Insurance Gazette: Need to retain the learnings and transform further

Industry leaders speak about the challenges the industry has faced over the past year, fintech, and how the pandemic is shaping consumer behaviour

Although life insurance players have shelled out thousands of crores in Covid-19 related death claims and seen their profitability dip due to the additional reserves they had to hold for excess claims, the heightened awareness of risk, the change in perception around insurance as not just being a savings product, and the uptick in demand for pure protection products have meant that insurers have a once in a lifetime opportunity to increase penetration of life insurance in India. Raj Kumar, managing director (MD), Life Insurance Corporation; Vibha Padalkar, managing director and chief executive officer (CEO), HDFC Life; N S Kannan, MD & CEO, ICICI Prudential Life; Tarun Chugh, MD & CEO, Bajaj Allianz Life; Naveen Tahilyani, MD & CEO, Tata AIA Life Insurance; and Yashish Dahiya, CEO & chairman, PB Fintech, discuss with Tamal Bandyopadhyay the challenges the industry has faced over the past year, fintech, and how the pandemic is shaping consumer behaviour. Edited Excerpts: 

What are the challenges the industry faced due to Covid-19 and what are the learnings from that? 

N S KANNAN: The growth was muted during the initial period of Covid-19 and again during the second wave, we had challenges. But, if you look at the overall picture, this is one of the industries that has been resilient. Last year, we grew by 12 per cent despite the disruption caused by the lockdown. This year, so far, we have grown by around 6 per cent. So, despite the pandemic, this kind of growth rate, I think, is good. 

From a risk management perspective, the industry has held up very well. The challenge in the initial period was reaching out to customers. Subsequently, the challenge was servicing customers digitally. The good thing is that the industry has adopted the digital transformation quite well but some things had to be accelerated because of Covid. Then came new methods of sale as we went along because the demand increased but the fulfilment was a challenge. Medical examinations could not be done very easily. So, we had to use a lot of analytics to get the profile of the customer and make it as frictionless as possible. But, on the whole, the industry has held up exceedingly well. 

NAVEEN TAHILYANI: It’s obvious that the pandemic has affected the income of the consumers and if you look at where the spending increased, it is the OTT platforms, online education, online consultation and pharmacies, and online purchase of financial products, under which right at the top is life insurance. Life insurance has become much more strongly associated with the security of the family. I think the positioning of life insurance in the minds of the consumers has moved from savings to security. The likelihood of consumers buying life insurance online has jumped by more than 10 percentage points from pre-pandemic to post-pandemic. So, there is a desire to purchase it on your own digitally as well. But unless the industry does something concrete, we will lose this opportunity. We can change our business model, simplify our products, make them more protection-oriented, use technology to give them a better experience, and focus on quality. The industry has been very resilient but we should now build on this platform of resilience and get into a transformation mode so that we can take our business model to the next level. 

RAJ KUMAR: During the pandemic there were three challenges — customer acquisition, servicing, and claim settlement. But the industry rose to the occasion and new systems were put in place to address the issues. During the first wave of the pandemic, the industry was concerned about reaching the customers so that the policies are kept in force. The settlement of death claims was also a challenge and the regulator provided some dispensation regarding this. When it comes to opportunities, this was the phase when the digitisation of services got a huge push for the overall industry. The pandemic has also given a push to the awareness around insurance. But there is a paradox. While customers want to be insured, they are facing economic stress. 

TARUN CHUGH: There is a heightened perception of risk coverage in the customer base now. In the last 20 years, this is the first time that insurance hasn’t been so difficult to sell. There is a little bit of pull factor from the customer. The way we have been able to sell term plans and respond to the customers, it has not been an easy ride, given that the reinsurers have not been very helpful. We have responded well to widening the bucket of needs. Initially there was a time when ticket size and equity market used to decide what the growth of the industry will be. That has changed; now we have the risk of living longer and risk of dying earlier. We have the risk of not saving enough for our long term needs and both guaranteed as well as risk sharing products have been well accepted. Also, we should not forget the underlying benefit we have all got of interest arbitrage, with fixed deposit rates being low. It will be a big loss if we do not retain the learnings we have had and transform the industry further as we go ahead. 

VIBHA PADALKAR: There is an inflexion point but it is up to us on what we do with this inflexion point. We should not waste a pandemic; innovation is key. If we rest on our laurels to say that as an industry we have come through this relatively unscathed, I think we would lose this opportunity. Innovation in the form of relevant products (is essential) and here some regulatory intervention would be welcome. Today, the general insurers are selling group term life insurance calling it non-survival policies. So, why should life insurers not be allowed to sell health insurance products? Further, the use of technology, partnering with insurtech firms, and servicing customers in vernacular languages are some of the things that the life insurance industry should look at. If we think we have maxed out and if we think we are only competing amongst ourselves then that’s all we are going to be doing rather than expanding the pie which has shrunk from where it was 10 years ago. 

YASHISH DAHIYA: Insurance is a difficult product for the consumers to buy and for anybody to sell. And, we have to start with that acceptance. We as an industry have been doing a great job, and to be brutally honest, a thankless job, for the last 10 – 15 years in educating the customers on the need of protection. Covid has certainly helped; demand has gone up both for life and health insurance. We see demand at 2x of what it was before Covid-19 struck. And while the industry has done everything within its ability, it has been a difficult process to sell the products. The good news is the demand is still there and the processes have become a lot more streamlined than before. We have a better understanding of the risk and the processes to get the consumers to purchase insurance products. A lot of us know the nuances of how to make the sales grow from here. The bigger problem is the consumer inertia and that has been shifted by Covid. 

How are the traditional insurance companies looking at the new age insurance firms and what is the way forward?

PADALKAR: The fintechs or the insurtechs are not going to invest capital to the tune of Rs 2,000 crore. On average that is the kind of capital to breakeven in India. And, the breakeven period is typically 12 years. If you have a front but you are not going to bear risk, or be answerable to customers … when you look at the back book, it is growing, like it is in the West, and that is how nature of business is going to change. So not just customer hunting but customer farming becomes equally important. Hence, old-world companies are looking to partner rather than compete with the new age firms. So, I do not see them as a threat at all and it is going to be a symbiotic relationship but there will be shades of grey. 

CHUGH: We do not expect regulation to go low on the requirement of capital to set up insurance business. The fixed cost of setting up such business is high. I think the answer lies in partnering with new age firms and solving problems that we cannot solve as traditional life insurance companies. Don’t forget we are legacy companies with clunky systems at the backend and this is where the fintechs come into play. Fintechs understand the consumer space and have the capability of responding fast. So, that’s a space where we can surely partner with the fintechs because they are agile. The kind of technologies that they can choose to experiment and even be okay to fail is different. At the same time, companies like ourselves have to learn to be able to work with fintechs. This is not easy because the decision- making has to be agile, the culture of digital has to be there. So, this is a long but hard journey. And, partnership is the way forward. 

KUMAR: Our IT systems are 99 per cent in-house. But not everything should be done by us. There are many areas where collaboration can happen with the fintechs and we are looking into that. These companies will get stronger and stronger in days to come. So, collaboration will be the most effective way, going forward. 

TAHILYANI: I believe this is an opportunity for collaboration, not competition. And, this is an opportunity for collaboration not just between legacy insurance companies and new world companies. Most of us in the private sector have been around for 20 years, which is a short period of time. I would argue this is an opportunity for collaboration even amongst insurance companies. If you look at the protection gap in India, it is running at 83 per cent, which means if every Indian should have coverage of Rs 100, he/she has only coverage worth Rs 17. This gap in 2015 was 91 per cent. So, in six years, we have brought the gap down from 91 per cent to 83 per cent. But, we would all agree, that we have a very long way to go. We have to serve the consumer as they want to be served, not as we imagine. Consumers want convenience. In the first half of 2019, the index for digital searches for term products was 45. When the first peak of the pandemic happened in September 2020, it jumped to 89. When the second peak of the pandemic happened in May 2021, it jumped to 100, the highest ever. And, now it has come down to 45. So, we are back to where we were two and a half years ago. Consumers' needs will evolve and, therefore, I truly believe in multi-channel ways of addressing the consumers rather than having the polarised debate of online versus offline. Beyond the distributor — manufacturer debate, there is a large opportunity for collaborations with fintechs and health techs. 

KANNAN: Each category of players has skills and relevance and a place to stay. For example, manufacturers like life insurance have the capital, risk management capabilities, a large back book to which we can cross sell, and investment capabilities. These skills will continue to be with us and the way to go is partnership. The industry has been built on the bedrock of partnerships. If you look at the distribution of life insurance, probably, 10 per cent comes from direct business, the rest 90 per cent is through partnerships. So, the ability to work with partners comes automatically to this industry. It’s a heavily intermediated industry. So, we have to bring it to bear when it comes to new age partnerships also. We should also be encouraged to work closer with new age players by actually having skin in the game. What I mean is, we should be allowed to set up subsidiaries in that space so that there is a skin in the game for us and the partners. 

DAHIYA: We have to appreciate two things about insurance: firstly, it is necessary; second, it is very hard to sell. Consumers will not buy insurance because it is available. I think in the long term, value will not be added by just a pure tech or a data play firm, value will be added through deep conviction in the sector. People require protection and it has to be done in a circumspect manner. That can never happen without the insurers. 

How have your products changed post-Covid? 

CHUGH: The risk of living longer, the risk of dying earlier, and the risk of not saving enough — these are the three key pillars on which the product needs are based. There are a few undercurrents of trends that we have noticed. Because of the interest arbitrage, we are able to provide better long-term guaranteed return versus the fixed deposit products. This itself has singularly hit the unit-linked product and the guaranteed products have taken that place. For us and a lot of other companies, the retirement bucket needs to be met more and more because at the back end there are a lot of financial risk coverage products. 

TAHILYANI: There is an opportunity to partner with customers in their health and wellness journey. And, Irdai has enabled the first step of this. Today, we have the opportunity to manufacture health insurance products where the premium can be fixed depending upon the health and wellness of the customer. So, we can move from having plain vanilla products to supporting customers in their wellness journey. Secondly, there is a huge opportunity to bundle life and health. It is taking off for a large number of companies, including for us. Third, pre-retiree, retiree segment, pension opportunity on an insurance platform is a huge opportunity. Fourth, the traditional opportunity of saying Ulip is one category and protection is another category is getting dismantled. Today, you have an opportunity to bundle protection products on Ulips, which gives the customer their protection needs and also upside of the market returns over a long period of time. Fifth, digitisation has forced the innovation of sachet products, whether it is short-term products, simple health covers, all of this is possible. 

KANNAN: We do see demand across the board, not just rural but also in large cities and urban markets. In fact, the industry can do a lot more in terms of growth in the number of policies as against growing only premiums. We believe we are seeing a great opportunity in the pre-retiree segment; the deferred annuity is doing very well. This is a time when people are seeking certainty so to that extent, in the past year or two, we have seen guaranteed products do well and it is supplemented by the fact that bank deposit rates are going down. So, I think this will all come in phases; today the guaranteed products are doing well and tomorrow it could be Ulips. We do see a good opportunity in the group term business because large employers are getting very focused on enhancing cover for their employees. 

DAHIYA: The industry needs to shift focus towards sum assured because that is the coverage that the consumers derive and that has done very well in the last 10 – 15 years. Fundamentally, where should more premiums go? Should it go towards protecting life or health? I believe it should be towards protecting health. The moment you take the savings angle out of life insurance; you see a different picture. When it comes to savings, life insurers are competing with banks and mutual funds. Despite that, it has done a phenomenal job in competing and growing in the savings category. 

PADALKAR: We have had an amazing journey over the last 10 years as an industry as far as products are concerned. Right from term products, to savings, to deferred annuity, and cardiac care and cancer, and so on. With a little bit of relaxation, we will be able to come out with a lot more in terms of white spaces. Having said that, we cannot unleash our full potential unless we realise data is the new oil. The way credit off-take has happened with the credit bureaus, if we don’t get enough of financial data as well as medical data then a lot of things cannot be done. We can have differential pricing because every risk can largely be priced for and if we don’t have the support of the reinsurers to the extent we want then we need to understand the risks better, to see whether our balance sheet can handle the risks. So, for us to be able to expand, we need to be able to get that data and to be able to share that data. 

KUMAR: The products are required to take care of the life cycle needs of the customer. And, the life cycle needs keep on changing. The median age in India is 28 years so the need at present will be totally different from what it will be 20 -30 years later. And, in the absence of any social security scheme, annuities and deferred annuities will be the flavour of the season.