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Analysts pointed out that the new insurers were indeed at a disadvantage as they would not be able to offer high bonuses. They opined that, during the initial years, it would be very difficult for these companies to offer bonus on account of lower bonus valuation surplus (the difference between assets and liabilities excluding shareholders' funds). However, to operate in competition with others, the new companies reportedly planned to offer bonuses by bringing in additional start-up capital. Many analysts pointed out that, though the entry of several private insurers and their rigorous advertising and marketing efforts had led to intense competition in the Indian insurance market, LIC continued to dominate it. To make LIC's market share come down, many private insurers reportedly following the way of personal finance companies.
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Increased competition in the personal finance business led companies (into housing finance and credit cards for instance) to attract customers from competitors by offering lower interest rates and easier installment schemes. These strategies, known as buyouts, were widely used by US-based insurers, and analysts felt that the Indian market would replicate these trends. However, analysts also pointed out that buyouts or motivated surrenders would not succeed as a strategy for marketing individual policies. They added that the current legislative provisions were not enough to deal with such practices, and they needed to be strengthened. But some analysts have pointed out that with the vast untapped market and impending reforms in pension and health insurance, there would be no players adopting buyout strategies in the short term in India. |
In March 2002, the government permitted private insurers to offer annuity products to beneficiaries of the approved superannuation funds run by corporates. Earlier, companies used to deposit gratuity funds in the group gratuity scheme run by LIC or in a post office savings account or in an account in any scheduled bank.
When new private players were allowed to enter the market, companies could deposit gratuity funds in the gratuity schemes of private insurers. The government also offered tax rebates on group gratuity schemes offered by private insurers. Analysts expected that, ultimately, the customer would stand to gain the most because innovative and 'consumer-friendly' products were offered as a result of the above.
Exhibit I: Different Types of Life Insurance Policies
Exhibit II: Products for Individuals Offered by Different Companies
Exhibit III: Comparing Endowment Policies
Exhibit IV: Comparing Money Back Policies
Exhibit V: Comparing Term Life Policies
Case Code : MKTG028
Themes: Pricing
Case Length : 14 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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