Many new channels have emerged for marketing Insurance products in the world over the past decade. This is not the same as the traditional practice of selling through insurance agents. India is no exception. There are three main channels for selling Insurance products: Direct channels (telesales, agents, etc. Indirect channels, which are bundled with products and bundled with financial services, and Partner channels (Bancassurance or corporates, etc. Bancassurance, a partner channel like Bancassurance, is very popular in Latin America and Europe where these channels account for 70-80% of total insurance business. There has been an increase in India’s interest in alternative channels of selling insurance, which could lead to a significant growth in the urban Insurance market.
The Indian insurance market is experiencing a boom with many foreign insurance companies joining up with Indian banks in order to sell insurance. Private insurance companies are putting up a stiff fight against the public sector companies like LIC (with its four subsidiary companies) and GIC (with its five subsidiaries). Public sector companies are losing market share as private companies develop new channels to enter the market. Although public sector companies have not lost ground in product innovation, their market share is not as high as the industry average.
One option for public sector insurance companies to market their non-life policies is to form a Joint Venture with telecom companies such as Bharat Sanchar Limited (BSNL). The Joint Venture will allow them to sell their policies. There are very low premiums and they can be bundled with rental of the phones. Below is an example:
The cost of a personal Mediclaim policy for 50,000 with National insurance company and 12.24% service tax will be around Rs. 800, and rent a mobile phone for Rs. 399/month. If this amount is not collected in four quarterly premiums, the customer will have to pay an additional Rs. 200 in any four months, and the total bill for those four months could be Rs. 599. A customer wouldn’t mind paying this amount knowing that he/she has a Rs. 50,000.
It is clear that Indian insurance companies are trying to leverage their equity to create new insurance businesses. They are simply capitalizing the equity of their parent businesses to create new insurance companies.
Similarly, banks such as ICICI, HDFC and SBI are trying to turn their banking reputation into insurance.
BSNL, MTNL and other public sector telecom companies are some examples. They have the largest customer base, even in rural markets, and it is a well-known fact that rural customers save on average one third of their income, regardless of their earning levels.
A joint venture would likely result in both parties being in a win-win business situation.