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How open distribution in insurance can help

Open architecture in bancassurance with up to three life insurers, general insurers and health insurers each could change the way consumers can interact with these distributors

The Indian life insurance industry is back in the growth phase after nearly half a decade. What lends confidence to the sustainability of this growth are favourable macroeconomic environment, social factors and participation of almost all the companies in this growth. In addition, both the regulator and the life insurers utilised the difficult period to improve product offering, to ramp up customer service and enhance efficiencies of the distribution network. While product design and customer service improvements witnessed an immediate customer impact, it is the introduction of open architecture in distribution that is expected to start delivering customer benefits over the next 12-15 months. 

Open architecture in bancassurance with up to three life insurers, general insurers and health insurers each and new models like insurance marketing firms, which allow established agent advisers to sell products of two life insurers, could change the way consumers can interact with these distributors. 

As we enter a new financial year and industry participants get into executing the strategy for the financial year, it is time to reflect on how these changes can be utilized to bring greater benefit for consumers and enhance their engagement with life insurance product category. One key assumption here is that an evolved and mature seller will place customer interest above all else. This trust and business by transparent offering will give clear information and choice to the customer. 

While Indian life insurers have not yet started specialising in product categories, some difference does exist in product features in the offerings of various companies.

Under open architecture, customers will have the choice to pick plans that best fit their requirements since life insurance solutions of more than one company will be available through a single bank distributor. The customer will also have the option to mix and match the products of two life insurance providers to come up with a unique and powerful solution that best suits her life stage need. The concept is similar to a multi-brand showroom that allows a customer to choose the best out of the collection of brands available under one roof.

Similarly, insurance marketing firms help established life insurance distributors move towards becoming independent financial advisers, who have the ability to offer a bouquet of financial solutions based on the needs of consumers. 

It is an established fact that competition brings in efficiency, which reflects in superior product designs and pricing and better customer service. When life insurers will be competing for same shelf space in an open market scenario, the winner most often is the one who has better overall customer value proposition. Being a long-term product, life insurance efficiencies will not be limited to one-time product offering and purchase journey. Life insurers will be competing to provide superior service across the customer life cycle. This will help life insurers retain the customer and cross-sell when new needs arise, creating a win-win for the customer, the bank and the life insurer. 

With greater access to customer data, not only through the bank but also through their online behaviour, in the competitive environment, life insurers will design more customised products and services for bank customers. 

It is a proven fact globally that consumers buy life insurance 6-7 times in their lifetime to meet their life stage needs. The probability of reaching out to the same life insurer is significantly higher if the service provided on earlier policies is good. However, if the policyholder is not happy with the service of her current life insurer, she may decide to shift to a new one and that will be easier in open architecture.

The consumer will have the option of moving to another life insurer without even moving away from the existing distributor with whom she is tied up due to multiple relationships such as savings, investment, loans and others. Given this reality, life insurance companies will try to differentiate with each other on customer service parameters, in terms of quality and speed, to retain existing policyholders and create a positive disposition towards the brand when considering new life insurance purchase. 

For an industry that is competing with other investment products for a share of customers’ wallet, it is important to have a cross-pollination of ideas within the industry to further enhance product and service offering. Open architecture offers this opportunity in real life working environment where life insurers can learn from the competing brand to improve their service standards and product solutions. This will not only be beneficial for bank customers but life insurance customers at large. This creates another win-win where customers benefit through better offerings and life insurance industry is able to establish superior connect with its customers. 

The impact of open architecture on Indian life insurance industry will be visible soon and 2018 could well prove to be that year of change.

Rajesh Sud is executive vice-chairman and managing director, Max Life Insurance

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