20 years of India's insurance sector

As many as 50 players have set up shop but penetration remains low and only a handful dominate the business, says Subrata Panda.

Twenty years after India’s insurance sector was opened up, unshackling the control of state-owned companies, as many as 50 private players have set up shop.

Along with their foreign partners, private players have brought about a sea change in the product offering, distribution and underwriting processes, and services levels.

Yet, India’s insurance penetration needle has not moved much (see chart).

"The reasons for this include lack of financial literacy, affordability of premiums, complex products, skewed distribution and, to an extent, customers seeing insurance as a tax-saving/savings instrument.

“The primary reason is a lack of awareness among consumers on the importance of insurance. Consumers consider insurance as a ‘cost’ rather than a ‘long-term asset’,” said Sameer Bansal, chief distribution officer, PNB Metlife.

An insurance expert also pointed out that “nowhere in the world, premiums are taxed (18 per cent) so heavily”.

The other concern is the mortality protection gap of 83 per cent in 2019, one of the highest in the world.

Positively, the total premiums have risen multi-fold. Between FY02 and FY20, life insurance premiums are up from Rs 0.5 trillion to Rs 5.68 trillion (sum assured as a percentage of GDP up from 50.1 per cent to 85 per cent), while non-life premiums have risen to Rs 1.89 trillion from Rs 12,383 crore.

Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance, said, “…to increase penetration we have to bring in more simplicity in our product design, offer a seamless self-service experience as well as effective processes to make insurance easy to buy.

"As long as we are offering customers that comfort and convenience, or innovating in the above parameters, we will be able to create a win-win situation for all stakeholders, especially customers.”

Insurance products are one area that has seen maximum changes.

Unit-linked plans (ULIP) have become one of the most popular, and with customers realising that insurance is not just a savings instrument, pure-term products are gaining traction.

Guaranteed products have also caught the fancy as consumers seek protection against the vagaries of rate cycle.

Vibha Padalkar, MD & CEO, HDFC Life, said, “Both participating and non-par products over the last two decades have metamorphosed into a means of supplementary income and are also being used as a source of income post-retirement by many.

"Guaranteed income products are now becoming more mainstream.

"Annuity as a product category is slowly but surely gaining traction amongst those serious about planning their life post-retirement.”

“From a reliance on traditional savings products, the sector has become more focused on driving innovative customised products catering to the evolving customer needs,” adds Prashant Tripathy, MD & CEO, Max Life Insurance.

In non-life, health has become one of the largest segments for insurers, especially after the pandemic.

Crop insurance, introduced a few years ago, also constitutes a significant portion.

Distribution, which was once purely agency-driven, has become a multi-channel business, with major contributions from banks, non-banking financial companies (NBFCs), and digitally-enabled channels.

Satyan Jambunathan, CFO, ICICI Prudential Life Insurance, said, “Pri­vate players with their foreign joint venture partners brought in the multi-channel distribution architecture to provide customers with choice and convenience.

"The bancassurance channel, with its deep understanding of the customer’s financial needs, coupled with innovative pro­positions such as the pre-approved sum as­su­red has enabled it to fortify its position.”

Technological enhancements by insurers and digital savvy customers have given birth to direct/digital channels (websites, apps, and aggregator platforms). However, insurers believe the agency channel is here to stay.

“Insurance sales is now dependent on both relationship skills as well as financial advisory skills, making bancassurance and agency channels the mainstay of the business,” said Mahesh K Sharma, MD & CEO, SBI Life.

“The traditional model of an insurer was built on a ‘product factory’ that then sold its wares via distributors like agents, banks, etc,” said Padalkar.

“Life Insurance distribution is at an inflection point, reflected by the drastic changes in both the variety of emerging channels and transformation within these channels.

"Agency business will continue to be a strong pillar.

"The digital platform will be the key enabler, empowering agents and offering a seamless and paperless experience to customers right from need analysis, product selection to on-boarding and even policy servicing,” she added.

Despite there being so many players, few, both in life and non-life segments, dominate the industry, partly because of their parentage, brand name, and resources at their disposal.

Jambunathan said, “The life in­surance industry is capital-intensive and has a long gestation period. Large insurance companies with their ability to invest in scaling up operations and distribution are better placed to tap the potential.

"Brand familiarity, too, plays an important role in customers’ purchase decision.”

Bansal added, “Oligopoly is common across all industries, where a few players control the market and others need to operate in their niche.

Insurance is no different… This runs the risk of smaller players eventually getting consolidated or finding their strong niche.”

Even in general insurance, public sector entities, along with ICICI Lombard and Bajaj Allianz General have a strong hold.

“In life, the top seven companies, and in general insurance, the top five have a substantial portion of the market.

"So, there is scope for consolidation and we are already seeing that happen with ICICI Lombard’s acquisition of Bharti Axa General Insu­r­ance.

"Fundamentally, there needs to be a change in the definition of what insurance companies can do.

"Their job should not just entail underwriting risk but also managing risk,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services.

Recently, HDFC Life announced a deal to acquire Exide Life.

Expressing a contrarian view, an insurance industry expert said, “So long as all companies are doing well, it does not matter how much market share they have. Every company has a different business model.”

Now that the government has allowed 74 per cent foreign direct investment in the sector, and permitted foreign ownership and management control, albeit with caveats, experts believe more foreign companies will come, which will, perhaps, shift the balance of power and boost penetration.

The industry has always depended on “touch” to engender trust among its customers.

While the industry had already embraced new technologies to enhance customer experience, tap into new customers and reduce costs, the pandemic prompted insurers to make the leap from manual, paper-bound processes to digital-based selling.

Companies now use cloud, big data & analytics, artificial intelligence, Internet of Things, and machine learning, and from customer acquisition to servicing to claim settlement, everything is done digitally.

Even the agency networks have adapted to the new norm.

Chugh added, “What augmented this journey was the widespread access to the internet as well as the role of aggregators and insure-tech firms.”

Insurtech emerged out of a marriage between insurance and technology, wherein firms use technology to underwrite risks better, design newer products, offer value-added services, etc.

Now, with insurtech companies getting huge funding from private equity, venture capitalists, and others, they are tapping into the huge uninsured market and offering protection and customised products.

More than life, general insurance segment has been the hotbed for innovation by insurtechs.