Commoditisation of products is inevitable
Insurance is a product that is ‘sold’ rather than ‘bought’. Moreover, it deals with an intangible benefit of ‘making good the financial loss’ to your insured asset or health.
An insurance product, like any other financial service product, is prone to the hazard of easy replication and therefore loses the ‘exclusivity’ no sooner than it is introduced. Insurance products are mostly sold through large distribution channels, like individual and corporate agents, banks, motor dealers, direct selling–as a commodity, rather than as brands.
Before 2000, there were four PSUs having one owner, GIC, and nearly 70% of the products were under tariff-based pricing. The distribution channels were limited to agents and development officers. There was hardly any differentiator to build brand.
With the entry of new players in 2000, there was a paradigm shift in distribution and service mechanism though the pricing barriers remained. New channels like bancassurance, tie-ups with auto dealers and manufacturers and travel agents came into being.
The innovation in service mechanism led to POS policy issuance, SMS alerts, cashless claims settlements, et al. Products like liability, travel, health insurance, which saw products beyond a single hospitalisation reimbursement product, were sold with renewed vigour. It led to a scenario where products existed, though with dissimilar brand names, but with similar benefits.
The year 2005 was the defining year for the industry with catastrophic claims like earthquake and floods that struck major cities. Till that time, it was presumed that claims don’t occur and this event dramatically brought service to the forefront in the insurance sector. Service level, which was unheard of and which was earlier lost in a maze of products, emerged as the key differentiator in insurance purchase decision. The new players leveraged ‘service’ as a key differentiator.
With the dismantling of pricing barriers and increase in insurance awareness, branding is bound to come to the forefront. However, in an era where any financial product can be replicated without any hindrance, commoditisation of products is inevitable.
That can happen only in developed markets
Commodities are normally associated with a product experience as they do not have a brand backing the promise of an experience. Consumer behaviour tends to be skeptical. Sampling or experiencing the product is essential to purchase.
Most financial products deal in intangibles and hence do not offer any instantaneous product experience, more so with insurance, which has the longest tail. The palpable experience is a pre-sales discussion where the richness of the discussion adds to the experience of fulfillment.
In case of guaranteed benefits, there is an intermediate experience, but other than that it is still selling only a piece of paper and a promise–the making good of which the customer might not live to see. To trust in such a proposition people resort to trusting the brand–and that is what most insurers are selling today.
