“There is so much jargon in the insurance industry that customers don’t understand what we (insurers) are trying to give them,” says Anup Bagchi, CEO of ICICI Prudential Life Insurance, who took charge in June this year.
His one big learning from the stint at ICICI Securities is that the key to market expansion lies in making customer on-boarding simple. That’s the playbook he is trying to replicate at ICICI Prudential Life. “Insurance is not a substitutable product. No other banking and finance product compares with it,” he said.
Bagchi believes life insurance policies can reach more people if they are positioned like home loans, where people feel the need for a house and thus choose to keep paying their EMIs with discipline and eventually end up with the asset. A similar push towards insurance could trigger continuous growth for the insurance sector, he said in a free-wheeling chat with Moneycontrol.
“People should think of it in this way: With a home loan, pay all your EMIs, and your house is free. Similarly, think of life insurance products as creating a long term corpus. You pay your premium, your corpus is free,” he said.
As per the Economic Survey 2022-23, life insurance penetration in India stood at 4.2 percent in 2021 almost similar to what it was a year before that, but significantly higher than 2.7 percent around the year 2000.
For any consumer, the hierarchy is: first, pay EMIs, then use the money for consumption purposes. “Obviously, no one wants to lock liquidity up, But then, NPS (national pension scheme) and PPF too have lock-ins” said Bagchi, as most customers choose to stay away from insurance products such as ULIPs that have a five-year lock-in period. ULIP stands for unit-linked insurance product and is a combination of insurance and investment, with investors having the option of regularly switching across debt and equity.
“Because these are market-linked, there is a temptation to withdraw the funds when you look at the ticker (stock prices). But the longer you stay invested, your money compounds better, and that is how you create a corpus,” Bagchi said.
The illiquidity problem
One reason why people vary about insurance products is that for some reason if they surrender a policy early, the amount that they get back is less than what they have paid so far.
“Customers end up losing a part of their capital if they need liquidity. This doesn't apply to ULIPs, as liquidity isn't typically a concern with them. However, when it comes to traditional insurance products, surrender values are generally lower than the initial capital invested,” Bagchi said.
“For instance, if you invest 100 rupees and surrender after 2 years, depending on the specific product, you might get back 50 rupees, 30 rupees, or 70 rupees. This can be confusing for customers who expect a full return of their initial investment plus interest. One way of addressing this is that over time, processes should be such that commissions could shift towards a more trail-based system so that the commission itself should not reduce the absolute amount that a customer can get back in the event of an early surrender. This could potentially lead to improved surrender values and a better overall customer experience,” Bagchi said.
On loan against policies
To address the illiquidity issue with locked-up insurance products, Bagchi said ICICI Prudential Life Insurance is working on increasing awareness on 'loan against insurance'. "If customers can take a loan against mutual funds, loan against bank FDs, then why not loan against insurance policy?"
While loan against an insurance policy has been around for a few years, it has not taken off in a big way as it is akin to withdrawing money from your insurance policy. The insurance company lends customers money deducted from the cash value of the policy.
However, Bagchi believes that if a customer's short-term cash flow problem can be mitigated by this then why not opt for it. "If customers are facing temporary cash flow problems, then that can be easily addressed by loan against insurance," he added.
On ULIPs vs mutual funds
Bagchi does not see mutual fund equity schemes as being a threat to ULIPs. For one, the two are distinct products and also, the advantage of ULIPs over mutual funds is the ability to switch between funds and modify investment as per requirements without any additional costs or charges.
“Investors can move from equity to debt funds, from large cap to mid or small cap funds, free of cost. In case of mutual funds, the corpus will have to be withdrawn from one scheme and moved to another scheme which means that clients will have to pay some short-term or long-term tax. This can be avoided in ULIPs,” Bagchi explained.
On new tools to solve old problems
Like the revolution in payments and lending sectors, the insurance industry is also reaping the benefits of data stack and account aggregators. With the consent of the customer, insurers can access data, create policies to suit his/her profile and pre-approve insurance policies and the sum assured.
“Using data, we can underwrite better, without being invasive. Now, we don’t need to go around asking customers for three-year income tax return statements. It is all about making the customer on-boarding process easy,” he said.
About 15-20 percent of ICICI Prudential Life Insurance’s policy issuance is processed on the same day. By bringing down the customer on-boarding process to 30 seconds, Bagchi believes supply will create demand. “If your supply is very congested, it will kill demand. As a big brand, we are trying to create easy supply,” he said. And since insurance policies go on for 30-40 years, customers prefer large but agile companies. “In case of general insurance, it is a matter of a few years but life insurance is an emotional thing. So people would want to go with companies which they are confident will be around,” he said.
On distribution: ICICI Bank versus non-ICICI Bank
ICICI Bank’s share as a distribution channel has been low for ICICI Prudential Life Insurance. Of the distribution mix, ICICI Bank forms 13.5 percent, non-ICICI Bank bancassurance channel forms 15.4 percent. For peers HDFC Life Insurance and SBI Life Insurance, the bancassurance channel including parent bank forms a much larger chunk.
To this, Bagchi did agree that a large contribution from ICICI Bank would have been an ‘additional boost’ to margins, but it has been their conscious decision to diversify far and wide to get access to different types of customers.
Another boost to creating volumes, he believes, will come from the launch of IRDAI’s BIMA Sugam. BIMA Sugam is an online platform where customers can choose a suitable scheme from multiple options given by various companies for life, health, and general insurance products. According to Bagchi, Bima Sugam will create a high tide for the sector in general. While the platform is intended to encourage the low income section of the population to get insured, Bagchi says it will have a much wider impact by way of creating awareness about insurance products even among the high ticket customers.
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