The two important aspects of life insurance products are to provide protection and annuity provisions like pension schemes. Going forward, more and more people would want annuity, said J Hari Narayan, Chairman, IRDA (Insurance Regulatory and Development Authority).
He elaborated, “Earlier LIC (Life Insurance Corporation of India) was the only company providing annuity hence there was no competition. But with the increase in demand for annuity products, more companies are entering this segment and would offer customers genuine choice.”
The insurance sector is at an inflection point where it faces both hard realities and many opportunities. Speaking at the 15th CII (Confederation of Indian Industry) Insurance Summit, “Hard Realities and Opportunities in Insurance Sector”, Mr Narayan said, “We can look forward with confidence to a couple of measures brought in to address issues.” The CII Insurance Summit enthralled a packed audience in Mumbai today.
The full-day Summit was addressed by eminent industry experts which included Sudhin Chowdhury, Member-Life, SB Mathur, Secretary General, Life Insurance Council, Jayant Dua, MD, Birla Sun Life Insurance, John Holden, CEO, Canara HSBC Oriental Life, Rajesh Sud, MD & CEO, Max Life Insurance, R Chandrasekaran, Secretary General, General Insurance Council, Bhargav Dasgupta, MD & CEO, ICICI Lombard General, G Srinivasan, CMD, United India Insurance and Tapan Singhel, MD & CEO, Bajaj Allianz General among others. The Summit also included a special session with Yogesh Agarwal, Chairman, PFRDA (Pension Fund Regulatory and Development Authority).
Mr Narayan stressed, “Right pricing of a life insurance product is important. Insurers should also look at the wording of their insurance contracts—which is normally difficult for a lay people to understand. Insurers need to make contracts and communication easier for policyholders.”
He said, “To reach the full potential of the industry you need to ask yourself if you will allow agents to work across companies and whether an open architecture is feasible. And shouldn’t we, across companies within the group, share agents.”
India’s ranking in the world insurance market based on total premiums collected has dropped to number 15 in 2011 from number 11 in 2010, according to Swiss Re. At present, India has been displaced by countries like Brazil, Spain and Taiwan which now rank higher than India. Over 12% of India’s GPD (gross domestic product) is insurance.
“An exposure draft that we have been working on with industry representatives on the boundary condition of products will hopefully be up by end of week. The new norms will have provisions like swaps and hedges. We have taken baby steps towards risk-based solvency. The exposure draft will have some measures and if we move along that route, we can correspondingly have a look at solvency margins. Conceivably it will come down. The point is to think long term and I do hope that 30 years from now we will look back and say that the inflection point was well managed,” IRDA Chairman added.
Non-life insurance sector reported healthy growth in terms of numbers. In future, insurers need to recast themselves as separate monoline segment within the same group. Answering to a query by a participant, Mr Narayan explained, “Though there is a great demand for long-term health insurance products internationally. However, in India it is difficult to introduce these products—as one is not sure about the rising health inflation. So determining the cost of these products would be difficult.”
The Indian insurance market, though facing challenging times, is poised for strong growth in the long run said Analjit Singh, Chairman, CII National Committee on Insurance & Pension and Chairman, Max India Ltd. He stressed that it is important to remember the three core objectives of the insurance industry i.e. to provide adequate protection, viable and long-term saving and employment.
He further added, “Currently we are one of the lowest in terms of per capita premium in India which stands at $56 compared to the world average of $364. We have come a long way compared to a decade back, but the question today is where do we want to be in the next decade and the policies that are needed to go there.”
He rated attrition to be a key problem of the industry even in the middle management levels with a very low average income for a life insurance agent. He wondered if retail insurance is the path one needs to take.
There are many areas where insurance industry and IRDA can work together, added Ashvin Parekh, Partner, National Leader–Global Financial Services, Ernst & Young Ltd. Explaining about the ‘hard realities’ faced by the industry, Mr Parekh said, “Health insurance is expected to become an important sector as the number of emergence of standalone companies in certainly on rise.”
Radical changes need to be brought in traditional products. The regulator and insurers need to work closely as what will benefit policyholders. Besides introducing simple and transparent, the products must also focus on long-term benefits rather than short term needs of customers.
According to Mr Parekh, although introduced long back, NPS (New Pension System) has now started taking shape which may pose competition to life insurance products. NPS’s low cost structure compared to life insurance products is expected to give tough competition to life insurance.
Bancassurance registered remarkable response and is rapidly taking ground. IFAs (Independent financial advisors) could emerge as a viable channel. But alternate channels for distribution of insurance products need to be explored. Besides promotion of digital channels, there is a need for introduction of mass market OTC (over the counter) products for retail participation. The industry needs to devise measures to increase productivity and continuously monitor it.
In case of non-life insurance, pricing, distribution and claims management are important criteria which need to be looked at. At present, the link between risk management, underwriting, cost and pricing is weak, said Mr Parekh.
The life insurance industry registered a CAGR (compounded annual growth rate) of 23% in the past 10 years till FY11, while it reported de-growth of 9.2% in the first year premium in FY11. Private players reported de-growth of 17% in FY12, whereas LIC’s first year premium fell 6%.
The premium underwritten by non-life insurers in FY12 increased 23% in FY12, and premium underwritten over the 10-year period till FY12 stood at 15.8%, which indicates a healthy sign. Health insurance emerged as a strong monoline segment. Going ahead, the industry’s product innovation should match the risk profile of policyholders. Re-engineering of distribution network is necessary. Sales and marketing team of insurers should be made more responsible. The regulator should promote financial education and awareness so that more people are aware about the need of insurance, said Mr Parekh.
Sanjiv Bajaj, Co-chair, CII National Committee on Insurance and Pensions & MD–Bajaj Finserv Ltd said, “The action we take today will determine the future of the industry for not just the next few years, but the next few decades. What we need to ask is whether we are really creating quality and products that are understood. When we talk about ‘capital’ we shouldn’t just understand it to be money, but trust and credibility of the players and the industry as a whole. I hope we talk not only about growth but also responsible growth.”
The 15th CII Summit stressed insurers must emphasise product innovation, strengthen their core product proposition and explore alternate channels of distribution to match consumer requirement and keep up with regulatory changes.