Channels of Distribution

Using the attached article can you in seven healthy paragraphs write a summary of the article and explain how this organization's channels of distribution support its product or service. In addition, explain the importance of product and place in the development of marketing strategy and tactics in general.

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Life Insurance, an Indian firm, is encouraged to open new channels of distribution and differentiate products and services by consumer segments, among other things
Title: India's LIC Positions For Market Changes
Author: Kumari, Vaswati
Source: National Underwriter Life & Health-Financial Services Edition, 104 (23): 54, June 05, 2000. ISSN: 0028-033X
Publisher: National Underwriter Company
Document Type: Journal
Record Type: Fulltext Word Count: 850
Publication Country: United States,  Language: English
Text:
BY VASWATI KUMARI
INDIA CORRESPONDENT
New Delhi
Life Insurance Corp., India's life monopoly, is viewed by some observers as having intrinsic weaknesses, which may lead foreign firms to think they'll have an easy ride into the new market when they launch operations in late 2000 or early 2001.
For example, international consultants Booz, Allen & Hamilton said recently that the challenges before LIC are a high cost structure, poor recovery of costs, loss of high-end customers and improving productivity in business systems.
The consultant recommended that LIC should open new channels of distribution, differentiate products and services by consumer segments, delegate responsibilities at lower levels, and focus on sophisticated products, superior returns and higher surpluses.
But there is another picture of LIC: The company has recorded its best performance in a decade in the 1998-99 results that were recently announced.
Total gross revenues have risen 18.29 percent over the previous year to 363.5 billion rupees (US$7.27 billion). This includes an 18.46 percent rise in premium income, which came to a total of Rs 228 billion (US$4.56 billion), and a 16,7 percent rise in investment income to Rs 131.8 billion (US$2.63 billion).
Simultaneously, the outgo on claims settlement shot up 13.5 percent to Rs 76 billion (US$1.52 billion) partly because of intense efforts to improve the poor quality of claims settlement which has been a problem for the company.
Why is the company doing so well, despite its perceived weaknesses? The life market is growing at high speed and LIC is going all out to capture as much of the huge untapped market as possible before rival companies come storming in, sources indicate.
In addition, the LIC has vastly improved its bad image about poor services when it comes to claims settlement, owing to pressure from the recently appointed Ombudsman.
Also, the company is considering a revision of its mortality tables that will result in a reduction of premiums and force competitors to readjust their rates.
LIC also recently decided to withdraw money-back polices of 12 and 15 years duration from the market and bring about a sharp cut in the rates of bonus on different policies that are in force. The move is prompted by a slide in interest rates, which made it difficult for the LIC to continue to offer a high rate of return.
It is a move that some say will benefit foreign players who have been hard put to devise policies offering high returns, which would match LIC's products.
(In a money-back policy, the premium investment is paid back without interest after specific intervals of time. For instance, there could be three refunds in a 12-year policy after year four, year eight and year 12. On completion of the total duration of the policy, the interest and bonus element is paid to customers who have also had the benefit of the life cover during the 12 years of the policy.)
Another company move was to announce the results of a recent investigation into the mortality of annuitants of its pension policies. The investigation, based on the mortality experience of 1996-98, covered 147,000 annuitants.
The investigation showed that life expectancy is on the rise, particularly among the ages above 60. This could be because incomes and health care among annuitants, mostly in the middle- and upper-income groups, has improved vastly in recently years. Incidentally, this is the market segment that foreign insurers wish to target for selling both insurance and pension products.
The foreign players will use the results of the investigation as an important basis for devising new products and pricing and also marketing strategies, simply because there is no other source of data of annuitants, sources say.
Before this report was made public, the foreign insurers had planned to make products based on mortality experience in other countries but now that this is available, they will certainly use it, they add.
Other recent action has come from the regulator, the Insurance Regulatory and Development Authority which has come out with "Appointed Actuary Regulation 2000."
The regulation says that the new companies should have their own professional actuaries registered with the Actuarial Society of India. In other words, they cannot depend entirely on actuaries in the companies' foreign headquarters.
The actuary must ensure solvency of the insurer by advising it on areas like product design, pricing, investments, reinsurance and wordings of insurance contracts, according to N. Rangachary, chairman of the IRDA.
In other words, the actuary will act as the watchdog for the regulator and keep the latter informed of any move of the insurer that can jeopardize the interest of policyholders and solvency of the company, he indicated.
Mr. Rangachary also said the IRDA will monitor the solvency positions of insurance companies on a current basis instead of allowing them to report solvency levels once a year.
He expressed dissatisfaction with the existing players, the LIC and General Insurance Corp., the state-owned non-life insurer, which report solvency positions at the end of each year.
The regulator will require far more information and real-time information from companies in order to be effective, Mr. Rangachary said.
"A new mechanism for generating current and authentic information will be very important and I see [information technology] as the biggest enabler of this process," he said.
Copyright 2000 National Underwriter Company
Company Names:  LIFE INSURANCE CORP OF INDIA LTD
Concept Terms: Marketing strategies
Department: Marketing & Sales
Geographic Area: India (IND); Southern & Eastern Asia (SSAX)
Industry Names: Insurance
Product Names: Life insurance (631000)
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Attached file(s):

MKT 421 Channels of Distribution.doc  View File