Life Insurance Corporation's Future Prospects

BACKGROUND NOTE contd...

The opening up of the insurance sector had been the subject of debate for many years^[2] . The Insurance Regulatory and Development Authority (IRDA) bill, which was tabled in Parliament, contained detailed guidelines for inviting private players into the insurance sector. In December 1999, the Government approved the IRDA Act, making IRDA the authority to protect the interests of policyholders, and to regulate, promote and ensure the systematic growth of insurance industry.

After August 2000, private licenses were given to HDFC-Standard Life, ICICI Prudential and Max New York. International companies that entered the sector included Lombard, Zurich, Allianz, Royal & Sun Alliance, Chubb Insurance, AIG, ING and CGNU, while ICICI, Hero Honda, Dabur, the Tatas, the Birlas, SBI, HDFC and Reliance were the major Indian players. With the opening up of the insurance sector, media reports predicted tough times ahead for LIC. A report revealed that LIC was 70% over-staffed, which meant that its competitors would have substantial labor-cost advantages. The report also predicted that LIC might find it difficult to retain and protect its extensive agent network and, in particular, to ensure that the most talented and influential agents stayed with it. LIC was also expected to face fierce competition on the new product development front.

LIC gave top priority to introducing over-the-counter (OTC) facilities that would help it serve its customers better. By 2000 it had computerized and locally networked all its 2,048 branches. The speed of service delivery, particularly in the case of claims-settlement, had also improved. The total outstanding claims were brought down to 2.74% in 2000 from 3.47% in 1995.
LIC realized that to be able to retain its position, it would have to be match the technological sophistication of the multinationals. LIC extended its Metropolitan Area Network (MAN) system from Mumbai, Delhi and Bangalore to Ahmedabad, Pune, Hyderabad, and Calcutta. This enabled LIC customers to pay premiums and get status reports from any of its branches in these cities. LIC planned to eventually connect upto 27 cities in a Wide Area Network (WAN). E-mail and Internet facility were introduced at over 600 additional branches. A mechanism was put in place to facilitate insurance premium payment over the Internet in cities that were covered by the WAN.

Over 98% of LIC's branches had begun providing software assistance that helped the policyholders track premium payments, loans and claims positions. Information kiosks were set up in over 50 places across the country. The company also started an Interactive Voice Response System, to help customers get details of various policies over the telephone. LIC planned to tie up with corporate agents to enable customers to buy insurance products at banks or financial services companies or while buying a consumer durable. LIC also intended to use the services of brokers once brokerage concerns were allowed to operate in India.

LIC initiated measures to revamp its service network and to open 600 new training centers. The new centers were to have a new training modules in the curriculum which focused on marketing. It intensified its research activities in order to get market feedback and tailor its products according to customer needs. LIC also planned to offer new products and schemes and enter new markets, especially in the global arena. LIC began exploring the possibility of entering the Nepalese, African, Middle-East, Mauritius, US and UK markets.

^[2] The opening up of the insurance sector to private firms aimed at encouraging competition, innovation and greater product variety. It was also expected to generate greater awareness about the need for buying insurance as a service and not merely for tax exemption, as done traditionally. Also, the strong correlation between demand for insurance and per capita income level suggested that high economic growth could spur growth in demand for insurance. However, there were many who opposed the privatisation of the sector. The IRDA Bill was passed in Parliament after a long delay and intense political debates.

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