Most Indians are risk-averse, so traditional plans may be better suited for long-term goals compared to market-linked products, avers Rajesh Sud, CEO and MD Max Life Insurance. Excerpts from an interview.

Has the consumer interest in ULIPs and traditional products increased after the reduction in their charges?

There has been not been any change in consumer interest in these products in the positive direction. It may have even abated a little bit. Every time there is a large-scale change induced in products from a regulatory angle, there is some uncertainty and apprehension for consumers.

Are term plans that offer periodic payouts instead of a lumpsum a good option?

When we launched our term plan, we did a survey on what consumers wanted the most from their plan. Most of them said they were worried about what would happen to their spouse financially after they are gone. So instead of offering a huge lump-sum, which your spouse may not be able to manage, a monthly or yearly payout helps him or her manage it more easily. There are guaranteed increases in payouts as well.

Markets have been volatile in the last six years. ULIPs have seen a lot of value erosion. Are you changing your product mix?

Post the regulatory diktat in 2010, after ULIPs lost value and charges were reduced, we did a study with our customers. Most of them seemed to prefer life insurance polices that offer steady, even if low, returns on the products rather than those that are volatile and can offer higher returns. We have kept that inference and stuck to it.

Hence, we have seen a shift in preference to traditional products. These are best suited for long-term goals of 10-15 years at least.

Financial planners say that traditional plans give the worst combination of low returns and poor insurance cover. Should consumers at all be looking at traditional plans as a part of funding long-term goals?

Which investment has beaten inflation in the last six years? Except for possibly real-estate, the answer is none. And that comes with liquidity risk too.

Indian consumers' preference is safety. So the trade-off is on returns. We are a risk-averse country. For typically long-term goals of 15-25 years, there are no specific debt products that assure safety and some returns. Traditional life insurance products can help here. More so, as we can never be sure about when an unfortunate event may happen.

It also would be unfair to compare traditional plans with any other market-linked product. The cost of protection in the product has to be borne. It is true that insurance products are 'sold'. But we need to have an intermediary who has to be motivated enough to sell the product.

If you take a long-term view beyond five years, the charges in life insurance products are almost equal to what mutual funds charge. We also have a 20 per cent rural quota to accomplish, which mutual funds do not. There is the cost of education and distribution as well.

Won’t buying term insurance for cover and investing surplus in other instruments such as mutual funds be a better idea?

It is an intellectual argument. ‘Buy term insurance and invest the balance’ has not, and will not, work in India. Not just in India, even in the most evolved of markets, it hasn’t worked that way.

Investors are certainly not so financially disciplined and well-informed. But life insurance inculcates financial discipline as you make a commitment to a specified goal.

Insurance products are still quite opaque in their disclosure…

Transparency has improved a lot from where it was 7-8 years ago. We are a relatively younger industry compared to mutual funds. If you compare us 20 years later, then it would be fairer.

We give illustrations to consumers which mutual funds (including debt funds) do not. Also, if policy holders do not make money, even shareholders of insurance companies do not make money. So our goals are completely aligned with the interests of the policyholder.

As an industry, we have put huge amounts of capital for solvency and there is a cost of capital. Relieve us of that, and even our products will appear a lot cheaper.

We also have to take a 20-year call on interest rates and also give guaranteed additions. There is a cost to it.

Most investors may not even care about transparency as they place trust on fund managers. Who cares about monthly fund statements?

Most cases of mis-selling happen in banks. How are you addressing this?

We make calls to all our bank customers to check if they have understood all the product features well and have bought it for the right reason. Consumer complaints are seriously looked into. We red-flag it when an unsuitable product has been sold to a customer. At the CEO level, we do a governance meeting periodically with the bank.

Bancassurance accounts for 50 per cent of our sales.

Our persistency ratio with Axis Bank runs at 81 per cent, which is higher than the company average (78 per cent). So we are focused on making the right kind of sales.

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