalisation

3                    Is LIC – A beneficiary of Liberalisation?

4                    The Effect: Increase in Insurance Consumption

5                    Role of Advertising – To create Insurance Awareness

                a.      Bima Bemisaal – The Insurance Awareness Campaign of IRDA
                b.      Awareness campaign by Insurance Companies 

A Background of the Insurance Sector

The Insurance Sector was liberalised and opened up for the private sector in August, 2000 which till then was monopolised by state-run behemoths – Life Insurance Corporation of India (LIC) in the Life Assurance market and General Insurance Corporation and its four subsidiaries in the General Insurance market.

The liberalisation of the Insurance Sector brought in a plethora of opportunities for domestic private companies and industrial groups, generally, in consortium with multi-national insurance corporations, to offer insurance and financial services and the drought-hit consumer was rather savaged by a flood of financial service providers to choose from. As on 30 September 2011, there are 23 Private Life Insurers and 1 Public Sector Life Insurer operating in India (See IRDA Annual Report 2010-11 pg 205). These new players brought in their expertise, products and a high-decibel campaign to build their corporate brand and to market their products and also spread awareness and financial education.

 A Snapshot of the Performance of the Life Insurance Sector post Liberalisation

The Life insurance sector has had an impressive performance in the decade post liberalisation of the sector. The Total life premium collected multiplied more than eight-fold in the decade with an annual Compounded Annual Growth Rate (CAGR) of 23.65 % per annum.

Table 1   Life Insurance Premium Collected in India (INR Crore)1

Insurer First Year Premium Total Life Premium
2010-11 2000-01 2010-11 2000-01
Public-LIC  87012.35 9700.98 203473.40 34892.02
Private  39368.65         6.45   88131.60           6.45
Total 126381.00  9707.43 291605.00 34898.47

1.      Source: IRDA’s The Handbook on Indian Insurance Statistics 2010-11 (www.irda.gov.in) (Pg. 24, 25)

The First year Premium also registered unprecedented CAGR of 29.26% during the decade multiplying to thirteen times its base. (See Table 1 – Life Insurance Premium Collected in India). During the decade, the Economic Growth though robust, varied between at 6% to 10% p.a. of the GDP. Without doubt, the Life insurance sector substantially out-performed the economy by substantial multiples.

 Is LIC – A Beneficiary of Liberalisation?

Life Insurance Corporation (LIC), the public sector life insurer, though ironically, appears to be a big beneficiary of the liberalization of the sector. It has also demonstrated a robust performance, albeit on a base substantially higher than the private sector, with the First Year Premium CAGR of 24.53% and Total Life Premium CAGR at 19.28% matching the growth of the industry and also out-performing the economic growth.

Prior to liberalization, the State monopoly to LIC allowed it to have the whole but small pie (Life insurance business). The advent of private competition in the sector has seen LIC losing market share (well from the 100% you can only go down) but it has still managed to get a major slice of a far bigger pie. Having regard to the fact, it will not be wrong to say that LIC has also been a beneficiary of Liberalization. The unprecedented performance of LIC must allay the fears of Public Sector Enterprises that have phobia to private sector participation and competition in various sectors still reserved as State Monopoly.

 The Effect: Increase in INSURANCE CONSUMPTION

The primary indicators of consumption of life insurance are:

(i)                   insurance density, measured as the ratio of premium (in US Dollars) to the population, and

(ii)                 insurance penetration, measured as the ratio of premium (in US Dollars) to the GDP (in US Dollars).

Both insurance density and insurance penetration have shown significant increases in the last decade (See Table 2).

Insurance density in India has increased from USD 9.1 in 2001 to USD 55.7 in 2010. However, it is considerably lower than the other BRICS countries and also UK & USA which can be attributed to the fact that the India still has very low per capita income.

However, in case of Insurance Penetration, India’s outperforms its peers in the BRIC and is comparable to even developed countries such as USA.

Table 2                  International Comparison of Life Insurance Density & Penetration 1

Country Insurance Density Insurance Penetration
2010 2001 2010 2001
India     55.7       9.1   4.40   2.15
PR China   105.5      12.2   2.50   1.34
Brazil   169.9      10.8   1.60   0.36
Russia        6.4      33.2   0.00   1.55
South Africa   854.6    377.2 12.00 15.19
USA 1631.8 1602.0   3.50   4.40
UK 3436.3 2567.9   9.50 10.73

1. Source: IRDA’s The Handbook on Indian Insurance Statistics 2010-11 (www.irda.gov.in) (Pg. 6, 7, 8, 9).

ROLE OF ADVERTISING – TO CREATE INSURANCE AWARENESS

The miniscule insurance consumption in 2001 indicates fact that the insurance industry was in a nascent stage coupled with the State monopoly to LIC which did not have any aggressive marketing plans and promoted Insurance mainly as Tax-saving tool. The entry of private competition and a number of players in the industry ignited an aggressive awareness campaign to provide the much needed stimulus to demand, a series of marketing campaigns to establish the brand of the insurance company, and innovative distribution strategies, such as, Corporate Agencies and Bancassurance, to market the insurance products.

 The National Council of Applied Economic Research (NCAER) – in a study sponsored by the IRDA, and titled “Pre-launch survey report of Insurance Awareness Campaign, 2011” highlights the importance of an awareness campaign in the following words “The growing need for financial education for the families to take better financial decision and to increase their economic security has been widely recognized.” It further emphasizes that, “Insurance companies can address the problem of financial illiteracy of consumers by educating them. This point was corroborated by the Max New York–NCAER survey (NCAER, 2008) which showed that even though a majority of Indian households are good savers, they do not undertake financial planning and are financially at risk. Households need to understand the risk of both ‘living too long’ and ‘dying too young’. Further, in urban India and amongst the salaried class, insurance is largely used as a tax saving tool, rather than for protection against risk. There is need to reorient the consumer about the benefits of life insurance for both financial protection as well as for long-term wealth creation.”

 BIMA BEMISAAL – The Insurance Awareness Campaign of IRDA

The Insurance Regulatory & Development Authority (IRDA) has launched an insurance awareness campaign and consumer education initiative under the brand name Bima Bemisaal with the tagline “Promoting Insurance. Protecting Insured.” The campaign intends to create insurance awareness among the general public and also to educate the policyholders about their rights and obligations and also inform them about the complaint resolutions methods available to them.

The Bima Bemisaal campaign has been designed to cover the entire spectrum of media – print (newspapers) and electronic (television, radio and internet) through innovative and informative print Ads, TV Commercials, Radio jingles, comic strips etc.

 AWARENESS CAMPAIGNS BY INSURANCE COMPANIES

Slogans, taglines and jingles – those short and often memorable phrase used by business(es) to advertise their corporate brand and to market their products are also playing an important role in building consumer awareness and spreading financial education. This section highlights the role played by the advertising and promotion in Life Insurance Industry in India.

The message conveyed through the advertising campaign of various insurance companies has invariably involved:

1.        Stimulating the need for insurance :- Invariably, the first step to market a product is to stimulate the need or requirement for it. The need for insurance has been captured the best in Birla Sun Life Insurance’s jingle क्रिकेट हो या लाइफ जब तक बल्ला चल रहा है ठाट हैCricket or Life, till you are scoring its Great” which highlights the need to save and insure for the rainy day. It underscores the point that Insurance provides financial security.

 2.        Under-insurance :- Aegon Religare’s advertisement jingle कम इन्शुरन्स लेने की  बीमारी or the “The ailment of under insurance” highlights the fact that those who are insured have not taken a life-cover to completely secure them against their financial risks and obligations in the event of unfortunate incidents in life.

 3.        Financial Independence: – HDFC Standard Life’s advertisement jingle सर उठा  के  जियोLive with your Head held high” highlights the prestige value of financial independence achieved through sound financial planning. It TV commercials feature grand-parents or parents helping out their grand-children / children in their education and other financial needs and similarly children planning for their parents Travel, etc. It underscores the point that planning will help you achieve your goals in life.

 4.        Insurance is a Long Term Savings product :- The Life Insurance Corporation (LIC) advertisement jingle जीवन के साथ भी जीवन के बाद भीWith life and even afterlife” portray insurance as a long term savings product.

 5.        Trust & Transparency in dealings between the Insurer, Insured and Intermediaries :- Max New York Life‘s (now Max Life) advertisements feature the quirky conversations between the buyer and the Intermediaries and highlight the problems which plague the industry – mis-selling of the insurance products, furnishing incorrect or misleading medical information by the buyer to get insurance cover at a lower premium, etc. It emphasizes on trust and transparency in dealings between the Insurer, Insured and Intermediaries for mutual benefit.

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