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At Mint’s Life Insurance Conclave, held on 25 January, the country’s major insurers came together to talk about roadblocks to getting India insured. SBI Life Insurance Co. Ltd’s MD and CEO Arijit Basu, Kotak Mahindra Old Mutual Life Insurance Ltd’s managing director G. Murlidhar, Aegon Life Insurance Co. Ltd’s managing director and chief executive officer K.S. Gopalakrishnan, and IDBI Federal Life Insurance Co. Ltd’s chief executive officer and whole-time director Vighnesh Shahane took part in the discussion on ‘Roadblocks to getting India insured’, moderated by Deepti Bhaskaran, insurance editor, Mint Money. 


Deepti Bhaskaran: According to a Swiss Re report, India has a big protection gap. Why is that so? 

K.S. Gopalakrishnan: Actually, not everyone knows how much they are insured for. I end up saying that you guys thought you bought idli whereas actually you have ended up buying pizza. You thought you bought life insurance, but you got largely a savings product. It is a difficult conversation to have in a society that is fatalistic. That has been the mindset. I also think that distributors are largely scared of selling term insurance because the moment it gets into medical underwriting, they don’t want to do the back and forth, which delays the sales process and they might end up losing the customer eventually. I see trends changing though. 

Arijit Basu: There is inertia and a large part of the population still doesn’t understand that pure-protection products are valuable. Unless it is kept simple and premiums low, the desire to earn some kind of return on a financial product would be there. Maybe, as financial literacy grows, things could change. In India as of now, only people in metros and urban India, who are financially literate, understand the need for pure protection. But, at this time, if you have to reach out to millions across rural India, you need to have an insurance product that also has a savings component. There is no harm in a savings return. We try to tell the distributor to inform the consumer that it is an insurance product with a savings component. 

Vighnesh Shahane: India, like a lot of Asian countries, is a savings country. We have historically bought insurance on tax-saving platforms. The psyche is that people want a tangible return at the end of the premium-paying term. A return of premium term plan, which is very expensive, will be more popular than a pure term plan. Distributors are a little wary of selling term plans because they undergo a lot of underwriting, but I also think that term plans have relatively lesser premium than other plans. There is no monetary incentive for the distributor to sell a term plan. I don’t think insurance companies have focused on protection gap and sale of term policies as much as they have focused on other parameters like premium, persistency and top line growth. 

G. Murlidhar: Insurance removes uncertainty of life. Uncertainty is either that you live too short or you live too long. To say only protection products are insurance and the rest are not, I don’t think is right. Term insurance is for people who are well-off; people who have a potential to earn in the future. To say that if there are no term policies there is no insurance, is wrong. Group policy is the best way to get to almost 60% of the population, which has an income of less than Rs2 lakh. And if you see the number of group policies that get covered these days, it is substantial. To say that India is not insured is not right. There is a protection gap, but to appeal to more than 50% of the society you need something like Pradhan Mantri Yojana, which did almost Rs6 lakh crore of sum assured. Savings and protection are two sides of the same coin. 

Bhaskaran: Are we measuring under-insurance the wrong way, by excluding the savings element? Do you think protection gap of 92% is a wrong measurement?

Gopalakrishnan: No. When we refer to protection, it is the risk of dying sooner than expected or living longer than expected. To deal with living longer than expected, you look at annuity or pension products. To protect from dying sooner than expected, you look at term insurance. I don’t think endowment fits in there. If you look at two sets of data—protection gap as a percentage versus resources available to the family if the breadwinner died—that gap is 92%, which is the highest in Asia. In dollar terms, we are the second highest after China. You can look at it differently as well. Sum assured to GDP for India is 55%, for Malaysia it is 160% and for Korea it is 170%. In every other country it is higher than ours. Definitely, people are buying insurance. Are they buying enough risk cover? That is the question. I don’t think the metric is to be debated. In the Swiss Re report, the number is saying that India is underinsured. 

Basu: A different way of looking at it is through India’s per capita GDP. India is, say, at $1,800, and China is five times at $9,000. Malaysia—where the insurance density is much better India—all are in the middle income bracket. There is a correlation when we are trying to find adequacy. The amount of per capita GDP of India also has a role in our matrix looking bad. There have been calculations done on that. It’s been done by one of the research teams who do insurance research and in whose metrics India doesn’t come out so badly. Having said that, I fully agree that that is no cause of comfort for us.

We have a long way to go specially if after 15 years of the industry opening up, the number of policies that the private life insurance companies sell—I keep comparing ourselves where we have the largest potential. We sell 1.5 million policies, whereas even today LIC (Life Insurance Corporation of India) sells close to 13 million policies. So why can’t SBI Life be selling 3-4 million? We are reaching out better than others, but we have to reach out more. Perhaps we are missing something that is related to the fact that a large number of Indians have a very low income earning capacity, which is reflected in the per capita GDP. 

Gopalakrishnan: Often, we look at premium to GDP as a metric and compare with other countries. I don’t think that is necessarily the right metric because what is premium in different countries is different. Some of them have moved to IFRS (International Financial Reporting Standards). So they don’t necessarily include premium going towards savings as part of premium. I am not saying savings product are wrong. Just because I am saying that there is a gap that exists, doesn’t mean I am saying that endowments (plans) and money backs (plans) are wrong. They are addressing the need of far more disciplined savings. 

Bhaskaran: How difficult is it to unbundle the proposition of a tax-saving investment product that also offer insurance and just sell insurance? Is it also something to do with the way distributors sell insurance? 

Shahane: You can’t just look at protection gap and say if the gap is bridged, it will solve all the problems. We need to look at it from protection gap, per capita, penetration and other parameters. There is no one solution.

Basu: Certainly it is also our responsibility, from the company, to ensure that distributors also understand that when they are selling, they sell right and pitch the proposition correctly. If it happens to be a savings product, it has to be told that there is a core insurance component and also explain what is the savings you get. Possibly what happens to a large extent is that today they tend to harp on the savings aspect of the product rather than the core insurance component aspect. At the end of the day how long can you go on pitching a product in a way it should not be.

Bhaskaran: Isn’t the focus changing to term plans as companies look to list, consolidate and increase foreign direct investment (FDI)? There is a lot of focus on valuations and profitability. Aren’t companies looking at protection proposition that comes with high margins? 

Basu: Pure protection right now in India is good for the company and the consumer. But as I explained, it is not something that is sought by the consumer at the moment. If you look to sell a pure insurance product, it would be sought even less. If (pure) protection gave the highest margin, we would have all done it. Other companies are changing focus not just because of listing. They are changing because there is an aspirational demand from the online generation. People are understanding the importance of buying a term plan and it is good for consumers. 

Murlidhar: The average premium of term policies is Rs4,000 for a Rs50-lakh cover for a 35-year period. Now, Rs50 lakh policies are not meant for the common man. These are all for the higher strata of the society. High margins are possible when you are selling term policies of really big tickets and when your distributors are facing that kind of customers. Many companies, and rightly so, have to increase margins. Savings margins are generally lower, so they are going after these products. Remember one thing that insurance is a business. It has to make some amount of returns. If you are going to sell a Rs2,000 premium, for an agent it is not worthwhile. An agent has to go five times, give medical tests, which can get rejected. At the end of the day he will make Rs500. Term policies are slightly more difficult to sell because they are of small ticket size. It is not worthwhile for the distributor. Term policies are bought by people for covers of Rs50 lakh or Rs1 crore and these are not people on the street. These are people who have a good business or a good income. Term policies will catch up. But for the common people, it has to be as I told you: not just determined by protection but by savings, if you live too long.

 Bhaskaran: With online platform, term plans have become popular. Is it increasing penetration? 

Murlidhar: According to various reports, online products sold are now around Rs300 crore. It is growing at great pace but it will take some time before the trend catches on. Various reports say that technology-aided products will substantially increase over the next few years. Remember that if you buy a term policy, the claim is to be paid when you are not there. Don’t you think the life adviser is able to say that your wife has to go online and make a claim or is it easier for a life adviser to go an make the claim? One can’t ignore the importance of an intermediary. But online will catch up as India goes digital. Technology will have a role in sales. 

Shahane: If analysis is to be believed, it will explode but it hasn't happened. I don’t think online sales of any company are over 3-5%, and this includes our company. But we never know, with internet penetration, education and awareness increasing, it may take off. As of now, not that much. 

Basu: By internet if you mean self-driven customers, it is expensive. It should be the cheapest because there is no distribution cost. Unfortunately, the way you have to pitch it and the cost you have to incur and the aggregators who play a role in that (I won’t get into details) is not very good. I feel...that, possibly in the next few years, digitally assisted sales will pick up with minimum intervention. The amount of time a person spends selling will come down because he is using a tablet. But pure self-driven will take time. 

Gopalakrishnan: Take aided sales, and it will improve a lot. By technology I don’t only mean mobile and stuff. I think you will see much more customer analytics, which will move industry away from product pricing to customer pricing. So, if I know more about you, you will get a price that you deserve to get. 

Bhaskaran: The incentive structure is front-loaded. How can we make distributors push protection and increase persistency? 

Murlidhar: Insurance needs distribution. To say that you should pay the distributor uniformly over the years is a romantic idea. The person spends all his effort in the first year. It is easy to blame the distributor and say that it is because of your front-ended distributor incentive that you are having lapsation. I don't think that is the way to go about it. He goes five to six times to sell a product. Now you expect the agent to sell a product and earn remuneration over 5-10 years, where nobody in the country in any business is willing to earn a salary after next 5 years? I don’t think doing away with upfront commission can solve the problem. Yes, you can tamper a bit, probably reduce it, but keeping it equal is going to kill the agency. The solution is financial education. Misselling in financial services is not unique to insurance. There are at least 50 million agents who make a living out of selling insurance. Persistency has to improve and a life adviser, who earns a minimum remuneration, will add to the persistency. Engagement of customers with the distributor is very important for persistency. But online, where the customer has come and bought the product, the persistency is higher. But that will take some time. Insurance is sold—if insurance is bought, we will not sell. 

Shahane: A lapse is sold at the point of sale. It is not just the front end. It is also low commission is attracting unwanted people to the industry. Attrition of agents has led to lapsation. It is a tight rope walk. You have to make insurance commercially viable for the agent. Get the right kind of talent, keep them there. If you are going to give decent commissions, he is going to stay in your business. And if he is going to stay, the engagement with the customer increases and that increases persistency.

Basu: There needs to be a balance. If we take any extreme position, we will land in difficulty. For example, front-ended commissions are very high for protection products. In term insurance we offer high commissions. In spite of that, distributors find it difficult to sell. We would be happy as our profitability would be high, if it was a pure term product. We will have our top line growth, but that is not happening. Protection is the core of insurance and we would like to improve that. So the balance that we struck is to focus on certain amount of protection products. All insurance distributors who stay for 5 years get very high trail commissions. Let’s have a balanced approach. We can’t have one-size-fit-all strategy. 

Gopalakrishnan: To address lapsation issue in pure protection—say, term or term-related variants—I don’t think there is anything wrong in giving 30% first-year commission and 20% commission in the second year because the immediate task is to get the underinsurance addressed and price is not necessarily a burning issue there. I also think the sales process needs to be simplified. There is no point in making the agent run around three to four times for a term insurance product. Insurers should take more risk on mortality. In mortality you will make more money than on insurance guarantees.


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Updated: 30 Jan 2017, 10:02 AM IST
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