Life Insurance Marketing in India (C) The Changing Product & Pricing Norms

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FUTURE IMPLICATIONS

The issue of bonus rates on policies emerged as an important factor that could determine the future prospects of various players in the insurance industry. LIC was criticized for offering low bonus rates^[5] traditionally. However, many private players were apprehensive that, by increasing the bonus rates on its policies in the future, LIC could strangle them. Coincidentally, LIC announced a guarantee of minimum bonus and additional loyalty bonus on some of its policies. The company also offered attractive bonuses on its endowment policies.

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. 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.

^[5] Insurance companies give policyholders a share in the company's profits in form of bonuses. Generally there are two types of bonuses. Reversionary bonus is a guaranteed addition to the insured amount and is paid when the policy matures (that is, when the sum assured becomes payable) or when the life assured died. Cash Bonuses are paid out at periodical intervals.

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