What is it about the Indian markets that warrant such a major expansion drive on the part of the company? What, in your opinion, will be the major growth drivers in this industry?
Suri: With the industry growing at 177 per cent for the period April – Jul 06, the Indian insurance market is expected to hit US $ 25 billion in 2010; assuming a 7 per cent real annual growth in GDP. In fact, today India has an insurable population of 300 million with only 15 per cent insured. Changing lifestyles are also a sign of the increase in potential of the market, as some of these factors help people plan for their financial security. Some of these changes are
- Nuclearisation of families – moving away from the social security of the joint family system
- Employers understanding the benefits of providing protection for their employees
- lifestyle related diseases on the rise
- Increase in consumer exposure and awareness about the financial services is another
Any growing economy where a large chunk of the population is underinsured and has low penetration will experience rapid demand.On the access side availability of relationships through existing banking and corporate agency infrastructure has also helped the rapid increase in insurance market. The sheer size coupled with the nascence of the market, growing economy is incentives for organizations to have distribution proportional to potential. Some of the other factors are.Higher Savings Rate: The household savings rate in
India has averaged about 21% of GDP over the last five years. We expect even greater improvement in savings among Indian households going forward, aided by the sharp decline in the age dependency in India, which implies that the proportion of the working population and subsequently, the savings rate increase. Low Penetration: Total life insurance premiums collected in India were US $15 bn in F2004, or 2.3% of GDP. This compares with the penetration of 11% in Taiwan, 7% in Korea and 3.5% of GDP in Malaysia. On of the key reasons for low penetration in India was the fact that insurance was primarily sold as a tax planning product until private players were allowed entry into the segment. Private players now provide a savings angle to the product (by introducing unit-linked products) and have introduced new distribution channels ( e.g. bancassurance), which has resulted in a pick up in growth for the entire industry. Prior to F2001, life insurance in India was largely take for tax saving purposes and products offered were traditional endowment products. However, with the entry of private players, the products offering changed significantly. Private players pushed unit-linked products, leading investors to look at insurance as a saving too. LIC relies almost entirely on its agent force to acquire policies. However, private players introduced alternate distribution channels for the acquisition of policies, enabling them to increase penetration. What do you foresee as the major challenges to the consolidation of MetLife’s position in the country?
Suri: The challenge has been in earning the trust of the consumer, in building a brand in a market which is so diverse and yet distinct. We have been doing that and today over 800,000 people have invested their trust in MetLife. We were the only private insurance player in
India to run with our name from day one we believe that we have entered the market at the right moment and are investing for the future. Challenges present themselves as opportunities. Understanding the Indian Diaspora was the biggest one. But today we have and with that knowledge we have introduced innovative product options. In addition, we needed to educate the Indian customer. But before that could happen, we needed to educate our own team of financial advisors. Instead of selling policies, we wanted our team to offer solutions based on individual needs. So, we have dedicated a large part of our time imparting training to our advisors so they can gauge the customer’s needs and offer the right solution. And to make sure that it is working on the other side, we have institutionalized an internal accreditation program (for the unit-linked policies) whereby after the unit-linked solution has been availed of, we call up the customer to find out whether they have been appropriately briefed about the product by the advisor. The sheer size of the market is such that MetLife has a great opportunity to be a successful insurer of lives. MetLife currently has 43 offices across the country and we plan to scale up in order to tap this market. What are the different distribution channels that MetLife will focus upon?
Suri: MetLife has a multi channel approach to distribution and is well capacitised on the individual and group side of business. We have financial advisors working in the agency sales channels. We work through banks and corporate agents on the third part distribution arrangements. The vast banking network represents the opportunity to penetrate the market place. Our direct sales force our geared to do the talking on the employee benefit space and also work through brokers in this space. We also have an approval to market insurance through a telemarketing channel. According to a recent research report by Fitch, banks serving as distribution channel for insurance products, have contributed about 20 per cent of the total insurance business in financial year 2005. What potential do you see for bancassurance in the Indian markets?
Suri: In India the bancassurance model is still in its nascent stages, but the tremendous growth and acceptability in the last three years reflects green pasture in future. The deregulation of the insurance sector in India has resulted in a phase where innovative distribution channels are being explored. In this phase, bancassurance has simply outshined other alternate channels of distribution with a share of almost 25-30% of the premium income amongst the private players. A bancassurance alliance results in lower infrastructure and manpower costs. In India, the local regulations are encouraging the development and promotion of this channel. Also, banking in India is mainly done in the ‘brick and mortar’ model, which means that most of the customers still walk into the bank branches. This enables the bank staff to have a personal contact with their customers, which is very essential for insurance selling. The bank network – especially the public sector and cooperative bank branches are spread across the length and breadth of the country with 65,000 plus branches. This enables the insurance companies to reach out to each and every individual in the country who needs life insurance What will be the major challenges and opportunities that the untapped rural and semi urban markets are likely to pose to your ambitious plans of increasing outreach?
Suri: Though the rural sector poses many opportunities for life insurance, there are many challenges that we face in the market. Limited infrastructure facilities in terms of banking, access to information, telecommunications, low presence of medical facilities are some of the hurdles that one has to overcome. The best way to tap the rural market is to partner with establishments/ communities that have a significant presence there. MetLife is already doing sizeable sales in the Indian rural market. MetLife is reaching out to the people in the rural parts of India primarily through the Bancassurance model and through NGO’s/ self help groups.
What do you think are the critical differences in the way the life insurance sector has been growing in India as opposed to China? Suri: When we look at the Indian Life Insurance market we have an impressive annual growth rate, with the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. The Total value of the Indian insurance market (2004-05) is estimated at Rs.450 billion (US$10 billion). Innovative products, smart marketing, and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. Indians, who had always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer. In China the licenses are issued by the province and not for the country so any company needs to apply again and again to expand business. This is not the case in India. The Chinese life insurance market on the other hand has shown a steady growth in the recent past. China has a population of over 1.3 billion and the top ten insurers in
China only have approximately 10% share in the market. That meansthat 90% of the potential insurance market in China has yet not been tapped. The total insurance market in
China is expected to grow at the rate of more than 13% to reach the level of more than US$ 100 Billion from the year 2006 onwards. Overall, with more foreign competitors and more market forces steering the domestic carriers, China‘s vast domestic market, fledgling financial services industry, and the transition away from state-provided social security are the major drivers. More specifically, China‘s savings rates are approximately 40%, some of the highest in the world. Hence the Chinese life insurance industry is entering a stage of unprecedented competition. A vibrant life insurance industry is uniquely suited to address infrastructure and social needs alike. By redirecting China’s enormous household savings, now held largely in short-term bank accounts, into life insurance products, insurers could help to raise the long-term financing that the state needs for big infrastructure projects. On the social-welfare side of the equation, life insurance protects ordinary people, giving them peace of mind and securing long-term savings for their retirement. Moreover, it helps to reduce on government by supplementing the social- pension and welfare system. Thus a thriving life insurance industry, once further reforms are implemented, would allow China to address its infrastructure and social issues simultaneously. At present, companies in the Chinese insurance industry pay a 5% business tax, while those in industries such as telecommunications and construction pay only 3%. The difference obviously puts life insurers at a disadvantage. This isn’t the only form of tax inequality: domestic companies pay more than their foreign counterparts and companies based in China’s special economic zones. India, by contrast, grants domestic insurers a lower income tax rate than the foreign ones. Meanwhile, individuals in China owe other taxes: insurance agents, for, example.