~ Easy to understand and easily claimed products the need of the hour ~
“The insurance schemes launched by the Prime Ministers created the kind of growth in months what has taken the insurance industry years. There is a hint in it as to what the industry needs to do to create growth and appropriate value,” said Mr. T S Vijayan, Chairman, Insurance Regulatory & Development Authority of India at the 17th edition of CII’s flagship Insurance Summit. The theme for this year was ‘Building Growth, Building Value’.
Explaining this, Mr. Vijayan said, “The trick is to make appropriate schemes easy for customers to understand and if the need arises, to claim it. The purpose of the industry is to cover risk and ride on platforms already created. The Prime Minister’s products did this by responding to the ecosystem available. The industry needs to do the same.”
Value is determined by how the money that a customer is paying, is apportioned to cover distribution cost, capital cost, processing cost etc. and how much of it goes to balance premium for the purpose it is paid. The proper appropriation of the proportions for all stake holders will ultimately determine value for everyone. At IRDA disruption is not our aim. We want to bring about gradual changes to give value to all stake holders.”
Asking the companies to expand the market he said, “There is enough money. Companies should work to aggressively expand the market. If they are reluctant to do that, we might need to look at alternate ways. Because India needs insurance, people need insurance.” Highlighting the PM’s insurance schemes he said that audiences respond to simple schemes where they can clearly know the conditions, what they are paying and how they can claim it. The ecosystem created by the PM’s schemes will enable the insurance companies to increase the vital matrix of Sum at Risk as a percentage of GDP which currently is around 70% whereas in developed countries like Japan, this ratio is as high as 350%.
He added, “Ecosystem is changing and the regulator is here to support the entire process till claim-clearance. We cannot remain immune to the changing ecosystem, changing time, and cannot talk about the past because what is available now was not available in the past.”
The IRDAI Chairman said that he believes that distribution cost is not maximum load on Insurance companies. The load is created by low volume of business given the fixed cost incurred in building the distribution. Volume is the key to all profitability problems in insurance. He hoped that adoption new technology, easily understandable products, easy to claim and unambiguous products, will help them do this.
Mr S K Roy, Chariman, Life Insurance Cooperation of India, giving numbers, explained how the industry reached a peak in 2010 but has tapered down since. “In March 2002, the number of individual agents associated with life insurance were 8,26,000 which reached a peak of 29,00,000 in 2010 and is now 21,88,000. This is not the cause, but effect of low growth.”
He added, “We can’t plan for building growth or building value. We have to plan for growth and value creation together at the same time. Maybe in the past we did not see both together. We grew but maybe some stake holders felt that they did not experience value proposition that they were looking forward to. Perhaps this is one of the reasons that we experienced a slump.”
A CII-Ernst & Young report on the theme of the Summt: “Building Growth, Building Value” was released by Mr. T S Vijayan. The report traces the change in the trajectory of demand for insurance in India, the regulatory environment and points out what the industry needs to do to improve growth and value for all the stakeholders concerned.
Earlier in the morning, Mr Sanjiv Bajaj, Summit Chairman & Chairman, National Committee on Insurance & Pensions, CII, laid the foundation for the Summit when he said, “The market has expanded and given each one of us more than enough room to prosper. Solvency is far in excess of minimum regulatory requirements. We made some mistakes and the slowdown of the economy hit us hard but the regulator stepped in and the life insurance sector responded by realigning well. The onus is clearly on the industry to realise its full potential in the coming years.”
He acknowledged the sound performance of Public Sector Insurance companies both in Life and Non-Life sector as since privatization, these companies have shown consistent growth. As per Mr Bajaj, the market today is truly competitive both for Public and Private players.
He added, “From channel centric, products need to become customer centric. For the lower segments of society we need to make special products. Non-life products need to meet multiple needs of the consumers while more low cost health products are needed. All this needs simplification of product, simplification of buying and minimising paperwork for the consumer.” `
As per Mr Bajaj, for different stakeholders, value has a different connotation. For customers value is what he gets in future for the needs insured. For distributors value comes from long term sustainable and renewal business, while for shareholders value emerges from reasonable Return on Investment. Value for Regulator is created when an enabling framework is created which will enhance financial inclusion and provide adequate coverage.
Mr Rajesh Sud, Summit Co-Chair & Co-Chairman, National Committee on Insurance & Pensions, CII said, “Context has changed. Where the industry was 5 years ago to where we are today is significantly different. That is what makes the future so exciting. Yet, product is always central to what we do. To get value, start with the end in mind and work backwards.”
August 21, 2015