Internet as a Insurance Distribution Channel

After the liberalization of Indian economy various reforms has been made in the insurance sector which has finally opened the gate of this industry for private sector companies. This has brought changes not only in the design of the products available in the market but also the manner in which they are marketed. There is a pragmatic change in the customization of latest products and services, regulatory norms, customer demographics, channels of distribution, greater use of information technology especially as a service facilitator. Even consumer preferences have been changing noticeably influencing the product mix offered by various public and private insurers. A vast potential exists in the Indian market as the demographic factors like average life p and standard of living are improving creating a demand for products that can offer protections and also double up investments of the customers. Also because of liberal government norms and India’s large population which now possess greater risk awareness, Indian insurance market has a global framework attracting major international insurance companies.

All these above mentioned factors are directly responsible for increased competition and shaping the overall insurance industry with new parameters. To harness the opportunities insurance companies must go close to the customers by expanding their distribution network.

Insurance Distribution

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A Micro ViewThe liberalization of the Indian insurance industry in the year 2000 led to the entry of private insurance companies with Multinational companies as their partners For them ,breaking the large agent led network of LIC which was enjoying the monopoly for decades was extremely tough. They decided to use aggressive advertising and promotional measures and also other untried distribution channels like having a tie-up with other financial service providers companies and use their distribution network instead of setting their own. According to the industry observers marketing, distribution and technical superiority were expected to be the decisive factors for success in the Indian insurance sector in future. Private insurers hoped to effectively leverage the strengths of these innovative marketing mix tools. A variety of distribution channels are currently being used in the market.

Direct Agents and company sales force dominated the market over years by building personal credibility and faiths in the minds of the clients. Bancassurance and broker led channels are of recent origin. Reaching out to bank’s existing customers would be very convenient and easy for the bank already had a well established relationship with their customers. They are well familiar with the target customers needs; had a strong service delivery mechanism, good quality administration, complete integration of insurance and bank products and services, qualified personnel and an organized tracking system for reporting on agents time and the results of bank referrals. Broker led channels are also being reviewed by the IRDA (Insurance Regulatory and Development Authority) as they are having an unfavorable image. But the most talked about contemporary channel is the internet driven channel. The widespread diffusion of the Internet has created an explosion in the growth of electronics channels.

Almost every industrial sector is computerized now. Computers are reaching to even rural areas and its education is given high importance now. Though the level is still low Information Technology is radically changing the way business is done. Internet enables insurers achieve wider reach, maintain customer’s interest and provide 24 hours service to customers. It also helps in reduce costs, faster processing of transactions and improving purchase decision through organized information. However, the success of this channel depends largely on the consumer attitudes and preferences. Initially the internet was expected to have a major negative impact on the traditional agent–led channel.

However consumers have not shown marked preferences for online shopping of insurance products. In a survey carried out by Forrester Research in 1999(and quoted by Industry Standard), only 12 percent of insurers sell online. The research estimates that the industry will deliver about $4 billion of sales over the internet by 2003 but it could hardly account for less than 2% of total premium volume. It is a noted fact that customers have their own perception regarding selection of distribution medium. Insurers need to understand the attitudes and preferences of customers which are important factors that impact the adoption of any innovative method in this sector. Research ObjectiveIn today’s competitive scenario a company has to focus on maintaining relationships with their customers and internet is an appropriate and effective media to stay in touch with customers conveniently and economically. But at the same time it is very important to know the customer’s awareness, usage and perception regarding internet as a marketing and distribution channel for insurance products.

The specific objectives of study are as follows:

1. To identify and analyze the factors that the customers opined are important in Insurance distribution channel
2. To know the awareness and usage levels of internet channel by the customers.
3. To know the customer’s motive behind purchase of insurance and importance he assign to different channels.

Research Methodology Sample profile

The sample consisted of customers from the city of Indore, the commercial capital of Madhya Pradesh. It is one of the fastest developing cities of India. 80 questionnaires were handed out to customers near office premises, college academicians and internet centers out of which 4 were disqualified due to incomplete information. A total of 76 questionnaires were found suitable for the study, over 95% of the total sample size.

Data Collection

Methods

Both the primary and secondary data collection methods were used. The primary data was collected through a questionnaire. Secondary data was collected from research journals, magazines, newspapers and internet.

The Questionnaire:

A structured questionnaire was developed after considering all the important factors affecting internet usage as a means of distribution. Questions were asked to gather information such as awareness, usage and customer’s perceptions regarding internet driven channels. Respondents are required to rate the factors on a six point rating scale ranging between 1= strongly agree to 5= strongly agree. Data related to demographics of the customers are also collected eg. Gender, age, occupation and income group.

Data Analysis and Results Sample

Demographics:

Sample demographics are collected on variables like gender,age and occupation. Out of 76 respondents 58 are male (76%) and 18(24%) are female. 45(59%) of respondents belong to younger age group of 21-30;26(34%)respondents belong to middle age group of 31-40,remaining 5 respondents are above 40+ years. Maximum 38 respondents are private employees constituting 50% of total respondents . 22(29%) belong to business category and rest 16(21%) are government employees. S

Insurance and Internet

Indian Market Scenario Because of the technological advancements computers have become a part and parcel of every company’s routine work. It made the day to day transactions more convenient and effective. Because of low economic cost it is more referred over human labor. Information transfer and access to external environment via internet has become a routine practices. Almost every company in every industrial areas is adopting an expansion and diversification strategy so to meet out the demand for staying in touch with remote located subsidiary ,the officials need to use various electronic medium and internet is most populous of them. Its access has become common in urban and semi urban cities. Seeing the popularity, Marketers too are using it for marketing and selling their product. Online advertising and various promotion techniques are used by them for online selling the product to customers.

But as per the data collected it has been figure out that though the internet usage is increasing sharply in urban and semi urban areas it is not comparatively preferred for online shopping of products. As per the data collected among 76 respondents, 64 of them i. e. 84% agree that there is a high awareness of internet but only 32 i. e. 42% has preference for online shopping. Rests 47% (36 respondents) were not in favor of this method of purchase.

Above all only 24 agrees to shop insurance through internet in contrast to 42(55%)disagreed responses. 10 respondents neither agreed nor disagreed as they prefer other channel like agents, banks or broker led channels.After the introduction of liberalization reforms, insurance market in India has become very competitive as various new international insurance and financial service providers have joined hands with Indian companies to provide insurance services in Indian market. These alliances are bringing innovative products (policies) and features. They are also keeping in mind that they need to break the market monopolized by the domestic leader LIC (Life Insurance Corporations) and GIC(General Insurance Corporations). To tap the potential market they need to adopt the various marketing mix tool in different ratios. Distribution is one such important ingredient in this mix.

LIC is having a largest and successful network of agent-led channels. It has created a trusted brand image in the Indian market by personalizing the sales of its policies using the agent network.Watching this private sector companies are also using this medium of distribution and are performing well to certain extent but still they need to adopt some strategies to tap the large potential market. Besides all these there are certain challenges faced by every insurance company of which two are critical:

• Innovative and Customize
• Products to suit Indian market
• Use of right distribution mix.

The companies are quite successful in dealing with the first challenge but it is the product marketing in which they are struggling with the right channel mix for reaching the potential customers. In today’s scenario insurance companies must move from merely selling insurance to marketing an essential financial product.This surely calls for leveraging multiple distribution channels is a cost effective and consumer friendly manner.

However when we talk about internet shopping it has become increasingly popular with consumers these days. But in insurance sector tends to be quite slow in adopting this medium. In a survey carried out by Forrester Research in 1999(and quoted by Industry Standard), only 12% of insurers sell online. The research estimates that the industry will deliver about $4 billion of sales over the net by 2003but that would account for only 2% of the overall market. In India also low rate of adoption is due to the consumer’s perception of insurance as a complex product. Insurance in India can only be sold after a considerable persuasion and hence selling over the net, initiated from the customer would take some more time. While the adoption rate of internet as a distribution channel has been low, it is widely used as a support channel.

It provides general information on financial services products( eg. insurance, investments) and planning involving the use of these products, to provide specific information on the company and its product lines, to provide administrative support to its policyholders, and to serve as a prospecting and communication tool for its agent led channel.

The Influencing Factor

Marketers must know the factors that customer perceive as important in Internet distribution. After a detailed literature review and responses from selected sample size, the following 14 features are identified:-trust and credibility, information about products, communication tool, prospecting tool, advise, cost effectiveness, security/privacy, supporting tool, transaction efficiency, efficient post sales service, complexity and compatibility, agent location , convenience, account access by policy holder, product customization. The customers are asked to rate their preference of these attributes on a scale of 1-5.

Simple percentage analysis is used on the collected data. The most preferred attributes were trust/credibility, support, information, communication and prospecting tool. 8(50%) of respondents thin that trust is the most important factor which a customer looks into the company, its product and method of distribution. As insurance transaction involves financial /monetary terms, since there is no face to face interaction on internet, the customers are hesitant about its credibility and compatibility. Only 31(41%) believes that internet is a secure medium and privacy of transaction is can be relied upon. 36(50%) respondents feel that though it is a convenient medium for marketing and distribution yet the adoption rate is slow. Internet is basically used for supporting the Insurance transaction as discussed earlier. 4(84%) respondents agree that internet is the best medium for gathering information and to search for various companies and their products. Customers can get the answers of their queries related to quotations, status of policy, approval and claims related transactions.

Thus it basically acts as a prospecting tool to the companies. Talking about cost efficiency, 85% respondents agree that internet is an economic way of gaining information for simple products like Term Insurance and Motor Insurance. Shopping for these products does not need very high advice and internet could be convenient and cost effective channel for them. Customer would like reliable advice on financial planning and insurance commitments are significant elements of this process. Research indicates that though 45% respondents prefer surfing net for knowing the various avenues of financial planning still a major portion i. e. 32% believes in face to face interaction with agents for deciding on financial investments.

Complexity /Technical aspect is another factor that plays an important role while selecting a medium for insurance purchase. Internet /Computers are still tough to operate for many people who are not regular users . since internet is a new concept its literacy level will increase gradually in future. 53%of respondents feel that it is a complicated way and especially the steps which are specified on websites of companies are tough to understand and use. After purchasing a policy there are various occasion when a customer needs to interact with the with the company like payment of premium, status of policies and accounts updation, maturation of policy, purchase of any new add-ons known as riders along with policies, claim and recovery etc. if all these can be effectively done on internet then it will be the best tool of providing post sales services to the customers. Easy accessibility of the account is also one factor required for the performance of the above functions; the procedures should be clearly specified so as to view updated account information.

One should also be able to locate agent incase he requires him to consult for any support/queries/complaints. The study shows that internet is adopted mainly as a support channel both by customers and insurance companies customers obtain general information and then contact agents or brokers or banks for purchase. Companies are using it to maintain relationship with their customers. However in this context it is best to look at the reason why customer buys insurance. Initially it was protection for dependents but now it is an important investment alternative in the financial planning process. People used it now as a tax-saving device for getting various deductions. Therefore keeping this in mind, companies should design and market such products which can be customized on consumer’s demand. Also use of well coordinated channel mix will help to achieve longer and stronger customer relationship management.

Challenges Ahead

The study reveals that the internet is still not a very significant distribution channel for insurance business. The usage level is very low and customers perceive trust/credibility, support, information, communication, and prospecting as significant factors affecting their decisions of choosing internet channel for insurance products. While the low cost of transaction over the net and the neutrality of the intermediary are obvious advantages, the online intermediaries do face some issues such as:

Building online brands is difficult and expensive. The brands have to be strong enough for customers to trust and divulge personal information on financial matters. Managing the cost of customer acquisition will hence be a challenge. The online stock broking experience clearly indicates a downwards pressure on commissions for the intermediaries as trading volumes and competition increases. The insurance intermediaries may also feel a similar pressure on commissions.

Conclusion

In conclusion therefore, the insurance space is likely to witness a lot of investment from both the insurers and insurance distributors in the near future and the industry could try to make up for its slowness in responding to the internet so far. Within the world of internet based business it is quite risky to make predictions as the business space could change dramatically even within a short duration of say three months. For insurance industry the one predictions, that can however be safely made is that the quantum of internet play will only increase in the immediate future and has been witnessed in other financial services product categories, some newer and different ways of offering products and transacting business online may emerge within this industry as well.

References

1. Kamal Nayan Agarwal(2004), “Factors that influence the Success of Internet Commerce,” Journal of E-Business, Vol. 4,Issue 2, December.
2. Randy E Dumm and Robert E Hoyt(2002),’Insurance Distribution Channels: Markets in Transition”, September conference, The International Insurance Society, Singapore.
3. D. Venkoba Rao(2006), “Internet Impact on Insurance Distribution”, The Icfai Journal of Services Marketing, Vol. IV, No. 4
4. www. thefinancialexpress. com

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