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  1. 1. Insurance Industry in India: Structure,Performance, and Future ChallengesS Krishnamurthy, S V Mony, Nani Jhaveri, SandeepBakhshi, Ramesh Bhat and M R Dixit, andSunil MaheshwariRamesh Bhat (Coordinator)With the liberalization and entry of private companies in insurance, the Indian insurance sector hasstarted showing signs of significant change. Within a short span of time, private insurance hasacquired 13 per cent of the life insurance market and 14 per cent of non-life market. However, thereis still a huge untapped demand for insurance. Insurance companies have a pivotal role in offeringinsurance products which meet the requirements of the people and, at the same time, are affordable.Some of the challenges faced by the insurance sector pertain to the demand conditions, competitionin the sector, product innovations, delivery and distribution systems, use of technology, andregulation. To understand the growth and development and the future prospects of this sector, thiscolloquium addresses the following issues:What will be the demand for insurance? What types of innovative strategies of insuranceeducation and awareness will we require to encourage the Indian consumers?With the changes following bank participation in insurance, will the nature of competition inthis sector intensify?What kind of competitive and risk pressures will the insurance businesses experience? What aretheir implications for profitability, margins, and efficiency?The average size of the polices will continuously decline as the insurance companies increasethe geographic coverage. As a result of this, the intermediation costs will go up. What are theimplications of these on average costs?What will be the product market scenario?Has the insurance sector benefited from the knowledge base of global companies?To what extent have the technology gains in telecommunications, computer information, anddata processing contributed to increased efficiency and productivity of insurance companies?The following key points emerged from the responses of the panelists:The future in life insurance will be determined by the increase in pure protection products,a refreshing look at unit-linked plans, launch of customized plans, and improved servicelevels.The insurance sector will grow steadily rather than rapidly. While the law and regulationsare in place to ensure financial strength and solvency of insurers, the regulator’s challengelies in monitoring compliance.The opportunity for financial services is increasing all over the world. Big domesticcompanies with significant market shares in the local countries will have the opportunitiesto commence business in other markets.Keeping in mind the complexities of the industry, multi-product, multi-channel, and multi-segment route needs to be followed for growth.The challenge of successfully implementing bancassurance lies in training the staff,integrating the insurance products, and ensuring best quality service.Agents in the insurance sector are critical for its success and, in order to gain competitiveadvantage, quality people are needed but attracting and retaining agents is a challenge.ExecutiveSummaryCOLLOQUIUMincludes debate bypractitioners andacademicians on acontemporary topicKEY WORDSBancassuranceInsurance SectorConsumer EducationProduct CompetitionGlobal Markets81VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 9393
  2. 2. Insurance is the backbone of a country’s risk man-agement system. Risk is an inherent part of our lives.The insurance providers offer a variety of productsto businesses and individuals in order to provide pro-tection from risk and to ensure financial security. Theyare also an important component in the financial inter-mediation chain of a country and are a source of long-term capital for infrastructure and long-term projects.Through their participation in financial markets, theyalso provide support in stabilizing the markets by eveningout any fluctuations.The insurance business isbroadly divided into life, health, andnon-life insurance. Individuals, fami-lies, and businesses face risks ofpremature death, depletion in incomebecause of retirement, health risks,loss of property, risk of legal liabil-ity, etc. The insurance companiesoffer life insurance, pension andretirement income, property insur-ance, legal liability insurance, etc., tocover these risks. In addition, theyoffer several specialized products tomeet the specific needs and require-ments of businesses and individuals. Businesses alsodepend on these companies for various property andliability covers, employee compensation, and marineinsurance.Insurance does influence the growth and develop-ment of an economy in several ways. The availabilityof insurance can mitigate the impacts of risk by provid-ing products which help organizations and individualsto minimize the consequences of risk and has a positiveeffect on industry growth as entrepreneurs are able tocover their risks. In the absence of a full range ofinsurance products and/or deficient products in termsof coverage and scope, the risk-taking abilities wouldbe hampered and chances are that the economic activi-ties would turn out to be high-risk activities. The im-plications of leaving various risks uncovered can besignificant and the impact of losses can be devastatingcreating a huge burden on the governments. Therefore,a strong and competitive insurance industry is consid-ered imperative for economic development and growth.However, the contribution of the insurance companiesis also dependent on the fact that they are able to poolrisks effectively. Only then would it be possible to coverthese risks at an affordable and reasonable cost as theinsurance provider will be able to spread the risksthroughout the economy.The insurance industry is also an integral part ofthe financial system. For effectivefunctioning of the financial system,it is important that the markets areefficient by ensuring liquidity andtransparency in price discovery. Therole of the insurance companies asfinancial intermediaries is also con-sidered significant in making thesemarkets efficient by providing liquid-ity and credit. This, in turn, helps inlowering down the cost of capitaland providing risk-free opportuni-ties to all participants in the market.Penetration of insurance criti-cally depends on the availability of insurance productsand services. Huge untapped market, proliferation ofschemes, new product innovations, perception of insur-able risks of Indian consumers, competitive pressuresarising from integration of bank and insurance, impactof information technology, and the role of insuranceindustry in financial services industry are some of theforces which shape the competitive structure of theinsurance industry.The insurance companies have a pivotal role inoffering insurance products which meet the require-ments and expectations of the customers and, at the sametime, are affordable. The future growth of this sector willdepend on how effectively the insurers are able to comeup with product designs suitable to our context and howeffectively they are able to change the perceptions of theIndian consumers and make them aware of the insurableINTRODUCTIONRamesh BhatProfessor, Finance and AccountingIIM, Ahmedabad82The availability ofinsurance can mitigatethe impacts of risk byproviding products whichhelp organizations andindividuals to minimizethe consequences of riskand has a positive effecton industry growth asentrepreneurs are able tocover their risks.94 INSURANCE INDUSTRY IN INDIA94
  3. 3. risks. The future growth also depends on how service-oriented insurers are going to be. On the demand side,the rise in incomes will trigger the growth of physicaland financial assets. With the growth of infrastructureprojects, the demand for insurance to cover the projectand the risks during operations will increase. The othergrowth trigger is the increase in international trade.However, servicing of the large domestic market in Indiais a real challenge. Some of these challenges pertain tothe demand conditions, competition in the sector, prod-uct innovations, delivery and distribution systems, useof technology, and regulation.It is in this context that we posed the following leadquestions to various industry lead-ers: What will be the demand forinsurance? How does the domesticmarket growth of insurance look like?Are we lagging behind? Do we un-derstand the mind of the Indian con-sumer? What are the perceptions ofIndian consumers about the insur-able risks? Do insurers find it hardto change the perceptions of theIndian consumers about insurablerisks? What types of innovativestrategies of insurance education andawareness are required to encouragethe Indian consumers? Are Indianinsurance companies geared to takeup this challenge? What is the roleof the Insurance Regulatory and De-velopment Authority (IRDA)? Whatwould be the implications of thesefactors for the structure and opera-tions of life and non-life businesses?We also raised specific questions onvarious channels of selling focusing on the role of banksparticipating in insurance: Will there be a change in theway the business is done in the insurance sector? Giventhe present scenario, what kind of competitive and riskpressures will the insurance businesses experience? Whatare the adjustments required to face the competitivechallenges?Another area of concern has been the pricing ofproducts. This is likely to be an important determinantof growth. As the insurance companies increase thegeographic coverage, the average size of polices (i.e.,average premium per policy) will continuously becomesmaller. As a result of this, the intermediation costs willgo up. To understand these, we posed questions on theproduct market scenario: Will the competition in futurelead to product specialization (focused products) orproduct proliferation? Will costs be a major concern?What would be the pricing of these products? Whatwould be the cost-containing strategies which wouldhelp the insurer to develop streamlined businesses andaddress intensifying competition? Will the consumerbenefit from this and in what way?In India, most of the insurance companies in theprivate sector have come into existence after formingjoint ventures with a global partner.We raised the following questions inthis context: Has the insurance sec-tor benefited from the knowledgebase of the global partners? In whatway? Which innovative productsoffered by insurance companies havechanged the face of the insurancesector? Have there been any processinnovation within the insurance com-panies that have made the Indianinsurer stronger? How much of thishas come through the partner?The health segment of the insur-ance sector was the first to be libera-lized but has still remained less de-veloped. We asked the panelists torespond to the following concerns:What policy changes would youpropose in terms of easing the entrybarriers by reducing capital require-ments, reforming the private healthsector by having appropriate regu-lations including provider payment systems and strength-ening of the third-party administrators to monitor theproviders? Are the complexities in this segment reallyunmanageable? Given these complexities of health in-surance, should we have a separate insurance regulatorybody to regulate health insurance? Many countriesaround the world have a separate health insuranceregulation and a separate regulatory body.Technology is likely to play an important role in thissector. Our questions focused on to what extent tech-nology gains in telecommunications, computer informa-83The future growthdepends on how service-oriented insurers aregoing to be. On thedemand side, the rise inincomes will trigger thegrowth of physical andfinancial assets. With thegrowth of infrastructureprojects, the demand forinsurance to cover theproject and the risksduring operations willincrease. The othergrowth trigger is theincrease in internationaltrade. However, servicingof the large domesticmarket in India is a realchallenge.VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 9595
  4. 4. tion, and data processing have contributed to increasedefficiency and productivity of insurance companies andhow the new technologies have facilitated the develop-ment and servicing of the global markets.The process of reforms initiated some years ago hassome achievements to its credit. It has enhanced com-petition, provided a choice to the customers, triggeredinnovative ways and means to carry out insuranceactivities, improved the efficiency level of the industry,increased the coverage of insurancein terms of density and penetration,obligated the insurers to provide forthe needs of social and rural sectors,and increased awareness about thenecessity of insurance, to name a few.However, the achievements till dateneed to be built upon to furtherimprove the efficiency of the insur-ance sector thereby reducing the costsand increasing the penetration par-ticularly in rural and semi-urbanareas.For this purpose, the followingfactors are critical:• strengthening of the distributionnetwork• designing of products thatwould meet the characteristicsof different segments of thepopulation• formulating and implementing specific strategies.Training of all those involved in providing insur-ance needs to be augmented. The insurance companiesstill have a long way to go in establishing their imageand credibility. For these, risk management skills ensur-ing financial stability of insurers will be important.There are concerns that regulations and modulationplay a critical role in market situations which are evolv-ing and developing. IRDA has an important responsi-bility of regulating this sector. However, given theexperiences, concerns are being raised whether ourregulator is slow and soft. There are concerns that theyare not proactive. The experiencein the recent past about the ‘key-maninsurance’ reflects this point. Thereis a lack of proper guidelines aboutthe norms of reporting the perform-ance of life insurance organizations.For example, should one-time pre-mium be included as part of one yearperformance or not? This signifi-cantly distorts the comparison of per-formance between insurance provid-ers. Similarly, there are issues re-lated to bancassurance models anddirect salesforce which need continu-ous monitoring and guidelines toevolve in these areas. Most of theinsurance companies are going forunit-linked products. Should theinsurance companies have in-housefund management or should it beoutsourced and to whom? These aresome policy questions which need tobe addressed. Given the complexityof health insurance, there is a need for having a separatehealth insurance regulation and this needs to be ad-dressed in a proactive manner.8485INSURANCE SECTOR:CHALLENGES OF COMPETITION AND FUTURE SCENARIOS KrishnamurthyMD & CEO, SBI Life Insurance Company Ltd.MumbaiThe process of reformsinitiated some years agohas some achievements toits credit. It has enhancedcompetition, provided achoice to the customers,triggered innovative waysand means to carry outinsurance activities,improved the efficiencylevel of the industry,increased the coverage ofinsurance in terms ofdensity and penetration,obligated the insurers toprovide for the needs ofsocial and rural sectors,and increased awarenessabout the necessity ofinsurance, to name a few.The life insurance industry saw a growth of 10.48per cent in terms of first year premium incomeand 12.83 per cent in terms of new policies sold.The size of the market for 2003-04 was Rs. 187.10 billionworth of first year premium income with 28.6 millionpolicies. These are extremely satisfactory statistics butcertainly not path- breaking; they reaffirm the belief thathuge potential still remains unexploited.Some salient features of the domestic market growth canbe highlighted:• The private insurance companies — operating from96 INSURANCE INDUSTRY IN INDIA96
  5. 5. a smaller base — have achieveda staggering growth rate of 153per cent and 101 per cent in termsof first year premium andnumber of policies respectively.As expected under the circum-stances, the market share of LICin respect of first year premiumhas fallen to 87.04 per cent from94.34 per cent in 2002-03. The 13per cent contribution of the pri-vate players within the thirdcompleted year of the opening up of the sector isthe most significant variable that the market hasthrown up in 2003-04. The fact that private bankstook more than ten years to reach double figurecontributions in the banking sector further accen-tuates the positive start made by the private insur-ers.• Despite a 13 per cent first year premium contribu-tion, the private players have only been able togarner 6 per cent of the policies. This clearly in-dicates that the average size per policy sold by aprivate insurer at Rs.11,320 is significantly higherthan the corresponding figure for LIC (Rs. 4,293).The inference is obvious: LIC continues to remainstrong in rural areas and perhaps in the middle classand the lower middle class segments while in metrosand major urban centres, the private insurers havemade their presence felt.• Another revealing aspect of the demand progres-sion in the market has been the unusually highcontent of unit-linked products in the overall per-formance. While exact figures of new business doneunder the unit-linked plans(ULIPs) may not be available,companies like Birla Sunlife andICICI Prudential have definitelyprocured a big chunk of theirnew business premium from theULIPs. Even the Bima Plus ofLIC — a good product but lan-guishing for the last few yearson account of the lack of interestby the sales force — turned upsome very good numbers in2003-04. A total of Rs. 3.43 billioncame from this plan but whatwas more exceptional was the factthat non-metro divisions likeLucknow and Coimbatore mademajor contributions proving onceagain that products which appearedsuitable for a niche market were pro-gressively becoming popular in theother segments. The performance ofULIPs of ICICI and Birla Sunlife innon-metro locations further under-scores the point that ULIPs are hereto stay and they are not a metro-confined product category any longer. This is atrend that will further emphasize itself in 2004-05if initial responses are anything to go by.• The opening up of the sector has also seen improvedefforts on educating the customer regarding his in-surance needs and on fixation of insurance as a toolin his overall wealth management portfolio. The newage insurance agent is trained to be an advisor to thecustomer instead of being a mere seller of policies. Heis a suave, smart financial consultant thanks to thestate-of-the-art training facilities provided by the in-surers which are of international standards. With theevolution of these advisors, insurance is being seenmore as a wealth enhancer and will help insurers in-crease their sales in India. Further, as mentioned ear-lier, the success of ULIP even in mini-metros and rela-tively smaller markets is a reaffirmation of the factthat markets are progressing in terms of insuranceawareness and education.• A recent survey has highlighted the statistic thatIndia is fast emerging as one amongst the youngestnations in the world. By the year2010, we will find almost 54 per centof our population in the 18-35 yearsbracket. This segment is the idealtarget audience for an entire rangeof ‘cradle to grave’ insurance plansfrom pure protection to endowment,children’s endowment and money-back plans, to whole life and pensionplans. The evolving change in thiskey demographic variable along withthe significant increase in the middleclass segment of the Indian societywill augur very well for the future8687The new age insuranceagent is trained to be anadvisor to the customerinstead of being a mereseller of policies. He is asuave, smart financialconsultant thanks to thestate-of-the-art trainingfacilities provided by theinsurers which are ofinternational standards.LIC continues to remainstrong in rural areas andperhaps in the middleclass and the lowermiddle class segmentswhile in metros andmajor urban centres, theprivate insurers havemade their presence felt.VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 9797
  6. 6. and would throw up enormousbusiness opportunities for thelife players.Seventy per cent of the Indianinsurance market is still dominatedby money-back plans and the con-sumer still perceives insurance as asaving device. The new age insurershave taken it upon themselves toeducate the masses on pure term in-surance and its importance but it has a long way to go.Recent surveys show that consumers still favour insur-ance policies as a savings tool and a tax saver. What isequally interesting is that the two most prominent barriersto insurance are lack of liquidity and the fear of theconsumers that their money may get locked in. Thisagain reiterates the fact the this country still understandsand favours money-back and endowment plans from theinsurance catalogue. ULIPs with higher returns andgreater flexibility are also on course for the contempo-rary demand patterns. Thus, understanding the chang-ing perceptions of the Indian consumer and accordinglyaltering the product offering, marketing communica-tion, and positioning is what is important for the insurer.IRDA, in its role as the regulator, has undertakenthe work of overlooking an orderly development andgrowth of the industry. It acts as the amalgam aggre-gating the efforts of the industry, the actuarial, and theaccounting professionals and expects the industry toensure that they have in place a rigorous system ofinternal controls to manage risks and comply with regu-latory and legislative requirements. On the marketingfront, sanctity of communication to the consumer andensuring that reasonable policy holder expectation isbuilt at all times is another area that the regulator focuseson. Coupled with the above, IRDA ensures that thecustomer is placed as the conundrumof all activity and the ultimate markof success for the industry will lie inits ability to meet the needs of thecustomer effectively. Given the abovebackdrop, the factors that will act asdifferentiators in the long run will becustomer orientation and service. Theopening up of the sector has hadpositive fallouts like improved dis-closure to the policy holder, both pre-sale and post-sale, and efficientclaims and complaint/grievancemanagement. These were areas thatwere overlooked in the pre-liberali-zation era but new age insurers andLIC have capacitated themselves interms of technology as well as proc-esses to handle these importantcustomer service subjects which areprerequisites as we move ahead.BancassuranceBancassurance as a concept has its origins in Francewhere this channel today is a predominant source ofinsurance business. SBI Life’s joint venture partner,Cardiff, has the distinction of being the pioneer in thischannel of distribution and our experiment of comingtogether will be an important milestone in the further-ance of bancassurance as a philosophy in India.The opportunity that bancassurance throws up forthe insurer has been much discussed since the openingup of the industry. Banks are also viewing this route asa value add primarily in the area of alternate incomegeneration for the following reasons:• Banks are in the prime function of banking and theywill always remain so. However, with the shrinkingmargins on the business due to intense competition,banks are looking at alternate options of incomegeneration. Today, life insurance may only be asmall drop in the ocean as far as revenues for thebanks are concerned but, as the contributions grow,they will start assuming more significant propor-tions.• Banks are fast moving towards being viewed as afinancial supermarket or a one-stop shop providingthe entire gamut of financial products ranging frompersonal finance to life insurance to mutual funds.• Banks generally have a service-oriented culture as against insurancecompanies that have an aggressiveneed-based selling philosophy. Therubbing-off of this selling culture onthe bank will also help the bank withits own core business.• The key challenges that areimplicit to bancassurance are morepeople-related than anything else.Management of differences in the or-IRDA ensures that thecustomer is placed as theconundrum of all activityand the ultimate mark ofsuccess for the industrywill lie in its ability tomeet the needs of thecustomer effectively.88Banks are fast movingtowards being viewed asa financial supermarket ora one-stop shop providingthe entire gamut offinancial products rangingfrom personal finance tolife insurance to mutualfunds.98 INSURANCE INDUSTRY IN INDIA98
  7. 7. ganizational culture of the banks and insurancecompanies will be a key variable. The partners needto have a common business vision and directiontowards future objectives.The market has already seen a range of strategicalliances between banks and insurance companies basedon their vision with regard to distribution reach, costs,target audience, and geographical spread. Our ownexperiment has so far been very heartening and we canonly scale upwards from here as we will activate moreof our SBI and associate bank branches in a phasedfashion. Often, management of excessive success is asmighty a challenge as managing failure and our phasedroll-out is a result of the knowledge that SBI brings usastounding business possibilities inbancassurance. Needless to say,bancassurance will witness some in-tense action in the next few years andshould stabilize itself as a 30 per centcontributor to the overall pie by 2010.Competitive ChallengesAs we enter our fourth year of busi-ness, the dynamics of the businesshas changed in good measure andthough the key variables remain thesame, the degree of their significanceover the next four years will rise asmost of the companies will be neartheir break-even levels. The key com-petitive and risk pressures that the industry wouldexperience can be highlighted as follows:Multi-channel distribution footprint: Understanding thescience of multi-distribution channel management anddeveloping a robust field footprint will remain the mostdistinctive competitive challenges for the new age in-surers. Managing the expectations of channel partners,viz., banks, corporate agents, brokers, and advisory force,and keeping the acquisition costs at manageable propor-tions at the same time will help the new players reachbreak-even relatively sooner. Increased rural penetra-tion of insurance will also be a fallout of the above factorsand will depend upon the spread that the distributionfootprint will help the insurer achieve.Technological advancement: A key driver of growth ina long-term business like life insurance, technologicaladvancement will be critical to functions like datamanagement, underwriting, fund management, actu-arial efficiency, and the end-to-end service deliveryprocess. Technology will provide the cutting edge interms of improved disclosure to the policy holder as wellas the regulator in due course of time.Quality of manpower: Insurance is an intensively peo-ple-oriented business and human resources will be theundoubted differentiator like in any other retail indus-try. The quality of manpower attracted and retained byinsurers and how their abilities and ambitions are har-nessed would be the litmus test for the industry.Investment strategy and fund management: Expertisein fund management is the value proposition that anyinsurance company offers and the quality of asset-liabil-ity management (ALM) in a fallingor stable interest rate regime willthus be a key challenge. The regu-lator is progressively in favour ofinsurance companies setting up theirown investment research and deal-ing cells and against knowledge shar-ing with group asset managementcompanies. Bonus performance ontraditional plans and the net assetvalue (NAV) performance on ULIPswill determine the demand patternsand investment strategy will remainat the core of successful insurancebusiness.Acquisition costs: Acquisition costs which is a sum totalof technological, operational, and distribution costs, willbe the key differentiating factor in the initial years. Whilethe initial hits on the technology and process costs havealready been absorbed by a majority of the new insurers,intermediary costs of distribution is a critical variable.This is where the players with a strong brand presencelike SBI Life will stand to gain. SBI Life can boast of thelowest acquisition cost levels in the industry due to thelower infrastructure and set-up costs thanks to our ex-isting bank network. Further, the intermediary costs todistribution channel partners are also lower due to thebargaining power that the strong brand possesses in lifeinsurance.Further, we might reach a scenario in the next fourto six years when the commission levels being offeredto channel partners might get stabilized or might evenget bottomed out. The average commission payouts mayA key driver of growth ina long-term businesslike life insurance,technological advance-ment will be critical tofunctions like datamanagement,underwriting, fundmanagement, actuarialefficiency, and theend-to-end servicedelivery process.89VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 9999
  8. 8. move towards the international levels of 14-16 per centof FPI. This will be a time-consuming change in theIndian context, given the LIC legacy that we carry, but,this revealing trend is something to watch out for as weevolve as an industry.In the above backdrop, the risk pressure that we arelikely to face will essentially be a converse of the abovefactors, namely:• fragility of the systems and the operational environ-ment• experience, expertise, and will-ingness of the insurers to learnfrom their mistakes especially inULIPs and group terms business• uncontrollable or burgeoningoverheads• management of lapsation risk: Abroad thumb rule is that when-ever we earn a renewal incomeof Rs. 2 to a new income of Re.1,we are close to break-even. Thus,management of lapsation in ourtraditional as well as unit-linkedportfolio will be a key perform-ance differentiator.Product Offerings and Market ScenarioThe product market scenario has already started wit-nessing some revealing changes which are an indicatorof what is to be expected. Product offerings can beclassified into two broad categories as we move ahead:• Customized high-end complicated products aimedat the high-end, financially-aware customer withrisk appetite. Key-man insurance and ULIPs willbelong to this segment.• Simplified, OTC insurance products to cater to themiddle class and lower middle class segments. Theseproducts will essentially be a combination of en-dowment, money-back, and pensions in varyingproportion.One other area of keen interest would be the futureof ULIPs which have a very low proportion of risk coverand a very high proportion of investment and savings.Given the fact that IRDA is progressively moving to-wards development of insurance mainly as a protectiondevice and the resistance from the mutual fund industrywhich sees insurance as a favoured industry, we mightsee a movement towards ULIPs with a less lop-sidedproportion of risk and savings.The postulate that the average size of policy willgo down as the insurance companies increase theirgeographical spread is not something that can be takenas a certainty. The counter argument is that the balancein the product mix of the insurers willensure that average premium levelsper policy remain stable. Even if thereis bottoming out, it will be marginal.The proportion of key-man policies,ULIPs, and high-value policies willensure that the new age playersmanage their average policy sizes.With regard to intermediarycosts, the initial cost hits with regardto branch infrastructure, technology,process, channel partner manage-ment, etc., have already been in-curred and the coming years will seea rationalization in cost levels.There is a case that the acquisition cost, primarilycommission, might see a downward trend across agentsas well as other channels. All in all, rationalization ofaverage costs will be a very important realm of differ-entiation which will translate itself into lower prices,better value propositions, and better returns.With regard to costs, in addition to what has beenhighlighted above, the administration charges and fundmanagement charges that are being collected by theinsurers will progressively reduce due to economies ofscale and competitive forces from insurance as well asmutual funds. The reductions in overall costs will bepassed on to the customer in the form of lower admin-istration costs, better bonuses, and lower prices.Learning from PartnersInsurance in India was by and large governed by theremuneration charges paid out to the agents until theliberalization of the sector came about. The opening upof the sector was essentially to provide the customerwith customized protection and savings solutions suited90Insurance in India was byand large governed bythe remuneration chargespaid out to the agentsuntil the liberalization ofthe sector came about.The opening up of thesector was essentially toprovide the customer withcustomized protectionand savings solutionssuited to his overallfinancial requirement.100 INSURANCE INDUSTRY IN INDIA100
  9. 9. to his overall financial requirement.The value that the joint venturepartners have brought in this contextis huge. The foreign partners havebrought in their technical and finan-cial expertise in a range of functionssuch as technology and operationalprocesses. The development of un-derwriting practices is again suitedto the dynamics of the social prac-tices of a nation like India. Agencymanagement, training, and the en-tire end-to-end service delivery proc-ess are other areas where Indianpartners have benefited a lot.Going forward, we could see twokinds of polarization in the industry: (a) products thatare inclined towards pure protection, and (b) return-oriented products that will progressively provide moredegree of protection as the regulator is keen on increas-ing the percentage of risk protection in unit-linkedinsurance products.Can India Become a Global Player?With regard to the Indian insurers turning global play-ers, I think it would be fairly premature to address thisissue now. The Indian insurance companies are them-selves beginning to come to terms with the dynamicsof a continent like India and it would be some time beforewe can be a part of the global ventures. However, theexperiments in India would act as a reference frame forour foreign partners as they make forays into othernations.Health InsuranceWith regard to health insurance inIndia, we are still passing through aphase of retarded growth which isattributable to low awareness ofinsurance as a concept, adverse se-lection of risk due to people insuringat an advanced age, and the con-servative approach of insurers to-wards pricing due to limited avail-ability of statistical data. Further, theinadequate development of health-related infrastructure in the countryhas also pegged the industry back.The industry will have to work onthe education levels of the market toresolve the situation partly. Goingforward, we will evolve into a sce-nario of an independent regulatorfor health insurance but that will bea function of the growth of the marketand the dynamics it entails. Thiscannot be seen happening in the nextfew years.Role of ITWhat makes the life insurance in-dustry different from the other fi-nancial services is the long-term na-ture of the relationship of the company with its custom-ers, often lasting a lifetime. The leaps in technology havehelped us track the relationship with the customer andalso given us the information to analyse the changingneeds/profile of the consumer.Moreover, the life insurance business is highlycomplex with the evolving statutory regulations that ITsystems must deal with. Also with the emergence ofmultiple channels such as bancassurance, corporateagency, and broking, the company’s IT systems need tobe adapted with the systems of the channel partnerswithout compromising the information flow.Some key benefits of technology have been reduc-tion in turnaround time as well as multiple interactionpoints with the customer through emails, facsimile,websites, and ATMs, to name a few, which have resultedin improved disclosure to policyholders.In conclusion, the future in lifeinsurance will be defined by theincrease in pure protection products,a refreshing look at unit-linked planswith rising protection components,launch of customized plans to suitniche requirements, improved posi-tioning and market communicationby players, and last but not the least,improved service levels which willget redefined with every passingday.91Some key benefits oftechnology have beenreduction in turnaroundtime as well as multipleinteraction points withthe customer throughemails, facsimile,websites, and ATMs, toname a few, which haveresulted in improveddisclosure to policyholders.The Indian insurancecompanies are themselvesbeginning to come toterms with the dynamicsof a continent like Indiaand it would be sometime before we can be apart of the globalventures. However, theexperiments in Indiawould act as a referenceframe for our foreignpartners as they makeforays into other nations.VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 101101
  10. 10. The insurance sector in India is nearly 150 yearsold. It is now in the third phase of its existence.The first phase was the long-growth phase beforethe two nationalizations in 1956 and 1971 of life andgeneral insurance respectively. At that point of time,there were more than 200 life insurance companies and108 general insurance companies. They were all privatesector insurers with the exception of one state-ownedgeneral insurer. Several overseas insurers were operat-ing in India through branches. In thesecond phase, the entire sector be-came a state monopoly. In the thirdphase, we now have several newprivate sector players competing withthe large public sector insurers. Basedon the current trends, it seems that,in ten years, the market will haveabout 35 to 40 players, equally dis-tributed between life and generalinsurance sectors. Several large glo-bal insurers operate in India throughjoint ventures. In the short time sincethe market was opened up, a com-prehensive set of legislative instru-ments has been introduced. Rela-tively high capital requirement com-bined with tight solvency norms andthe long lead time for returns haskept the number of players relativelysmall. All the new players are pro-moted by corporates with financialstrength and commitment supportedby reputed global insurers with long standing. Stabilityof the market is, therefore, ensured and customers’ in-terests in terms of security are expected to be well takencare of. Ongoing measures to implement improvementswill no doubt enhance the stature of the market.Health InsuranceHealth insurance has been discussed at length in manyforums. No specialist health insurer has come forwardso far to establish operations in India. Therefore, life andgeneral insurance companies are allowed to transacthealth insurance business. But, they are cautious in theirapproach primarily because of weaknesses in the infra-structure of health sector and lack of reliable data. Thegovernment and the regulator have repeatedly expressedconcern on the lack of growth of health insurance busi-ness. Cross-sector initiatives are needed and these areyet to produce tangible results. The next year or two willhopefully see new initiatives and in-centives to realize the potential inthis sector. Demands for lower capi-tal requirement and solvency mar-gin have been aired during discus-sions. The regulator and the govern-ment are yet to consider these de-mands.CooperativesAnother sector yet to participate inthe new paradigm in insurance is thecooperative sector. This sector toohas sought special dispensations interms of capital requirement thoughit is yet to carry it with convictionto the regulator. Penetration of in-surance in rural areas would involvelow-cost policies. The cooperativesector and the micro-credit organi-zations can play important roles inthis regard.Market SharesIn both the life and general insurance sectors, the newprivate sector insurers have made impressive gains.They hold approximately 13 per cent of the market sharein life new business and a little more in general insur-ance. In several other Asian countries that liberalizedtheir insurance markets, new entrants took much longerto secure even a modest share. It is, therefore, correctto say that the new private sector insurers have doneNo specialist healthinsurer has come forwardso far to establishoperations in India.Therefore, life andgeneral insurancecompanies are allowed totransact health insurancebusiness. But, they arecautious in their approachprimarily because ofweaknesses in theinfrastructure of healthsector and lack of reliabledata. The government andthe regulator haverepeatedly expressedconcern on the lack ofgrowth of healthinsurance business.NEW INITIATIVES IN THE INSURANCE SECTOR:OPPORTUNITIES AND CHALLENGESS V MonyCEO, AMP Sanmar Assurance Company Ltd.Chennai102 INSURANCE INDUSTRY IN INDIA102
  11. 11. remarkably well in the short period of four years.The new entrants in the life insurance sector havedone very well in terms of introducing new products,customer service standards, documentation, IT support,etc. Innovative and perhaps aggressive selling techniquestoo have helped a lot. For instance, competition in groupinsurance has been very severe. Introduction of the ‘unit-linked’ policies has been a significant development. Thisproduct is doing very well. LIC appears to have takentimely hold on the issues and is meeting competitionvery effectively in all key areas such as new products,IT, customer service, innovative distribution relation-ships, PR and publicity, HR, etc. It has also increasedthe emphasis on unit-linked policies. The share of theprivate sector players in the market looks set to growslowly and stabilize at around 25 to 30 per cent.In general insurance too, the newinsurers have come out with thefeatures displayed by the life insur-ers. In fact, in securing profitablecorporate business, the new entrantshave displayed very aggressive prac-tices and there have even been alle-gations of using unhealthy methods.General insurance business is annualin nature and frequency and severityof claims are inherent in the busi-ness. Ability to settle claims quicklyand resolve disputes are matterscentral to the sector. While the pri-vate sector insurers have renderedgood service and gained the confi-dence of the consumer, the publicsector insurers seem to have upset a vast section of theinsuring public at all levels. Consequently, the newprivate sector insurers are able to secure significantshares in the profitable segments leaving the loss-mak-ing ones to the public sector companies. Further, the fourpublic sector general insurance companies are not yetin a state of readiness to meet the new competitioneffectively. For example, the extent to which IT is usedeffectively is still inadequate. Response to customers isreported to be tardy. It is, therefore, likely that themarket share of the public sector insurers declines morerapidly than in life insurance. It is likely to stabilize at50 to 60 per cent.Has the Market Expanded?As of now, significant expansion of the market throughincreased penetration is not in evidence. Whether thesector is growing in absolute terms or whether there ismerely competition for existing business is a matter thatcalls for strategic discussions between the insurers andthe regulator. Specific initiatives would be needed toachieve higher penetration and for moving up the ladderin comparison to other countries. It is necessary toestablish measurable benchmarks that will keep trackof this developmental aspect of liberalization.AwarenessIncreasing awareness is a condition precedent to pene-tration of insurance. Anecdotal evidence and empiricalobservations indicate that awareness of insurance hasimproved substantially. This is at-tributable to the effective campaignlaunched by IRDA and the combinedimpact of sustained wide-rangingpublicity by all 25 insurers. Insur-ance has been in the spotlight at alltimes. This augurs well for futuregrowth.Common IssuesIn the life insurance sector, pubicand private sector insurers seem tobe cooperating well in matters ofcommon interest. Their approach toissues such as benefit illustrations,representations to IRDA and gov-ernment, setting up of the ‘Mortalityand Morbidity Information Bureau,’ are examples of amature approach to important common issues even asthey compete in the field. Comparable trends are yet tobe seen in the general insurance arena. Sadly, there aregaps in coordination even among the four public sectorcompanies.General insurance is a complex business both interms of its fundamentals and operating practices. A keyfeature of the general insurance market is its skewedstructure in terms of rates and terms. More than 60 percent of the business is controlled by a centrally admin-istered rate structure known as the ‘tariff.’ Innovationsin these segments are difficult since policy terms as well93General insurance is acomplex business both interms of its fundamentalsand operating practices. Akey feature of the generalinsurance market is itsskewed structure in termsof rates and terms. Morethan 60 per cent of thebusiness is controlled bya centrally administeredrate structure known asthe ‘tariff.’VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 103103
  12. 12. as prices are externally determined. Competition has tobe mainly on promise of good service and performancethereof. An externally administered regime of rates andterms is inconsistent with a liberalized market. IRDA hasrecognized this but an action plan to move towards afree market rating regime with adequate safeguards isyet to be put in place. This, when it happens, willdetermine the future structure of the general insurancemarket in India. In the public sector insurance compa-nies, fear of runaway competition, their vulnerability interms of observing price discipline, and the conduct oftheir field force and support staff are anxieties thatcannot be wished away. Well-directed measures are yetto be brought about and the public sector insurers appearto be in an unenviable position. The question is whetherthe market should delay structural alternatives becauseof internal rigidities of public sectorinsurers and their inability to enforceinternal discipline.Motor TariffThe issue of tariff rates has a veryimportant dimension in respect ofmotor vehicles insurance that consti-tutes 40 per cent of the business. Con-tinued adverse claims experience ofthe statutory legal liability section ofmotor insurance has posed intracta-ble issues for the companies and theregulator alike. A sizeable part ofthis business relates to the commer-cial vehicle segment that has heavy incidence of claimsfor several years now. Increase in insurance tariff ratesis a crying need; but it is resisted by the lobby of com-mercial vehicles through all possible means includingnation-wide strikes. The insurance industry does nothave reliable data to support a case for any increase. Thishas provided a handle to the owners of commercialvehicles to resist increase in rates. Because of the im-portance of the commercial vehicles sector in the economyand their power to command attention, attempts to in-crease rates have produced only marginal results in thepast. The new private sector general insurers are re-ported to be staying away from this business and thegovernment-owned insurance companies seem to beobliged to carry the load of this portfolio at grosslyinadequate tariff rates. An early solution to this difficultissue will be vital for the health and harmony of thissector. Committees have been appointed and their sug-gestions have been considered but solution is not yet insight due to issues external to the sector. Delay in achiev-ing an early solution can result in structural compulsionsthat may skew the balance of the sector.Customer ServiceIn the short time since the market has been opened, theprivate sector companies have set a completely newparadigm of service in both life and general insurancesectors. All companies have come up with benchmarksfor each aspect of service and also internal measurementof quality. For instance, the structure, content, andappearance of documentation are comparable to any inthe world. Best practices aimed at informing the cus-tomer in a transparent manner haveindeed been brought in. These aremore in evidence in life insurancepossibly because of the long-termnature of the business. Indian insur-ers in the public sector are respond-ing slowly. Regulations have helpedachieve standards of disclosure. Hereagain, in the life insurance sector,both LIC and the new companiesseem to have set high standards insettlement of claims. The generalinsurance sector has shown mixedperformance perhaps due to theinherent nature of the business. Whilethe private sector general insurancecompanies have set good standards for claims settle-ment, the public sector insurers are yet to show resiliencein the changed environment. This is sure to cause furtherdissatisfaction and consequent loss of good business.Though structural inefficiencies are stated as reasons forsuch a situation, the main cause seems to be a pervasiveattitude problem coupled with a need for transparencyin claims handling.IntermediariesSome of the significant requirements introduced by IRDAto promote professionalism among intermediaries relateto minimum qualifications, mandatory training, and pass-ing an examination before a license is issued to an agentor a broker. The number of life insurance agents in themarket has almost doubled to more than a million now.94The general insurancesector has shown mixedperformance perhaps dueto the inherent nature ofthe business. While theprivate sector generalinsurance companies haveset good standards forclaims settlement, thepublic sector insurers areyet to show resilience inthe changed environment.104 INSURANCE INDUSTRY IN INDIA104
  13. 13. There is no evidence yet to show that more agents inthe new paradigm show higher level of professionalismthan those before. The uglier aspects of competition havebeen seen in the training, examination, and consequentlyin the performance of the agents. Drop-out rates are stillvery high and productivity is quite low. Intermediariessuch as agents and brokers from all parts of the countrywill have to play a significant role if insurance is to bespread to all segments and regions of India. The presenttrend does not seem to show significant improvementin the quality of the distribution force to achieve higherpenetration. Insurance agency is not yet seen as a viablecareer in terms of income security and social acceptance.Structure of remuneration, limits imposed by law, flex-ibility of ownership, and transferability of agency aresome of the legal rigidities that stifle the developmentof professionalism among intermediaries. The reportsubmitted by a committee contains suggestions that canbe considered for adoption.Distribution is the key to devel-opment of insurance and achievingpenetration. For the first time, wehave licensed brokers in the marketand their role will expand and de-velop. Increasing importance ofbancassurance is a trend of signifi-cance and in due course will lead tolaunching of products jointly deve-loped by the insurance and the bank-ing sectors. Introduction of corpo-rate agency as a distribution arm hasalso been a development of signifi-cance. Even as these are happening,some adverse developments attributable to misuse ofthe trust reposed by the regulator appear to have raisedconcerns. Corrective measures are being introduced asreaction to lack of compliance. The insurance industryshould observe rules and regulations and avoid a situ-ation where the regulator is obliged to introduce on-the-spot or ad hoc directions instead of looking for systemicsolutions that have a better chance of success in strength-ening the market.Self-regulationIn a healthy development, IRDA has made known itsintention to have more self-regulating bodies for imple-mentation of guidelines and ensuring compliance. TheLife and General Insurance Councils, the ActuarialSociety, the Surveyors’ Association, the Brokers’ Asso-ciation, etc. are examples. These are trusting and maturemoves. Each player in the industry has a major respon-sibility in making a success of this approach. Lack of self-discipline and consequent failure may result in frequentand rigorous regulatory intervention with attendant im-plications.Concluding CommentsThe insurance sector will grow steadily rather thanrapidly. The law and regulations in place are adequateto ensure financial strength and solvency of insurers.The regulator’s challenge lies in monitoring complianceto the several requirements. Delay in taking steps againsterring parties would erode the cred-ibility of regulations and customerconfidence. In these four years sinceopening up, new insurance compa-nies have faced the challenge of con-vincing an average customer that thecommitments under the polices willbe met by the new companies andthat their stability is no less than thatof the public sector companies. Thisdepends to a great extent on the cred-ibility of the regulations and the regu-lator. Early detection of problems andquick solutions are vital for main-taining the confidence of the averageconsumer.In a recent study, Swiss Re mentions that India (andChina) would create ample opportunities for the devel-opment of insurance backed by regulations in line withinternational best practices. Pension business is on theverge of a new set of government initiatives aimed atproviding old-age security to vast segments of society.Developments are expected very soon.The opening up of this sector has been a greatsuccess. There is no doubt that, in a decade, Indianinsurance market will be among the front-runners in theworld.The insurance industryshould observe rules andregulations and avoid asituation where theregulator is obliged tointroduce on-the-spot orad hoc directions insteadof looking for systemicsolutions that have abetter chance of successin strengthening themarket.95VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 105105
  14. 14. The Indian market has a lot of potential for insur-ance products. Some Western markets that wereconsidered saturated are also realizing the mar-ket potential of their middle and lower classes. In India,even the upper class may not have adequate insurancecoverage. India has a population of 1 billion peopleconsisting of approximately 160-170 million families.India’s working population amounts to around .4 billionbut a substantial portion of these work either as landlessagricultural labourers or as casual labour with very lessdisposable income. The LIC issues 20 million new con-tracts every year and has 150 million outstanding con-tracts on its books. Therefore, it maybe concluded that most families whoneed insurance have a minimum ofone life insurance contract. The pro-blem is whether the insurance isadequate or not. And this is wherethe potential lies. Most families inIndia may not have adequate insur-ance. In case of a calamity to thebread earner, the amount that theinsurance company will pay to thefamily members will not be enoughto enable them to maintain a stand-ard of living (albeit lower) than whatthey were used to earlier.Challenges in Marketing Risk-cover ProductsThe distribution of insurance, till recently, has beenthrough individual agents. They may have sold insur-ance more as investment and tax-saving products. Thefeature of insurance cover and its ability to retain thefinancial status of the family in case of the death of thebread winner may not have been emphasized. Thisphenomenon is also seen recently where the sales ofinsurance continue more for savings and tax purposesrather than for pure insurance requirements. The salesof term policies, which offer only a risk cover, form asmall percentage of the total sales of all insurance com-panies. Agents do not push this product as the com-mission amounts are lower than in savings productswhere they are higher. There is also a typical customerrequirement of getting something back on survival thatleads the agent to sell a savings plan. This leads to thephenomenon of under-insurance as the customer be-lieves that he has bought an investment plan and doesnot need to review his insurance needs frequently. Thereality is that insurance needs change as per changes inincome, life stages, and life style of each individual andthese needs have to be addressed frequently. However,the customer treats insurance as an investment planwhich is not revisited leading to the phenomenon ofunder-insurance.Role of IntermediariesThe practice of selling insurance asan investment has perpetuated overa long period of time and is fed byan agent’s obvious need to maximizehis income. Agents will have to beeducated that having a long-termrelationship with clients will resultin much more income than maximiz-ing income in the first sale. With thisrecognition, agents may recommendthe right investment and insuranceproducts that suit the individual’sspecific needs at different stages intheir lives. Building a long-termrelationship is a lengthy and cumbersome process butwith significant long-term benefits. Agents will firsthave to imbibe this behaviour and then convince theirclients that what is being recommended is in their bestinterests. Doing this will require the tailoring of trainingprogrammes to convince agents to manage their clientrelationships in a manner that has the highest pay-offin the long term.Effectiveness of Alternate ChannelsAny channel that is able to achieve the above-mentionedobjectives will be successful and should be a welcomeaddition to the insurance industry. Banks, retailers, etc.have similar advantages — walk-in customers, custom-Most families in Indiamay not have adequateinsurance. In case of acalamity to the breadearner, the amount thatthe insurance companywill pay to the familymembers will not beenough to enable them tomaintain a standard ofliving (albeit lower) thanwhat they were used toearlier.96ARE INDIAN FAMILIES ADEQUATELY INSURED?Nani JhaveriCEO, Birla Sun Life Insurance Company Ltd.Mumbai106 INSURANCE INDUSTRY IN INDIA106
  15. 15. ers used to these establishments andwilling to spend time with theiremployees, etc. Banks as a channelhave had mixed successes in differ-ent parts of the world. Surveys haveshown that different customers havedifferent perceptions about buyinginsurance from banks. Some are com-fortable while some are neither sureof the advice that they are getting norare they convinced that a bank cando a good job of selling insurance.The Indian market can use the entirearsenal that can be made available toit for fulfilling its potential andmaking available the insurance coverthat Indians require.Appropriate RegulationsIRDA has done a very good job of ensuring a smoothtransition from a single player market to a competitiveone. It will continue to have a major role to play in theyears to come in ensuring that each and every Indiancitizen is approached with the right advice to cover therisk to his/her life and protect the family from adversefinancial circumstances. India is a large and populouscountry with a lot of diversty. Innovative distributionchannels should be encouraged and regulations shouldbe such as to facilitate the process of provision of theright advice and the consequent sale of insurance pro-ducts. Certain basic principles need to be defined andas long as these are met, insurance selling should beencouraged. Therefore, regulations governing the train-ing and licensing of agents, the selling process, products,prices, etc. should contain genericprinciples which will allow insurersand their distributors certain leewayin reaching the final customer as longas the basic principles of right adviceand right selling are achieved.Growth StrategyIndia is a large market and has con-siderable potential. Currently, theindustry needs to focus on meetingthe challenges of increasing penetra-tion and achieving the right levels ofprotection for all Indian citizens. Itwill require quite a few insurers toachieve this goal. Products, proc-esses, and procedures need to bedevised and implemented by allcompanies that ensure that, over thelong term, agents are recruited andtrained to sell the right products totheir customers. This will ensure thesuccess of insurers as not only willtheir revenues be higher but also theircosts will be lower due to higherproductivity of agents, their lowerturnover, and higher persistency ofpolicies coupled with higher cus-tomer satisfaction. Putting theseprocesses in place will require time,effort, and capital. The pay-offs willoccur in the long term. The growthrate of such companies will steadily increase over time.Meeting Cost ChallengeIncreasing the distribution reach to less populated areaswill increase the costs of insurers. Such costs will haveto be estimated and priced into the products. Issuesrelating to cross-subsidization may arise. Alternatively,insurers could introduce new products for these specificmarket segments and price them to recover the incre-mental costs of their distribution. Controlling the dis-tribution of specific products through agents has alwaysbeen difficult. Another method of controlling costs byincreasing productivity is to get agents to focus on par-ticular generic products. Historically, this has beendifficult to achieve and may not be in the best interestsof the customer.Contribution of Global PartnersIndian insurers have relied a lot ontheir foreign partners for initiatingbusiness and developing importantpolicies and procedures. Insurancerequires special skills in actuarial andunderwriting and these skills are in-adequate in India. Expertise in theseareas and recent developments inthese professions have been impor-tant knowledge transfers to domes-tic insurers. Further, selling prac-tices and product innovations haveIndian insurers haverelied a lot on theirforeign partners forinitiating business anddeveloping importantpolicies and procedures.Insurance requires specialskills in actuarial andunderwriting and theseskills are inadequate inIndia.IRDA has done a verygood job of ensuring asmooth transition from asingle player market to acompetitive one. It willcontinue to have a majorrole to play in the yearsto come in ensuring thateach and every Indiancitizen is approachedwith the right advice tocover the risk to his/herlife and protect the familyfrom adverse financialcircumstances.97VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 107107
  16. 16. been easily transferred without reinventing the wheel.Developments in risk and performance managementneed not be learnt anew and are being implemented inmuch quicker time-frames than in other countries.Foreign companies have also urged their Indian partnersto adopt the best practices prevalent in other areas ofthe world. Some of these have also been driven bylegislation in the countries of the foreign partners. Goingforward, domestic companies will benefit from the long-term experience of their partners in other countries andwill continue to learn from them in shortening the learn-ing curve.Global Insurance ScenarioThe opportunity for financial services is increasing allover the world. There are still quite a few countrieswhere the penetration of banking, insurance, capitalmarkets, etc. is quite low. There is still some potentialin developed countries especially in their middle andlower segments of the population. Over time, certaincompanies may dominate areas such as banking andinsurance and it is possible that we may have interna-tional regulators to ensure that there is adequate com-petition in each country or region. Big domestic com-panies with significant market shares in their local coun-tries will have the opportunities to commence businessin other markets. New Indian insurers may have to focuson the Indian market in the coming years and consoli-date their position here before they are ready to dobusiness elsewhere.98The evolution of the general insurance industry inIndia can be categorized into three phases. Thefirst phase was characterized by unfettered marketaccess and continued till the early 1970s. The secondphase between 1975 and 2000 was the era of government-controlled oligopolies. The third phase after 2000 is ofliberalization and IRDA was formed to regulate theinsurance industry.The nationalization of the insur-ance sector in 1973 led to the forma-tion of four government-controlledentities with the General InsuranceCorporation (GIC) as the holdingcompany. Between them, the fourpublic sector insurance companiesset up close to 4,000 branches acrossthe country and during the period1973-2000, insurance premiums at thegross level increased from Rs. 2 bil-lion to Rs. 98 billion at a CAGR of17 per cent.In 1999, the IRDA Act was en-acted allowing entry to private sec-tor players. At the same time, theGIC was converted into a nationalreinsurance company. Eight private players commencedbusiness and, today, these players have captured closeto a third of the total market.While the three phases have their own distinctivecharacteristics and the category has grown in each phase,the key issue remains that India is one of the most under-penetrated markets for insurance. While India’s GDP is1.5 per cent of the total world GDP, its general insurancepremiums are only 0.3 per cent ofglobal premiums. Going forward, thechallenge for the industry players isto grow the category by increasingthe width as well as the depth ofinsurance penetration.Market CharacteristicsThe market comprises of a largenumber of products of which pre-dominant are those that are manda-tory. Motor insurance which is statu-tory in nature forms close to 37 percent of the market. Fire insurance isthe next largest and forms 23 percent. Along with fire insurance, en-gineering and marine are the otherINTEGRATED APPROACH:KEY TO GROWTH AND DEVELOPMENTSandeep BakhshiCEO, ICICI Lombard General Insurance Company Ltd.MumbaiIndia is one of the mostunder-penetrated marketsfor insurance. WhileIndia’s GDP is 1.5 percent of the total worldGDP, its generalinsurance premiums areonly 0.3 per cent ofglobal premiums. Goingforward, the challenge forthe industry players is togrow the category byincreasing the width aswell as the depth ofinsurance penetration.108 INSURANCE INDUSTRY IN INDIA108
  17. 17. major corporate products and the three together contrib-ute to 37 per cent of the market.The tariff regulations are another characteristic ofthe market. Notified by an arm of IRDA, tariffs dictatethe scope of the insurance cover and the price at whichit can be sold. Fire insurance, engineering insurance,motor insurance, and marine hull insurance are allcontrolled by tariff. Tariff is essential to ensure that thenew players with their smaller capitalization are ableto compete effectively in the market in face of their muchlarger public sector competitors who have built up re-serves over the years that they have been in operation.De-tariffication is a logical step in the evolution of theindustry as the private sector play-ers build their business lines andattain a balance sheet size that en-sures stability. Motor Own Damageis slated to be de-tariffed in the nextfiscal.Product DemandInsurance is a push product. Insur-ance cover is procured where it ismandated. Motor insurance that isstatutory and fire insurance, whichis mandated by lenders, are cases inpoint. A few others like marine hull, marine transit, andliability policies like public liability also fall into thiscategory.With the liberalization of the economy, the demandfor insurance is growing. Drivers for this growth are:• Investments in industries and infrastructure devel-opment due to:increase in demand for goods and servicesincrease in exports with the globalization of theeconomy.• Growth in retail consumption due to:increase in per capita incomegrowth of retail financing at 35 per cent annu-allyparadigm shift in distribution with multiplechannel optionsupward mobility of the population leading tohigher asset ownership.• Increasing awareness and penetration of certainproduct categories such as liability insurance, healthinsurance, and overseas travel insurance.• Innovative product offerings in the market such asweather insurance offering practical solutions toinsurance needs.Studies indicate that general insurance premiumsgrow between two and three times the growth in GDP.In the context of the Indian market, the low penetrationrates indicate the potential for robust growth in thissector. It has been observed in the developed marketsthat as income levels rise, general insurance volumesincrease at a higher than proportional rate till the marketreaches saturation. Initially, the need for protecting one’shealth builds up leading to an increase in demand forlife and health insurance. With fur-ther increase in incomes, the indi-vidual builds assets and the need toprotect them drives demand for assetpolicies. With increasing awarenesscomes recognition of one’s rightsleading to the demand for liabilityinsurance like professional indem-nity covers for doctors, lawyers, etc.India is still at a stage where chang-ing societal structures are encourag-ing people to take life and healthinsurance indicating the early stageof evolution of the category.Key to Ensuring GrowthThe key to market growth is through an integratedapproach which includes creating awareness aboutinsurance, enhancing reach through cost-effective dis-tribution, and meeting customer needs through productinnovation. A two-fold approach is required whileadopting these drivers of growth: increase the depth ofpenetration in existing product-market segments anddrive the width of penetration leading to market expan-sion by targeting new segments. Given the complexityof the industry, insurers will have to adopt a multi-product, multi-channel, and multi-segment route to themarket to achieve these objectives.Awareness creation must be in line with the creationof distribution reach to ensure that the last mile fulfil-ment loop is closed. The conventional distribution net-work comprises of physical networks of branches (directchannel) and agents tied to the insurance companies. Inthe future, there will be a plethora of channels allowingThe key to market growthis through an integratedapproach which includescreating awareness aboutinsurance, enhancingreach through cost-effective distribution, andmeeting customer needsthrough productinnovation.99VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 109109
  18. 18. the customer to choose which channel he is most com-fortable with. The options include agents, brokers, directfield force, telesales, bancassurance, alliances, and theinternet.With the advent of broking regulations in 2002,brokers have emerged as an important channel in thecorporate segment. Worldwide, brokers control close to80 per cent of the corporate business with the top twocontrolling more than half the total broking market.Bancassurance is also gaining prominence. Nearly60 per cent of the life insurance sold in the Europeancountries is through this channel.Bancassurance relies upon the vastdistribution reach of banks and sincethey are in the business of providingfinancial solutions, insurance ties innicely with the product basket. Theinsurance companies gain throughaccess to an established network, fa-miliarity of channel with financialproducts, and access to capital. Banksgain through an enhanced productoffering, fee income, and better uti-lization of their channels. In Europe,utilities, retailers, and affinity groupsare also emerging as important alter-native channels as they move intooffering financial services to theirloyal customer base.On the retail front, there is ashift worldwide to virtual channelslike telemarketing and the internetwhich offer the twin benefits ofunimpeded reach for the customers and low set-up costsfor the insurer. Most of these distribution channels aregaining prominence in India. As insurers seek to in-crease their market share and provide better service totheir customers, they will increasingly explore thesealternate channels of delivery to provide them with thenecessary flexibility.In addition, most customers who have taken insur-ance of some sort are usually under-insured in terms ofthe potential risks they are exposed to. This applies toindividuals as well as corporates and insurers mustconstantly educate their customers on the need foradequate coverage. There are also a large number ofunderserved segments such as senior citizens, rural mar-kets, and NRIs whose needs are still unmet. The appro-priate product solution delivered through the rightchannels will be the key to penetrate these markets.Insurance products can easily be copied therebylimiting differentiation at the product level. In such ascenario, competitive advantage will be gained throughconstant product innovation, cost effective distribution,and quality of service delivery. This will allow the insurerto differentiate the overall value proposition offered tothe customer and to adopt a pricingmodel based on the perceived valueas against discounting.The effective deployment of ITis a key business driver with its abilityto substantially reduce operating anddistribution costs while providingscalability. The strategic benefits oftechnology programmes such asstraight through processing, enter-prise application integration, andcustomer relationship managementare well known but delivering theexpected ROI on these investmentsis a key challenge. Success in thisarea will be determined by an ap-proach where IT is seen as a businessenabler and where ownership of tech-nology projects also rests with thebusinesses rather than with the ITdepartment alone.ConclusionThe insurance sector is undergoing fundamental trans-formation and has an important part in the build up ofthe country’s economic infrastructure. The insuranceregulator will play a key role in laying down the groundrules and paving the way for the sector’s growth anddevelopment. But the challenge clearly rests with theinsurers to take the industry to its next level of evolution.In India, the ratio of assets of insurance companies tothose of banks is 3 per cent while the ratio in the USis 10 per cent. This serves as another indicator of thepotential that the industry must live up to.100Insurance products caneasily be copied therebylimiting differentiation atthe product level. In sucha scenario, competitiveadvantage will be gainedthrough constant productinnovation, cost effectivedistribution, and qualityof service delivery. Thiswill allow the insurer todifferentiate the overallvalue proposition offeredto the customer and toadopt a pricing modelbased on the perceivedvalue as againstdiscounting.110 INSURANCE INDUSTRY IN INDIA110
  19. 19. The Indian market for insurance is characterizedby the geographical spread fragmented in termsof characteristics, language barriers, 248 millionurban, 300 million middle class, five metros, 30 cities,700 towns, and a large number of villages. The entrychallenges of new players in the Indian insurance sectorhave been related to the timing of entry, the choice ofjoint venture partner, segments to attack, services tooffer, and channels to adopt without violating the regu-latory restrictions.Traditionally, the ‘agency model of selling’ has beenthe most used and preferred channel. For an alreadyestablished company, the modelconfers advantages like focused tar-geting, predictability of businessflow, and ease of management. Tothe newcomers, this model poses itsown challenges in terms of manag-ing talents and costs. They need timeto build the network of agentsthrough recruitment, training, andincentives to enable them to contri-bute to the business. This meansslower coverage and higher costs.The difficulty is compounded by thelack of good talent and trained directsalesforce despite lucrative compensation and incen-tives. This is more so in the rural areas.The key to unlocking the market lies in efficientcoverage of services. The agency model has its ownchallenges as the novelty value is lost fast, natural marketgets dried up quickly, and the referral market needsconviction, salesmanship, and training. The players are,therefore, required to innovate and develop new optionsto enter effectively and create conditions for sustainingtheir entry.Bancassurance Channel as an AlternativeBancassurance has been proposed as an attractive alter-native to the traditional agency model. It has the po-tential to offer ready manpower, customer database, andrelationship banking of the bank but it has its challengesin terms of defining partnership terms, learning, andunlearning. Bancassurance is a format where the insur-ance companies offer their insurance products throughthe distribution channels of a bank along with a completerange of banking and investment products and servicesto a common customer base. It purports to serve theinterests of the bank in leveraging its infrastructure andthe insurance company in quick entry and growth.Potential of the banking channel: Banks have played asignificant role in mobilizing the savings in India andforming the backbone of the Indian financial system.They have penetrated the interiors through their branches.Over the years, the share of bankdeposits in the total financial assetsof households has risen to about 40per cent. This is indicative of theirimmense reach to households andtheir savings. It is estimated that outof a total of 65,700 branches of com-mercial banks, each branch serves,on an average, 15,000 people. Thereare a total of 406 million accountswith aggregate deposits of more thanRs. 10 trillion. Rural and semi-urbanbank accounts constituted close to 60per cent in terms of number of ac-counts indicating the number of potential lives thatcould be covered by insurance with the frontal involve-ment of banks.In addition to the income from the interest spread,the banks have depended on fee-based income by pro-viding services like brokerage and commissions. Theirfee-based income as a percentage of total income hasbeen around 6 per cent. The tie-ups with insurancecompanies to sell the insurance products could be an-other source for fee-based income.In addition to the bancassurance channel, the insur-ance company could also sell insurance policies throughbrokerage houses. IRDA stipulates a minimum require-ment of Rs. 5 million for organizations to set up bro-kerage services. Bajaj Capital and Karvey ConsultantsBancassurance is a formatwhere the insurancecompanies offer theirinsurance productsthrough the distributionchannels of a bank alongwith a complete range ofbanking and investmentproducts and services toa common customer base.101BANCASSURANCE: EXPLOITING AN OPPORTUNITY WITH PARTNERSHIPSRamesh Bhat M R DixitProfessor, Finance and Accounting Professor, Business PolicyIIM, Ahmedabad IIM, AhmedabadVIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 111111
  20. 20. are currently the two leading brokerage houses besidesthe 200 broking houses all over the country.Harnessing the PotentialBancassurance has already been in force in some formor the other. For example, banks have already beenselling personal accident and baggage insurance directlyto their credit card members as a value addition to theirproducts. Banks have also been distributing the mort-gage-linked insurance products like fire and motor vehicleinsurance to their customers. Most of these have beena part of add-on with the existing services and products.They, however, are yet to use their information anddatabase on saving habits of customers to generate theleads for insurance business.Harnessing the potential re-quires that the banks develop com-petencies in using their database ef-fectively. In addition to training inselling, the staff need support inanalytics. They need to integrateinsurance products in their portfolioof products. Given the complexity ofselling the insurance productsthrough the banks, the strategyshould be to maintain the simplicityof products and meet the expecta-tions of the customers. For example,we know that life insurance pro-ducts include term and whole life,pensions and retirement as well assavings plans with risk coverage thuscovering the most essential needs ofthe customers. In non-life basic poli-cies, the personal accident cover, property insurancecover, etc., are being marketed. In bancassurance, giventhe entities involved and the training requirements, theproduct choice portfolio has to be kept simple and couldbe limited to ten products. The main objective behindthis limit is to speed up the training process of the front-line sales personnel with the new products. Given thegrowth in the insurance sector, the banks are expectedto move fast.To the insuring company, bancassurance gives readyaccess to the market but the success of this strategyhinges on keeping the product design simple and inte-grating the partners into the new thinking. The bankingstaff would require training to approach the customerwith a new mind-set. The banks so far have respondedto the demands from customers — for example, makinga draft based on request from the customer, opening ofa new account, etc.As partners, the insurance company and the bankwill have to work on certain preliminaries before enter-ing into this channel of distribution.The Defined SegmentsThrough the bancassurance partnerships, insurancecompanies are catering to the defined segments and aredesigning strategies to sell insurance to them. Forexample, ICICI Prudential has tiedup with Lord Krishna Bank, ICICIBank, Bank of India, Citibank,Allahabad Bank, Federal Bank, SouthIndian Bank, and Punjab andMaharashtra Co-operative Bank tocater to a mix of high-income urbanand rural segments. The fo-reign banks have clients belongingto high-income groups while the do-mestic banks have access to middleincome clients in rural, semi-urban,and urban areas.The Experience So FarThe experience so far reflects mixedresults. It is indicative of the mis-matches among the partners in re-spect of expectations, competencies,and willingness to wait. There havealso been indications of cultural compatibility issues.Two basic models — integrated and introducer — haveemerged:• Integrated model (also known as corporate agencymodel): Here, the bank functions as a corporateagent for the insuring company. The entire businessis taken care of by the trained and licensed staff ofthe bank. It is expected that the bank staff wouldsignificantly leverage client relationship as they arefrequently dealing with the client.• Introducer model (also known as referral model):In this model, the customer has access arrangementwith the bank. Specialized and trained insuranceIn bancassurance, giventhe entities involved andthe training requirements,the product choiceportfolio has to be keptsimple and could belimited to ten products.The main objectivebehind this limit is tospeed up the trainingprocess of the front-linesales personnel with thenew products. Given thegrowth in the insurancesector, the banks areexpected to move fast.102112 INSURANCE INDUSTRY IN INDIA112
  21. 21. company advisers are deployed in the bank branches.The bank’s role remains as that of the introducer.The insurer’s role, however, ranges from being aproduct and service provider to an introducer. Com-missions are generally negotiable. It has been ob-served that the conversion rate is very less and itgets exhausted soon. Database, which is a crucialfactor, is managed through a tele-caller. This ar-rangement continues to generate the leads but hasto be backed by an effective strategy to acquirecustomers.Implementation ChallengesMany insurance companies havestruggled in their initial stages toimplement the bancassurance ar-rangements. Given the network ofbank branches, no insuring companyso far has been able to exploit thepotential fully. It has been a chal-lenging task to develop and nurturethe partnerships.Bancassurance provides the in-surance company an access to a largecustomer base in a short time andallows it to diversify its channel riskand reduce unit costs by addingvolume with fixed overheads. In turn,the insurance company provides sev-eral benefits to its partners like anaccess to a proven, efficient platformwith no implementation risks, world-class best practices, and a full rangeof competitive products.The introduction of bancassurance requires havingappropriate awareness among bank employees and en-suring that they understand its mechanism. This in-volves a change of mindset and developing appropriateculture at the bank level. India had very little experiencein this field and there were no role models. Some com-panies having global experience in this field such asAviva Insurance did not face much problem. However,there is a need to build congruence of interest betweeninsurance selling and retail banking units. Although thiswould take time, yet, they would have to be successfullyintegrated. The lack of networking among rural andsemi-urban bank branches has implications forbancassurance implementation. Complete integration ofbranch network involves huge investments for creatingIT and communication infrastructure.The management of the bank has to also play acritical role in ensuring that the bancassurance modelworks. There is a need to develop effective cross-sellingstrategy and for that the banks need to understand howthe insurance products can be integrated into theirexisting product portfolio. The customer database needsto be structured properly so that it can provide adequateand relevant information which can form the basis fordeveloping cross-selling strategies. It is important forthe insurance company to under-stand questions such as: Are thebanks cross-selling their own pro-ducts? What motivates people? Howstrong are the unions or is the banktraditional? How far can the proce-sses be incentivized and does it fitinto the bank culture?Many insurance companies suchas ICICI Prudential and SBI LifeInsurance have already establisheda banking network. These banks havea strong banking network of theirown which they can leverage forbancassurance mode of distribution.However, this has not deterred otherinsurance companies such as Avivato use bancassurance channel. Avivahad a successful bancassurance trackrecord globally and a distributioncapability well suited to the prefer-ences of customers in the local markets.The other key challenges in implementing thebancassurance mechanism include the following:• It is recognized that salespeople work for incen-tives. So, it is essential to develop and design in-centives and get the bank employees interested inthe same. This also requires working with the financedepartment to ensure that performance is linkedwith the payment of incentives and developing ap-propriate MIS for the same.• Interacting with the operations team and develop-Bancassurance providesthe insurance companyan access to a largecustomer base in a shorttime and allows it todiversify its channel riskand reduce unit costs byadding volume with fixedoverheads. In turn, theinsurance companyprovides several benefitsto its partners like anaccess to a proven,efficient platform with noimplementation risks,world-class best practices,and a full range ofcompetitive products.103VIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 113113
  22. 22. ing a CRM system through which the high networthcases can be closely monitored.• Manpower and structure issues involve creating asingle window concept and, based on this, appoint-ing a dedicated project manager. Finding and hiringsuch a resource is very critical.• Monitoring of bancassurance mechanism by hold-ing regular meetings — weekly meetings to quar-terly review meetings. These meetings are also usedto educate the bank staff and the management aboutbancassurance using presenta-tions and problem-solving ap-proaches.• Top management involvementis critical as the implementationof bancassurance mechanism in-volves developing and inculcat-ing an appropriate culture in thebank. This is also important forcreating an appropriate owner-ship about the scheme.In order to implement the ban-cassurance mechanism, the banksrequire adequate networking amongthe bank branches. This, in turn, requires a substantialinvestment in IT to connect various branches effectively.Particularly, the branches in rural and semi-urban areasremain unconnected. Complete integration of branchnetwork involves huge investments for creating IT andcommunication infrastructure.Due to the proliferation of saving products andemerging investment opportunities in India, thebancassurance faces the challenge of selling insurancethrough the banking channel. The competing returnsfrom other products such as mutual funds posed a majorchallenge to bancassurance. Most of the life insuranceproducts are highly structured and have less flexibilityin customizing them to the specific needs of the clients.However, unit-linked products fit this bill well and thebanks can meet this challenge.In bancassurance system, there are also co-brandingissues and the partnership needed to ensure that theydo not give inconsistent messages and destroy value inthe process. Leveraging on both brands is challenging.The implementation of bancassurance also assumes cul-tural integration between the two partners.Implementing bancassurance requires differentcompetencies and skills. One of the important chal-lenges in this is managing involvement of the bank staff.This is a challenging task as the banks are not approach-ing the customers for business but executing requestsof customers. For example, the insurance companiesthink that target-setting is important for business growthand, for this purpose, the bank and the insurance com-pany need to develop an effective sales management andan organization strategy; there hasto be a joint ownership of targets.Banks have a lot of information anddata on consumers’ saving habits andthese can be effectively used for leadgeneration. For this purpose, thepartners need to develop appropri-ate mechanisms which ensure betteruse of this information.While implementing the ban-cassurance mechanism, insurancecompanies may also experience thedifference in pace with which targetsare achieved and tasks are executed.The partners may move at differentpace. Capturing the market is im-portant as the competition is high. The style of workingin two cultures can be different. Incentive systemsacross various channels are different and these haveimplications for each channel. The gaps can becomevisible and reducing these gaps may require continuousinteraction and training of bank staff.The integrated model partnerships include a wholenew range of challenges such as the challenge of scale,integration of culture, and speed. The banks experiencethe challenge of working with targets and developingnew performance measurements. For this, the responsetime in deploying adequate resources is critical. Sincein bancassurance the partners are going to use techno-logy and database services, there is a concern about howsystematically the relevant information on consumersinteracting with banks is captured. In order to explorethis channel, insurance companies are required to estab-lish a strong leadership, work closely with the bankpartner and develop this partnership, and develop in-novative but simple products. Data mining and CRMapproaches need to be strengthened at the bank level104The insurance companiesthink that target-setting isimportant for businessgrowth and, for thispurpose, the bank andthe insurance companyneed to develop aneffective salesmanagement and anorganization strategy;there has to be a jointownership of targets.114 INSURANCE INDUSTRY IN INDIA114
  23. 23. To gain competitive advantage, the insurance com-panies need quality people in order to sell theproduct to customers. The insurance business istraditionally managed by a large number of insuranceagents who work on a commission basis. Though theseare not the regular employees of the organization, or-ganizational success, however, critically depends on theeffectiveness of these people. Theseagents are expected to promote thecompany philosophy of providingquality advice to customers and sellthe company products. Further, inorder to increase sales, the compa-nies need to expand their businessfrom cities to urban and suburbanareas for which they need to hire andretain agents who can serve in thosemarkets.It is a challenge for any insur-ance business organization to attractqualified and capable persons to joinand work with them to sell insurancein the competitive environment.Agents could enhance the possibilityof success by understanding the needs of the customerand then sell insurance policy to potential customers.It requires capable people who could analyse the finan-cial status and generate confidence among potentialcustomers to accept the advice. However, the turnoverof insurance agents has traditionally been high in thisbusiness. It is posing challenges to the insurance com-panies.Reasons for High TurnoverStigma: The low turnover of agents is owing to manyfactors, the most prominent among them being the stigmaof being an agent in the society. During an interview,a young agent stated:“I have done my post-graduation in management.I earn well as an agent. However,my parents have been requestingme to get regular employment ina company. People do not wantto marry their daughter to meowing to the lower status of theagents in the society. This painsmy parents and me too some-times.”Difficult selling process: Agents areexpected to understand the cust-omer’s needs and sell the productsaccordingly. This process involveshigh level of persuasion and a sus-tained effort for a long period of time.According to a senior manager in aninsurance company, the sale of aproduct follows the ‘rule of five.’ According to him:“Out of every 625 calls, 125 suspects are identified.These suspects lead to identification of 25 prospects.The prospects are intensely pursued with a pres-entation and other analysis for them. These pros-pects lead to five hot prospects. Finally, one of thosefive hot prospects purchases the policy in a givenmonth.”It is a challenge for anyinsurance businessorganization to attractqualified and capablepersons to join and workwith them to sellinsurance in thecompetitive environment.Agents could enhance thepossibility of success byunderstanding the needsof the customer and thensell insurance policy topotential customers.105through appropriate use of technology.It is observed that a customer-focused approachthat fitted in with the bank culture is a critical factor inmaking bancassurance a success. The bancassurancesales are radically different from agency-based sales.Developing an appropriate strategy of sales manage-ment and selection, retention, and training of peopleinvolved in the bancassurance programme is also im-portant. These are required to be strengthened to rein-force and institutionalize the bancassurance processes.The incentives and rewards play a significant role todrive the behaviour of people but this has to be devel-oped keeping in view the bank environment and sen-sitivities.MANAGING INSURANCE: MANAGING THE AGENTSSunil MaheshwariAssociate Professor, Personnel and Industrial RelationsIIM, AhmedabadVIKALPA • VOLUME 30 • NO 3 • JULY - SEPTEMBER 2005 115115