MARKETING PRACTICES OF THE LIC

Marketing Practices of the LIC

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CChhaapptteerr 33

MMAARRKKEETTIINNGG PPRRAACCTTIICCEESS OOFF TTHHEE LLIICC

3.1 Life Insurance – A Brief History 3.2 Life Insurance Business in India 3.3 The Insurance Marketing Scenario 3.4 Marketing Strategy- Concept 3.5 Marketing Policies and Practices of the LIC 3.6 Customer Satisfaction 3.7 Brand 3.8 Background of the Study

3.1 Life Insurance – A Brief History

The origin of Life Insurance is as old as the history of human civilization.

F.J Maclean, in his book,‘ Human side of Insurance’, states that the Sanskrit

term in Rig Veda ‘Yogakshema’, meaning well-being, refers to a sort of social

welfare insurance; the ancient Aryans seem to have developed such a concept

around 1000BC. This view is further strengthened by Edwin W. Kopf in his

treatise – ‘Origin, Development and Practices of Livestock Insurance’. In this

work, he credits India with being the mother of insurance practices, and opines

that insurance has had its development in India and after that it was spread to

ancient Babylon. He refers to the Bridari system of India as the most ancient

institution formed for mutual help of the members during the contingencies of

daily life. He reinforces his views by referring to the Ramayana, the

Mahabharata and other ancient scriptures of the Hindus dating many years before

the birth of Christ. It also finds mention in the writings of Manu (Manusmrithi),

Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra).

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In nascent years, life insurance contracts were more like general

insurance contracts. The insurance policies were issued for a period of one

year and, on expiry of the term, the contracts would be renewed if the assured

survived the term. In the earlier days, life insurance contracts were entered

into, mainly to repay the financial liabilities that arose out of trading,

particularly during overseas trade. Many policies were taken out by the

merchant navy employees to repay debts in the event of any death due to the

ship being captured by the Corsairs mainly at the Barbary Coast. As in the

case of marine insurance, life insurance contracts were also registered at the

Chamber of Assurances at the Royal Exchange, London.

The earliest available record of a Life insurance policy is on the life of one

William Gybbons, a citizen and Salter of London, effected on 18 June 1583.

The policy was procured by Richard Martin, a citizen and alderman of London

and it was underwritten by 16 individuals. This policy is popularly believed to

be the first life policy ever issued. It can be said with certainty that it is the first

known case taken to the court of law for settlement. Life insurance in its modern

form came into practice in 1762 A.D. with the establishment of the revised form

of 'Tonties’ (named after Lorenzo Tonti who coined the basic structure of life

insurance and also known as the father of Modern Life Insurance)- the Society

for equitable Assurance on Lives and Survivorships in London.

3.2 Life Insurance Business in India

The history of Life insurance in India spreads over to 138 years from the

time of the establishment of the first insurance company (1818) to the time of

nationalisation of insurance business (1956). During this period, 377 life

insurance companies were established, of which 323 were of Indian origin and

54 were of foreign origin. Life insurance in its modern form came into India


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from England as far back as in 1818. The first insurance company on Indian

soil, namely, Oriental Life Insurance Company, was started in Calcutta mainly

by Europeans, to help the widows of their community. It was the efforts of

people like Babu Muttylal Seal, Raja Ram Mohan Roy, Prince Dwarakanadh

Tagore, Ramtanu Lahiri and Rustomji Cowasji that insurance cover was

extended to Indian people as well.

As a result of the attempts of the social reformers, the first Indian insurance

company, named, “Bombay Mutual Life Assurance Society”, came into

existence in the year 1870 to cover Indian lives at normal rates. Pandit Ishwar

Chandra Vidyasagar, a well- known social reformer and educationist, founded

the “Hindu Family Annuity Fund” in 1872 in Calcutta to give financial help to

Hindu widows and orphans through annuities. Yet another important Indian

life office was the “Oriental Government Security Life Assurance Company”

established on 5-5-1874 and made to cover the empire of India in 1897.

The Government of India started publishing returns of Insurance

Companies in India since 1914. The Indian Life Assurance Companies Act, 1912,

was the first statutory measure to regulate life assurance business. The Indian

Insurance Companies Act 1928 was enacted to enable the Government to collect

statistical information about both life and non-life business transacted in India by

Indian and foreign insurers including provident insurance societies. With a view

to protecting the interest of public insurance, the earlier legislation was

consolidated and amended by the Insurance Act, 1938, with comprehensive

provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies.

However, there was a large number of insurance companies and the level of

competition was high. There were also allegations of unfair trade practices.

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The Government of India, therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956, nationalizing the Life

Insurance sector, and the Life Insurance Corporation came into existence in

the same year. The LIC absorbed 154 Indian, and 16 non-Indian insurers, as

also 75 provident societies—245 Indian and foreign insurers in all.

Source: Efficiency for Indian Life Insurance after a Decade of Liberalisation

Fig. 3.1 History of Insurance in India


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3.2.1 Life Insurance Density and Life Insurance Penetration

Insurance penetration refers to premiums as a percentage of the GDP,

whereas insurance density (measured in $) refers to per capita premium or

premium per person. The statistics related to LID and LIP at international,

national and state levels, is outlined below.

Table 3.1 Life Insurance Penetration* (in per cent)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

World 4.68 4.76 4.59 4.55 4.34 4.50 4.40 4.10 4.00 4.00 3.80 3.69

India 2.15 2.59 2.26 2.53 2.53 4.10 4.00 4.00 4.60 4.40 3.40 3.17

Kerala N.A N.A N.A N.A N.A N.A 2.54 3.62 2.01 1.99 1.68 0.85

Table 3.2 Life Insurance Density#

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

World 235 247.3 267.1 291.5 299.5 330.6 358.1 369.7 341.2 364.3 378.0 372.6

India 9.1 11.7 12.9 15.7 18.3 33.2 40.4 41.2 47.7 55.7 49 42.7

Kerala (in `)

N.A N.A N.A N.A N.A N.A 1200.2 1937.5 1237.5 1401.5 1398.1 834.2

Source: Handbook on Indian insurance statistics 2011-12, IRDA * Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US

Dollars) # Insurance density is measured as ratio of premium (in US Dollars) to the total population

@ Data relates to financial year.

The Table shows a declining trend in LID at the world level since 2006 and

in India the declining trend is set since 2009 onwards. With regard to Kerala, LID

shows a declining trend since 2008. The figures related to LIP except for 2009

depicts an upward trend at the world level. At the national level, LIP has been

rising since 2001. As for Kerala, there is an unstable movement in the figures of

LIP. These figures exhibit the huge potential for life insurance market at all levels

and thereby calls for a shift in the marketing approach in the insurance sector.

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3.2.2 LIC- Origin and Growth

The Life Insurance Corporation of India, established by an act of parliament

that received the assent of the president on 18th June 1956, came into existence

on 1st September 1956, with its 5 Zonal Offices, 33 Divisional Offices and

212 Branches and 97 sub offices all over India. The Life insurance

Corporation of India was established as a public sector undertaking endowed

with the task of meeting various social and economic obligations for the

development of the country emphasizing its main task of providing efficient

life insurance services to its customers. Since its inception, the Life Insurance

Corporation has been devising plans to achieve the objective of spreading life

insurance business widely and in particular to the rural areas and to socially

and economically backward classes. In order to achieve the objective, the LIC

has opened several branches as well as divisional and zonal offices in different

parts of the country. Since life insurance contracts are long- term contracts and

during the currency of the policy, it requires a variety of services, the need

was felt in the later years to expand the operations and place a branch office at

each district headquarter. Re-organization of the LIC took place and large

numbers of new branch offices were opened. As a result of the re-organisation,

servicing functions were transferred to the branches, and branches were made

accounting units.

Today, the corporation has 8 Zonal offices, 113 divisional offices,

2048 fully computerized branch offices, 1275 satellite offices and the

corporate office with more than 1.16 lakh employees and 11.72 lakh

agents spread all over the country. The LIC’s Wide Area Network covers

109 Divisional Offices and connects all the branches through a Metro Area

Network. The LIC has tied up with some Banks and Service providers to

offer on-line premium collection facility in selected cities. The LIC’s ECS


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and ATM premium payment facility adds to customer convenience in

addition to its customer utilities as on-line Kiosks and IVRS, Info Centres.

The LIC has launched its SATELLITE SAMPARK offices to provide easy

access to its policyholders. The satellite offices are smaller, leaner and closer

to the customer. The digitalized records of the satellite offices will facilitate

anywhere servicing and many other conveniences in the future.

The LIC continues to be the dominant life insurer even in the liberalized

scenario of Indian insurance and is moving fast on a new growth trajectory

surpassing its own past records. From its inception to now, the LIC has

crossed many milestones and has set unprecedented performance records in

various aspects of life insurance business. The same motives which inspired

the forefathers to bring insurance into existence in this country inspire the LIC

to take this message of protection to light the lamps of security in as many

homes as possible and to help the people in providing security to their

families.

3.2.2.1 Business Performance evaluation of LIC (1957-2012)

The performance evaluation of the LIC is undertaken based on some

major parameters like number of policies marketed, sums assured of Policies

marketed, total premium collected , the size of Life fund and the contribution

of the LIC to the exchequer by surplus and taxes., market share of policy in

total premium, renewal premium and new business. These performance

measures pinpoint the effectiveness of the policies and practices followed by

the LIC in the recent past.

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Table 3.3 Growth of Life Insurance Business in Force in India-individual Assurances

Year Number of policies (Crores)

Annual premium (Crores)

Sum assured (Crores)

31.12.1957 0.542 82 1375 31.12.1960 0.746 93 2176 1969-1970 1.394 255 6303 1979-1980 2.204 803 19114 1989-1990 4.034 3812 94408 1999-2000 10.13 24450 534589 2004-2005 16.78 70801 1040809 2009-2010 22.62 104776 2063791 2010-2011 24.05 119771 2334454 2011-2012 25.60 135256 2676010

Source: Malhotra Committee Report January 1994, Various Annual Reports of LIC

The Table shows that life insurance business of the LIC has increased 47

times in 2011-2012 compared to 1957. The rate of increase in annual premium

is found to record an increase of 1656 times while it is 1946 times as to the

size of sums assured of all policies issued. This reflects the effectiveness of the

policies and practices continued by the LIC.

Table 3.4 Size of Life Fund

Year Life Fund (` Crores) Year Life Fund (` Crores) 31.12.1957 378 2003-2004 321759.55 31.12.1960 519.7 2004-2005 385791.21 1969-1970 1552.1 2005-2006 463147.62 1979-1980 5764.2 2006-2007 560806.33 1989-1990 23327.6 2007-2008 686616.45 1999-2000 154043.73 2008-2009 807317.43 2000-2001 186024.75 2009-2010 999517.59 2001-2002 230900 2010-2011 1151200.58 2002-2003 273005 2011-2012 1283990.72

Source: Malhotra Committee Report January 1994, Various Annual Reports of LIC


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The Table presents that the life fund of LIC has increased 3397 times in

2012 against 1957, while it was 6.9 times since the opening of the sector

in1999. The average growth rate of the fund is found to be 18.7 per cent on

year- to -year basis from 2000-2001 onwards upto 2011-2012.

Table 3.5 Contribution (share of Surplus) of LIC to Government and

policyholders

Year

Contribution to government (` Crores) Policyholders

(` Crores)

Surplus 5 Per Cent Surplus Taxes Total

2001-2002 433.25 868.17 1301.42 8231.74 8665

2002-2003 488.10 1258.62 1746.72 9278.90 9767

2003-2004 548.13 1506.26 2054.39 10439.87 10987.60

2004-2005 548.13 1506.28 2054.41 13403.56 13951.69

2005-2006 621.77 3967.75 4589.52 11841.23 12463.00

2006-2007 757.81 4670.80 5428.61 14398.38 15156.19

2007-2008 829.59 3510.45 4340.04 15760.55 16590.14

2008-2009 929.12 3348.48 4277.6 17653.2 18582.32

2009-2010 1030.92 3625.29 4656.21 19587.53 20618.45

2010-2011 1137.62 3973.18 5110.80 21614.72 22752.34

2011-2012 1281.23 4424.78 5706.01 24343.35 25624.58 Source: Marketing Management Techniques of LIC, HG Mishra (2010), Annual Reports of

LIC

The Table presents that the contribution of the LIC not only to

policyholders but also to the government exchequer out of its surplus has been

increasing at an average rate of 11.89 and 11.56 and per cent on a year- to-

year basis.

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Table 3.6 Market share of LIC (in percentages)

Year Total premium Renewal premium New business

2000-2001 99.48 99.99 99.23

2001-2002 99.46 99.98 93.98

2002-2003 97.99 99.60 96.75

2003-2004 95.29 98.55 94.21

2004-2005 90.67 96.18 91.48 2005-2006 85.76 92.82 89.08

2006-2007 81.90 89.02 82.34 2007-2008 74.40 83.42 73.92

2008-2009 70.92 77.43 70.52

2009-2010 70.10 73.64 73.02 2010-2011 69.78 70.49 76.92

2011-2012 70.68 69.91 80.90 Source: Various Annual Reports of LIC and IRDA

3.3 The Insurance Marketing Scenario

The insurance marketing scenario has undergone radical change over the

years. The advent of liberalization and direction of national and international

economies in this direction highlights the growing importance of marketing in

insurance. The untapped market potential can only be tapped by better

marketing strategy and skills. In the field of insurance, ‘Marketing is of recent

origin’. The marketing of insurance is only thirty years old. Recently, the

importance of marketing insurance is greatly felt due to change of

environment. The insurance product is unique in nature due to its special

characteristics. In life insurance, the agent convinces the prospective buyer of

the benefits of insurance policy. There is no constraint on quantity in

supplying the product. Demand creation is more important. Thus, the


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insurance staff have always been exhorting their sales personnel to tap the vast

potential that exists in the market. The consumer has nowhere else to go for

insurance need and he has to buy the product only from the insurer. Marketing

is related to the increase in customer satisfaction and help in creation of new

products to match the growing population having different insurance needs.

The number of new products launched to meet customer needs, the quality of

service to the policyholder, and the improvement in publicity campaigns

consequent upon the adoption of marketing policy are pointers to the importance

of marketing and its ability to enhance the prestige of both the products and the

institution marketing it. It enhances consumer satisfaction and can deter the

onslaught of competitors. Recently, the money market has been invaded by a

number of financial instruments, each trying to tap the savings of the

community. In such a situation, absence of marketing policy would prove to be

a serious handicap and the competitors would be at an added advantage. It is

very clear that the future growth of the Life Insurance Industry in India is linked

to how successfully the implementation of marketing policy is done.

Today, with the advent of liberalization of insurance industry in India,

the competitive landscape of the industry has undergone dramatic changes.

The insurance companies need to become more agile by realigning their

business strategies in line with the demands of the detariffing and highly

competitive scenario of the near future. Liberalization has transformed the

scenario of the insurance industry in India. Along with the competitive

environment, it has enabled better allocation of resources together with

creation of wealth and prosperity for the individual, the community and the

country. The consumers have abundant opportunity to select the best product

for the best price and can also have a choice from a wide range of customized

products in the competitive market.

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3.3.1 Marketing of Insurance

Insurance is basically a specialized service that demands correct

interpretation of risk and proper communication to the customer. This can only

be done through proper marketing personnel and channels. Hence, as far as

insurance business is concerned, it is very important for the companies to have

a strong marketing department along with back office research department. In

many marketing situations, the price is a matter for strategic decision. It is

because of the fact that the price contains images of the quality of the product

concerned. In insurance, there is limited scope to use price as a strategic weapon

for marketing a product. In the insurance business, selling is a persistent process,

starting with the corporate decision to sell a product right through to its post-

sales servicing. This entire process is denoted by the term ‘marketing’, which

includes seven major elements: Market Research and Analysis, Product

Development, Building Effective Sales Force, Advertising, Training, Selling

and Servicing. An insurance company first studies the market before developing

and launching its product so that it can ensure demand for the product in the

market. The company must establish that there is a need for the product that the

product matches the need, that it meets market standards, that it can compete,

and that it should be profitable. Product development teams that include

actuaries, legal experts and insurance specialists and sales staff usually carry out

the function of market research and analysis.

Marketing plays an indispensable role in business. It lays emphasis on

areas such as sensing a product, designing a product, planning a product,

pricing a product, launching a product, product distribution, advertisement

and sales promotion activities, providing sales and after-sales servicing,

receiving feedback from salesmen, and redesigning the product as desired

by customers.


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Philip Kotler says that “ Marketing” entered into the consciousness of

different industries at different times, it spread most rapidly in consumer-

packaged goods companies, consumer durable companies, and industrial

equipment companies in that order. Bankers initially showed great resistance

to marketing but in the end embraced it. Marketing has begun to attract

interest in the insurance industry and the stock brokerage industry, although

marketing is still poorly understood in these industries.

In the mid—20th century, many management gurus, like Peter Drucker,

believed that the purpose of a business is to create a satisfied customer. They

were of the opinion that profit is not the objective, but the reward. This

opinion was formed on the assumption that a satisfied customer is willing to

pay the firm well for its products and services, as the customer would find

‘value’ in them. The value will be created for the shareholders in the form of

profit, when the customer pays the firm a price that is greater than the entire

cost that the firm itself had paid for its product offering. Thus, the value is

created in the market place by customers who perceive value in the firm’s

product offering. Prior to the development of the marketing concept, the goal

of marketing activity was to produce a sale. Profitability was not a major

marketing concern then, as the basic assumption was that the sales volume

holds the key to profitability. The more the sales and marketing people could

sell, the higher the profit the firm could expect, as it spread its fixed costs over

larger production volumes and reduced variable cost per unit as well.

The market place has been undergoing tremendous change over the

years and insurance is not an exception to it. The entire environment of

marketing has radically changed. The customer’s perceptions and needs also

have undergone tremendous change. Business organizations are not also left

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apart from this change process. As organizations undergo change in tune with

changes in the environment, the role of marketing within these organizations

also has to undergo a transformation. It is natural and very well understood

that every business organization should be organised around the latest

information and knowledge- oriented systems for its survival in the modern age.

Besides, they should also be customer-focused, market-driven, networked, and

flexible in their ability to deliver superior value to customers who are

continuously modifying their definition of value. The present-day marketing

concept is radically different from its earlier form, as it involves a total

organisation commitment, pervasive throughout the firm’s operating systems

and culture. In other words, the concept of marketing could not be confined to

the province of a few specialists. Nowadays, it is clear that the traditional

functional boundaries are disappearing. It is a fact that in the mid-1950s, it was

the marketing mix mantra that became the core of all major business

enterprises. By 1980, the concept of Michael Porter’s concept of competitive

forces had become the central theme of market strategy. The decade of the

1990s saw the emergence of the concept of relationship marketing. As

companies headed towards the twenty-first century, solutions became the

buzzword in the marketing lexicon, as the concept of ‘value’ started replacing

products and services in the suppliers’ offering. Similarly, the contribution

margin or the bottom-line profitability has usurped the top-line revenue

management.

Marketing insurance products has undergone radical changes, with the

changes in the world insurance business scenario. The customers are now

more aware and quality-conscious. They are having a say and all insurers must

respond positively even though there are constraints. In the background of the

emerging market scenario in the world economic horizon, the aspect of quality


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management as a strategic marketing tool needs a closer look. It needs

commitment at the top level of the insurance company and involvement and

acceptance at the bottommost level.

Liberalization has been effected with the market-oriented economy,

encouraging genuine competition with the possibility of both the public and

private sectors to co-exist and contribute in the promotion of life insurance

business and increasing the potential of the insurance business. Hence,

marketing is of paramount importance in the face of tough competition. There

will be better scope for the consumer to exercise his choice in an environment

of competition. Quality service and product will prove potential marketing

ingredients. The concept of quality management in the present-day market

situation in the insurance industry aims basically at consumer satisfaction and

hence the insurance market in India must examine consumer satisfaction as the

prime duty.

“Customer satisfaction is no longer good enough to survive in today’s

competitive market place. What is needed is customer delight”- Tom Peters.

These words should be part and parcel of the insurance business also.

Marketing of insurance products can be successful, only if the company

manages the claims effectively and promptly, which will give instant delight

to customers. It is vital and should be within a reasonable time to create a good

image of the insurance company in the minds of policyholders. Systems and

procedures must be devised to reduce the time gap in settlement to avoid

customer dissatisfaction. Occasional absenteeism of the official and staff

employed for claim settlement is an important detrimental feature in the claim

settlement process. Ultimately, it might result in customer dissatisfaction.

Organisational Image will be the acid test of good claims settlement. Hence,

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quality movement in the insurance service industry must address this aspect of

vital operation of insurers. The good image of quick and fairer settlement of

claims will enhance the market share of the business and thereby facilitate the

marketing process.

The prime criterion in measuring the satisfaction of one insured in life

insurance is claim satisfaction. Claims experience is an important factor which

either builds company’s image or erodes forever, which is very difficult to

rebuild, once it is lost. The decision to change insurer seems to be linked, at

least in part, to a satisfactory claims experience. The key drivers of claim

satisfaction are:

Expressing genuine concern

Ensuring that the customer is at ease with the claim process

Giving customers a time line and meeting it

Providing flexible appraisal appointments

Answering all customer questions

Managing expectations regarding the settlement

Returning phone calls

Sharing information between representatives

Providing pro-active updates

Avoiding negotiated settlements

The insurance service sector is producing intangible products and the

very process makes it difficult for easy standardization or measure of quality;

it can be perceived and judged. However, as it is very difficult to apply many

concepts of manufacturing jargons- like Zero Defect concept, in the service

sector while examining the quality concept, we have to apply certain specific

measures to ensure quality standardization in the service sector which will


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prove an important tool of marketing success. The international trend in insurance

is that, while facing the challenge and with financial services converging more

closely, there is more competition not only from the competitors but also from

other financial service providers. Therefore, marketing insurance products now

needs more concerted efforts and logical planning.

3.3.2 Need for Marketing Insurance Services

Like other financial products and services, insurance services also need

marketing plans and strategies due to their special characteristics that

distinguish them from other finical products. In addition, there is an enormous

scope to exploit the potential market and raise the per capita life premium. The

need for marketing insurance services also arises due to the following factors:

Distinct feature of insurance products

The insurance products have a distinct feature where benefits of the

product come at the later date and at times after a considerable time.

Absence of inbuilt demand

The demand, unlike consumers’ products, is not inbuilt in the case

of Life insurance products

Least priority due to lack of immediate yields

The financial services of the insurance sector get the least priority,

as other investments avenues provide immediate yields.

Barrier of belief, traditional culture and religious background

Regarding life insurance, the case is further complicated as, in India,

people have belief, traditional culture and religious background and a

tendency to leave everything to fate. This happens especially in rural

areas.

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Huge untapped rural market

The rural market is still untapped. The insurance sector is yet to

exploit this segment which has vast potential.

Absence of proper financial planning among rural and middle-class people

The concept of proper financial planning, taxation and investment is

still lacking among the middle- class strata.

Misconception on the purpose of holding life insurance policies

Over the period of time, the LIC has come out with multipurpose

better yielding attractive terms insurance policies which certainly

need effective marketing to wipe out the synergic ideas in the minds

of people that life insurance policies are mainly for death hazards.

3.3.3 Scope for Growth of Marketing Insurance Services

The scope for marketing insurance services is vast and thereby marketing

of insurance services needs a re-look. There are a number of impending changes

that are likely to make this sector more dynamic. The Insurance Regulatory and

Development Authority (IRDA) was established in 1999 for promoting,

regulating and strengthening the insurance sector. The following factors may

further induce promotion of marketing activities in the insurance sector.

IRDA aims at promoting the regulating professional organizations

connected with insurance and re-insurance business.

The insurance sector is thrown open to the private and corporate

sector. This will certainly expand the business dimensions.

There is also a move to specify the percentage of life insurance

business as well as general insurance in the rural and social sector.


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With the increased spirit of investment education and awareness,

there are already indications of increased participation.

The yield on other avenues of investments such as banks, other

financial institutions and mutual funds, capital market has come

down and is almost at par with insurance investments. This trend

will further enhance the scope of marketing insurance services.

Service standards are bound to improve and insurance premium

should come down once the insurance reforms take place. With

such a positive development, the marketing scope would further

increase.

The process of privatization may bring in many customer- friendly

insurance products.

The marketing of insurance services would take a new shape, once

banking services, insurance selling and fund management are all

inter-related.

The Budgetary provision has provided additional tax-saving

opportunity to certain specified insurance products such as pension

policies. This will give further fillip to marketing strategies.

3.3.4 Market Analysis

Market analysis is dispensable to the success of insurance marketing

plans. In the absence of proper focusing on the target market, hindrances will

come up. The market for insurance consists of every insurable person. A

person is said to be insurable if he has (i) need for insurance, (ii) the capacity

to pay the price (premium), (iii) good health and sound character (good faith),

and (iv) he is approachable by insurance agents.

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Market analysis is always important from the point of view of knowing

as to why the consumer buys products. What does motivate consumer to take

the decision to acquire a product? Different people buy the same product for

different reasons. For example, an insurance policy might have been

purchased to: (i) to oblige a particular agent, (ii) for saving income tax, (iii) for

taking a loan on property, (iv) for regular savings, (v) for family security,

(vi) for creating an estate, (vii) for peace of mind, and (viii) for expressing

love towards family, properties, etc.

An analysis of the market on the basis of motivation and dividing the

market into various segments becomes helpful in designing new products to

cater to different needs of market segments. Once the market segments are

identified, it will be possible to evolve proper strategy and penetrate the

market for better sales and customer satisfaction. An analysis of market has to

be a continuous activity and not a one-time exercise as the changes in the

environment in the world will require new products, or modification of

existing products to cater to changed circumstances.

Sound marketing is of great importance to the insurance industry and the

importance of market orientation has been now recognized in the industry.

There is always a need to plan for segmentation and penetration of consumer

markets through new products to suit the changing market requirements,

especially in the dynamic environment.

3.4 Marketing Strategy- Concept

Marketing strategy consists in the analysis, strategy development, and

implementation activities in: “Developing a vision about the market(s) of

interest to the organization, selecting market target strategies, setting

objectives, and developing, implementing, and managing the marketing


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program positioning strategies designed to meet the value requirements of the

customers in each market target”

Strategic marketing is a market-driven process of strategy development,

which takes into account a constantly changing business environment and the

need to deliver superior customer value. The focus of strategic marketing is on

organizational performance rather than a primary concern about increasing

sales. Marketing strategy seeks to deliver superior customer value by

combining the customer-influencing strategies of the business into a

coordinated set of market-driven actions. Strategic marketing links the

organization with the environment and views marketing as a responsibility of

the entire business rather than a specialized function.

As marketing sets boundary orientation between the organization and its

customers, channel members, and competitors, marketing processes are central

to the business strategy planning process. Strategic marketing provides the

expertise for environmental monitoring, for deciding what customer groups to

serve, for guiding product specifications, and for choosing which competitors

to position against. Successfully integrating cross-functional strategies is

critical to providing superior customer value. Customer value requirements

must be transformed into product design and production guidelines.

Success in achieving high-quality goods and services require finding out

which attributes of goods and service quality drive customer value.

Marketing strategy is most effective when it is an integral component of

corporate strategy, defining how the organization will successfully engage

customers, prospects, and competitors in the market arena. It is partially derived

from broader corporate strategies, corporate missions, and corporate goals. As the

customer constitutes the source of a company's revenue, marketing strategy is

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closely linked with sales. A key component of marketing strategy is often to keep

marketing in line with a company's overarching mission statement.

3.4.1 Marketing Strategy for Insurance

A strategy may be referred to as decisions relating to the future of an

organisation. A strategy is basically a long-term plan. It is the conscious and

rational management exercise, of which the perspective is provided by what an

organisation intends to do and it is the pattern of an organization’s responses to its

environment over time. In essence, strategy determines what the nature of the

entity is or will be, and/ or will reach the state of being. This involves deciding

the basic goals and objectives of the organisation, the major programmes of action

to reach these goals and objectives, and the major patterns of resource

allocation to relate the organisation to its environment. Functionally, strategy

may be said to provide a broad concept of the firm’s business; it sets forth specific

guidelines by which the firm can conduct its search, and supplements the firm’s

objectives with decision rules which narrow the firm’s selection process to the

most attractive opportunities. In a nutshell, we can say that strategic planning

provides direction and all operational plans are derived there from. Hence,

strategic decisions are primarily concerned with the external rather than the

internal problems, and more specifically with the selection of the product-mix

which the firm will produce and the markets to which it will sell.

Strategic decisions are different from operating decisions which relate to

day- to- day activities or current operations, e.g., resource allocation among

functional areas and product lines, scheduling operations, monitoring performance

and applying controls, all aimed at maximizing profitability of current

operations through pricing and marketing policies, production planning and

scheduling, inventory management and control.


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Proper and well-planned marketing strategy is a prerequisite and is

indispensable for successful insurance business. It is very vital to identify the

particular want, which your insurance is fulfilling, since this will provide the

clue for designing the most appropriate marketing strategy. Marketing

strategy for insurance needs methodical planning and meticulous analysis, so

that it can elicit the best result. As in the insurance business, selling is a

persistent process, starting with the corporate decision to sell a product right

through to its post-sales servicing. In the case of insurance, the delivery

system is more complicated than in most other services. Hence, at the time of

buying the policy of insurance, the coverage has to be clear, complete and

specific. Otherwise, when the event insured against happens, it will be

noticed that the warranted exclusions, declarations, etc., have nullified the

intended arrangement. In fact, systems have to be developed to ensure that

both the insured and the insurer have the same understanding about

what is on and what is not. Any kind of misunderstanding will jeopardize

the entire process. The second stage of the delivery system is at the time of

making the claim. Marketing strategy for insurance will only be called

successful when the system of the insurance company automatically delivers all

the details and instructions so that the benefits of the coverage become available

as promised. It is important that the marketing strategy should also make

concerted efforts towards avoiding failure to deliver the promise. In a nutshell,

commitment to promise should be adhered to at any cost to make marketing

of insurance successful.

3.4.2 Marketing Strategy in Life Insurance Business – A Process

The process of marketing strategy formulation and implementation

comprises strategic situation analysis, designing marketing strategy, marketing

program development and its implementation and management process. The

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strategic situation analysis considers market and competitor analysis,

market segmentation, and continuous learning about markets. Designing

marketing strategy examines customer targeting and positioning strategies,

marketing relationship strategies and planning for new products. Marketing

program development consists of product, distribution, price, and promotion

strategies designed and implemented to meet the value requirements of

targeted buyers. Strategy implementation and management consider

organizational design and marketing strategy implementation and control.

The marketing strategy as a process is presented below. It consists of

Strategic Situation Analysis (SSA), Implementing and Managing Marketing

Strategy (IMMS), Marketing Programme Development (MPD) and Designing

Marketing Strategy (DMS).

Source: Dinesh Kumawat (April 2012)Marketing Strategies in Life Insurance Business

Fig. 3.2 Process of Marketing Strategy


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3.4.3 Important Ingredients of Insurance Marketing Strategy

The following special characteristics of Life Insurance products should

be borne in mind at the formulation stage of marketing strategy.

It is to be understood that a product bought in insurance is the

promise as understood by the customer. The delivery system in

insurance is more complicated than in most other services.

It is to be ensured that the product bought by the customer is the

same as the product sold by the agent of the insurer.

At the time of buying the policy of insurance, the coverage has to be

clear, complete and specific.

The insurance product exists at the time of claim. Therefore, the

product of insurance comes to light only at the stage of the claim.

What happens at that stage clarifies what the business of insurance

is.

It is a fallacy that people believe that the insurance company will

compensate them fully for the loss and the loss is equal to the cost

of repair or replacement. This does not happen. There is a deduction

for depreciation. The deductions made in the claim, because of

understatement of the insured value, also comes as a surprise to

many people.

Marketing strategy for selling insurance products should take this

fact into consideration that the customer buys the promise offered.

That is, the policy will meet his needs and the promise will be

redeemed, when the time comes. The promise is made by an agent.

Thus the agents’ role is important. That is, if he is trusted, the

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purchase of the insurance product will be likely to take place;

otherwise, hindrances will be there. Further, when devising

insurance marketing strategy, it is imperative to understand that

what is bought by the customer is what the agent recommends.

Hence, his skills and knowledge play vital role in selling and

developing market for insurance products. Thus, in a nutshell, the

role of intermediaries in promoting insurance product is of

paramount significance. Hence, marketing strategies should focus

properly on making the role of intermediaries highly effective.

3.4.4 Role of Marketing Strategies in Life Insurance Business

The key objective of an organization’s marketing efforts is to develop

satisfying relationships with customers that benefit both the customer and the

organization. These efforts lead marketing to serve an important role within

most organizations and within society.

At the organizational level, marketing is a vital business function that is

necessary in nearly all industries, whether the organization operates as a for-

profit or as a not-for-profit concern. In the case of for- profit organisations,

marketing is responsible for most tasks that bring revenue and, hopefully,

profits to an organization, and for not-for-profit organizations, marketing is

responsible for attracting customers needed to support the not-for-profit

mission, such as raising donations or supporting a cause. In the case of both

types of organizations, it is unlikely that they can survive without a strong

marketing effort.

Marketing is also the organizational business area that interacts most

frequently with the public and, consequently, what the public knows about an

organization is determined by their interactions with the marketers. For


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example, customers may believe a company is dynamic and creative, based on

its advertising message.

In a broader sense, marketing offers significant benefits to society such

as development of products that satisfy needs, including products that enhance

society’s quality of life, creation of a competitive environment that helps

lower product prices, development of product distribution systems that offer

access to products to a large number of customers and many geographic

regions, building demand for products that require organizations to expand

their labour force, and offering techniques that have the ability to convey

messages that change societal behaviour in a positive way.

3.5 Marketing Policies and Practices of the LIC

A well- planned marketing approach is very essential for the effective

functioning of any service organisation. A consumer-oriented marketing

policy is essential to achieve its goals. The need for developing a consumer -

based marketing approach was recognized by the LIC very late. Until 1982,

the LIC was purely a sales organisation and its marketing approach was

oriented to the needs of the corporation than to the needs of the consumer. As

branch offices were acting as mere business procuration centres and division

offices dealing with the servicing aspect, there had been delay in servicing the

policyholders. There was no clear-cut market segmentation policy in the LIC

targeting the specific needs of various customer groups.

The LIC started adopting marketing approach since 1982. The first step

towards this was decentralization of LIC operations up to the branch level.

Almost all aspects of policy servicing are now entrusted with branch offices as

a result of the decentralization process that enabled to avoid delays in policy

servicing and moving closer to the customers. While the marketing functions

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as identifying the prospective customers and motivating them to take policies,

policy registration, policy servicing, sales force management, settlement of

claims, etc., are entrusted to the branch offices. Functions like market

research, advertising and publicity, and marketing planning are reserved to the

corporate office. The reorganization scheme of the LIC provides that “the basic

change in the concept of the organisation from a sales organisation to a

marketing organisation requires a scientific approach to its sales techniques. The

marketing policies of the LIC have been defined in this light as given below.

“As a national organisation (the LIC has) to provide optimal financial

security, through life insurance, as extensively as possible, to diverse

populations in urban and rural areas, with different occupations and sources of

income and in high, middle and low income levels, more especially, the

economically weaker sections”.

To achieve the objectives listed above, the goals are spelt out as follows:

(i) Bringing about a marketing approach at different tiers of the organisational

hierarchy.

(ii) Better penetration into rural areas and market segments of urban and

rural areas that were hitherto inadequately explored.

(iii) Offering adequate range of products suitable for different segments of people.

(iv) Improving customer satisfaction by ensuring need- based selling

by evolving standards of performance for different aspects of servicing

by devising appropriate procedures and systems, and

by enhancing the commitment to service on the part of agents and

employees


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(v) Developing a dynamic field organisation

with a good geographical spread over all parts of the country

capable of selling and servicing with knowledge, skill and

responsiveness to the customers’ needs

with a low rate of interest, and

with increasing productivity levels

(vi) Improving cost effectiveness by

ensuring a high rate of conservation of business

lowering procuration and servicing costs

optimizing the product mix

higher productivity in the field and in the office, and

by improving the quality of supervision and control over personnel

and practices.

The LIC has established marketing departments at various levels, i.e.,

Central, Zonal, Divisional and Branch levels, to achieve the abovesaid

marketing objectives. Identification of market segments and finding a suitable

strategy to serve the needs of each segment is unavoidable to serve better

different groups of the community.

The LIC has identified the following segments for the purpose of its

marketing, such as professional and managerial group (PMG), regular income

group (RIG), e.g. clerical, sales, service, production, transport and others; self

employed group (SEG), e.g. cultivators, traders, farmers, fishermen, etc;

agricultural labour group (ALG) , salary savings scheme (SSS) and group and

superannuation schemes (GSA).

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The market segmentation was done to determine the market potential of

each segment, to determine the marketing strategies and field organisation

needed to achieve the targets, and to estimate the total resources required to

achieve the planned level of performance.

Consequent to the adoption of the marketing concept in place of the

sales concept, the LIC has made remarkable improvements in the development

of products, pricing of policies and promotion and distribution strategies. The

business performance of the LIC also improved after the introduction of the

reorganization scheme. The service quality of the organisation has improved

to a great extent during this period by transferring all the servicing functions to

Branch offices.

Even the need for marketing approach is recognized by the LIC very late.

There is a widespread feeling that the importance of marketing orientation is not

realised throughout the organisation, particularly at the grass roots level. The

existing environment in the insurance sector is competitive and there is a

great need to continuously review its marketing operations and identify the

deficiencies existing in the present set up. Keeping this in view, an attempt is

made to review the marketing of the LIC services from the point of view of

its marketing mix elements, from the perspectives of policyholders and LIC

agents, that are being used in implementing its marketing programmes.

The analysis of marketing policies and practices of the LIC intends to

identify the effectiveness of strategies pursued and satisfaction of customers

on the products and services of the LIC in terms of its marketing mix

elements. Marketing is an art which necessitates creative marshalling of all

marketing activities taking into account the short- and long- term interests of

the firm. In essence, a marketer is a mixer of ingredients who blends various


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marketing activities in such a way that furthers the interests of the firm. The

crux of any marketing strategy is to bring about the desired operations in

the light of prevailing circumstances. The strategy basically involves the

utilization of the available tools, and their planned manipulation to get optimum

results in a limiting environment.

3.5.1 Marketing Mix for Insurances services

“Marketing Mix” has its origin in single P (price) of microeconomic

theory (Chong 2003). The concept of marketing mix was first used by N.H

Borden (Harvard Business School of America). It was suggested to him by

Culliton’s (1948) description of a business executive as a “mixer of

ingredients”. Mc McCarthy (1964) refined Borden’s idea further and defined

marketing mix as a combination of all of the factors at a marketing manager’s

command to satisfy the target market. He regrouped Borden’s 12 elements to

four elements or 4 P’s-the most popular framework suggested by him -

Product, Place, Price and Promotion. Considering the special characteristics of

services and activities in service firms, a seven Ps framework has been

proposed by Booms, B.H. and Bitner, M.J. The additional 3 Ps in this

framework refer to activities that are essential to meet the challenges posed by

intangibility, service provider-customer interaction, and customer involvement

in service consumption and production.

Marketing mix is an important tool used by the marketing manager in

formulating the marketing planning to suit the requirements of the customers.

It is a tool used to ascertain the needs, tastes and preferences of the customers.

In the words of Borden, “Marketing mix refers to the combination, the

designing and the integration of the elements of marketing into a programme

or mix which, on the basis of an appraisal of the market forces, will best

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achieve an enterprise at a given time” (Pillai R.S.N and Bagavathi, 2004).

Jerome McCarthy defines that “marketing mix is a pack of four sets of

variables, namely, product variables, price variables, promotion variables and

place variables”. (Varshney, R.L and Gupta, S.L., 2004). Marketing mix is not

a scientific theory, but merely a conceptual framework that identifies the

principal decision-making managers make in configuring their offerings to suit

the consumers’ needs. The tools can be used to develop both long- term

strategies and short-term tactical programmes (Palmer, 2004). The proportions

in the marketing mix can be altered in the same way, and they differ from

product to product (Hodder education). The service marketing mix is as follows:

Table 3.7 Service Marketing mix elements

Product Service core, levels, additional services, branding Price Price, discounts, terms of payment Place Location, channels of distribution, coverage Promotion Advertising, promotion, publicity People Customer-provider relationship, training, culture, skills, attitudes Process Activity sequence, quality management, customer participation,

delivery process Physical Evidence

Ambience, appearance, equipment, machines, buildings, physical facilities

Source:NASIT, Alpsh A (2011)An Empirical Study on Marketing Strategy of Telecom sector in Gujarat State

3.5.1.1 Marketing Products (Life insurance plans) of the LIC

Marketing insurance products/plans is very difficult due to their

complexity. It is rightly said that insurance is sold and not bought. The product

is a bundle of satisfaction. It is the attribute to satisfy the needs. Since need is

a feeling lacking something, the product must fill that gap to satisfy the

customers. The feeling may be related to attributes, benefits, ideas and the


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concept itself. Product is defined as indicating that “consumers are not really

buying a set of attributes, but rather benefits that satisfy their needs”. It is

more than a tangible good. “A product is a set of tangible and intangible

attributes including packaging, colour, price, quality and brand, plus the

seller’s services and reputation. A product may be a good, service, place,

person or idea. Consumers are buying much more than a set of physical

attributes when they buy a product.” Product has also been emphasized by

Philip Kotler – “A product is anything that can be offered to a market to

satisfy a want or need.”

A product is a physical unit or a service or some combination of a

physical unit and service. Simply, a product is anything that can be offered to

a market for attention, acquisition, use or consumption that might satisfy a

want or need and includes the physical product features, service quality,

packaging, branding, warranties, and other accessories, which form a part of

the service product. It includes physical objects, services, persons, places,

organisations and ideas. A service product refers to an activity or activities that

the marketer offers to perform, which results in satisfaction of a need or want

of predetermined target customers. In other words, a service product is a

managerial decision concerned with what service will be provided, when they

will be provided, how they will be provided, where they will be provided, and

who will provide them. Life insurance is a service-oriented product offered to

people to satisfy the need to cover risk on human lives. In a nutshell, a product

is the offering of a firm in the form of activities that satisfy the needs of

people.

The critical issue in the service product is understanding what benefits

and satisfaction the consumer is seeking from the services. The marketing of

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services can be a success only when there is a match between the service

product from the consumers’ view point and the suppliers’ view point. The

vital issues involved in service product decisions include development of

service products to match customer needs, product line decisions, product mix,

branding decisions, packaging decisions and servicing decisions.

The big difference between life insurance products and other type of

consumer products has been very succinctly explained by Philip Kotler, in

whose terms insurance is a package of unsought goods. It is the marketing

methods that distinguish physical products from insurance products. Those

who market the life insurance products, therefore, become a very important

factor. The Indian experience shows that many new and innovative products

conceived and introduced by the Life Insurance Corporation of India failed to

take off because the commission rates offered to the agency force for selling

these products and the incentives offered to the development officers were

both not very attractive to them. One of the major reasons for pension products

not being sold is only the lack of attraction for the commission rates and

incentives to the agents and development officers of the LIC of India. It is

always to be kept in mind that “Life Insurance is seldom bought. It is always

sold”.

The products offered by the LIC are referred to as policy or plan. The

main purpose of offering an LIC policy is insurance coverage to the life of

individuals. However, certain associated benefits like savings, income tax relief,

financing for personal and housing needs, social security in the form of pension,

welfare aspect in the form of education, medical benefits, performance of

marriage, etc., are also included in the total package of product offered to

different segments of customers. The product decisions of the LIC are related


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to issues as product lines, product mix, features of each LIC plan, and life span

of LIC plans, product development process and performance of LIC plans, and

the product concept can be understood in terms of product levels, product

hierarchy, dimensional product concept and product classification.

3.5.1.1.1 Product Levels

“Product” should be understood with its different levels. Each level of

product satisfies some specific needs of the people. The LIC must understand

that each level of product has its significance. It has been divided into five:

core product, basic product, expected product, augmented product and

potential product. The five product levels, as described by Kotler (2006), can

be used to elaborate the concept of insurance marketing or, more specifically,

life insurance marketing.

At the first level, the core benefit of life insurance services is getting risk

coverage against a particular financial loss occurred, that involves the marketing

activity of service designing. At the second level, the basic service is a written life

insurance contract in the form of a life insurance policy to protect the particular

risk, which provides the legal framework of the contract. It involves the marketing

activities of formulating the insurance contract and designing the insurance

policy. At the third level, the expected service is the settlement of the claim. At

the fourth level, the augmented service fulfils the investment need of the customer

as it provides a certain benefit against the insured amount of the policyholder. In

addition to this, augmented services may include advice, personalized service,

flexibility of terms and conditions, auxiliary and additional services and automatic

renewal of the policy and so on. Finally, at the fifth level, the potential services

may include providing various financial facilities to the customers such as getting

tax exemption, acting as a guarantor, etc [Rahman & Khondkar, 2000].

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3.5.1.1.2 Product Hierarchy

Product is stretched to satisfy various needs of customers. The Life

Insurance Corporation of India has developed the product under seven

hierarchy, i.e., family need for example whole life assurance policy, Jeevan

Anand, investment need e.g. Endowment policies, Money Back policies,

multipurpose policies, deferred annuities, modern products such as Jeevan

Shree, New Jeevan Shree, Samiridhi, Jeevan Saral, etc., saving need, old-age

need e.g. Bima Nivesh, Endowment Assurance, Bhavishya Jeevan, and Jeevan

Sanchay, readjustment needs e.g. Endowment policy and triple benefit

policies, and special needs, e.g. The special products for children’s benefits are

Children’s deferred traditional product and new products. The traditional

children’s policies are Children’s Deferred, Children’s Anticipated Policy,

New Children’s Deferred and Children’s Money Back. The new products for

children are Jeevan Balya, Jeevan Kishore, Jeevan Chaya, Jeevan Sukanya and

Bal Vidya and clean up needs Multipurpose policies and Capital Redemption

policies.

3.5.1.1.3 Dimensional product concept

The concept of life insurance product can be approached from three

dimensions as illustrated below.

Managerial Dimension

A Product has certain explicit characteristics as core specification, related

services, and package and brand, product mix and product life cycle. The core

specification includes shape, size, materials and colour. It is physical shape,

nature of the product, service and/or an idea. The related services include

services as a part of selling agreement, viz., installation, repair service, operation

instruction. Packaging is an essential part of the product as it satisfies some


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needs of the consumers. Product mix is the particulars of product in relation to

the other products from the same seller. The sales of a product follow a general

time pattern from the slow growth, faster growth, slower growth, peak and

decline. It is known as product life cycle (PLC). The core specification

incorporates two basic level products, i.e., Whole life and Endowment.

Consumer Dimension

A product is viewed by consumers from certain angles such as

symbolism, communication, perception, evaluation and so on. The consumer

symbolizes the functions, meaning and purpose from different angles.

Communication is symbol, information interaction, feedback and culture. It

discovers the profitable message of the product to convey to consumers. A

product is evaluated by the consumer. The degree of satisfaction of a product

depends on the evaluation process. It considers the relationship between the

anticipated reward of a product and the effort necessary to reach it. In India,

consumers of life insurance have no proper perception of life product and they

purchase under compulsion. It is sold and not bought. There have been many

environmental factors that have prevented life insurance consciousness, e.g.,

literacy, low income, occupation, presence of joint family system, etc.

Social Dimension

The societal dimension evaluates whether the product has adverse

effects on people’s health and characteristics. Sometimes, it conflicts with

the other two dimensions. Societal dimension includes impact of the product

on the environment, society and consumer welfare, claims on resources,

safety to users, product-related information and government regulations. The

LIC has used the societal dimensions by issuing policies to weaker sections

too. By its investment, the LIC has approached a large number of population.

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Even though there is no direct realization by people, the infrastructure

development, industrial development, financial institutions and government

have been highly concerned primarily with product management. The LIC

has contributed significantly in this area through products for weaker and

underprivileged sections and several products for substandard lives.

3.5.1.1.4 Product Mix of Life Insurance Corporation of India

The product mix of the LIC can be viewed from different angles. The

policy offered to each individual can be regarded as specific product

version as the features of the policy should be adjusted according to the

needs of the customers. The important attributes that create different

product versions are: (i) age of proposer, (ii) sum assured, (iii) mode of

premium payment, and (iv) difference in service package like accident

benefit bonus etc. In simple terms the product mix of the LIC may be broadly

classified into four categories namely whole life, endowment, term, children,

money back and pension plans.

3.5.1.1.5 Product & Brand Mix Strategies

Product mix strategies include width, length, depth and consistency.

Width indicates how many different product lines are there in the organisation.

The life insurance provision is the primary product line of the LIC, which has

been extended to include many benefits of investment, education and marriage

provisions, old age pensions, periodical returns, etc., to denote the width of life

insurance product line. The length of the product mix includes the total

number of lines in the mix. The total number of tables of the LIC reveals the

length. The depth of the product mix refers to the number of items within each

product line. The whole life policy is divided into whole life limited policy,

convertible whole life policy and so on. Consistency refers to the relationship


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between the company’s various product lines, in terms of common use,

distribution outlets, etc. Life insurance has consistency with bank deposits,

pension provisions and death claims. It has been extended to serve the

customers through loans and surrender value provisions. It is related to

product mix decision, i.e., entry and expansion of the market. Product mix

sometimes means altering product policy at the product item level, i.e., what

products to add, modify, or drop. Product mix strategy is a dynamic

phenomenon as the market changes every time. It maximizes sales growth,

sales stability and profit.

Product Mix Strategies have been divided into four categories using

two factors for analysis i.e. related product and same brand. The LIC has

adopted them as under.

a) Related Product and Same Brand: The whole life policy is the brand

and the related products are limited whole life, convertible whole life,

and so on. Similarly, endowment brand has different related products

such as limited endowment, and anticipated endowment. The related

product and the same brand could not increase faster than the other

products.

b) Unrelated Product and Same Brand: Under this strategy, the brand is

the same but products are not closely related, as under endowment

policy brand. There are multi-purpose policy, money back policy and so

on. The money back policy could not be sold at greater speed than other

products.

c) Related Product and Different Brand: Under this strategy, the product

remains the same but brands are different. The LIC has issued different

brands (Policies) for the same product of Children’s Endowment

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Assurance. Jeevan Kishore, Jeevan Komal, etc., are the different brands

of the one product, i.e., children’s endowment. Under children’s product,

the different forms of policies, i.e., Marriage Educational Annuity and

Children’s Money Back, have increased. Similarly, under new products

for children benefits, Jeevan Kishore and Jeevan Chaya have increased

by more than three times.

In this classification, children’s policies have been related products and

the different brands are Marriage/Educational Annuity, Money Back,

Jeevan Kishore, Jeevan Chaya, and so on.

d) Unrelated Product and Different Brand: Under this strategy, the

brands and products are different. They are unrelated. The LIC has

recently launched different products apart from insurance, such as

Mutual Funds, Housing Loan, and so on. There are different brands such

as LIC Mutual, LIC loan, Jeevan Rekha, Bima Plus, and so on.

3.5.1.2 Pricing Policies and Practices

Insurance is a contract under which the insurer promises to provide

economic and social security in consideration of the premium payment by the

insured. Consideration is an essential element of a legal contract. According to

the Indian Insurance Act, 1938, it is a first condition of a policy to pay

insurance premium in advance. The insurer creates a fund known as “Life

Fund” with premiums received from the insured. This fund is used to pay the

claims on the happening of any future event. In the words of McGill, “The

price charged by a life insurance company for an insurance or annuity contract

is called premium”. Simply, premium is the monetary consideration for

promise bought from an insurer in the form of an insurance policy. The

premium may be Net Premium and Gross Premium.


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Net premium is a part of the total premium, which is essential for

discharging the death or maturity claims. Net premium is calculated on the

basis of mortality rate and interest rate. Gross Premium is the total premium

that an assured has to remit with the insurer. While calculating the gross

premium, expenses like managerial expenses and other insurance expenses are

added to the net premium.

3.5.1.2.1 Price as an Element of Marketing Mix

Price is an important element in the marketing strategies of every

organisation including service organisations like the LIC. Price is the only

element in marketing mix that produces revenue; the other elements produce

costs. Even pricing is used as an effective tool to face the competition; it is not

handled very well by most companies. The most common mistakes are:

pricing is too cost-oriented or not revised enough to capitalize on market

changes, price is set independent of the rest of the marketing mix rather than

as an intrinsic element of market positioning strategy, and the price is not

varied enough for different product items and market segments.

As products are concerned, the term “price” is used for all kinds of

goods but in the case of services, different terms are used for different

services. In the case of insurance, the term “premium” is used to indicate the

price to be paid by the policyholders for covering life risk through LIC policy.

The premium rates for different policies are fixed by the LIC on the basis of

mortality, costs and interest rates, etc.

The premium, the price paid by prospects on policy issued, is fixed per

thousand of the policy. The amount of premium depends upon the age of the

prospect, plan of insurance and the term of payment. The premium rates to be

paid by the proposer are initially calculated by the agent on the basis of the

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premium table supplied to him by the LIC. The agent submits proposal form to

the branch office along with the first premium amount collected from the

proposer. On arrival of the proposal to the sales section with deposit towards

the first premium, the proposal papers are scrutinized and handed over to the

new business section. When the proposal is accepted by the LIC, with the

premium deposit, the premiums are calculated for accepted proposals, policy

number is allotted, and the policy document is dispatched to the policyholder

by registered post. The policyholder has to pay premium regularly as per the

terms of the contract within the days of grace, on failure of which the policy is

lapsed.

Many service providers offer a range of services at various price levels

to meet the needs of different target segments who may have different levels

of spending power. The LIC offers its products/plans at different premiums

depending upon the amount of sum assured as well as the age of the potential

policyholders. The with- profit plans are relatively high priced compared to

without- profit plans. Pricing decisions are highly complex as far as service

organisations are concerned, especially for the LIC, due to the fact that

multiple factors are to be considered while fixing premium rates. An actuary

of a life insurance company is the person who certifies that the premium rates

charged by the company are adequate and fair, determines the value of its net

liability and ensures that the value of its assets are sufficient not only to cover

the value of the net liability but also to satisfy the solvency margin

requirements. The pricing actuary has to satisfy the needs and requirements of

different functional units, such as marketing, agency, claims, finance,

underwriting, investment and legal. Striking a balance among the demands of

various functional units is a herculean task. The major issues related to pricing

of LIC policies are discussed below.


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3.5.1.2.2 Factors Influencing Premium Rates/ Pricing Assumptions

The determination of premium scale is the basis of a Life Insurance

Company. The main business of a Life Insurance Company is to collect, from

its policyholders, premiums which, when supplemented with interest, should

be adequate to meet all the operating costs and benefits payable under its

policies, at all times- good or bad. When life insurance business was

nationalised in 1956, it was decided to adopt the premium rates of Oriental

Government Security Life Assurance, Limited, with a reduction of one rupee

per thousand sum assured or 5 per cent of the premium, whichever was lower.

Pricing involves making assumptions in order to assess the eventual costs of

liabilities (under insurance contacts) of a life insurer. The actuary draws on

several principles in setting assumptions for pricing insurance contract, having

regard to the management of risk and the return on capital. The assumptions

themselves give rise to risks which need to be managed.

The most important factors/assumptions that are taken as the basis for

determination of premium rates are:-

Demographic assumptions

Investment return / rate of interest

Expenses and commission/operational expenses

Inflation of expenses

Withdrawals

Bonus (for Participating Policy Contracts)

Profit and other contingency margins

Taxation, competition, consistency etc

Mortality rates

Morbidity rates (accident, disability, critical illness rates)

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3.5.1.2.3 Mode of Payment of Premium

The LIC offers different modes of payment of premium as yearly, half-

yearly, quarterly and monthly. Under monthly mode, an additional charge of 5

percent on the annual premium is made to cover the extra cost of collection

and also the loss of interest. In the case of salaried employees, an option to

choose Salary saving scheme (SSS) under which premiums are deducted by

the employer and remitted to the corporation is provided. Here, the additional

charge of 5 per cent of the premium applicable for monthly mode of payment

is waived. When premiums are paid yearly or half- yearly, a reduction of 75

paise and 50 paise respectively will be allowed in the annual premium per

thousand sum assured.

3.5.1.2.4 Dimensions of Pricing

The pricing policy is decided from customer, marketer and society’s

angles.

a) Customer’s Dimensions

Customers see the prices from the buying behaviour. They value the

prices for deriving benefits. Customers are conscious about the prices.

They have their own angles of viewing prices, i.e., the price is a quality

symbol or price is excessively high. Rich people do not bother about

price. Sometimes, brand name is more important than price. Buyers have

ranges of acceptable prices and do not like price levels beyond that.

Purchasers are accustomed to a standard price. Price has become symbol

of quality. If the price is high, people regard it as a quality product. In

insurance, this has been accepted by the customers. There are different

life insurance products having different premium (price). People are

ready to pay higher prices if the products meet their needs. Children’s


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Money Back and Jeevan Kishore of the LIC are being widely purchased

by the people.

b) Market’s Dimension

Pricing is decided with other marketing mix elements. It is highly

related to promotion, place and product. The prices are the control

mechanism for market expansion. The market forces are the deciding

factors of price fixation. Life insurance is least influenced by the

market forces because it is the seller’s market. Life insurance is sold

and not bought. The company fixes the prices at which buyers may

purchase the product or not. Previously, prices were used to overcome

the competition, but, now, non-price competition is more effective for

facing the challenges of competition. Price war is nonexistent in

insurance business. The marketer uses psychological pricing for the

benefits of children.

c) Societal Dimension

Prices are influenced by various social issues. The costs of production

and distribution are to be recovered in the form of price. The margin is

reduced to meet the social requirements of the people. Consumerism has

taken place in India. The Life insurance industry is prone to Consumer

Protection Act. 1986. The LIC has introduced New Jan Raksha Policy

for the benefits of society at large and policyholders in particular.

3.5.1.2.5 Methods for Payment of Premium

With the opening up of the insurance industry, many private companies

are offering insurance products at competing costs coupled with product

attributes. To enable the proponents to take a well-informed decision, the

IRDA had mandated that all insurance companies should provide a premium

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calculator on their websites for easy verification by proponents and to cross-

check the veracity of the statements of the insurance agents or advisors

regarding the price and the cost benefit. As the payment of premium by the

proposer is the sine qua non for the commencement of risk in a valid contract

of insurance, the IRDA has laid down the manner in which a proponent can

tender the premium to the insurer for a fresh policy or for the renewal of a

contract. Presently, the following are the approved methods, and the IRDA

may from time to time approve other methods too. Section 64VB of the Indian

Insurance Act 1938 was amended to facilitate the payment of premium by

alternative modes. These modes constitute the following:

Cash-Any recognized banking negotiable instrument such as Cheques,

including Demand Drafts, Pay Orders, and Banker’s Cheques drawn on any

scheduled bank in India, Postal Money Orders, Credit or Debit Cards held in

one’s name, Bank Guarantees or Cash Deposits, Internet, E-transfer, and

Direct Credits via standing instructions of the proposer or the policyholder or

the life insured through bank transfers.

3.5.1.2.6 Pricing Strategies

The insurer tries to plan the pricing strategy for achieving the organizational

objectives. All the factors are properly evaluated to arrive at a suitable pricing

policy. The price strategies are formulated to provide guidelines and policies

for the development of specific plans for pricing a product or line of products.

It includes the variability of prices, use of price lining, price stability, pricing

related to the product life cycle, and the use of psychological pricing. The first

step in deciding pricing strategies is selection of the target markets to decide

on one or several important segments with promising sales potential. The

consumers’ behaviour, i.e., their buying motives, location, sensitivity to price,


143

prior attributes about the insurer and so on, are properly evaluated to arrive at

correct pricing strategies. The insurers conduct extensive investigation into

competitors’ success and failure to assign price role in the marketing mix. The

pricing strategies may be classified as Market Entry Strategies, Consumer

Related Strategies, Product Mix Pricing Strategies, Discount Strategies,

Geographical Pricing Strategies, Promotional Pricing Strategies, Price Change

Strategies, Competitive Pricing Strategies, Product Cycle Pricing Strategies,

and so on.

3.5.1.3 Place (Channels of Distribution)

Place and channel management decide the methods of connecting

producers with the potential buyers. Channel in the marketing system seeks to

satisfy the needs of the target market. Each organisation in the distribution

channel performs particular activities in connecting end users with designed

goods and services. Managing a distribution channel begins with a producer.

The channel functions are performed by middlemen. A distribution channel

consists of a set of people working in place and channel management.

According to Philip Kotler, “Channels are sets of interdependent

organisations involved in the process of making the product or service available

for use or consumption”. It includes the various activities the company

undertakes to make the product or service accessible and available to the target

customers. The inseparable nature of the services means that they must be

accessible to customers and potential customers in order for exchanges to take

place, as customers form a part of the service delivery process. Further, as

services are perishable, they cannot be stored or sold to a wholesaler, to be sold

to consumers at some time in the future. For these reasons, the distribution

alternatives open to service organisations are not the same as for marketing

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physical goods. Location is yet another important factor, as far as distribution

is concerned.

A distribution system is the key external resource. The growth and

development of organisations to a large extent depend upon effective and

efficient distribution system. It is due to the fact that distribution creates time

value, place value and utility value to goods and services. A well- designed

channel strategy helps to minimize total channel costs with respect to designed

levels of output; it should be minimized to the possible extent, to enable to

utilise the maximum of strengths of the channel people to enhance the sales

volume and facilitate to have effective strategy to overcome the competitive

problems.

3.5.1.3.1 Channels of Distribution with Special Reference to the LIC

In the context of life insurance marketing, place refers to distribution of

the LIC services through branch network, its nearness to present and potential

customers. While distributing life insurance services, the agents and development

officers’ network plays a vital role. In reality, most of the policyholders depend

on LIC agents for getting LIC services at different stages. Therefore, the

location pattern of agents and development officers can also be regarded as an

important arrangement made by the LIC to distribute the services closer to its

customers.

The Indian insurance industry relied heavily on the traditional distribution

channel- tied agency force. That is to say the LIC with monopoly of 43 years in

the insurance market had developed a huge agency force of more than 9 lakh.

With the entry of new players, alternative distribution channels have been

developed that are cost-efficient and can offer better benefits for policyholders.

Multi- channel distribution and marketing of insurance products have been the


145

strategy of new players in the Indian insurance market. The various distribution

channels in the life insurance sector employed by the LIC are agents, brokers,

third parties, Bancassurance, internet and direct marketing.

Agents

An agent is a person employed to do any act for another in dealing with a

third person or a group of persons. The person whom the agent represents is

called the principal. The appointment of an agent is a ‘contract for service’ and,

as such, the principal has no right to closely supervise the work or stipulate the

time he/she has to devote. In an agency contract, the principal is more concerned

with the end result. According to G N Bajpai (former Chairman of the LIC),

there are three major factors which influence the marketing of insurance

services. Life insurance is a one-to-one business and is not a mass product. The

major part of the business is finalized at the drawing room of the client and,

finally, it is the brand and the confidence level of the people that matter. These

three fundamental factors for the successful marketing of insurance can only be

achieved through well-trained agents of the company.

Traditionally, in India, insurance agents were perceived as spotters of

business, and the sales organizers or development officers did the rest of the

job. The opening up of the industry necessitated redefining and reinvesting the

role of agents. The agents have to function as an effective link between the

company and the client. To meet the demands of the consumers of a

knowledge society, the agents should have adequate knowledge of not only the

products on offer but also of the general attributes of other competing financial

products. The agents should choose their clients in such a way that the

business secured by them stays in the books to maturity on contractual terms.

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Agency system is the most popular way used by insurers to acquire

business. An agent is a person licensed by the IRDA to do insurance business.

After acquiring the licence, individuals have to enroll with the insurance

company to be authorized to work as agents. An agent is trained and qualified

to advise on which policy is best suited for an individual. Agents help in filling

the proposal form and submit it to the insurance company. Agents also ensure

that policy documents are issued to policyholders. The Agent may remind

policyholders from time to time as to payment of first premium or renewal

premium. Agents render assistance to the insured in completing the formalities

for claims. These signify the importance of the agency force in marketing

insurance products that are highly complex and necessitate better knowledge

and understanding on insurance products.

Unlike in general insurance, the agents or advisors in the life insurance

system form the backbone of the marketing team. In the Indian insurance

setup, there are different types of agents or advisors. They can be grouped as:-

Direct Agents or Advisors: This type works independently without the

assistance of a Development Officer (Sales Officer) and reports directly to the

Assistant Branch Manager – Sales or to the Branch Manager.

Organizational Agents or Advisors: These are agents or advisors recruited

and initially trained by a Development Officer or the Sales Officer in the areas

of pre-sale activities and post-sale service. Due to various reasons, in course of

time, they may become Direct Agents or Advisors and will start working

independently.

Allotted Agents or Advisors: The orphan agents or advisors of a Development

Officer’s (Sales Officer’s) organisation, who cannot work independently, are


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allotted to a new Development Officer, who is deprived of agents or advisors

due to official exigencies.

Urban and Rural Career Agents or Advisors: These are recruited by the

LIC directly through certain tests to examine their suitability and shape them

up as professionals. On recruitment, they are also paid a stipend for a specified

period of time.

Authorized Retirement Advisors: This channel is a new addition to the

Indian market. This institution is a creation under the Pension Fund

Regulatory and Development Authority. A person to become an Authorized

Retirement Advisor (ARA) is required to pass a prescribed examination and

conform to a laid -down code of conduct and ethics. An ARA may remain

attached to a Pension Fund Manager or may work as an independent advisor.

Corporate Agents: A Corporate agent is a person other than an individual

who satisfies the stipulations of the IRDA and is licensed to act as such.

Brokers

Insurance brokers are professionals who assess the specific insurance

needs of the clients, and evaluate the risk and suggest a suitable insurance

cover for the clients. The Annual Report 2001-02 of the IRDA describes

insurance brokers as professionals who are expected to fill the void in terms of

fulfilling the specific insurance needs of the client, by assessing the risk on

behalf of the client, advise on the mitigation of the specified risk, identifying

the optimal insurance policy structure, bring together the insured and insurers,

carry out work preparatory to insurance contracts and, where necessary, assist

in the administration and performance of such contracts. The entry of brokers

in the insurance market resulted in improvement in customer service, transfer

of technology and managerial know-how, benefits to insurance companies

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through increased market penetration, and facilitate increased retention

capacities by optimizing reinsurance programmes. The IRDA issued guidelines

for the issue of license and regulation of affairs to insurance brokers and

insurance consultants, in 2002.

The major point that distinguish brokers from agents is that while agents

get the license to market policies of only one life insurance company and one

non-life insurance company at a time, a broker can market policies of several

life and non life insurance companies at the same time. Brokers act as

consultants who analyse a client’s needs and provide solutions.

Third Parties

Third parties are those organisations like post offices, super markets,

travel agencies, trade unions, micro- finance agencies, and even welfare

organisations like Help Age. Most of the private insurance companies and the

LIC are relying on these organisations for distributing their plans.

Bancassurance

Bancassurance (A French term) is a partnership between a life insurance

company and a bank institution that refers to selling of insurance policies

through banking network. The need (for the insurance company) to access a

large base of customers and a desire (on the part of the bank) to offer a wide

range of financial products lead to this partnership in different forms.

Bancassurance represents the convergence of banking and insurance. It means

distribution of insurance products through a bank’s branch network. In

concrete terms, it is described as a package of financial services that can

fulfil both banking and insurance needs at the same time. It is relatively a

new concept in Asia. The relaxation of stringent regulations is the key factor

driving the development of Bancassurance in Asia. Even markets like Japan,


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South Korea, and Philippines were initially against the practice; they are now

accommodating a stance towards bank distribution of insurance products.

Insurance companies see Bancassurance as a tool for increasing their market

penetration and premium turnover. It is an advantage to the customer, in

terms of reduced price, high quality product, and delivery at door- steps.

Corporate Agent

“Corporate agent” is a concept introduced with a view to taking

advantage of the presence of a large number of entities with a sizeable client

base, contacts and goodwill already operating in the market with other

activities. The corporate agent may be defined as a person – meaning a firm or

company formed under the Companies Act, 1956 or a banking company or a

Bank/RRB or a co-operative society registered under the Co-operative Societies

Act, 1912 or a panchayath or a NGO/MFI covered under the Co-op Societies

Act, or a NBFC registered with the RBI or any other institution.

Worksite marketing

Under this strategy, insurers send team to a target group and explain the

products, either individual or group, that are suitable to them at their place of

work on a voluntary, payroll deduction basis. The target group may be

employees of a particular company, educational institution or any kind of

organisation. Insurance companies will be able to sell insurance products,

particularly pension and health plans, through this channel. One possible reason

for insufficient development of this channel in India is that employers generally

expect some kind of incentive to provide the facilities to the life insurers for

making presentations and making arrangements for deduction of premium

from salaries. With changes in human resources management policies and

compensation packages, group products or work site products do have a

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definite market that can not be ignored. Relatively inexpensive and easy to

launch, work-site marketing is one potential distribution channel. In this

scenario, sale of financial products and other services to employees is done

through workplace-participation and is entirely on a voluntary basis where the

employee pays for the products generally through a payroll deduction.

The advantages of worksite marketing are backed with merits of captive

customer base, potential to sell individual insurance and group insurance, high

trust factor and high hit ratio for the intermediaries.

Direct Marketing Channel

Direct marketing channel or zero level channel consists of a company

selling directly to the final customer. That is, the service providers visit the

corporate customers at their premises due to the larger volume associated

with business to business transactions. The LIC has adopted the direct

marketing approach to market its group assurance plans such as group

gratuity scheme, group insurance scheme, in lieu of employee deposit- linked

insurance scheme, group savings linked insurance scheme and group

superannuation scheme. These help the LIC in keeping the cost ratios under

group policies at very low levels. Direct marketing is the process of

delivering goods and services to customers without using marketing

middlemen. It is selling of goods and services without an intermediary. The

approach includes direct mail advertising, door-to-door campaigns, and

telemarketing.


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Table 3.8 Key Attributes of Selected Distribution Channel Components

Channels

Cos

t

Acc

essib

ility

Effic

ienc

y of

ha

ndlin

g pr

oduc

t co

mpl

exity

Prof

itabi

lity

Effic

ienc

y

Rea

ch

Secu

rity

Perf

orm

ance

Leve

l of

con

trol

Agency M H H M A M M H H Work Site Marketing H L L M A L H L L Bancassurance M M M M M L H A L Direct Selling L M Z H A L A A H Virtual Sales/Internet VL VH H VH H H M H H Brokers M L H M H M A A Z

Source: The Journal Of Insurance Institute of India Jan –Mar 2013 p 11, 66 Note: Z (Zero); L (Low); A (Average); M (Medium); H (High); VH (Very High)

3.5.1.3.2 Role of Intermediaries/Distributors/Financial Advisors

Insurance has to be sold the world over, and the Indian market is no

exception. The touch point with the ultimate customer is the distributor or the

producer, and the role played by them in the insurance market is critical.

Insurance distribution is not simply about pushing products. An outsized share

of the value across the entire insurance industry value chain is added in

distribution. For customers, it is in distribution that needs are understood and

accessed, options (from full risk transfer to self-insurance and more exotic

methods of managing risk) are identified, and counsel on the choice of carriers

and other providers is given. It is because of distribution that relationships and

trust are built with agents, brokers and customers, opportunities are identified

and created, and products and services are sold. It is the distributor who makes

the difference in terms of the quality of advice for the choice of product,

servicing of policy post- sale and the settlement of claims. In the Indian

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market, with their distinct cultural and social ethos, these conditions play a

major role in shaping the distribution channels and their effectiveness.

The figure given below provides an estimate of the current market share

of the various distribution channels used by life insurers, and gives a view of

how these channels could develop in the future.

Source: Journal Of Insurance Institute of India, Jan-Mar 2013 p.61

Fig. 3.3 Current insurance market share and potential market growth

The figure shows high potential growth and clear dominance of individual

agents in the distribution network of the Indian insurance industry. Bancassurance

and corporate agents show potential signs of growth in the long run. However,

worksite and internet channels are unfortunately ignored and, falling in left


153

bottom quadrant, show low market shares and low potential channel growth.

In today’s scenario, insurance companies must move from selling insurance to

marketing an essential financial product. The distributors have to become

trusted financial advisors for the clients and trusted business associates for the

insurance companies.

3.5.1.3.3 Distribution of LIC Services through Agents & Branches

An attempt is made in the following paragraphs to analyse and examine

the issues related to distribution of LIC services through agents and branch

network. The major issues are branch expansion policy of the LIC, trends in

branch expansion, trends in agents and development officers network, district-

wise distribution of LIC branches in Kerala, coverage and accessibility of LIC

services in selected branches.

Branch Expansion Policy

The LIC follows certain criteria as to opening new branches. The areas of

economic viability, in terms of estimated premium income, renewal expenses

etc, market already covered and insurance market potential, are the main factors

influencing branch establishment divisions.

Trends in Branch Expansion

A main aspect of distribution of LIC services is expansion of branches

and their accessibility to the policyholders. Since the nationalisation of the

LIC in 1956, attempts are being made to expand branch network in

different parts of the country. The following Table illustrates the data

related to the expansion of divisional offices and branch offices in different

periods.

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Table 3.9 Trends in Expansion of Zonal, Divisional and Branch Offices of LIC

Year Zonal Offices

Divisional Offices

Growth index

Branch offices

Growth index

31.12.1957 5 33 100 240 100 31.12.1960 5 35 106 267 111 1969-1970 5 36 109 424 176 1979-1980 5 41 124 738 307 1989-1990 6 69 209 1528 636 1999-2000 7 100 303 2048 853 2009-2010 8 109 330 2048 853 2010-2011 8 111 336 2048 853 2011-2012 8 113 342 2048 853 2012-2013 8 113 342 2048 853

Source: Annual reports of LIC (1957-2013)

It is evident from the Table that there has been an increasing trend in the

number of divisional offices as well as branch offices. The divisional offices

show three times growth compared to 1957-2013 period and a substantial

growth of 8 times in the number of branches for the same period. The analysis

reveals that the LIC is geographically expanding and moving closer to the

locations of customers in providing its services.

Trends in Growth of Sales Force

Agents and development officers, who are spread in different parts of the

country, also serve as service points, apart from branch offices, to customers.

In fact, agents serve as the vital link between policy holders and branch

offices. Therefore, the number and spread of agency force are also an

important factor influencing place decisions of the LIC. The trends in the

spread of field force network since 1957, i.e., the details pertaining to the

agents and development officers at different periods, are presented in the

following Table.


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Table 3.10 Trends in Growth of Sales Force in LIC

Year Number of Agents No of Development Officers Active Total

1957 89000 207373 5222 1960 101600 139821 5808

1965-1966 148026 170580 8613 1970-1971 136578 148214 7643 1975-1976 144385 155153 7698 1980-1981 112312 121257 6382 1985-1986 172542 189496 8076 1990-1991 414820 440830 15366 1995-1996 513897 537117 17897 2000-2001 743064 786516 19311 2001-2002 744003 792112 19074 2002-2003 902199 988358 19457 2003-2004 1003241 1098910 NA 2004-2005 980836 1041737 19230 2005-2006 987689 1052283 18847 2006-2007 1028256 1103047 21303 2007-2008 1117908 1193744 23011 2008-2009 1275611 1344856 24987 2009-2010 1340067 1402807 23634 2010-2011 1293816 1337064 24517 2011-2012 1214111 1278234 25638

2012-2013 1121372 1172983 24101 Source: Annual reports of LIC (1957-2013)

The Table exhibits that from 1957 to 1980, the strength of agents

showed a declining trend. It is mainly due to consolidation of agent force in

the post- nationalisation period. It is found that during this period, most of the

inactive and dormant agents were phased out. From 1980 onwards, there has

been significant growth in the agent force. This is mainly due to the deliberate

attempts of the LIC to expand its activities in rural as well as urban areas

through decentralized operations.

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Branch Network in Kerala

The trends of division/branch expansion in Kerala are outlined in the

following Table. As per available statistics and LIC records, there was only 1

Divisional office in Kerala in 1956. By the end of 2013, the number branches

and Divisional offices are 85 and 5 respectively.

The following table outlines the statistics on the distribution of LIC

branches in Kerala.

Table 3.11 Distribution of LIC branches in Kerala

Sl. No Division Year of

formation No of Branches

Rural Urban Total 1 Thiruvananthapuram 01-09-1956 10 5 15 2 Kottayam 13-10-1992 12 6 18 3 Ernakulum 25-08- 1986 5 9 14 4 Thrissur 01-04-2010 9 4 13 5 Kozhikode 01-04-1973 21 4 25

Total 57 28 85 Source: LIC of India, Southern Zonal Office

The Table shows that the highest number of branches is located in

Kozhikode division, followed by Kottayam. Another significant point is that

highest number of rural branches is also located in Kozhikode division

followed by Kottayam. Compared to rural branches urban branches come to

50 per cent of rural branches in all five divisions. It means that branch

expansion in rural area is taking place at slower rate. Taking into account the

vast market potential and also spread of rural policyholders in different

villages, there is a need to expand branch network in rural areas to serve the

policyholders more effectively. Such a policy will help the LIC to have a

closer service to the rural consumers.


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3.5.1.3.4 Marketing Life Insurance in Rural Areas

The census of 2001 shows that the rural sector in India comprises

72 per cent of the population and generates 26 per cent of the GDP. Thus, the

rural sector is important both politically and economically. Naturally, rural

insurance has been emphasized since the nationalization of life insurance

business. The government followed a three-pronged strategy for life insurance.

Firstly, it targeted the rural wealthy with regular individual policies. Secondly,

it offered group policies to those who could not afford individual policies.

Thirdly, for the very poor, it offered government-subsidized policies. For non-

life insurance in the rural sector, the government has actively pursued specific

strategies such as crop insurance and the insurance of farm implements such as

tractors and pumps.

It was noted in the section on regulation that, after five years of operation,

every private sector life insurance company has to achieve a certain proportion of

their business in the rural sector. It is a variable and rising proportion, with at least

15 per cent of business in the rural sector after five years. For the Life Insurance

Corporation of India (LIC), the requirement is 18per cent.

Definition of Rural Sector

The term “rural sector” is confusing because not all government bodies

use the same definition. Under the “Obligations of Insurers to Rural Social

Sectors” of the Insurance Regulatory and Development Authority Act, 1999,

the IRDA defines the rural sector as follows. “Rural sector” shall mean any

place as per the latest census which has: (i) a population of not more than

5000; (ii) a density of population of not more than 400 per square kilometer;

and (iii) at least 75 per cent of the male main working population is engaged in

agriculture. After the opening up of the insurance sector, the IRDA issued a

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new definition for the rural sector in the year 2000 to identify the rural areas of

India for the life insurers as per the new census. The formal definition of the

rural sector is the one, which is not urban. The Urban sector is defined to

include all locations with municipality, corporation, notified town areas and all

other locations specifying the criteria, (1) a minimum population of five

thousand, (2) at least 75 per cent of male workforce engaged in non-agricultural

activities, and (3) a population density of over 400 people per sq. km.

LIC and Rural Life Insurance Market in India

The Indian life insurance market is growing faster than most developed

markets. India, along with other Asian economies like South Korea and Japan,

has a double-digit growth figure in the industry. The public sector Life

Insurance Corporation of India (LIC) is still the dominant force in the market,

but its market share is slowly and steadily eroding. From being a monopoly for

close to 45 years, the corporation is today facing the greatest challenge of its

existence from the private sector which today has a combined market share of

slightly over 25 per cent of India’s life insurance market.

The Indian life insurance market can be divided into urban and rural

markets. These two segments are diverse in nature and have distinguishing

characteristics. The economic growth of the two has not been the same. A

wide disparity exists in the per capita income and literacy rate, among other

things, in these two sectors. The ratio of rural Indian population is very high

and it has growing insurance needs. From insurance perspective, it shows that

the rural population has low reach and the urban markets are rapidly getting

saturated, so that the future growth potential lies in the rural areas.

The Indian life insurance market has significant potential on account of

low insurance penetration, combined with low expenditure on life insurance.


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In spite of insurance reforms paving the way for private participation, the

insurance sector is still under-penetrated. India accounts for 16 per cent of the

world population, but only accounts for 1.68 per cent of the world life

insurance market in the year 2006. Insurance penetration or premium volume

as a share of a country’s GDP for the year 2005 stood at 2.53 per cent and

accounted for 4.1 per cent of GDP in 2006-07, which shows an upward

movement from 1.2 per cent in 1999-2000. This growth rate happens to be far

better than in its counterpart, China, where insurance business accounts for

only 1.75 of the GDP. However, this status quo is set to change and the level

of penetration will tend to rise as income increases.

Even now, the Indian insurance customer views life insurance product as

a means to perk up finances and avail tax benefits. The non-life coverage is

largely considered unnecessary and a waste of money. Even essential

insurance products like health insurance are perceived similarly. However, the

increase in per capita income together with the rising middle-class populace is

said to double the insurance market in the next five to six years. Some of the

customer segments which show tremendous potential and opportunity to the

insurers are: the up-market or modern, traditional and rural and semi-educated

segments. Against this background, this paper highlights the growth of

insurance in individual policy, role of LIC in rural insurance, and reasons for the

slow growth of LIC in rural India. The present study is based on secondary data.

Role of LIC in the Rural Insurance

The LIC has been able to establish itself as a vibrant organisation playing

an important role in the lives of people in the hundreds and thousands of hamlets

dotting the rural landscape of the country. Its proclamation, therefore, that “we

know India better” is not without substance. The LIC can also lay claims, more

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than any other organisation, to be deriving its strength and inspiration from the

trust its policyholders in rural areas have reposed in it. Having recognized

immense insurance potential, the LIC has concentrated on the rural sector.

During 2003-04, of the 264.56 lakh policies marketed, as many as 62.20 lakh

policies were marketed in the rural sector. The LIC has also taken a number of

measures to professionalize the rural career agents and as on March 31, 2004,

there are as many as 53,037 rural career agents. Further, the promotional

expenditure of the LIC, which stood at ` 3791.13 lakh in 1999-2000 rose to

` 9659.66 lakh in 2003-04. In the rural areas, along the dusty roads, the LIC is

painting the walls and adopting folklores so as to market insurance plans to rural

customers like never before. The new players, on the other hand, have not paid

much attention to tap the rural market. In fact, they focused only on meeting the

regulatory requirements rather than improving the business in rural areas.

Table 3.12 Rural New Business of LIC

Year No. of Policies (In Lakhs)

Sum Assured (` in Crores)

Percentage of the RNB to TNB

Policies Sum Assured 1969-1970 4.61 251.76 33.00 24.50 1974-1975 5.72 464.27 35.70 14.90 1979-1980 5.91 603.77 28.16 22 1984-1985 9.52 1569.62 35.2 29.07 1989-1990 30.48 8086.35 41.23 34.83 1994-1995 48.56 21571 41.19 34.68 1999-2000 97.04 44168.19 57.5 48.7 2004-2005 55.03 46037.01 22.89 24.60 2009-2010 102.49 78895.11 26.39 18.43 2010-2011 121.25 108948.28 32.76 23.17 2011-2012 117.18 100052.00 32.80 19.66 2012-2013 93.49 66189.76 25.44 12.86

Source: Various Annual Reports of LIC, Indian Insurance Sector in 21st Century-an Outlook, A Vijayakumar (2009) ( RNB, Rural New Business; TNB, Total New Business)


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The above analysis shows that the growth of the LIC in rural areas is not up

to the mark. The possible reasons in this regard may be heterogeneity of rural

population, disparities in rural savings and investments, dearth of effective

intermediary personnel, lack of efficient distribution channels, insufficient

infrastructure, problem of illiteracy, issues and concerns with distribution in the

rural market, such as competition, scale of investment, customers scattered over-

wide areas, poor rural infrastructure, irregularity in payments, operational

challenges as obtaining relevant documents for verification and cultural diversity.

3.5.1.4 Promotional Policies

The promotion element in marketing mix enables the organisation to

communicate marketing information to potential consumers, persuades and

convinces them for purchase behaviour. It is also known as non-price

competition strategy. It creates a bundle of expectations to them to satisfy their

economic and psychological needs of the product. Promotion has the

responsibility of awakening and stimulating consumer demand for the product.

The promotion is directly concerned with potential buyers. Product, pricing

and place can flow and achieve their objectives if the promotion is effective

and properly received by prospecting consumers or target market. “Promotion

is the element in an organization’s marketing mix that serves to inform,

persuade and remind the market of a product and the organisation selling it, in

hopes of influencing the recipients’ feelings, beliefs or behaviour.” It is

established that the promotion management is used not in isolation. It is

utilised in marketing mix to make other elements of marketing mix effective and

successful. It is influenced by them and also influences them. Communication is

the main tool of promotion that has the objectives of informing, persuading

and reminding the people about the product’s attributes to satisfy their

needs. The consumers have different needs based on their respective

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feelings, beliefs, attitudes, perception, learning and personality. The promotion

strategy incorporates the maximum information to persuade them to purchase

the product as per their personal attributes. It is a bridge to bring together the

product attributes with the personal attributes for their satisfaction.

Insurance business is the business with people. As people are spread

over different places, it is not possible for any organisation to have a direct

contact with the people interested in the insurance business or activity.

Penetration of insurance organisation to the bottom of the society is required

to expand its business to achieve the purpose of the insurance business.

Insurance companies undertake promotional measures to meet the needs of the

people and also to meet the competition from their counterparts. Apart from

developing a good product, the organisation should price it reasonably and

make it accessible to customers for expansion of business. In order to facilitate

the goals, an organisation undertakes the role of communicator and promoter.

Promotion has been defined as the coordination of all seller- initiated

efforts to setup channels of information and persuasion in order to market

goods and services or promote an idea. The promotion mix used by companies

consists of five major modes of communication, viz., advertising, sales

promotion, public relations and publicity, personal selling and direct and

interactive marketing. It includes all activities the company carries out to

communicate and promote its products and services to its target market. The

target audiences need to receive information about goods and services before

they can begin to consider making a purchase. This becomes all the more

important as services get increasingly intangible.

One of the key tasks in designing and executing promotional programmes

is the selection of appropriate media for advertising and other forms of


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communication. The range of possible media choice is extensive but will

ultimately be governed by factors such as the budget available and the target

audience profile.

3.5.1.4.1 Role of Promotion in Marketing Insurance

Promotion plays a significant role in the placement of a product. It is vital

for any business. Promotion has special meaning for even insurance business

also. In insurance for life or property, only a personal sales pitch may work,

because nobody actively thinks about an insurance product. Therefore, the

selection of media, selection of message and deciding on a promotion cycle (the

timing and the frequency of repetition or follow up) could be identified as the

major components of a service promotion plan; for example, the peace of mind

after a client insures himself can be expressively demonstrated using a live

model in a commercial. The celebrity endorsements can also be more effective

on television, as it captures their charisma better than other media. Promotion

has to be in line with the positioning strategy that an insurance company has

decided on. Promotion is the successful communication of all that the insurance

company wants to project about it. Therefore, it cannot be that the positioning is

premium, but the ads appear in a cheap newspaper/ flyer. The two do not go

together and may weaken the image of the brand. But a well-designed and

printed poster at public places to convey the same information would create a

positive image about the service brand. Similarly, the physical evidence has to

match the positioning strategy of the brand. Clean and well-dressed employees

are expected from a restaurant that is itself a ‘quality’ eating place for families.

Promotion is done through a mix of advertisement which is paid for, non-

personal form of presentation in space bought from the printed or electronic

mass media, including posters hoardings, banners, stickers, exhibitions, stall,

etc. Advertising, in its derivative sense, means turning anybody’s attention to

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anything. But, for business purpose, it has some specific implications.

Advertising has been defined as mass, paid communication, the ultimate

purpose of which is to impart information, develop attitudes and induce actions

beneficial to the advertiser. It is today undoubtedly a powerful force for sales

promotion because of its all- pervasiveness. Advertising uses a variety of media

such as print, electronic and outdoor material. Effective advertising uses a

judicious mix of all the media available, taking into account the cost and actual

reach of the medium being used. Certain services such as entertainment

(cinema, theatre), passenger and freight transport (roadways, airlines, trains),

hotel, tourism and travel, insurance have been advertising heavily in newspaper,

magazines, radio and TV to promote greater usage and attract more customers.

The impact of advertising on creating demand for insurance product is highly

effective. Insurance companies are now realizing the importance of advertising

in targeting their potential customers. The guidelines which can be probably

kept in mind while promoting insurance products are as under:

Use simple, clear message

Emphasize the benefits of the service

Promise only that which can be delivered and do not exaggerate

claims

Build on word-of-mouth communication by using testimony of

actual consumers in advertisement, and,

Provide tangible clues to services by using well-known personalities

or objects to help customers identify the services.

3.5.1.4.2 Promotion Mix Strategy

Insurers use the term “promotional mix strategy” to decide the

combination, types and amounts of promotional tools, i.e., advertising sales


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promotion, publicity and personal selling. Each tool has specific strengths and

weaknesses. The promotion mix strategy takes the advantages of their

strengths and avoids their weaknesses. That is to say, advertising is not usually

effective in making sales. Its effectiveness increases if used with personal

selling. Similarly, personal selling is not very effective when people do not see

any advertisement of the product in this age of information exposure. Sales

promotion increases the productivity of the sales person. Publicity and public

relations are useful for making the sales force competent and expert enough

for increasing sales volume.

The LIC has designed the promotional mix, i.e., combination types and

amounts of advertising sales promotion, personal selling and publicities and

public relation for making them effective promotional mix strategy.

A promotion strategy is an integrated programme of promotion mix

elements designed to present an organization and its products to prospective

customers; to communicate need for satisfying attributes of products, to facilitate

sales, and thus contribute to long- term profit performance. The factors leading to

the increased importance of the promotion effort are wider separation between

consumer and marketer, increased competition among them and among

industries, consumers’ increased selectivity, greater financial risk for marketers,

greater need to maintain market share and greater need to persuade consumers

who have established product loyalties.

3.5.1.4.3 Promotional Tools Advertising

Advertising is one of the major tools used to direct persuasive

communications to target buyers and publics. It consists of non-personal or

one-way forms of communication conducted through paid media under clear

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sponsorship. Advertising consists of all activities involved in presenting to a

group a non-personal, oral or visual, openly sponsored message regarding a

product, service or idea. The message called advertisement is disseminated

through one or more media and is paid for by the identified sponsor.

The entry of private players in the insurance sector brought revolutionary

changes in the sector. The private companies were careful in promoting their

products by focusing on customer needs. The new players were successful in

creating their mind share through aggressive campaigns and promotional

activities. The effective promotion skills of private companies led to their

brands coming across successfully to customers. The advertising initiatives of

the LIC comprises media such as television, radio, print media and outdoor

media such as hoardings, wall paintings, neon sign displays etc. The

advertising slogan Zindagike saah be, Zindagike baad be (during the life and

after life) tries to promote its brands vigorously and also to create a place in

the minds of people. Even advertising plays a significant role in the

promotional mix of an organisation. In the case of the LIC, advertisement

plays a supportive and supplementary role to personal selling. To motivate the

customers at the base level, personal selling through the agent force is the

main instrument used traditionally in the LIC. Advertisement plays a very

useful supportive role in achieving the following objectives.

i) To build up awareness among the public in general about the need

of life insurance

ii) To help in the introduction of new products/schemes

iii) To inform the public about the specific programmes of the LIC

like special revival campaigns, redressal of consumer grievances,

reminding about premium payment, etc.


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iv) To gain the goodwill of the community by informing its programmes

and services to the public. The LIC also conducts publicity

programmes like customer meets, press conference, newspaper

coverage, participation in social events, sponsorship programmes, etc.

Advertising Strategies

Advertising strategies include decisions of verbal and visual message,

media and mode. “Advertising consists of all the activities involved in

presenting to an audience a non-personal, sponsor-identified, paid-for

message about a product or organisation.” Advertising cost per audience is

very low although the total cost is very high. The advertising strategies

involve mission (objective), money (budget), measurement (evaluation of

advertising effectiveness).

Role of Advertisement in Marketing Insurance

Advertisement plays an effective role in insurance business. Its

effectiveness cannot be underestimated at any cost in insurance product

positioning. But the regulatory authority has issued guidelines for advertisement

by insurers and the agents or brokers, in newspapers, magazines, sales talks,

billboards, hoardings, radio, television, websites, e-mail portals, leaf-lets,

literature, circulars, sales aid flyers, telephone solicitation, business cards,

videos, faxes or any other communication with a prospect or policy holder

urging him to purchase, renew, or modify a policy of insurance, etc. The main

requirements are:

A copy of every advertisement should be filed

Advertisement programme has to be checked by an officer

responsible for compliance with the regulation.

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Advertisement must depict full particulars of the insurer, as well as

the form number and types of coverage of the policy referred to

Advertisement should not be misleading. In a nutshell, it should

not

a) Describe benefits that do not match policy provisions

b) Make claims that are beyond the policy to deliver

c) Illustrate future benefits, which are neither realistic nor

realizable nor guaranteed

d) Minimize the costs and risks inherent in the policy

e) Imply a group or relationship that does not exist

f) No third party other than the insurer or authorized intermediary

can distribute information or recommend purchase of specific

insurance products.

Organisation of Advertising and Publicity in LIC

The LIC has set up publicity sections at various levels to look after and

coordinate the advertising and publicity activities. At central office level, a

separate section for publicity has been established under the marketing

department that supervises the advertising activities at the national level and

frames broad guidelines on the advertisement budgets of various zones of the

LIC and issues guidelines on the advertising activities to be taken up by zonal

offices.

At the zonal office, a separate publicity wing is established under the

control of marketing department that looks after the advertising and publicity

activities at the zonal level. The publicity wing of the zonal office issues


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advertisements in regional languages and provides guidelines to divisional

offices.

At the divisional level, a publicity officer looks after the advertising and

publicity activities in the divisional area. He concentrates on the advertising

activities in the divisional area through proper media like hoardings, wall

writings, public parks maintenance, transit advertising and other activities that

are suitable to the area.

The advertising of the LIC is mainly undertaken by the central office and

to some extent by the zonal and divisional offices. The policy and budget of

advertising is decided at the central office. The zonal and divisional offices

advertise in their respective areas in regional languages within their budget

limits.

The LIC uses the following media in its advertising and promotional

activities.

Newspaper advertisements (Announcing the opening of a branch,

detailing new schemes/services offered, announcing the setting up

of new divisions, informing about the performance and working of

the LIC, informing about special revival campaigns, educating the

policyholders about different services offered by the LIC, informing

about the working of grievance redressal cell)

TV advertisements (Sponsoring of network programmes in TV, TV

advertisements at national level undertaken by central office and

advertisements in regional languages undertaken by zonal offices)

Radio advertisements (interviews with the officials on insurance,

brief description of the LIC by officials)

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Setting up of hoardings at prominent places exhibiting detailing of

the financial services offered.

Setting up of welcome boards at railway stations, airports, bus

stations etc

Distribution of brochures detailing the policy guidelines, activities

and objectives of the LIC.

Distribution of leaflets and booklets giving information about the

various schemes.

Display of newsletters, bulletins at the branch premises, banners

announcing new schemes, calendars, etc., to customers.

Maintenance of public parks at important places.

Wall writing in prominent places exhibiting the details of the

financial services and schemes offered.

Transit advertising

The LIC, along with advertising, uses publicity to promote its business

and makes publicity through field publicity vans, film shows, participation in

village fairs and exhibitions, cattle shows and indigenous media like lectures

and bhajan mandalis. Another media of advertising in rural areas is meetings

organised for settlement of death claims wherein the concerned branch

managers with the assistance of agents and development officers arrange

public meeting and invite the important personalities of the village and

hand over the cheque to the legal heirs of the deceased. The officials of the

LIC explain the importance of life insurance at this stance to the gathering.


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Sales Promotion

Sales promotion consists in diverse collection of incentive tools, mostly

short-term, designed to stimulate quicker or greater purchase of a particular

product or service by consumers or the trade. The American Marketing

Association describes sales promotion as those marketing activities other

than personal selling, advertising, and publicity that stimulate consumer

purchasing and dealer effectiveness such as displays, shows and expositions,

demonstrations and various non-recurrent selling efforts not in the ordinary

routine. Sales promotions add value, provide a competitive edge, boost sales

during periods when demand would otherwise be weak, speed the

introduction and acceptance of new services and generally get customers to

act more quickly than they would in the absence of any promotional

incentive. It may be in the form of consumer promotion, trade promotion and

sales force promotion.

The promotional activities of the LIC in the three dimensions are

discussed below.

Consumer Promotion

Consumer promotion is directed at consumers-the end purchasers of

goods and services. The consumer promotion activities are designed to

induce them to purchase the marketer’s brand. They form part of the

promotional pull strategy that works along with advertising to encourage

consumers to buy a particular brand and thus create demand for it. The

consumer promotion measures of the LIC include tax benefits, higher bonus,

accident and disability benefits, higher non-medical limits, customer service

and personal loans.

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Trade Promotion

Trade promotion intends to develop the business through liberalized

rules and procedures and improved administration. The trade promotion

measures of the LIC include Salary Saving scheme, and elimination of as

many occupations as possible from the list of hazardous occupations.

Sales Force Promotion

The LIC offers incentives to agents to make them work with more

vigour. Sales force promotion measures include commission, gifts, advances

for purchases of cars, club membership schemes, etc. The Corporation pays

attractive commission to its agents. The LIC also presents gifts to important

people in society in the form of diaries, calendars, key chains, wallets, etc., to

develop goodwill. Besides these, consumer durables like utensils, radios etc

and free travel package to holiday resorts are offered to agents to motivate

them to produce more business.

Public Relations

‘Public relations’, on the other hand, is the overall term for marketing

activities that raise the public’s consciousness about a product, an individual

or issue. Shimp (2000) explains it simply as an organisational activity

involved with fostering goodwill between a company and its various

‘public’. The LIC has a wide network for effective public relations for

internal and external customers, press or general public. The Corporation

reaches out to people through nation-building activities, donations to health

care institutions and publishing health booklets. Being a responsible and

conscious corporate citizen, the LIC has contributed towards the upkeep of

parks and published pamphlets on nature’s wonders. Corporate views are

made known to the public through press interviews, interviews in the audio-


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visual media and regular editorials in the newspapers. Yogakshema is the

prestigious in- house magazine through which the Corporation maintains

communication with internal customers. The Corporation has donated

ambulances/mobile health vans to 5 prominent hospitals across the country.

The diary and calendar published also serve as a tool kit of public relations.

The Corporation uses the following methods and techniques in public

relations such as press releases, features, letters to the editor, clarifications

and rejoinders, press conferences, press reception, press briefings and

individual press interviews. These techniques were highly useful to the LIC

to sustain and grow in the competitive market. In the LIC, public relation is

normally organised as part of the marketing departments efforts. Proper and

effective public relationship maintenance with promotional tools is the key to

success.

Personal Selling

Personal selling is a major promotional method used to increase

profitable sales by offering want satisfaction to the market over the long run.

It consists of individual, personal communication in contrast to the mass,

impersonal communication of advertising, sales promotion and the other

promotional tools. The main advantage of it is the flexibility in operation as

the sales people can design their sales presentations to fit the needs, motives

and behaviours of individual customers. Sales people can see the customer’s

reaction to a particular sales approach and make necessary adjustments on

the spot. Here the sales people can collect information, identify consumer

attitudes, and post complaints to management. The problem of personal

selling is very significant when a service can’t be separated from the

performer.

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Personal Selling in LIC

Even advertising and publicity can be used to develop awareness, and

consciousness about life insurance personal selling is the most effective means of

promoting business, especially in insurance, as promotion of life insurance

requires personal contact with the prospective customer. An enquiry to needs of

customer, financial capacities, etc., is a prerequisite and essential part of

persuading the prospect to take an LIC policy. In all insurance services, including

life insurance, personal selling is the most widely used method of promoting sales

because of the fact that life insurance has to be sold and not bought.

In the case of the LIC, the largest sales force is the main asset to spread

its activities widely. The LIC has the largest agency force and employees

including development officers to look after field sales activities. The success

of personal selling as a promotion technique depends on effective sales force

management that involves key aspects like recruitment, selection, training,

compensation , motivation, control, etc.

Table 3.13 Channel -Wise Individual New Business LIC in Percentage

Year Individual Agents Corporate Agents Others

Total Policies Premium* Policies Premium Policies Premium

2012-2013 98.15 95.86 1.56 3.31 0.29 0.83 100 2011-2012 98.10 96.56 1.64 2.79 0.26 0.65 100 2010-2011 98.06 97.45 1.86 2.40 0.08 0.15 100 2009-2010 98.06 97.75 1.91 2.16 0.03 0.09 100 2008-2009 97.60 97.34 2.32 2.19 0.08 0.47 100 2007-2008 97.99 98.36 1.91 1.59 0.10 0.05 100 2006-2007 97.45 97.28 2.01 2.14 0.54 0.58 100 2005-2006 NA 98.37 NA 1.57 NA 0.06 100 2004-2005 NA 98.79 NA 1.17 NA 0.04 100 2003-2004 NA 99.78 NA 0.20 NA 0.02 100

* refers to new business premium consisting of first year premium and single premium. Source: Annual reports of IRDA


175

The table illustrates that the individual agents contributes a lions share in

the new business of the LIC in terms of policies and premium collected

compared to other channels.

Sponsorship

Events and experience or sponsorship is another marketing communication

tool comprising company-sponsored activities and programmes designed to create

daily or special-related interactions. A company can build its brand image

through creating or sponsoring events. The LIC sponsors many sports events,

health programmes, academic exercises like seminars, etc., that are helpful in

creating a positive image on it.

3.5.1.5 People

All the participants involved in the service delivery are referred to as the

‘people’ element. It includes employees providing services, the customers, and

the co-customers in the service environments. ‘People’ constitute an important

dimension in the management of services both as performers of services and as

customers. People, as service performers, are important because a customer sees

a company through its employees who represent the first line of contact with the

customer. The service personnel must be well- informed, trained and

knowledgeable so that their service wins customer approval. The firm must

recognize that each employee is a salesman for the company’s service.

Customer satisfaction, to a great extent, depends on the attitude and approach of

the personnel towards customers in rendering services.

Service personnel are important in all organisations especially in

organisations rendering services. The behaviour and attitude of all the

personnel providing service is an important factor influencing the customers

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overall perception of service. The ‘people’ element assumes great significance

as services are inseparable from persons providing it. Service marketers should

possess high level of interpersonal skills and customer-oriented attitude as

employees in services are the key to the service experience. Employee

behaviour is often an integral part of the service product. It is not true in the case

of a manufacturing operation. The employee behaviour may affect product

quality but it is not a part of the product. The employees in an organisation may

be customer contact employees and non-contact employees. The customer

contact employees are of special importance in service organisations as they

have a direct bearing on customer service experience. Like any other

organisation, personnel in the service firms are to be purposefully managed to

extract the best performance out of them. It is they who are the fountainhead of

imagination and creativity. The major elements in life insurance marketing mix

comprise customers, employees, customer service representatives, marketing and

sales managers, claims adjusters, appraisers, examiners, and investigators,

insurance investigators, underwriters, insurance sales agents, lawyers and

actuaries.

3.5.1.5.1 Effective Sales Force

Developing an effective sales force, who could deliver the goods, is of

paramount importance for any insurance company and carries enormous

weight, and it is considered to be a critical aspect of any insurance company’s

marketing strategy. Inadequacy on the part of the sales force will diminish the

chance of companies’ progress. No matter how attractive a product may be,

the sales force represents the entire credibility of the organisation and product.

Thus, their effective performance is important for the success of insurance

business. To make insurance sales force effective, the company must accept

the fact that salesmen are born and not made. The art of selling does have a


177

scientific approach for locating, approaching and breaking a prospect into a

profitable proposition. Hence, a fair amount of training to develop the selling

skills is needed even in insurance also. The profession of sales is full of

possibilities:

Appreciation, Recognition and Respect

Adequate and Fair Earnings

Sprit of Competition

Opportunity for Growth

Opportunity for Self-Expression

Future Security of Job

Feeling of pride in his profession

3.5.1.5.2 Productivity of Agents

In, LIC, agents are the lifeline of business and the strength of the Life

Insurance Company can be judged by the quality and competency of its

agency force. Productivity is a must for the delight of stakeholders of an

organisation. It is through increased productivity that organisations achieve

economies of operations eventually leading to higher returns to customers

and greater prosperity to all its stakeholders. The productivity per agent is

calculated dividing total new business or number of polices sold by a number

of active agents. The following Table outlines the productivity of agents of

the LIC from 1991-92 to 2013-14.

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Table 3.14 Productivity of Agents of LIC

Year Active agents

New business (Crores)

Average business per

agent (Crores)

Number of policies

Number of policies per agent

1990-91 414820 28139.07 0.067 8653996 20.86 1991-92 464505 32064.45 0.069 9247860 19.91 1992-93 495745 35956.83 0.072 9968000 20.11 1993-94 524427 41813.83 0.079 10725633 20.45 1994-95 519504 55228.50 0.106 10874682 20.93 1995-96 513897 51815.54 0.101 11020825 21.45 1996-97 533133 56740.50 0.106 12268476 23.01 1997-98 558517 63617.69 0.114 13311294 23.83 1998-99 598217 75316.28 0.126 14843687 24.81 1999-00 683190 91214.25 0.133 16976782 24.85 2000-01 743064 124771.62 0.168 19656663 26.45 2001-02 744003 192572.27 0.259 22491304 30.23 2002-03 902199 179512.22 0.199 24268416 26.90 2003-04 1003241 198707.12 0.198 26456320 26.37 2004-05 980836 179481.39 0.183 21817967 22.24 2005-06 987689 283763.74 0.287 29284800 29.65 2006-07 1028256 201620.74 0.196 20910041 20.34 2007-08 1117908 173662.72 0.155 17961363 16.07 2008-09 1275611 363135.70 0.285 29322395 22.99 2009-10 1340067 396701.12 0.296 30578367 22.82 2010-11 1293816 443531.71 0.343 31445829 24.30 2011-12 1214111 496680.54 0.409 34605678 28.50 2012-13 1121372 507847.01 0.453 36309921 32.38

Source: Annual Reports of LIC.

The Table of productivity of agents shows that either in terms of average

business in sums assured or in the number of policies, there is an increasing

trend from FY 2008-2009 onwards. This reflects the dominance of the LIC

over its counterparts in the interference in the market through diversified

products, policies and practices especially the follow- up of excellence in

claim settlement and service standards.


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3.5.1.6 Process as a Service Marketing Mix Element

The system by which the consumer receives delivery of service is called

‘process’ in a service organisation. In the case of service organisations, process

is the process of adding value or utility to the system inputs to create outputs

that are useful to the customers. The processes by which services are created and

delivered to the customer are a major factor within the services marketing mix,

as service customers will often perceive the service delivery system as a part of

the services itself. Processes involve procedures, tasks, schedules, mechanisms,

routines, and activities by which services are delivered to the customers-the

service delivery and operating system. Process management, as an activity, is a

requisite of service quality improvement. If the processes supporting service

delivery are not effective, it will have a negative impact on the service firm.

There should be good co-operation between the operations and marketing staff

involved in the process management. The process of delivery is of great

significance for the successful marketing of a service.

3.5.1.6.1 Process in Marketing of LIC

The element of process in rendering services to policyholders has much

significance in the marketing mix of the LIC. Here, the term ‘process’ implies

different procedures involved in processing the application of policyholders,

approving it, delivering services in accordance with the contract. The LIC has

the responsibility to ensure that a sequence of procedures is developed to

render the policyholder services effectively. The services rendered by the LIC

to policyholders can be broadly classified under the following categories.

Before issue of policy

Policy in continuation

At the time of claims

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Process and Services Rendered Before Issue of Policy

The LIC agent has to do some groundwork before contacting customer

for sale/issue of policy. First of all the agent has to locate the prospective

customer and make preliminary enquiry about his financial needs. He should

approach the customer and make him understand the importance of having

appropriate life policy (size and type), and motivate him to take the policy

suitable to him. The agent has the responsibility to assist the customer in

fulfilling the formalities required for taking a policy. The agents should

consider the major factors influencing the selection of policy before advising

the prospective customer on the purchase of a policy, on aspects such as

financial needs and plans of prospective policyholders; paying capacity of

prospective policyholders; present family expenditure; commitments in future;

probable income in future; existing savings with other financial institutions

and income tax obligations of prospective policyholders.

The following procedures are involved in the stage.

i) Identifying the prospective policyholder

ii) Understanding the financial background, family obligations, income,

nature of job or occupation and other financial commitments of the

prospective customer.

iii) Motivating and convincing the customer to take an LIC policy to cover

his life risk

iv) Assisting the customer in the selection of right policy (i.e. type of policy,

sum assured, term of policy, mode of premium payment, etc.

v) Assisting the customer in fulfilling the requirements of the proposal such as

age admission, medical examination with approved medical practitioners,

nominee particulars, authorization of salary deduction in the case of salary


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savings scheme, payment of first premium, confidential report of the agent

as to the proposer’s age and health conditions, etc.

Services on Policy in Continuation

After getting registered, the proposer becomes a policyholder of the

Corporation. The LIC is then responsible to render all services to its

customers. It is the duty of the branch office to give prompt and good service

to the policyholders. The officer- in -charge of the policy servicing section,

called Assistant Branch Manager, undertakes the services. The section

maintains a policy docket for each policy issued and a premium ledger sheet,

both of which are kept in policy serial order. The data processing department

maintains documents regarding all relevant particulars as to a policy. The

services to be rendered by the branch office during the continuation of policy

can be broadly classified into two categories.

a) Regular services b) Optional services

The regular services provided to every policyholder comprise issue of

premium demand notice, premium default notice in the case of failure to pay

premium within days of grace, receipt of premium either by cash or cheque,

sending policy status position, and claim settlement. The optional services,

services rendered at the request of the policyholder, include policy assignment,

policy revival, change of nomination, issue of duplicate policy, policy

alteration, paid up assurance, policy surrender, adjusting premium under salary

savings scheme, information on bonus enhancement, address change, age

admission, policy transfers, granting loans on policies, etc.

At Settlement of Claims The term ‘claim’ in the field of insurance means the right exercised by the

assured from a contract of insurance. It is the return promise against the premiums

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paid to the insurer. According to the Federation of Insurance Institutes of India,

Bombay, “A claim on the policy is the demand for performance of the promise

made by the insurer at the time of making the contract”. In short, the term ‘claim’

denotes all the payments made by the company either against any loss, or on

maturity or on voluntary surrender of policy.

The LIC of India is always vigilant in the prompt and quick settlement of

claims of its customers. Prompt claim settlement is the basic function of the LIC,

as the sole purpose of having an insurance policy is to cover the risk of life. There

are mainly two types of claims maturity claims and death claims. Maturity claims

are the claims that can be settled on completion of the period of policy. It arises in

the case of endowment policies where the policy amount will be paid to the

policyholder immediately after completion of the period of policy. Death claim is

paid in case the policyholder dies when the policy is live. It is paid on endowment

as well as whole life policy. An insurance company exists primarily for the

purpose of paying claims. Settlement of claims is the last stage in the process of

insurance. In life insurance, all the policies have to be paid sooner or later, either

on maturity of the policy or on the death of the assured.

3.5.1.7 Physical Evidence Physical evidence refers to the environment in which the service is to be

delivered and the place where the customer interacts with the firm, and any

tangible parts that facilitate performance or communication of the service.

Elements of the physical facility that have an impact on the customers are the

exterior attributes, such as signage, parking, landscape, and the interior

attributes, such as design, layout, equipment, and décor.

Physical evidence also comprises the tangible representations of the

service, such as brochures, business cards, letterheads, report formats, and other


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equipment. In some cases, the physical facility is more significant, as in the

case of hotels, resorts, and banks. In some other cases, the physical facility is not

so relevant, as in the case of mobile phone services. Other tangibles, such as

billing statements, play a more important role here. When customers have

inadequate information to judge the quality of a service, they will rely on certain

cues. Physical evidence provides very good opportunities for the firm to send

strong messages regarding the purpose and nature of the service offered.

Customers’ perception of a service organisation is strongly influenced

by what they see and feel. Visual and other sensory signals, as well as the

experiences with them, make up the ‘physical evidence’ component of the

marketing mix. Physical evidence provides customers with a means to identify

with a service offer. Before a customer comes into contact with the service

personnel or participates in a service process, he comes face to face with

inanimate evidence that suggests the existence of a service facility and its

ability to deliver value. Customers often use this encounter to evaluate quality

of service. While perspicaciously deliberated physical evidence can augment

customer interest and confidence, insensitively raised physical evidence may

scare away the customer.

The effective usage of physical evidence helps in promoting sales. It

communicates service quality attributes and creates the service experience. It is

crucial in forming initial impressions or setting up customers’ expectations,

especially in creating expectations for new customers or for newly established

service organisations that are trying to build a particular image. Well planned

and consistent physical evidence, which is in line with service objectives,

supports the creation and delivery of service. It brings vitality and reinforcement

to the marketing strategy. Unmanaged and inconsistent tangibles can depict an

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image quite different from the intended position. In the words of Zeithaml &

Bitner (2000), Physical environment is the environment in which the service is

delivered and where the firm and the customer interact, and also involves any

tangible components that facilitate performance or communication of the

service. More recently, Hightower and Mohammad (2009) defined physical

evidence as everything that is physically available to the consumer during the

service encounter.

3.5.1.7.1 Role of physical evidence

The primary role of evidence management is to support the organisation’s

marketing programme by making it possible to manage both intended and

unintended cues which can give adequate evidences to customers and thereby

influence perceptions. Interestingly, the physical evidences also influence

employees who interact with customers during the service delivery.

Parasuraman et al identified six specific roles of evidence, as i) shaping the first

impression, ii) managing trust, iii) facilitating quality of service, iv) changing the

image, v) providing the sensory stimuli, and vi) socializing employees.

3.5.1.7.2 Physical Evidence in LIC

The Brach office provides almost all services required by a policyholder

in the LIC, that range from issue of policy to the claim settlement of that

policy. The Branch offices are separate administrative and accounting units.

Generally, a policyholder approaches the Branch office to remit premium, to

avail loan on a policy, to revive lapsed policy, or to get the claim amount. The

policyholder can remit cash at the branch office or send cheque for premium

or pay through post office. Hence the customer has to depend on the branch

office for all services and, as such, the facilities provided by the LIC at branch

office can a have direct influence on the efficiency of its marketing. The LIC


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should be careful in providing a physical atmosphere that is congenial to the

policyholders’ requirements like good and spacious building with proper

layout, adequate seating arrangement for waiting, good interior decoration,

sign boards, display of brochure and literature, telephone facilities, etc.

The basic physical facilities provided by the LIC are spacious premises,

sufficient seating arrangement, and basic amenities, ventilation of branch

office, illumination/lighting of the Branch office, adequate illumination of the

Branch office, comfortable interior, space for forming queues, sign board,

complaint box, brochure and literature of the schemes etc.

The brochure/literature regarding the schemes and programmes explains the

different services offered by the LIC to its policyholders. The LIC should make it

available to the policyholders. The tangibles used by the LIC as physical evidence

are policy documents, brochures, periodic statements, renewal notices, business

cards, stationery, calendars/diaries, letters/cards, website, etc.

3.6 Customer Satisfaction

In business, a customer is one who frequents a business to avail himself

of the products or services offered by it. A customer need not always be a

consumer; he/she may be an intermediary between the final consumer and the

business. In the context of insurance, the agents and brokers are the major

intermediaries and, for the companies, this segment is also a customer group.

Until the mid-1980’s, the word ‘Customer’ was alien to the Indian

insurance industry. Customers were simply identified as ‘policyholders’. With

the corporate restructuring programme undertaken by the LIC in 1981 under

the guidance of Prof. Ishwar Dayal, the concept of marketing was introduced

to the organisation and, with it, came the philosophy of customer satisfaction,

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customer care, and customer delight. The opening up of the Indian insurance

sector and competitive initiatives from the private insurers caused erosion in

the market share of the LIC and the nationalized insurance companies.

To counter new challenges, the LIC tied up with the IT giants, IBM and

Wipro, to design its Customer Relations Management programme. LIC’s

CRM project, one of the largest initiatives in the Indian market, aims at

studying consumer behaviour and evolving marketing strategies to meet the

needs of customers. Market watchers feel that the ‘Big Brother’ LIC and ‘Big

4’ nationalised insurance companies should restructure and redesign their

publicity and public relations activities more professionally to inform

customers about the good work that is being done by them and the measures

being initiated to meet the increasing demands of the customers.

Marketing authorities are of the view that the time has come for the

business to nurture and care for its customers. With far-reaching developments

in IT and the new economy replacing the old economy, the ‘knowledge

customer’ occupies the centre stage. Customers, unlike those of the past, want

to be heard and they are no longer prepared to put up with defective products

and services. Because of ever increasing demands, companies are laying great

stress on customer relations management. Customer relations involve:-

Making customers a delighted lot.

Getting closer to the customer.

Creating a round-the-clock help line and providing assistance.

Listening patiently and carefully to customer grievances.

Providing a quick and proper response to customer grievances.

In tune with today’s customer needs, developing websites to create

product awareness and also to use this tool to listen to the customers.


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Using the satisfied customer as a medium of publicity.

What is customer satisfaction ?

Satisfaction is the customer’s fulfilment response. In simple terms,

satisfaction means the customer’s evaluation of a product or service in terms of

whether that product or service has met his needs and expectations. Failure to meet

needs and expectations is assumed to result in dissatisfaction with the product or

service. Customer satisfaction is a measure of how products and services supplied

by a company meet or surpass customer expectation. In a competitive market place,

where businesses compete for customers, customer satisfaction is seen as a key

differentiator, and this has increasingly become a key element of business strategy.

The concept of customer satisfaction occupies a central position in marketing

thought and practice. Satisfaction is a major outcome of marketing activity and

serves to link processes culminating in purchase and consumption with post-

purchase phenomena such as attitude change, repeat purchase and brand loyalty.

Customer satisfaction is the golden key for the survival of any organisation.

It is because of the fact that a satisfied customer generates many potential

customers for the future. When a brand has loyal customers, it gains positive

word- of- mouth marketing, which is both free and highly effective. Therefore, it

is essential for businesses to effectively manage customer satisfaction for which

firms need reliable and representative measures of satisfaction.

3.6.1 Customer satisfaction in Life Insurance

Customer satisfaction plays an important role in life insurance marketing. A

satisfied customer always tries to find out new products and passes on that

information to many others. The market-focused management model believes that

the purpose of the firm is to serve the customer. This is understandable even in the

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context of the Indian market where we are moving towards market economy with

the customer as the central focus. The Model depicted in Figure 3.4 throws light

on customer satisfaction in life insurance.

Determinants of Customer Satisfaction in Life Insurance

Source: Rajan.M.P (2009), Marketing Of Life Insurance by LIC India

Fig. 3.4 Determinants of Customer Satisfaction in Life Insurance

Customer

Pre-sale services:

Selection of Policy, Explanation of

product benefits, Product knowledge,

Financial advice, Assistance in filling

forms and, Attentiveness to

customers

The Product Features

1. Cost (premium), 2. Risk protection, 3. Savings, 4. Income-tax benefits, 5. Return, 6. Safety and, 7. Liquidity

The Agent’s Services

The Office Services

Post-sale services:

1. Agent’s visit, 2. Reviewing further insurance needs, 3. Assistance in premium notice, 4. Assistance in premium

remittance, 5. Assistance in policy documents

1. Tangibility, 2. Accessibility, 3. Competence, 4. Communication, 5. Assurance, 6. Responsiveness, 7. Reliability, 8. Empathy, 9. System and procedure


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Customer satisfaction in life insurance depicted in the model (Figure

above) is affected by a number of factors such as product features, agent’s

services, and office services, etc. Here, ‘product’ means the life insurance

policy that the customer has; ‘agent’s services’ refer to all the pre-sale and

post-sale services of LIC agents and office services refer to the LIC’s branch

‘office services’ covering all service dimensions. Life insurance product

satisfaction is a function of cost satisfaction, need, safety, liquidity, and return

satisfaction. The agent’s pre-sale services are considered as important and

are performed at the initial stage in converting the prospective customers into

the customers of the LIC. The agents’ post-sale services are rendered to

retain the customers and to attract them towards the Corporation for more

business. These services performed by the agents may have an impact on

customers’ perception of service quality. Office services would have a

significant impact on overall service quality. The three sides of the triangle

in Figure above represent service delivery. The customer in the middle gets

squeezed if service quality is not being adequately provided by any of the

service lines.

3.6.2 Kano Model of Customer Satisfaction related with LIC

The Kano et al. (1996)1 model of customer satisfaction classifies

product attributes based on how they are perceived by customers and their

effect on customer satisfaction (Kano, Seraku et al., 1996). According to the

model, there are three types of product attributes that fulfil customer

satisfaction to a different degree

1) Basic or expected attributes,

2) Performance or spoken attributes,

3) Surprise and delight attributes.

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A competitive product meets basic expected attributes, maximizes

performances attributes, and includes as many “excitement” attributes as

financially feasible. In the model, the customer strives to move away from

having unfulfilled requirements and being dissatisfied.

Source: Ramanathan.K.V (2007), A study on policyholders satisfaction with reference to LIC, Thanjavur Division

Fig. 3.5 Kano Model Customer Satisfaction related with LIC Customer Satisfaction

The basic or expected attributes (lower curve in the model) are basic

attributes, which customers taken for granted and they are so obvious that they are

not worth mentioning. While the presence of these attributes is not taken into

account, their absence is very dissatisfying. The performance or spoken attributes

(the central line of the model) are those expressed by customers when asked what

they want from the product. Depending on the level of their fulfillment by a

product or a service these requirements can satisfy or dissatisfy consumers. The


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surprise and delight attributes (upper curve in the model) lay beyond customer’s

expectations. If they are present they excite the 90 customer, but their absence

does not dissatisfy, as customers do not expect them. A successful combination of

expected and exciting attributes provides a company with an opportunity to

achieve competitive advantage. A successful company will correctly identify the

requirements and attributes and use them to document raw data, user

characteristics, and important service or product attributes. To make information

about the identified requirements about attributes understandable and useful for

designers, a so-called Quality Function Deployment (QFD) approach is often

being used. The goal of QFD is to assure that the product development process

meets and exceeds customers’ needs and wants and those customers requirements

are propagated throughout the life cycle of the product. The approach uses a

number of matrices, which help translating customer requirements into

engineering or design parameters, specifying product features, manufacturing

operations and specific instructions and controls. QFD allows for the minimizing

of errors and the maximizing of product quality for customers. The approach is

probably the only existing quality system with such strong orientation to customer

satisfaction. The LIC applied the abovesaid approach.

3.7 Brand

Brands are highly regarded as an important source of capital for most

businesses. The term ‘brand’ has different meanings attached to it; a brand can

be defined as a name, logo, symbol and identity or a trademark. Prasad and

Dev (2000), also state that a brand can be seen to include all tangible and

intangible attributes that a business stands for.

The traditional definition of a brand by Philips Kotler reads: “A brand is

a name, sign, term, symbol or design or a combination of these, which is

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intended to identify the goods or services of one group of sellers and

differentiate them from those of the competitors.” Thus the brand identifies the

seller or maker. A brand is essentially a seller’s promise to consistently deliver a

specific set of features, benefits and services to the customers. The best brands

convey a warranty of quality. But a brand is even a more complex symbol.

3.7.1 Brand Dimensions

The concept of brand has been evaluated in terms of the customer’s

perception on different brand dimensions, the impact of brand trust, brand image

and brand loyalty on brand equity and the impact of customer satisfaction on

products and services in terms of identified service marketing mix elements on

brand equity. The identified dimensions of brand for evaluation, i.e., brand

image, brand trust, brand loyalty and brand equity are illustrated below.

Brand Image

Engel Blackwell and Miniard (2002) referred to brand image as the

combined effect of brand association or consumer’s perception of the “brands

tangible and intangible association”. Keller (2002) sees brand image as a

perception or association consumers form as a result of their memory

concerning a product. According to Low and Lamb (2000), brand image can

also be referred to as the emotional perception or reason that consumers attach

to a particular brand.

Thus, brand image does not exist in the features, technology or the actual

product itself; it is sometimes brought out by advertisement, promotion or

users. Brand image enables a consumer to recognize a product, lower purchase

risks, evaluate the quality and obtain certain experience and satisfaction out of

product differentiation.


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Marketing researchers such as Keller (2002) have proposed that brand

image is an important element of brand equity. Brand image is referred to as

consumers’ perceptions about the brand or how they view it. According to

Keller (2002), brand image is also seen as “a symbolic construct created

within the minds of people and consists of all the information and expectations

associated with a product or service”. He found out that brands with high

brand equity are prone to more positive brand associations than those with low

brand equity. Also, Lassar et al. found out that brand with high brand image

rating always have higher brand equity and premium price. Conclusively,

Kwon reported that positive brand image is most likely associated with

preferred brands. Researchers have proposed that brand equity is to an extent

driven by the brand association composition of the image. According to Keller

(2002), favourable, unique and strong associations are assumed to provide a

positive brand image which will create a bias in the mind of consumers,

thereby increasing the brand equity.

A widely accepted view is that brand image represents customers’

perceptions of a brand as reflected by the brand associations held in consumer

memory. Herzog (1963) and Keller (1993) argued that these associations could

originate from customers’ direct experience or from information obtained on a

market offering or due to the impact a pre-existing associations which an

organisation had on the consumer. Brand image is, therefore, the mental

picture or perception of a brand or a branded product or service, and includes

symbolic meanings that consumers associate with the specific attributes of a

product or service (Dobni and Zinkhan, 1990; Padgett and Allen, 1997; Aperia

and Back, 2004).

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Pitta and Katsanis also stated that a unique, favourable and strong brand

image allows the brand to be easily differentiated and positioned in the

consumer’s mind, thereby adding to the possibility of increased brand equity.

Conclusively, brand image can be said to be the brand association or

consumers’ perception about a particular brand as a result of their association

with the brand.

Brand image is something an organisation cannot afford to ignore, if it

wants to carve a niche for itself in the long run. In order to successfully hold

the brand image, a company must ensure to preserve the values of legitimacy,

distinctiveness, relevancy and consistency. A strong brand has its long- term

gain. Hence, branding is an art of making a product marketable. To grow into

a sky identity, a brand should incorporate the following fundamental blocks

like Legitimacy, Relevancy, Distinctiveness and Consistency.

Brand Trust

Trust is the most critical component in building and maintaining a

strong, emotionally driven and enduring brand. However, in a world of

promotion-driven-marketing tactics, many brand owners forget that building

trust is the only thing holding the relationship with the customer together.

Most marketers in business create demand and sell more stuff. They are

rewarded for their skill and ability to help organizations sell. For most

customers, selling is not a very trustworthy practice. Nobody likes to be sold,

but people surely do love to buy. More than ever, customers buy from the

brands they trust. At the beginning of any relationship, trust is the most

difficult component to establish. There are two kinds of people–those who

begin a relationship with little trust, which needs to be earned over time, and

those who begin with trust freely given, but is forever taken away on the first


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sign of behaviour deemed untrustworthy. Either way, trust must be established

or there will be no relationship. Relationships with trusted brands are built and

maintained in this same fashion. People naturally will measure, with great care

and consideration, how the brand is likely to behave in a given situation,

depending on the rewards for being trustworthy and the deterrents against

untrustworthy behaviour. When trust is established at its highest level between

a brand and the customer, there is always an emotional “investment” made

between the two parties.

This bond is based wholly on strong emotional connections as a result of

the perceived shared values between the brand and the customer. It is never

based on functional benefits or feature- based ingredients. Trusted brands

understand what customers really care about so completely that they become a

badge of identification for the relationship.

The components of trust in building enduring brand value.

The pathway to brand insistence has well-defined components and all

are essential for brands to succeed in growing their value to customers and

brand owners alike.

Trusted brands do the right things.

Trusted brands are perceived by customers as having unparalleled

competence, efficacy and effectiveness in delivering on its promise. It delivers

consistently and contributes value even when it is not in the moneymaking

interests of the brand owners.

Trusted brands enjoy an “us=them” relationship with customers.

Customers must perceive and believe that they are one and the same

with the brand and the organizational culture behind it. The degree to which

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customers have common values, and shared beliefs associated with the brand’s

values and behaviour will determine the level of sustained trust customers will

hold in their hearts and minds.

Trusted brands have empathy.

Customers must experience deep emotional feelings of caring, empathy,

tolerance, and safety when they are vulnerable in transactions with the brand.

Sincere efforts to understand these feelings contribute to high trust levels in

any relationship.

Trusted brands never fail customers.

When brands act consistently and dependably, trust is strengthened and

customer advocacy assured. Trusted brands are stalwarts in living up to and

delivering the value that matters most to customers.

Trusted brands are transparent.

Honesty, integrity, sincerity are the essential attributes that contribute

and reinforce customer trust. This involves not only the amount and accuracy

of information that is shared with customers, but also how sincerely and

appropriately it is communicated. Customers will not move forward in

building a trusted relationship with a brand to the level of consistency or

identity until a brand proves it is able to live up to its part of the bargain.

Brands succeed because they earn and deserve, never because brand owners

desire nor need the business. Brand can only make the trust bond hold when

they connect through shared values. This is the only path to brand insistence.

Brand Loyalty

According to Aaker (2000), brand loyalty is “the attachment that a

customer has to a brand”. It can also be seen as the consumer’s preference to


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purchase a particular brand in a product class and this could be as a result of

the consumer awareness about that particular brand.

Yoo and Donthun (2001) also referred to brand loyalty as the tendency

to be loyal to a brand and this can be shown by the intention of the consumer

to buy the brand as a foremost choice. Oliver (2001) also defined brand loyalty

as “deeply held commitment to re-buy or re-patronize a preferred product/

service consistently in the future, thereby causing repetition of same-brand or

same brand set purchasing, despite situational influence and marketing efforts

having the potential to cause switching behaviours”.

Odin et al. (2001) stated that brand loyalty can either be behavioural or

attitudinal. Behavioural loyalty manifests in repeated purchases of the brand.

According to Dekimpe et al. one advantage of this is that it measures

observable behaviours rather than self-reported disposition or intention. It is

easier and cheaper to measure. According to Chaudhuri and Holbrooks (2001),

attitudinal loyalty can be referred to as the extent of dispositional promises

with respect to some particular advantages connected with the brand while

behavioural loyalty has to do with the intention to repeat a purchase.

Although the definition of behavioral brand loyalty deals with consumer’s

sincere loyalty to a brand as shown in purchase choice, the definition based on

attitudinal perspective stresses consumers’ intention to be loyal to the brand. It

is presumed that consumers’ understanding of quality will be associated with

their brand loyalty. The more loyal a consumer is to a brand, the more he/she

is presumed to see the brand as a superior quality and vice verse. Also, the

more favourable associations consumers have towards a brand, the more their

loyalty and vice versa.

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Brand Equity

According to Park and Srinivasan (2004), brand equity, the concept

developed in 1980’s, has no acceptable definition. Farquhar defined brand

equity as the value which the brand adds to the product. Similar definitions

were provided by researchers such as Aaker 2000, Keller (2002), Leuthesser

(2003), Yoo and Donthun (2001). Keller (2002) sees brand equity as “the

differential effect of brand knowledge on consumer response to the marketing

of a brand”. This is based on the assumption that the power of a brand lies in

what have been learned, heard, seen and felt by the customer about the

brand over time. Aaker (2000) provided the most precise definition of brand

equity, “as a set of brand assets and liabilities linked to a brand, its name and

symbol, that add to or subtract from the value provided by a product or service

to a firm and/or to that firm’s customers”.

Simon and Sullivian (2002) use the word “incremental utility” to refer to

brand equity. Park and Srinivasan (2004) refer to brand equity as the

distinction between the overall brand preference and the multi- attribute

preference depending on the objectively measured attribute level. Agarwal and

Rao (1996) also refer to brand equity as the total quality and choice intention.

Brand equity is the inherent value in a product. It contributes to new products,

perceived value, perceived quality, premium pricing options and valued assets.

It is the value a brand adds to a product. The brand adds value to that product

through its name and favourable attributes. Product quality and advertising

play vital roles in this regard. Brand equity consists in developing a

favourable, memorable and consistent image. It makes differential advantage

and influences consumers. It makes the product survive in the market even in

adverse environments. It is used to extend product mix and product line.


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3.7.2 Branding in LIC

Till mid 1980s, the LIC was promoting Life Insurance as a generic

product. The brand that lays stress on the quality of the product itself, instead

of highlighting the name of the manufacturing company or the company that

distributes the product, is known as the Generic Brand. The most successful

branding of a service was the one by the LIC’s “Jeevan” prefix for the

different plans, one of the best branding exercises in the Indian Market. While

launching Jeevan Mitra and Jeevan Saathi in 1985, the Corporation toyed with

the idea of branding these products for better recognition in the minds of

consuming publics.

The LIC has not yet developed any mascot that could penetrate the

minds of the customers. On the other hand, other companies e.g. Allianz Bajaj,

have imaginatively conceived “Care” as the brand message. Research study by

“Future Brands”, a UK- based research agency, reveals that the traditional

ideas that marketers have about brands is fast changing, particularly amongst

the younger generation that has unlimited access to information. The younger

generation relies more on advertisement gimmicks than on the utility of

the brands. In short, the brand should have consistency, i.e., ability to stay in

the market and adapt to the changes. In the era of a deregulated environment

and Information Technology, one can’t just rely on brand image alone. A big

player like the LIC, being an established player, has a very big advantage.

Another advantage of a well- known brand is that it comes in handy, if and

when the organisation wants to diversify. In such a case, care should be

exercised by the organisation to see that the reverse does not happen.

The truth is that a good brand image also cannot pull an organisation too

long. It has to be supplemented by other positive images like continued

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improvements in product quality, servicing standard and marketing methods,

value additions and fulfilment of the needs of the customer. The brand today is

to thrive in a global market, a “Borderless world”. It is believed that the world

population is growing more homogeneous in their tastes, due to the advantages

of fast communication and travel and will thus increasingly respond to global

brands. A Global brand thus helps in economy of standard practicing, label

promotions and advertising. Even when a company has promoted its global

brand name worldwide, it is difficult to standardize the brand associations in

all countries. Branding is a must in the modern scenario and companies need

to develop brand polices for the individual product chains in their lines.

Finally, it should be remembered that a good brand image has little

meaning to a dissatisfied customer. It takes a few seconds to leave a customer

displeased, and make him leave the fold, while years of sustained efforts can

only create a loyal customer and make the organisation trustworthy, and retain

an old customer.

3.7.3 Branding Strategies

Branding strategies are increasing recently to enhance the market share

of the product. The brand is vocationalised as name and mark. Brand identity

may itself increase margins and profits by enhancing the perception of quality.

Brand strategies involve decisions of individual names, blanket family and

company trade name. The strategy searches for the best name for each new

product. The LIC has been successfully using them. There are five choices of

brand strategy: line extensions, brand extensions, multi-brands, new brands

and co-brands.


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Line Extensions

Line extensions introduce additional items in the same product under the

same brand name. Many companies are now introducing branded variants. It is

a specific brand line for a specific distributor to distinct product offerings. It

suits the different requirements of the customers but too many lines may

confuse the customers. A balanced number of lines has a positive side. Jeevan

Saral of the LIC has been the brand line extension to cover higher amount,

smooth return liquidity, and flexibility. It has partial withdrawal facility,

flexible term, term rider and accident benefit options and auto cover. On death,

250 times of monthly premium is payable along with return of premium and

loyalty addition as per conditions applicable on Maturity when Sum Assured

and loyalty addition are payable. It makes life smooth sailing.

Brand Extension

Here, the existing brand name is used to launch new products. The LIC

has used the ‘Jeevan Shree’ for new products such as Jeevan Rekha and

Jeevan Sneha. The rise of Corporate Branding is extending the product brand.

The medical benefits have been demanded by customers since long; so, the

LIC has extended its brand to milled Jeevan Bharati and Asha-Deep II. The

policyholder during the policy-period gets 50 per cent of the sum assured in

case of suffering from specified disease. Premiums are waived thereafter.

Payment of 10 per cent of the sum assured is paid thereafter annually at the

anniversary of the policy. The remaining 50 per cent sum assured is paid at the

maturity. If the policyholder is dead before maturity, the balance is paid with

accrued bonus. Jeevan Bharati is an assurance for the benefits of ladies and the

newly born children. Under this policy, the new born is given 50 per cent of

the sum assured or Rupees one lac whichever is less, for congenial illness rider

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benefits. The payment of maturity claim may be made under annuity to give

benefits of pension.

Multi Brands

Additional brands are exercised in the same product category. Hindustan

Lever Ltd. India has different brand names for washing soaps. Similarly, the

LIC has Jana Shree Multi- brands wherein children get scholarship of insured

members of the group insurance. The company can catch a large number of

customers by multi- brands but each brand may obtain only a small market

share. Some brand names may be practically non-existing. The purpose of multi

-brands is to reach the same target market or distinct target markets. The Jan

Shree policy is helping a large number of houses living below poverty line, such

as rikshapullers, milk-sellers, farmers and so on. Children up to two only of the

insured parents can get scholarship of ̀100 p.m. from Class 9 to Class 12. The

multi- brands have been very successful. The Government of India is helping

the weaker sections through the LIC through the Jan Shree policy.

New Brands and Co-brands

New brands may be introduced when none of its current brands is

appropriate; co-branding is also useful in dual branding, i.e., two or more well-

known brands are combined together. It may be ingredient co-branding,

company co-branding, multiple-sponsor co-branding. The LIC has been

successful in issuing co-brand products by having new brands of the existing

brands. For example, Children’s Deferred Assurance has been extended to make

co-brands such as Komal Jeevan and Jeevan Kishore. Komal Jeevan is a Money-

back policy for children and Jeevan Kishore provides life cover from the age of 7

years. New Jeevan Akshay, New Jeevan Shree and Annual Jeevan have been co-

brands of their existing brands with some simplicity and uniqueness.


203

New brands have been added by the LIC by introduction of Varishtha

Pension Bima Yojana, Asha Deep, Bima Nivesh and New Prabhat. The LIC

has issued ‘Dhanavarsha’ as its brand equity. Several schemes in this series

have been launched with assurances on returns. Monthly income option has

been there. The Dhanavarsha scheme is closed now as market players have not

been favourable.

The LIC has been gaining the benefits of brand equity. Today, life

insurance means the LIC in the mind of a majority of the population. But the

LIC has to effort hard as the brand equity may not sustain long in the age of

competition. The market share of the LIC has declined from 89 per cent to 82.

It has to revive its brand equity by extending delighted services to the

policyholders. There is need of continued improvements in product quality,

servicing standards, value addition and fulfilling of the customer’s needs.

3.8 Background of the Study

The study is designed in such a way that the level of awareness of

policyholders on financial products, especially life insurance products and

services, is examined along with their buying behaviour as to purchase of life

insurance policies. The satisfaction of customers on the products and services of

the LIC including the services of its agents, customer perception on the level of

knowledge of the agents on the organisation, its products and services and

industry environment and impact of customer satisfaction on products and

services, customer brand image, brand trust, brand loyalty on brand equity, are

also examined. The agents’ perception on the marketing strategies, resources,

activities and programmes of the LIC and its impact on business performance,

customer preference on the features and benefits of life insurance policies are

identified and evaluated, which provide the foundation for strategy formulation

and successful implementation in the competitive environment.

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