India: Tackling roadblocks to insuring the population

07 Feb 2017

Some of the contributing factors to the large protection gap in India include a lack of understanding from the public, inertia, and the unwillingness of distributors to sell certain products. These challenges faced by insurers to get the Indian population insured were discussed during a Life Insurance Conclave held by Indian business paper Mint.

The participants of the discussion, “Roadblocks to getting India insured”, were IDBI Federal Life Insurance Co. Ltd’s chief executive officer and whole-time director Vighnesh Shahane, SBI Life Insurance Co. Ltd’s CEO and Managing Director Arijit Basu, Aegon Life Insurance Co. Ltd’s managing director and chief executive officer K.S. Gopalakrishnan and Kotak Mahindra Old Mutual Life Insurance Ltd.’s managing director G. Murlidhar.  The discussion was moderated by the Insurance Editor of Mint Money, Deepti Bhaskaran.

Some salient points of discussion in response to Ms Bhaskaran’s points are as follows:

Why does India have a protection gap?

  • Society tends to be fatalistic.
  • Distributors are unwilling to sell term insurance because medical underwriting could delay the sales process and they might end up losing the customer eventually, though trends are changing. Thus insurance companies have not focused on protection gap and sale of term policies as much as they have focused on other parameters like premium, persistency and top line growth. 
  • There is a lot of inertia and the population, in particular the rural population, does not understand that pure protection products are valuable and they desire to earn returns on a financial product, which means this segment of the population still mainly looks for products with a savings component.
  • Group policy is a good way to get to the majority of the population.

How difficult is it to unbundle the proposition of a tax-saving investment product that also offers insurance and just sell insurance? 

  • There is no one solution - one cannot just look at protection gap and say if the gap is bridged, it will solve all the problems. One needs to look at it from protection gap, per capita, penetration and other parameters.
  • Insurers also have the responsibility of ensuring that distributors understand what they are selling, sell right, and pitch the proposition correctly. If it happens to be a savings product, it has to be told that there is a core insurance component and also explain what is the savings you get.

Isn’t the focus changing to term plans as companies look to list, consolidate and increase foreign direct investment (FDI)? Are online platforms helping to increase the penetration, especially of term plans?

  • Pure protection right now in India is good for the insurer and the consumer, but is currently not sought after at the moment.  Insurers are changing focus not just because of listing, but because there is an aspirational demand from the online generation. People are understanding the importance of buying a term plan and it is good for consumers. 
  • Term plans have premiums that are more for society’s higher strata.  Many insurers have to increase margins, and rightly so. Savings margins are generally lower, so they are going after these products.  Term policies are slightly more difficult to sell because they are of small ticket size. It is not worthwhile for the distributor. They will catch up but for the common man, policies must have a savings element.
  • Online products are growing but have currently not quite taken off yet.
  • There will be more consumer analytics, which will move the industry away from product pricing to customer pricing.

The incentive structure is front-loaded. How can we make distributors push protection and increase persistency? 

  • Insurance needs distribution, but paying the distributor uniformly over the years is idealistic and will ‘kill’ the agency, as he spends most effort in the first year. Doing away with upfront commission may not solve the problem; rather, the solution is financial education.
  • Persistency has to improve and a life advisor, who earns a minimum remuneration, will add to the persistency, and so is engagement of customers by the distributor.
  • Online platforms have higher persistency, but that will take some time to take off – insurance is ‘sold’, not ‘bought’.
  • It is not just the front end, but also low commission is attracting unwanted people to the industry. As attrition of agents has led to lapsation, it is a balancing act in making insurance commercially viable for the agent, and getting the right talent, keeping them and them staying in the business will increase engagement with the customer and increase persistency.
  • It is also a balancing act in focusing on some amount of protection products, given that protection is the “core” of insurance and should be improved.
  • The sales process should be simplified for term insurance products. Insurers should take more risk on mortality—in mortality one makes more money than on insurance guarantees.

The transcript is available here on Mint.