Money Guru | Term plans may become expensive eventually

Money Guru | Term plans may become expensive eventually

With the Insurance Regulatory and Development Authority (Irda) bringing in reforms and the government laying emphasis on protection in its direct taxes code proposal, how do you summarize the action that the life insurance industry has witnessed in recent years?

I see the changes as positives. The regulator has nudged the industry to focus more on protection and even the tax proposals directionally lead us towards protection. We have focused on investments but that strength even the mutual fund industry has. Protection is our strength and only we can provide it. Now the industry will focus more on protection and claims. Till now people didn’t look at the claims side of the business but now with increase in protection, claims will be tracked closely.

In fact, online term plans have already become popular. The sale of online term plans is self-driven and not pushed. In times to come, term and health plans will become pull products.

Online term plans have been received rather well. But having online term plans also means strict underwriting and more care like medical tests. Will this impact the premiums?

The market for term plans is still largely untapped and we believe that its popularity is set to increase. Having said this, as more consumers buy term plans, the risk that an insurer takes will get enhanced significantly, which means greater emphasis on medical tests and underwriting processes. This will eventually lead to increase in the premiums of the protection element of insurance products. Term plans will become marginally expensive but that will not hamper its growth.

Irda is also focusing on robust distribution. Costs have been contained. Does this put pressure on capital?

In the light of current regulation, we either cut costs or tighten the belt. Agents need to sell more and the focus now needs to be on technology to reduce costs. The current set of regulation will remove the toxicity in distribution. Initially, the focus was on first-year premium, but now renewal premium has become just as attractive. Now regular premiums are also like single premiums since the costs are staggered equally. There is a long-term incentive for agents and they need to look at renewals just as excitedly.

The focus has shifted to the online channel. Do you see more use of technology?

Absolutely. In fact in two years from now things will be very different. Even now we design products keeping the distribution channel in mind. But increasingly, we are looking to make products online friendly as well. Right now the use of technology is minimal which leaves us huge room to improve and use technology. This will bring down costs and will make products simpler.

You said that the focus will now be on protection plans. Does that mean you will no longer focus on investments?

If you see real returns, unit-linked insurance plans, with the protection cover they now offer, are attractive products in the long term. Investment will continue to be our focus but protection will be the core. So now you will see protection plans and health plans at the core wrapped around with investment products.

In terms of product suite, will we see any kind of polarization? For example, in mature markets insurer A is famous for pension plans and insurer B is famous for child plans.

In our opinion, the investment skill and the ability to understand the quantum of insurance protection are two skills that will be a common denominator for all the insurers. However, we believe that the distribution process will get polarized. While there may not be much difference in products, the difference will come in the channel strategy employed. It is likely that an insurer having a multi-channel distribution model will find that there is a distinct product or category focus emerging across distribution channels—agency, brokers and bancassurance—each selling a different suite or category of products.

Sandeep Bakhshi Managing director and CEO, ICICI Prudential Life Insurance Co. Ltd