Allowing corporate agents to tie up with more insurance companies will lead to an increase in competition, which will mean more choices for customers and a drop in mis-selling complaints, says Tarun Chugh, MD and CEO of Bajaj Allianz Life Insurance.
Also, deduction on premiums paid on life insurance policies must not be clubbed with other investment and savings products, all of which have a combined upper limit of Rs 1.5 lakh under section 80C, he said in an interview with Moneycontrol. Edited excerpts
Also read: Budget 2023: Insurers seek separate tax deduction basket for life policies, higher limit for health premium
What are your expectations for Budget 2023?
There needs to be a separate deduction for life insurance premiums under section 80C. Also, pension gets taxed as income.
It should not be so because it is meant for an aged family, which would probably not have any other source of income. India is largely young, but also has a significant ageing population. Nuclear families are becoming the norm - parents are not necessarily comfortable staying with their children and vice versa. So, a financial safety net is indispensable.
Also read: All about Budget 2023
The Insurance Regulatory and Development Authority of India (IRDAI) has ushered in sweeping changes. What benefits can customers expect?
We will see more principle-based governance (instead of micro-management). India is like a continent...we need flexibility in terms of number of products, distribution partners and so on.
And it is also good for the customers. (The flexibilities that new regulations offer) will allow us to target our customers really well. So, if you find that there is a change or new trend in the market, we need not queue up with IRDAI now, unlike earlier. Based on customer feedback on features and offerings, we can design the next product without waiting for prior approval.
Now, we can design tailormade products for different categories of customers. There could be one for single women, one for older individuals… one for employees of large companies. They will see more customisation and choice.
Also read: LIC going public, out-patient cover... 7 reforms that changed Indian insurance in 2022
Corporate agents such as banks can tie up with up to nine insurance companies in each line of business. This is good for banks and insurers, but what does it mean for policyholders?
It gives customers greater choice. We could see companies evolving to specialise in certain products. Some might specialise in online plans, some could focus on the credit life business, while other companies might focus on HNI (high net worth individuals) and mass segments. Banks will choose their insurance partners depending on whose products sell more or whose brand is acceptable in certain areas. I expect some banks to move to four or five insurance partners, and some to move to three initially. It will help in offering flexibility to customers.
How has the earlier relaxation around distribution tie-ups helped?
After corporate agents were allowed to tie up with up to three partners (up from one earlier from each segment), mis-selling complaints have actually come down. The increase in competition is only helping. As per IRDAI data, grievances have come down for us, and for most companies, because insurers are now more responsible and IRDAI has been quite strict.
Will people continue to buy term plans after the hikes in premiums we saw in the last two years?
Last year, the protection business was muted largely because reinsurers were unable to support us. We are hoping that next year the reinsurers will start realising that the worst is behind us. I'm hoping that there will be no resurgence of the COVID-19 threat.
Right now, reinsurers are looking at COVID-19 risk from the global perspective, but India is completely different. We can take an India-specific call. Processes are now aligned to what Indian customers want – there is easy onboarding, life insurance companies are taking higher risks. All of this will result in the share of term plans going up as people have seen the COVID impact.
But did demand for term insurance dip post the initial COVID-19 panic?
It has tapered down. It is very visible. Term insurance business constituted 1 percent of our total portfolio pre-COVID in the financial year 2019-20. It went up to 6 percent during the peak phases (FY 2020-21) and dipped to 3 percent in FY 2021-22.
We’ve seen several rounds of term insurance premium rate hikes since COVID-19 hit in March 2020. Are there more hikes in store?
We are perhaps seeing the last of the rate hikes now. After that, I don’t see any rate hikes happening. Whatever happens later, there won’t be any substantial rate hikes.
Has COVID stopped being a factor in terms of medical underwriting?
Not entirely as some remnants of long COVID are still there. And, we are still insisting on procuring COVID documents beyond a certain level (of sum assured) and age.
So, do you continue to ask for the details of COVID-19 treatment and medical records?
It’s become easier. So, additional scrutiny may not be needed for someone who wasn’t hospitalised. Otherwise more tests will be done before policy issuance. Data around long COVID is yet to be fully understood.
What is your current product mix like?
Non-participating (traditional, guaranteed) products make up 33 percent of our product portfolio (as of October 22), up from 23 percent during the same period last year. Participating products' share has dipped to 19 percent from 22 percent earlier. ULIPs account for 36 percent (down from 39 percent) while term policies make up 3 percent of the portfolio.
What other regulatory changes do you expect? The proposed 20 percent cap on commissions was rolled back, and commission levels continue to be higher…
We are not an industry that writes short-term – one, two or three-year – products at all. If you look at the commissions that insurance companies pay over the longer term versus, let's say, what mutual funds pay over 10 years, ours would be lower. Also, we are a far more persistent, long-term business. My benchmark would be insurance companies outside of India and their commissions are far higher.
What kind of changes will the Bima Sugam platform bring in for policyholders?
It will bring in transparency. That is the biggest benefit. Not only in terms of ease of sales and purchase, but also servicing. The track record on claim and policy servicing will be available in the public domain. And it will not affect agents negatively, either. Even today, over 99 percent of insurance sales happen through intermediaries. We have tried online channels, for instance, but if policyholders want to understand products, they will want to approach intermediaries.
Will it be rolled out this year?
It’s a massive project. So, perhaps next year. Timelines are yet to be finalised.
