The Indian insurance industry has faced several challenges over the last few years primarily due to a downturn in the overall economy as well as regulatory changes. The slide was most visible in the popular Unit-linked Insurance Products (ULIP). With the overall market sentiment turning around over the past year, economic growth returning and the regulator having stepped in to bring down charges, things seem to be turning around for the sector.
Money Today's esteemed panel, comprising Vinay Sah, Executive Director, Life Insurance Corporation of India; Suresh Badami, Chief Distribution Officer, HDFC Life; Gaurav Mashruwala, Certified Financial Planner; and Rajiv Sinha, Senior Vice-President and Head, Insurance Broking, IIFL Group, in conversation with Vivek Law, Editor, Money Today, discusses and deliberates on the various steps that are needed to be taken at regulatory, distribution and financial literacy levels.
Q- Vivek Law: Over the last few years the insurance industry has witnessed a downturn. Can you share with us reasons for the same?
Vinay Sah: The last two to three years have not been so good for the industry, although LIC did good business in 2013/14 witnessing 4-5 per cent increase in market share due to the closure of many of its plans. However, 2014/15 has not been good owing to the fact that the number of products we could sell were limited and the economic slump contributed to it. The Insurance Regulatory Development Authority (IRDA) brought in regulations which led to a total product redesign in 2013/14, where we had to close 61 products, some as old as the corporation itself, and come out with new products (except one health and one immediate annuity product). Last year we came out with 18 entirely new products, although in phases and currently have 21 products.
Suresh Badami: Although 2013/14 witnessed some slowdown, we were fairly well placed last year with a 25 per cent growth in terms of insurance policies. Prior to the regulatory changes we had filed for new products and got approvals on time. We now have 25 products across traditional and Ulips as per new guidelines. IRDA has made the products more customer-friendly in terms of the cost structure.
Q- Vivek Law: Have we witnessed a pick up in number of new customers?
Rajiv Sinha: Last year we saw 26 per cent growth in the first-year premium collection. The online boom and information available have educated many people about the need and benefits of insurance owing to which insurance is being bought than sold. We are also increasingly moving towards selling policies online.
Vinay Sah: I don't see a trend of insurance being bought and not sold pan India. It could be true in some pockets. Indians still haven't forgotten the concept of joint family and insurance is always being linked with returns.
Q- Vivek Law: Have you seen a shift in people realising insurance is important? Also, is there a formula to how much insurance one should have?
Gaurav Mashruwala: We have seen a drastic shift in people wanting insurance. One needs to have insurance as an instrument to maintain the overall financial well being. Although the thumb rule of having a life insurance cover of 10-times your income still exists, in reality it is more complex than that, and is typically tailor made. Once you have defined your goals, your death is a financial loss and, hence, you need to calculate how much those goals cost today (if death were to happen today) plus a certain amount of kitty (for ongoing income), whatever is the corpus is your financial loss. From this amount, once you reduce your existing policy, you arrive at your net loss, which is the amount of insurance you need. More the assets, less the cover. However, if you have more loans and more dependants, and your aspirations are higher, you need more cover.
Q- Vivek Law:After the regulatory intervention, how cheap is insurance today compared to 3-5 years ago?
Suresh Badami: The regulator has made the products much cheaper than they used to be, in terms of surrender charges (capped at Rs 6000) among many others. This enhances the chances of higher penetration.
Rajeev Sinha: Ulips were typically sold as a substitute to mutual funds a few years ago when the markets had it going good, since investors chased returns. The customer has now educated himself and knows that insurance is primary and that returns are a by product. There was a time when the allocation charges in Ulips were as high as 80 per cent. All this changed over the last few years with new regulations coming into place and the markets falling, which led to the popularity of Ulips coming down. Insurers are more keen on buying plain vanilla products. The focus, as far as distribution is concerned, has moved back to traditional plans.
Vinay Sah: Collection of premiums for the private sector last year was Rs 38,000 crore out of which Rs 14,000 crore was from Ulips. The charges have been there but there is more transparency for the customer. Earlier Ulips were primarily seen as an alternate to mutual funds where in one could exit in six months. Now the regulator has made it transparent in terms of what you would get when you exit, that is, minimum death benefit, charges, etc.
Gaurav Mashruwala: The charges have come down dramatically. However, investors must realise that you invest through mutual funds and through insurance, not into either of them. Hence, whoever is charging you less to reach that asset class - considering the performance of the asset class remains the same - is the best for you.
Q- Vivek Law:Inspite of the charges being brought down, what are the challenges in terms of delivering these products to consumers today?
Vinay Sah: Previously there was only the fear of dying, now there is fear of living, too. People have started thinking in terms of disability, medical as well as pension cover. However, in rural India, there is still a large amount of push needed. Currently, they can get a term assurance plan offered through the Pradhan Mantri Suraksha Bima Yojna (PMSBY), which covers them for Rs 2 lakh at a premium of Rs 330 annually. Hence, there is a start.
The thumb rule is to have a life cover of 10-times your annual income, but if you aspire for more, you need more coverSuresh Badami: In urban areas there is a lot of awareness about insurance. For instance, a study shows that 40-45 per cent people research online before they buy a product. There is a large amount of goal-based selling and products are also simpler for distributors to sell. This will increase penetration. Infact, we sell a lot of policies online; Almost 37,000 policies were sold through the online route last year and this segment is growing very fast. Presence on social media, products available online and whether they are cost effective will matter. The agency route is a large model for us and open architectures like the bancassurance tie-ups may open more ways to reach out to consumers. There is a lot more that can be done in terms of other segments, such as health, where changing lifestyle not only brings regular diseases like heart, but cancer is on the rise - one million new cases are reported every year. People don't realise the need to cover themselves. Our cancer care product is the cheapest in the market. Pricing and easy availability becomes imperative.
Rajeev Sinha: Products have become simpler and easier to buy which is why online has the potential to reach out to more people. We are in the process of developing an app, wherein it will be easy for customers to buy and compare insurance considering everyone has a smart phone today, including the rural areas which will enhance penetration.
Q- Vivek Law: What is your outlook on the pension sector?
There are various challenges we face today. We have an aging population. Nearly 9 per cent of the population is over the age of 60 years today and over the next 35 years, the number of people aged 60, or more, will multiply by 2.6 times, while that of those in the working age bracket of 15-59 will rise by less than half of that. This means there will be only 3.3 workers per old person in 2030 from 4.2 today. The number gets crunched further to 2.4 workers by 2050. Hence the pension provision for old age is the only solution to make them financially independent. Also, there is improving life expectancy with each passing year, (and) due to the overall improvement in the longevity, financial strain for the old age above 60 years is increasing. Growth rate of the pension scheme per person grows because of the dearness allowance granted as well as one-time rise due to revision in pay scales. Pay commission revision tends to increase pay scales to accommodate improvement in living standards, while dearness allowance is linked to inflation.
Earlier, there was only fear of dying, now there is fear of living... in terms of disability, medical and pension coverThe currently available pension schemes are from the central or state government's Defined Benefit (DB) provision (not in vogue for the new member in central and most of the state governments); central or state governments' Defined Contribution (DC) provision (thorough National Pension System (NPS)); private pension arrangement such as DB or DC provided by the employer; individual pension arrangement offered by insurance companies or through NPS; Subsidised pension scheme sponsored by the central government such Swabalamban Scheme and Atal Pension Yojana.
Q- Vivek Law: What is the way forward for the insurance industry over the next one to two years in terms of product innovation, the need for health and disability covers?
Vinay Sah: Product innovation is happening and owing to the Insurance and Regulatory Development Authority (IRDA) regulations, traditional products are also becoming very transparent for the insured, specifying the minimum payout that has to be made to policy holders as well. It is only a matter of time before insurance picks up, considering we are seeing the economy showing an upward trend. Purchasing power is increasing, however, the share of insurance to GDP has not increased in that proportion.
Gaurav Mashruwala: A large number of product variants are available and we would also like more, more so, in the health care sector. Apart from illnesses, we have people living much longer who require cover where treatments are taken at home, long-term care products, wherein you pay your premium during your work life and get the benefits on retirement, including nursing treatment, etc. If somebody is willing to pay more premium, treatment across the globe should also be available.
Q- Vivek Law: There is a lack of understanding that health insurance is a forte of general insurance companies. However, since a decade, life insurance companies have been offering health care products, which are different in their construct. How should I, as a consumer, look at fulfilling my insurance needs?
Gaurav Mashruwala: Your base insurance cover should be from a general insurance company, more so, in principal of indemnity, if you have recurrence they keep paying you, reimbursement of treatment costs. Thereafter, any other cover that is not being covered, for instance a disease excluded or expenses related to home treatment taken, or a loss in salary, principal of benefit products can be added on.
Questions from audience
Q- Is India underinsured because of reach?
Vinay Sah: It is not the only reason considering the combined number of branches of LIC and private companies is about 10,000 across the country along with 21 lakh agents. There are other factors as well. For example, although we are a saving community (7 per cent of GDP), insurance is only about 4 per cent as on 2013. It is about changing mindsets.
Gaurav Mashruwala: The financial inclusion drive taken up by the government, which includes people having bank accounts as well as the Pradhan Mantri Suraksha Bima Yojana (PMSBY) will help to change this, going forward.
Suresh Badami: India is under insured due to a variety of factors, including how much people are willing to invest in insurance and, the fact that, products used to be complicated. Things have changed. You can now buy insurance with ease and more products are available at cheaper costs. In the UK, there is a basic stakeholder insurance for the masses, we have the Government of Indian doing it.
Q- Can we see anything from private insurers? One product that can be offered to the masses?
Vinay Sah: There is already a social sector insurance scheme run by the government, the latest one being Aam Aadmi Bima Yojna (AABY), wherein LIC offers the policy through nodal agencies and have huge numbers enrolled. Premium is sometimes shared with the insured or the government pays for it, wherein a cover of Rs 1 lakh is available for Rs 100 or Rs 200.
Now you can buy any insurance plans with ease and more products are available at cheaper costsSuresh Badami: The approach of the regulator is to make products simple and easy to buy. There are fair amount of insurance products available at the rural end from social and rural obligatory side. HDFC Bank, for instance, has sold more than 3 lakh policies since this launch. This shows latent demand.
Q- We don't see many guaranteed return products?
There is a fair amount of insurance products that are available on guaranteed returns.
Q- Is there any advantage of having multiple insurance covers for various diseases?
Gaurav Mashruwala: Buy maximum health insurance cover for all kinds of illnesses. After that you could go for specific covers, in case, there is a family history. We are not looking at one single health insurance plan, but have a portfolio of products.