How is the ongoing covid-19 crisis expected to impact you in terms of persistency and new business?
I think both persistency and new business are equally important. We will have to see how persistency evolves. The regulator has given grace time for people to pay their premiums and, therefore, we are all extending the timeline. Companies that are more digital and are connected with their customers through the lockdown and beyond will fare better. For new business, too, insurers who have a seamless on-boarding journey will succeed. Right now we’re in a period which is beyond preparation so anticipating everything may not be possible.
We started planning much before the lockdown was announced. We’d also started working from home before the announcement so we were more equipped. We came up with an app for customer servicing and in the last one and a half months, its usage has gone up by over 30%. I think this is a big reason for customers to come back to us. A large part of our business comes from agents, but the tide is now shifting a bit. Other channels, particularly bancassurance, are becoming important and online is picking up. So there is definitely a change that is taking place in the industry.
Will it become difficult to channelize household savings into insurance products due to the impact of the pandemic? Also, are you facing any surrender pressure due to the liquidity crunch that policyholders could be facing?
Yes, there might be some impact on how people save. Earlier, we’ve already seen one shift from real estate to financial products and we believe that people will now think more about saving. I know this is an unfortunate situation, but the number of protection policies that we’re selling has gone up by a huge amount. A lot of it also depends on customer needs. If a customer shows some intention, the agent tells him that this is the time to invest in linked products because the market is down. Therefore, I think there still is a segment, which is looking at unit-linked policies.
Having said this, term plans are becoming popular and there are some limited payment options in these, so people will choose that if they want to pay for five or seven years and get a cover.
In terms of surrender pressure, I don’t see a worsening trend. We do have requests, but I don’t think it is unnatural. We also have solutions for this problem. In case you need some cash, you can take a loan against your insurance policy, something which a lot of companies do, while the policy continues. So you still have the cover and you also have the money when you need it. We’ll have to see how things shape up if the present situation continues.
Term plan premiums are set to go up considerably with some companies already re-filing their products. Why is that and by how much could the premiums go up?
One of the primary reasons for this is the reinsurance companies resetting the rate, which has impacted the entire industry. Our understanding is that term products are new to India in some sense, so the experience so far, given that the rates are much lower than some of the developed countries, is that it was reaching a point where resetting was the need. In terms of changes, it depends on how much each company moves. We are still in discussions with the regulator right now, but my view is it will go up 20-30%.
Having said this, I think these are products that insurers should be selling aggressively and they will become more popular. In fact, insurers are coming up with various options within term plans. The premiums will still be affordable for people to buy decent covers.
What will change for the industry post the lockdown and will a crisis of this scale push life insurers to finally change the way they work?
Absolutely. From a customer point of view, we’ll have to look at product propositions, solutions and value-added services for customers. We’ll also have to become more nimble and agile while reaching out to customers and getting things done. Data and digital will have to become the focus. There’s a saying: It’s not the big that eat the small, it’s the fast that eat the slow and I think this is what we need to understand. Most insurance companies are big, we have hundreds of systems supporting us, we have a big infrastructure but going forward we’ll have to think differently.
0ne of the things all of us will have to look at is the fixed cost. For example, before the lockdown, I was looking at expanding office space in Gurugram because we’ve got more people now but now, I’ve changed my mind. We’re not going to take up any additional space post the lockdown. Instead, we’re asking 15-20% of our employees to work from home. Many tech companies have been doing this for a while, but for an insurance company like ours, the realization is setting in now.
We need to think differently and act differently now. There is research after research saying that face-to-face interaction is a must for insurance business. But now, the definition of face-to-face interactions will change as people get used to technology. Companies will then have to be available more on mobile phones and other digital media.