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Reimagining a digital future for a sector driven by relationships

It will be crucial for insurers to leverage digital capabilities to deliver a superior customer experience

As Indian businesses begin to unlock and acclimatise to a new normal, Bain and Co. reached out to several insurance firms to examine the impact of covid-19 on the insurance industry. Traditionally, it has been a high-touch and relationship-driven sector and, thus, the lockdown resulted in the loss of both new and ongoing businesses. Based on the feedback, we have identified opportunities that can boost growth through the digital acceleration of sales and access.

Until before the pandemic, the insurance industry was on track for a strong year in FY20. The life insurance sector was experiencing rapid growth having garnered 2.3 trillion first-year premium between April 2019 and February 2020, indicating 31% growth over the previous year. Non-life products were also faring well and grew by 14%, with 1.73 trillion written premiums.

The strong growth in life insurance products was particularly driven by protection (term) plans, using direct-to-consumer channels, home loan credit protect and NPS-linked annuity products. These also had a higher value of new business (VNB) margins compared with par and non-par products, and a change in product mix helped insurance firms demonstrate higher profitability.

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Within non-life, health insurance witnessed strong growth in individual and group plans. However, motor insurance sales continued to drag even in pre-covid times, due to the deceleration of automobile sales over the past two years, while own-damage premiums remained flat at about 24,000 crore. However, compulsory third-party premiums grew at 14% amounting to 39,000 crore.

Despite the implementation of essential services status, which allowed insurance companies to continue functioning even during the lockdown, the impact of covid-19 resulted in substantial declines across all products. Life insurance products declined by 25-35% in first-year premium collections, in each of the months starting from March through May. With agencies, brokers and banks operating with limited capacity, savings and investment products sale suffered, while an overall reduction in discretionary consumer spending contributed to the suspension of premium payments.

Credit protection plans contracted in conjunction with the slowdown in the realty market, while simpler products, such as term protection, also decreased.

Thus far, life insurers in most geographies have had limited exposure to covid-related mortality claims. However, this outlook could change if mortality rates remain high, or if there is an increase in direct claims.

General insurers may see little covid-related impact on their long-term outlook, given auto claims have reduced and other general insurance lines have been largely immune to the virus. In view of this, we expect the insurance numbers to bounce back from their April-May lows—while non-life and protection products could recover faster, savings- and investment-oriented life insurance products should follow through at a slower pace.

The key imperatives for insurers in a post-covid world are narrated below.

The focus should be on a balance of products in life insurance, with greater weightage to higher VNB margin products such as term protection and annuities. It will be crucial to leverage digital capabilities to deliver a superior customer experience with a focus on ‘simple’ products and elimination of friction points, such as medical tests and documentation, on the insurance purchase journey.

Insurers must establish online direct-to-customer channels to facilitate insurance purchase, policy administration and claims. Further, empowering agents, brokers and bancassurance partners with technology tools to enable digital-assisted sales will improve productivity and customer experience, and support remote customer contact.

Saurabh Trehan is a Partner and Ramganesh Iyer an Expert Partner in Bain & Co. They are leaders in the firm’s Financial Services Practice in India.

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