The recent economic survey expects India to become the fastest-growing insurance market in the world over the next decade, says Sumit Rai, MD & CEO, Edelweiss Tokio Life Insurance.
In an interview with MintGenie, Rai insists that the insurance industry is poised for robust growth in the longer term.
Q. Despite the increasing relevance of term insurance post-Covid, many people continue to focus on zero-cost term insurance. Why does the focus still continue to remain on zero or low-cost term insurance?
The Covid-19 pandemic has redefined how we perceive and address financial risks at an individual level. Term Insurance, specifically, has found high prominence as the need for pure protection solutions has become very apparent. We have seen more people opting for term insurance and guaranteed plans as a way of bringing a semblance of certainty to their financial planning in the long term.
A problem statement that we have frequently observed is that people are wary of the fact that you don’t get your premiums back if you outlive the policy term or surrender the plan. They prefer staying financially unprotected as a method of addressing these concerns.
In response to this customer psyche, the industry has designed Term Return of Premium (TROP) and zero-cost term plans to ensure that customers can financially protect themselves without thinking that they are sinking their money into a financial instrument. Whether people are buying term plans or zero-cost term plans, the underlying trend that more people are now opting for these instruments is far more noteworthy.
Q. What factors and trends do you believe will shape the life insurance industry this year?
The year 2022 has been a vital one for the insurance industry. It regained its growth momentum, having benefited from the fundamental reorientation brought on by the Covid-19 pandemic. Buoyed by an improved customer awareness, an easing regulatory environment, and strong macroeconomic factors, the insurance industry is poised for robust growth in the longer term. In fact, a recent economic survey expects India to become the fastest-growing insurance market in the world over the next decade.
In line with the recent changes in customer behaviour and the overall insurance marketplace, here are some key trends we expect:
The growing role of digital in enhancing customer experience
The Indian government has been working aggressively to fulfil its Digital agenda. The several initiatives undertaken under India Stack have built a robust digital ecosystem, which has given a springboard to companies across sectors to bring about expansive changes across business processes.
The insurance sector also has benefited from these new-age technologies for process automation and optimization. Insurers have been able to automate processes like KYC, customer verification and underwriting, thereby making customer life cycle management more seamless.
The last year, especially, saw a heavy push on redefining of customer-centric strategies and aligning them with the fast-evolving external environment as well as customer expectations. We will see some of these strategies taking shape in 2023. Going forward, dematerialization will play a big role in enhancing customer experience.
There is a clear regulatory focus on facilitating ease of business and insurance for all. We see a significant transformation happening, which will provide an impetus to the sector and bring it at par with global peers.
Focus on expanding the reach
With the cap on corporate agent tie-ups increased, we see a heavy focus by insurers on expanding their distribution network through third-party partnerships. Bancassurance, especially, will play a key role in the overall growth of the sector as more insurers will aggressively pursue banca tie-ups.
Q. Many people are fooled into buying Unit Linked Insurance Plans (ULIPs) despite their high-cost structure and obfuscation. Do you foresee any recommendations or changes in the ULIPs structure this year?
Costly ULIPs are a thing of the past. Since 2018, we have seen a new cost structure emerge in the ULIPs category. ULIPs are cost-effective, transparent, and flexible, which makes them among the better choices in the market for wealth multiplication. There is an added advantage of protection, which only enhances its lucrativeness as a financial product. We only see improvements in the product structure going forward because the overall effort is to offer transparent and solution-oriented products to our customers.
Q. Some people consider their mutual fund investments equivalent to life insurance. Where do you think the insurance industry lags in making people realize the importance of securing their families with a life insurance plan?
For every financial product that exists in the market, there is a concrete and underlying customer need for it. For life insurance, we are now taking those collective steps in creating last-mile awareness through the campaign called “Sabse Pehele Life Insurance”, which the Life Insurance Council is helming. The focus is to create basic awareness in the mind of the consumer that life insurance is the foundation of all financial planning and the first thing a customer needs to put his money in, to ensure a protected future for them.
Q. There are so many insurance products in the market with all promising benefits more than others. How do you advise people to choose life insurance in sync with the needs of their dependents? What is your advice to people buying insurance for the first time?
One aspect that I have routinely observed is that people often treat insurance separately from their investments, which is a big gap as far as financial planning is concerned. Only when you look at insurance buying as a part of the overall financial planning process will your choices become clear.
I look at financial planning as a pyramid, wherein protection forms the bedrock of your entire financial wellness. As a principle, you must earmark at least 15 per cent of your income towards savings and protection, about 50 per cent towards investments (ensure that your funds are parked in diversified assets to distribute your risk), and a small five per cent towards alternative investments if they interest you. The rest of your income can go towards consumption.
It isn’t about the plethora of products available in the market. It is more important to find what your financial needs are as per the short-, medium-, and long-term goals you want to fulfil.
Q. The tendency to buy insurance online is growing. However, you cannot undermine the presence of life insurance agents in Tier-2 and Tier-3 cities. How would you advise the industry to balance the two?
India is a significantly underpenetrated market and presents a vast opportunity for expansion in the years to come. The industry is currently focused on expanding its reach so that insurance is accessible through whichever avenue that the customer prefers. I think online is only complimenting the on-ground efforts being undertaken by insurers.
Q. Insurance plans are bought to gain tax benefits. Assuming that the new tax regime would be bereft of tax benefits and exemptions, do you think it would hinder the growth of this industry?
We are cautiously watching how customers react to these changes. We do believe in the value of life insurance and it will continue to attract customers in the long run even though we see a short-term fallout.