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What do you think of Irdai’s proposal on increase in surrender charges?
It’s a customer-friendly move, but in the short term, the industry will face challenges. There will be a rebalancing from a commercial perspective because there will be lesser left for the distributor and manufacturer. We will have to make products more customer-friendly because only then will insurance penetration go up. It’s a step in the right direction and the sooner we accept and manage it, the better it will be.We are giving all our partner-manufacturers the confidence that the entire margin hit will not be taken by them alone. We will also absorb the margin. There will be an impact on distributor payout also and not all distributors will be forthcoming in accepting this change. So, of course, there will be a balancing act and it will happen in two or three stages. It may not be factored in fully in this particular change, and may take another iteration or so for it to happen. From the industry perspective, there have been a few shocks in the recent past (Rs.2.5 lakh limit on Ulips, Rs.5 lakh limit on traditional plans), so absorbing a shock every year becomes difficult. The industry will accommodate and adjust, but it will happen over time.
Are people informed enough to make online life insurance purchases from aggregators like Policybazaar?
If you are coming to an online platform on your own, it suggests you have the ability to make an online purchase, which is an indicator that you are Internet-savvy and educated. So everything has to be written on the platform because we are not depending on an individual to communicate. Product features are mentioned on the website and enough literature is available to make an informed decision. The information is nonjargonised and in a language that is easily consumable for a layman. Plus, assistance is provided on recorded calls, so we ensure that the information is factual and correct.
What is the percentage share of life insurance plans sold on Policybazaar?
Nearly 40% of our business is term insurance, and of the remaining 60%, almost 90% is Ulips and 10% is non-participating plans.
Why is your term plan sale much higher than traditional plans, which is the case for most life insurers?
There was a reason we started Policybazaar. Our vision on protection is very clear and we invest a lot in it. Unlike most distribution houses, where the same adviser or agent is tasked to sell life insurance, we have an earmarked term department, which is an independent entity that only sells term insurance. So you cannot substitute term for any other product. Almost 25% of the country’s retail term plans are bought through Policybazaar. Manufacturers also depend a lot on Policybazaar for term insurance sale.
We do not sell participating plans because customers do not understand these fully and it’s subject to misselling. Ulips make for most of our sales because we sell for the long term of over 10 years, and there is no negative 10-year cycle in the market. Ulips have a very low margin, but we are able to sustain because we sell in volumes. We’ve been in operation for 15 years and have broken even for the first time in the last quarter. It’s a long-term game for us.
On the non-participating side, tax was one reason people were buying these plans and that’s not a sustainable reason to buy. The product should be able to stand on its feet. Along with Ulips, annuity is a customer-friendly product. We are trying to see how to sell annuity, though we have younger customers because of the online buying mechanism. We are releasing a TV campaign on retirement and, if it does well, we should be able to get more customers above 45 years.
Won’t you face competition from the NPS?
NPS is a good product, but it’s just accumulation and then it invests in annuity. People know of the NPS because of tax benefit, but Rs.50,000 is not a meaningful amount. The people who are serious about retirement are not attracted by Rs.50,000. They plan how much pension they need and invest accordingly.
What innovations are likely in life plans?
One thing that the life insurance sector wants to do is health insurance. There are, of course, indemnity plans that health insurance companies sell, but there are critical illness benefits that life insurers can sell. An indemnity plan can cover you for Rs.10-20 lakh, but if you have a serious illness like cancer, for which the treatment cost is very high, having a specific cancer cover is a good idea. Through life insurance fixed benefit products, you can buy a large cover at a very reasonable price. If you see globally, life insurance companies sell health, and general insurance is a different category. So health is a big area that remains unexplored.
The other area is retirement, with a lot of scope for innovation. Companies are launching annuity plans where you can surrender the plan and get 100% of your money back. There’s something called balance of premium, where the amount you invest in annuity will come back to you even if you die early. So a lot of creativity and innovation is required because our industry has not really focused on pension and retirement.
What’s the average size of term plans sold?
The average life cover we sell is Rs.94 lakh, up from Rs.87 lakh two years ago. A lot of people also buy Rs.1 crore cover even though they have high incomes. The thumb rule is to buy a cover that is 10 times your annual income, but Rs.1 crore has become a number to go to and people are underinsuring themselves. So we are trying to educate them to buy the right amount of cover.
Most products we sell are to salaried individuals, but now we are trying to insure the self-employed, where penetration is very low because we ask for traditional income documents. We’re trying to arrive at the right income through surrogates of lifestyle, credit score, etc. The other area is to give term insurance to women, especially housewives. We should acknowledge that they generate income, maybe indirectly, and add value. We’ve seen a healthy shift from 7-8% of women buyers to 13% at this year’s exit.
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