Cos Explore Different Segments Due To Lack Of Tax Benefits For Large Premiums: Shriram Life MD Casparus J H Kromhout

What are some significant market trends in the insurance industry, particularly in terms of commissions and distribution, as influenced by multiple guidelines from IRDAI?
In the last two to three years, there has been a notable shift towards guaranteed products, where customer returns are guaranteed. There is also intense competition on these products, focusing on providing the highest Internal Rate of Return (IRR). Our primary focus has always been to serve the community, especially the common man. However, an interesting trend I have observed in India is that life insurance is often sold as an alternative investment, savings or tax-saving product, mainly to higher-income individuals. While these are good financial products, it's noteworthy that HNI individuals might have sufficient assets and may not necessarily need life insurance.

The industry trend seems to be selling life insurance to those who might use it for purposes other than intended. On the other side, individuals with lower incomes, in rural and deep rural India, where 65 per cent of the population resides, have limited access to life insurance. It's challenging for them to understand the benefits or even obtain life insurance coverage.

Furthermore, over the last two years, there has been a significant shift in focus by the regulator, under the new chairman, towards developing the industry, specifically targeting segments that currently lack access to life insurance. Regulatory changes aim to enable faster industry growth, increase penetration, and extend coverage to rural areas. The 'Insurance for All by 2047' initiative reflects this commitment.

Closer to the current year, we observed a surge at the end of the last financial year due to changes in budget and taxation rules. This led to a focus on obtaining high premiums, particularly for tax savings. However, for Shriram Life, which doesn't target higher-income segments, this change didn't significantly impact us. We primarily serve lower-income customers, and this year, we anticipate growth despite potential challenges for the industry as a whole.

In light of the substantial premium growth in the industry during the previous year, how do you foresee the challenges in showing growth, particularly in the last quarter of this year, considering the high base set last year?
We observed an increase in the number of insurance policies, but payments likely decreased due to the smaller premium amounts. The change in tax rules took effect on the first of April 2023. Until March, companies and customers were free to buy policies with significant premiums to avail of tax benefits. This resulted in a lower number of policies with larger premium sizes.

Now, companies are compelled to explore other market segments that may not necessarily involve high premiums since tax benefits are no longer available for large premiums. Consequently, the industry might see a shift towards lower premium sizes. However, during the previous year, the industry experienced substantial premium growth, making it challenging to show significant growth this year, especially in the last quarter, given the high base set last year.

This shift could be considered part of the government and regulator's efforts to encourage insurance companies to focus more on lower segments, especially in rural areas. In Shriram Life, we have consciously chosen a differentiated approach. While it's a tougher road, as we don't attract high premiums easily, we aim to reach a larger number of policies with smaller premium sizes. Our average premium size is around 20,000 rupees, significantly lower than the industry average of around 70,000 rupees. We understand our customer base and strive to cater to their needs with the appropriate premium size.

So, does it lead to any kind of attrition in the company?
No, not at all. We are experiencing growth. We are expanding our sales force aggressively, along with our support teams. Even under these challenging conditions, Shriram has always been a frugal company, avoiding unnecessary expenditures. Since day one, we've been profitable, which is quite unusual for a life insurance company. Typically, it takes 12 to 14 years for such companies to become profitable due to the substantial initial investment required for establishment. Despite focusing on lower premium sizes, we've structured ourselves to be efficient and effective, allowing us to avoid job cuts. While constantly exploring ways to enhance efficiency and productivity, we acknowledge the industry's difficulties in achieving large premium sizes. Managing this challenge has been our successful endeavor for many years.

You mentioned the changing landscape with increased access to technology in rural areas. How has this technological shift influenced the rural population's understanding and acceptance of life insurance?
As you mentioned, targeting the rural population post the budget announcement poses unique challenges, especially with life insurance being a push product. It becomes particularly challenging to convey the importance of insurance in these areas, as reflected in the relatively low insurance penetration in our GDP, currently around 4.2 per cent as per the IRDAI report.

In my experience, underestimating the rural population is a pitfall. Initially, introducing technology and facilitating understanding in rural areas was considered daunting, especially around 2010 when technology wasn't as accessible. The perception was that the rural population might not be tech-savvy, hindering their ability to understand and adopt technology.

However, the landscape rapidly transformed with initiatives like Digital India and the advent of affordable smartphones, notably fueled by Reliance Jio. This technological revolution reached even the deepest rural areas, challenging preconceived notions about tech-savviness. I recall a significant shift in 2017 during an innovation program when visiting villages like Kariyapalli near Kamama.

An interesting anecdote was witnessing a tech-savvy individual in the village handling Amazon orders for the entire community. Within a year or so, this capability became widespread, showcasing the fast-paced technological development in rural areas.

Now, coming back to the intricacies of life insurance, even in metro areas and affluent communities, understanding the concept can be challenging. This challenge is heightened in India due to cultural nuances around openly discussing topics like life insurance. The reluctance to use direct language when discussing unfortunate events complicates conveying the necessity of life insurance.

In response to these challenges, we have developed the Tarang model, a technology-enabled rural advice model. This model involves enabling individuals already providing advice in rural areas, such as on sanitation, with technology to guide families through a financial needs analysis. Importantly, these advisors do not engage in selling; they only provide advice. This approach alleviates pressure on families to make immediate purchases and allows a comfortable space for understanding their financial situations.

A key element of this model is the 'lifeline' concept, a simple yet impactful way of illustrating the need for financial planning. Through lifeline discussions, families can visualize future financial requirements, such as education or marriage expenses, and understand how life insurance can be a safety net.

While the task of creating awareness about life insurance remains a pioneering effort, this model has shown promising results. Implemented in five states, it aligns with our commitment to finding innovative ways to bridge the awareness gap and make life insurance more accessible in rural areas.

You mentioned the rural advice model. Can we classify these initiatives under the CSR activities of Shriram Life Insurance?
Currently, we don't categorize them under CSR. While we actively engage in CSR activities, the rural advice model operates separately. Our approach involves providing financial advice and, separately, our employee team interacts with the customer to determine their specific needs. Though there is a link between the two activities, we have consciously chosen not to incorporate it under CSR. Despite this separation, the model adds significant value, empowering customers with informed decisions not only on life insurance but also on other financial products. As our customer segment differs from the rest of the industry, we continually explore and integrate diverse models to effectively reach and serve our unique audience.

How do you anticipate Bima Sugam will revolutionise the insurance-buying experience, given the government's keen interest in digital advancements like UPI and the careful planning evident in its launch timeline?
As observed, digital technology, especially with the advent of UPI in 2016, has significantly transformed the way we engage in buying and selling. The government's ongoing efforts to digitise services, exemplified by UPI, have indeed been a game-changer. UPI's widespread adoption has made transactions seamless, evident even in everyday scenarios like purchasing a bottle of water.

The upcoming Bima Sugam, though facing postponements, underscores the government's commitment to harnessing technology for streamlined services. The focus on creating a robust application suggests a meticulous approach, possibly incorporating comprehensive information and data.

Anticipating the impact of Bima Sugam on the insurance landscape, we recognise the government's endeavors in simplifying processes. Ease of doing business has been a historic challenge, particularly with extensive forms and documentation required for customer onboarding. However, our sales app, 'Astra,' has evolved to address these challenges. We were pioneers in introducing eKYC through facial recognition, streamlining the onboarding process. With this innovation, a substantial portion of information gets pre-populated, reducing the need for extensive form-filling.

These digital advancements, coupled with UPI payments, have significantly eased the customer acquisition process. By embracing these technologies, we've created efficient rails upon which we can swiftly reach and serve a larger customer base. The digitisation initiatives by the government align seamlessly with our goal of making insurance accessible and hassle-free for all.

How can individuals select the appropriate life insurance coverage for their specific circumstances, considering factors like age, family structure, income, and standard of living?
Yeah, I think the concept of human life value is crucial in addressing the issue of underinsurance in India. Many people either lack life insurance policies or possess coverage far below what is necessary. Human life value, determined by a formula based on your age and income, is a key factor in understanding the number of years your family would require financial support in the event of an unforeseen circumstance. There is abundant information and content available on this concept, providing individuals with the tools to calculate their specific needs. When engaging with life insurance professionals, they can guide you through the calculation process, offering insights into the size of coverage required based on various factors such as age, family structure, income, and standard of living. Utilising the concept of human life value allows individuals to tailor their life insurance coverage to their unique circumstances.

What are the primary considerations for someone buying life insurance for the first time, especially when opting for a term plan?
Buying life insurance early in life offers significant advantages, and this advice is particularly crucial for first-time buyers. When entering the realm of financial planning, it's essential to prioritize life insurance even before contemplating investment strategies. For young individuals, especially those with dependents or planning to have them, a term plan is often the most cost-effective choice. With a focus on life cover and no investment component, term plans provide comprehensive coverage at a lower premium.

For those inclined to invest alongside life coverage, exploring unit-linked products is a prudent option. This product combines a term plan with investments in the form of mutual funds, offering transparency and potential growth tied to the market. Tax benefits further enhance the attractiveness of unit-linked products. Beyond this, individuals can consider guaranteed return products if they seek a predictable return along with life coverage.

As your financial needs evolve, you may delve into more complex products. Seeking guidance from experts can aid in understanding and navigating these options. However, the fundamental message remains: securing life cover is the foundational step in effective financial planning.

Looking ahead to 2024, considering the upcoming elections and the budget presentation in February, what expectations or changes do you foresee in the budget? Are there specific trends or developments you anticipate for the insurance sector in the election year?
In anticipation of the upcoming elections and budget announcement in 2024, I cannot predict specific changes, but I expect potential measures aimed at supporting increased access to financial services for those in need. There may be initiatives to enable a larger portion of the population. From an industry perspective, while I don't foresee significant disruptions, overall, I anticipate positive growth for the life insurance sector, building on the current positive momentum.