Steve Jobs, the man who leads Apple Inc, and made it the second-most valuable company in the world, once said: “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led...” Sure, this is all tech-talk from a vanguard of the technology industry, and all that he may profess may find no space in the memos of insurance agents, but he has a point! It doesn’t require money to innovate, simply people intellect and leadership. The Indian insurance industry today has both intellect and leadership, but strangely has its back to the wall when it comes to being tested on grounds of innovation. Try the test yourself. Call medical insurance agents from different companies and compare their plans. All plans have similar pricing, similar guidelines, similar cashless benefits (or no cashless benefits; given the cartel in which health insurers operate), similar coverage, and similar rejection rates. Do the same test on life insurance companies. You’ll come out with the same results with flying colours. Similar products, similar benefits, similar marketing punchlines, similar guarantees. To understand what we’re talking about, look across the road to automobile marketing and the logic of differentiation and innovation hits one hard. What’s going wrong with the Indian insurance industry, especially health and life insurance firms?
Rebecca C. Amoroso, Vice Chairman & US insurance industry leader, Deloitte writes in one of her papers, “In practice, most [insurance] companies play it safe and stay close to what works today.” That’s precisely the reason why the whole industry – especially life insurance companies – went into a state of panic when disagreements over ULIPs sparked off between regulators IRDA and SEBI. The truth was that the said life insurance companies had focused less on pure insurance products and more on ULIPs, which account for 70% of premiums from new policies. As a result, the whole life insurance segment was virtually surviving on ULIPs. It wasn’t the best of starts for the life insurance industry this year.
The point is, insurance in India is sold – and therefore bought – for the “wrong reasons”. For instance, with all due respect to the marketing gimmicks, complex designs and cumbersome processes, despite the fact that insurance is a risk cover, most of us are cajoled to consider it as nothing more than a mere investment and tax saving instrument. Even agents (who are ethically meant to guide consumers) try to push insurance plans under the dole of investments. Customers who dread going through the brochures which contain complex terminologies fall prey to promotional material, without ever understanding what the policy actually provides. P. Nandagopal, CEO, IndiaFirst Life Insurance, agrees, “Everyone needs life insurance, for example, but not many actually understand the nuances of how life insurance actually works.”
Is the insurance industry facing a lack of cash flows that is stopping them from educating customers properly, or advertising innovatively? That’s far from the truth. Expenditures on print ads by the overall insurance industry in India surged y-o-y by 26% during FY 2009-10. The same figure was a healthy 20% in the TV ad-space. Here comes the real treat – the life insurance segment accounted for 74% and 84% of the total insurance industry adspend on print and TV respectively. In fact, all insurance companies in India saw the first quarter of calendar year 2010 account for up to 40% of their ad spend. The motive was clear – sell tax saving instruments to those individuals scampering for a last minute solution to save on taxes. Little wonder that while the industry grew by 25.83% last year, the ULIPs’ segment recorded a higher 35.33% growth. And the life insurance industry specifically actually managed a 25% growth (y-o-y) during the previous financial year – thanks purely to proactive marketing measures. Obviously, as stated earlier, tax-saving instruments formed the major chunk of business for even life insurance firms! SEBI caught on to the brouhaha and put a ban on 14 life insurance agencies on April 9, 2010, a move that resulted in the much-publicised SEBI tiff with IRDA. Deepak Sood, MD & CEO, Future Generali India Life Insurance shares with 4Ps B&M, “While the impact of these guidelines may look favourable currently, in the long run, these changes could seriously impact the choice of investment options to customers, restrict product design-innovation, and increase new business strain.” In an industry where national penetration is just 4%, this is a worrisome outlook.
Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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