PLAYING TO THE END GAME

Making strategic choices with complex market dynamics

Marketing in India, with its economic and social contrasts, is often likened to dealing with several markets at the same time. The population of more than 1 billion differs enormously with 15 different languages, social customs and live under varying states of economic development from the vastly affluent to the destitute.

The personal and general insurance market, hitherto dominated by governmental monopolistic monoliths - Life Insurance Corporation, General Insurance - had to make way for a slew of private players who paired with local financial institutions to revolutionize the insurance market in India.

This paper describes the initiatives adopted by ING Vysya life insurance to provide a distinctive and compelling brand experience to consumers. All this had became possible by understanding behavior dynamics, need states, creating rapid segmentation models and developing value-based offerings and services to re design their own product life cycles.

BACKGROUND:
THE INSURANCE MARKET - THE LIFE OF THE PARTY

2000 AD: Entry of private players:

In 2000 the government passed a resolution that enabled private participation in the financial services sector in India.

At the time ING VYSYA and other multinational insurance companies entered the country, the Life Insurance Corporation (LIC) and The General insurance Corporation (GIC) were forces to reckon with. With a large force of nearly 2,000 branches and 500,000 sales agents LIC seemed formidable with almost 190 million policies outstanding.

These Indian companies offered plain vanilla policies with no returns. The premia was paid for 'protection', and insurance was usually purchased as a tax saving tool. It was considered essentially a rite of passage for a male who had entered the workforce - a veritable reassurance of self worth!

Despite the impressive statistics, insurance premia paid accounted for 2.3% of the total GDP.

The Socio /Psychographic Trends at the Time of Entry

Several demographic and psychographic megatrends augured well for the growth of financial services in general and insurance in particular.

One was the fact that there was a substantial segment of the middle class population that remained 'unbanked' (40%) and penetration of insurance was only 13% of the total insurable population!

Besides this, economic growth at 6.5% and the 'demographic dividend' - 55% of the population in the productive age group of 15 - 60 years were clear indications for exponential growth.

The Prevalent Inner Mindscape

A key enabler of the psychographic mega trends was the ratcheting up of incomes' and the emergence of the 'new affluent class'.

Table 1
NCAER REPORT

Consumer classes (Annual income in $)	1996 millions	2001	2007	% change (approx)
The Rich ($ 5k and above)	1.2	2.0	6.2	416%
The Consuming Class ($ 1.5k - 5k )	32.5	54.6	90.9	179%
The Climbers ($ 0.75k - 1.5k)	54.1	71.6	74.1	37%
The Aspirants ($ 0.375k - 0.750k)	44	28.1	15.3	-65%
The Destitute (Less than 0.375k)	33	23.4	12.8	-61%

The expectations of the people have become more distilled as a result of the growing incomes. The growth in incomes was to the tune of:

• Deprived class: 11.0% growth
• Lower and Middle: 6.0%
• Upper Middle: 10.0%
• Upper Class: 21.5%

The other forces that fuelled a paradigm shift in the expectations and the world view of consumers towards all products and services including insurance were:

1. Growth in sheer sizes of the spending classes and increased purchasing power clamoring for the good things in life (spending classes comprised over 300 million) and were getting 'aspirational';
2. Increasing exposure of the average Indian to better lifestyles of the west through media and product usage as well as through foreign travel;
3. Emergence of new categories like mobile phones, digital camera phones and convergence technology creating new frames of reference for the aspiring classes (these impacted expectations of consumers even in financial products).

These and similar factors went a long way in shaping expectations of consumers by engendering cross category comparisons.

INSURANCE INDUSTRY MANTRA:
NEED TO RE-INVENT THE RULES OF THE GAME

Within a year or two the interplay of market forces and the marketing efforts of the players has resulted in a convergence of financial products which broke traditional boundaries that existed between safety, liquidity and high return products.

Life investment companies, reinsurers, asset managers, investment bankers, and private bankers all find themselves competing in the same arena for business not always traditionally regarded as insurance.

Therefore, the life insurance industry, in order to grow the market needed to innovate insurance offerings, channels, take aggressive stances through tying up with credible regional banks, re-craft the delivery channels and create interesting bouquets of offerings to be injected at various inflection points in the product lifecycle.

ING Vysya instituted a "Brand Experience Process" dubbed "Live the brand" to understand and innovate their offerings.

This is a holistic approach that defines the environment in the competitive sphere and understands the messages and experience the consumer is exposed to both from within the product/service category as well as across categories. Market Research has been at the core of all these processes. Innovations have also been made in the product delivery pathways and the 're-invention of the role of the advisor'. These lessons are being replicated in other emerging markets too where ING has a presence.

LIVE THE BRAND - THE BRAND EXPERIENCE STORY

The key highlight of these strategies has been to use customer equity as a framework for generating value and equity (and not vice versa!)

These strategies include unique ways of:

• Understanding the behavioral economics/dynamics of consumers and the triggers for behavior through use of proprietary techniques like Discovery
• Developing rapid stage segmentation strategies
• Creating a bouquet of offerings to meet and surpass expectations and add value in the business system
• Amoebic mutations - Recrafting the offerings at various inflection points in the product life cycle to provide a total brand value experience.

Stage 1: Assimilation

Success factors: Understanding consumer expectations and market behavior dynamics

An initial comprehensive study of the usage and attitudes towards insurance revealed interesting perceptions and attitude segments!

• To succeed, private players needed to ride piggyback on a strong local bank (Bank assurance). The bank then provided the source of credibility. In this case Vysya Bank, with high credibility among consumers, provided the cover.
• In terms of risk attitudes, distinct trends emerged.
• The defensive investors were the largest kind (60%). They preferred safe long-term returns guaranteed by the government as well as gold, especially the elders. These were also among the higher SEC segments likeA1.
• There was a small segment of Sophisticated investors (34%) who actually took professional advise from portfolio managers and were even predisposed to taking calculated risks - i.e., mutual funds, equity markets. These were typically those who had accumulated a fair share of wealth and were not insecure about making it work for them!
• There was also a Young Cosmopolitan (Yo Co) segment (6%). The YoCos were highly 'self opinionated’ and demanded a higher life cover. They were keen to be educated on the financial aspects of investing in local and foreign markets. They were largely neophytes in the arena of investments.
• Across board consumers expected a reasonable return for their investments and the time span for returns seemed to telescope dramatically. Consumers wanted some returns to accrue within four to five years of entering an insurance policy.
• For the private players the expectations were more stringent! They were expected to start paying up from a reasonably short time frame of four years for consumers to feel reassured about their long term probity and safety of the capital!

Figure 1

CHARACTERISTICS OF THE CLUSTERS

Defensive Investors	Sophisticates	Young Cosmopolitans
High self esteem Believes in planning for today as well as tomorrow Cautious in investments Careful spender Believing in living and ageing gracefully Is led by recommendations of professionals/advisors	Self reliant Affluent(has a well paying job/business) High taste for life Does not compromise on lifestyle and status Leaves nothing to chance Believes in making money work hard for him	Not worried about future Stylish Wants to try all latest fads Brand/label conscious Will not compromise on brand name enjoys life to the brim Believes in globalization and development Has a high ego

Service delivery pathways

Many consumers, especially the Sophisticates and the YoCos, had begun using remote channels like the Internet and media/ toll free lines for data gathering and comparison of insurance schemes.

• As a re-invention and not elimination of the traditional pathways, the role of the advisor was also critical! They almost revealed a 'god like’ devotion in his advise. The sophisticates had become professional enough to reveal a reliance on professional advisors - who could be the bank manager, portfolio manager, celebrity stock brokers - essentially people who could look at financial planning holistically and give recommendations.
• Shopping around was not the norm! Most evaluated only one or two policies only before making a decision.
• Interestingly, price sensitivity was not high. The recommendation of the advisor seemed to make the difference between policies.

At the end of this stage, it was evident that the market was capable of absorbing several types of policies which would need to be carefully crafted and evolved keeping the needs of each segment in mind.

Stage 2: Synthesis

Success factors: Focusing on customer equity as a driver to brand equity through rapid need state analysis, concept generation ...

In order to understand consumer equity, a large segmentation and cluster study based on life stages and market dynamics/behavior mapping was conducted. This study innovatively meshed the socio-demo and psychographics variables with the lifestage need states of consumers! This was done through using a proprietary model called "Discovery".

Based on their financial investment portfolios and attitudes /expectations from insurance, five distinct clusters emerged. The key clusters identified for which distinct value offerings were to be offered were:

• High Net Worth Buyers (16%) - more predisposed to traditional offerings and mutual funds;
• The Defensive Buyers (48%) - who keep their income in government assured stocks, liquid forms of investments;
• The Sophisticates (18%) - predisposed towards mutual funds, stocks through portfolio managers;
• The Pension Savers (12%) - older, more disposed towards safe bonds, traditional offerings, providing income in later years;
• The Neophytes (6%) - those just starting out, willing to look at nontraditional offerings with safety, unit linked plans.

Figure 2

MARKET STRUCTURE: CLUSTERS

A few of the reigning attitudes to investments and insurance are captured here in table 2 below.

Table 2

ATTITUDE TO INSURANCE

5 point scale (mean scores)	High net worth buyers 16%	Defensive buyers 48%	Sophisticates 18%	Pension Savers 12%	Neophytes 6%
Prefer to invest in policies recommended by the advisors	3.88	4.3	3.6	4.0	4.0
Prefer governmentbacked funds	2.88	4.5	3.5	4.0	3.5
Prefer other assets like gold	3.28	4.2	3.0	2.5	1.8
Want company with variety of flexible plans	3.98	3.4	4.3	3.0	4.5
Want returns on the investment with life cover	4.08	3.5	4.0	3.8	4.0
Want the company to be proactive and offer regular updates and suggestions	4.78	3.8	4.8	4.0	3.4

Stage 3: Value Creation and Dedication

Success factors: Customer needs formed the basis of the product plans and various value propositions were created and longitudinally re framed and evolved.

These value propositions were arrived at after extensive qualitative as well as quantitative concept and need states research and understanding the preferences of the clusters.

Value Proposition 1: Insurance to cover future cash needs

These policies were called Reassuring Life and were aimed at covering the predictable /planned future needs as well as provide for unpredictable needs of money.

These essentially comprised endowment as well as unit linked policies aimed at the Neophyte and the Pension Savers segment.

These schemes offered higher protection and regular money flows.

These were focused savings plans which provided extra earning opportunities through the reversionary bonuses which was a critical differentiator.

After the profile of consumers buying into these plans were seen, the plans were made flexible after a period and linked to particular life stages - need states. Top ups were allowed.

Value Proposition 2: Insurance as an Investment Instrument

These were whole life and unit linked money back policies.

The Maximizing Life Policy was expected to increase the value of money in the future. It was positioned as a policy that would generate a surplus for investment. This was aimed across board, but was liked especially by the sophisticates as well as the defensive buyers segment. In this policy a proportion of the money would be paid back at regular intervals of 4, 8, 12 and 16 years.

Segmented Plans: Mutations of this Policy

For the Young Cosmopolitans, NeoPhytes and the Sophisticates, unit linked policies were launched. Usually unit plans were launched internationally only when the market was at a mature phase - however, in India the signals were very positive for their launch.

The Freedom Plan enabled consumers to create wealth through regular and relatively higher returns.

Every five years, a proportion (25%) of the amount accrued was paid up.

The Future Perfect Plan provided for maintenance of lifestyle after retirement in the form of annuities after regular payouts in the interim.

There were opportunities of higher returns like mutual funds and with the risk cover.

The premium was flexible and so were the top up options.

The critical differentiator of this plan is the complete flexibility and the attractive amounts that it pays back at regular intervals.

Value Proposition 3: Insurance as an Angel of mercy

These policies were called 'Fulfilling Life' and envisaged periodic returns to meet monetary contingencies to create a good fund at retirement.

The differentiator of this policy was that it could be customized in combination with three terms to meet a person’s responsibilities at different life stages. Besides, the risk cover was available up to 85 years.

Some of these policies were innovatively aimed at the High Net Worth Segment (Powering Life Plan) where the premium was high and the plan tenure only for a short duration.

However, a quarter of the premium paid was available at regular intervals!

Value Proposition 4: Insurance as a hedge against Old Age

These policies are aimed at the Defensive Customers and the Pension Savers. 'Best years’ Retirement Plans offer a capital guarantee and complete flexibility on payment options.

The critical differentiator that was developed was the minimum guaranteed return. The returns announced on this plan this year is 8% (double the interest on bank deposits).

Stage 4. Innovation and Customer Retention

Success Factors: Customer cross selling and bundling, and amoebic mutations of policies.

The company has revolutionized transparency by organizing all the terms and conditions behind the policy document so that consumers do not worry about "fine print". This has created a feeling of trust among consumers.

A few of the innovations made were based on specific needs at certain life stages. Consumers are often migrated to these newer policies.

The Conquering Life Critical Illness Plan was introduced as a response to a stated need of consumers.

The differentiator here is clearly different in the number of illnesses it includes and is the only policy that pays 50% of the sum assured on diagnosis and the other 50% in the recuperative stage.

Creating Life - Child Plan

This was a pioneering plan introduced as a method of planning for time based expenditure to be incurred on children. The maturity benefit could be received as a single lump sum payment or in three to five annual installments at specific stages of the child.

The critical differentiator of this plan was that it provided money for the child’s future with risk coverage of the parent as opposed to the parent receiving the money in case of any eventuality!

"Market of One"

In order to ensure loyalty to the company, plans are afoot to 'catch them young' and create customized plans at various stages and catering to their need states. The Universal Life Plan is on the cards.

Also bouquets of individual plans are on the anvil.

Unlike other categories, customer retention in the insurance business is largely influenced by 'management of orphan policies', i.e. policies that have been commenced by inactive advisors. The company has begun a huge database monitoring exercise with annual statements / mailers to the customers and updating their databases. This is also being used for cross selling.

Service Delivery Pathways: Innovations

1. Value builder: Keeping in mind the desire of the Young Savvy customers, the company website has a analyzer which follows a decision tree logic to calculate the amount of investment required in various types of insurance for specific returns at various life stages. This enables choice of the policies as well as premium, etc. This has gained popularity among the Neophytes and Hi Net Worth Buyers!
2. Tie-ups for reach and organic growth: To enable better reach especially in the small towns, tie ups with banks have been established. In order to penetrate the rural hinterland, ING Vysya has tied up with Madras Fertilizers - a fertilizer company to offer insurance to farmers and rural folk! This company has a high level of reach in this segment.
3. Value 'makeover' of the advisors: A different class of advisors - celebrity stockbrokers, chartered analysts/accountants; financial consultants and the like have been enlisted as "evangelists". They bring to the table a meshing of consumer apprehensions /FAQ's and financial savvy. They are able to make meaningful contributions in the customization of offerings.

CONCLUSIONS

The scenario today: 2005

Within a short span of four years the private players have not only grown the category but also ratcheted up a modest market share of 13%! The private players are estimated to achieve one-third of the market share by 2008.

Future Possibilities

As consumers become more savvy and demanding, the major players would now have to start consolidating and assessing their core 'ticket to play' areas.

In order to maintain their edge, newer offerings based on consumer needs as well as changing socio psychographics would need to be introduced.

ING VYSYA has launched another study to understand future directions and which of these core areas that it would need to concentrate on and develop in future, namely:

• Wealth Management,
• Risk Coverage, or
• Financial Services.

The plans would largely be driven by the consumer preferences in the new scenario.

REFERENCES

DATA SOURCES

NCAER Study. The Great Indian Middle Class.
Confederation of Indian Industry. Papers and reports 2003 /2004
Cases on Sociology. Oxford University Press. 2002

ARTICLES

Burroughs, James and Aric Rindfleisch. (2002). Materialism and well being - A conflicting values perspective. Journal of Consumer Research.
Flur, Dorilska; Mendonca, Lenny and Patricia Nakache. (1997). Personal Financial Services - A question of channels. McKinsey Quarterly, No 3.
McNamara, Paul; Weir, Janette and Alok Kshirsagar. (2001). A broadband future for financial advise. McKinsey Quarterly.
Purushottaman, Roopa. (2003). Dreaming with BRICS. Goldman Sachs report.
Sen, Amartya. (1998). How India has fared.

THE AUTHORS

YVDV Prasad, ING Vysys Life Insurance, India.

Vivek Bengani, ING Vysys Life Insurance, India,

Nayantara Chakravarthi  ,  Multi Dimensions Research, India.