Outlook for the insurance sector in 2012
Gaurav Rajput, Director Marketing, Aviva India
2011 had been an eventful year for the insurance industry and the policyholders both. The insurance regulator launched a slew of changes and guidelines which have positively impacted the sector in terms of making products and processes more transparent and consumer friendly. As a result, these guidelines have defined the trend for the industry in terms of products, distribution and services. The following points summarize the changes or trends that customers will witness in 2012.
Focus on Customer Centricity
The regulator introduced the IPO guidelines for the insurance sector which will help insurers plan their capital raising strategies. More capital would mean more investment in technology leading to higher quality of customer service and more investment towards product development. As the companies who are going for an IPO will have to mandatorily disclose a record of policyholder protection and pendency of complaints for the last 5 years, we will see a lot of work by all companies in this area leading to improved health of the overall sector and routing out of issues such as mis-selling.
Growth of the online medium as a distribution channel
One of the biggest trends for the insurance sector has been the emerging online distribution channel for term products. With over 112 million people using the internet, this channel is likely to grow exponentially with insurers beginning to offer ULIPs as well. The online term plans are cheaper due to lower distribution cost and presumed better quality of life insured. Due to lower costs, people are able to afford life cover of Rs 1 crore and above at as low as Rs 8000 approx. What we now see is more awareness about the basic form of insurance and more and people are protecting their families against any unforeseen circumstances leading to a rise in the overall protection business. This is just the beginning as we will be seeing more action in this space as more companies launch products and improve the overall experience of purchasing online. Online medium as a distribution channel has great potential as customers will not only look at price as a criteria to select a particular company, but will go for the overall experience in in terms of right advice jargon free documentation and simple purchase experience.
Wider access for insurance products
The introduction of the draft Open Architecture guidelines has also set the tone for a new trend in distribution. Open Architecture could enable an insurance company to offer its products at any branch of any bank across the country, through multiple tie-ups. This dramatically enlarges the range of options available to potential buyers of insurance products by increasing insurance penetration into geographies left untapped so far. If a particular life insurer has not launched business in all the branches of a bank, another insurer can launch insurance business in those branches. The potential of Bancassurance is estimated at 80,000 bank branches but barely 10% of bank account holders buy life insurance from this channel. Open Architecture makes this is a huge scalable opportunity for the insurance business.
The Mckinsey report on the outlook for insurance sector in 2012 predicts an exponential growth for the Indian insurance industry in 2012 due to contributing factors such as increasing household incomes, higher premiums (as a percentage of the GDP) and a total market premium growth estimated to be close to $100 bn. This year, companies will put a strong emphasis on product innovation, strengthening core product proposition and exploring alternate channels of distribution to match the consumer requirement and to keep up with regulatory changes.