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However, the fact remained that more than 75% of the Indian insurable population was untapped. According to industry observers, one of the main reasons for the low insurance penetration was the poor distribution and marketing strategies adopted by LIC. Prior to liberalization, due to its monopoly status, LIC seemed to have had no strategically devised distribution strategies in place. It depended entirely on individual agents, which it had trained over the years to distribute its products. LIC made no efforts to use other distribution channels (Refer Exhibit I for various distribution channels for selling life insurance).
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LIC's agents were not well qualified for their work. Prior to liberalization of the Indian insurance industry, no minimum qualification was laid down for people who wanted to become insurance agents. Agents generally acted like brokers; they cared more for their commissions than the needs of the customer. As a result, they did not make the effort to educate customers about the insurance products being offered. |
Consequently, LIC ended up paying bonuses and commissions twice for every new policy and subsequent renewal of premiums – to both agents and Development Officers. It was reported that after only a few years of recruitment of agents, Development Officers earned huge amounts as commissions. Despite this, the attrition rate among the agents was very high, largely because LIC selected the wrong kind of people in the first place.
LIC's bid to implement strict incentive schemes and 'career agent' type of distribution failed due to the powerful Union of Development Officers. However, with the entry of new players, the insurance market changed dramatically. Analysts commented that the private insurers seemed all set to make the industry market-driven, wherein technical expertise and service excellence would be the key success factors. The private companies, to make their presence felt and expand their reach, experimented with new distribution channels.
Post-liberalization, a fierce battle commenced in the Indian insurance industry for garnering market share. New insurance companies used all available channels of distribution, right from individual agents and corporate agents to bancassurance. Bancassurance soon emerged as one of the most lucrative insurance distribution channels.
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Case Code : MKTG027
Themes: Distribution
Case Length : 10 Pages
Period : 2000-2002
Organization : ICICI Prudential, Max New York Life, ETC
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Insurance
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