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When you purchase a life insurance product what is the first name that comes to your mind. Obviously its Life Insurance Corporation Of India..Have you ever wondered why LIC commands so high a brand loyalty?. Remember When People Use Your Brand As A Verb That Is Remarkable. I will ask you a simple question. Do you buy an MP3 player or do you buy an iPod? Do you purchase a Smartphone or an iPhone?. Here these products have become "The Name" and created a tribe of their own .Companies make products and consumers make brands .Products might become obsolete but the value of brands increases with time .It would be good to remember that products can always be copied but brands can never die out.
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So How Did LIC Acquire So Formidable A Reputation:
Trust Is A Basis For Any Brand Loyalty:
When we purchase a life insurance policy what do we look out for? Obviously it is the death benefits and the payment of the sum assured on the death of the policyholder. In insurance parlance it is called Claim Settlement Ratio. Life insurance companies have to make profits. They do so by persuading you to pick up life insurance products whether you need them or not. You might not mind this so much but what if ? Yes it is too terrible a thing to comprehend. What if the insurance company does not pay the sum assured on the death of the policy holder? What is the use of that term plan? .It would be great to note that LIC has a claim settlement ratio of around 97%.When a claim is to be made the policy holder is not around. The insurance company may quote some rule or the other and deny your claim. Who would want to spend precious time and resources fighting court cases? It is here that LIC commands trust and brand loyalty…
Oh LIC Has Been Around A Long Time:
All of us have heard of monopolies those timeless ageless giants .LIC was established in 1956 by the passing of the Life Insurance Corporation Of India Act 1956 and LIC came into existence .Until the 1990's LIC was the master of the game in insurance. With little competition it succeeded for more than three decades as people had very little choice but only could approach LIC for that necessary life insurance .Many times in history monopolies collapse and are soon forgotten. Those that survive are remembered for a long time indeed.They have the first mover advantage.
The King Of Market Share:
LIC Performs with a a commanding market share of around 75% of the life insurance industry in India .It continues to hold its leadership position in the life insurance industry. Who can forget a market leader? He who garners the maximum market share is King. When a survey was conducted in India among those polled all of the people who knew what was insurance had heard of LIC, and over 90% of the people stated that if they purchased insurance it would be from LIC. Clearly private sector insurance companies have not been able to stand up to LIC. The LIC monopoly ended in 2000 and a number of private players entered the fray. A number of foreign players entered into joint ventures with their Indian partner's holding a maximum of 26% stake .The advertisement budgets of these foreign companies shot up through the ceiling .At stake was the Indian Insurance market valued at a whooping 100 Billion Dollars as of 2012.Initially LIC took a hit especially in the 2008-2009 period but recovered lost ground quickly and held its own against the foreign competitors.LIC caters to more than 1.5 Crore clients which is more than the population of certain countries .It made a whooping profit of over 25000 Crores in the first half of the fiscal 2012.LIC has the largest network of lakhs of agents and depends heavily on agents to tap customers and get them to sign on that dotted line. Remember that friendly insurance agent who comes to your door answering your whims and calls in order to persuade you to renew your policy. In India in spite of Crores of Rupees spent by the foreign players on advertisements they still depend on agents to push through their products by hook or by crook and when it comes to the sheer number of agents LIC owns them all running into lakhs of agents. LIC has a vast distribution network and a reach into the rural areas of India and goes where no private players agents can go. LIC also had a brand name passed on from generation to generation which stands in its favour .Even before foreign players came in LIC tailored better products ,expanded its base basically from the cradle to the grave ,maximized its distribution network and raised offerings of newer products each year. The private players after taking an initial beating are soon regrouping. They have increased their premiums share in the urban areas. The battle is heating up. Clearly for LIC the next phase could be the decisive one.
Focus On The Rural Areas:
In India rural areas form a vast region of untapped potential for insurance companies. Currently LIC is the dominant player in this area.LIC with its vast number of agents, its brand value and brand loyalty and its appeal to the rural masses scores over the private insurance players .Even though market share of LIC may have taken a hit in the urban areas it continues to dominate in the rural areas. This is mainly by skits and street plays LIC has been able to target the rural masses. Here LIC clearly enjoys the first mover advantage and this is its true bastion of power .Imagine the crores of people living in India's villages. But can LIC afford to rest on its laurels? No certainly not. The private insurance players have woken up to the vast potential of the rural market in India and are targeting it through E-choupal introduced by ITC ,a Distribution network which connects a number of remote villages in Madhya Pradesh, Andhra Pradesh, Uttar Pradesh and Karnataka. Using this E-choupal an e-commerce tool these private players hope to negate the dominant position of LIC in the rural areas of India. LIC better be on its toes.
The Backbone Of The Government?
One of the major areas of support LIC can count on is from the Government Of India. This support is mutually interdependent as one cannot survive without the support of the other .In the month of March this year, LIC rescued the government stake sale in SAIL a public sector company by lapping up almost 70% of the shares on offer at a whopping 1000 Crores .From 5% it raised its stake sale to 9% holdings in SAIL. It had also bailed out the government's disinvestment plans in ONGC last year by picking up a whooping 12000 Crores worth of shares in the concluding minutes of the equity stake sale and saved the government from severe embarrassment .It has also picked up stake in other Public Sector Companies such as NMDC, NTPC, Oil India Ltd., RCF, NALCO, Hindustan Copper and a number of Public sector banks .But is LIC playing with public money and heading the UTI way is one of the foremost questions in our minds? Is the government bending rules to accommodate its favorite child? According to IRDA rules and regulations an insurance company cannot hold more than 10% stake in a single company.LIC agreed to pick up a 5% stake in Punjab National Bank, Central Bank Of India and Indian Overseas Bank in order to meet their capital requirements. Clearly in the future LIC will breach the 10% limit in a number of Public Sector Industries.LIC has stated that it has unit linked plans and traditional plans and clearly it is taking care to see that these funds do not have more than 10% exposure individually to a single company. Here it invests through different funds and LIC believes the regulation of 10% are on each fund other than the total investments.LIC manages assets worth 13 Lakh Crores which is 15% of India's GDP.This is not the first time and surely won't be the last time the LIC bails out the government disinvestment plan .Clearly a lasting relationship.
Darling Of Dalal Street:
LIC is a big time player on Dalal Street and is bigger than the FII Players.LIC is heavily invested with Billions of Dollars in most of the major companies on the BSE and the Nifty Indices. However LIC is no short term investor and invests with a long term horizon in mind.LIC generally only buys and very rarely sells. Truly with over 50 years of being in the Indian Insurance sector and with a large number of monopoly years LIC is truly a force to reckon with in the equity markets.
I would like to end this article with a focus on what it takes to be a domestic leader. National Brands evoke a sense of pride and are seen as less profit oriented .But in these national brands quality is questioned and innovation is assumed to be woefully inadequate .Their advertisements are perceived not to be up to standard .For National brands innovation and transparency are a must. In a nutshell brand magic is about making the impossible possible for the customers.
Happy Investing!!
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