'As our per capita income increases and various demographic segments emerge, the need for various kinds of protection and risk covers will become even more explicit.'
Life insurance remains a sunrise sector in India with low penetration, large protection, and pension gap, and a massive growth opportunity over the next decade -- this was the consensus view of heads of life insurance companies, including R Doraiswamy, managing director (MD) of Life Insurance Corporation (LIC) of India, Anup Bagchi, MD and chief executive officer (CEO) of ICICI Prudential Life, Vibha Padalkar, MD & CEO of HDFC Life, Naveen Tahilyani, MD and CEO, Tata AIA Life, and Mahesh Balasubramanian, MD of Kotak Mahindra Life.
These discussions took place at the Life Insurance CEOs panel at the Business Standard BFSI Insight Summit.
Is the insurance industry ready to take up the Insurance Regulatory and Development Authority of India (Irdai) challenge to take insurance to all by 2047?
R Doraiswamy: The industry is ready to meet the Irdai challenge to provide insurance for all by 2047.
There has been a slew of regulatory reforms, and companies have begun to work on three key issues of availability, affordability, and accessibility that affected growth in the past.
The industry focus is clearly to take insurance to every insurable person in the country.
The growth movement is especially strong in the life insurance industry with two new players joining the industry and many more waiting to enter it and grow it further.
Anup Bagchi: There is no doubt about it. The life insurance industry is unique in that it meets a couple of key societal needs -- which is critical in a country like India with a varied and diverse demographic.
The first is life protection and the second is credit protection, so that there is no default if something unfortunate happens to borrowers.
The industry also provides for investment and retirement risks to individuals and their families.
There is currently no substitutable product in any other industry that can cover so many risks in one shot.
There is a huge latent demand for life insurance products in India, and as our per capita income increases and various demographic segments emerge, this latent need for various kinds of protection and risk covers will become even more explicit.
The regulator has done a great job by facilitating us to achieve the vision of insurance for all.
Vibha Padalkar: While we are extremely enthused with all the growth opportunities and with a regulator which in our living memory has been extremely facilitative, we should focus on what the industry has achieved so far.
For example, look at the expanse of our reach -- whether it's the network of 2.7 million agents or 11,000 branches, and there is now a region in the country where collectively as an industry we don't have a presence.
If you look in terms of the number of life covered, then 14 per cent of individuals in thecountry now have a life cover, and for most of us more than 50 per cent of the new business is coming from individuals 35 years or younger, so we are bringing in younger and new people under life cover.
I think where the industry and the regulator need to focus is to increase coverage, whether it's through Bima Vahak, Bima Sugam, or Bima Vistaar.
This becomes clear if we dig deeper into the coverage data.
Currently, 30 per cent of individuals in urban areas are covered by life insurance but the coverage ratio is only 5 per cent in rural India.
This could be due to a paucity of relevant life insurance products.
Similarly, only 9 per cent of women are covered, against 18 per cent coverage in the case of men. This represents a huge growth opportunity for the industry.
Mahesh Balasubramanian: The biggest growth opportunity or I would say even an obligation for the industry is to take care of the two important things as far as insurance goes.
The first is the protection gap which is extremely high in India at around 83 per cent, with under-protection of life estimated to be around $16.5 trillion.
Life insurance is a highly underpenetrated product in the country compared to other BFSI products, such as banking or mutual funds (MFs).
Similarly, only 12 per cent of retail households in India have taken insurance, so there is a huge addressable market that is staring at us and where all the initiatives from the regulator and the industry will help us bridge the gap.
The second is the long-term savings. People shouldunderstand that insurance is a bit of a challenging category as we are not into instant gratification but we are into long-term savings.
We are asking people to save for their future and for their pension.
For instance, the pension gap in India is estimated to be around Rs 55 trillion by the end of 2050.
I think we need to build awareness and the message that insurance 'zaroori hai' is still not getting into the minds of our customers and that is where the challenge lies.
But it's a new dawn and I hope it soon becomes a full-blown sunrise for the life insurance industry.
Is the stage set for a take-off?
Naveen Tahilyani: LIC has been in the industry for a very long time but the private sector life insurance industry is only 23 years old.
But when we compare it to the private sector banking space, we are about seven to eight years behind it.
The first private sector banks came into being in 1993-94, while the first private sector life insurers launched their operations in 2000 and 2001.
Total capital deployed in private sector life insurance is around Rs 1.2 trillion.
In comparison, total capital deployed in private sector banks is 150 times that of this amount and if we add the capital deployed of public sector banks to this, total capital deployed in India's banking sector is nearly 250 times that in the private life insurance sector.
We are a sunrise sector whichever way you look at it -- whether it's the protection gap or the pension gap or the number of households covered.
Besides, India has one of the lowest sums assured-to-gross domestic product (GDP) ratios globally, which is another way to look at protection gap.
This ratio is at around 25 per cent in India, while in most of the other markets, this ratio is well above 100 per cent -- even 150 per cent in some markets.
There is a huge growth opportunity, and we have a regulatory tailwind, and for a change, we have a regulator which is pushing us to expand the market by always asking us as to what more can be done.
If you hold this panel, six to seven years from now, this period will be recognised as the golden decade for the industry.
You talked about capital. Will 100 per cent foreign direct investment (FDI) in the sector solve the problem?
Tahilyani: I don't think FDI is necessarily the issue. If you look at the companies which are planning to enter the industry or those that already have a presence in the market, it is not difficult for any of them to raise capital.
There is no dearth of capital in the industry and there is no impediment to raising additional capital, either from Indian promoters or foreign promoters or joint venture partners or the capital markets.
So fundamentally, capital is not an issue for the life insurance industry, given the current macroeconomic scenario in India and geopolitics.
Some individual companies may prefer 100 per cent FDI, instead of 74 per cent, but it's not an indicator and that doesn't affect the capital position of the industry.
The limit on Tier-II capital or sub-debt has recently been doubled by the regulator to 0.5 per cent of net worth from 0.25 per cent earlier.
The ability for investors to come in has also been liberalised significantly, and a single investor can now hold up to 25 per cent.
Availability of capital is not an issue at all.
The real issue for the industry, given the regulatory tailwind, is to think about how we are going to use this capital to raise awareness among consumers about the necessity of life insurance which will help us increase product penetration.
In this regard, we need to learn from the MF industry, which was one of the top advertisers in the Cricket World Cup,
especially when India was playing. Its campaign 'mutual fund sahi hai' has been a marvellous success and it has raised awareness of MFs in the minds of customers.
We need to do something similar, say 'insurance zaroori hai', which will require capital.
The industry collectively now has 11,000 branches and is now present in all regions.
But it is inadequate if we compare it to the banking industry.
Some large banks alone have more than 11,000 branches across the country and top private sector banks have 8,000-9,000 branches and they continue to grow further.
We need to work towards reducing this large urban versus rural gap in insurance coverage.
Then we need to invest in technology, which will also require capital.
All this leads to the issue of penetration.
The year-on-year growth in the number of policies sold until September this year was 8 per cent for the private sector players and it was flat for the industry as a whole.
So, if more people are not buying policies, how are we going to ensure insurance for all by 2047?
Padalkar: It's a combination of factors, such as awareness, accessibility, product availability, and socioeconomic condition of the potential customer.
Some of the building blocks that we talked about -- term and annuity, both ends of the pure protection spectrum.
These new products will ensure that we not only target savings-led insurance but also start offering other solutions that cover one or more risks.
This year we have already started to see that the number of policies sold has already started to grow in the low-single digits for some and high-single digits for others but the growth is there.
Sometimes it's a question of putting the cart before the horse.
Sometimes we set up branches, and then the business follows.
We are still a relatively nascent industry and the focus is now to cover more and more people.
The ticket sizes have crashed, especially in certain segments after the recent tax changes, and we need to sell policies to more customers.
We will also bring people under insurance coverage through simple product innovations, such as bundling the life and health cover under a single product.
The current division between health and life is an artificial construct as the same person needs both covers.
From the outside, it's tough to say when a person gets unwell and when he or she passes away.
He is looking for a solution rather than a clear-cut health or life cover.
These new solutions will open up new growth avenues for the industry and more and more people will come under the insurance net.
Another thing which has happened thanks to the pandemic is that people are no longer asking "why do I need insurance", which was the common refrain earlier.
The second is about retirement; 15-20 years ago, customers used to ask why they needed retirement solutions.
They have educated their kids, they have invested in gold and real estate.
That question is not being asked any more.
This is a generational shift where people want to live and enjoy life after retirement and don't want to live with their kids after age 60.
The third point is that of per capita GDP and as income levels rise in India, the insurance penetration will inevitably rise dramatically in the years to come.
How can we ensure that more people buy life insurance policies?
Doraiswamy: First and foremost is creating awareness.
If you take the socioeconomic profiles of our potential customers, for people in the middle-income and higher bracket, this question is not being asked anymore as to why I need insurance but when it comes to people below the middle-income group, there is acceptance of life insurance products but they don't want to buy term insurance policy at all.
They don't want insurance as an expense that has to be written off at the end of the term.
Some savings or premium-backed kind of term insurance policies are catching up.
We are trying to increase the number of agents in this segment.
All said and done, life insurance is still a push product.
The second initiative is to touch the bottom of the pyramid through micro-insurance schemes or group schemes.
Some of these are state-sponsored and some of which are individually paid for.
I am sure that by the end of the current financial year, the growth picture will have changed completely.
Is term insurance the real problem to solve for the industry, given that it is a pure protection plan?
Bagchi: There are two parts to this equation and we have to look at it from the customer's end and then from the ecosystem of the industry perspective.
If you look at it from the cash flow for customers, their priority is equated monthly instalments (EMIs) for loans.
Then the money goes for regular consumption and living expenses.
Whatever cash is left after EMIs and consumption is liquid money and is invested in liquid assets, such as bank deposits and MFs that can be easily redeemed.
Then if the consumer has slightly excess cash flow, they go for building long-term corpus-building products, such as life insurance products with locked-in features.
This is where the growth in per capita income becomes important.
Now if you look at it, then what kind of protection do you require? You certainly require consumption protection because the income has to be replaced in an unfortunate event.
Then you also require credit protection, so that if something happens to you, the family should have the house and not a home loan, and then the customer wants a product for long-term corpus building.
Now if you look at it from the ecosystem or industry perspective and compare our products to other BFSI segments, such as banking and MFs, our products are illiquid.
If you oversell and there is volatility in income, you end up with low persistence; this provides bad customer experience and becomes a bad industry experience.
As far as underwriting on term plans is concerned, we compare it to the banking sector in India, which has been fairly successful.
The real inflection point in banking was the credit bureau. Only when the credit bureau came, you could price the risk well and you had the courage to underwrite it well.
The equivalent of that is the insurance bureau and now there is a push from the regulator.
In banking, the leverage ratio for borrowers is typically 1:4 or at best 1:6 of the balance sheet.
But in insurance, you can get a life cover of Rs 1 crore for an annual premium of Rs 25,000 -- that translates into a leverage ratio of 1:400 -- and on top of it, it's a long-term commitment. So, you can't go wrong here.
This makes the industry conservative and without data and without basis, you cannot underwrite and grow the business.
It's not true that the mortality rate in Tier-I cities and metros is the same as in Tier-III cities and below.
It is not only about the difference in income levels but the gaps in our health care ecosystem.
One big enabler is data and only then you can underwrite well, and you will have the courage to seek new business.
And the third thing is simplicity. If you make the product complex, it will result in intermediation and most of the surplus will go to intermediaries rather than customers which will again lead to bad customer experience.
That's why it is important to develop simple products that are easy to understand and require little intermediation.
So, the industry requires data and simple products where the Pradhan Mantri Jeevan Jyoti Bima Yojana comes in, which is a fantastic product and a very simple product.
Similarly, Bima Vistaar in the shape and form it comes is a simple product that anybody can sell and anybody can buy; and it is mis-sellable.
Only when the products are simple, do customers have the confidence of buying the product.
Otherwise, they become diffident. If customers get diffident, the other part of the equation will not work.
Data like the one that comes from the credit bureau is necessary for term insurance plans to work better, otherwise, the whole industry will move towards savings where underwriting requirements are less.
When it moves to savings, we have to ensure that it remains competitive vis-a-vis other savings products, such as banks and MFs.
We have to work to ensure that the surplus remains with the consumer and doesn't go too much to distribution.
We have seen a K-shaped recovery after the pandemic, so is per capita income a challenge for the penetration of life insurance to increase?
Tahilyani: Recently the chief marketing officer of a Tata Group company did a comprehensive survey of spending patterns and preferences of Indians across demographics and socioeconomic classes.
What we found was that there was no mention of insurance in the top 10 spending choices of consumers.
Of course, people are aware and the pandemic created that awareness and fear for life and the need for life insurance.
The internet searches for term insurance were at their highest when the Covid-19 pandemic was raging but now all of us have forgotten the pandemic and to some extent, we have forgotten life insurance as well.
As an industry, we need to continually build awareness about the importance of life insurance so it moves up the pecking order in consumer spending choices.
The second point is that everyone in this room is under-insured, whatever may be their life cover right now.
Most people believe that they have life insurance and a life cover, but is it adequate, given your income and lifestyle level? We need to address this aspect as well, and it can only be done through awareness.
Nothing will move without the right data and data will have to come from different verticals.
Today if you want to buy a term plan, you will be asked to submit your salary slip, income-tax returns, bank statements, and go for a health check-up.
This is cumbersome and not a very pleasant experience for customers.
Not surprisingly, term plans are not selling.
What if we are allowed to access customers' bank statements, health records, and all health insurance claims in the past 10 years, all with customers' consent, then a term plan can be given on the spot.
This kind of environment that the entire industry is trying to move to through Bima Sugam.
Is there anything else that needs to be done to ensure that more term plans are sold?
Balasubramanian: I deviate a little bit from some of my panellists here.
I don't believe that the funds for insurance and investments can't be coming from consumer surplus as some of my industry colleagues mentioned earlier.
It has to be the most important thing because preservation and sustainability is the most important aspect of life, and growth can come later.
As we say in lending, return of capital is more important than return on capital.
Long-term savings may be funded from surplus but as far as protection is concerned, it's essential and the customer has to take it. That's why we need to build awareness.
As far as accessibility and affordability are concerned, data and technology can play a huge role because wastage in protection is huge right now.
Nearly 35-40 per cent of the protection is wasted because we are not able to underwrite properly for lack of information, and frauds have become part of the industry unfortunately.
So, if we eliminate fraud, we can make products more affordable.
Then we also need a better and far bigger reinsurance capacity in the country.
And for awareness to go up, we need to increase the decibel levels.
For example, the MF industry has spent roughly Rs 840 crore in the past three years on awareness campaigns, while our industry has spent a paltry Rs 140 crore in the past five years.
Ours, as an industry, life and general, along with the regulator, should make the consumer conscious that insurance and protection are a necessity, not a luxury.
If we compare the life insurance industry with banking, how has the usage of technology evolved in the industry?
Doraiswamy: The usage of technology is evolving in the industry with a lot of companies using technology for digital customer onboarding and some using it for disintermediation, as well, which has great potential.
At LIC, we are focused on using technology not only for customer onboarding, but the entire customer journey.
And we are particularly working towards improving the persistency ratio.
If we look at the industry statistics, the total number of policies in force has been stagnating.
New policies are sold every year but an equal number of policies gets extinguished either due to lapses or due to claims.
But we need at least 5 per cent annual growth in the number of policies in force every year to reach the goal of insurance for all by year 2047.
Balasubramanian: Here I must add that the life insurance industry settled claims worth Rs 72,000 crore during the pandemic.
Most of it was settled digitally and processed by our colleagues working from home largely.
We could do this because we digitised end-to-end everything, from claim registration and documents to verification and payments.
For most of us, nearly 80-85 per cent of customer servicing is now done digitally and doing it yourself is now becoming a norm in the industry.
Today, we have the technological capability to insure a person without collecting a single document.
How has the budget proposal of taxing high-value life insurance products changed your product mix?
Padalkar: It's a bit of a distraction but in reality, nothing has really changed because no competing product from other BFSI segments can give long-term guarantee -- and we are talking about the next 20-30 years.
The tax has not taken away the long-term proposition of insurance savings products.
Now that six months have elapsed since the tax changes, money will start flowing back to the industry.
Feature Presentation: Aslam Hunani/Rediff.com
