The Indian insurance industry has undergone transformational
changes since 2000 when the industry was liberalised. With a one-player market
to 24 in 13 years, the industry has witnessed phases of rapid growth along with
extent of growth moderation and intensifying competition.
There have also been a number of product and operational innovations
necessitated by consumer need and increased competition among the players.
Changes in the regulatory environment also had a path-breaking impact on the
development of the industry. While the insurance industry still struggles to move out of the
shadows cast by the challenges posed by economic uncertainties of the last few
years, the strong fundamentals of the industry augur well for a roadmap to be
drawn for sustainable long-term growth.
The decade 2001-10 was characterised by a period of high growth
(compound annual growth rate of 31 percent in new business premium) and a flat
growth (CAGR of around two percent in new business premium between 2010-12),
according to KPMG.
There was exponential growth in the first decade of insurance
industry liberalization. Backed by innovative products and aggressive expansion
of distribution, the life insurance industry grew at jet speed. However, this
frenzied growth also brought in its wake issues related to product design, market
conduct, complaints of management and the necessity to make course correction
for the long term health of the industry.
Regulatory changes were introduced during the past two years and
life insurance companies adopted many new customer-centric practices in this
period. Product-related changes, first in ULIPs (Unit Linked Insurance Plans)
in September 2011 and now in traditional products, will have the biggest impact
on the industry.
NEW PRODUCT GUIDELINES
The new guidelines for both linked and non-linked products
will now come into force from the beginning of year 2014, an extension of three
months from earlier specified date. This additional period will ensure that
life insurers enter the crucial quarter of Jan-March with a full bouquet of
products and the sellers are well trained in the nuances of all these new
products.
These product guidelines are in line with the IRDA's regulatory
theme of customer orientation and long-term nature of the life
insurance in India business. The guidelines follow two overarching themes
of providing Guarantee and enhancing Transparency. The major changes introduced
include - Higher Death Benefit, Guaranteed Surrender Value and mandatory
Benefit Illustration for all life insurance products.
The changes related to death benefit and surrender value may
marginally reduce the customers' overall maturity benefit, i.e., policy IRR,
especially at higher ages but will ensure that life insurance serves the
purpose of providing life cover which no other financial instrument offers.
All ULIPs are currently sold mandatorily with a personalised
Benefit Illustration. This requirement is now being extended to other product
forms. The new guidelines have also provided for setting up a "With Profit
Committee" at the board level.
While personalized benefit illustration will provide for greater
transparency in the pre-sales discussion, the With Profit Committee is likely
to lead to greater governance in the administration of Participating policies.
Premium paying term linked distributors' commission will promote the long-term
nature of insurance products.
FUTURE LOOKS GOOD
India continues to be a country of savers though we have
witnessed a decline in the household savings rate in the past couple of years.
In India, the problem lies in household savings lying idle or getting invested
in saving instruments that do not help them achieve their life stage goals.
There is a worrying trend of larger portion of household savings getting into
non-productive physical assets such as real estate and gold.
But even then, the future looks interesting for the life
insurance industry with several changes in regulatory framework which will lead
to further change in the way the industry conducts its business and engages
with its customers. World over it has been observed that the life insurance
industry does behave in a counter cyclical manner in many cases, e.g., in a
situation where the economic growth is slowing down, due to other factors such
as high current account and fiscal deficits, currency depreciation, high
interest rates, savings rate will continue to be high, leading to higher demand
for life insurance.
Life
insurance is a big savings vehicle along with banking in such uncertain
economic environment and so we expect the industry to fare reasonably well.
Demographic factors such as growing middle class, young insurable population
and growing awareness of the need for protection and retirement planning will
also support the growth of Indian life insurance.
For life insurance, it is time to re-commit itself to customer-centric
behaviour, product solutions based on consumer needs, ethical market conduct,
transparency and governance. The growth will be the natural outcome for now and
years to come.
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