The Insurance industry, specially the Life Insurance
industry in India has been going through a bad time. Revenues are declining at
about 6% every year, customer retention is low and profitability is a long way
off for many. Why should this happen in a country with a growing population where
less than 10% of the people have life cover?
Is it all the regulator’s fault as a large section of the industry would
have us believe?
In my opinion there is a fundamental gap between what the
general public needs and what the insurers want to sell. Life insurance is needed to cover two risks;
one is dying too young and other is living too long. You cover the first risk through term
insurance and the latter through an annuity pension product. The premiums for term plans are low and it
takes more effort to make a sale. So the insurer puts less emphasis on these
products.
What the insurers want to sell instead are products that
involve a large element of investments along with insurance (ex: endowments and
ULIPS). These have much larger premiums and hence generate more money for the insurer.
While the stock market was doing well, it was easier to sell these. In reality most of these products neither
offer adequate protection nor do they offer enough return on investments. This reality has now caught up with the
insurers. No amount of pushing and
aggressive sales can obfuscate this reality. After all you cannot fool all
people all the time.
So why do Insurers not switch to selling products that
people need? One part of the answer lies
in the mind-set of the Insurer and the other part is a problem of distribution.
Most industry executives believe that one cannot build a profitable business
through term products. They have been too used to large premiums during the
good years of the last decade. It is difficult to admit and accept the new
reality of lower revenues and a smaller organization. It is much easier instead
to flog your sales force and blame the regulator. But there is no running away
from this reality. A brave executive who accepts this reality and will work
with it can build an organization that will cater to people needs and provide
sustained profits. While the revenue per sale may be lower there is a vast
untapped market to be exploited. Done correctly it will provide people with
much needed protection as well as profits for the insurers.
The second problem is one of distribution. As the premium
tends to be low for term insurance, the agent needs to expend much more effort
to gain the same amount of compensation. The solution lies not in higher
commissions and glossy sales pitches but in a looking for alternative channels
like online sales. The insurance
industry needs to learn what the car industry learned a long time back: aggressive
in-your-face sales is not often the best option. Conversely, a product that people need will
sell even without pushy sales. Good
online channels should provide the customer with all the information he/she
needs to make a decision and allow the customer to decide on the merits of the
product.
Any sustainable business needs to cater to needs to the
people. If insurers re-align themselves to the needs of the people, people will
be willing to pay for their needs being fulfilled. That in my opinion is the
only path to a sustainable business.
