Recently there has been a lot of focus on term plans. Online term plans are a manifestation of that. Your comments.
Term plan is a very relevant product since it gives you adequate amount of protection. But given the macro environment of this country, such as GDP (gross domestic product) growth, steady rate of household savings and comfortable demographics, and given that insurance is still under-penetrated, I think there are many product propositions that can be successful. It is for the insurer to know the needs of the customers and tailor products accordingly.
Are you planning to come out with an online term plan?
We do not have an online term plan right now. I think there are many things one should look at. If you look across the world, online term plans are not tremendously popular. About 6-7% of sales actually happen online. And I guess the reason is that insurance is a high involvement product. So the quality of advice also determines the kind of insurance a customer ends up buying.
Yes, but we are talking about term, which is a simple product and what would determine that sales would be the premium.
I agree there are definite advantages of selling online products. The point I am trying to make is that besides term plan, there are many other products that a consumer needs and should have access to. While the online platform will be attractive to customers who are aware, I think insurers also need to look at conventional distribution models and figure out ways to give attractive propositions to customers.
The industry is moving to unconventional models. In fact, recently the Insurance Regulatory and Development Authority (Irda) indicated that the agency model will become a thing of the past.
The insurance industry is still new in India. Even in advanced markets, such as the US or Japan, tied agents have just not gone away. While I appreciate what Irda is talking about and there is enough scope of innovation as far as distribution is concerned, I don’t see tied agents going away. What could happen is the way agents will work in the future as compared with how they worked in the past.
Give us an example.
Look at what happened between 2001 and 2011. Many good things happened but there were also structural gaps such as poor persistency ratios and low productivity by agents. Irda has been trying to address these gaps. Moving on, you may see a reduced agent force, but these will be agents who are serious about the profession and will deliver quality advice.
You said that the market is ripe for products other than term plans. What are these?
Pure endowment products and child plans. Also unit-linked insurance plans (Ulips), even though many are shying away. Ulips as pure investment products may not work but if you combine insurance and investment, then Ulips are good products.
But traditonal plans have no real rate of return since the returns are not able to outpace inflation.
You need to look at products as a combination of protection and returns. If you look at the level of protection from these products, they are good.
But you pay a heavy price for that protection. You pay much more than compared with a term plan.
Even then I guess there is space because there are certain investor needs which will get met through traditional plans. If you look at a pure child plan, the structure ensures that there is money to fund the child’s education in case an unforeseen event were to happen. There are also plans which ensure monthly income for the family. So you structure the protection cover with a fair amount of investment return bundled in and I see space for these products.
What percentage of business comes from traditional plans?
About 75% of our business comes from traditional plans.