Competition has well and truly set in in the fast-growing insurance sector, barely a year after the doors were opened for the re-entry of private players.
THE new face of the Indian insurance industry is craving for attention. Hoardings and billboards of the new joint venture private companies gaze at you from everywhere. Advertisements in newspapers and on television, insurance agents and direct mailers form part of the campaign vehicle. The dozen-odd life and non-life companies in the private sector are fighting a quiet but intense battle to make their presence felt to the Indian consumer.
Not to be undone, the public sector companies are trying to match the moves of the private companies. They are shedding their old ways and donning a more sprightly and market-friendly exterior to make sure that they do not lose the advantage of a headstart.
Competition has well and truly set in in the Indian insurance sector barely a year after the Insurance Regulatory and Development Authority (IRDA) opened the doors for the re-entry of private insurance companies by doling out the first set of licences on October 23, 2000.
Much has changed since the Central government constituted the R.N. Malhotra Committee in April 1993 to suggest reforms in the then highly controlled insurance sector.
Eight years down the line, the Controller of Insurance has made way for a new regulator, the IRDA. The new regulator has framed rules that govern virtually every aspect of the game. The public sector has been asked to fall in line and pave the way for a level playing field.
No wonder, change has swept through the government-owned sector. The holding company structure of non-life insurance companies has been dismantled to usher in competition among the four siblings of the General Insurance Corporation of India (GIC). The once-powerful GIC, which directed the moves and fortunes of its subsidiaries, has now been given the limited mandate of being the sole national re-insurer. This means that it transacts only re-insurance business.
On the life insurance side, the giant Life Insurance Corporation of India (LIC) has been drawing up plans to step in in a big way into global markets. It is making a massive effort to upgrade technology and manpower training in order to match the infrastructure and skills of the new players.
On another front, the character and composition of the Tariff Advisory Committee (TAC) has undergone a change. It now has broad-based membership, while a chain of offices of Insurance Ombudsmen has been set up to ensure that the rights and interests of policy-holders are protected.
ALTHOUGH the new breed of companies present a satisfied exterior, the stress is beginning to show. Across the board, demand is growing for additional lifelines from the government in terms of access to more channels of distribution.
"The issue that needs to be addressed urgently is one of providing the necessary distribution channels. Distribution is the key to the insurance business," R. Krishnamurthy, managing director and chief executive officer, SBI Life Insurance Co Ltd (SBILI), said. With the opening up of the insurance industry, a larger chunk of the population should have access to insurance, he said. "What we need is to put quickly in place rules for corporate agencies and bancassurance (distribution of insurance products by banks) to enable the companies to distribute their products widely," Krishnamurthy said.
Shivaji Dam, Managing Director, Om Kotak Mahindra Life Insurance Co Ltd (OMKM), and Anthony Jacob, deputy managing director, Royal Sundaram Alliance Insurance Co Ltd (RSAI), agree. "The most immediate requirement for the companies is to expand the distribution network. The rules regarding brokers and corporate agencies are not very clear," Shivaji Dam said.
"The corporate agency and brokers' regulation has been pending for some time. The amendment needed to permit only the designated director of a corporate agent to take the mandated insurance training should also be hastened," Jacob said.
A dissenting voice, though guarded, came from Anuroop Singh, CEO and Managing Director of Max New York Life Insurance Co Ltd (MNYL). "Over 90 per cent of the life insurance schemes the world over are sold through individual agents. Agents will be the primary channel of distribution in India and so we have invested substantially in training our life insurance agent advisers here," he said.
However, Anuroop Singh too underscored the need for alternative distribution channels. "Regulatory mechanisms that can ensure that other distribution channels such as bancassurance and corporate agents who can realise their true potential have to be established," he said.
The entry of corporate agents and brokers, however, is not likely to come in a jiffy. A Bill for the purpose, the Insurance (Amendment) Bill, 2001, is pending before a parliamentary committee. The earliest one can expect the Bill to be passed is in the Budget session of Parliament.
The Bill will, besides allowing new intermediaries, seek to bring an entirely new set of players into the insurance market - the cooperatives. The Bill would also help introduce the use of state-of-the-art premium payment mechanisms such as credit cards, smart cards and the Internet.
DESPITE all the constraints, the players remain buoyant. Much of the enthusiasm is a result of the various projections on the insurance market made by the corporates and the industry associations. "India offers tremendous opportunities thanks to its large population, low insurance penetration and very low expenditure on life insurance," Anuroop Singh said.
His company has projected a five-fold increase in the insurance market, to Rs.2,50,000 crores, by 2008, while the life insurance segment alone is expected to grow to Rs.1,50,000 crores from the existing Rs.35,000 crores.
The Confederation of Indian Industry's (CII) Expert Group on Insurance put the aggregate insurance market at a more conservative figure of Rs.1,88,700 crores by 2009-10. While life premiums are set to touch Rs.1,45,000 crores by that year from Rs.21,500 crores in 1998-99, non-life premiums are set to touch Rs.38,600 crores from Rs.8,400 crores. Personal line premiums are expected to rise to Rs.5,100 crores from Rs.400 crores.
"I see a bright future for private companies. The consumer is accepting the products of private sector companies far more quickly than what we had originally thought," Dam said. Jacob agrees: "There is no resistance. The pace of change has been quite reasonable."
The companies feel that increased competition would result in an expansion of the market. "With increased awareness and the benefit of choice, the size of the market will increase. Since less than 26 per cent of the insurable population of India is covered by any form of insurance cover, the market potential is large and growing," Yvo Metzelaar, deputy managing director and president, ING Vysya Life Insurance Co Pvt Ltd, said.
Agreeing with him, Naren N. Joshi, chief representative, ING Insurance International, India, one of the promoter companies of ING Vysya Life Insurance, said that private companies would have to work harder to get acceptance from the market. "They (the public sector) have only to explain their product. We have to, at the same time, make the consumer aware of our company. Finding good agents to do this would be the differential," he said.
THE focus of the reform measures is the benefit that insurance cover would give customers. The insurance companies assure the general public that liberalisation will not only fill their kitty but lead to commensurate gain for the latter.
"The last one year has witnessed several new innovative covers being devised by the companies - such as group covers and unit-linked covers," said Krishnamurthy of SBILI.
Customers stand to gain from the improved service standards laid down by the companies, besides the choice of products offered. "The most important and decisive factor that we feel will influence the customer in the selection of a company will be the quality of service," Metzelaar said.
Anuroop Singh said that the benefits had already started to accrue. "The customer today has a wider choice of products and service providers and also excellent service levels delivered through trained professionals," he said.
According to Krishnamurthy, the one big change that is anxiously awaited by the insurance industry, particularly life insurance companies, is the reforms in the pension sector. "We need more clarity on the pension side. Worldwide, the insurance business works side by side with pensions. The best players are the life companies," he said.
The pension reforms process has already been set in motion, with the Union government studying the pension reforms report submitted by the IRDA on October 31. The report calls for a single, all-encompassing pension system, under a designated regulator, possibly the IRDA itself. It suggests that the new system, with new players such as mutual funds, banks and even post offices, should bring under its roof all existing pension and provident fund schemes. The report has set October 2002 as the deadline for ushering in the new regime.
Another critical area that is of concern to the insurance companies, especially the life insurance companies, is the slow progress of the promised modification in tax laws. "The report of the Eradi Committee on taxation policies in the life insurance sector seems to have been buried. No one seems to be talking about it. Companies are looking for something on this," K.S. Sreedhar, executive officer of the CII, dealing with insurance matters, said.
Companies are anxiously awaiting some move from the government in this direction. "Issues such as taxation of valuation surplus are very important for the future development of companies," Krishnamurthy said.
WHILE the focus has shifted mainly to rectifying operational glitches, whispers are heard from within the industry seeking to revive the once-forbidden issue of raising the foreign equity cap on insurance companies. Perhaps emboldened by the wide political consensus and public acceptance of the reforms in the sector, what was a virtual taboo until the other day has found its way in print in the insurance literature of the two apex industry groups - the Federation of Indian Chambers of Commerce and Industry (FICCI) and the CII.
"The industry is doubtful regarding the functioning and eventually the sustainability of the existing joint ventures between foreign and domestic companies with minority foreign equity participation," a recent FICCI survey report pointed out. It said that an overwhelming majority of the insurance industry (70 per cent) wanted the foreign equity cap to be raised to at least 49 per cent.
The CII has endorsed the demands. "The Indian partners' ability to bring in capital could affect its stability... an increase in the foreign equity cap to 49 per cent, if partners agree, could be considered," it said in a recent communication.
"We would also like to see a hike in the foreign equity cap - 49 per cent or more," ING's Naren Joshi said.
What could be an indication of the durability of the reform process is that the government does not rule out completely that possibility in the future. The insurance industry has been merely asked to perform before a case on its behalf can be built in Parliament for such a move.
Clearly, there are no options for the companies but to show results. This can be done not just by showing bloating bottomlines but by helping in expanding the insurance cake and making products available to the populace at large.
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