Insurance Article, The Insurance Times 2021, The Insurance Times October 2021


India is a hugely under-insured country, where only 19 per cent of lives are insured. In the case of vehicles, although third party insurance is mandatory, only 79 per cent of four-wheelers are covered and 66 per cent four-wheelers are insured for own-damage only. For two-wheelers, it is much worse, as only 36 per cent of vehicles are insured under third party and 39 per cent are covered for own damage.Unfortunately, insurance is a notoriously complicated subject in India with dozens of different plans and top-ups. While life penetration has increased from 2.8 percent to 3.2 percent, the non-life play has increased to 1 percent from 0.94 percent last year. In non-life, India’s ranking has improved by one place despite premium shrinking in dollar terms. This is because Brazil, which was in 13th place, slipped sharply as its business shrunk 20 percent in dollar terms. One of the most promising solutions that the Insurance Regulatory and Development Authority of India has recently come out with is the Standardisation of Insurance products. With this move of standardising complex insurance policies, IRDAI has enhanced consumer buying in today’s time.The insurance industry in India mainly consists of three stakeholders: life and non-life (general) insurance companies, customers, and the regulator IRDAI, apart from the sole national reinsurer General Insurance Company of India. The life insurance sector captures 75% of the market share and accounts for 50% of the insurance companies in India.

Standardised products usually cater to a category of customers, especially the first-timers. However, we must remember that most insurance products in India are push products and the success of the standardized plans significantly depends on how well aware consumers are about these plans. With intermediaries aggressively adopting standard products, the products are expected to get more visibility and access. The standard insurance products remain to be the best buy for first-time insurance buyers who do not have any kind of financial protection and for those who do not believe in saving a part of their earnings for rainy days. People who have higher financial liabilities and can afford to pay a premium for regular health and life insurance policies may opt for comprehensive covers that provide greater financial coverage against unforeseen circumstances like hospitalisation or death of the policyholder. The IRDAI is looking to come out with a series of standardised products for various sectors so that the protection quotient in each segment can be increased significantly. It has already launched a standard term product in the life insurance space, and two offerings in the MSME segment–one for micro enterprises, the other for small industries. These standard products for dwelling & commercial units have been rolled out from in April, 2021. The idea is if a standard product is sold by all companies, it becomes much easier for the policyholders to pick up that product. The improved prospects for insurance are also reflected in the performance of non life during the first quarter. Non-life insurers have registered a 14% growth in gross premium during the first quarter as demand for health insurance increased. There have been major milestones in this journey of growth, backed by a rise in per capita income, demographics and favourable policy interventions, but the biggest catalyst of transformation so far has been the covid pandemic. This has put the spotlight on changes in consumer behaviour that alter people’s approach to life insurance, the mode of selling policies by insurers and the product’s imperative overall.

Life insurance segment

COVID-19 generated new growth opportunities. The economic burden of the virus, in terms of hospitalization charges, made people realize the importance of insurance. According to PWC, insurance is now considered a necessary risk mitigation tool, not an investment product for the wealthy. This has nudged people to demand insurance. Consumer choice of the right insurance products is amongst the key foundations of the entire insurance ecosystem. Apart from creating trust and confidence in the minds of the policyholders, standardisation also enables insurers to market their products in the best way possible.In the life insurance segment too, standardization and digitization were observed in insurance policies. Due to the multiplicity of insurance products in the market, consumers are often left confused on which one to buy, as at times understanding the policy terms and conditions might come easy. It is the responsibility of the insurers and their distribution channels to correctly explain the offerings of several insurance products. Following in the footsteps of the health insurance industry, the IRDAI introduced the concept of a standard term insurance plan called Saral Jeevan Bima. The idea of the plan was launched in 2020 though the plan itself was offered for sale from 1st January 2021. Saral Jeevan Bima, thus, became the first standard term plan, with uniform coverage benefits across insurers.

Saral Jeevan Bima has also made it easier for people with comparatively less educational background and those falling under low-income profile to get coverage. It is a non-linked, non-participating individual pure risk premium life insurance policy that pays the nominee a lump sum death benefit (amount assured) if the insured passes away within the policy period. This insurance has a minimum sum assured of Rs 5 lakh and a maximum sum assured of Rs 25 lakh. Insurers, on the other hand, can offer a sum assured greater than Rs 25 lakh while keeping all other terms and conditions the same. Along with the insurance plans mentioned above, consumers should understand that term insurance is divided into various types, which help them choose the right format of the plan as per their requirements and financial capabilities. Term insurance is required to keep oneself and the family financially secured from any kind of unprecedented crisis.

The premiums can be paid in monthly, half-yearly and annual frequencies in the case of regular and limited pay policies. Death benefit will be the highest of ten times the annualised premium, 105 per cent of all premiums paid until death and the absolute amount assured to be paid on the policyholder’s death. For single premium policies, the death benefit to be paid out is the higher of 125 per cent single premium and absolute amount assured to be paid on death. Insurers are permitted to offer two riders – accident and permanent disability benefit options – for additional premium. The cover has come with a waiting period of 45 days from policy issuance – only death claim due to accident is payable during this period. In case the death occurred due to other reasons, 100 per cent of the premium, excluding taxes, if any, is paid out to the dependents. The uniformity in features and policy wordings aid easy purchase of term plans. The private life insurance industry is celebrating 20 years in India this year.

Health insurance segment

Health is wealth is no longer an adage, but our new reality. This needs to be accepted and by implementing the standardized products, the insurance industry would be ready to deal with future pandemics, improve customer satisfaction and ensure efficiency of firms assuring that no pandemic in the future affects lives as Coronavirus did. In the health sector, some 36 per cent people are insured but of these, three–fourths are insured by government schemes and the remaining 3.2 per cent have got individual health plans. An additional 5.4 per cent have got group health. So, almost 62 per cent of the total health expenditure is out-of-pocket. Furthermore, only 0.9 per cent of houses are insured whereas in the US, more than 90 per cent of dwelling units enjoy cover. Once the customers are able to apprehend the product and its offerings, it builds a trust factor in them towards the insurer. For customers, the first go-to person must be the insurer in order to gain relevant and right information regarding any insurance product. The health insurance segment saw the launch of standardized insurance plans and policy clauses. To ease up OPD consultations during the pandemic, IRDAI also asked insurers to include coverage for telemedicine if the plan allowed OPD coverage. This made health plans more inclusive in their scope and also allowed policyholders to avail of digitized treatments without the risk of infection. To increase health insurance penetration and to make health plans affordable, the concept of instalment premium was launched. Now, policyholders can opt to pay premiums in monthly, quarterly or half-yearly instalments if the annual premium is too heavy on their pockets. Here’s a look at the major developments in the health insurance segment –

The regulator rolled out a standard health product – Aarogya Sanjeevani, under which 1.65 lakh lives have been covered. Similarly, on July 10, the regulator launched two standard corona products – Corna Kavach and Corona Rakshak — which have covered around 32 lakh lives, with a premium collection of Rs 482 crore and with a sum insured of Rs 1.1 trillion. To offer uniform coverage benefits under a single plan. The policy allows coverage of up to INR 5 lakhs and has uniform coverage benefits across insurers. Only the premium differs based on the company’s pricing policies. The Arogya Sanjeevani policy, therefore, offers standardized coverage for someone looking for a basic health cover. The pandemic has increased the potential for health and life insurance in India The improved prospects for insurance are also reflected in the performance of non-life during the first quarter. Non-life insurers have registered a 14% growth in gross premium during the first quarter as demand for health insurance increased during the deadly second wave of Covid. The increase in insurance penetration bodes well for the government’s disinvestment programme. India ranks 10th in life insurance and 14th in non-life. Despite the insurance market being small relative to GDP, it is seen as having huge potential.

Understanding the need of coverage against Covid, the IRDAI introduced two standard Covid -oriented plans – Corona Kavach and Corona Rakshak. While the former is an indemnity oriented policy without deductibles or limits, the latter is a fixed benefit plan that pays the sum insured in lump sum in case of hospitalisation for 72 hours or more due to Covid. Both these plans are short-term plans that have standard coverage features. Like Arogya Sanjeevani, the premium for these policies differs across insurers.To ensure that policyholders understand the technical nature of their health insurance plans easily, IRDAI standardized various clauses. The concept of pre-existing illnesses, policy exclusions and proportionate deductible in room rent was simplified. An indisputability clause was added which limited the power of insurers to reject claims after 8 years of coverage. Moreover, the health insurance policy was made more comprehensive by the inclusion of mental illnesses and modern treatments under the purview of the plan. These changes have made health insurance plans more customer-friendly which have also driven up the demand of these plans.

Non-life Insurance products

For some time now, the IRDAI has been coming out with various standard products, both in the life and general insurance space. So far, the Regulator has launched a standard health product named “Arogya Sanjeevani”, two Covid-19 specific standard products — Corona Kavach and Corona Rakshak, a standard term product named “Saral Jeevan Bima”, a standard vector-borne disease health policy, a standard annuity product “Saral Pension”, a standard personal accident cover “Saral Suraksha Bima”, and three standard products for covering the risk of fire and allied perils — Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha, and Bharat Laghu Udyam Suraksha. The purpose behind bringing in such standard products is to increase the protection quotient in each segment.

India is a hugely under-insured country, where only 19 per cent of lives are insured. In the case of vehicles, although third-party insurance is mandatory, only 79 per cent of four-wheelers are covered and 66 per cent of four-wheelers are insured for own-damage only. For two-wheelers, it is much worse, as only 36 per cent of vehicles are insured under the third party and 39 per cent are covered for their own damage. Motor industry is facing severe slowdown due to supply chain disruptions, stalled production and low demand. In April 2020, automobile manufacturers registered zero sales due to the lockdown. Sales have picked up marginally in May onward after the lockdown restrictions were eased by the government; but are well below the pre-COVID levels. Despite difficult economic conditions, the insurance industry has been resilient to the extent that we have positive growth above 5 per cent as of now.The insurance industry has been able to respond to unforeseen risks and it has come out with new products and new features in the existing products. Also, the claim settlement has been fast.The Regulator has come up with a regulatory sandbox to allow the insurance companies to experiment, bring out innovative products, and innovative services.

Not against innovation

The passage of the General Insurance Bill has drawn criticism for the absence of discussion and debate in Parliament. However, it cannot be denied that the amendments to the General Insurance Business (Nationalisation) Act, 1972, made in the Bill, were, in fact, necessary to keep the three unlisted public sector general insurers afloat and prevent a crisis in the sector. The amendment allows the central government to hold less than 51 per cent in General Insurance Corporation, National Insurance Company, Oriental Insurance Company, United India Insurance and New India Assurance Company, paving the way for a strategic sale in these insurers to a private entity. The buyer would have the freedom to bring about changes in the operations of the company. In the MSME sector, only 5 per cent of the units are insured in the country. This sector needs much higher level of protection. The regulator is coming out with two standard products in this segment; one for micro enterprises and another for small industries. The Regulator should increase protection in this segment from 5 per cent to atleast 25 per cent in the next couple of years. Standardisation of products is not against innovation, rather it will cater to the common needs of the customers. Some people feel that standardisation is against innovation, but these standardised products are required to cater to the common needs of the customers. These standard products will not be frozen in time.These standardised products will create a benchmark in the industry such that the industry can be proded to go for products that are better than the standard products.

Premium hike post standardisation

Standardisation of products is not against innovation, rather it will cater to the common needs of the customers. In the standardised regime, the price for flood insurance is the same for Rajasthan and Meghalaya.This naturally deters buyers, especially the first-timers. To drive insurance adoption, we need to tailor customised products for specific occupations, lifestyles, geographies, sizes and risk conditions. Much of these have to be driven by insurers and intermediaries. Some aspects of standardization are good because they set the minimum bar for all insurances. However, insurers should innovate much more; otherwise they risk becoming undifferentiated and creating an industry that is completely price driven. The insurance industry has been able to respond to unforeseen risks and it has come out with new products and new features in the existing products. Also, the claim settlement has been fast. The second wave of the pandemic led to a rise in claims by at least two to three times for health insurance compared to the first wave last year, and insurers are now preparing for a third wave as well. Some companies have also indicated that they may increase premiums for health cover across the board this year. Insurance companies have paid Covid-related health claims of over Rs.15,000 crore since the start of the pandemic.

Customisation of Insurance products

Currently, there are several products that are standardized across insurers. Motor insurance is one such legacy product. The core product has two sections – own damage and third-party liability. The basic coverage is the same across insurers for both sections. However, insurers can issue add-ons to differentiate their offerings for the own-damage section. Most add-ons are now similar. Pricing for own damage is defined based on a discount to the motor tariff. This discount varies substantially across insurers. The premium for third-party liability section is identical across insurers. Another legacy product is Fire insurance. However, heavy reliance on standardization may not be the best for insurers. Recently, the regulator asked all life insurers to issue a standardised term insurance, Saral Jeevan Bima. Term insurance is highly commoditised, and insurers have been struggling to differentiate. Term insurance products cover all kinds of death and have no exclusions, except suicide for the first year. In insurance, after-sales service is tested by the policyholders or the nominees, several years after making the payment. So, in a standardised product regime, price becomes the principal differentiator. Standard health products already witness more than 50 percent price difference among insurers. It is likely that insurers would under-cut each other in a bid to gain market share. Already, there is a concern amongst re-insurers that life insurance pricing in India is too low.

Standardisation of insurance products would not only create trust and confidence in the minds of the policy holders, but will also enable insurers to market their product easily and help reduce disputes during the claim settlement process. We have multiplicity of health insurance products. People are often confused which one to take because they don’t have time or energy to go through bulky policy document. standard insurance products are akin to fixed deposit, while other products are like specialised savings instruments, which everyone may not understand. All the insurance companies should actively participate in selling the standard products. It will not affect your revenue but will only enhance it since competition will not be purely based on pricing but also claim settlements, grievance redressal processes and how you interact with the customers. The non-life insurance players are concerned over their profitability in spite of a steady growth in their business in this fiscal. The non-life insurance industry or general insurers reported a 19.5 per cent growth in July with gross direct premium underwritten at Rs 20,171 crore for the month compared with Rs 16,884 crore in July 2020. While insurance penetration in India remains low, especially compared to advanced markets, the market is seen as having huge potential for growth, even before the pandemic, due to its young population and growing middle class. The pandemic revolutionized both the products and practices of the insurance industry. Whether it was life insurance or health insurance, the industry witnessed standardization in products and digitization of operations.

The insurance regulatory body maintains that introduction of standard insurance plans will make it easier for consumers to select services owing to the standardization of the process and easy availability of offered services. Standardisation not only improves consumer choice but also increases competitive pressure on insurers to offer the best services at relatively lower prices than other insurers. So a positive side effect of the standardization has been the intensified price competition that has further benefitted the consumers. The year 2020 was, therefore, the year of standardization and digitization in the life and non-life insurance industry. It has paved the way for a more developed and consumer-friendly market so that insurance penetration in India increases over the coming years. With IRDAI increasingly pushing insurers towards standardisation of terms and services, executives from larger insurance firms are sensing that this model listing covers based on cheapest to most expensive could dilute its competitive advantage. There is no denying the work done by aggregators like PolicyBazaar in expanding the size of India’s insurance market. But there is scope for a more inclusive approach where disclosures on product types, age groups and quality of claims service can be given more prominence on the platform. To be sure, the insurance industry of India has 57 insurance companies, of which 24 are life insurers, while 33 are non-life insurers including standalone health firms. These companies can manufacture policies. There is a need to expand the range of non-life insurance products currently available in the market. Thus, the Authority has formed a working group to suggest, inter alia, product construct and policy wording for new products in addition to the existing policies.

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