The insurance sector in India has evolved a full circle from being nationalized entities to a liberalized market again. A 360 degree turn witnessed over a period of almost two centuries. Post-Privatization, the life insurance industry grows by leaps and bounds. The attitude of people towards life insurance itself is changing. People are becoming more and more aware of the advantages of the Life insurance policies. Trust in the insurers and concept of wealth appreciation and health security this industry emerged as a major factors for its growth
The insurance industry is totally dependent on the ability to convert raw data into Intelligence - intelligence about customers, markets, competitors, and business environment. Over the years data processing technology has progressed phenomenally and tools like data warehousing, OLAP and data mining, which constitute the cornerstone of effective business intelligence (BI) environment, have been widely accepted across industries. However, Indian insurance companies have been relatively slow in adopting these tools, primarily because of lack of competition due to protective regulations. But now, they can no longer afford to be complacent as the Internet, deregulation, consolidation, and convergence of insurance with other financial services are fast changing the basic structure of the industry.
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Customer Relationship Management remained to be major area in managerial function to be explored in best possible way to attract and retain the customers for higher premiums and growth in this sector.
To study the changing scenario in Indian Insurance Industry
To study the changing insurance sector reforms in India.
To focus on application of CRM practices in insurance sector and application of information technology.
The given study is exploratory in nature and explores the secondary conceptual data from sources like books, magazines and internet sources. The current CRM practices in the industry are studied, organized for the purpose of study and are presented in the article.
The secondary data sources are as follows:
Evolution of Insurance In India
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.
life insurance business in India:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act,
1956: with a capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.
general insurance business in India:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction.The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reformsâ€¦"
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In 1994, the committee submitted the report and some of the key recommendations included:
Government stake in the insurance Companies to be brought down to 50%.
Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.
All the insurance companies should be given greater freedom to operate.
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.
No Company should deal in both Life and General Insurance through a single entity.
Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural market.
Only one State Level Life Insurance Company should be allowed to operate in each state.
iii) Regulatory Body
The Insurance Act should be changed.
An Insurance Regulatory body should be set up.
Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.
GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time).
v) Customer Service
LIC should pay interest on delays in payments beyond 30 days.
Insurance companies must be encouraged to set up unit linked pension plans.
Computerization of operations and updating of technology to be carried out in the insurance industry.
The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.
IRDA and its role:
The passage of the IRDA Bill in Parliament in December 1999 marked the era of reforms in insurance sector. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.
The other major decisions were to provide the supporting systems to the insurance sector were to launch of the IRDA's online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products. IRDA had put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered.
IRDA is formed as an authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of insurance industry and for matters connected therewith or incidental thereto.
With the Insurance Regulatory and Development Act, the focus area is-
The Insurance Regulatory and Development Authority (IRDA) should give priority to health insurance while issuing certificates of registration
Policyholders' funds will be invested in the social sector and infrastructure. The percentage may be specified by the IRDA and such regulations will apply to all insurers operating in the country
Insurers will be expected to undertake a certain percentage of business in the rural or social sector and provide policies to persons residing in rural areas, workers in the unorganized and economically backward ares.
In case the insurers fail to meet the social sector obligation a fine of Rs.2.5 mn would be imposed the first time. Subsequent failures would result in cancellation of licenses.
Some major companies in Life and Non-life insurance sector in India-
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Reliance Life Insurance
Reliance General Insurance
Kotak Mahindra-Old Mutual
Max India-New York Life
M A Chidambaram-Metlife
Aditya Birla-Sun Life Insurance
C K Birla-Zurich Insurance
Hindustan Times-Commercial Union
20th Century Finance-Guardian Group
Centurion Bank-Canada Life
Punjab National Bank, Vijaya Bank, Allahabad Bank and Bank of India-Yasuda Fire and Marine
IFFCO-Tokyo Fire & Marine
Sundaram Finance - Royal & Sun Alliance
Max India-New York Life
Bank of Baroda & Punjab National Bank-Foreign partner
Present Market Structure
After privatization LIC is no longer a monopoly. Insurance sector was converted into Oligopoly.
Characteristics of Insurance sector as oligopoly are as follows: -
Presence of few sellers: After liberalisation the no. of sellers increased from 1 to 13 as on date, like LIC, ICICI Prudential, HDFC Standard, Birla Sunlife, Om Kotak, SBI Life, ING Vysya, MAX Newyork Life etc.
Regulator: IRDA (Insurance Regulatory Development Authority) regulates the Insurance industry. License to the new comer is granted by it only. All products, premiums, Tariffs require its approval.
Price Giver: Price of the policy i.e. premium, is calculated by the actuaries of the respective companies depending upon the nature of risks covered, coverage of the policy and many other probability calculations. But premium as well as the product needs to be approved by IRDA.
Entry or Exit Barrier: There is no free entry into this sector as already outlined New entrants has to satisfy certain condition before entering into this industry. Exit is even tougher since all the contracts are long term so there are very strict regulations for exit from the industry by IRDA.
Product Differentiation: There are no homogenous products. There are wide varieties of products available in the market. Each seller can introduce any new policy depending on the efficiency of its product development team within the broad guidelines of IRDA.
Advertisement: Sellers spend huge amount of their yearly budget on advertisement to educate the consumers about their products and their company. IRDA ensures that advertisement does not mislead people. The IRDA has made it mandatory that every advertisement carries the line, "Insurance is matter of solicitation" so that people know that they are reading an advertisement.
Investment Policy: Investment of life fund upto 75% in government securities is mandatory as per IRDA. 89% of the total surplus to be distributed to policyholder as bonus every year.
Market Share: Still the private sector companies are in nascent stage and major chunk of market pie is still owned by public sector giant (LIC). But private players are also competing very bravely.
Customer Relationship Management
During the last three decades, insurance companies acquired significant product
development capabilities, but they lagged behind in truly understanding the customer. This led most firms to develop products that they could, rather than those required by their customers. But during last few years, deregulation and growing competition has forced insurance companies to move from traditional product-centric operations to customer - centric operations. To succeed in this market, insurers have to analyze their customers. needs and tailor all the business processes in the value chain to effectively meet their unique requirements. Implicit in this argument is the assumption that insurance companies have the ability to turn volumes of data pertaining to their customers, agents, claims and policies into actionable information. Business intelligence tools like data warehousing, OLAP, and data mining can significantly help in almost all the aspects of the value chain to achieve this objective.
A typical insurance company has a huge customer base, varied product lines with number of products within each line, many distribution channels, and a market spread across geographies. To effectively interact with customers and design suitable products, the insurers CRM strategy has to fully utilize the potential of technology. The insurer has to leverage the vast pool of data at each step in the CRM process, and use the insight gained for developing new products and services to meet the ever-changing needs of the customers.
Conceptual model for devising CRM strategy:
The CRM process -three steps:
1. Identify the most profitable or potentially profitable customers for future interaction.
2. Understand their needs and buying patterns.
3. Interact with them so as to meet all of their expectations
The recent reforms and initiatives of government to create level playing field in insurance sector and to have better healthy competition, created a ripple effect in the functional aspects of this industry. Some of the major changes are depicted below and are the result of the reforms. These reforms initiated new approach to the strategy and programme formulation while devising it. Some of the areas as follow.
Identifying the most profitable customers is the first step in the direction of acquiring and retaining profitable customer. To arrive at the overall profitability of a customer, insurers must quantify (a) the costs involved in serving the customer over a period and (b) the revenues realized from the customer during that period. The results of customer profitability analysis can point towards the reasons behind why some customers are not as profitable as others are. a customer might be unprofitable because the products used by them do not match her risk profile. Customer profitability analysis can significantly help in developing new products and customizing existing products for a customer or customer segment.
Customer Lifetime Value:
Customer profitability is not the sole measure of a customer's value to the insurance company. A customer may have the potential of buying profitable products in the future; he may also serve as an excellent reference for more profitable customers. Customer Lifetime Value (LTV) is, hence, a more insightful measure. Often data mining tools are used to model customer lifetime value, taking into account all the factors that have a bearing on the customer's value over the entire course of her relationship with the insurance company.
Segmentation is used to segregate customers, who exhibit common characteristics, in different segments. These segments can then be treated as distinct entities and the future interaction with them can be tailored accordingly. Customer segmentation can save a lot of marketing effort, which would otherwise go waste. Often data mining tools are used for customer segmentation. These tools use 'clustering' algorithms for segmenting the entire customer base into clusters, identified on the basis of various demographic and psychographic factors.
Acquiring new customers is much more costly than retaining existing ones. This is especially true for insurance. Buying an insurance product is a long-term decision for a customer and if he decides to switch, it is very likely that he will not come back.
Hence retaining the existing customers in of paramount importance; customer
attrition analysis is the first step in this direction. It involves analysis of data
captured during individual customer contacts at the various touch points. For attrition analysis, customer contact data is coupled with other data sources like claims and policies; the resultant data set is then associated with customers who have switched to analyze the possible reasons behind this decision. The results can also be used to improve the performance of customer touch points.
It is often referred to as market-basket analysis. Certain products show an affinity towards each other, and are likely to be bought together. For example, a man in his early thirties who buys a life insurance policy might also be interested in a certain type of annuity. These affinities can be, at times, extremely difficult to unearth and often data mining tools are used for this purpose. These tools use a technique called 'association analysis' for arriving at the right combination of products and services for a customer or customer segment.
Target marketing - marketing to a specific customer group - is a natural outcome of customer segmentation. Once distinct customer segments are identified, BI tools can be used to study the products likely to be bought by the segment. Often data mining is used to develop predictive models to establish the buying propensity of a segment towards various existing or new products. Armed with this knowledge, marketing managers can design specific campaigns targeted at individual segments.
Campaign analysis is used to analyze the effectiveness of a marketing or promotion campaigns. The effects of a particular campaign on sales of the promoted product can be tracked using BI tools. Often the surge in sales of the promoted product can result in decrease in sales of other related products. BI tools can also help identify such relationships. The campaign data is stored in a data warehouse and can be used to predict the effectiveness of similar campaigns in future.
Cross selling is a major source of revenue for insurance companies. For effective cross selling, an insurer can leverage the data - housed in the data warehouse - to quickly zero down on the new products that would be required by its existing customers. These can then be offered to them during the next contact.
So in general, for an effective Customer Management Information Technology must be used today for effective outcome, as below.
So as to deliver the customised solutions to various problems and prospects it is imperative to adapt information technology in insurance sector. The change in the global business practices inquired for subsequent changes in Indian Insurance sector too. That followed with the process of reforms by government. This includes opening of this sector for foreign participants with their equity participation.
These reforms in insurance sectors enable the researchers and strategist to relook at their conventional business models and adapt new CRM strategies in the growing cut throat competition.
It is rightly said that it is more costly to acquire new customer than retain old customer.
In today's competitive world, insurance companies' need the help of IT in order to sustain their market position, to fulfill the ever-changing demands of the customers, to constantly innovate in terms of the way in which it executes business.
There is a wide spectrum of CRM solutions are available in the market to cater to the various needs of the Industry. Selecting the right one which would satisfy all the requirements of the insurance company will require a thorough analysis and study to be carried out.
So in general, what is needed is an integrated system for any Insurance firm so that, information from the various functions can be used throughout the system and a better customized service can be provided.
Effective Use of IT:
The insurance industry is totally dependent on the ability to convert raw data into Intelligence - intelligence about customers, markets, competitors, and business environment. Insurance can no longer afford to be complacent as the Internet, deregulation, consolidation, and convergence of insurance with other financial services are fast changing the basic structure of the industry.
Multi Channel Distribution Strategy:
Fear of channel conflict has also prevented many insurers from fully exploiting its potential. Most of the traditional insurers currently use the Internet only to provide information about their products. Insurers will have to quickly integrate the Internet with their existing channels. Multi channel distribution strategy need to be adopted for selling various products, like for non life insurance like motor insurance internet & mobile channel can be used and for health insurance matters strategy of face to face selling should be used.
Changing the Attitude of People:
Biggest barrier in the growth of Life Insurance Industry is in terms of the attitude of people towards life insurance. Some People still think that it is an investment product where we get low return or a simple tax saving device u/s 88
Awareness regarding the insurance is not merely an investment but it covers
your life risk as well.
Use of Customized Content:
The only viable strategy for insurers today is to focus on the needs of the customers and strive to serve them better. Customers have extremely differentiated needs and, the profitability of individual customers differs significantly. Customized content should be provided for effective customer management with the help of vast pool of data about customer which also can be used in cross selling a particular product.
Efficient Handling of Claims Management:
The opportunity cost of ineffective claims management is extremely high - hasty claim settlement can result in increased fraud related costs. Slow fraud detection can increase the overall claims cycle-time, leading to higher customer dissatisfaction. So an effective Claims management system needs to be developed.
Use of Integrated Information System:
Insurers must need to invest in various IT applications underwriting, claims management, distribution channels which they don't seem to do. Most of the insurance companies invest in one or two IT applications should provide integrated view of the customer so that it can better profit customer and insurance company both.