2 0 Vol. I, Issue : I, Feb. 2011 to July.

2011

Half yearly Research Journal Hi-TECH RESEARCH ANALYSIS

MAHMUL 02922/2011 ISSN 2231- 6671

RECENT TRENDS IN MARKETING STRATEGY OF LIC OF INDIA

Research Paper -Commerce
Dr. P. N. Sagar
Voice Principal, Rajarshi Shahu College, Latur, Dist. Latur.

Life Insurance Corporation of India is a public sector giant in the life insurance industry in India. For almost five decades LIC is monolithic company in the life insurance sector. Since nationalization LIC has built up a vast network of 2048 branches, 109 divisions, 8 zonal offices and 1004 satellite offices spread all over the country. The Life Insurance Corporation of India also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom. With its multinational presence, it is associated with joint venture abroad in field of insurance namely, Ken India Assurance Company Limited, Nairobi, United Oriental Assurance Company Limited, Kualalumpur and LIC (international) E.C.Bahrain. Insurance Sector Reforms : The Insurance sector in India has completed a full circle from being an open competitive market to nationalization and back to a liberalized market again. From 2000, many private players entered into insurance industry with effect of privatization of insurance sector as per R.M.Malhotra Commissions recommendations and formation of IRDA. Objectives of the Study : 1. To know market share of LIC of India in Life insurance business. 2. To know new market strategy adopted by LIC of India to increase business volume.
S.J. Kulkarni
Dept. of Commerce, Rajarshi Shahu College, Latur, Dist. Latur.

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2 1 Vol. I, Issue : I, Feb. 2011 to July. 2011

Half yearly Research Journal Hi-TECH RESEARCH ANALYSIS

MAHMUL 02922/2011 ISSN 2231- 6671

Hypothesis of the Study : Despite of entry of private players LIC plays a dominant role in life insurance business in India. Research Methodology : The research methodology of this study is related to evolutionary research method. Basically, secondary data is used for the study. The secondary data consisted of published annual reports for the concerned years of Life Insurance Corporation of India, website of LIC, website of IRDA, Journal, Magazines of LIC of India, reference books, etc. Need of Research Study : The insurance sector in India has been completed a full circle from privatization

to nationalization and again privatization. LIC of India plays an important role in the life insurance sector of India. Since economic reforms, the insurance sector is also changing. These changes will help both the urban and rural consumers. Present Scenario of Indian Life Insurance Market : As many new players have joined the insurance industry posing a tough competition to LIC. LIC has been reorganizing itself in order to perform better than the new players. The performance of Life Insurance Corporation and private players has been shown for the year 2008-09 in the figure No. 1.

At present there are 21 private life insurers operating in the Indian Life Insurance market along with LIC of India, at the end of the financial year 2008-09. The total volume of premium reached to Rs. 221,791 crore in 2008-09 from Rs. 24,630 core in the year 1999-2000 which is little more than 800%. Private life insurers are slowly gaining the momentum to penetrate the market with their new products, services and the global knowledge of expertise in doing life business. It can be observed from their growing market share statistics which shows (fig. 1) nearly 30% of the market are in their hands at the end of 2008-09 financial year. Most important aspect is that acceptability is on the rise in urban areas. New Marketing Strategy : The LIC of India, being old brand and Govt. owned insurer in the market its market share is large as compared to private players. But consumers perception of the insurance is that of an investment rather than as a risk cover. They expect prompt services.

The LIC of India has been facing competition pressure, so it has been reorganizing itself in order to perform better and to compete private players. LIC has been formulating new strategies and plans from time to time. No doubt, experience generally improves performance, the LIC has experience of more than fifty years. Even IRDA also aims at innovative and progressive development of insurance sector. LIC has been taken following steps to increase its market competitiveness and retains its dominant position in the insurance market. 1. Product development : Life Insurance Corporation introduced traditional insurance schemes. To cater consumers needs about protection against risk factor, provision for future, old age provision, by launching whole life plans, Endowment plans, Term insurance plans and pensions plans over a period. Every year by taking market review it introduces new innovative plans and also withdraw, those plans which have less market response. Now, LIC of India has been changed its products to meet the varied need of the customers. It has been caused due to following reasons. a. Competitive pressure b. Changing behaviour of consumer.
2 3 Vol. I, Issue : I, Feb. 2011 to July. 2011

Half yearly Research Journal Hi-TECH RESEARCH ANALYSIS

MAHMUL 02922/2011 ISSN 2231- 6671

In the competitive market there is a greater need to provide insurance products that meet the needs of the customers. Therefore, LIC offers wide variety of products which fulfills the needs of different segments of the society. As at the end of financial years 2009-10 the corporation had 52 plans available for sale. During the year corporation had introduced 6 new plans viz Money plus-1, Market plus-1, Jeevan Bharti-1, Child Fortune plus and two term insurance plans i.e. Jeevan Astha and Jeevan varsha. Health insurance plans : LIC has observed that there is a top potential for the health insurances business. So in the year 2007-08 it had started one Health Insurance Department and the first product Health Plus was launched on 4 February, 2008. People also welcomed it. During the year 2008-09, 97357 Health Insurance Policies were sold for a premium income of Rs. 91.39 crores[3]. 2. Marketing Activities : In marketing of insurance products effectively, field personnel play pivotal role. The corporation has been developed alternative distribution channels along with channels to increase its business volume. 1. Agents : In LIC of India, the Agent is a pioneer field force, in procurement of the LICs business. In the year 2009-10 total number of agents was 13,44,856. The corporation has launched scheme of Urban Career Agents and Rural Career Agents. To promote them the corporation also gives stipends at the start of their career and to enable them to settle down the profession. As on 31-03-2008 there were 17,684 urban career agents and 22,324 rural career agents[4]. 2. Micro Insurance Plan : The LIC of India, not only concentrates on celebrity marketing and rich class segment but also launched insurance plan under a separate business vertical to extend

security to the less privileged section of the society under business vertical Jeevan Madhur plan was launched in Sept. 2006 by the LIC. The table No. 1 shows that within 2.5 years it has provided 4.3 cover the approx 2.5 million lives.

3. Banca Assurance and Alternate channels : LIC also tied up with the banks in urban and with Regional Rural Banks (RRB) to spread its business. The percentage share of Alternate channel business to total business went up from 2.01% to 2.40% in policies and from 1.84% to 3.05% in first premium income. Out of total business of alternate channels, banks (under corporate agency mode) contributed 67.29% of number of policies and 63.70%. The table No. 2 shows New Business (Individual Insurance) procured by the different marketing channel.

4. Foreign Branches : The corporation directly operates through its branch offices in Mauritius at Port Louis, Fiji at Surva and Lautoka and United Kingdom at werobley. During the year 2007-08 these three foreign branches together issued 10.477 policies with sum assured of US $ 97.7 million at FPI of US million. Conclusion : At present, it is needful to take review for what insurance has to be taken. It should be for the benefit of policyholder i.e. common man not only rich class segment. The insurance company should not be a race winner, in the competitive ground. It aims at diverting public saving towards socio welfare and infrastructural development. Obliviously, LIC of India aims at dual objectives i.e. protection of policyholders trust and contribution in economic development. The Insurance Act 1938, the Life Insurance Act 1956 and IRDA Act 2000 guide with this regard by making rules and regulations. The Life Insurance Corporation is the public sector insurance company and highly obligatory towards these objectives. The private insurer ought to follow these rules and regulation, for their survival in land. 1. Dr. P. Periasamy Principles Practice of Insurance, Himalaya Publishing House. 2. Website IRDA. 3. 52nd Chairmans Review 2008-09 LIC of India. 4. Mathew M.J. Insurance (Principles and Practice) RBSA Publishers, Jaipur. 5. 53rd Annual Report 2009-10 of LIC of India. 6. Yogeakshema Journal May 2008 LIC of India. 7. Website LIC

References

The definition cited above clearly indicate the four components of marketing mix. In the case of life insurance marketing of services requires an expanded marketing mix comprising (1) the product, (2) price (premium), (3) physical distribution / place, (4) promotion , and (5) policy servicing. These elements should be taken as instruments by the life insurance management when formulating life insurance marketing marketing plans. The marketing mix is a dynamic concept, it keeps on changing with changing marketing conditions and environmental factors. The following chart depicts the life insurance marketing mix of a business enterprise. The four ingredients of the marketing mix are discussed briefly as under : 1. Product (Scheme) : It is the first element, product is the sum total of physical, social and psychological benefits. Managing the product component involves product planning and development. The life insurance marketers must define their market in terms of product function. What the customer expects from the product. It may offer a single product of several products. Life insurance as product has also to be designed, keeping in view these basic requisites, in case of life insurance the needs are in the form of two broad economic contingencies viz., death of the breadwinner and the subsequent financial insecurity of his dependents, and secondly, longer life insurance is sold as plan of LIC of Nepal developed term assurance and whole life policies and for the second category various pension plans and annuities. Apart from whole life insurance, endowment insurance and money bank plans, LIC has several products specially suited for children, exclusively for women, the handicapped, senior citizens, to cover occurrence of terminal diseases, term assurance and pension plans. There are also group insurance schemes that can be taken by employer for their

employees. The LIC also administers schemes for people who are below or just above the poverty line. 2. Price (Premium) : The price is another powerful element in the life insurance marketing mix and vitally affect the volume of sales. Price is the valuation placed upon the product by the offerer. In the case of life insurance, premium is the price which the person seeking insurance pays to LIC for purchase in the life insurance policy. The management must take decisions regarding pricing (premium), investment return, level of premium, node of premium, commission, insured sum, life to be covered, interest on loan, price strategy, under writing and price related situations. It deals with price competition. 3. Physical Distribution / Place : Marketing channel policy is another integral part of the life insurance marketing mix. Physical distribution is the delivery of insurance products at the right time and at the right place. In the case of life insurance, it is the combination of decisions regarding channels of distribution, Agents, Development Officers, Brokers, Branch Office, Retail financial service distributors, alliances with banks, tie-ups with non-governmental organization, corporate agencies, Bank assurance, e-trade, proper infrastructure and training facilities, technical and material know - how on part of instructor etc. At present the strength of LIC's distribution channel comprising over 6.10 lakhs active agents and over 19,000 Development officers appears to be phenomenal. This is indeed a great advantage to cover the vast Nepali population, diverse in nature and spread, for which a strong marketing network is imperative. The net work duly supported by 2100 servicing branches. 4. Promotion : The business enterprise should inform the customers about its products and persuade them to buy. It covers

methods of communicating with consumers through personal selling, advertising, publicity, sales promotion, social contracts, public relations, exhibition and demonstration used in promotion. For promoting life insurance business sales promotion activities are carried out by the agent, development officers and branch offices. Calendars, diaries, bags etc are also given to policy holders as a token of gifts. All these activities increase the volume of sales by expanding as well as retaining the market share for the insurance products. 5. Policy Servicing : Customer satisfaction predominates the success of an enterprise. In the service industry where intangibles are marketed, the importance of customer satisfaction is all the more significant. Service is said to be the sharpest edge of any marketing strategy. Sales and services are the two powerful wings of life insurance industry. Prompt and effective service boosts the morale of the sales force to present a bold form and hold their prospects. Service encompasses the service rendered to clients before the insurance contract, during the policy term and after sales (policy becoming a claim).

MARKETING --MIX FOR INSURANCE COMPANIES: The marketing mix is the combination of marketing activities that an organisation engages in so as to best meet the needs of its targeted market. The Insurance business deals in selling services and therefore due weight-age in the formation of marketing mix for the Insurance business is needed. The marketing mix includes sub-mixes of the 7 P's of marketing i.e. the product, its price, place, promotion, people, process & physical attraction. The above mentioned 7 P's can be used for marketing of Insurance products, in the following manner: 1. PRODUCT: A product means what we produce. If we produce goods, it means tangible product and when we produce or generate services, it means intangible service product. A product is both what a seller has to sell and a buyer has to buy. Thus, an Insurance company sells services and therefore services are their product. In India, the Life Insurance Corporation of India (LIC) and the General Insurance Corporation (GIC) are the two leading companies offering insurance services to the users. Apart from offering life insurance policies, they also offer underwriting and consulting services. When a person or an organisation buys an Insurance policy from the insurance company, he not only buys a policy, but along with it the assistance and advice of the agent, the prestige of the insurance company and the facilities of claims and compensation. It is natural that the users expect a reasonable return for their investment and the insurance companies want to maximize their profitability. Hence, while deciding the product portfolio or the product-mix, the services or the schemes should be motivational. The Group Insurance scheme is required to be promoted, the Crop Insurance is required to be expanded and the new schemes and policies for the villagers or the rural population are to be included. The Life Insurance Corporation has intensified efforts to promote urban savings, but as far as rural savings are concerned, it is not that impressive. The introduction of Rural Career Agents Scheme has been found instrumental in inducing the rural prospects but the process is at infant stage and requires more professional excellence. The policy makers are required to activate the efforts. It would be prudent that the LIC is allowed to pursue a policy of direct investment for rural development. Investment in Government securities should be stopped and the investment should be channelized in private sector for maximizing profits. In short, the formulation of product-mix should be in the face of innovative product strategy. While initiating the innovative process it is necessary to take into consideration the strategies adopted by private and foreign insurance companies. 2. PRICING: In the insurance business the pricing decisions are concerned with: i) The premium charged against the policies, ii) Interest charged for defaulting the payment of premium and credit facility, and iii) Commission charged for underwriting and consultancy activities. With a view of influencing the target market or prospects the formulation of pricing strategy becomes significant. In a developing country like India where the disposable income in the hands of

prospects is low, the pricing decision also governs the transformation of potential policyholders into actual policyholders. The strategies may be high or low pricing keeping in view the level or standard of customers or the policyholders. The pricing in insurance is in the form of premium rates. The three main factors used for determining the premium rates under a life insurance plan are mortality, expense and interest. The premium rates are revised if there are any significant changes in any of these factors. Mortality (deaths in a particular area): When deciding upon the pricing strategy the average rate of mortality is one of the main considerations. In a country like South Africa the threat to life is very important as it is played by host of diseases. Expenses: The cost of processing, commission to agents, reinsurance companies as well as registration are all incorporated into the cost of installments and premium sum and forms the integral part of the pricing strategy. Interest: The rate of interest is one of the major factors which determines people's willingness to invest in insurance. People would not be willing to put their funds to invest in insurance business if the interest rates provided by the banks or other financial instruments are much greater than the perceived returns from the insurance premiums. 3. PLACE: This component of the marketing mix is related to two important facets -i) Managing the insurance personnel, and ii) Locating a branch. The management of agents and insurance personnel is found significant with the viewpoint of maintaining the norms for offering the services. This is also to process the services to the end user in such a way that a gap between the services- promised and services -- offered is bridged over. In a majority of the service generating organizations, such a gap is found existent which has been instrumental in making worse the image problem. The transformation of potential policyholders to the actual policyholders is a difficult task that depends upon the professional excellence of the personnel. The agents and the rural career agents acting as a link, lack professionalism. The front-line staff and the branch managers also are found not assigning due weight-age to the degeneration process. The insurance personnel if not managed properly would make all efforts insensitive. Even if the policy makers make provision for the quality upgrading the promised services hardly reach to the end users. It is also essential that they have rural orientation and are well aware of the lifestyles of the prospects or users. They are required to be given adequate incentives to show their excellence.

While recruiting agents, the branch managers need to prefer local persons and provide them training and conduct seminars. In addition to the agents, the front-line staff also needs an intensive training programme to focus mainly on behavioral management. Another important dimension to the Place Mix is related to the location of the insurance branches. While locating branches, the branch manager needs to consider a number of factors, such as smooth accessibility, availability of infrastructural facilities and the management of branch offices and premises. In addition it is also significant to provide safety measures and also factors like office furnishing, civic amenities and facilities, parking facilities and interior office decoration should be given proper attention. Thus the place management of insurance branch offices needs a new vision, distinct approach and an innovative style. This is essential to make the work place conducive, attractive and proactive for the generation of efficiency among employees. The branch managers need professional excellence to make place decisions productive. 4. PROMOTION: The insurance services depend on effective promotional measures. In a country like India, the rate of illiteracy is very high and the rural economy has dominance in the national economy. It is essential to have both personal and impersonal promotion strategies. In promoting insurance business, the agents and the rural career agents play an important role. Due attention should be given in selecting the promotional tools for agents and rural career agents and even for the branch managers and front line staff. They also have to be given proper training in order to create impulse buying. Advertising and Publicity, organisation of conferences and seminars, incentive to policyholders are impersonal communication. Arranging Kirtans, exhibitions, participation in fairs and festivals, rural wall paintings and publicity drive through the mobile publicity van units would be effective in creating the impulse buying and the rural prospects would be easily transformed into actual policyholders. 5. PEOPLE: Understanding the customer better allows to design appropriate products. Being a service industry which involves a high level of people interaction, it is very important to use this resource efficiently in order to satisfy customers. Training, development and strong relationships with intermediaries are

the key areas to be kept under consideration. Training the employees, use of IT for efficiency, both at the staff and agent level, is one of the important areas to look into. 6. PROCESS: The process should be customer friendly in insurance industry. The speed and accuracy of payment is of great importance. The processing method should be easy and convenient to the customers. Installment schemes should be streamlined to cater to the ever growing demands of the customers. IT & Data Warehousing will smoothen the process flow. IT will help in servicing large no. of customers efficiently and bring down overheads. Technology can either complement or supplement the channels of distribution cost effectively. It can also help to improve customer service levels. The use of data warehousing management and mining will help to find out the profitability and potential of various customers product segments. 7. PHYSICAL DISTRIBUTION: Distribution is a key determinant of success for all insurance companies. Today, the nationalized insurers have a large reach and presence in India. Building a distribution network is very expensive and time consuming. If the insurers are willing to take advantage of India's large population and reach a profitable mass of customers, then new distribution avenues and alliances will be necessary. Initially insurance was looked upon as a complex product with a high advice and service component. Buyers prefer a face-to-face interaction and they place a high premium on brand names and reliability. As the awareness increases, the product becomes simpler and they become off-theshelf commodity products. Today, various intermediaries, not necessarily insurance companies, are selling insurance. For example, in UK, retailer like Marks & Spencer sells insurance products. The financial services industries have successfully used remote distribution channels such as telephone or internet so as to reach more customers, avoid intermediaries, bring down overheads and increase profitability. A good example is UK insurer Direct Line. It relied on telephone sales and low pricing. Today, it is one of the largest motor insurance operator. Technology will not replace a distribution network though it will offer advantages like better customer service. Finance companies and banks can emerge as an attractive distribution channel for insurance in India. In Netherlands, financial services firms provide an entire range of products including bank accounts, motor, home and life insurance and pensions. In France, half of the life insurance sales are made through banks. In India also, banks hope to maximize expensive existing networks by selling a range of products. It is anticipated that rather than formal ownership arrangements, a loose network of alliance between

insurers and banks will emerge, popularly known as bancassurance. Another innovative distribution channel that could be used are the non-financial organisations. For an example, insurance for consumer items like fridge and TV can be offered at the point of sale. This increases the likelihood of insurance sales. Alliances with manufacturers or retailers of consumer goods will be possible and insurance can be one of the various incentives offered. Read more: http://wiki.answers.com/Q/7p's_of_marketing_mix_of_insurance_sector#ixzz26tcWQOYq