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The Rediff Business Special/Neena Haridas

LIC, GIC tighten belts as MNCs come calling

"The only fortune-teller who's always right is the insurance agent: he tells you what's gonna happen, and it does…." -- Anon.

Have you called your car insurer lately? I did, expecting the same old bored sleepy voice asking me to call up on some other number which would then be perennially busy. But surprise, surprise! A very courteous, chirpy voice asked me to stay put and wait for an agent who would call up and get my insurance in place within no time. All I had to do was stay at home. Pinch me! Was it really the office of New India Assurance? Sure it was! But isn't tough competition just round the bend?

With the government opening up the insurance sector, the laid-back public sector insurance companies have been forced to pull up their socks. This could well be the beginning of the long spring-cleaning session in the Indian insurance sector.

If the hitherto phlegmatic insurance agencies are suddenly buzzing with activity, it is not without a reason. A host of multinational insurance companies are knocking at the doors of the Insurance Regulatory Authority of India, or IRAI, waiting to get a nod to commence operations in India.

Sample this: UK's Prudential and CGU, South Africa's Old Mutual, France's AXA, Australia's GIO Holdings and Chubb Insurance are amongst numerous insurers waiting to roll out their portfolios in the Indian market.

So what kind of luring packages do these 'foreign insurers' have in store for the Indian middle class? And how would these schemes compare with the good old Life Insurance Corporation or General Insurance Corporation?

For one, the multinational brigade seems to be concentrating on life insurance in India. M J Levett, chairman and chief executive, Old Mutual plc, explains the reason for this, "I think it is the size and the potential of the market that is attracting insurers in this area. Besides, life insurance is an area for long-term players and it is the best route to build relationships. For instance, we only deal with life insurance and asset management and this will be the area of competence in India, too. We also deal in pension funds, mutual funds, retirement funds, etc. Retirement funds are very important in India and there should be a move to encourage savings. However, it is unlikely that we enter any non-life insurance products. Not because we don't see a market for them in India, but because we want to establish our own!"

Levett's Old Mutual intends to target the high-end market segment that they prefer to call the 'upper middle income group'. According to Levett his company's lowest premium on a product would be around Rs 180 a month. "Which means our products will be accessible to a large population. In fact, though we begin with the upper middle income group, we are conducting a study to understand the kind of premiums that will be affordable for the poorer section of the society. Once our statistics are in place, we will enter this segment as well."

UK-based Prudential Corporation plc, which has tied up with ICICI to enter life insurance, believes that it is important to build relationships. Says Derek Stott, chief representative, Prudential India, "Our core speciality is life insurance, pension funds and asset management. We will focus on these areas. In the UK, we have non-life insurance products too, but we shall not bring them to India now. First, we want to build a relationship with the Indians, build our brand here and then expand our product portfolio."

In fact, Prudential intends to establish the concept of pension funds in India. Says Stott, "Most countries are experiencing demographic changes which will cause them problems unless they take steps to introduce an appropriate pensions regime to stimulate a more effective retirement provision. India is no different. There are some schemes available from the public sector, but they are too few. Hence, it is better to direct the resources to encourage greater private self-provision."

Pension reform in India has a number of things working in its favour. First, there is a significant degree of political consensus on the need for change. Two, it has an existing regulatory regime for its insurance business and experience of a local pension system. I see a lot of potential in pension. The only disadvantage in the Indian market with regard to pension is the level of unemployment.

A major chunk of the population in India is not conventionally employed. Hence, the pension system should address this problem: less than 15 per cent of the Indian people work as salaried employees, 85 per cent are self-employed, and 70 per cent of the total population is in rural India. We are working out schemes that work for, both, the salaried and the self-employed."

Stott, too, believes that companies are skewed towards life insurance because it is a long-term returns area and is an immense market. "However, I don't really think companies are overlooking non-life insurance."

Stott, nevertheless, thinks that companies that are waiting to launch their products are overlooking one important segment -- health and medical insurance. Says he, "Unfortunately, there seem to be no takers for health insurance today. But that is not reality. The lukewarm response is because of lack of awareness. Once several players enter the market and give customers a choice, this too will pick up. In fact, even the hospitals here do not insist on insurance. I think a lot of institutional awareness is needed. Then you have to build a huge -- very huge -- bank of doctors. These are things that the government should put in order which the insurers can then build on."

Among the MNC contenders, one of the few companies which is interested in non-life is the Paris-based AXA, which has 50:50 joint venture with two groups based in south India -- Cholamandalam and Guardian. Says William A Barr, India representative, "We have products for life and non-life insurance markets. Besides, we are interested in asset management and risk management. Of course, it would be an understatement to say that there is a huge insurance market in the country. Our core business is in the provision of life, health and disability insurance to individuals. The group also plans products in life, health and disability insurance, retirement schemes for corporations, and general insurance and unit trusts."

Adds Barr, "Both -- life and non-life -- are potential markets. You see, in India it will be for the first time that so many companies will be offering services. Hence, there will be lot of things that the customer will be exposed to for the first time, in terms of services. Worldwide, 57 per cent of our revenue comes from life insurance, 24 per cent from non-life, 16 per cent from financial services and 3 per cent from reinsurance. In India, too, the break-up could be something like this. Hence, we have interests in a variety of areas -- which is not the case with all the players planning to enter India. But, yes, we will be focussing on the services, we will try to give more than what is the convention.

"For instance, take risk management. The usual risks that are insured are fire and accidents, but we try to go beyond that and cover a lot of unconventional areas on the social level too. In fact, I think there is a huge market in the rural areas as well. For instance, there is a lot of risk involved in agriculture."

The excitement among the MNCs is not misplaced. The insurance business in India that is pegged at $ 6.6 billion is expected to open up to much as $ 26 billion in five years. Says B K Chaturvedi, special secretary (insurance), department of economic affairs, Ministry of Finance, "The existing premiums of $ 8 billion from insurance account for a measly 1.6 per cent of the GDP in comparison to South Africa's 63 per cent! Once these players come into the market, the premiums are likely to go up to $ 26 billion. And this could be of great help to the government which needs at least $ 40-50 billion for development of infrastructure in the country."

But does the deluge of funds and schemes also mean that the premiums will decrease? Says S V Mony, director (India) GIO Australia Holding, which has interests in insurance and financial services, "It is not just the prices that will be affected. With more players in the market, there will be significant increase in advertising, brand-building, and keen -- not ridiculous -- pricing. Other industries too will gain from the liberlisation in the insurance sector. More the players, better the competition and better the quality of service. I think more than prices, the entire gamut of insurance will be professionalised and the services will improve in quality. Maybe the prices will be rationalised, too. It's tough to predict where the premiums will settle finally. However, I think once the market evolves, prices will have to be competitive and customers will start weighing the premiums against the services offered. But I don't think it will be higher than the international figures."

Does 'getting professionalised' mean companies like LIC and GIC being wiped out by the market savvy MNCs? Says Prudential's Stott, "LIC is huge and any MNC which is just entering the market cannot match its reach. But, I believe the public sector units will lose their lustre in the urban markets. But I don't think we will be selling our products through marketing gimmicks. Of course, these PSUs will have to buck up and start making improvements in their products if they wish to keep their customer base."

However, LIC officials are still complacent. They believe that middle class Indians will not be lured by multinational gimmicks. While that remains to be seen, Old Mutual's Levitt has a point, "Insurance is not a fly-by-night business proposition. So, obviously only the discerning companies will get the go ahead from the Government of India. Besides, I don't think in the initial years marketing gimmicks will be a selling technique. It will be more building relationships. Hence, I believe people will be interested in our products so long as there is value for money."

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