2011 has been an eventful year for the insurance industry and the policyholders both. The regulator has launched a slew of changes and guidelines which have positively impacted the sector in terms of making products and processes more transparent and consumer friendly. As a result, these guidelines have defined the trend for the industry in terms of products, distribution and services.
IPO Guidelines for Insurance Sector
The regulator introduced the IPO guidelines for the insurance sector which will help insurers plan their capital raising strategies. More capital would mean more investment in technology leading to higher quality of customer service and more investment towards product development.
As the companies who are going for an IPO will have to mandatorily disclose a record of policyholder protection and pendency of complaints for the last 5 years, we will see a lot of work by all companies in this area leading to improved health of the overall sector and routing out of issues such as mis-selling.
Pension Products more Transparent & Consumer friendly
In another move, the regulator has sought to control pension products and make them more transparent and consumer friendly. By dropping the 4.5% guarantee on pension products, the regulator has delinked pensions from the reverse repo rate leading to possible revival of the overall business. In their revised avatar the pension plans seek to ensure that the maturity benefit will have a guarantee of some sort embedded within the product. Also between 2007 and 2011, the percentage of consumers who indicated a need for retirement plan has increased by 15%.
Emergence of online distribution channel for term products
One of the biggest trends for the insurance sector has been the emerging online distribution channel for term products. With over 112 million people using the internet, this channel is likely to grow exponentially with insurers beginning to offer ULIPs as well.
The online term plans are cheaper due to lower distribution cost and presumed better quality of life insured. Due to lower costs, people are able to afford life cover of Rs 1 crore and above at as low as Rs. 8000 approx. What we now see is more awareness about the basic form of insurance and more and people are protecting their families against any unforeseen circumstances leading to a rise in the overall protection business.
This is just the beginning as we will be seeing more action in this space as more companies launch products and improve the overall experience of purchasing online. Hence in near future, price will not be the only reason why customers would choose a particular company. The overall customer journey from right advice, to simplistic purchase experience with jargon free documentation and of course the claims experience would be the deciding factor for purchasing a product.
Open Architecture Guidelines for Distribution
The introduction of the draft Open Architecture guidelines has also set the tone for a new trend in distribution. Open Architecture could enable an insurance company to offer its products at any branch of any bank across the country, through multiple tie-ups.
This dramatically enlarges the range of options available to potential buyers of insurance products by increasing insurance penetration into geographies left untapped so far. If a particular life insurer has not launched business in all the branches of a bank, another insurer can launch insurance business in those branches. The potential of Bancassurance is estimated at 80,000 bank branches but barely 10% of bank account holders buy life insurance from this channel. Open Architecture makes this is a huge scalable opportunity for the insurance business.
Time increment for Lapsed ULIP Policies
Taking forward the theme of Customer Centricity, the regulator has further evolved the ULIP guidelines increasing the time-frame to revive lapsed policies to two years. Insurance is a long-term contract and even if someone’s policy has lapsed due to a temporary resource crunch now they can revive it and enjoy the benefits.
Despite the headwinds, the insurance sector has been resilient and has launched many new products and customer centric processes in line with the market and regulatory trends.
[This guest article has been written by Mr. Gaurav Rajput, Director Marketing at Aviva India.]