Distributing Insurance in India: The Tata AIG Experience in India Dr. Mohan Agrawal, Visiting Professor of Marketing, CalPoly, San Luis Obispo, CA. The location and channels used to supply services to target customers are the two key decision areas. These have particular relevance to services as they cannot be stored and will be produced and consumed at the same point. Place also has importance as the environment in which the service is delivered and how it is delivered are part of the perceived value and benefits of the service. There are three types of interactions possible between the service provider and the customer: The customer goes to the service provider The service provider goes to the customer. The service provider and customer transact at arms length. Traditionally, insurance service providers have been going to the customer through their direct sales agents. In India, as in the world over, the selling model is based on the Agency Sales Force (ASF). Even in the U.S., which is one of the most developed insurance markets, 85% of the policies sold are through eye-to-eye contact. The reason: insurance is a complicated product and needs personal guidance or a human interface, firstly to pull the needs, then to give the product options and finally, to sell these off. Agency sales force can be of two types: Captive agents: They are under the direct payroll of the company. They have a fixed salary and a commission structure. Independent agents: They are dependent only on the commission structure (currently, a minimum of 12 policies have to be sold by an agent).
Research proves that the personal touch provided by the ASF has positive results with higher retention levels and higher customer satisfaction. In order to get an idea of the role of marketing in this business, a look at the statistics will give a fair idea. The normal ratio is 1: 10: 5- which implies that of 10 clients/customers visited, 1 asks for a proposal and of 5, only 1 actually buys the policy. So, in order to sell a policy, an agent has to visit 50- customers. This shows the quantum of sales/marketing efforts needed to sell an insurance policy. Leveraged distribution Under this model, the life insurance company takes the lead in the partnership, while several banks provide access to middle-market leads. The main protagonist under this scenario would be a large life company with a range of effective distribution channels (career agents, independent agents, low-cost middle-market agents). A number of banks would feed its channels with warm leads. The typical bank participant would be small to medium-sized with a strong local customer base but insufficient scale to justify a major investment in Bancassurance distribution. The smallest banks of all, with up to five branches, might simply be approached by an individual agent who, armed with a proprietary Bancassurance process, would work with them to mine their database. Leveraged bank distribution Under leveraged bank distribution, it is the bank that takes the lead in the partnership, while multiple life insurance companies supply products for its Bancassurance efforts. This model calls for a large bank with a range of effective distribution channels (branches, ATMs, trust sales force, mail, phone). The bank mines its own customer base while playing of multiple life insurers against one another to garner the most advantageous products for its channels. The life companies benefit by earning underwriting profits from the extra volume and investment profits from asset management. The bank captures distribution profits and leverages its existing channels more effectively. It may also be able to extract some rents from the life insurers. Bank life joint venture The fifth and final type of partnership brings a large bank with a well-developed customer database together with a large life insurer with strong product and channel experience to develop a powerful new distribution model. In this joint venture, the bank
provides warm leads and its reputation and brand name, while the insurer brings products and underwriting and servicing expertise. The partners meld their individual excellences to forge a "best practice" Bancassurance operation with tailored products, tailored distribution, a lead generation mechanism, and middle-market sales processes. BANCASSURANCE IN INDIA Banks are ready avenues for distribution. They can use their direct mail capabilities to generate leads for insurers. But Indian insurance regulations allow only banks with a capital adequacy ratio of over 9% to set up their own insurance operations. So, many public sector Indian banks will have to be content with being just distributors of insurance products. Clearly, only the better-run Indian banks have the capability to sustain a 74% equity partnership in this capital-intensive business. (Foreign insurance companies have to limit their equity to 26%.) For the rest, and for the foreign banks -- where the parent's strategies drive the local's -- distributing products is the way to go. Competitive pressures have increased with liberalization. The best companies have drastically cut their working capital requirements and whatever they need can be raised directly from the market at rates that the banking system cannot match. The entry of private banks and other financial intermediaries has made the fight even stiffer. The market share of government-owned banks has dropped from 97% in the early 1980s to about 90% in 2000. Lending margins too have fallen as giving plain-vanilla loans has become something of a commodity business. Therefore, banks have been getting into high-margin retail businesses like housing loans to ramp up profits. Offering insurance products is just another way of extending the relationship with the retail consumer. Besides, it's also a great way to make expensive branch networks more cost-effective, since off-the-shelf products will in all probability be sold out of bank lobbies. The revenue potential is substantial too. Under a revenue-sharing arrangement for a corporate agent -- where a bank is allowed to tie up with just one life insurance and one non-life insurance company -- the bank could get up to 30% of premium per annum. In general insurance, commissions could be as much as 15% of premium.
TATA AIG-HSBC TIEUP Tata AIG General Insurance Company Ltd, and Tata AIG Life Insurance Company Ltd., (collectively "Tata AIG") are joint venture companies between the Tata group India's most trusted industrial house and American International Group, Inc. (AIG), the leading U. S. based international insurance and financial services organisation. HSBC Insurance Services (India) Pvt. Limited is a member of the HSBC Group and is licensed corporate agent for Tata AIG General Insurance Company Ltd and Tata AIG Life Insurance Company Ltd. Tata AIG entered into a tie-up with HSBC Insurance Services to distribute TATA AIG products to HSBC Bank customers in July 2001. This is for the first time that a life insurance product is being directly marketed to prospects. Unlike other life insurance policies that are sold by agents, HSBC Insurance services will be mass marketing the terms insurance cover to the one million customers of HSBC Bank. The customers include account holders and credit card holders of the bank.. Convenience is the factor that the two companies are focusing on. HSBC Bank customers can pay by cheque, opt for direct debit of their accounts or pay by credit card. The product that Tata AIG is offering to HSBC Bank customers is a term insurance cover with return of premium. Term insurance policies typically are pure protection plans without any savings element. However, Tata AIG s term product offered to HSBC Bank customers has been structured in such a manner that the insured will receive 125 per cent of the premium paid towards life insurance if he survives until the maturity of the policy. Tata AIG General Insurance Company Ltd. Has recently launched its 'Mobile Claims Service' in Delhi and Bangalore. Tata AIG General Insurance Company Ltd is the first private sector insurance company to introduce 'Mobile Claims Services' in India. This endeavor follows a spate of innovative new product initiatives and the enhancement of delivery channels for customer by the company.
LIGHT MODEL FOR TATA-AIG TIE UP Insurance Company (Tata AIG) Participants and Relationship Select banks/ Shared power and resources Makes actuarial calculations Underwrite Claims Functions And Support Banks (HSBC) Cross Selling Convenience Data Base Uses relationship with customers to sell Receives Protection Decides coverage Pays Premium Policy Holder