‘Customers View Insurance Tools As Means Of Financial Planning’
The use of digital tools and applications is on an increase across various industries in India. How is the life insurance industry responding to this transformational wave?
It is observed that the fintech adoption is on a high globally among the digitally active population “~50 per cent”and India is not lagging behind in the race to adapt to the ever growing digital tools and technology. On the insurance front, roughly 50 per cent of the digitally active consumer in India refers to digital modes at some stage of the insurance cycle to manage his/ her portfolio.
While many of the insurance firms in India have brought sales on tablets and smartphones, many others are developing tools for effective lifecycle management of the customer by providing instant solutions such as chat bots to resolve customer queries, paperless policy issuance are some of the simplest examples to quote.
How has the increase in the FDI limit in the insurance sector helped companies in India?
The increase in FDI limit has ushered in great potential for the Indian life insurance industry with nine companies witnessing an increase in stake of the foreign partner from 26 to 49 per cent and 1 company increasing to 35 per cent by infusing fresh capital of roughly Rs 11,000 crore. It has also encouraged many potential investors to infuse fresh capital into the system paving way for new insurers to set foot in the market.
Alongside, it has also provided an exposure to the best practices followed across geographies across various functional areas such as compliance and governance, information technology, product offerings, risk management and various operations divisions.
Companies are now allowed to tap the markets. How will this change the dynamics of the insurance companies?
The opening of the arena for the life insurance industry to list them on the stockmarket has opened up an opportunity for the shareholders to unlock a part of their investments at the market prices and enable the company to seek capital to build up scale and growth.
In the recent past, three private players have come out with their IPOs and few others are exploring the opportunity to list.
As a result, a new class of stakeholders will emerge, which will enhance the disclosure requirements for the industry as reporting mechanism will be further strengthened. Also, the investors will understand the domain better as performance will be reflected in the market, thus giving confidence to investors as well as the policyholders.
The performance benchmark for the industry will be redefined as the management and governance practices will be more rigorous and prudent leading to the development of more customer-centric approaches to resolve grievances speedily and effectively.
Most insurance products are still bought as tax saving tools. Do you think a higher level of education and awareness is required to change the mindset of people?
With privatisation of the sector in the early years of the 21st century, there has been a clear shift in the mindset of the customers from looking at the insurance products from a mere tax savings instrument to a means of covering oneself and the family from the risk of death and as a means of financial planning.
The two prime aspects for a customer to buy life insurance are tax savings and goal-based investments. On the tax savings front, customer benefits from tax savings on the premiums paid and the benefit paid out under the insurance policy. Under the goal-based investments, customers who have a long-term financial goal with defined pay-outs at key milestones, purchase the guaranteed products whereas those interested in tapping the potential of market movements purchase unit-linked products.
Also, with long-term capital gains tax coming into play, insurance products will turn out to being more efficient investments in comparison to mutual funds.
What are the immediate challenges for the industry?
One of the major challenges for the industry is how to increase the level of life insurance penetration in the country that currently stands at 2.72 per cent while many developed countries report a double digital penetration (10 -15 per cent) as reported for 2016.
In the current scenario, the challenge stands with long-term investments taking a back seat over the short-term financial interests of the customer. This is also reflected in the fact that merely 30 per cent of the customers stick around for the entire tenure of the policy, which mostly extends beyond 10 years in a life insurance industry.
Also, the life insurance industry ended up paying death claims worth Rs 14,000 crore in 2016-17 on the individual policies. However, the value of a life cover purchased by an individual is yet to be appreciated in the actual sense. This means, realisation of the worth the policy will bring to the family of the deceased from the massive financial burdens in case the policy did not exist.
Why are more and more life insurers looking to launch health insurance schemes?
With customers becoming more aware of their health needs and the increasing cost of healthcare, the need for health products is becoming evident.
Since health and life insurance products are an adjacent segment, more and more life insurers are building on the health portfolio as it acts as a one-stop solution for the customer by providing a comprehensive offering to cover the risk of critical ailment and unfortunate event of death. The fixed pay-outs under the health cover help meet the treatment cost of the customers and the life cover provides a lumpsum amount to the family in the unfortunate event of death of the insured ensuring no financial burden impacts the family at such a distressing event.
