Home >Insurance >News >‘Digitization drive will help insurers cut costs’

Life insurers saw a sharp fall in premium collections in the March and June quarters due to the uncertainty caused by covid-19. The developments have given the much-needed push for further digitizing the insurance sector. In an interview for Mint’s Pivot and Perish series, Tarun Chugh, managing director and chief executive officer, Bajaj Allianz Life Insurance Co Ltd, shared his views on what has changed for the industry and the new normal.

Has the life insurance industry pivoted to a more digital ecosystem?

I’d say it only fast-tracked digital adoption in the industry. Digitization was taking place across companies; was the focus of the regulator and every process was being evaluated and redesigned to be adopted digitally. For instance, we have a 100% digital agency channel, which means that right from recruiting our insurance consultants to enabling them to get new customers on board, all happens digitally. With the lockdown, other processes, such as underwriting and meeting customers, moved online. We also saw several customers adopting digital channels to engage with us and service their policies.

What challenges did the industry face following covid?

As Lockdown 1.0 came about, there was a sense of panic, especially among customers. As an industry, we were well-positioned to manage risk and crisis, and this enabled us to quickly roll out business strategies which ensured the customers’ savings and investments continue with us towards their goals. On the customers’ side, the uncertainty led to them holding on to cash, for the here-and-now requirements, rather than continuing their investments towards long-term goals. This shift impacted the topline, and was visible in the industry’s Q1 numbers, with several players having negative growth, and a few of us having muted or flat growth. Having said that, as the industry responded quickly to the new normal that was emerging around us—from realigning business models, introducing new-age products, moving to digitization swiftly, and the regulator introducing customer-centric policies to meet the changing needs of customers—I hope the year will end with some positive changes.

In the June quarter, new business premium collection for life insurers fell 23.58% sequentially, and close to 19% from the year-ago. What were the reasons? Also, how will the drop in new business impact the industry’s investments in the equity markets?

The entire economy was impacted due to the pandemic. The uncertainty will continue to impact industries, including ours. The initial impact was seen in Ulips (unit-linked insurance plans) as the volatile markets dissuaded customers from investing in market-linked products. With no clear solution around the pandemic and rising cases, customers want to have liquidity in their hands rather than invest in long-term goals. Apart from the online channels, both agency and bancassurance channels have seen reduced business, as the channels require face-to-face interaction. The dip in new business premiums has impacted various aspects of the business, as well as investments in capital markets. Equity market investments by insurance firms have dropped by 25-30%.

Life insurers are witnessing increased demand for pure protection and guaranteed plans. Do you see this trend continuing in the post-covid world as well?

Today, customers have become more aware of the risks surrounding them. With this increased risk perception, customers are increasingly buying protection plans. In the quarter ended June, our term mix in the number of policies went up to 37%, from 11% in the previous quarter. Further, the volatility in global and domestic markets has made customers more cautious, resulting in them looking for some guarantees. So, we are seeing an increase in guaranteed plans as well. Life insurance is now moving to a slightly nudge product from a push product, which means many more people are proactively enquiring about life insurance. This changing customer perception has seen customers renew their policies and this would continue post-covid as well.

What kind of products will life insurers launch to shift their focus, and what will this shift mean for the industry?

On the product side, with the current level of uncertainty, and the increased risk perception among customers, guaranteed plans, as well as term insurance, will continue to be the customers’ top priority. Health insurance, too, will make a good part of customers’ portfolio now. One must note that with term plans, there will be a significant increase in volumes and not proportionate increase in value because the ticket size of term plans in India is typically low. If markets move in the desired direction, I believe it would mean Ulips will also make a comeback. This would mean well for the equity markets. With the ongoing digitization drive, we will see some cost-saving for companies, which could reflect on their profit margin.

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