In the last decade, the insurance industry has moved forward on multiple fronts. We have seen enhanced penetration, increased coverage of lives, varied product basket, shift in distribution channels , enhanced reach, significant improvement in service infrastructure and increasing competitiveness of the market. The year 2010 -11 was momentous in the history of the Indian life insurance industry, much akin to the year 2000, when it was opened up to private players.

While the industry did miss the heightened activity and buzz in March, it has completed a year since the game-changing regulations were announced. In hindsight, these helped raise the bar and leverage the long-term prospects, especially from the lens of a consumer. While the insurance industry witnessed one of the fastest set of regulatory changes ever seen by an industry of this size, it also stimulated the players to go back to their drawing board and start afresh.

Opportunity

Every year, Rs 600,000 crore of household savings is being invested in financial assets, of which close to 20 per cent go to insurance. Insurance serves as a key support for the financial services sector and life insurance is likely to grow well beyond the 13 per cent nominal GDP growth in the next decade. With a massive population base and huge untapped and under-penetrated market, the life insurance industry has tremendous opportunity in India. India, today, is the fifth largest life insurance market among the emerging insurance economies globally and has grown at 25 per cent CAGR since the market opened up for private players in 2000. In FY-2020, the insurance market could be six to eight times the FY-2010 market. It is also projected that by FY-2020, India will be one of the top three insurance markets, behind only China and the US.

The way forward

The path ahead

The insurance industry managed to overhaul its operating model since September 2010. Some of the areas where changes are expected are:

More balanced mix of ULIPs and traditional products in the product portfolio. Single premium, structured products, health and pension products to suit various life and savings needs of the customers will be crucial, going forward.

The agency model of distribution will need to become more efficient, productive and innovative. The role of Bancassurance and larger broking houses is expected to increase in the months ahead. Cost-effectiveness will drive the growth of alternative channels such as Internet, direct marketing and variants in agency channel.

Players will have to continue to rationalise costs by incorporating e-issuance of policies, straight-through processing and increased process optimisations to provide cost-effective customer service.

Players will have to adopt refined customer segmentation strategy to deliver effective sales support to customers. While customer retention remains a function of various parameters, thorough segmentation and subsequent product sales pitch will go a long way in building a customer base.

Greater operational efficiencies are future engines of growth. Sales will be enabled by simplifying products and selling through online channels. For example, what was earlier a ‘pure-term' plan, bundled or sold as cheapest term plan, will have to be simplified as pure term plan and sold almost ‘exclusively' through internet.

Players will have to leverage Internet and other technology options to provide single window service so as to cross-sell and retain customers. It will also be easier and cheaper for them to process requests, complaints and payments online. Accelerated claims settlement process and rapid customer service will continue to remain the key strengths for the players.

Provision to fix guarantee on maturity and elimination of the minimum guarantee of 4.5 per cent in unit-linked pension products is definitely an encouraging move by IRDA for pension products. This allows increased flexibility to launch innovative products in this category and helps insurers build gainful corpus for the customers, while providing better returns on new ULIPs pension plans. Pension, as a category, continues to remain the focus segment for the industry in the fiscal.

Insurance penetration levels in rural India are very low — which makes these areas an emerging and promising market for insurance players. Bottom-of-the- pyramid products such as micro-insurance will have to be the order of the day. There is immense scope for selling through telecom franchisees, NGOs, RRBs, co-operatives, post-offices and MFIs. It will be worthwhile involving the unbanked population through flexible premium paying products and community based policies. An extensive rural agent network for sale of insurance products needs to be established.

All players will need to continue to take up multiple initiatives with support from IRDA to increase awareness on the need for life insurance. Even the level of insurance coverage for insured policyholder is very low and, thus, a huge opportunity lies here for the industry to tap

With the ongoing work at IRDA's end on IPO guidelines, companies will have to get ready for listing. This means many more disclosures, further transparency and additional corporate governance.

(The author is Chief Financial Officer and Institutional Sales Head, Birla Sun Life Insurance.)

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