Mumbai: The life insurance sector was opened to private players who kicked off operations about two years back. A lot was expected from these private players who were to give Life Insurance Corporation (LIC) of India, till then a monopoly, a run for its money.

Although two years is a bit too early to conclude whether there has been any perceptible change in the way life insurance business is carried out it, it is worth looking at the changes that are slowly, but surely, going to take place.

In the first place one has to admit that LIC has changed, and how. LIC, under the stewardship of then chairman G N Bajpai decided to get their act together and presented a strong riposte to the new players. Almost overnight, this public sector behemoth became the epitome of efficiency.

Changing stripes
The branches no longer functioned like any another government office, red-tapism was cut and the company became customer-centric. The result was that in the first year of the opening up of the industry, private players could not garner even 5 per cent of the business. LIC’s performance in the second year, too, was strong and it suffered just a small dent in the market share.

A point to be noted is that in these two years, life insurance business registered record levels of growth — a clear indication that India is an underinsured country and there is tremendous scope for growth.

This is not to say that the private players got their calculations wrong and that LIC’s dream run will continue forever. Insurance business is after all a marathoner’s run and there is a long way to go before the new players reach critical mass. Of course, none of the new players have the infrastructure that LIC has, mainly a wide distribution network and an 8-lakh agent strength.

Additionally, the insuring public in his heart of heart feels that his money is safe with LIC. And it is. LIC’s payment obligations are guaranteed by the Indian government by an Act of Parliament while this safeguard is not available to the new players.

Age of uncertainty
Another factor that is weighing heavily in the minds of the insuring consumer is the beating which investors took in the case of organisations like Unit Trust of India and with Industrial Development Bank of India’s high-yielding bonds. LIC, in this regard, is perceived as clean and well managed.

The new players do not seem to enjoy this advantage despite the fact that all of them have collaborators who are of reputed pedigree with deep pockets.

Another factor which weighs in the mind of the insuring public is that insurance is seen more as a tool for savings and for obtaining tax incentives and not as a tool for risk protection. A look at LIC’s policy portfolio shows that just about 18 per cent of their policies are protection policies while the savings policies are about 60 per cent.

These are the barriers that the new players have to overcome to achieve success in this business. Till now the new players appear to remain unfazed. They point out that their collaborators are big names in the international scene who have the money, technology and experience to take on LIC.

As far as the agent network is concerned, it is well known that just about 20 per cent of LIC’s agents account for 80 per cent of the business. They do not have to build up a force as large as LIC has. Moreover, with the government permitting banks and brokers to enter this sector, tie-ups with banks and brokers will enhance their distribution network.

Perceptions change
The good news for the new players is that a recent survey conducted by the Federation of Indian Chambers of Commerce shows that the mindset of the Indian insuring consumer is changing. The survey revealed that a majority of the respondents said they insure for protection and that takes precedence over the investment factor.

A reason why the savings schemes sold more under LIC’s regime is that the agent’s commission on these schemes is much higher; this made them push these schemes. Thus, the consumer basically got what the agent had to sell which was not necessarily what he needed — that is protection.

The psychological factor is also important. Life insurance is after all about mortality and no consumer likes to be reminded that one day he has to face death. A very tricky issue, which needs to be handled with a great degree of skill. Existing agents are not sufficiently trained in this aspect of selling.

The new players hope to set these anomalies right. With a better-trained sales force and given the changing in the ageing scenario, the new players are betting on protection and pension schemes which LIC had missed out on and had till now taken a second place in the life insurance sector.