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Life Insurance - To Grow, Life Insurers Need to Focus on 3 Areas

26 Jun 2013

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Life insurance is inherently a business of trust between the insurer and the insured. Despite an optimistic start in the early part of the century, the industry has squandered away a golden opportunity to build trust. In fact, there has been a deterioration of trust. This has resulted in new inflows into insurance products declining over the past few years. While earlier, only private players saw decline in new business inflows, in FY2012-13, even the public sector behemoth, LIC, reported a decline in new business.

The roll-back of insurance branches post the imposition of charge caps on unit-linked products has left the space open for unorganised or local players such as chit-funds, many of which offer risky investment schemes and operate out of regulatory oversight. High inflation resulted in lower savings, and demand for physical or real assets such as gold and real estate remained high in this period. The industry has to reinvent itself to stay relevant to customers and distributors given the pace and magnitude of changes. Our experience at HDFC Life makes us believe there are three key areas for insurers to work on:

RE-ESTABLISH AS A PROVIDER OF UNIQUE, LONG-TERM FINANCIAL SOLUTIONS

Life insurance offers products that mitigate risks of consumers from cradle to grave (and their loved ones even beyond that time horizon). From covering the risk of dying through a protection plan to covering the risk of living long through an annuity product, life insurance provides it all. Many intermediate needs such as wealth accumulation and children’s education are also met by these products. Life insurance thus is a unique set of offerings that promote long-term disciplined savings, providing reasonable rewards in return. Selling these intangible ’promises’ is, however, far more difficult as the natural demand from consumers is not significantly large. This is reflected in the low levels of protection of the country’s population at large. A first step in moving ahead is for the industry to return to the ‘core competency’ of selling products of a long-term nature and, thereby, not competing with other asset classes directly. This also means selling more protection-oriented products such as term, health and mortgage protection policies. The return of pension plans, which serve a long term need, after a lull of nearly two years, would also make a difference. Thanks to regulatory action, most products today are more attractive to consumers than before. It is now up to the insurers to understand this zeitgeist.

PRACTISE CUSTOMER CENTRICITY IN THE TRUEST SENSE

Increased competition, improved financial literacy and the digital world have collapsed the gap between the manufacturers and the buyers that existed until a few years ago. Many distributors fall short of convincing customers about the need for life insurance products, leading to low conversion ratios. On occasions, limited knowledge levels of either the product or the customer need lead to downstream grievances. Some of these issues need to be addressed on a war-footing. The only way to rise up to this challenge is by practising true customer-centricity. This means conducting need analysis through technology-enabled financialplanning tools and offering customers a key features document or a most important document to explain product details. Tele-verification of customers during the on-boarding stage would also help increase customer comfort. Customer-centricity should reflect in the products at the design stage as well. At HDFC Life, we have taken steps in this direction and come up with specific products for young aspirants, urban women and wisdom investor segments. The principles of customer-centricity need to be embedded into the culture of the organisation. Insurers also need to work with partners to put in place more stringent risk management practices to avoid instances of mis-selling and unethical practices.

INNOVATION IN DISTRIBUTION ARCHITECTURE TO MAKE SALES CHANNEL EFFECTIVE

Given the product charge structures, insurers need to increase the efficiency of the distribution channels and improve competency levels to achieve the desired productivity levels. The traditional tied agencies has been going through a phase of decline for most private players. Hiring new agents is tougher due to stringent licensing criteria and activating old agents is tougher due to reduced compensation structures. A new value proposition would need to be created to attract productive agents. Strong analytics support can help insurers mine existing customer database better and cross-sell, upsell to these customers based on their lifecycle needs. Insurers have the scope to leverage existing bancassurance tie-ups and drive penetration through existing white spaces. The online segment is growing at a scorching pace with many customers opting for a DIY (do-it-yourself) approach For an online customer, parameters such as service quality, seamless online experience, insurers brand and claim ratios are significant.

Overall, insurers need to move towards a scientific approach with a greater focus on technology, partner integration and daily sales management of key performance metrics. Given the pace and quantum of changes, moving forward on the three themes requires a fine balancing act. The faster the industry moves forward, the earlier it would reach a stage that allows for greater self-regulation and an increased focus on market development. The alternative is continuing to operate in a prescriptive regulatory environment. This is a choice that the industry needs to make if it wishes to switch to a sustainable growth path.