LIC (Life Insurance Corp. of India) is the country’s largest life insurance player. Not surprising, given the monopoly the Rs39,541-crore, state-owned insurer has enjoyed since it was formed by an Act of Parliament in 1956—but its continued dominance and increasing market share, even after private players were allowed into the sector seven years ago, is creditable.

After 2000, when the Union government ended LIC’s monopoly, the insurance business in India has seen hectic activity. The advertisement expenditure of life insurance players, for instance, increased to Rs199 crore in 2006, up by a whopping 58% from 2004, according to data from MindShare Insights, the research arm of MindShare, a media buying agency.

See: Leveraging Trust

Thomas Mathew, managing director of LIC

But despite such fierce competition, LIC has managed to hold its own, and even notch up growth in some areas in the past two years after an initial dip. “LIC has done a spectacular job in holding its ground," says Alpesh Shah, partner and director, The Boston Consulting Group, Inc. (BCG). “And one of the main reasons for this is its improved services."

The figures definitely attest to a spectacular dominance of one of the largest insurance markets in the world—LIC had a customer base of 15.8 million (till September), more than the population of some countries, while the 16 other private players in the space had a combined customer base of 4.8 million, according to the Insurance Regulatory and Development Authority (Irda), the insurance regulator.

Until July, LIC had clocked a total premium income of about Rs14,000 crore, while the private players managed to corner Rs5,700 crore (about 40% of LIC’s), according to Irda. The growth figures, too, favour LIC. Last year, the company’s premium income grew by 118%, compared with an industry average of 110%.

When it comes to the number of new premiums registered, LIC’s dominance is even more obvious. The insurer sold 38.2 million new policies last year, compared with private insurers’ 7.8 million. In terms of market share, LIC accounted for 74% of the new premiums sold last year. Of the others in the game, two companies sold, between them, 6-7% of the total premiums, while nine managed to capture only less than 2% each.

Agents of trust

The reasons for LIC’s success are rooted both in the public sector behemoth’s proactive initiatives, as well as the dynamics of the life insurance market. Besides LIC’s multi-pronged strategy, it is the peculiarities of selling insurance that has given it the early-mover advantage.

Selling insurance in India is heavily dependent on agents— LIC has the largest network, and it continues to grow. The insurer has added about 500,000 agents in the past five years, according to Shah, while the seven-year-old Max New York Life Insurance Co. Ltd, for instance, has managed to build up a team of about 28,000 agents.

The private players offer a variety of tailor-made schemes and spend heavily to advertise them, but are still dependent on agents to persuade customers to sign on the dotted line. “Agents continue to be the biggest generators of business; roughly two-thirds of the business gets generated by them," says Sujit Ganguli, senior vice-president and head of marketing, ICICI Prudential Life Insurance Co. Ltd, which offers 25 different schemes, including one for diabetics.

In addition, life insurance is one business where trust has a major role to play and, according to the Invest India Incomes and Savings Survey 2007 conducted by Noida-based IIMS Dataworks, LIC is way ahead of its rivals on this parameter. “A brand is a promise you make to your customers," Shah adds. “Private insurers are still not in the ‘promise’ stage."

The private players are well aware of this. “Life insurance is a relationship-oriented business," says Debashis Sarkar, director, additional distribution and marketing, Max New York Life. And this is where the Indian players have an advantage. For instance, SBI Life Insurance Co. Ltd, a joint venture (JV) of State Bank of India and France’s Cardiff SA, was the first private insurer to break even, riding on State Bank’s brand equity and geographical reach. “The companies doing well are the ones with big Indian brands," says Shah.

LIC, of course, has an obvious advantage on this front. “LIC has built strong trust, which will not fade away with competition," says K.V.S. Manian, group head, retail liabilities and branch banking, Kotak Mahindra Bank. “The kind of reach and distribution the company has is far greater than the rest of the private sector players put together."

The Invest India survey found that about 70% of respondents had complete trust in the public sector company, in contrast to a mere 11% who put their faith in private players. The reason is not hard to find. “Most of our customers have been with us for generations—father to son, and so on," says Thomas Mathew T., managing director, LIC.

Despite the comfortable lead, LIC began its preparations early. “We geared up a long time before the insurance industry was opened up to foreign participation," Mathew says. “We took proactive steps to face competition right from the 1980s and 1990s."

These measures can broadly be categorized into expanding portfolios, base, and providing better services to customers. In addition, of course, ratcheting up marketing activities to maximize gains. LIC’s advertising spend went up to Rs68.38 crore in 2006, up about 30% from 2004. Kartik Jain, head, marketing and e-channel, ICICI Lombard General Insurance Co. Ltd, sums it up: “LIC has successfully leveraged its strengths. They invested in new products, they expanded their agent base, they invested in cutting-edge technology and most importantly, kept pace with new players."

Offering a wider bouquet of policies has been LIC’s most obvious strategy. The insurer launched seven new products last year; this fiscal, it’s launching another 10.

“Most of these are special or niche products aimed at providing life cover from ‘cradle-to-grave’, touching the entire spectrum—women, children unorganized labour, the rural poor and the rural landless, right up to high net worth individuals (HNIs)," says Mathew. “Today, we cover one in 10 families in India."

It’s not just numbers. LIC has expanded its social and geographical coverage, too. It has ventured into areas where no private player would. It has begun to look at labourers in the unorganized sector and the poor as a potential market. In the last couple of years, the company has launched innovative products aimed at unorganized labour (Jeevan Madhur) and the landless poor (Aadmi Jeevan Bima Yojna). The insurer is even using innovative channels to sell these products through micro-finance institutions and self-help groups.

Although LIC lists these initiatives as part of its social responsibility, figures prove that the rural segment is emerging as a potential base for its future expansion.

Last year, of the 46 million policies sold, eight million were sold to customers in rural areas. And LIC’s share in the total was 82%.

The annual premia for LIC’s rural policies averaged Rs4,000 per policy. This figure could go up in coming years as rural incomes grow, Mathew says.

The private players, in contrast, are more focused on the urban young, as the Invest India survey shows. “Our urban customer’s average age is one who is the mid-30s," says ICICI Prudential’s Ganguly. “However, in the last few years, the average age has dropped on account of higher income and higher awareness."

LIC has been able to derive significant efficiencies from its structural changes as well.

“One of the first things we did (to prepare for competition from private players) was to decentralize decision making," says Mathew. “We have 2,048 branches across India. Our current structure is four-tiered (corporate office, zonal office, branches and agencies). This structure allows our officers to make the operational decisions at the branch or zonal levels, which has increased our efficiency," he adds.

LIC is investing heavily in computerizing the company’s back-end operations. Last year, the insurer spent Rs600 crore in information technology (IT) operations and, this year, about Rs700 crore. “We are developing our own enterprise resource planning software," Mathew says. “This will enable us to know our customers even better and offer them better service."

LIC settles claims two weeks before the expiration of a policy, in part due to its IT initiatives, Mathew says. The company has a 4,000-strong team of IT professionals.

Premium on the future

Building on its dominant presence in the market and streamlining operations will certainly help LIC retain its market share in a fast-growing market. But the rules of the insurance game in India are changing fast.

Rather than taking on LIC head-on, the private players are playing to their own particular strengths.

“I don’t think they (private players) kept LIC in mind (while chalking out their strategies)," says BCG’s Shah. “Early on, it was about creating awareness. In the future, they’ll position themselves."

The share of private players also is improving slowly in urban areas. Since 2004, nearly 14% of those who bought life insurance in the metros have opted for a private insurance company, according to the Invest India survey.

In addition, the role of life insurance as an instrument of financial planning is fast changing. From a tax-saving device in the 1980s, it is evolving into an essential component of post-retirement security, besides being a hedge against accidental death.

“Tax still plays a large role," admits ICICI Prudential’s Ganguly. “A lot of policies still get sold in January, February and March." But, ICICI Prudential is banking on the sharp increase in consumer awareness over the past few years, and has undertaken major product diversifications in the form of pension products and education policies.

All these factors will come into play in the next few years as the private players’ aggressive marketing campaigns begin to show results.

For LIC, the battle to survive and thrive may have just begun.

Gargi Banerjee and Priyanka Mehra contributed to this story.