Building Business From a Telephone

It’s 9.30 am on a Monday morning and the phones start ringing. “Good morning uncle! May I have a minute of your time?” says an overenthusiastic voice in Hindi to someone in Jhansi, Uttar Pradesh.
Seconds later, an elderly lady answers her phone in Jalandhar, Punjab, and is greeted in Punjabi, “Good morning, grandma! I’m calling from Bharti Axa. Does your son have insurance?”

And in Visakhapatnam, Andhra Pradesh, an SUV-driving farmer gets a call in Telugu, “Good morning sir! I’m calling from ICICI Prudential, and you are one of 50 people short listed across India by us for a special offer.”

In town after town, the calls keep coming. By the time the month is up, 7-8 million Indians will have received such calls. Each of these calls can be traced back to one of 2,600 youngsters equipped with nothing more than a stack of printouts and a telephone. They work for NetAmbit.

The Kings of Non-Affinity
With over 4,000 employees, NetAmbit bills itself as the largest “non-affinity based direct sales model” for distributing financial products in India. “Affinity marketing” means marketing products to new consumers on the basis of their past buying patterns or interests — for instance offering international roaming plans to members of airline frequent flyer programmes.

In NetAmbit’s case the opposite, “non-affinity”, simply means selling to people whose needs and preferences you have no idea of. Meaning, NetAmbit is the undisputed leader in India at cold-calling anyone and selling them financial products. It is 5-6 times bigger than its nearest competitor in the space, says Tarun Chugh, executive vice-president and head of sales and distribution for ICICI Prudential Life, India’s largest private insurer.

“They can sell anyone, anything. If I could give them my leads they could do a better job than me!” says Yashish Dahiya, founder and CEO of India’s largest Internet-based insurance aggregator, Policybazaar.com.

For the year ended March 2010, NetAmbit sold insurance policies worth Rs. 450 crore, of which new policies accounted for Rs. 200 crore. Girish Batra, 44, its founder and CEO, says this was 12 times what he sold just three years back in 2007, and will become Rs. 800 crore within the next year. His income by way of commission on these sales was Rs. 90 crore which he projects will become Rs. 185 crore by next year.

Inside the Calling Machine
It surprises many people that NetAmbit is the only company in India that has achieved success in selling financial products over phone. Because, they feel, there is nothing unique to either their market (India’s massive middle class), their products (commonly available third-party financial products) or their business model (telesales). What then is its secret?

NetAmbit relies on its relentless focus on keeping costs extremely low, building and maintaining large volumes of business, and staying disciplined at every operational aspect. Its call centres reside in mundane buildings; there are no computers or fancy automated diallers on employee desks — just a phone and a stack of printed telephone numbers.

“The problems with selling financial services in India lie predominantly around the ability to reach and distribute products on a low-cost basis to tier-2, tier-3 and tier-4 towns. It’s very fragmented, run by individual agents, yet offers large commission pools and a corpus that keeps growing rapidly every year,” says Vishal Gupta, managing director, Bessemer Venture Partners, one of NetAmbit’s investors. “NetAmbit has cracked it with low costs and good margins.”

Of the 7-8 million people that NetAmbit’s telecallers speak with, less than 10 percent end up speaking for two minutes. And only a fraction of those might be interested in the sales pitch. Those that are — “prospects” — are immediately passed on to senior, more experienced callers who carry on the conversation to better gauge profiles before selling them specific insurance or pension products. Once the prospect indicates willingness to purchase a product, the call centre team fixes up an appointment for an on-ground salesperson to visit them and pick up the documentation and premium payments. This entire process might span a period of up to two weeks. It is the quality and timeliness of these hand-offs between various employees culminating in a sale that sets NetAmbit apart from many competitors.

“What NetAmbit does is not rocket science, yet they maintain very high standards of differentiation. Their entire system is designed for recruitment, training, sieving out below-average performers and nurturing performers. Their call centres don’t have high tech, but have a very visible celebration every hour when someone sells a policy or a public firing when a mis-sale is identified. I would say they have created a very extreme Indianised call centre process with a lot of ‘show-and-tell’,” says Chugh.

Batra calls this entire process a “hub-and-spoke” model, with centralised call-centres in Noida, Delhi, Mumbai, Bangalore and Chennai, and a combination of branch offices and salespeople in 130-plus smaller cities. It generates 76 percent of its business from these tier-2 and tier-3 towns in spite of having 80 percent of its workforce based in five metro cities.

Though most of NetAmbit’s competitors like India Infoline, Bluechip and Bajaj Capital do have telesales operations, their focus is usually on other channels like branch offices and “feet on street” salespeople, which makes these models expensive. “While our competitors require between 12-15 people to staff a branch in, say, Jhansi, we can make do with just four, supported by another eight in our call centre,” says Batra.

NetAmbit is not just the largest at what it does, it is also the most efficient. Each of its 2,600 telesales employees generate on average sales worth Rs. 200,000 every month. That figure drops to an average of just Rs. 50,000 - Rs. 70,000 per month for many of NetAmbit’s competitors.

But the price of such extreme pace is burnout. NetAmbit loses 18 percent of its workforce every month, or an annualised attrition of 216 percent. “They don’t worry about high churn, they don’t care, people keep coming and people keep leaving,” says Policybazaar’s Dahiya.

One way NetAmbit motivates its large, extremely young workforce is to offer an aggressive growth path — start off with a salary of Rs. 5,500 – Rs. 7,000 even without a college degree; be up for a promotion to “cadre” with a salary hike in just three months along with the chance to manage two others and their collective targets; become “team co-ordinator” in another two months which means no more cold calling yourself; and finally become “team lead” in another six months.

Batra, a 1997 IIM-Ahmedabad graduate, set up NetAmbit in 2000 after spending the first three years after his MBA selling chickens for the Godrej group — he was setting up its Real Good Chicken business. In 2000, on the verge of his marriage, he quit his job to start his own business. The problem was he didn’t know exactly what that business would be.

So at first he sold business leads to dotcom startups, which came to a dead-end with the dotcom crash of 2001. Then he moved to selling Airtel’s telephone products and services, soon generating — in his words — five times as many leads as Airtel’s own call-centre salespeople. Batra knew he was on to something.

In 2002 he turned his attention to the newly liberalised insurance sector where the first of private insurers were just setting up their operations. NetAmbit started out as a “corporate agent” for ICICI Prudential Life Insurance, selling exclusively its policies. Though he did not realise it yet, Batra had found the answer to what he should be doing, after two years of trial and error — selling financial products.

The Dark Side of Insurance
At the heart of NetAmbit’s success — and also the biggest risk to its success — lies the unit linked insurance plan, or ULIP. Over 80 percent of its sales are generated from just two products, ULIPs for those under 55 years of age and pension plans for those over.

The ULIP is an investment product masquerading as an insurance one — the bulk of its value is invested in market-driven assets. ULIPs have been extremely successful in India because they play upon the average Indian’s unwillingness to pay for pure term coverage (he doesn’t “get anything” in case he remains healthy) and lack of knowledge about the primary ULIP caveat, that “the investment risk is generally borne by the investor”.

Combined with the high commission structure offered by insurers to ULIP sellers — often as high as 50-60 percent of the premium paid by the customer — it encourages a lot of sales malpractices.

“The most important threat to NetAmbit’s model is the poor sales quality given the fact that it is used mostly for selling life insurance, where the product is complex, not easy to understand and prone to mis-selling,” says Sandeep Koul, an insurance professional with close to a decade of experience selling insurance products in India. In many cases the employee responsible for picking up the documentation and premium from a new customer presents himself, or his wife, as the agent for a rival insurer and tries to offer a slightly sweeter deal at the last moment. “We’ve caught employees with papers saying they were LIC agents,” says Kamal Gaur, a senior NetAmbit employee who was managing its Bangalore operations.

NetAmbit has been trying to diversify over the last one year into selling mutual funds, health and general insurance.

Unsolicited Calls
Another risk factor for the company is that it has unsolicited calling at the centre of its business, which sells products always accompanied by the fine print “Insurance is the subject matter of solicitation” (meaning, insurance must be sold upon request from a customer). “Calling up consumers unsolicited is both NetAmbit’s strength and weakness. Yes they can sell to cold leads, but selling to cold leads is just plain wrong. These models have worked abroad, but most have a life cycle. As regulation and consumer awareness catches up, these models have imploded,” says Dahiya.

“India is a push market, even a product like a personal loan is sold and not bought. We are fine with any name and number, we believe every household has the ability to buy insurance. In smaller towns people don’t mind getting these calls, in fact they’re happy,” counters Batra.

Because NetAmbit callers in most cases identify themselves as calling from one of the insurers, like ICICI Prudential or Bharti Axa, those brands become the target of customer angst at being cold-called, while NetAmbit remains in the shadows.

Growing Pains
One company that many compare it to is CNInsure, the largest third-party insurance intermediary in China. Billed by analysts as a potential financial supermarket for China, CNInsure listed on the NASDAQ exchange in 2007.

But in order to become India’s CNInsure, NetAmbit must expand beyond its current product mix. Batra says the process has already started. Over the last two months it claims to have sold over 1,000 health insurance policies per month.

It has also started calling up customers it has already sold to — over 160,000 till date — and identifying itself as NetAmbit and not ICICI Prudential or Bharti Axa. It will try to use data analytics to profile this existing base in order to sell additional products. The challenge there will be the fact that it has been using paper all these years to save costs, which means there isn’t much of an electronic database to track, analyse or mine its huge database. It must be built almost from scratch. Gaur, who is leading that effort, says NetAmbit has “no option but to cross-sell and up-sell.” With many agents making close to 5,000 calls per month, there isn’t much scope to increase productivity linearly.

While selling newer financial products through its hub-and-spoke model should be easier than selling insurance, NetAmbit will end up facing more competition with lesser commissions in return.

“The challenge lies in the revenue stream. Life insurance pays like nobody’s business in spite of the quixotic limitations set by the IRDA on commissions and payouts, and this makes the whole model a profitable exercise,” says Koul. Most other financial products generate revenues which are a fraction of life insurance payouts, so productivities need to increase exponentially. “This can typically be done through cross-selling to existing customers and selling secondary products on calls where the first products are either already sold, or are rejected after a presentation to the prospect. However, on a stand-alone basis, other products would struggle to match the margins of life insurance,” says Koul.

NetAmbit has raised a total of Rs.65 crore from investors till date — Rs.15 crore from Bessemer Partners in 2007 and Rs. 50 crore from Bessemer and Helion Venture Partners in 2009. It is using a lot of that money to strengthen its management team. Batra has brought on board 22 experienced professionals, many with degrees from well-known business schools, over the last two years. He also says he is looking at a potential IPO for the company two to three years from now.

“We are three times more efficient than the industry, and with better quality. That’s why they call it ‘the NetAmbit model’,” says Batra. Except that 90 percent of the 8 million Indians who receive his calls the next day might not fully agree with him on that.

Policybazaar: An Alternative Model
Online insurance aggregator Policybazaar.com is in many ways both the opposite as well as an alternative insurance distribution platform compared to NetAmbit. While NetAmbit “pushes” what are mostly high-commission insurance products on people who may not necessarily be in need of one, Policybazaar.com “pulls” in customers who are looking to get the cheapest deal on some insurance product they want to buy.

Yashish Dahiya, co-founder and CEO of the company, says he is quite clear that he does not want to sell policies directly to customers, preferring instead to pass on leads to insurers for a fee. Policybazaar.com claims to get around 300,000 leads every month, of which it passes on around 80,000 to insurers after “cleansing” — weeding out irrelevant ones. This operation is performed by its in-house call centre, which is currently 120 employees strong. There are plans to ramp up to 600 employees within a year.

“We’re qualifying leads better and getting closer and closer to the sale, without never actually doing sales,” says Dahiya. He charges multiple insurers Rs. 70-100 for every such lead, compared to the Rs. 150-200 insurers spend to generate a lead from online marketing activities. These leads end up generating policy sales of around Rs. 10 crore every month, he says, based on his company’s tracking of its leads with insurers.

Unlike NetAmbit, which generates most of its business from small-town India, Policybazaar.com is still an urban phenomenon — over 60 percent of its traffic comes from six of India’s biggest cities. Isn’t the abysmal Internet penetration in India a ceiling to its growth? “Leading travel Web sites get 5-6 times our traffic today. Surely the guy who compares travel options before buying can also do the same with insurance? Which means we have the potential to grow 5x based on current Internet usage alone,” says Dahiya.

ICICI Prudential Life’s Tarun Chugh says, “Their perspective comes from the customer’s end, not the [insurance] manufacturer’s. So if you are a customer looking at the very clear top 3 or top 5 products on their Web site, you don’t get the feeling that they’re working for the Number 1 or Number 2 players.”

But none of this fazes NetAmbit. “The Internet is not a threat to us in the short to medium term. Today it is confined to metro markets while usage in tier-2 and tier-3 towns is very low, which is where I believe the volumes are coming for insurance companies today,” says CEO Girish Batra. But he also adds that NetAmbit will be selling insurance through its Web site in six months.