"LICI is doing much better now"
NC Sharma, Managing Director of LIC of India Ltd. (LICI), was recently
in Kathmandu in connection with the inauguration of LIC's joint venture
in Nepal, the LIC (Nepal) Ltd. After its completion of the inauguration
ceremony, Sharma, who is one of the representatives of LICI in LIC (Nepal)
Board, shared with us his impressions about life insurance business is
general and about the experience of LIC in its metamorphosis from a state-owned
monopoly into a player in a greatly deregulated market. Excerpts:
How is the current scenario in India after the deregulation of
insurance business?
The insurance industry has been thrown open to competition in the last
one year. A number of big insurance companies of the world have entered
the Indian insurance market in joint venture with one or other domestic
business group. Allianz has tied up with Bajaj Group and the AIG Group
has tied up with TATA, New York Life is with Max, Prudential is with ICI
and Standard Life with Birla. Though they have been in existence for about
one year now, during this period these companies have not been able to
sell more than 70 or 80 thousand policies. In any case, it is definitely
less than one hundred thousand policies. Whereas, LIC between 1st April
2001 and 31st October 2001 sold nearly nine million policies. This means
these companies have not been able to tap even one percent of the Indian
market.
What types of challenges did LIC have to face after deregulation?
The new entrants have got enormous resources. They have got deep pockets
and they are internationally known. They will bring with them sophisticated
technology, knowledge of innovative products and excellent policy servicing.
This means the challenge to LIC is in the area of servicing.
Therefore, all 2048 branches of LIC are fully computerized. We also
have the facility of wide area network. Which means that a policyholder
who has taken a policy from one branch can pay the premium in any of the
remaining branches. In addition to this we have also taken a number of
innovative steps for servicing our customers. We have already taken the
support of sophisticated and modern information technology. In addition,
we have, introduced the "customer relation management" in all our Divisional
and Branch Offices through which we will be ensuring that our customers
get excellent support services. Similarly, LIC is thinking of bringing
in innovative products keeping in mind the changes that are taking place
in the economic situation.
What were the strengths of LICI that are helping it to cope with
the challenges of the transitional period?
The strength of LIC lies in its brand and image. In India LIC is often
a synonym for insurance. If a person takes an insurance policy, whether
it be a life insurance policy or vehicle, scooter or motor car insurance
policy, he says that he has taken an LIC policy. Which means that the
name of LIC has entered the psyche and the mind of every Indian. That
is the kind of reach we have. We have nearly 800,000 agents spread through
the length and breadth of India. Go to the North or to the South, to the
East or to the West and go to the smallest villages, we have an LIC agent
working in that area. I don't think there can be any company that can
match the reach of LIC.
How difficult was it to manage after the deregulation in view
of the prevailing organizational policy, structure and staff psyche?
As we were talking about deregulation ever since 1992 after the Malhotra
Committee was set up, we had prepared our staff for the eventuality. We
told them that LIC will not go for downsizing or retrenchment. It will
try to take care of the interest of each employee, but it would be necessary
for LIC to perform well, to show good growth rate in revenues and in premium
income. Our staff members responded very positively. The fact that we
have been able to perform so well after competition is a testimony to
the change in psyche and mindset of our existing employees.
LIC was able to use about six or seven years to take care of its supposed
weaknesses. As a result of all the initiatives we had taken, the performance
of LIC has been much better now than when it was a monopoly. We sold over
twenty million of new policies in a single year, which was a record. From
1st of April (the beginning of the financial year) to 31st October, the
competition was in full swing, but the performance of LIC at that period
was much better than it had ever been. Our growth in income was of the
order of 286%.
How did you cope with the problem of brain drain from your company
after the entry of so many life insurance companies in the country?
LIC today employs 120,000 persons. The number of our agents is over 800,000.
As far as the agents and development officers are concerned, not a single
person has left us. That is of the one reason why LIC continues to perform
well. Agents and development officers will put their faith in an organization
which is able to deliver good and satisfactory services to their customers.
Regarding the managers and officers, it is true that some of them at the
middle level and also at the senior level have left the organization for
greener pastures. But this does not make much of a difference to LIC,
because LIC has got large number of competent officers.
It is said that the monopolies find it difficult to adapt to the
deregulated situation. What is your comment on the basis of your experience
with LIC?
LIC was a monopoly from 1956 to 2000, that is for 44 years. Although
we were doing well reasonably from the standard of the public sector,
there was sometimes criticism about our servicing not being as good as
required. As there had been talk of opening insurance industry we could
see the writing on the wall right since 1992. Therefore, we took several
steps to see that the service to the customers improves. So, we have been
very careful and vigilant about taking steps to see that we are not complacent
about our performance. We warn our people that they must keep in mind
that the competition is quickly emerging on the scene.
What is an ideal environment conducive for life insurance business
to flourish?
I really don't know how to answer this question. In today's situation
the life expectancy of the people is getting longer and people are able
to lead fairly comfortable lives. In India the inflation rate is also
low. The people look at life insurance to take care of future contingencies.
Any life insurance company has to take care of the risk factor, and that
if people have invested money, they must get fair return on it. In countries
like US and Europe, where virtually everybody who has got life insurance
is taken care of either by state or by some other companies, the greater
market is for pensions rather then for conventional life insurance policies.
And that is the market which is going to develop in India also in a big
way. As people are going to live longer they will have to take care of
their old age. Governments are finding it increasingly difficult to take
care of the growing population of old aged people. Therefore the responsibility
of taking care of such people in old age will naturally have to fall on
insurance companies.
How do you see the immediate future of life insurance business
in view of the on-going global recession?
For the next few years there is no problem. In countries like India and
Nepal where the potential is largely untapped or inadequately tapped,
there are two ways of looking at this issue. One is, how many people are
there who are insurable? How many of them have you been able to insure?
In India it is said that out of every hundred people who should be insured
only 22 to 23 have been insured, which means that at least 77 people are
there out of every hundred who should have been insured but are not insured.
So that is the potential available for you. The other way of looking at
it is in terms of revenues. What is the ratio of the life insurance premium
to the GDP of that country? Just now we heard Chairman, Beema Samiti,
Nepal telling us that the insurance premium in Nepal is not even one percent
of GDP. In developed countries, it is as high as 10%. The international
average is 7.5%. Even in India it is to the extent of 1.4%. Which means
that both in India and Nepal there is a tremendous scope for exploiting
life insurance business. We must at least bring it to the international
average. These are the two factors which clearly indicate that there is
a lot of potential for life insurance market.
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