The Indian insurance sector is actually a very old one, going back to two centuries. The formal regulated sector came about two decades ago with the formation of the regulator - IRDA. The Insurance reach across our country and various consumer segments is low at 3.7% (total insurance premiums collected as % of GDP). Over the years, the efforts to develop the market has been paying off, albeit very slowly.
Changing the perception as the last need, if at all
Insurance is generally seen as the least-needed-financial-product. Anecdotally, most insurance products have been bought by consumers without understanding the full product and how it could benefit them. The regulator has been trying to come hard on those industry participants who have been misselling.
Building trust & product communication
Insurance sector growth is impacted, largely by not understanding what insurance can help them with, and another prime reason being that “lack of trust”. Consumer perceptions include claims settlement, low awareness of products, poor customer experience, etc. In terms of behavioural changes, customers look for better services, quick purchases, minimal pain points for claim settlement, increased demand for choices (even while buying basic products on digital channels, today’s customer is spoilt for choices, easy returns and replacements, complete transparency, value for money, reviews for the smallest of products, and excellent customer service). Not every policyholder has the financial literacy, luxury of time, patience to go through the long process of grievance redressal. One wonders about outcomes if the regulatory regime places the onus of any proof on the insurance company it supervises, rather than expecting the individual consumers to fight for their rights?
Customers need the simplicity of understanding what the product does for them and their product needs. It might be useful if the regulator can make it mandatory for the insurers to have a standard policy document template like a 1-page term sheet of key terms/ conditions/ benefits with details including whom to call for Claims or email to, for any clarification.
Need to decrease debates
IRDA, to promote standardisation of insurance products, had brought in templates for newer standard-products across life, health, and general insurance. While one of the arguments for the idea is that it could bring in some products (where none existed before), the pushbacks are multifold. Indian demographics is very stratified in its composition. Insurers actually undertake risk profiling of consumers. Each of the consumer categories might have different insurance ‘needs’ & differential risks involved. For consumers, if they don’t have a choice, it does not help in increasing financial inclusion anymore!
The insurance companies need to block capital on every insurance policy that they underwrite. While this is the basis of the industry business model, the industry does participate in schemes as part of “financial & social inclusion” policies. This comes at a cost of shareholder capital (many of these mandated products lose money!). While the large insurance companies can absorb these losses due to a large AUM as well as revenue base, the rest of the industry silently bears it. With the standardisation of products, there could be a price war; which the players down the industry pegging order can’t afford.
From the regulatory side, IRDA could encourage insurance consumption development by offering speedy product approvals for the newer products/under-served consumer segments that the industry creates. This could even be a time-bound approval process that could set a pace forcing the industry to keep up with product development!
The industry has to mature enough to even develop a “Product for one”. That would necessitate different ways of product approvals on the regulatory side, which can be made possible using technology as well as an increased talent pool.
That’s where regulatory thinking with consumer-centricity would help. Especially if we need to bring in many more newer insurance entities to the sector. While the jury is out about the idea of reducing initial regulatory capital requirement; for the sector is a capital-intensive business, and surely needs its players to outlive a few generations of consumers whose risks it underwrites.
It would also need to improve its supervisory reach using digital tools and also the speed to increase the frequency of supervision basis activity, rather than just entity. As more tech-based financial entities evolve, regulators will need to have equal, if not more technical understanding to supervise the sector.
Demographic factors such as the growing middle class, young insurable population, and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance.
As the industry regulator gears up for a larger set of insurance companies and deeper penetration of insurance across the length and breadth of the country, it would need to expand its talent pool, especially for its supervisory aspects.
Importantly, IRDA has to up its digital quotient. Starting with making its website as contemporary as much as current technology allows it; with relevant and updated statistics and user-friendly search options. The website should be insurance reader-friendly and simple to understand. After all, the regulator also has the task to simplify the jargons that the industry throws at its stakeholders. And using digital, much of its functions of product approvals, and grievance redressal mechanisms can be scaled well.
Insurance is still a “push” product in India. The industry needs to position itself well as a “protection” industry and demystify its jargons and adopt the consumer language to make the product as “pull” one.
This sector is for profit. The insurance companies have to make profits, to stay invested in the sector. But not as the one who sells investment solutions! For example, most of us have grown up and still continue hearing about one of the largest life insurance companies known more for its investment products!
The day the insurance sector is known for protecting people and products, we can assume it’s on a growth path!
Simplify communication. Scale the sector. Solve the consumer trust gap. Standardise commodity products, but allow for customisation for consumer ease. Supervise proactively, possibly with real-time digital capabilities.
(The author is a corporate advisor. He tweets at @ssmumbai)
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