Right product for the right consumer: Here's what insurers must keep in mind to stay profitable

The life insurance industry is unique in its mission. It helps protect families financially, helps individuals build wealth to achieve financial goals and lead financially independent retired lives. It acts as an anchor, providing peace of mind and knowing that one’s family will remain financially protected even in their absence. It’s a promise to shoulder a family’s dreams, aspirations, and emotional well-being.

Life insurance, through its products in the health, life, long-term savings, and pension categories, serves the core societal needs of protection, savings, and retirement planning. Notably, term insurance and pension products have no substitutes in the financial services sector. Significantly, life insurance products iron out reinvestment risk, enabling individuals to receive guaranteed life-long income insulated from market fluctuations.

India’s potential

The Indian life insurance market is poised for significant growth in the coming years. According to reinsurance firm Swiss Re, India is estimated to become the sixth largest market by 2032, with total premiums expected to grow 14% annually over the next decade.

The tailwinds of a supportive government and regulatory framework, a rapidly growing middle class, rising per capita income, and the growing trend of nuclear families are driving the industry’s growth. Additionally, the use of technology has played a pivotal role in making products easily accessible.

But there is untapped potential here. According to the UN’s population division, the share of the working population in India is expected to rise 14% to around 736 million by 2030. This burgeoning segment will need life insurance products for financial security and to achieve long-term financial goals.

Also, the National Statistical Office puts the sum assured-to-GDP ratio for the country at just 21%. Assuming a CAGR of 20%, the ratio would stand at 65% in 2035, and even with a CAGR of 25%, it would be 107%. The ratio would still be lower than at some of our Asian neighbours like Malaysia and Thailand, where it currently stands at 153% and 143%, respectively.

Trust and commitment

Trust and commitment lie at the core of the industry, as customers look up to life insurers to provide a financial safety net for themselves and their families while aiding long-term financial goals. This was helped by the quick settlement of all Covid-19 claims, amounting to approximately `42,000 crore.

Notably, the industry’s assets under management (AUM) grew at a CAGR of 11% from `23.4 lakh crore in FY15 to `54.1 lakh crore in FY23. In that period, the in-force sum assured grew at a CAGR of 15% from over `78 lakh crore to `239 lakh crore. As the industry continues to grow, let us look at what needs to be done to remain on a sustainable growth trajectory.

The industry’s imperative

It is crucial for the industry to embody the motto ‘Right product to the right customer’. Simply put, it means understanding two very important aspects—customers’ needs and affordability. Life insurers should present products that are in sync with these. To get a firm handle on this, it is important to understand the pecking order of customer expenses—payment of EMIs, consumption, savings, and finally life insurance premiums. Since life insurance products have low liquidity, premiums should ideally not exceed 10-15% of a customer’s surplus income. This can ensure that customers have funds to tide over any unexpected financial obligations while remaining committed to their products.

Diverse India

India, with its vast expanse and diverse culture, is a tapestry of mini-countries within, and understanding affordability is pivotal. In-depth conversations with customers and data analytics can ensure that their needs are identified and facilitate appropriate income estimation that can help offer affordable premiums in sync with those needs. A robust customer-insurer relationship will further fuel industry growth.

India’s robust digital ecosystem provides the requisite tools to significantly improve the customer experience. Technology enables a better understanding of customers’ needs. Leveraging data analytics, machine learning, and AI, life insurers can identify key life milestones, such as marriage and childbirth, virtually in real time. This will help offer relevant products. For instance, children’s education plans can be presented to new parents.

Regulatory facilitation

The Insurance Regulatory and Development Authority of India has set forth the vision of ‘Insurance for All’ by 2047 and has begun implementing various initiatives towards achieving this. The three initiatives—Bima Sugam, Bima Vistaar, and Bima Vahak—will significantly enhance penetration. Some regulations rolled out, such as Use & File, are enabling ease of doing business. This has not only reduced go-to-market time but is also fostering innovation to quickly cater to the evolving preferences of customers.

But the bottom line is simple: life insurance products enable customers to achieve non-negotiable goals. Term insurance products act as income replacement tools, whereas long-term savings products enable corpus building. Think of this as paying EMIs to eventually own a property. Similarly, to build the desired corpus, you make regular premium contributions.

The objective is to simplify life insurance and build durable relationships grounded in trust. Ensuring the right product is delivered to the right customer at the right price will help the industry remain on its growth trajectory for years to come.

 

The author is MD & CEO, ICICI Prudential Life Insurance Company. Views are personal