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The insurance sector in India has been largely monopolised by state-run enterprises until 1999 when the sector was opened to private players, with limited foreign equity and with government role limited to regulation. Since then, more than 20 private players have jumped into what seems an endless opportunity. Mr Prabhakar Deshpande, Business Analyst, Mastek, and his colleagues, tell us that the Indian market is distinctly different from those of the developed world and that its technological needs are different too.
The insurance penetration in India is still low thus presenting a scenario of endless opportunity. However, this scenario is also unique as it is one where there is fierce competition due to multiple players jumping onto a market monopolised till recently by few state run enterprises.
While initially, say in 2000-2003 period, insurance companies competed in land grab fashion – that is by improved marketing and better distribution, it is being seen that lately the competition is manifested by competing through differentiation – differentiated products and so on.
Technological challenges – Volume and diversity
Mr Radhakrishnan Sundar, Executive Director, Mastek said the diversity of India lends itself to a range of Insurance products to cater to vastly different segments of market and the large volume of policies, huge number of agents and the geographical spread throw up unique technological challenges.
Hence a technological solution for Indian insurance industry must cater to twin characteristics of scale – the volume of policies and diversity – range of products to cater to different segments of population, he explained and added that it is the ability to innovate, launch and keep expanding that is more important in a growth market such as India.
Focus and concerns of insurers
Celent, a management firm had conducted a survey in 2009-2010 among insurance firms in India to understand their technology trends. The Celent report finds that there is a focus on business growth, and cost reduction and a concurrent focus on ease of doing business at prospect and policy holder end. This points to the industry's keen need for effective customer prospecting and retention.
The study also found that insurance companies are keen to improve time to market. Also there is a focus on back and middle office systems. However priority area is actuarial design and distribution and sales and this points to industry's strategy of differentiation through product design and marketing through distribution and sales.
The study expects IT budgets to increase by 4-5%, which is nothing to scoff at by global standards. A significant focus on emerging technologies such as Ajax for User Interface and software as a service (SaaS) for Enterprise applications was seen in study.
Technologically insurance companies are charting a path from traditional legacy systems to modern architecture.
Insurance companies are also combining solutions from various vendors.
Legacy systems and current distribution model not suitable for Indian insurers
Mr Atish Kumar Baisantry, Head Insurance Practice Line, Mastek said that many insurance companies are stuck with legacy systems from their partners from developed world which may not be suitable for India. While as the market in developed countries is often 'low volume- high value', the market in India is typically 'high volume – low value' – just the opposite. Hence need to migrate away from legacy system to modern system.
Also the traditional means of sales – agents with high commission – need to be changed as technology should be used to find more cost effective ways of sales, Mr Baisantry said. Not just the technology but the business model itself needs transformation, he added. And insurance companies are exploring unique ways to reach untapped segments – rural markets – through NGOs and other means.
Mr Baisantry also said that direct sales, through portals, is another area for insurance companies to explore. There are four areas which insurance providers can focus on while aiming to capture market – product innovation, sales marketing and distribution, operational excellence and business model innovation, he said.
Growth segments and untapped segments
In a mature market, such as the US or the UK, operational efficiency along disruptive business innovation is often a strategy of choice, with little room for product innovation or sales innovation. In India, markets could be divided into growth segment or untapped segment such as rural areas. Most new insurance players focus on growth segment, whereas established player like LIC tries to enter the untapped rural market.
In a growth segment, innovation in sales and marketing and distribution is often the strategy to drive up market share. There is very little room for business innovation or product innovation. However in an untapped segment, such as rural areas, innovative product lines and new distribution reach along with business innovation, not necessarily disruptive, are important.
"Time to market" emphasis
"Insurance is Insurance and similar in all nations, yet there are differences", Mr Tom Rogerson, Global Product Manager, Mastek, pointed out. "The needs are different", he clarified. Whereas "distribution is important in India, cost control is important in mature economies like UK and US," he said.
What an Indian insurance organisation needs technologically is a "highly functional policy administration system" Mr Rogerson said. It takes years to get license to get into Insurance and new players having waited long to get license, need to ramp up their act soon enough and start selling policies.
Hence there is an emphasis on "Time to Market". "Huge Volumes" is what distinguishes Indian insurance market from other markets. India shares the phenomenon of "huge volumes" with China. Hence a new player has to have technological readiness to be able to process huge volumes from the very start, said Mr Rogerson.
Different needs from developed world
Clearly the insurance industry in India is different from that in developed world. But the market is one that is fast growing and likely to be so for at least a decade and more. High volumes, geographical spread and diversity of population segments are unique features that characterise Indian insurance market. Added to this the low penetration offers vast untapped market potential.
However for insurance companies to capitalise on this, choice of technology that meets these unique needs rather than imposing a 'one size fits all' technological solution that has been tried and tested only in mature developed economies is needed.
Technological solutions for the Indian Insurance industry require careful understanding of nuances of the Indian market.