The insurance industry must work hard to translate awareness into demand and fulfilment by offering simple, customer-focused, easy-to-buy products., says Mahesh Balasubramanian, Managing Director, Kotak Mahindra Life Insurance Company
In an interview with MintGenie, Balasubramanian said that term and health insurance are the two first things one should buy even before getting into any other investments.
Edited Excerpts:
Q. New-age investors tend to prefer zero-cost term insurance or term return of premium (TROP) plans. How do you think this tendency defies the purpose of buying insurance in the long run?
Term insurance products have become more innovative and hence have offered options to suit various customer needs. Some customers prefer Term Return of Premium (TROP) as they would want to get their money at the end of the policy term.
The TROP products are not really zero-cost term insurance, as you should factor in the Time Value of Money. The interest earned by the insurer on the premiums paid is adjusted towards the mortality cover and the principal or premium paid is returned. But yes, a simple regular premium term insurance product would be a better choice for the customer.
Q. Not many people consider buying life insurance early in life. Why do you think so many people ignore including insurance in their investment portfolios?
It is strongly advisable to buy term insurance early in life as, at a younger age, the premiums are far lower. With age, the premiums do keep going up. Also, as earnings and the value of life keep increasing, one should ensure that the sum assured also goes up in proportion to the income.
Yes, due to a lack of awareness, many customers do not treat protection as important as it should be. Term and health insurance are the two first things one should buy even before getting into any other investments. As the insurance industry promotion advertisements say, “Sab Se Pehle Life Insurance” is indeed very true.
Q. Finance regulations are changing rapidly. How do you think would this affect the insurance sector?
The regulator has brought in many changes over the last 12 months. Some of these are:
- Use and file guidelines for many life and all non-life products. This will promote quicker launches of more innovative and customer-focused products/propositions.
- The Open Architecture model, where corporate agents can tie up with 27 insurance players, nine each in life, non-life and health, will expand the market and give multiple options to customers.
- BIMA Sugam and BIMA Vahak and BIMA Vistaar programs will bring digital ease and convenience and bring simple insurance products to the doorstep of urban and rural customers.
- The “New Expense of Management” regulation will make insurers more disciplined and efficient in terms of managing their expenses.
- The Board-approved commission policy will give more flexibility to insurers to have structures where commissions are based on channel, product, renewals, etc.
The amendments to the insurance act will also bring in more new players, pave the way for composite licenses and make the Indian insurance market more vibrant. All these steps are being made keeping in mind the regulators' goal of Insurance for all by 2047.
Q. The new tax regime does not allow much scope for deductions on insurance premiums paid. Would this discourage people from buying life insurance policies?
Most of the Indian market is underpenetrated. The total limit for customers to avail of tax benefits is now ₹7.5 lakhs ( ₹5 lakhs in traditional and ₹2.5 lakhs in ULIPs). There is still a large population waiting to be addressed. These customers would wish to avail of insurance products and benefit from tax-free investments.
Insurers will focus on reaching out to this vast base and offer customer-focused solutions across protection, savings, and retirement platforms.
Q. Many experts disregard ULIPs as an insurance product owing to their market-linked investment feature. What changes do you recommend to ULIPs’ structure for better reach?
The ULIPs are very attractive investment opportunities for customers looking at a 10-year plus horizon as they provide the twin benefit of protection and long-term savings.
Long-term ULIPs fund performances normally provide healthy inflation-adjusted returns with minimal yield loss. They should be part of every customer's investment portfolio; the only caveat is they should have a long-term horizon.
Q. The propensity to buy life insurance does not match people’s interest in stock and fund investments. Where do you think the industry has lagged in gaining its prospective customers’ attention?
The insurance industry has done yeomen service during the pandemic. Lakhs of people and their families have benefited from their health and term insurance policies and savings-related investments.
The awareness level is very high. The insurance industry needs to work hard in translating this high awareness to demand and fulfilment by offering simple, customer-focused, easy-to-buy products. Awareness, affordability, and availability are the three pillars that need to be focused on to increase and sustain interest in insurance investments.
Q. What would be your advice to people who believe investing in high-return investments eventually defeats the intent behind buying insurance to secure loved ones’ future?
Understanding the basic concept of risk versus returns is fundamental to investing. High-return investments across any financial instrument come with their share of risks.
Customers need to talk to their financial advisor and plan their financial needs based on their age, and events like marriage, children's education, marriage, and retirement, which all occur across their life cycle. The next is to understand their risk appetite and time horizon for their investments to invest and mature. Based on the above factors, they need to get proper portfolio planning done and ensure they have a balanced approach to their investments.
But in all this, I would say “Sab se Pehle” life Insurance and health insurance as this is a basic need to protect yourself against any eventualities that can deeply set back the family finance. Any other investment should come only later.
