It was in 1818 when the first Life Insurance Company was established in India by private and foreign insurers. In the twentieth century many medium and large sized foreign as well as Indian Insurance companies cropped up with different objectives all across India. The Government of India issued an Ordinance in 1956 on nationalizing the Life Insurance sector and Life Insurance Corporation (LIC) came into existence in the same year. The Life Insurance Corporation (LIC) absorbed a total of 245 Indian and foreign companies dealing in the business of insurance.
At present LIC is the largest single mobilizer of funds in the form of savings of the public for investment accounting for about 14% of the total financial savings of the Household sector. Currently India is a US$41 billion industry, wherein only two million people (0. 2% of the total population of 1 billion) are covered under Mediclaim. This is a sharp contrast to developed nations like USA where about 75% of the total population are covered under some insurance scheme. With more and more private companies emerging in the sector, the situation may change soon.
According to industry observers, one of the main reasons for the low insurance penetration in India was the ineffective distribution and marketing strategies adopted by LIC. The company reportedly never had any strategic marketing game plan, and due to its monopolistic nature the need for serious marketing efforts was never felt. The advertising initiatives were limited to some print and electronic media advertisements that typically talked about LIC’s products being great tax saving tool for salaried individuals who came under the income-tax bracket.
Despite all this, LIC was synonymous with insurance in India and it had established an enviable brand image for itself, especially in the rural areas and small towns. However, with the entry of new players, the insurance market changed almost overnight. Analysts commented that the private insurers seemed all set to make the industry marketing-driven, wherein technical and service excellence would be the key factors of success. The private companies, in a bid to make their presence felt and their brand noticed, initiated a series of aggressive marketing and promotion initiatives, something that buyers of insurance were not accustomed to.
In July 2002, India’s state owned insurer, Life Insurance Corporation of India (LIC) announced aggressive marketing plans with a budget of around Rs 1 billion. The aim of this unusual decision was to woo customers across the country through a multimedia campaign including advertisements on the radio and the press media, the outdoor media and the television. However, this did not come as a major surprise to industry observers who said that LIC did not have too many options.
With the insurance bill being passed in 2000, the Indian insurance sector saw a host of private players enter the market with multinationals as their partners. These new players resorted to aggressive marketing and advertisement strategies – something the market had never seen earlier. This sudden spurt of advertisements and awareness programs was visible on all the media channels. Print, electronic and outdoor advertisements of the new private insurers flooded could be seen everywhere.
This prompted many comparisons of such behavior of insurance companies with the advertising frenzy of the dotcoms in India not too long ago –with similar full-page advertisements, huge hoardings and costly electronic media advertisements. According to reports, in the first quarter of the year 2002, insurance companies spent 70%of what was spent in the whole of 2001, on advertising and publicity. Across the world, insurance, as a category was one of the largest spenders on advertising. In India too substantial expenditure was being incurred due to advertising.
COMPANY EXPENDITURE LIC 1000 Bajaj Allianz 200 Kotak Mahindra 150 ICICI Prudential 146 Source: ICMR However, during the first year of the entry of new players, while LIC reported a growth of over 250%, private insurers managed to garner only about 0. 5% market share, in spite of spending hefty amounts on advertising and promotion. According to reports, LIC’s business increased mainly because of the increased public awareness about insurance which was brought about by the heavy advertisement campaigns of private players like the ICICI Prudential.