Chapter 27

INSURANCE MARKETING
Chapter Objectives
After reading this chapter you will be able to understand:

The Marketing Concept

Marketing of Insurance Products

Critical Success Factors for Insurance Players

Distribution Channels

Marketing Strategies of Insurance Players in India

The new millennium has exposed the insurance sector to new challenges of competition
and struggle for survival. The era of privatization, liberalization, deregulation and
globalization has let loose a sense of urgency and neo-activism. Indian politico-economic
think tank realised the obsolescence of remaining insular and monopolistic in the
insurance sector. The insurance services industry nationally and internationally is huge,
growing, and of critical significance to the health of economy as well as of individual
businesses, investors, consumers and employees. The progress of Insurance business in
any developing country like ours is generally linked with the rapid industrialisation and
overall progress of the Country. In the emerging scenario, the insurance sector must pay
attention to product innovation, appropriate pricing and speedy settlement of claims.
The marketing function of insurance is of unique importance because the insurance
company can succeed only if it sells a large number of policies and spreads its risk
among the insureds. To accomplish this, it must rely on its marketing organisation. No
matter how efficiently an insurer manages all of its functions, its sales force is the key to

the companys success.

27.1 THE MARKETING CONCEPT
Over the years, marketing has undergone substantial changes both in nature, role
and functions. Modern concept of marketing is different from the traditional concepts.
Under the former, marketing is conducted the philosophy, that products made are
matched with markets, i.e., the firm takes the responsibility on itself to design, develop
and sell its products to suit the needs of its customer-the basic principle followed is
Caveat Vendor, i.e., let the seller beware. The main objective behind this thinking is to
satisfy customer through constant study of their changing needs and wants. While, under
the later, the firm does not take any responsibility for its goods- the philosophy that
works is of Caveat Emptor, i.e., let the buyer beware. The goods are produced as per
the decision of the marketing manager and are put on the market, and the purpose of
marketing ends.
Modern Views on Marketing
Marketing has a special significance in modern management of business and industry
and is one of the important managerial concepts. Unless it is properly understood and
put into practice in the right use, many of the business or industrial enterprise will
collapse or prove a failure in their achievements. This will be clear when it is realised
that marketing is a total system of interacting business activities (viz., marketing and
production ) designed to plan, price, promote and distribute want-satisfying products
and services to the present and potential customers. It means in other words, that
(i) business decisions should be market or customer oriented rather than product
oriented gearing their operations primarily to the effective satisfaction of customer

wants and needs; (ii) marketing is a dynamic business process a total, integrated
process (of matching products in the markets), rather than a fragmented assortment of
institutions and functions. Marketing is not only one activity, nor it is exactly the sum of
several; rather it is the result of the interaction of many activities involving movement
of goods and services from producers to ultimate consumers or industrial users; and
also those activities which are involved in evaluating these markets and adjusting
product characteristics to market needs. (iii) the marketing programme starts with the
germination of the product idea and continues till the customers wants are completely
satisfied, which may be sometime after the sale is made; (iv) marketing programme is
done with a maximum of effectiveness and a minimum of costs, and (v) marketing must
increase profitable sales over the long run.

***** Fig.

According to Theodore Levitt

Management must think itself not as producing products but as providing customer
creating value satisfactions. It must put this idea into every nook and cranny of the
organisation. It has to do this continuously and with the kind of flair that excites and
stimulates the people in it. Otherwise, the company will be merely a series of pigeonholed parts, with no consolidation sense of purpose or direction. In short, the organisation
must learn to think of itself not as producing goods or services but as buying customers,
as doing the things that will make people want to do business with it. 1
Mr. J.B. Kitterick, the former president of the General Electric Company states that: 2
Marketing Concept introduces the marketing men at the beginning rather than at
the end of the production cycle and would integrate marketing into each phase of
business. Thus, marketing through its studies and research will establish for engineers,
the designers and the manufacturing men what the customer wants in a given product,
what price he is willing to pay and where and when it will be wanted. Marketing would
have authority in product planning, production scheduling and inventory control as well
as in sales, distribution and serving the product.
Marketing concept is a way of thinking, or a management philosophy about an
organisations total marketing activities. When the philosophy is adopted, it affects not
only marketing activities but also all the organisations activities including planning of
action, control, objectives, follow-through etc.; finance and other activities which are
geared toward satisfying customers needs, wants and desires.
Marketing concept means developing a strategy to get the product in front of
customers so they have the opportunity to buy it..... determining scientifically what
products or services to make and how best to market them to meet consumer needs. 3
Planning, developing strategy systematically and scientifically selecting among available
alternatives and controlling the operation in order to provide customer satisfaction are
relatively new implications in the marketing concept.
Ingredients or Components of Marketing Concept
The marketing concept has the following main basic features:
(i)

Adoption of a predominantly market or customer orientation.

(ii)
A coordinated set of activities that allows the organisation to achieve the
goals.

(iii)

Result oriented marketing:

27.2 MARKETING OF INSURANCE PRODUCTS

The Indian Insurance Industry is poised for interesting and demanding time. Though
the industry has been serving customers since 19th century, the nationalisation of the
industry in 1956 titled the scales in favour of the provider, the Life Insurance Corporation
(LIC). While the LIC did expand aggressively to cover various part of the country, the
customer has no choice when it came to selection the life insurance provider. The
transition of the industry from public monopoly to a competitive environment now
present very interesting opportunities, both to the new players and to the customers. It is
apparent that the new players have an opportunity to test out their various hypothesis
but also to apply learnings from overseas markets, the customers will have a greater
choice when it comes to choosing a provider or a solution for his needs. For the
customers, the most important functions of an insurance company include produce
design distribution services, delivery and investment performance. The common link
between the provider and the customer. The distribution chain in now assuming focus
with new players exploring various possibilities to reach out to customers and to service
them effectively. The future of Insurance market and accordingly the marketing strategy
is likely to be influenced by three new developments: (a) the convergence of financial
services, (b) rise of E-commerce and (c) the emergence of new distribution channels. In
fact, the marketing strategies for the players would be significantly influenced by the
value propositions of time and cost reduction, effective CRM and profitability.
Issues in Insurance Marketing
The peculiar nature of the insurance industry creates implementation of marketing
strategy a difficult task in the following ways:

Insurance is unpatented, subjective, requires prior experience and physical

evidence is difficult to establish.

There is a involvement of customers in production of services, mass

production is impossible.

The services cannot be inventoried and standardised.

27.3 CRITICAL SUCCESS FACTORS FOR INSURANCE PLAYERS

In the current industry scenario, the following factors must be carefully examined for
the success of the any insurance company in particular and the industry in general:
Change in the Attitude of the Population
Insurance has always been used as a tax saving tool. But, in light of the Kelkar
Committee recommendations, the lusture would wipeout once they are implemented.
Therefore only those will survive who can educate the people to secure/insure their
future against any unknown calamity and make a shield around their families and
businesses.
Open and Transparent Environment Created Under the IRDA
It has been seen that any sector open up in India there are always gray areas and
unsure policies. These are not exactly what any players, be it Indian or foreign, looks for.
It creates an air of uncertainty in all the decision making process. Insurance as a sector
requires players who are strong financially and are willing to wait for returns. There
confidence can be bolstered only if there are open and a transparent policy guidelines.
This will also help the consumers feel safe that the regulatory is an active one and cares

to do everything possible to keep things under control and help the insurance
environment grow maturely.
Well-established Distribution Network
Distribution is going to be key area for the success of an insurance company in
Indian market. Public Sector banks like SBI, PNB etc. can be one of the leaders in
distribution because of their huge network and long existence.
Trained Professionals to Build and Sell the Product
Conventionally, insurance agents are considered to be the only and best salesman
for insurance products. In wake of the growing competition, the players will require an
excellent sales team to sell their products. There will be mass shifts in the industry, which
is evident from the fact the new players are poaching a lot of LIC personnel.
Rationale Approach to the Investment Criteria
This is a very critical area as far as the government and the players are concerned.
IRDA has framed guidelines, which provide for the investment pattern for the players to
meet its social obligations. The players feel that the compulsion is unjust and will affect
their return on investments. This factors has been elucidated as a success factor as it is
in the larger interests of the society. The more the people insured, the better the
revenues, followed by better security, followed by better morale and productivity.
Stringent Accounting Practice to Prevent Failures Amongst the Insurers
Every insurer has the hard-earned money of the masses. Any failure of the insurer
on account of unwarranted profligacy will cost the nation in general and the insured in
particular. To prevent any underhand working of the insurer and to prevent them from
going bust, a stringent accounting practice is imperative.

Level Playing Field at all Stages of Development in the Sector for all the
Players

It is the responsibility of the government to provide an unbiased environment in

order to have level playing field for the players.
27.4 DISTRIBUTION CHANNELS
Traditionally, the life insurers have been solely depended on the agency distribution
force. On the contrary, the general insurance business has depended totally on the
development officers. The scenario has been different for the general insurers a no
agency commission was payable for writing business more than 10 lakh, thus prohibiting
brokers. The new private insurer coming in with the liberalisation of the sector will add
more channel of distribution in the Indian market parallel to that existent. Innovation and
diversification will become the buzzards in the business. Emerging scenario is evolving as
a generic model in markets around the globe. Even in markets, which are consolidating
like Europe, re-strategising distribution has been deciding the success for the insurers.
The situation has become more complex with the development in systems and software
technology and changing social patterns. All these have conspired to cause an upheaval
in the traditional distribution methods. The new evolving system will now have to
integrate the three players in the insurance market:
The buyers will consist of consumers, employees, and employers. The carriers or the
policy issuers will focus mainly on life and annuities, property and casualties, health
and ancillaries. The critical link in the system will be the distributor. Those who will
provide value-added and low-cost services will be the survivors.

**** Fig

27.4.1

Traditional Channel of Distribution

Agents
Most of the life insurance companies in India follow the traditional route of
marketing through agents. In case of private players they are nomenclature as Insurance
Advisors /Planners. The companies emphasis on building a good field force, trained to get
people thinking about their familys financial security and recommend appropriate
policies for their needs. The agents are trained to be sensitive to the dominant issues in
any familys life like education and marriage of children. Most life insurance agents are
trying to sell the broad concept of pre-planning your life. The success of LIC with its direct
field force, rather, army of 6,51,000 agents is exemplary. In case of non-life also much of
the distribution work is done by the agents or development officers.
Brokers
Insurance brokers are professionals who assess risk on behalf of a client, advise on
the mitigation of that risk, identify the optimal insurance policy structure, bring together
the insured and insurers, carry out work preparatory to insurance contracts and where
necessary, assist in the administration and performance of such contracts, in particular
when claims arise.
Unlike insurance agents who are retained by Insurance Companies, Brokers are
retained by the insured and therefore their primary responsibility is towards the insured.
Some of the benefits of introducing brokers in the Indian market are:

Improvement in Customer Service: with increased competition, insurance

brokers have a greater motivation to introduce new and innovative products, to
be more responsive to consumer needs and to deliver higher terms quality
services. Indian corporate and consumers benefit directly in terms of service as
well as product and policy innovation, and are consequently able to secure
appropriate insurance cover more cost effectively.

Transfer of Technology and Managerial Know-how: Insurance brokers

introduce international best practice in technical skills and products, training
programmes systems and technology, and managerial techniques. Currently the
availability of trained manpower is a major constraint in the development of the
insurance broking business in India and international players can contribute
heavily in bridging this gap.

Benefits to Insurance Companies: Most major global insurance companies

spend the majority of their time handling commercial and industrial risk. They
find dealing with brokers to be easier and speedier because only the intricate
points or special requirements need detailed discussion. Brokers also assist in
creating insurance awareness, increasing market penetration and act as a
catalyst to increase competition and improve customer service.

Foreign Exchange Considerations: Brokers enable Indian insurers to

increase their retention capacities by applying their international reinsurance
skills in optimising their reinsurance programmes, thereby effecting further

saving in foreign exchange outflow. In addition, they can assist the local insurers
to develop new products and accordingly increase the premium base.

27.4.2

New Distribution Channels

The new channels of distribution for the Indian insurance industry are:

Direct Marketing Company owned sales team concept is now employed

by a majority of the new players and has proved effective sin customer creation
and retention.

Brokers/Corporate Agents authorised by IRDA to sell and customised

products on behalf of insurance companies.

Independent Financial Advisors Authorised agents

companies having tie ups may be with more than one company.

of

insurance

Telemarketing marketing through telephonic devices, generating leads

through cold calls and forwarding the leads to the main sales team of the
company

Work site Marketing Under this strategy, the seller sends his team to the
target group and explains the products and services suitable to them.
Organisations such as the groups: HDFC, ICICI, Kotak Mahindra are using this
kind of distribution strategy effectively.

Retail Chains Cross selling of products at retail outlets

Internet Marketing internet based product offerings.

Bancassurance: Distribution of insurance products by banks (this is

elaborated in detail in next section)

27.4.3

Bancassurance

Bancassurance denotes a partnership between a life insurance company and a

banking institution. The need (for the insurance company ) to access a large base of
customers and a desire (on the part of the bank) to offer arrange of financial products
leads to these partnership in different forms. A trusting relationship with customers,
branch name recognition, customer profitability measurement systems in banks, cash
management relationship with corporations and the fact that Bancassurance distribution
is more cost effective than traditional distribution are some of the key attractions of this
channel. 27 public sector banks and 196 regional rural banks account for 92% of the
branch network in India.
With over 60,000 branches of commercial banks and an average population served
per branch of 15,000, Bancassurance is expected to be a critical distribution strategy for
the insurance companies. In fact, the network includes 33,000 rural branches and 14,000
semi-urban branches, about 60% of the total number of branches.
Key issues to be addressed to make Bancassurance successful are:

Both the bank and insurance company need to improve effectiveness of

the sales channels by identifying and gaining access to target customers, adding
push to market pull, training of sales staff, differentiating performance from
competition and controlling selling cost per unit sold.

Product needs to be tailored to meet the need of the customer base and
for new distribution channels.

Communication needs to be streamlined to address any cultural issues

between the bank staff and the insurance staff. Similarly, differences in

compensation structures need to be handled sensitively before these start

affecting the moral of the branch staff.

Traditional processes need to be redesigned not only to take advantage of

the new technology, but also to effect a streamlined system between bank and
the insurance company. Technology can be used to put effective use in sales
support function, staff training. Smoother processing, and online integrated
information system.

Information system needs to be reviewed and performance measurement

parameters need to be specially adapted to Banacassurance.

Skills need to be developed an reallocation of assets and resources

financial and human may also be required between the bank and Insurance
Company.
Bancassurance Styles
Bank writing the risk themselves (this is not likely to happen in India since RBI has
restricted this to a few bank like Vysya Bank and SBI).
Using Bank Premises as the Marketing Office
Collaboration will be the key to making this new channel work. In fact, in India three
different models of Bancassurance are already taking shape.
Leveraged Life Distribution: Under this model, the life insurance company takes the
lead in partnership, while several banks act as corporate agents to provide access to
middle market leads.
Leveraged Bank Distribution: Under leveraged bank distribution, it is the bank that
takes the lead as in the partnership, while the 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, mail, phones).
Bank/Life Joint Venture: The third and final type of partnership brings a 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 type of
venture the bank provides the lead and its reputation and brand name, while the insurer
brings products and underwriting and servicing expertise. The partners combine their
individual expertise to forge a best practice Bancassurance operation with tailored
products, tailored distribution and lead generation mechanism.
This model may be applied to SBI Life Insurance. It has access to some 117 million
holders of term deposits through 14,000 branches of the State Bank of India (SBI), which
serve as a ready platform, a ready distribution channel.
Other players such as ING Vysya are also looking at this option. They seek to set-up
branches in many main cities, moving gradually into the semi-urban and rural areas.
Bancassurance reaffirms the fact that people like to see the insurer remains within sight,
over the years.
27.5 MARKETING STRATEGIES OF INSURANCE PLAYERS IN INDIA
Insurance companies the marketing strategy involve in mobilising and utilising its
intangible or invisible assets which will enable the company to:

Develop customer relationship that retains the loyalty of existing

customers and enable new customer segment and market areas to be served
effectively and efficiently.


Introduce new innovative products and services desired by targeted
customer segment.

Produce customised high quality products and service at low cost and with
short lead times.

Mobilise employee skills and motivation for continuous improvements in

process capabilities, quality and response times.

Deploy information technology, databases and systems in an optimum

manner.
The marketing strategy cannot be taken up in isolation. Major elements of the
organisation, viz., structure, systems, processes, employees, organisational cultures and
above all the shared values should be appropriately integrated in implementation of the
strategy. The basic tool for diagnosing competitive advantages and finding ways to
enhance is to enhance it is the value chain, which divides a company into discrete
activities it perform in designing, producing, marketing and distributing its products.
A business value design is the totality of how a company selects its customers,
defines the tasks it will perform itself and those it will out source, configure its resources,
goes to the market, creates utility to the customer and earning profits from the activities.
A strategy worth the name must take into account both the disaggregative as well
as aggregative aspects of the business value design of the company. Competitive
advantage for a company stems from many discrete activities in the value chain. Each of
these activities can contribute to the companies relative cost position or create a basis
for a differentiation. Thus, the disaggregative aspects are important contributors to the
strategy formulation process.
Coming to aggregative aspects, each generic strategy implies different skills and
requirements for success, which commonly translates into difference in organisational
structure and culture. Hence marketing strategies in the insurance sector would revolve
around products and companies and their thrust areas would be a function of
environmental, competitive, and technological factors in a dynamic environment.