The recent economic survey predicts that India will become the fastest growing insurance market in the world over the next decade, says Sumit Rai, MD and CEO, Edelweiss Tokio Life Insurance.
In an interview with MintGenieRai insists the insurance industry is poised for robust long-term growth.
Q. Despite the growing relevance of post-Covid term insurance, many people continue to focus on no-cost term insurance. Why does the focus continue to be on no-cost or low-cost term insurance?
The Covid-19 pandemic has redefined the way we perceive and deal with financial risks at the individual level. Term insurance, in particular, has found great importance as the need for pure protection solutions has become very evident. We’ve seen more and more people opt for term insurance and guaranteed plans as a way to bring some semblance of certainty to their long-term financial planning.
A problem statement we’ve seen frequently is that people are suspicious that you don’t get your premiums back if you go over the policy term or surrender the plan. They prefer to remain financially unprotected as a method of addressing these concerns.
In response to this customer psyche, the industry has designed TROP (Term Return of Premium) plans and term plans at no cost to ensure that customers can protect themselves financially without thinking that they are investing their money in 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 much more remarkable.
Q. What factors and trends do you think will shape the life insurance the industry this year?
The year 2022 has been a crucial year for the insurance industry. It regained its growth momentum, having benefited from the fundamental reorientation induced by the Covid-19 pandemic. Driven by improved customer awareness, a relaxed regulatory environment and strong macroeconomic factors, the insurance industry is poised for robust long-term growth. In fact, a recent economic study predicts that India will become the fastest growing insurance market in the world over the next decade.
In line with recent changes in customer behavior and in the overall insurance market, here are some key trends we expect:
The growing role of digital in improving the customer experience
The Indian government has been working hard to realize its digital agenda. The many initiatives undertaken under India Stack have built a robust digital ecosystem, which has provided a springboard for companies across industries to bring about deep changes in business processes.
The insurance industry has also benefited from these new era technologies for process automation and optimization. Insurers have been able to automate processes such as KYC, customer verification and underwriting, making customer lifecycle management more seamless.
The past year, in particular, has seen a strong push on redefining customer-centric strategies and aligning them with the rapidly changing external environment as well as customer expectations. We will see some of these strategies take shape in 2023. Going forward, dematerialization will play an important role in improving the customer experience.
There is clear regulatory guidance on facilitating business and insurance for all. We are seeing a significant transformation underway that will boost the sector and bring it on par with its global peers.
Focus on expanding reach
With the cap on corporate agent links increasing, we are seeing insurers focus heavily on expanding their distribution network through third-party partnerships. Bancassurance, in particular, will play a key role in the overall growth of the industry as more insurers aggressively pursue tie-ups with banca.
Q. Many people are duped into buying Unit Linked Insurance Plans (ULIP) despite their high cost structure and obfuscation. Do you foresee any recommendations or changes in the structure of the ULIPs this year?
Expensive ULIPs are a thing of the past. Since 2018, we have seen a new cost structure emerge in the ULIP category. ULIPs are cost-effective, transparent, and flexible, making them one of the best choices in the wealth multiplication market. There is an added benefit of protection, which only increases its profitability as a financial product. We only see improvements in the product structure in the future, as the overall effort is to offer our customers transparent and solution-oriented products.
Q. Some people think of their mutual fund investments as life insurance. Where do you think the insurance industry is slow to make people realize the importance of protecting their family with a life insurance plan?
For every financial product that exists on the market, there is a concrete and underlying customer need. For life insurance, we are now taking these collective steps to create last mile awareness through the campaign titled “Sabse Pehele life insurance », run by the Life Insurance Council. The goal is to create a basic awareness in the consumer’s mind that life insurance is the foundation of all financial planning and the first thing a customer needs to invest their money, in order to ensure a secure future for him.
Q. There are so many insurance products in the market with all the promising benefits more than others. How do you advise people to choose life insurance in line with the needs of their dependents? What advice would you give to people buying insurance for the first time?
One aspect that I have regularly observed is that people often treat insurance separately from their investments, which is a big shortcoming in financial planning. It’s only when you consider buying insurance as part of the overall financial planning process that your choices will become clear.
I view financial planning as a pyramid, in which protection is the foundation of all your financial well-being. In principle, you should spend at least 15% of your income on savings and protection, around 50% on investments (make sure your funds are parked in diversified assets to spread your risk), and a small 5 % to the alternative. investments if they interest you. The rest of your income can go to consumption.
It’s not about the plethora of products available in the market. It is more important to determine what your financial needs are based on the short, medium and long term goals you want to achieve.
Q. The trend of buying insurance online is increasing. 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 coming years. The industry is currently focused on expanding its reach so that insurance can be accessed through the route the customer prefers. I think online only complements the on-the-ground efforts undertaken by insurers.
Q. Insurance plans are purchased for tax benefits. Assuming the new tax regime would be devoid of tax benefits and exemptions, do you think it would hinder the growth of this industry?
We are cautiously watching the reaction of customers to these changes. We believe in the value of life insurance and it will continue to attract long-term customers, even if we see short-term payoffs.
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