Suresh Agarwal
The Indian life insurance industry has witnessed changes over the past decade and a half, beginning from opening up to the private sector (2000), new product regulations (2010), increase in FDI limits (2016), advent of open architecture for Bancassurance (2016), and issuance of policies in electronic form (2016). With these changes, the industry has undergone fundamental shifts such as rapid expansion, rebalancing of distribution with rise of Bancassurance, and transitions of product mix. Let us examine the potential of the industry and outlook for the near future along with key factors that will be instrumental in moulding the industry.
Going by the aggressive growth of 20-25 percent in the past few years, we could well be looking at an industry of the size of over $100 billion within next three years, from current levels of around $55 billion. External factors likely to help the momentum are continued economic reforms, rising disposable incomes, relative under-penetration (2.7 percent compared to global average of 3.5 percent), and shift of savings from physical assets to financial sector. However some key factors internal to the industry will also have a bearing, viz. development of distribution channels, product innovation, digital transformation, capital inflows, and the industry’s approach towards customer-centricity.
Distribution Channels
Focus will intensify on strategic channels i.e. agency (in quest of viability through productivity improvements) and Bancassurance (heightened action in open architecture). Development of new/emerging channels like point of sale (POS) and digital distribution will help expand and deepen distribution.
The Product Regulations Review Committee constituted by IRDAI has recommended among other measures, various enablers for strengthening distribution, e.g. auto-approval of POS products, creating product-specific Specified Persons, assignment of orphan policies to large intermediaries, etc.
Product innovation
Insurers need to constantly scan their product suite and ensure coverage of all product and customer segments. Product innovation and simplification will enhance customer experience and create a pull effect.
In the domain of pure protection plans life insurers are best positioned to create a pull effect, due to rising awareness among customers. Besides, higher focus of insurers on VNB margins is leading to product innovation, as well as aggressive pricing based on mortality experience and improved risk-pricing abilities. The industry needs to find ways of bridging the 'protection gap' in the country.
Apart from this, enabling life insurers to enter segments where they are not present, will help expand the product portfolio and improve penetration. For example, the Committee has recommended creating parity between pension products on life insurance platform and other pension products, in terms of commutation (60 percent like NPS instead of one-third), doing away with capital guarantee, and higher expense limits. Life insurers could also be allowed to offer health insurance (indemnity product) and wellness benefit, helping in preventing claims and ensuring better portfolio experience.
The Committee has aptly recommended higher efficiency in product creation and approval process, e.g. Use & File route for common products, single product approval at industry level (insurers can replicate an existing product), modular product approach (approval of individual benefits as independent modules that can be used for creating multiple products through various combinations). These are potential enablers of faster go-to-market for products.
Digital transformation
‘Digital’ is going to be the way of life by impacting two aspects – delivery of products to customers on digital platforms (direct-to-customer using web, or through distributors’ digital platforms e.g. net banking and web aggregators), and creating process enhancements (leading to superior customer experience and cost efficiencies). While both these aspects have already begun to make an impact, we can expect this to gain significance. Rising internet penetration and government initiatives such as digital push and introduction of UPI are accelerating the adoption of digital technologies.
Software’s using artificial intelligence (AI) engines (e.g. email-bots and chat-bots) learn in human-supervised or unsupervised ways (“machine learning”), and are able to drive error-rates to zero over time. AI-led decision-making in underwriting and claims would be a new frontier, while instant image processing, Aadhar e-KYC and online payments will speed up decision making. We can expect insurers to aim at instant issuance of policies.
Capital inflows
This year has been a landmark for the sector with IPO’s of some large insurers successfully raising over Rs.23,000 crores. The aggressive valuations these offerings have fetched (3-5 times of embedded value as against 1-2 times of other Asian insurers) are reflective of the growth potential of the industry.
IPOs have improved public awareness through better disclosures and transparency, and are expected to lead to good corporate governance. It works in favour of customers as insurers constantly strive to improve products and services. Given the strong growth record and potential, there is a strong case for insurers to tap the markets to fund expansion.
However, apart from IPOs, capital infusion has slowed down as compared to the first decade after privatisation, as the industry focuses on profitability and putting the existing capital to work. We can expect gradual consolidation as relatively non-serious players look for an exit and only players with long-term commitment stay and grow.
Customer centricity
The industry has in the past few years significantly improved its customer-focus, which is reflected in improved products, persistency and claims settlement ratios, resulting in improved perceptions. Moreover, innovative products and digital transformation will continue to enhance customer experience. Customer will be at the centre of insurers’ growth strategy more than ever before.
While the industry is poised for greater heights, there are several external and internal factors to watch out for, which will determine the shape of the industry in the next couple of years. The year 2018 will reveal how some of these factors play out. The industry and all stakeholders will keenly observe and participate.
The writer is Chief Distribution Officer, Kotak Life Insurance
