As per the annual report of FY17, Future Generali settled 89.53% of the retail death claims. This puts you in the bottom five companies, as most other insurers have a settlement rate above 90%. Why is that?
The problem of claims rejection primarily takes place in early claims, so as the years go by and the existing book keeps becoming bigger, the proportion of early claims falls. There is hardly any rejection in non-early claims that come after about 2 years from buying the policy. In fact, in this portfolio, the settlement is more than 99%, so the problem of rejection happens in early claims because this is where you see fraud happening. But we are improving; this financial year (FY18), we have settled 95.5% of the decisioned claims. In FY15, our rejection was 14%—among the worst in the industry. We have come a long way.
The other important metric for policyholders to track is the persistency ratio of policies. In FY17, going by the number of policies that were there even after a year of sale, your company retained only 51.31% of the policies against the industry average of 65%. The track record in the last 5 years is not very encouraging. What steps have you taken to improve persistency?
We have taken a holistic view and are focusing on distribution as well as simplifying products. Persistency is influenced by distribution and we have reviewed our distribution channels and terminated relationships with some of the insurance brokers and shut branches that were impacting our persistency.
We have also started tying up with banks because in the bancassurance channel, our persistency is upwards of 88%. In the agency channel, it is touching 70%, and this is a huge improvement from a persistency rate of 35% which we had a few years back. In fact, we are also investing in direct business as the persistency in this case is 80%. We also initiated a massive customer contact programme to improve contactability, updating records as this was one of the greatest hinderance in reaching out to the right party contact. We have also added multiple digital payment options, promoting automated debits and other touch points. For FY18, we expect persistency by number of policies to be near 60% and, at end of FY19, when our strategy will be fully operationalized, I am confident of achieving 75%.
What role can technology play in monitoring sales, thereby boosting persistency?
We have a mobile-based platform that connects all customer touch points and provides real time information of customer experience and feedback. So, every time a customer buys a policy or places a service request, she gets an SMS or a mail from us asking for feedback. This feedback is categorized and colour coded and gets assigned automatically to a pre-designated person who must reach out to the customer within 48 hours and resolve any concerns the customer may have. This entire activity is accessible to the management team to monitor. This has led to systemic changes as we are able to identify common pain points and rectify them promptly. We are now able to nuance problems across touch points, geographies, channels and products, even at agents' level. We are also investing significantly in digitizing our front line sales processes where our sales teams are being tab-enabled for consistent and controlled experience.
You spoke about simplifying products to boost persistency. How are you simplifying products?
We are catering to customer demand. They want more protection and so we are getting into protection products like term plans and health insurance. We have an online term plan that’s tailored to provide regular income so the beneficiaries don’t have to deal with lump sum. Recently, we launched a health insurance plan called Heart and Health that provides comprehensive coverage against 59 critical illnesses. Our Cancer Protect Plan is extremely simple and easy to buy digitally and it not only provides a lump sum payment on diagnosis but also gives monthly income for post-operative treatment. Even when designing traditional plans, we are looking at designs that fulfil a goal. For example, in our child plan, the policy term is 17 years minus the age of the child and this policy pays a fixed amount of money every year upon the policyholder’s death, which can be utilised to pay for tuition fee, while all benefits of the products remain as is. Persistency in these products, therefore, is upwards of 85%.
You have tied up with AU Small Finance Bank Ltd. How relevant are banks and agents for distribution given the rising popularity of online channels? Since protection plans and Ulips are sold online, are traditional plans still relevant?
Online is a great medium for awareness. Most people today research online, read reviews and engage digitally before making a purchase decision. However, about 90- 95% of the business is still sold offline. Of all the products that are sold online, a significant majority is tele-assisted, where a customer is being spoken to by a call centre agent. This is because of the nature of the product. But the digital medium is great to facilitate business and customer experience.
Online protection products are doing reasonably well and we see a similar path for health products and Ulips (unit-linked insurance plans). The common theme here is that these products are simple and easy to compare. But I also believe that traditional savings plans that are need-based and goal-oriented have a huge role to play in addressing financial needs of our customers. This has value for small savers and these customers will need advice and engagement which is why agents, banks and direct distribution will remain prominent.
Over the course of the past few years, bancassurance has been the growth driver of insurance business. We have accelerated our efforts to reach out to like-minded partners. Bancassurance gives us significant opportunity, as the penetration of insurance even among bank customers is still low.
The product committee report suggests in-principle that surrender costs need to come down to be in line with Ulips. However, the majority of the industry wants status quo. Which side of the debate are you on?
Surrender charges have long been debated in the industry. To my mind, there are three parts to this. One, for customers to stay invested we have to offer simple and efficient products and good quality service. Retaining customers only on the back of surrender charges is not sustainable. Two, insurance is a long-term financial instrument and that needs to be recognized. Insurers incur expenses upfront but recover it only over time, so persistency becomes key to profitability. Three, customers get attractive tax benefits on buying and on staying invested over the long term, so if the products are simplified, bought on the basis of needs or life-stage goals, and are tax-efficient, the need to surrender should not arise. We need to find an equilibrium between these variables and as such, I am favourably inclined towards a review of the surrender charges in traditional plans.