In India, people mainly buy life insurance as an investment and the purpose of having pure protection is defeated because it is not adequate. What are your thoughts?
The gap in value terms in life insurance comes from adequacy. The people who have insurance don’t have enough of it. The gap in the number of policies comes from this. From the new policy count perspective, what you say is right, but from the value perspective, it comes from people who are broadly underinsured. If you look at the regulator’s penetration plan, unless you get the first experience of having bought an insurance policy on number count, you can’t get the value right the first time. What is changing is that the category we are covering will hopefully help us bridge the value gap. For instance, I don’t think Indians think about annuity. All of us struggle till we are 30, worry about home and car loans, and about kids’ education after 40. The period between 60 and 80 years, when we don’t have a steady stream of income, our health is improving and mortality is decreasing, insurance is helping us plug the gap through annuity products.
Why have pension plans and annuity products not taken off?
If you look at the industry data, the penetration in this has gone up over the past 2-3 years. To be fair, there are product restrictions around how you create a design. In annuity, you have to guarantee what you will get. It is the only product where the benefit period is not known because you don’t know how long the person will live. In all our other guaranteed, non-annuity products, you pay a premium for, say, 5, 8, 10 years and are guaranteed for the next 20, 30, 40 years. The period is known. An annuity is a whole-life policy and you have to be careful at what age the customer comes in. He could come in at 45 years, pay five premiums and want annuity for the rest of his life, which could be 40-50 years. Slowly and steadily, 30- and 40-year papers were made available, and now 50-year papers as well. The structure of the product now is allowing annuity to become bigger and bigger. We were at 2% of the business two years ago and we’ll end this year at 6% from annuity. You’ll find a similar uptake in all other listed players. I’m pretty sure that 6% will go to 10-12% in the next 2-3 years.
What is the percentage share of life insurance plans sold by you?
Our business was 21% Ulips, 76.6% traditional and 2.4% term plans last year, and we are almost at the same level this year, with 20.6% Ulips, 76.6% traditional and 2.8% term. Term plans (only individual life insurance business) at one point used to be 6-7% and we are down to around 3%, but we want to take it to 7-10% over the next 2-3 years.
Has the taxation of traditional plans impacted the sale in any way?
Of course. The business from policies with premiums higher than Rs 5 lakh is down by an absolute 10%. The number of policies has grown by 20% and we have lost the contribution from plans above Rs 5 lakh by 10%. So, our business for the first nine months was 10%.
Will Bima Vistaar lead to a dilution of different insurance products?
I’m not sure because the customer segment that has been chosen is retail. It will need a minimum requirement of health, life and property, and making sure the size of the premium is affordable. If you want high levels of penetration, you need to make sure the product is common and use the might of distribution of all general, health and life insurers. That’s one way of getting the penetration up. It will get more people to get the taste of insurance. They will not be adequately insured, but having bought an insurance policy and having been insured, the question that will come to their mind is whether it is adequate. I don’t have the data, but the bulk of people who buy insurance for the first time have never bought it adequately. The good part is that it will be across general, health and life. This will give us all the base and help solve the problem of whether they are adequately insured. It’s a great entrylevel product for sure.
Will the composite licence be beneficial for customers in any way?
If you buy life insurance, the premium gets locked for 40 years. If two people buy life insurance and one turns out to be healthier over a period of time, both still pay the same premium. If, however, the life insurer also sells health, and is able to see that over 3-4 years, the pricing will change. The benefits that can be brought to the person, if health is also sold, can be extended to wellness. The companies can deal with their customers better. It’s like the payments business helps a bank know its customers better because there are significantly more transactions. An insurer normally remembers the policyholder only after one year because that’s when you pay your renewal premium, but if I am incharge of your wellness and health, my ability to know you and be in touch with you over 30-40 years will be better and my ability to offer you the right products at the right price becomes better.
What are you doing to counter misselling by agents?
We were the first to shift to video verification because we didn’t want to rely on a third party to call the customer and verify whether the product being sold to him is correct or not. We try to use video and technology as much as possible. If you’ve got a product, we don’t rely on what you’ve read, but on your facial expressions to know whether you’ve understood the product. If you’re in doubt, we do a renegotiation of the sales pitch. You need to solve this in certain product categories. Why does a 60-year-old need to buy a child plan or a senior citizen buy a 15-year premium paying plan? The bulk of control is in the way you construct who your products are meant for and who they should be sold to. The complaints emanating from agency set-ups are lower because they know how to manage their relationships with clients. We don’t do business with tele-calling set-ups, where the sales process is not right and complaints are significantly higher. If you get a handle on your sales process before converting it to a policy, you get lower complaints.