Online media playing a prominent role in Information Dissemination
11^th Mar 2010

Over to Q & A session »

Insurance and Indian consumer…what do you expect?

In financial services, it is more to do with the overall experience of customer. The experience is the essence as he wants to be sure that he was properly and fairly treated, if he questions himself that:

• Did I get the good deal?
• Is it March, and I had to pay tax so bought one of these products?
• Is it that somebody came in and really explained me the product and I made the choice?
• Is it agent interaction that I had, built up the idea?
• What to expect from this product at different life stages?

If he is clear that what he can expect and if he has something to benchmark and to compare with then feels good. But if he feels that in the explanation there is something suspicious, and he needs to counter check it with someone, then it is not a good experience.

Q. In life insurance, there has been cut throat drop in prices in pure protection plans, which has been taken to a new level by offering term plan On line. What do you have to say on that.

It sounds like technology, with time it only becomes cheaper. But we sincerely hope that this does not delay people to take the decision. Once you are using an Online medium, the cost is less as there are no commissions. In general if you say other prices are also dropping, there is certain competitiveness in the product may be, margin that has been kept in the term life business, people are reducing that, to me there is certain amount of herding. It is said that it is the cheapest, but it is not the best value for money. But there is a space that people are also trying to occupy in the mind of the consumer by pricing the product that way. We hope that when you go in for evaluating another product in that space, you carry, this in your mind. But to really see the benefit in any product, you have to really wait for some time.

Q. The term purchase is for people who are enlightened. Do you agree with that?

In traditional products you are more or less certain about the guarantees and bonuses that you are going to get in the future, but for ULIPs you still have to wait, how the performance of this product or the company is going to be. So if we create a product, which gives best value for money, obviously the mindset gets created. We are driving prices cheap, cheaper, cheapest, which is not a healthy trend to put into practice. It should not come to a stage when the life insurance companies stop taking cognizance of mortality or morbidity rates which exist, in that case it would be a concern.

Q. New mortality tables have been used which have been updated recently. It is not that profit margins have been swept but…

In mortality tables there has been an improvement. But when you come into mass medium, like in Online Media there has been such drastic improvement that says 5 years hence, premiums would actually drop to half. It is proportionate to existing mortality tables. Experience of the insured public is different than the public at large.

Q. So when you talk of long term, where do you think insurance industry has reached?

Life insurance is definitely a long term game, but the most important thing for any life insurance company is to maintain their financial wealth for a long period of time for the sake of its policy holders. Also the duty life insurance companies have towards policy holders is to ensure their financial health and profitability. This way customer will always feel secure.

Q. How safe are private companies in context of risk plans and investment plans?

As far as private insurance companies are concerned, if you look at the element of their safety, I don’t think there is anything to be worried about for any policy holder. Regulator has been watching insurance companies very closely. The way Indian regulator monitors the insurance companies, monitors their solvency margins, the fact is that insurance companies have to maintain one and half time solvency required. It is like this that assets are valued and so are the liabilities and the way regulator sets this, it itself builds humongous cushion. So with this kind of monitoring and observation by the regulator, I think that life insurance companies will always be sound.

Keeping perception part aside, we know that the regulator has been continuously doing things which helps the policyholder in a big way like charges for ULIPs, puts insurer on watch for its expenses, the regulator limits the expenses, which definitely helps him to maintain the expenses, at very good levels. Then the Board of the Insurance Companies is quite strict about standards of corporate governance, and watches their internal mechanisms properly. In these insurance Companies major players from across the world, who themselves have very high standards of maintaining solvency, are partners. All these companies are interested in maintaining health of insurance Company, so the way products are designed and the way actuary evaluations are happening, it helps maintaining faith among consumers. As far as Indian consumers are concerned, they are dealing with very sound insurance companies.

 

Q. How do you look at the perception that people are having?

Coming to the perception, that’s about branding. When industry opened up around 10 years ago, it was only LIC then. But over a period of time private life insurance companies have made a space for themselves. The opportunity is unfolding as we go along. In the semi-rural and rural areas where large populations exist, the opportunity continues to expand. If we say penetration is 4% which should be approx. 8%, so I don’t think that 4% is real potential, but the extra 4% of GDP which is a trillion dollar economy, it is the potential that is lying untapped, and that is where we need to get to. Think given that opportunity, given that place, the awareness that the insurance companies are creating, and the branding that they are doing, has brought them some space and people have become aware. Life insurance if you see today, it does occupy a significant space in average Indian’s mind.

Q. Why pure protection plans are not that popular or whereas ULIPs are. Do people prefer to remain underinsured?

I will take it this way – why not go in for pure protection and investments also – like while you are getting insurance, you are able to recover some amount also. Here you are saying that you want to completely segregate your risk like health risks and the term risks (on the investment portion). Let’s face the fact that how many of us are good investment managers? This is visible in the amount of bank deposits we continue to maintain, irrespective of the interest rates. It is a reflection of how we manage our own money which is the first aspect. Secondly, as far as remaining underinsured is concerned, the aspect does remain in people’s mind that insurance is not really going to pay when I am around. When you say that you are underinsured, you look at only the down side risk – what happens at my death? Whereas to me a life insurance product with investment component – both of them provide risk protection. Let’s look at what insurance does?

Insurance at the core is meant to remove the volatility of your balance sheet, whether you are an enterprise or you are an individual. As an individual you have your balance sheet which goes through its ups and downs, the insurance is an instrument that removes the volatility from your balance sheet. Be it general or life. If you look at life, there are some downside risks which all of us know like death, morbidity, loss of property and disabilities etc. But if you look at the other aspects of your life, there are upside risks like you plan for your child to go to college, he wants to go to a foreign university or you want a slightly bigger house than you had planned for. These are upside risks, where you need that just that extra element, but it’s happiness. On the other hand you live slightly longer than you thought you would, so investment portion of insurance product is orientation towards enabling you to remove that volatility of these upside risks also.