Opinion | The protection story in the life insurance industry is at an inflection point
With the right impetus, protection will form a larger part of insurers’ portfolio
As the last page of the 2018 calendar flips over, it’s time to reflect upon the changes the life insurance industry has seen, and the changes ahead. While the driving forces of an evolved industry—a more informed consumer and the advent of digitisation to enable business—have had a significant impact on the industry, I believe that it is the protection story that is at an inflection point. For a country that has traditionally been under-protected, there is an encouraging trend towards protection, propelled by a number of social, cultural, demographic, economic and regulatory factors. Traditionally, the most fundamental job of life insurance, protection, has probably not been more ready to take the limelight and shine through as it is now.
In the first half of FY 2019, the top players of the life insurance sector, who hold more than two-thirds of the private life insurance market, saw a 65% increase in protection sales. In terms of number of policies (NOP), the protection share of total individual business has grown from about 20% as of H1 FY18 to about 30% in H1 FY19. In group insurance, a large majority of which excluding the funds business is protection-oriented, sales has grown 40% for the private industry year-to-date till November.
Rooted in a deeper understanding of the value of human life, the per capita sum assured has also increased significantly. In just the last financial year, the life insurance sector has seen nearly 25% growth in sum assured.
So what has triggered this trend towards protection? A consumer who is young, more aware of risks and the relevance of life insurance, a healthy ecosystem that promotes the appreciation of insurance as a whole, and a maturing industry that has evolved over nearly two decades have played a role in this shift.
The buyer of protection is seen to be younger than that of other life insurance products. The term or protection buyer is typically an upwardly mobile urban affluent Indian below the age of 40. A digitally savvy consumer who’s confident of and comfortable with an online transaction is also living in a nuclear family and is aware of the responsibility to protect his family unit. With a greater level of education and higher exposure to the health risks of a stressful urban lifestyle, this consumer is best placed to appreciate the value that term insurance brings, in terms of protection and peace of mind.
Another factor that has given a nudge to protection buying is the overall ecosystem of insurance propelled by the government’s drive towards driving penetration as part of building an environment of protection in the country. The narrative of the importance of insurance has been exemplified by government schemes for crop insurance, Ayushman Bharat for health insurance, Pradhan Mantri Jiwan Jyoti Bima Yojana (PMJJBY) for life insurance, Pradhan Mantri Suraksha Yojana for accidental death and disability insurance and Atal Pension Scheme for retirement planning. The tailwinds of these campaigns and initiatives have started building a culture of protection in the country.
The third lever that has played a critical role in the protection story is the life insurance industry itself. Now nearly two decades old, the private life insurance industry has matured over time. The industry is now offering compelling term plans both through e-commerce as well as offline channels, thus expanding reach. While some customers may be comfortable completing the purchase digitally, others prefer to “research online, purchase offline”. Adding further impetus to offline purchases of protection is the fact that product regulations that rationalised commissions on many life insurance products did not apply to term insurance acknowledging the effort it takes to sell a pure protection product in Indian society. The low cost of protection products coupled with good commission structures have made protection a compelling proposition for both buyers and sellers.
Will this trend grow in the coming year? Yes; with the right impetus, I would see protection form an even larger portion of the portfolio of life insurers. What could add fillip to this could be a more favourable taxation structure, such as nil GST and a separate income tax limit for protection like that for health insurance, to increase the overall protection quotient of the country.
Prashant Tripathy is senior director and chief financial officer (designate MD and CEO), Max Life Insurance
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