Accenture to draw road map for LIC

Accenture to draw road map for LIC

Mumbai: India’s largest insurer is set to call in advisers to help it stem ongoing market share losses to more nimble competitors and to seek advice on how to change the way it distributes insurance products to customers.

Life Insurance Corp. of India (LIC) is ready to appoint the world’s largest consulting firm by revenue, Accenture Plc, as a consultant to help the state-run life insurance behemoth get its business on a faster track.

A senior LIC official, who did not want to be identified, said the mandate has not yet been formally given to Accenture, but the firm has emerged as the front-runner to recast the business model of LIC by “innovating and integrating" its distribution channels.

An email sent to Accenture did not elicit any response. Its spokesman Girish Bhosle declined comment.

LIC’s overdependence on its network of agents is a significant problem, according to an insurance sector expert.

“Eventually, the agency channel has become so powerful that LIC could not grow its other sales channels. LIC wanted to curb its dependence on only one channel by creating alternative channels, but could not achieve it," he said. He requested anonymity since he works for a consulting firm that was in the fray for the LIC mandate.

About four years ago, LIC had tie-ups with 18 banks, but now it has such relationships with only four banks. “LIC wants to assign different distribution segments for different products. Even the Internet channel could not help in improving sales," he pointed out.

LIC, according to him, has to ensure that its agents sell those policies that the insurer wants them to sell. “The agents sell what they want and earn commissions from LIC. This has to be stopped," he said.

LIC is still the undisputed leader in the life insurance sector, with a total premium income of Rs1.57 trillion at the end of March and about 230 million lives covered, but has lost market share to more aggressive and younger private competitors. There are now 23 life insurance firms in India.

LIC collected premium worth Rs30,471.11 crore from new customers in the seven months to October, giving it a 65% share of the market—impressive, yet 14 percentage points less than the 79% share in had in October 2006.

India opened up the sector for private players in 2000. The state-owned insurer’s market share is falling despite continuous hiring of agents, expansion of its branch network across the country to push sales and boost growth in premium income, and a compounded annual growth rate of 19-20% in premium income in the past few years.

A June report on Indian financial services by Bank of America Merrill Lynch had said private players are likely to continue gaining market share from LIC through expansion in distribution and products.

“The first-year premium during FY09, especially on an APE (annualized premium equivalent) basis, contracted by 7% for the entire sector. While this was led in part by LIC, a government company, the private-sector premium growth also fell to 5% as ICICI Prudential (Life Insurance Co. Ltd) and Bajaj Allianz Life Insurance (Co. Ltd), the largest players, had pulled back on growth," the report said.

According to the report, much of the growth was driven by Reliance Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd and Birla Sun Life Insurance Co. Ltd. Private sector growth is expected to rebound to 25% or more in the current fiscal while the overall sector growth is seen at 17%, said the report.

“There is a need to maximize the output of our (distribution) channels at the least possible cost," said the LIC official. “Given the large scale of our business, we want to find out whether we are headed in the right direction and how we can optimize our distribution channels further to gain a larger market share in the insurance space."

Accenture will recommend ways to integrate all channels of LIC’s business and the entire process may take three years.

LIC has at least 1.3 million agents, including about 200,000 chief life insurance advisers. It sells products through 2,000 bank branches, 40 channel partners and 300 direct marketing agents.

“We want to ensure that our marketing channels co-exist and synergize each other. The efforts made by one distribution channel should not be cannibalized by any other channel," said the LIC official.

Accenture’s mandate will be integration of all channels and resources to boost policy sales, premium growth and market share. Accenture is one of 13 firms that qualified to participate in the final round of bidding. Boston Consulting Group, Ernst and Young, PricewaterhouseCoopers and McKinsey and Co. are some of the other consulting firms in the fray.

In order to overhaul LIC’s marketing strategy through integration of all sales channels, Accenture may suggest changes in technology, infrastructure and existing reporting systems, said the official.

Accenture’s recommendations may also include the insurer’s branding and advertising strategies, management structure and alliances with banks for sale of policies.

Two critical aspects of LIC’s business—agents’ commissions and investments—have been kept out of the consulting mandate.

The insurer, which has sold about 20 million policies since April and plans to sell 25 million more by March, expects to double its sales in the next two-three years following the revamp of its business model.

This is not the first time LIC is appointing a consulting firm. The 53-year-old state-owned insurer underwent its first restructuring process in 1981, when Ishwar Dayal, the founding director of Indian Institute of Management, Lucknow, recommended decentralization to spread its network deeper into the country.

Nearly two decades later, LIC went for another facelift by appointing Booz Allen Hamilton for the second phase of organizational development. Booz suggested changes in branding, advertising, tie-up and corporate governance strategies for LIC.