Changing Times of Indian Insurance – A Fresh Perspective

“Death, Theft and Fire comes thy neighbor”– This fairly summarizes how Insurance was perceived in India.

As a student / practitioner of Insurance, since Risk and Risk mitigation tools & techniques are changing constantly, I enjoy, like most of us, learning & analyzing about the changing trends & opera of Great Indian Insurance. Through this article, I am making an attempt to de-classify Insurance into 3 parts (Perspectives) for the sake of easy and better understanding of this sun-rise industry in our country today.

1. Indian Insurance – From Customers’ Perspective2. Indian Insurance – From Underwriters’ Perspective (Insurance Companies)3. Indian Insurance – From Distributors’ Perspective (Agents / Brokers)

Before, I start the sojourn, I wish to make an Open-House about 3 pertinent questions which I am seeking answers for. You are welcome to comment or contribute. They are :

The 1 st Question : Why Insurance Advertisements carry micro typing “Insurance is a Subject Matter of Solicitation?”

I think this kind of writing is an ancient (British) way to portray that Insurance is bought (solicited) by customer and not sold by Insurance Company, where as we know, at ground reality, for so very long, Insurance was only sold and never bought. Now, both the Proposer and Proposed for Insurance Cover can / should inter-change the role from Insurance Company to Customer or Vice Versa, should we want to enhance the penetration of Insurance Coverage in INDIA

The 2 nd Question : Why Insurance Company Staff, who sell Insurance does not require Insurance Producers’ License like Agents / Brokers ?

Insurance is a regulated market and Insurance distribution is also fairly regulated as it done through qualified producers (read Agents / Brokers), since money and trust is at stake with Insurance. But this is not 100% true in our Indian context as Insurance Companies employees, without having passed any IRDA prescribed Exams are free to solicit business. Whether they are Graduate or Class XII passed working for Call Centers or the Front Line Business Development team, they go out or Tele-call to canvass Insurance business freely without any regulation what-so-ever. This defies the logic and create unwanted competition between a sales person from a Broking Company vis-à-vis a sales person from Insurance Company. In Western World, one cant solicit business of Insurance unless one has Producer’s License, whether one works for Insurance company (Agency) or a Broking Form or a Bank. I think, India surely needs this level playing field and there should be One Law for all kind of Insurance Sales and Distribution.

The 3 rd Open-House question : Why Indian Insurance Brokers / Agents are not rated or ranked in terms of their Financials and Business strengths ?

As we discussed in past that Insurance distribution is a regulated and is a serious business, thus for sake of Customers, to weed out the Men from Boys, it will be good to have ranking done for Insurance Intermediaries. At least this is an acceptable norm, in developed markets of USA / UK / Europe & Japan. I don’t see any challenges

in publishing these data as the Regulator (IRDA) has or can have all the records of business done by any Agency or an Insurance Broker.

I am done with my questions and would love to receive feedback on the same. So, lets get back to the main topic of discussion – Changing trends of Indian Insurance – A new perspective.

A. Indian Insurance from Customers’ perspective

Indian Insurance consumers are like Indian Voters, they are soft but when time is right and ripe, they demand and seek necessary changes. De-tariff of many Insurance Products are the reflection of changing aspirations and growing demand of Indian consumers.

For historical years, Indian consumers were at receiving end. Insurance Product was underwritten and was practically forced onto consumers on a “Take-it-As-it-basis”. All that got changed with passage of IRDA act in 1999. New insurance companies have come into existence leading to open competition and hence better products for customers.

Indian customers have become very sensitive to Coverage / Premium as well as the Products (read Risk Solution), that is given to them. There are not ready to accept any product, no matter even if that is coming from the market leader, should that product is not serving the purpose. A case in point is ULIP Product / Group Life and Credit Life in Life Insurance segment and Travel / Family Floater Health and Liability Insurance in the Non-life segment are new age Avatar. The new products are constantly being demanded by Indian consumers, which is putting huge pressures on Insurance companies (Read Risk Under-writers) and Brokers to respond.

Customers are looking at Insurance for covering Pure Risk now which I have covered in my next section. Another good reason why we are seeing quick changes in the buying behavior of Insurance from mere Investment to risk mitigation is the cost of Replacement of Goods (ROG) or Cost of Services (COS). The case in point is Health Insurance. The cost of Medical / Hospital and Doctors bills are rising in a meteoric manner y-o-y, thus an individual or a company need to cover the composite risk sooner than later. Soon like Western World, young Indians will start aging and the Health and Medical Cost will be the highest cost they would bear except perhaps the purchase of House / Flat or Condominium.

B. Indian Insurance from Underwriters perspective

Insurance companies in India are clearly divided into 2 part (again a British Legacy) – a) The Life Insurance, covering the Life of an individual or group. Any thing that does not fall into this category falls into b) Non-life Insurance. There is also a 3rd group or the so called a gray area, where both Life and Non-life Insurance Companies compete now. It is Health Insurance & Credit Insurance.

Underwriters of Insurance companies have traditionally ruled the market before liberalization, since it was Seller’s Market. LIC for Life Insurance and 4 sisters from Non Life Companies (All Govt. owned) served the market for over 3 decades. It is amazing to see, how much the Indian Insurance canvas has changed now. In flat 6 years of active liberalization, we now have more than 30 Insurance Companies,

competing and working hard over-time to garner, bigger share of growing USD 20.00 billion market. Interesting to see, that the lion share of the market is still with the past leader only i.e. Life Insurance Corporation of India Ltd. (LIC). However, the private players viz. ICICI Prudential and Bajaj Allianz Life is catching in, with their double digits growth year-on-year in the Life segment. Their aggression in terms of better products & better distribution model (Bancassurance & Web) is giving them the desired results.

In-contract to 100% growth in Life Insurance (reflection of growing disposable income of growing middle-class of 50 million strong), Non-life insurance some how is growing only about a 30% modest run-rate. Pertinent to point-out, however is that new players viz. Bajaj / ICICI & Reliance have out maneuvered 4 sisters – Nation / Oriental / New and United in terms of New Products / Annual Growth and Service Platform.

I am sure you are aware that the Insurance penetration in India is perhaps the least amongst developed countries and worst, we don’t rank good vis-à-vis developing countries either. One estimate suggests that Pakistan / China and Dubai has better Insurance penetration Per Capita compared to India. There are many reasons for the same. Traditionally Insurance was bought and sold in India for Investment / Tax Saving purposes only. Remember my opening statement – “Death / Illness and Fire comes to thy neighbor and not me”. So, Insurance was never looked as a tool to conserve, preserve or create wealth. It was just an investment tool which was doubling for Tax deduction also. Thank God, all that are changing fast now. The credit for changing mind-set goes to tireless education by insurance companies coupled with effective campaign by IRDA. Insurance Companies, Brokers and IRDA have taken the challenge of explaining and educating Indian consumers about the benefits of taking adequate Risk Covers, rather than depending upon a “Chance” that nothing will happen.

Ignorance about Insurance, thus leading to “Self-Insurance” has come off Age, due to brilliant sales and marketing efforts. Innovative & Price sensitive products are coming out every day, addressing genuine insurance needs, hence we have seen a rapid rise in Insurance penetration, in last couple of years, across the length & breath of India, which is indeed a good news. Still, a lot has to be done by underwriters (Insurance companies) to reach the masses and rural India. Market demands innovative and better products in :

a) Motor Insuranceb) Rural Insurancec) Loss of Job / Income Insuranced) Credit Insurancee) Insurance for Old age, including Pre-existing diseasef) Insurance Policies to be printed through Web

In my last segment, I present Indian Insurance from Agents / Brokers perspective. It is going to be tough to remain un-biased as we are selves are Insurance Brokers. Never the less, let me try.

C. Indian Insurance from Agents / Brokers Perspective

Agents or Brokers are back-bone of Insurance Industry across the world and India is no exception. Agent and Brokers are the Feet on Street besides Eyes and Ears (also known as ground level under-writers) for Insurance companies. Not only they educate

about insurance products but also deliver the Insurance policy, they explain the Coverage / Inclusions / Exclusions to the end consumers. Traditionally, Agents did a great job, but now Corporate Agents / Brokers have taken the mantle of spreading the word of Insurance around,

Brokers are working hand-in-hand with Insurance companies to present solutions asked by High End Consumers & Corporate. Indian economy is changing fast, thus there is a huge demand of new Insurance products to manage the global exposure of Indian companies. The growth of Indian IT / ITes companies, expansion of Financial Services and double digit growth in Aviation, Mining, Manufacturing and Exports have put pressure on intermediaries like Direct Brokers and Re-Insurance Brokers to come-out with better & Apt Risk Covers (ARC).

Insurance Brokers, just cant give plain vanilla , off-the-shelf solutions because one is representing customer unlike the Agent who works for an Insurance company. Producers / Staff working with Insurance Brokers, will have to keep abreast with changing times of Indian Insurance Market. The Brokers must remain engaged in learning process of new solutions and will have to maintain a good relationship with Underwriters and Account Managers of all Insurance companies to ensure “Real-time Service”.

New changes are seen particularly in the distribution side of Insurance. Agents and Brokers are becoming much more savvier to reach End-customers by using latest IT enabled Marketing and Management tools viz :

a) Direct Marketing (DM) – Mailersb) Co-brand Marketingc) Tele-Marketingd) Web Based Marketinge) Email Marketing & f) Data-base Marketing

The Insurance distribution is no more old “Feet-on-Street” (FOS), Agency Model but has become sophisticated and effective, thereby reducing Cost of Acquisition (COA).

I am convinced that in coming times we will see more players ; more products and more ways of distribution and that will herald a golden era for Indian Insurance. Perhaps that time the perspective will change and so will the writings on Indian Insurance.

Manish JaiswalCEO & MD - Bonsai International GroupBusiness : www.insurancemall.inCompany : www.bonsaiinternational.comEMAIL : manish@bonsaiinternational.com