The new guidelines for unit-linked insurance plans (Ulips) that came into effect from 1 September will have a significant effect on the business models life insurance companies currently have in place. The increased customer value on account of the new guidelines will be beneficial for customers and, as a result, for companies in the long run. However, there are short-term challenges these companies will need to brace themselves for, as they seek to pursue growth strategies in the market.
If we take a closer look at commission levels and shareholder margins in India, these are among the lowest compared with other Asian countries. In addition, life insurance companies will now incur higher capital strain to acquire new businesses, which will expose them much more to loss from customer lapses/surrender given the even spread of customer charges and the reduction in surrender charges.
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Given the new guidelines, one can expect expansion in sales coming through increased distributor productivity and efficiency opposed to widening of footprint by way of new branches and sales force addition. The new regime necessitates the distributor to better understand the customer requirements, undertake a sound financial needs-analysis and recommend the appropriate product offering to the customer that would thereby result in a long-term mutually beneficial relationship. Adopting a customer-centric sales approach will affect the distributor’s absolute earnings positively and also result in higher persistency, the importance of which can never be understated.
To be able to achieve quality sales and higher productivity, a greater focus on skill enhancement through higher investments on in-house training infrastructure for the distributor base—full time financial advisers in addition to the part-time agents—will be required.
We have consciously developed a strategy of multi channel distribution that allows us a wider footprint to engage with customers in the new paradigm. We have balanced our portfolio well in terms of significant contributions from our three key channels.
With increased accent on building a cost-efficient and high-productivity distribution model, the proposed changes make it important to consider alternative distribution channels. Banks are also likely to continue to develop as a key channel. Currently, the regulations do not allow for more than one life insurance company to tie up with a bank. Regulatory changes that would allow for multiple tie-ups enabling better customer choice as they do in most other countries will be welcomed.
Lastly, with increased standardization in products, customer service delivery is poised to be a key differentiator in the life insurance industry. The entire management of the customer life cycle—starting from initiation and policy issuance to maintenance (premium payment reminders, fund switches, customer feedback) and finally claims (release of the claim amount) will become the main reason why customers will choose one insurance company over the other.
A claim is a moment of truth when the family of the policyholder is in distress due to an unfortunate incident in their lives and customer centricity, at its core, is about providing a series of tangible and distinct proof points that clearly answer to customer expectations.
Customers need real delivery points to appreciate a great service quality experience.
As service evolves as a key differentiator, convenience as a customer expectation will play a key role. Technology-enabled conveniences such as updates through mobile messages, multiple methods of premium payment including automatic modes—website, mobile, and quick premium certificate/fund statement via email—are some of the ways in which customer convenience is being addressed.
Winning strategies in the new regime will need to be predicated on a customer-centric approach—one that is truly available, attentive and reliable to customers, at all times.
Glenn Williams is the CEO, Bharti AXA Life Insurance Co. Ltd
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