Sorting The Life Insurance Market

The Insurance Regulatory and Development Authority of India (IRDAI) recently sent out a terse email to a host of life insurers who filed over five new products for approval in 2015.

This came in the wake of an advisory the regulator issued earlier urging them to limit the number of filings of new products to five every year. The idea was to offer customers more clarity on products available in the market, thereby removing clutter, confusion and overlapping.

So, prima facie, the regulator’s move is a step in the positive direction. However, the question arises as to how practical is it at a time when life insurance penetration in the country is dropping alarmingly every year. It has already fallen from 4.6 per cent of the GDP in 2006 to 3.1 per cent last year.

IRDAI’s advisory applies to all kind of products currently available in the market — term insurance, unit-liked products, traditional policies and those that come with riders. In fact, it applies to products that require even minor changes. For instance, if an insurer files a product with the regulator for incorporating “web aggregators” as an additional distribution channel, the product will once again come under the purview of new product filing limit.

While the step was undertaken keeping customer benefit in mind, this kind of a ‘quota’ can also limit consumer choice, restrict innovation and growth too. Today, when growth of insurance has almost stagnated in the country, innovation is key to tap the diverse customer base. What’s more, with the market opening up in rural areas and insurance majors tying up with payment banks to tap them, innovation will be required in the coming years.

One cannot ignore the fact that today, with changing times, consumers are exposed to newer solutions, customised to their needs for every product and service they avail. In fact, consumer choice is changing and their experiences with various other industries may guide their demand from life insurance industry as well. They are expecting more features and faster service levels. Today, they have different requirements and hence insurance companies need to offer them products that meet their needs. So, keeping these parameters in mind, riders and minor modifications to existing or new products should ideally have no limit.

That said, insurers too need to be prudent in the number of products they launch, and only come out with newer offerings that address customer need gaps, thereby reducing clutter. So all in all, they should also put customers first in everything and not themselves!

(This story was published in BW | Businessworld Issue Dated 25-01-2016)