Contemporary Issues in Insurance Management


By

Dr. K.S. Chandrasekar
Reader in Management
University of Kerala
Trivandrum-695 034
&
Reshmi Augustine
Research Scholar in Management
Sathyabama Deemed University
Chennai
 


Insurance today has moved to the center stage of World economy. The growth of insurance worldwide and its influence on the government action provides a clear indication of the relevance and importance of this sector in the Indian economy. With the opening up of the insurance sector, policyholders and investors will be exposed to a wide range of products. However, in India, insurance is far from being considered with due importance. Actually, in India, nobody takes up insurance unless and until he has had a bad experience. In a liberalised market, the country can gather enormous investment for infrastructure growth. Competition can bring in a healthy insurance industry. The only deterrent in India is that it has only a single digit billion foreign investment and lags behind other developing countries.

A very competitive insurance sector is going to give the society many advantages. There will be some job units as insurance companies might take away agents for smaller sales and may decide to sell it directly.  For instance, agents are there for motor insurance. However once the market opens up, it will be paid through banks and hence there wont be a need for these agents. More and more competitors are going to attract the customer by the service that is being offered and do the customer will become the ultimate focal point. Insurance Act 1938 prescribes fairly rigid guidelines for investment of insurance funds at present. As much as 75% of the investment has to be in government owned and other securities. If this inflexibility continues, the insurance companies will have very little to earn more on their investment. LIC has concentrated more on individual assurance over the period and neglected the other sectors, which is clear from the decline in their percentage to 1999-2000 from 1998-1999. This allows upon deregulation of other companies to leverage their business from other sectors hitherto ignored by the LIC. LIC in fact is using software packages developed its house in all their 2048 branches. It has also networked their city branches of Mumbai, Delhi, Bangalore and Chennai. The policyholders can tender premium anywhere and thus distances are eliminated. Foreign companies will use superior software like Apex that will give them an edge over the in house LIC software. The technology will help private insurers in product development and customising products to suit individual needs.

Deregulation will be a boon to the Indian consumers as there will be plethora of products and more options to choose from. It is also possible that market segmentation will be more fragmented. The competition will ensure a decrease in price levels. Banks will start to be one of the new channels in this market. The structural changes resulting from liberalisation will cause fundamental changes in the market behaviour within the insurance industry. The strategy of maximising turnover is no longer a recipe for success. In future companies may compete over price, products, underwriting criteria, innovative sales method and financial standing. The abolition of market barriers will permit the appearance of specialist suppliers, banks and foreign insurers, wanting to take advantage of additional entrepreneurial freedom. Poorly managed companies with a weak capital base will drop out of the market or premium rates and profits will dwindle. The liberalisation of insurance prices will impact the transparency of the market. From the suppliers point of view this means profit from innovation and this can be reaped longer if the innovation is not duplicated fast. 

Insurance companies globally are actually investment companies. In India they could give mutual funds a run for their money. For the first time, it may be possible to look at insurance as a serious investment option. Some new comers in the market will offer universal life and variable life insurance products that allow the holder flexibility in deciding how his product mix is going to be split. New products will also enable product combinations that allow greater customarisation. Finally, insurance companies can take a leaf out of the customer durable companies and offer their equivalent exchange schemes. In this era of competition, no one insurance company can sulk at his or her success and maintaining the performance will be a tough task.
 


Dr. K.S. Chandrasekar
Reader in Management
University of Kerala
Trivandrum-695 034
&
Reshmi Augustine
Research Scholar in Management
Sathyabama Deemed University
Chennai
 

Source: E-mail June 3, 2006

     

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