The coronavirus pandemic has impacted nearly every industry in an adverse manner. For the insurance sector the perception is somewhat different. What have been the positives and negatives?
Life insurance in India has grown in a particular way led by savings-based products. We as a risk management company transfer the risks faced by an average person on the street to ourselves. And that is the reason why we are insurers and not asset managers at core.
There is now a slow realization that if you start early, it doesn’t cost much. The life companies unlike general cannot reprice premiums regularly as well – and hence there is a value in locking in early. This is a penny drop movement for life insurance especially for term products. We always compare how Chinese insurers have over 15% share of term protection while for India on a weighted premium basis it is in single digits. This could change with the pandemic and we are definitely feeling a pull.
While the behavioral shift is happening, there are also concerns of massive job losses. Would this act as an impediment?
Our market segment is largely the middle class. We are keen on targeting Bharat and not just India and what we have seen is in the burgeoning middle class there is a fear of job loss and salary cuts.
In such a scenario, we are suggesting people to themselves to get some cover. While the average ticket size has fallen to 75% than pre-pandemic, there is a definite pull towards getting insured. Another factor is an increase in disposable incomes. People are spending less on discretionary and as more people gain awareness on having life insurance, we feel the penetration will also improve.
In terms of product mix for life insurers, it has always been savings over pure protection. But that’s a low margin business. What can be done to make it more profitable?
Endowment plan gives topline, and other products contribute to the bottom line. Protection, for example, if done sensibly, can be quite a high profitable business. However, three protection policies need to be sold to match the premium that a single endowment product brings. Therefore, we have to balance the mix. Products like riders and annuity are also good to have for building strong bottom lines.
You had set aside a provisionary fund of Rs 41 crore for settling covid-19 claims? Has that been sufficient as of date?
To be honest, we have not faced a lot of claims. We have settled 235 claims since March with sum at risk is about 22 crore and very much in line with our actuarial funds; we didn’t have to dip too much into it. It’s still an evolving situation and I wouldn’t want to make any predictions yet.
Separately, studies have shown that the overall deaths in general have gone down. This could be because of reduced accidents which to an extent has had a neutralizing effect on the impact of coronavirus.
It is well documented that guaranteed return products have contributed to your growth and the industry as well. Are insurer companies in the process piling up risks?
Last year when we launched the product it caught the imagination of customers. Over 60% of the business in that quarter was through that product. However, now we have brought it down to 25%.
We constantly monitor the segment and reprice for new policies according to interest rates. Then there is asset backing as well where we write against long dated government paper which provides us the hedge.
LIC is set to be listed soon. What kind of impact would this have on the life insurance market?
The biggest impact is that it would bring transparency. Today, when listed companies make disclosures it’s not just on accounting profits but also on long term profit emergence and value creation. The listing of LIC is of utmost importance as it’s the largest financial institution in the country. It’s not a welcome situation, even for India Inc, where the largest FI is unlisted. Like it did for us, the listing will bring more vigor to LIC as well.
The demand for investment-linked products have contracted. Is this a cause of worry?
We follow a balance product mix and we like Unit Linked Investment Products (ULIPs) to be at 25% of the mix. We are able to sell enough to maintain it but for companies having 60-70% mix could struggle. There is a dampener for any investment linked product where there is volatility in markets. But that’s where the balance in product mix comes to play.
Because of increased automation and digitization, there is a negative perception about the future of agent networks. Can both co-exist?
I think they definitely go hand-in-hand. See, there is an India, and, there is a Bharat. There are young people adept at doing their own research to purchase online while there are older people who like assistance and hand-holding.
What is heartening is our agents are at the forefront of embracing digital. Maximum number of people getting trained are on our digital platform. While banca partners are targeting branch walk-ins, the financial advisors are getting savvy with digital to push digital through existing channels. It’s not an ‘either/or’ situation but rather the merging of ecosystems in a seamless form without borders.