India's life insurance industry has traversed great distances, scaling key milestones in the past few decades.
Life insurance penetration in India is currently almost 4 per cent of GDP, from 2.71 per cent back in 2001. The journey transformed in 1999, with the industry opening up to the private sector, bancassurance as a distribution model unlocking access to far-flung customers through bank branches, and new product regulations 2010 onward, that enabled a shift to focus on building customer-centric, need-based propositions. This development also stimulated a gradually transforming consumer behaviour, enabling the understanding of life insurance as a risk management tool.
With the government playing an active role in strengthening financial inclusion now, household savings are gradually shifting towards formal channels, as against informal assets (such as gold and real estate). This is further backed by an evolving product mix, stepping away from times when endowment and money-back plans ruled the roost, to now and also including protection and market-linked plans. Today, the industry is able to cater to individual life-stage, needs, financial discipline, aptitudes and risk-appetites.
While catering to individual needs, life insurance plays a crucial part in nation-building by maximising long-term savings of households and making a significant contribution to infrastructure investments in the country, while holding 22.2 per cent of outstanding GOI securities (as of March 2016, as per MoF reports).
Global “insurance gap”, or the total value of assets, divided by the value of assets protected by an insurance cover, stands at $162.5 Billion as of 2018, which in India alone, comes down to roughly $27 Billion. “Gap” measures costs not protected by insurance, wherein, emerging economies account for 96 per cent of the total global insurance protection gap, and this number tells on the country’s GDP.
Insurance has played its part in developed economies including the US, the UK, due to the concept of “insurance penetration”, conventionally referring to the total premium underwritten in a particular year, to the GDP of the country or industry. In these nations, lives protected through social security have evolved with years, to become as default and all-encompassing as it is today.
Under-penetration of life insurance in India is one of the often-broached subjects when it comes to understanding how secured the larger population is. However, understanding how penetration levels are measured is also crucial.
There are the smaller government schemes that have impacted the masses. The Pradhan Mantri Jeevan Jyothi Bima Yojana, for instance, covered 5.35 crore individuals and the Pradhan Mantri Suraksha Bima Yojana brought over 13.5 crore citizens under the risk-protected fold, as on May 2018. The Aadhar-enrolled group being in excess of 73 per cent denotes immense potential in terms of insurable population in India.
Penetration level of insurance in India has thus not factored in the number of people who do have some form of insurance or other, but the percentage of India’s overall GDP as is the convention. The larger issue thus is really about identifying the risks (securing present and future earnings, risks of mortality, morbidity risk) against their “adequacy” in the individual’s context and goals.
Before privatisation, individual agents were the singular mode of life insurance distribution. The landscape has diversified today post-privatisation, to include corporate agents, Point-of-sale modes, government-run common service centres, micro-insurance agents, insurance marketing firms, life insurers’ own sales forces, digital marketing, tele-marketing, and the broker community.
Even the erstwhile limited presence of group life insurance products, has witnessed disruption. Its all-pervasive presence today is seen in offerings. Today, it is common to see credit cards or travel websites presenting customers the choice of personal accident cover or travel insurance, respectively embedded; or even event-based covers to protect against risk of diseases such as dengue when you buy mosquito repellents.
While every individual’s life-cycle may be somewhat similar, standardised products will not fit different contexts.
Today’s customer wants to be understood and demands flexibility and instant gratification. In line with the evolved customer profile, the life insurance industry too has advanced. Appreciating that every person manages finances differently, the industry offers a range of products with customisation in structure – referring to the level of guarantees and the upside one requires, the risks they are willing to take, and the investment duration. This agility extends to premium payment term and the policy duration of life insurance plans, too. There can be pure term insurance, offering pay-outs to dependant on the insured’s passing, or plans clubbed with savings or investment benefits.
Life insurance products have the unique ability to provide the dual benefit of protection as well as savings. Since the money invested in life insurance stays locked in, it is ideal for those who find money management, challenging. This, in turn, ensures fulfillment of non-negotiable goals, especially those involving your loved ones. In today’s age, the customisation that plans offer is a shift from the set mould of “endowment” limitations, to suitably fit customers’ future goals and lifestyle. For example, to save for higher education of children, a corpus of money will be needed in the long run. However, due diligence is in taking on a life insurance policy so that if unfortunately, you are not around, its pay-out doubles up as the corpus. Today, life insurance offerings are financial products tailor-made for event-based and situational requirements.
In short, the life insurance industry has evolved to understand that financial management is unique to every person, though almost all go through points in life when they require protection, providing for children’s futures and retirement, along with legacy planning.
Spreading awareness around the mentioned aspects across the social pyramid, is the industry’s collective responsibility. The perception that life insurance products are complicated, among other things, is changing.
When considering life insurance, consumers are right in analysing the “golden handshake” or the claims settlement part of the life insurance contract from a point of view of what’s in it for them. What also sometimes follows is an apprehension that stems from instances of mis-selling or non-payment of claims.
The larger industry intent is to honour 100 per cent genuine claims to fulfill the collective goal of bringing more into the insured bucket and make citizens owners of their own “social security” through convenient policy purchase modes. Hence, full disclosure right at the application stage ensures hassle-free pay-outs. Staying the course, ensuring timely premium payments through the complete term of the policy is another prerequisite.
Life insurance, widely referred to as a “matter of solicitation”, safeguards customers’ hard-earned income and offer absolute assurance, since the regulatory structure mandates them to have a solvency margin.
The author is MD and CEO, IndiaFirst Life Insurance