MR Kumar, Chiarman, Life Insurance Corporation
The Indian life insurance industry needs to gear up for the coming prosperity and be ready with its products, distribution channels and processes to meet the demands of the new normal
The entire life insurance sector has undergone huge transformation during the last two decades.
If one observes, there has been a huge disruption already and the total assets under management has also grown phenomenally.
But, there will be many more disruptive Innovations and we shall be discussing those now.
InsurTech as force multiplier to increase Insurance penetration and innovative customer connect and customer experience are bound to evince keen interest in industry and will open up new ideas and concepts to be explored in the context of the life insurance industry.
The Indian life insurance industry needs to discover the directions that are being opened up due to the emergence of several new age technologies, the evolution of Insurtech, and the abundance of analytical data residing in various repositories.
There seems to be a major difference between the technologies that emerged in the past to the ones that are emerging now.
Unlike the technologies of the past, the new ones are more focused on capturing, transferring, storing, analysing, deriving intelligence and initiating autonomous actions based on data.
The entire business has been based on the analysis of risk data and making actuarial predictions. With the data deluge that is emerging from the new age technologies, having the potential to give insurers granular insights about risk, the technologies are potentially changing how we conducted the insurance business for over four centuries.
The traditional paradigm that it is the business that drives innovation and technology and IT are mere enablers, a stage has come where the availability of technology is the driver for new products.
It also enables newer risks being identified and helps in addressing, better engagement with the customers, integrates with a plethora of channels for distribution and configures faster and smoother business processes with immaculate data integrity. India has been spearheading innovations like the UPI payment systems, Aadhar based authentication and has a high adoption rate of mobile based services.
This brings hitherto distant rural customers too into the financial ecosystem, thus increasing the potential customers manifold.
At the Central and State Government levels India has also embarked on a massive build-up of infrastructure at a pace which has been never seen in the past.
Be it the quality of trains and the high speed tracks, the dedicated freight corridors, the metros coming up in more than two dozen cities, the expressways that are built in every state connecting every major city, the industrial corridors that are planned connecting the mega cities, the air connectivity expansion that is increasing the adoption of air travel rapidly, the flyovers and ring roads, the tunnelling and boring shortening distances, the focus on water connectivity, the focus on renewable energy, the initiatives on various manufacturing fronts for a Atmanirbhar Bharat, all are reaching an inflection point where millions of our population are going to be employed and pulled out of poverty.
Add to this, the massive capacity enhancements being projected by the Auto, Cement, Steel, Pharma, Speciality Chemicals, FMCG and other manufacturing industries, the expansion in IT, Banking and Financial services and which is only going upwards. Therefore, the first half of this century is definitely going to be that of India.
When that is the reality can the life insurance industry lag behind?
We need to gear up for the coming prosperity and be ready with our products, distribution channels and processes to meet the demands of the new normal.
Therefore, let’s examine some of these aspects in detail.
On the products front I would like to segregate the customers into three broad segments and some sub groups.
– First, those who enter the gainfully employed market and the gig workers and professionals sub group,
-second, those in the middle of their family life cycle and
– Third, those nearing retirement as well as the senior citizens.
At each level the need is different and hence the product baskets and the customer education too needs to be aligned with their specific needs.
First Group –The employment entry level group Every year about 20 million youngsters join the work force in India. A majority of them are already net savvy and steeped in their engagement with social media and using their mobiles for hours together. This is the first segment I referred to earlier.
Those who are earning for the first time, not yet having any savings, adventurous yet vulnerable to any misfortune including accidents and injury.
Even as they need to start some financial savings, the need for a plain vanilla term cover is even more. They need a low cost term plan, one which is available on tap along with some online behaviour which is very natural to them on a day to day basis.
The estimate is that this stage lasts for the first five to eight years of the lifecycle and the estimated group size in India would be 150 million. Segmentation within entry level group:
1) Embedded life insurance
Embedded as the word suggests is an additional benefit riding on subscription based service models. Say multichannel term assurance offerings included with various services like data, telephony, OTT platforms and so on.
A low cost plain vanilla term Insurance without medical check-ups can be offered with subscriptions subject to regulatory oversight, so that large numbers of the younger age groups are automatically covered.
So here , we have already available technology, the unique human behaviour seeking continuous entertainment, the availability of large number of subscription models, and a relatively disinterested group of prospects and yet a nudge in the right direction that ensures risk cover is provided at the lowest cost with practically no human intervention.
The tie-ups with the service providers need to ensure that the details of the subscribers along with the premium are transferred instantly to the insurer so that proper records are maintained.
As for the purpose of claims, the moment a policy is taken or a renewal is done, an automated educative video can be sent to the subscriber through WhatsApp/message explaining the cover given and the need to keep his/her insurance details with parents/spouse etc., and what to do in case of a claim.
The whole process will need integration with the social media service providers who also conduct ID verification and authentication using their email accounts or phone numbers.
2) Gig workers – Bima Sugam like hybrid products
Within this group is a growing cohort of independent workers like courier boys, food delivery, on call drivers, maids, helpers, nurses, teachers, freelancers in every domain and so on, known as Gig-workers.
They are individuals who are loosely connected to one or more service providers, move between jobs frequently and are paid by the hour or per job. It is estimated that there are 15 million Gig-workers in India.
Unlike the totally unorganized sectors like farm work or fishing, data is available with various service providers about Gig-workers and that helps to begin the process to bring these workers too under some legislations to bring the workers of Gig economy too under some welfare regulations. This too is an opportunity for designing group as well as individual life covers, disability and accident covers and health insurance for such workers which are easy to administer.
Gig-workers also tend to work for a life time freelancing, in which case pension and social security needs too are to be addressed. This too would be a strong opportunity for fintech solutions.
3) Professional, IT, BFSI – Total digital journey In this group are the better placed individuals like professionals in IT, Finance, Hospitality, Health and medicine, engineers etc., who are happy to shop online for all their needs, happy to compare prices and seek best deals.
We already have Insurance Aggregators comparing prices of similar products and the off take of direct purchases from Digital channels is increasing in India. Therefore the mass method as well as the class method needs to be adopted so as to reach all socio economic segments even in the newly employed group. This group is represented by around 5 million youngsters and is a testing ground for new technologies in insurance services delivery.
The concept of unbundled products is something which this group is likely to prefer. All benefits are priced separately and as long as a minimum life risk is selected, other benefits can be added up to prescribed limits to the base product and the system will calculate the total premium payable as per the proposer’s choices.
The product can be so designed that but for the base risk all other risks can be altered every policy anniversary.
We now come to the second group – middle of the life cycle breadwinners group The second category are the age bands which are in the mid lifecycle stage. Relatively better settled, have financial savings, have specific financial needs at specific stages of their life or children’s life, have higher aspirations, have various debts too, who need to pay their bills regularly, who don’t want to default on repayments etc.
They are more amenable to financial planning, and here the more traditional approach through channels which stress on face to face interactions have an upper hand. 400 million is the estimated size of this group. It constitutes the highest proportion of regular premium payments of the industry. It is the most important group as far as life insurance revenues are concerned. It is this group that is more likely to respond better to a more engaging customer journey.
Our industry needs to learn more from the Online Trading platforms. They have a right mix of having a relationship managers for face to face interactions and a mix of Chatbots and Robo advisers that can help trouble shoot most routine enquiries by the customer.
LIC has recently launched whatsapp based services which addresses this need to a large extent.
However, we too are increasing our quest for further customer engagement. One of the most frequently voiced needs from our customers is the requirement of engagement in the local language. India being a vast land with two dozen major languages, the technology is presently available to engage with the customer in their local language too.
Thanks to mobile based services, customers also like it when we provide the agency and autonomy to them to interact with the institutions in a meaningful manner without requiring to talk to the agent or service personnel.
Some of the frequent touch points happen at the time of paying premiums, acceding to change requests etc. The creation of customer IDs, personalized policy vaults, voice enabled policy benefits, update of the cash values acquired after every subsequent premium payment, the loss of risk cover in case of lapse of policy due to non-payment of premiums, etc., can be all conveyed to the customers at appropriate times in a polite and meaningful manner
All these will help in improvement of persistency of policies can be ensured. It is within this segment too that Data Analytics assumes a higher role. As we progress into the first quarter of this century, a higher adoption of analytics as a tool of customer value maximization can be seen.
From a predominantly tied-agent and banca channel dependent distribution system, the Fintech models which are highly analytical and unerring in assessment of the various needs of the customers will help chart new routes within the present distribution ecosystem. It is human tendency to identify against named needs rather than generic products. That’s the very reason we find various products that define specific needs.
For instance, products are named so that specific needs like creation of a corpus for pension, education etc., are liked by the prospects. This inherent preference for named purpose of life insurance should be examined further. This also provokes the thought, can there not be products targeted at specific risks that are of shorter duration which can be appropriately priced?
Examples would be ultra-short term (bite-sized and episodic) life insurances taken during travel to foreign locations, while engaging in adventure sports etc. Insurtech companies have the ability to introduce customized insurance products that are tailored to the specific needs and preferences of individual customers. This has made it possible for customers to get coverage that is more relevant to their lifestyles and needs, rather than having to purchase a one-size-fits-all policy.
Another important differentiation within the second group is the price preferences, those chasing discounts and behavioral bonuses and those preferring premium and preferential treatment from the company. Products too can be differentiated using these parameters. On the one hand, data analytics especially on health and wellness related aspects can provide opportunities for discounts or additional benefits being given.
And as for those seeking preferential treatment, it can be better and frequent engagement both through digital methods as well as on personalised relationship management levels, can happen
For the more sophisticated customers further risk assessment is possible through the use of telematics where the driving habits, duration, nature of terrain etc., are taken into account to offer discounts or hike up rates based on consensual sharing of data. Being the group that contributes the highest to the premiums, this is also the group that requires attention on the protection gap front. One of the reasons behind the protection gap is the behavioral bias.
The propensity to procrastinate, to believe that bad things happen to others, overconfidence in one’s own ability to face consequences, to have an irrational resistance to life insurance on account of beliefs and superstitions, not being financially literate, all form part of the problem.
This is where constant education of the general public and customers by the insurance providers should be an avowed objective. The subject also requires intervention at the distribution channel levels where relatively new agents tend to undersell life insurance.
Third group – is the senior citizens and retirement planners group Today approximately 9% of India’s population would be in the age group of 60 and above, which is around 120 million. An equal number would be between the ages 50 to 60 making this group to about 240 million. These are either senior citizens or the soon to be retired employed group. This group is growing faster and living longer. With only 3% of employees enjoying retirement benefits through their employers, the unfulfilled need for retirement benefits in India is huge.
It is only of late that the concept of funding one’s own retirement is gaining traction and products specifically named for creation of corpus as well as payment of annuities are slowly gaining favor.
The shift from Defined benefits to Defined Contribution schemes too creates retirement anxiety and the elderly have to work longer years or multiple jobs to retain their lifestyles.
Health costs in India are generally borne by the individual due to low off take of Health Insurance too, another challenge before India’s insurers. While there are cutting edge discoveries in the medical field, the benefits of such discoveries come at a cost which can be afforded only by a few. This too becomes a Damocles sword for the senior citizens, the fact that cures is available but one can’t afford it is depressing.
Of late one can witness a plethora of crowdsourcing platforms that collect contributions from individuals through social media with apparent success. If only individuals had learnt about insurance and created enough funds for future. This is where again, the accumulation for pension products and annuities come to their own.
The ages beyond 50 is when a person faces various financial and emotional consequences. The fear of the unknown, the need to tighten the spending to make the meager savings last longer, the flight of children and the sense of emotional loss, the possibility of loss of spouse, illnesses and lifestyle diseases all take an emotional as well as financial toll on the individual.
Life Insurance is the only industry that can comprehensively address the financial needs in a scientific and judicious manner providing guaranteed annuities under various options.
However the awareness about annuities among the general public is weaker and we are working towards addressing this issue.
The Technology solutions
Meanwhile new technology in the form of trackable devices, 24/7 health monitoring etc., has opened up fresh opportunities to combine health insurance along with life insurance and create a wellness ecosystem where along with financial health the physical health needs too can be managed through this hybrid approach.
The availability of accessible health data and ongoing monitoring for activities like walking, exercise, diet, control over lifestyle diseases etc., and creates opportunities for reward systems for better behavior.
After all in life insurance, better health is better longevity and lesser claims. It is a natural corollary that Life Insurers should be concerned and be encouraging better health in their customers.
Therefore, even the traditional life insurance products can be rethought taking into account these new parameters that can help both in underwriting and further monitoring, thus creating customized risk covers and pay as you behave model.
Similarly, in the elderly, the rate of deterioration of health or data on consistent good health will help price annuities as well as health insurance better.
All along one thing one sees that the theme of distribution getting more dispersed and varied. This is because the traditional Tied Agent and Bancassurance channels are designed towards a particular set of age groups and customer behavior. To reach out to the unserved populations we need to think of convenience, education, reach and spread.
Therefore every product needs to be evaluated as to whom it is targeted at and if required the distribution channel be rethought. Just as the sale of term assurance plans through the direct channel are proving to be successful, the experimentation with embedded products too should see success in the days to come.
Big data and its importance in underwriting Gone are the days when every detail regarding the customer was required to be sought directly from the customer.
Based on access allowed by the prospect, today it is possible to download the personal details from the Aadhaar site and the Account Aggregator sites. Similarly the financial health and behaviour from the CIBIL scores and perhaps in due course, the health parameters from hospital or medical practitioner’s databases.
Such databases are today making decision making easier due to the authenticity and accurateness of the data about the individual. As we move forward, processes like underwriting will involve more of such data access and bring about huge improvements in the quality of underwriting and turnaround times.
A single view of customer from within and from the external environment helps in the right assessment of the risk and data repositories are going to be more varied and granular as time goes by. It is indeed exciting times to be in the insurance industry at this particular juncture.
The author is chairman of Life Insurance Corporation