In an interview with MintGenie, Balasubramanian said that to increase insurance penetration across the country, IRDAI is working towards implementing Bima Sugam, Bima Vahak, and Bima Vistaar initiatives.
Edited Excerpts:
Q. While there is an increase in life insurance purchases, there remains a necessity to enhance accessibility in India. What areas does the life insurance industry fall short in to improve accessibility?
The life insurance industry in India has registered a 13% year-on-year growth in total premium income, amounting to ₹7.83 trillion during FY2023, according to the IRDAI Annual Report, indicating an increase in the uptake of life insurance products.
Understanding customers’ needs and making life insurance products affordable are crucial factors in enhancing accessibility. Life insurance companies are implementing various strategies such as leveraging technology for distribution, simplifying products, and creating more affordable and customisable products tailored to the specific needs of the customers.
Additionally, to increase insurance penetration across the country, the IRDAI is working towards implementing Bima Sugam, Bima Vahak, and Bima Vistaar initiatives. These initiatives will collectively work towards making insurance more accessible, simplified, and tailored to the needs of the Indian population.
Q. Insurance firms seem to have shown limited initiative in innovating their range of products. What are your thoughts on this matter?
Life insurance companies broadly offer three different categories of products – which are health and protection, annuities, and long-term savings. Product innovation across all these categories is ongoing and has received further fillip thanks to the facilitative regulations introduced by the regulator such as the “use and file” approach, sandbox regulations, and so on. These have enabled insurers to be nimble and adapt to the changing needs of consumers and society in general.
Earlier in the protection category, one could either go for pure term or term with a return of premium. These were the two options. In recent years, insurers have introduced several innovative features. For instance, products now provide life stage-based covers wherein the life cover adjusts automatically based on the customer’s life stage. Additionally, they can also opt for early return of premiums during the policy term itself. Notably features such as the Life Continuity Option offer the flexibility to receive the life cover as monthly income for up to 30 years, providing relief to claimants who may not be financially savvy to manage the lumpsum they would have received. These are some of the recent innovations.
Innovations in long-term savings include the introduction of features such as early income, which allows policyholders to start receiving guaranteed income from the second year of the policy which was unheard of previously. Options like increasing income are also recent innovations in this space.
Similarly, the annuity category too has seen many new options being launched recently such as deferred annuity, an annuity with a waiver of premium, or options that address aging-related special requirements.
So, innovation has been happening and will continue to happen as people become increasingly aware of the role of insurance in their financial planning.
Q. What factors should you consider while planning your retirement using life insurance products?
In general, retirement planning is about asking three basic questions – when will I retire? (i.e., how many years of active employment are left?), how much will I need when I retire? (i.e. what is the kind of lifestyle one wants?) and how much have I already accumulated?
Once these coordinates are fixed, retirement planning is like planning for any other road trip and the insurance product becomes like a GPS device to help us navigate that journey.
Importantly one should plan well and invest in the right retirement products to lead a financially stress-free retired life. It is also crucial to start the retirement planning process early. This enables individuals to regularly save and derive significant benefits from the ‘power of compounding’.
Retirement planning can be divided into two phases, i.e. the accumulation and pay-out phases. Insurance companies offer products that can help in both phases.
In the accumulation phase, insurers offer long-term savings products such as ‘ULIPs’ and ‘Traditional’ savings products. Broadly speaking, individuals comfortable with market-linked savings can choose a ULIP, while those who are risk-averse can opt for traditional savings products. Additionally, individuals can also consider NPS for retirement.
During the pay-out phase when individuals require a steady income, they can purchase an annuity product from insurers. This product guarantees income for life. It’s important to note that only insurers can offer guaranteed income for as long as one lives. Additionally, selecting the Joint Life option ensures that their spouse will also receive regular income for life.
Q. In this age of ULIPs and high-interest bank deposits, do you think people will continue to flock to endowment plans and moneyback policies?
ULIPs, bank deposits, and traditional insurance products represent distinct financial tools, each equipped with unique attributes and benefits that address diverse financial requirements. Essentially life insurance savings plans like endowment, money-back, or Unit-Linked Insurance Plans (ULIPs) provide a means to accumulate wealth over time. These policies are structured to assist individuals in achieving their long-term financial goals. Choosing among these options hinges on an individual’s specific financial circumstances, investment objectives, and risk tolerance.
Traditional insurance products offer customers a complete risk-free benefit. Essentially, no other product can offer a guarantee today on future investments that the customer will make. These products mitigate reinvestment risk and offer individuals a reliable, guaranteed income unaffected by interest rate fluctuations. This feature is particularly beneficial for individuals saving for long-term objectives such as funding children’s higher education or securing an additional income stream. Furthermore, their ability to deliver assured, stable, and secure returns, coupled with financial security by way of life cover. Essentially, there will always be a strong customer proposition that these products bring to customers.
Q. Despite realising how inflation devalues money in the long run, why do so many people opt for term return of premium policies?
This boils down to individual choice. There will always be a segment of customer who would want to get their premiums back if they outlive the policy term. Responding to this customer mindset, the industry has designed TROP (term plans with return of premium option) plans.
Nowadays, insurers are expanding the scope of such plans by integrating additional benefits to offer policyholders more comprehensive coverage and added value. For example, products like ICICI Pru iProtect Smart Return of Premium also offer coverage against 64 critical illnesses at a premium that remains constant throughout the tenure of the policy.
Q. Covid-19 pushed more people into buying life insurance. Do you think more than marketing gimmicks, it is the renewed threat of epidemics that encourages people to secure life coverage?
The perception of mortality often takes a backseat in people’s minds until they are confronted with its reality, either through personal experience or witnessing its impact on someone close. COVID-19 highlighted the unpredictability of life and the importance of being financially prepared for unforeseen circumstances. So, it is hardly a surprise that this event spurred people to assess their insurance requirements.
Concurrently, the Insurance Regulatory and Development Authority of India (IRDAI) has been actively working on various initiatives to enhance awareness about life insurance products among the Indian populace. One of the key initiatives involves the Bima Vahaks program which is focused on enhancing insurance inclusion and creating awareness in every village/gram panchayat about insurance. Additionally, the industry and the regulator are also working on the implementation of Bima Sugam and Bima Vistar to ensure insurance is more accessible and affordable to all.
Additionally, technology is playing a crucial role in simplifying the products, processes, and accessibility of life insurance products, making it more convenient for individuals to purchase life insurance. These initiatives collectively aim to increase awareness and empower consumers to make informed choices regarding life insurance. So, a combination of rising awareness, enabling regulations, and increasing digitalisation will help improve overall insurance penetration.
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Published: 28 Jan 2024, 09:42 AM IST