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The Journal Product does not matter, service does by Shri Jagendra Kumar Corporate Head (Trg.) Shriram General Insurance Co. Ltd., Jaipur. ____________________________________________________________________________________________________ While insurance is a price competitive arena, trust and customer service play huge roles in attracting and retaining customers. Excellent customer service is the key to gaining new customers and customer retention. Recognizing their inability to develop truly
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  The Journal      The Journal    32 While insurance is a price competitive arena, trustand customer service play huge roles in attracting andretaining customers. Excellent customer service is thekey to gaining new customers and customer retention.Recognizing their inability to develop truly proprietaryproducts in the fast-moving global environment, manyInsurers are migrating towards the supply of servicesto generate growth. This is a shortsighted strategy.“Services” are knowledge intensive and typically local.This type of business is usually subject to intense localcompetition and cannot easily be scaled up for consistent revenue growth and prot margins. India has a vast potential that is waiting to be tapped and this could be achieved when sufcient competition is generated and it is exposed to the developments in the rest of the world.The insurance sector was, therefore, opened up for privatesector participation with provision for limited foreignequity exposure. We have now seven years experienceof the public and private sector operating together in themarket.Insurers are attempting growth through systemsintegration and services must recognize that their servicesofferings put them into direct competition with someof their best customers – the local systems integrators.It is true that the manufacturer has the advantage of additional margins and proprietary product applicationsknowledge – but the integrator has the advantageof being local and can often defect to competitors’products. With aging technology, many products are becoming commodities - available from several sources with marginally different features and benets. At this stage, the lowest cost producer usually wins. In a globalmarket, requirements change quickly, margins shrinkand remotely based suppliers lose market-share. Today,lots of products have melted away through rapid andwidespread dissemination of the information in theglobal arena. Practical knowledge that produces need based quality products at low cost has now becomea commodity - everyone knows how to do it. In manycases, the western world chased cheap products in theFar East and educated the locals with their knowledgeas part of the project - shortsightedly frittering away thevalue. ASSURANCE Vs INSURANCE: The Concise Oxford Dictionary brings out the subtle difference between the two terms. Assurance refers to those insurance policies which guarantee payment ondeath of the person whose life is insured or on expiryof the prescribed period, whereas insurance refers tothose policies where payment would be made only in theprescribed circumstances - death or accident happening within a specied period. Both Life and Generalinsurance segments are regulated by the IRDA. While the life insurance has nothing to do with Tariffs, generalinsurance market was dominated by tariffs. January 1,2008 heralded the long-awaited de-tariffed or free-pricing regime, lifting pricing restrictions in the motor and re & engineering segments that form about 70% of the general insurance business in India. De-tarifng is the biggestInexion point for the industry since liberalization. Themove comes in the wake of partial pricing exibility introduced in January last year, and will culminate in the impending product-wording exibility from April 2008. Tariffs have long compelled general insurance companies to operate under a xed price band and to stick to policy wordings set by Insurance Regulatory and Development Authority. Further, they didn’t have the liberty to offerincentives to the insured to get covered for specic risks, or to downplay coverage in areas where there is scope toremain self-insured. A SLEW OF CHANGES: Now, with the opening up of the market, a slew of changes are in the ofng: reduced premium prices, increased product customization, focus on risk-based pricing andimproved customer services. With the cap on pricing gone, de-tarifng will bolster innovation and creativity among insurers. Differential pricing is, however, subject to IRDA approval to protect the policy holder’s interests. Players are likely to focus on risk-based pricing, whichwill help insurers make a proper assessment of the risks towhich a client is exposed, and tailor the product to cover Product does not matter, service does by Shri Jagendra Kumar Corporate Head (Trg.)Shriram General Insurance Co. Ltd., Jaipur.____________________________________________________________________________________________________   January-June 2008 33 those risks — at a price compatible with such risks. Thiswill entail substantial investment in risk advisory and riskmanagement tools, technology and systems, and client.So far, players focused on distribution reach, developingproducts and investing in technology, operationsand processes; the game will now shift to productdifferentiation, segmentation, superior customer service and building brand image. Low margins in the corporate sector have forced insurers to turn their attention to the retail space. And de-tarifng will accelerate this shift in focus. The impact will be more pronounced in the motorsegment, which currently accounts for 45% of generalinsurance premiums, as motor insurance is mandatoryfor all vehicle owners and there’s a greater awareness here compared to re & engineering. PSU’S Vs. PRIVATE: Which product should one choose for quick issuance, lesscumbersome documentation, the plans offered and claimsettlement? The competition is between four government-owned companies, and all private players. PSUs suffermainly on account of issuance and settlement of claims. PSUs even have more or less standard plans. Like in health products, while they cover only accident andsickness expenses, hospitalization, emergency (medical)evacuation, repatriation of remains and baggage loss,the private players also cover the baggage delay, loss of  passport, ight delays etc. If there is a delay in take-off   by more than 12 hours, one is given US $ 10 for meals.The premium for a private insurance policy is Rs.5 orRs.10 more than a PSU policy, but the add-ons and thevalue for money is incomparable. New, aggressive playersmight use price as a means to grab market share. Industryplayers point out that this is a common phenomenonwitnessed in several countries that moved to free marketpricing. China, for instance, saw a great deal of blood-letting for two years. However, prices are expected tomove to realistic levels after companies factor in the claim and servicing costs. As the industry matures, customers will learn to pay for the risks they get covered for, and for advice and services. Once IRDA allows companies to rejig terms and conditions of policies, segmentation willincrease. Companies may offer specialized services to caterto high net worth individuals/high-premium customers, and even track customer proles on a one-to-one basis.Niche insurance rms are likely to enter the market. A WIN-WIN SITUATION: It’s a win-win situation for customers. They are in for better bargain as they’ll need to pay only for the risksapplicable to them. For example, in motor insurance,premiums will vary depending on driving, usage andmaintenance records. Insurance is a cyclical industry thatfunctions on demand and supply dynamics, and it willtake anywhere from three to eight years for the industryto stabilize. Margins and premiums may take a big hit in motor and re & engineering in the immediate future. The entry of new players will exert a further downwardprice pressure. Companies are looking at alternativechannels like ‘direct to customer’, the internet andmobiles to reduce operational costs and acquire pan Indiapresence. The introduction of any product or schemeinvolves a lot of research work and market feasibility studies. Before designing the product, an insurer has tomake a comprehensive study of international benets and the various models that are used in insurancemarkets worldwide. In India, they conduct a studyof the consumers’ perception of a product and theirexpectations, the barriers to adoption and options indistribution. Insurers then come up with critical factorswhich may ensure the success of new scheme. DISTRIBUTION PRACTICES: Intermediaries continue to play a pivotal role in distributionfor their access to a larger number of individual andcorporate customers. The need for training, recruitmentand professionalism has become greater, though, brokersneed to help customers sift through the maze of policies.Not many brokers today fully understand the different businesses or their clients’ needs. Many brokers havea ‘chalta hai’ attitude because rates were more or less xed or standardized; now they need to show their competence in specialized services to attract customers.Simple products, on the other hand, may be sold over thecounter. In the UK, 60% of the motor insurance business isdone over the internet and phone. Internet sales will havea limited role due to connectivity issues. Distribution costs need to be one-tenth of urban levels. General insurance companies are expected to play the volume game and expand their base geographically to spread risks. As aresult, rural forays — through NGOs, co-operative banks and government sponsored programmes — will get a llip. The challenge in rural areas will be establishing a cost effective distribution mechanism while maintaining service levels. As the focus shifts to ‘direct to customer’ marketing, branding will play a greater role. SERVICE LEVEL-THE BENCHMARK: In the de-tariffed market service levels has become the benchmark for brand building and brand recall. Onlythose insurers with a strong brand will survive. Customerswill have more room to negotiate for the best price and  The Journal      The Journal    34 they will gravitate towards companies with strong brands.There are 18 general insurance companies right now,with few more slated to enter the market this year. Whilegeneral insurance ad spends are only about 20% that of their life insurance counterparts, it is believed that this gap will come down signicantly. And given the number of  consumer touch-points involved distributors, sales people,call centre executives — from pre-sales to post-sales toclaims to renewals, investments in service standards are bound to multiply as well. Each interaction or experiencehas the potential to build or destroy the brand. INSURANCE INTERMEDIATION: In addition to the growth of insurance market the other area where there is signicant benecial change with the entry of private insurance companies is the area of insurance intermediation. Till two years ago, the onlymode of distribution of insurance products was theagent. The industry have today alternate channels like bancassurance, brokers, corporate agents and directmarketing through internet. Though it is too early topredict, bancassurance has the potential to emerge as a signicant distribution mechanism. Banks have not only data from which they can identify potential clients, buthave also extensive reach and provide a point of contact for the insured. The Bank branch unlike an agent cannot  be elusive after the sale of the product and has to respondto the needs of the insured. If there is proper disclosure at the time of sale of policy and efcient post sale service,there will be signicant increase in the use of this model  by the insurers to enlarge their business. The insurance  broker offers the most efcient distribution systemthrough which clients purchase commercial insurance. As the non-life insurance market opens gradually, the valueof the insurance broker’s role will be better understood.There are increasing opportunities to serve the needs of midsize companies and small enterprises by delivering the specic services these clients need and in the way they want them delivered. In spite of the proliferation of theintermediary channels, the traditional agent continues toplay a dominant role in the sale of insurance policies. CUSTOMER BASED INDUSTRY: While insurance is a price competitive arena, trustand customer service play huge roles in attracting and retaining customers. Learn more about best practices, customer service approaches in car, house, and business insurance. Although the technology is still in its early stages, more insurance agents and brokers are beginningto embrace the concept of online customer self-service. Like their counterparts in the banking and securities worlds, insurance agents and brokers are beginningto offer customers the convenience of accessing their accounts online. By doing so, policyholders can gain access to their personal information and insurance coverage, request changes to policies and download certicates of  insurance-all at the click of a mouse. With his unwaveringfocus on ways in which technology can improve therelationship between customers and insurers, there is anew breed of insurance industry Chiefs - one who strivesto lead the company from a product and line-of-business-centric orientation to a customer-centric paradigm. BUSINESS SOLUTIONS: The detariffed regime has begun in the insurance sector.There is a complete change in the pricing pattern of insurance products in the new regime. Insurance products shall henceforth be priced depending on the risk prole, claims history and the place of operation. Hence, premiumamounts vary from one person to another and alsodepending on the topography. Of course, insurers have reduced rates on portfolios such as re and householder’s policies where the claim ratio is less. Sometimes, softwareproducts billed as “business solutions” really end up being part of the problem rather than part of the solution.Steep learning curves for complex software, along withchanges in process, can generate resistance in the very workers who are supposed to benet from the solutions. Well-focused software products, however, really do solve business problems and are welcomed by users. In theinsurance industry, that translates into better customerservice. Many people deal with customers within theirown companies. Internal customers are those people andemployees who might use your services and products,who reside in the same company. For example thecomputer department and human resources departmentserve internal needs. CUSTOMER RELATIONSHIP MANAGEMENT: Now CRM technology can help improve customerservice and customer contact. Communication withcustomers and marketing often overlap since the samestrategies for communicating effectively with customers also result in good marketing. Here you’ll nd material to help you use information about your customers tocommunicate effectively. More companies are movingtowards supplying self-service to customers to replaceface-to-face-contact. Call centers are often under-staffedand employees are over-worked. Now it has becomeimportant to improve customer service within the callcenter environments.   January-June 2008 35 ULTIMATE CUSTOMER SERVICE: The new generation companies claim to grow by customerservice, and by tuning up technology, training staff, andtackling existing markets. Private players are picking upmarket share from competitors. Most companies haveinformation technology (IT) departments that are criticalto the success of the business. They provide servicesprimarily to internal customers. Find information hereabout how IT and IT employees can improve the servicethey provide to customers. The insurance industry haswitnessed increased convergence and consolidation. Differentiation is difcult as products and services are  becoming commoditized. With technology emerging asthe key enabler and customer expectations increasing,the insurance sector has to rethink the way services are congured and delivered. The nature of the industry demands that records and transactions span a long period. This underscores the need for process efciencies. Insurers also need to address diverse regulatory requirements andcorporate governance demands driven by mandates such as the Insurance Act, 1938. DEMOGRAPHIC CHANGES: Indian insurance industry is witnessing a demographicchange in the country and the younger generation whichis exposed to the outside world demands products andservices which are at par with what is available in theadvanced countries. This is the biggest challenge. Indianinsurance companies can face this challenge and provideservices on par with services provided in the advancedcountries. The regulatory regime is happy to facilitate thisprocess whenever its intervention is required.In addition to the growth of insurance market the other area where there is signicant benecial change with the entry of the private insurance companies is in the area of insurance intermediation. If there is proper disclosure at the time of sale of policy and efcient post sale service, therewill be signicant increase in the use of intermediaries by the insurers to enlarge their business. The new insuranceshopping websites act as online brokers and help inaccess and compare deals offered by various companies,and then pick the one best suited to customers Normal brokers, too, serve the same purpose, but their operationsare largely restricted to high volumes and, hence, theirmain clients are corporate houses and big organizations. Any insurer may have a long-standing dream to design a product that truly is an end-to-end cover for the customerwith the promise of low cost coverage. Why providetreatment to people only when they are sick? Why notpromise them a healthy life instead? It may take sometime to bring up in its current state and to make sureit provides advantage to every stake holder. Insurance companies today are confronted with many challenges: increasing losses partly due to higher costs for claimsprocessing; lower investment revenues due to weakequity markets; and impending loss of market share fororganizations where insurance is not the core business,such as the automotive industry. The claim settlement inPSU companies does take a very long time due to red tape, but private companies have streamlined the process. Inthe detariffed regime, general insurance companies have  been allowed to x their own prices for products offered  by them. Competition among insurers has led to falling prices. But, to zero down on the cheapest deal, one needs to know about other deals too. People want to cover theirfamily, but don’t have the time to run after the agentsof various companies to decide on a product? Internet’sthe way to go for the right selection. With policies andproducts available online, the cheapest deal could be  just a click away. Buying insurance online makes the task easier. For those looking for general insuranceproducts, such as health, home, travel or car insurance,the online version can be a boon in the detariffed regime.Even pension plans provided by life insurers that comewithout any life cover are ideal online plans to buy.Increasing revenue is especially possible by selling morepolicies and selling at lower risks. Insurance companieshave to identify the right customer segments (highpotential, low risk) and to address the right products. Thisalso means reducing time-to-market for new products. At present, most people buy insurance products through an individual agent or a bank. However, these entitiesnormally deal with products of only one company. So,you may not get the right deal at the right price fromthem. It may be too early to say that corporates are jostlingfor space in the health insurance market but they are denitely trying hard to create a niche here. Those taking lead are the life insurance companies and banks. Take themyriad offers in health that have sprung up in the lastfew months— HDFC’s Health Plus International credit card, LIC’s critical care rider and Tata AIG’s insurancecalled Health First. Even ICICI Prudential, Bajaj Allianz has come up with their health products. Their target is to increase revenue and achieve greater protability while lowering process costs and still attracting more customersto the organization. To achieve this, insurance companiesneed to develop new sales channels and offer innovative products. Also, proactive improvements in service and claims management are in great demand.
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