Andrew Byrne, who has worked in the financial services industry for over 25 years, was appointed as the chief executive officer of Aegon Asia in 2016. In an interview with Mint, Byrne talks about what the digital wave means for the insurance sector, and raises concerns about the lack of discipline among agents in India when it comes to persistency or renewal of insurance
What are the global trends in insurance, especially in the insurtech space. Where do you think the Indian market is at when it comes to adoption of technology?
You talk to any insurance company or financial services company, they’ll all have a digital strategy. They’ll talk about an app to bring customers on board or an app for their agents for distribution. The digital transformation across the globe is a fantastic thing for the financial services industry. It provides, for the first time, real power to consumers to compare products, access more information and purchase products from wherever they are. Digital presents an opportunity for better customer outcomes and makes services better.
Digital financial technology innovation has grown rapidly in many Asian countries, and particularly in India. This new age in the banking ecosystem offers many exciting opportunities, which is why we focus on becoming a part of this technological transformation.
In India, Aegon Life Insurance has cut costs by going directly to customers instead of employing agents and intermediaries. How sustainable is this model?
It is a sustainable model. Over the years, we found that our ability to ensure quality and consistency of service to our customers was getting difficult because of the third-party agency model. We received various complaints about the quality of general service we were providing; so the management decided to exit the agent-led route of distribution and focus on reaching the customer directly. By doing so, we can ensure the quality of services and it also gives us the opportunity to get direct feedback from customers which helps us better the products we offer.
You have adopted the direct sales route in India, but globally you engage with agents. In fact, the industry believes that agents are integral to distribution. What’s your view?
My general view is that there will always be a mix. This is because there certainly is a place for agency distribution. There is no way agency distribution has or will disappear, particularly for complex products like life insurance.
If you look at Indian numbers, over 90% of people do not have insurance. This shows that something is not right. Consumers are smart and if they are choosing not to buy, there should be specific reasons. I think the reasons are access and whether they are being offered the right products. The products being offered are suiting only 3%, which is predominantly channelled through the existing agent distribution or bancassurance.
It’s unlikely that in the short term, agents will become redundant, but there is real opportunity to serve a significant part of the market that does not have access to quality products at the right price through technology. In fact, technology can help understand customer needs and meet them in a cost-effective manner. We are seeing a lot of positive signs. But that may just add more competition in terms of ensuring the quality of service and products.
How can technology play a role in bridging the huge insurance gap that exists in India, cutting costs and ensuring suitable sales? The intermediary model hasn’t worked on these counts so far.
The reason we exited the agency channel was because we couldn’t find a way to ensure that customers were being delivered a fair outcome. The digital and direct strategy can provide a solution, though there are challenges. It’s expensive to talk and deal with a customer directly. It costs as much as dealing with an agent because of all the digital advertising exercises. We are tying up with digital partners who have enough data and are able to nudge the customer at the right point of time. I think this is the next stage of digital and we are gearing up for this. If you step back and think about the way distribution has worked in the past, agents or banks would not sell if the commission wasn’t sufficient to justify their time. What digital offers is the ability to design products which the market really needs with lower average premium size, faster access and, for many market segments, by providing better value for products.
Incentives is one reason why insurance is not sold or even serviced for the long term. Commissions in India are front loaded. How is this structured abroad? How do you tackle with problems of lapsation in life insurance?
Insurance is a long-term contract which you have with a customer and acquisition is just one part of the process. Then there’s sustenance of the customer which comes along. What we’ve seen in India, which is slightly different from other countries is that even if the commissions are front-loaded in other countries there is a lot of discipline around getting better persistency and getting the policies renewed; when this doesn’t happen, there are repercussions which agents have to face. This is missing in India. Here you can see that there are upfront commissions but sometimes these commissions are funded out of poor experience for the customers which basically results in lapses, and these products end up providing just for the distributor and not for the insurer or the customer. I think this is the key difference.