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Interview of Saugata Gupta, Chief-Marketing, ICICI Prudential
Life Insurance Company
What will be the implications of the recently announced
service tax on insurance polices? How will it affect policy
sales?
Life insurance is the most ‘mass market’ of all savings
instruments available in the country (Average Sum Assured
Rs 75000). In addition it also provides a security in country
where there is complete absence of any state funded social
security system and is an ideal long term investment. Despite
its versatility, it constitutes only 7 percent of the Gross
Domestic Savings (GDS) of the country. Given the current socio-economic
situation there is a strong case to encourage long term savings
coupled with protection through Life insurance.
The premium collected by a life insurer consists of 2 elements
i.e.
(i) mortality/morbidity charges and
(ii) savings on which the life assured gets a return. The
savings element in the Premium cannot be construed as “Services”
for the purpose of levy of Service tax as this would be akin
to taxing Banks or a Mutual fund on Deposit/Investment received
by them. For instance, the service tax on Banks is confined
to services like credit card services, merchant banking, securities
and foreign exchange broking and not on the deposits collected
by them. Further the service tax on credit card services is
levied on the fee and not on the actual spends on the card.
The imposition of service tax means that the cost of providing
life protection increases, the returns are lower, and further,
it reduces the incentive for individuals to invest in long
term savings that would be channeled into the infrastructure.
As yet, we are awaiting clarification from the government
on exactly which component of the premium will be taxed and
with effect from when.
Will the service tax be imposed on new policies or existing
policies?
Existing policies are pre-contracted at specific rates and
hence, to impose a service tax on them after they are already
in force is unfair. As yet we are awaiting clarification from
the government on the details of when the taxation of the
policy will kick in and whether it will apply to policies
already issued.
The Budget has reduced the benefits of Section 88 on
policies. How far will it affect policy sales?
Life insurance is a mass market product meant for lower income,
middle class and high networth individuals. The immediate
impact of the reduction in the tax benefit under Section 88
is that it will serve as a disincentive to invest the correct
amounts in insurance i.e commensurate with their human life
values. However, as people are slowly recognisisng life insurance
as a necessary protection product, this reduction in exemption
limits is unlikely to have a serious long term impact. Also
buyers of pension products can also avail of tax exemption
on up to Rs 10,000 under section 80CCC(1). As awareness of
this exemption increases, it will have a positive impact on
pension sales.
Post budget, what changes in strategy do you plan to adopt
in marketing risk covers considering the reduced benefits
for policyholders?
Our strategy has always been to help the customer assess
his/her need for a policy and to subsequently sell him a policy
based on that need, through our team of trained advisors.
ICICI Pru Life offers a range of policies to meet needs at
every step in life and our communications strategy complements
this by reinforcing that life insurance is not merely a tax
saving tool, but a means of protecting life. This strategy
helps consumer to recognize the true value of their policy.
We will continue with this strategy, despite the changes that
the budget has imposed.
LIC plans to change tack and sell insurance harping on
the 'pure risk' element. But considering that most individuals
purchase policies for tax benefits, post budget how far will
it be easy to sell insurance.
ICICI Pru Life has observed that consumers are now realizing
the holistic benefits of life insurance - that it is not merely
a tax saving tool, but an important financial instrument that
serves as a stable investment vehicle offering consistent
returns, and above all protects life against uncertainties
that face us all.
How many policies have you sold so far?
ICICI Prudential Life Insurance will reach the 100,000 policy
mark in a few weeks, making it the No. 1 private life insurer
in the country.
What is your present market share?
While official figures are not yet out, it is estimated
that private players have captured 3-4% of the market (in
value terms) in the top 5-6 cities.
What percent of your policyholders buy policies strictly
for tax benefits?
As mentioned earlier, customers are increasingly recognizing
life insurance for the multidimensional financial product
that it is, and more and more customers are purchasing life
insurance for reasons beyond section 88 namely the protection
benefit.
It has been over a year and private insurers have only
been able to make a dent in the market. What are the roadblocks
you face in marketing?
In the one year that ICICI Pru Life has been operating in
the Indian market, it has made a considerable impact by introducing
innovative life insurance policies that meet customer needs
as well as setting new levels in customer service. The key
task is to grow the distribution network and tap the huge
potential in an underinsured, underserviced market.
While awareness has been increasing it is still observed
that the slant is towards LIC products. When do you think
a situation will come when customers will ask for private
insurers products by name?
ICICI Pru Life’s communication strategies have been very
successful in building the brand and driving awareness of
the company and the category. ORG-Marg’ Brandtrack surveys
undertaken last year indicate that though awareness of LIC
stands at 100% ICICI pru Life stands not far behind in second
place at 70%. Further the awareness scores for ICICI Pru Life
have doubled between February 2001 and September 2001.
ORG Marg research also showed that the communication not
only created saliency and awareness, but also succeeded in
influencing the buying decision. ICICI Pru Life emerged far
ahead of other private players as far as share of wallet went,
with 52% of the respondents saying they intended to buy a
policy from ICICI Pru Life.
How many claims have you received so far?
We have received a few claims, which have been satisfactorily
settled.
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