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

What chokes the life insurance industry of India -Answers are hidden in Data

Life Insurance industry finds it difficult to realise its full potential. With the Insurance Penetration hovering around 2.70 for quite some time and Insurance Density stumbling at around 55 USD (source: IRDAI Annual Report, 2018-19)1, the industry does not look like the one pertaining to an economy aspiring to be of 5 Trillion USD. Most of the developed and emerging countries have Insurance Penetration and Density much higher than us. Now, this is happening when India is one of the fastest growing economies of the world and will continue to be so for many more years. According to an estimate by Bain & Co.2, already 54% of Indians can be considered as belonging to “Middle-Class”. Then there are High Net Worth Individuals segment (3%), requiring very heavy insurance protection against various risks.

Let’s see how much insured are the insured Indians at the moment. If we look at one statement of the Handbook of Indian Insurance Statistics, 2017-183, we find that the total Sum Assured in force was 1,25,67,942.89 crores of Rupees (in the Handbook of 2018-19, this statement is yet to be uploaded). In a separate statement, the total number of policies in force is found to be 33,14.85,000.  If we assume that about twenty five crores of Indians own in force individual life insurance policies at the moment (as many of them are holding multiple policies), that will not perhaps be too wrong an assumption. And in that case, each insured person is found to be covered by a sum assured of only 3.78 lacs of Rupees on an average. This is no way near the Human Life Value (HLV) of an average Indian. According to Ministry of Statistics and Programme Implementation figures4, India’s per capita income was Rs. 1,42,719 in 2018-19 at current prices. Even if we assume that the average Indian has twenty years of working life left (that being a realistic assumption given the present demographic features of the country), her HLV comes out to be around Rs. 26 lakhs of rupees (without considering interest rate, inflation rate and chance of growth of income). Now, we can make out how grossly underinsured we are. Even a low cost (Rs. 330 per annum) government sponsored Pradhan Mantri Jeevan Jyoti Bima Yojona (PMJJBY) offers a sum assured of Rs. 2 lakh! So, the commercial insurers have to go to the drawing board to design new strategies to insure the lives of Indians more heavily.

This paper is an attempt to analyse the data available in the public domain to understand the reasons behind the low Insurance Penetration and Density of the life insurance sector of the country. Along with the data published by IRDAI, I have used the findings of some research work considered as top quality ones in the industry circle. Towards the end, some suggestions have been made to develop the insurance market of the country. We shall find that the solutions lie in the industry rethinking its strategies as regards product development, distribution, customer sensitivity and usage of new transformative technologies. As the economy is growing (with the exception of the current year, due to some extra-ordinary situations) and should continue to grow because of immense growth potential, demographic advantages and aspirations of the new generations, there is no reason why India can not be among the most developed markets of life insurance industry of the world.

What are the right Indicators of Progress?

This paper was started by mentioning that Insurance Penetration and Insurance Density are alarmingly low in India. Let us look at the Ratios that the country experiencedfor the last five years.

Table-1: Insurance Penetration and Density in India in the last five years

Year Insurance Penetration (%) Insurance Density in USD
2014-15 2.60 44
2015-16 2.72 43.2
2016-17 2.72 46.5
2017-18 2.76 55
2018-19 2.74 55

  Source: IRDAI Annual Report, 2018-19

Table-1 clearly shows that there is no significant improvement in the accepted indicators of progress of the industry. In more than 66% of the countries, Insurance Penetration increases with the growth of the economy until the growth reaches a very high stage (like US for example). In the case of India, it has not happened signifying the existence of huge untapped potential. Let’s consider another important indicator of progress, Insurance Density. India’s is USD 55 or Rs. 4,000 approximately. Now, how much life insurance can be purchased by a person of say 30 years of age, opting for a 25 year endowment policy? It will not be more than Rs. 1.5 lakh. If he buys term insurance, may be the coverage will be much more. But, a sound financial planning through life insurance is possible only through purchase of savings as well as protection products. Indians, in general prefer some returns at the end of the term or at periodic intervals of time to be used to meet some heavy expenses and as “Future Provisions”, too. After all, each country has to develop products in sync with the socio-economic conditions prevailing in the country.

Now, let us see the Insurance Penetration and Density of some select developed and emerging countries.

Table-2: Insurance Penetration and Density of select countries in 2018-19

Countries Insurance Penetration (%) Insurance Density in USD
France 5.75 2370
South Africa 10.27 669
Switzerland 4.32 3555
United Kingdom 8.32 3532
Japan 6.72 2629
Singapore 6.22 3944
South Korea 6.12 1898
Taiwan 17.48 4320
Hong Kong 16.81 8204

Source: IRDAI Annual Report, 2018-19

From Table-2, it is clear that all these countries are head and shoulders above India in terms of progress of the life insurance industry although India is larger than each one of them in terms of population, market size and even recent GDP growth rates in recent years. The financial planning industry is well developed in all these countries and mature stock markets also exist there. But, people have a strong preference for life insurance products not just as a protection tool but also as savings and retirement planning tools. In fact, life insurance industry contributes significantly for the growth and development of their national economies, as their savings are used for long term financing of various industrial projects. In Taiwan, life insurers have been able to create sufficient insurance awareness in the masses and people prefer to buy retirement solutions from the insurers even when they have many years of service left in the companies they are working in. India’s life insurance industry too, contributes significantly for the infrastructure, housing and other major industries. But, it has the potential to contribute much more.

According to the IRDAI Report, Indian life insurance industry contributes just about 2.61% of total life insurance business of the world at the moment. India being a home to about 18% people of the world and fifth largest economy in terms of the size of GDP, Indian life insurance market is certainly under-penetrated by any standard.

Some people say that “Sum Assured in Force” and “No. of people covered” are better indicators of progress of this industry.Let us take a look at these figures in respect of the top life insurers in that year (2017-18).

Table-3: Sum Assured and No. of Policies in Force for Top Insurers

Name of the Insurer Sum Assured in Force (in crores of Rs.) No of Policies in Force (in thousands) Average Sum Assured PerPolicy
LIC of India 8434828.13 291167.90 2,89,690
SBI Life 985910.25 6786.40 14,52,774
Max Life 424247.14 4080.41 10,39,717
ICICI Prudential 780914.94 4834.35 16,15,347
HDFC Life 631473.28 5615.93 11,24,433
TATA AIA 158420.45 1350.86 11,72,738
Kotak Mahindra 127156.55 1567.52 8,11,196
Private Total 4133114.76 40317.19 10,25,150
Industry Total 12567942.89 331485.09 3,79,141

Source: IRDAI Handbook 2017-18

We need to explain a lot about the data of Table-3.Let us jot down these points as under:

  • Indian life insurance market has two clear segments. These are urban and rural. Historically, LIC was born with the idea of spreading life insurance to every corner of the country. That was 1956. LIC has become a household name everywhere, mostly in rural areas. So, its marketing efforts are oriented more towards insuring maximum number of people, for historical reasons. It has a mandate to sell more of low cost insurance plans, Micro Insurance plans etc. That explains why average sum assured under LIC policies is comparatively low. But, all said and done, the insurer has to make people adequately insured, at least to those people who can afford that.
  • The insurance sector was opened up in the year 2000. The private insurers were supposed to spread the message of insurance further and offer people greater choices of products. But, their presence is felt more in the biggest cities of the country characterised by affluent people. They are in fact comfortable with selling life insurance in metro cities and some Tier-I cities where insurance of big ticket-size can be sold with the help of banks they are promoted by. They are thus grabbing good market share in the places where there is a high proportion of economically better-off people.
  • From Table-3, it can be calculated that 88% of the in-force policies are LIC policies. So, even though the private players have got about 30% market share of the new policies sold every year now, there share in total in-force policies is only 12%. After all, life insurance policies are of little value if they policies lie in lapsed conditions or are surrendered prematurely. Although private insurers joined the industry much later than LIC, they should have shown up much higher proportion of in-force policies as on 31.03.2019.
  • ICICI Prudential has got the highest sum assured per in-force policy at Rs. 16,15,347. That’s a great achievement on the part of the insurer. But, as we shall see in a subsequent table, ICICI Prudential earns 73.45% of its premium income through Unit Linked policies, which are, strictly speaking, more investment plans than life insurance plans and can be withdrawn any time by the customers without little surrender charges.
  • Top private companies get their business primarily through the private banks (except SBI Life), which operate mostly in large cities and metro areas as well. These banks are ICICI Bank, HDFC Bank, Axis Bank and Kotak Bank and Citi Bank. These banks have a large number of HNI customers (and NRI customers, too) and it is easy to sell high value policies to them. In fact, for LIC too, the high value policies mainly come from the Divisions located in big cities like Mumbai, Delhi, Bangalore, Hyderabad etc.
  • Now, the question is, are the private insurers selling adequate insurance cover to their high value customers? The answer is again “No” because as we have seen at the beginning of this paper, the per capita income has increased significantly over the years and a person drawing the average percapita income of the country needs at least coverage of 26 lakh. So, the higher income people need life insurance protection of much higher sum than they are being sold even by the top private insurers.
  • For LIC, it is to be understood that even people living in the fringes need much more insurance protection. While it is good that LIC is catering to the insurance needs of all strata of the market through a combination of “Conventional” and “Micro Insurance” products, only a reasonably high insurance cover (subject to the financial means of the people) can be a proper protection for the family of the lives assured.

Now, let’s see what types of products are givingthe top insurers including LIC their business. We can look at the IRDA Annual Report 2018-19 for the latest data under the categories of “Linked Plans” and “Non-Linked Plans”. The following table gives a clear indication of how the top insurers are getting their premium incomes. Here all premiums are taken into accounts – new business, single, first year’s premium, renewal premium. Let us see what the proportion is of linked premiums earned as proportion to the total premiums earned by them in 2018-19.

Table-4: Linked and Non-linked Premiums earned by top Insurers in 2018-19

Name of Insurers Linked Premium (in crores) Non-Linked Premium (in crores) Total Premium (in crores) Linked Premium as % to Total Premiums
LIC of India 813.50 336691.57 337505.07 0.24
SBI Life 18926.54 14062.88 32989.42 57.37
ICICI Prudential 22718.15 8211.63 30929.77 73.45
HDFC Life 11321.66 17864.36 29186.02 38.79
Max Life 4594.24 9980.99 14575.23 31.52
Bajaj Allianz 3368.51 5488.65 8857.16 38.03
Kotak Mahindra 2452.90 5715.39 8168.29 30.03
Private Insurers 75338.67 95228.29 170626.96 44.15
Industry 76152.17 431979.87 508132.03 14.99

Source: IRDA Annual Report, 2018-19

Let us analyse the data of Table-4 as under:

  • It is clear that LIC is selling mostly conventional protection and savings products. While these are real life insurance products, there is demand for linked products as well. LIC had an unpleasant experience with marketing ULIPs around Most of its customers are interested in buying these products in and around 2008. Since then, LIC agents are in “Once Bitten Twice Shy” mode and have given ULIPs almost a miss.
  • Private insurers together get more than 44% of their premiums (new business and renewal taken together) through Unit Linked products only. Two top private insurers namely SBI Life and ICICI Prudential are getting 57% and 73% of their premium incomes through Unit Linked Insurance Products.
  • Other prominent private insurers are getting 30 to 40 per-cents of premium incomes through ULIPs. Industry as a whole is getting 15% of premium income through ULIPs. Almost all private insurers are selling more ULIPs than the industry average.

The question is whether the private insurers are also selling term insurance policies in larger numbers than LIC. While no clear business figures are available on product lines, we can rely on the report of Max Life- Kantar IMRB survey5released in 2019. According to the survey, only 20% of the young urban Indians are in possession of term assurance products. So, it can safely be said that the policies which are pushing up the sum assured of in-force policies for the private insurers are actually ULIP policies.

Let’s discuss something more on ULIPs. The ULIPs are primarily investment products helping the customers to get access to the stock or bond markets through their insurance products. These are marketed like investment products as the focus is on helping the customers a quick accumulation of wealth. So, hardly anybody buys ULIPs for savings or protection. This product is more like Mutual Funds schemes and comparisons are always made between the relative merits and demerits of ULIPs and Mutual Fund products. For all these reasons, sum assured available under ULIPs has little value for the customers as they are mostly eager to sell their units or partially withdraw from the product as soon as a satisfactory return is obtained. We do not know too many persons who keep their ULIPs in force upto the date of maturity.

Attachment to Insurance Policies Low

Let us see how much attached are the Indians to their life insurance policies. If on an average a person takes a life insurance cover at the age of 25 or 30, he is expected to keep these policies in force for at least 20 to 25 years. This should be so for all conventional policies, protection type or savings type. IRDAI publishes Persistency Ratios of insurers at 13,25,37,49 and 61 month stages. For both the insurers and insureds, it is important that the policies are kept in force for a long time. Otherwise, there can be no utility of buying insurance policy. For insurers, this is important because a policy starts giving some surplus to the insurers only if it runs for a minimum period of five years. Table-5 gives the 61 month persistency ratios of the life insurers and the industry as on 31.03.2019.

Table-5: 61 month Persistency Ratios of Insurers for the last five years

Insurers 2014-15 2015-16 2016-17 2017-18 2018-19
Birla Sunlife 19 28 27 29 32
AEGON 20 27.31 31 48 50
Aviva 39 31.53 37.5 38.68 38.1
Bajaj Allianz 6.88 14.86 24.34 27.12 30.66
Bharti Axa 33.3 16.53 24.52 33.42 38.83
Canara HSBC 36.96 31.04 34.54 34.26 37.61
DHFL Pramerica 10.16 15.66 22.18 15.60 26.60
Edelweiss Tokio NA NA 25.96 25.58 29.87
Exide Life 29 30.1 31.13 32.22 33.03
Future Generali 8.88 16.61 20.46 22.08 22.61
HDFC Life 31.78 41.36 50 47 47.2
ICICI Prudential 16.7 35.2 49.12 49.1 53.3
IDBI Federal 54.47 58.11 51.62 43.43 49.94
India First 37.3 26.01 26.01 35.78 33.63
Kotak Mahindra 25.75 37.39 45 47.2 46.64
Max Life 23 37 46 47 49
PNB MetLife 14 17.1 24.45 26.47 30.16
Reliance Nippon 6.42 16.17 31.4 32.97 36.14
Sahara India 22.09 40.05 40.05 32.38 33.14
SBI Life 16 23.44 37.19 38 42.28
Shriram 7 28.03 24.53 19.34 23.72
Star Union Dai Ichi 19 21.4 22.5 42.85 42.74
Tata AIA 16.39 24.02 3.22 32.74 37.97
LIC of India 44 44 44 43 51

Source: IRDAI Handbook 2018-196

Since Persistency Ratio is extremely important for the insurers of the industry, we look at the Persistency performance of all the insurers. We can jot down the important facts about the Persistency as under:

  • It is a deplorable fact that for most of the insurers, the 61 month persistency ratio is below 50%. To be precise, 20 out of 24 insurers have Persistency Ratios below 50%. That means, after five years of policy terms, more than half the policies go off the books either through lapsations or through surrenders or even through death claims. The insurers who have the Persistency Ratio as on 31.03.2019 are marginally above the 50% mark. The policies either lapse or get surrendered in most occasions as incidence of death claims is not too high as compared to other forms of exits. May be the policyholders prefer to go to other insurers or they may even start shunning life insurance and put their investable surplus somewhere else.
  • If we look at the figures closely, we find that most insurers have their current Persistency Ratios between 30% and 49% (16 out of 24). Again, 4 insurers have Persistency Ratio below 30%.
  • Only, four insurers have Persistency level at around 50% or more. These are AEGON (50%), ICICI Prudential (53.3), IDBI Federal (49.94) and LIC (51). These ratios are not too satisfactory but at least better than others who have alarmingly low Persistencies.
  • A low persistency means a high level of dissatisfaction with the insurers. Either agents sold the wrong policies or they are not in touch with the customers or the insurers are not able to engage the customers with a congenial relationship. In many cases, the reason is a combination of all these factors.

In the developed insurance markets of the world, the corresponding ratios are not below 70 to 80%. Indian insurers have to develop strategies to sell right policies to the people and then keep them properly engaged through various channels so that the policies are not abandoned after a few years. Better policy persistency is beneficial to both the customers and the industry.

We can look at the matter from another perspective. Let’s look at the type of benefits paid by the insurers in the last two years. Table-6 clearly shows that private insurers are mostly paying surrender values and withdrawal values (under ULIPs).

Table-6: Benefits Paid by Life Insurers in last two years (in crores)

Insurer 2017-18 2018-19
Surrenders/

Withdrawals

Others (Maturity, Death) Total Surrender/

Withdrawal

Others (Maturity, Death) Total
LIC 51677.91 145040.13 196718.04 69237.27 180047.59 249484.86
Private 47587.09 33648.50 81235.59 41931.73 38461.69 80393.42
Total 99265.00 178688.63 277953.63 111169.00 218509.28 329678.28

Source: IRDAI Annual Report 2018-19

Table-6 clearly reveals that the private insurers as a whole are paying more surrender payments that maturity/death claim payments. LIC on the other hand are making less surrender payments in comparison to maturity and death claim payments they are making. To be precise, 28% of LIC’s payments of benefits were surrender payments (which is also quite high) in 2018-19 while 52% of benefits paid by the private insurers in that period were surrenders or withdrawals.  This means that a large number of policies bought from the insurers are not really bought for the purpose of either protection or savings but mainly for investment purposes.

From my years of experience of working in the industry, I can say with certainty that it is very difficult to retain customers for a long time unless a bond is created with them from the very beginning. Before the sector was opened up in 2000, the insurance agents knew the customers they had brought in like the back of their palms. There was less of digitisation of services and almost all services used to be given manually with the agents considered as the only customer touch points. Post opening up of the insurance sector, the competition has come and has even increased in intensity over the years. Agents are no longer the only insurance intermediaries. There are brokers, corporate agents including banks, Insurance Marketing Firms (IMF), “Referral Agencies”, NGOs etc. selling policies everywhere. Many policies are also sold through web aggregators and other digital channels. Services are provided through digital mediums. However, expectations of new age customers are far more than what they were twenty years before. Customers expect a greater level of customer sensitivity from the insurers and their representatives in addition to a satisfactory level of servicing. If a bond is not created between insurers and the customers, there is a risk that the policies will be discontinued after a few years. Insurers have to devise means to be in touch with the customers either better trained customer care executives or field officials or even through Artificial Intelligence (AI) powered Analytics and Chatbots. For tech savvy young customers, Customer Service Apps, Chatbots, social media can be appropriate channels to be in touch. For rural customers, personal touch of the agents may be more desirable.

Servicing by Intermediaries

Let’s have a look at how the insurers are procuring business now. Table-7 clearly shows how LIC and private insurers got new business in 2018-19.

Table-7: Channelwise Performance of Insurers in 2018-19 (Individual Business)

Insurers Agents Corporate Agents Brokers Direct Selling MI Agents CSC Web Aggregtr IMF Online POS Referral
Bank Ors
LIC 95.81 2.49 0.09 0.04 1.24 0.04 0 0 0.02 0.27 0 0
Private 25.58 53.8 2.94 12.08 0.002 0 0.35 0.11 2.07 0.118 0.06
Industry 62.26 27.03 1.42 1.42 6.42 0.02 0 0.17 0.06 1.13 0.056 0.03

Source: IRDAI Annual Report 2018-19

It is clear that LIC is heavily dependent on the tied agents for procuration of business. They are using alternate channels in a very limited way. On the other hand, private insurers are mostly dependent on banks. They have recruited many agents but are not too dependent on them. But, as a whole, life insurance industry of India still gets more than 62% of business through agents. Although the tied agents are characterised by mis-selling and unprofessionalism, they still hold sway of the Indian customers across the country. People still look for someone at his doorsteps to sell the policies, explain the policy conditions and help them in the claim settlement processes.

Ultimately it hardly matters who sold the insurance products to the customers, tied agents or brokers or the banks. If policy conditions have not been explained to the customers or wrong policies are sold to them, there is bound to be many cases of surrenders, lapsations and above all dissatisfactions against the insurers. There will be increasing number of complaints from the customers. May be, the insurers are resolving the complaints, citing policy conditions, exclusions and non-forfeiture regulations. But how many of these are happily accepted by the customers is another question. Let us look at the number of complaints registered with IRDAI in respect of the insurers in the past five years.

Table-8: Grievances Reported against Life Insurers in last Five Years

Insurers Grievances Reported by the Customers in last Five Years Annualised Change
2014-15 2015-16 2016-17 2017-18 2018-19
Birla Sun Life 23629 12402 6356 6793 2963 -34%
Aegon Religare 6897 8595 4261 1764 1049 -31%
Aviva 4185 3259 2492 2282 2076 -13%
Bajaj Allianz 19795 14295 3993 3439 2269 -35%
Bharti Axa 5642 4728 4556 4148 6350 2%
Canara HSBC 4559 3179 974 665 717 -31%
DHFL Pramerica 1593 1372 1475 1592 972 -9%
Edelweiss Tokio 514 627 1013 329 441 -3%
Exide Life 9488 9375 6406 4201 3470 -2%
Future Generali 5390 7162 4998 4447 4132 -5%
HDFC Life 32214 11513 8647 7257 6026 -28%
ICICI Prudential 11801 8865 6680 7700 6393 -12%
IDBI Federal 771 853 667 742 788 0.43%
India First 1287 1912 1990 3219 3080 19%
Kotak Mahindra 4616 3444 3741 3400 926 -27%
Max Life 16553 14157 8791 5544 4038 -25%
PNB MetLife 4820 4411 4383 4228 3558 -6%
Reliance 24763 14024 4958 1615 2052 -39%
Sahara 27 35 32 82 110 32%
SBI Life 12273 9391 8165 7640 4649 -18%
Shriram 240 259 379 406 577 1%
Star Union Dai ichi 2301 1825 1798 2566 2045 -2%
Tata AIA 4690 4268 3308 3134 2446 -1%
Private Total 198048 139951 90063 77183 61137 -21%
LIC of India 80944 64750 30784 77184 102127 4%
Industry 278992 204701 120847 154367 163264 -10%

Source: Insurance Handbook, 2018-19

Table-8 speaks a lot about the quality of servicing of the insurance companies. Certain important facts revealed by the data can be mentioned as under:

  • There are far too many complaints against the insurance companies in each financial year. In 2018-19, total number of registered complaints was more than 2,65,000. That is just too much for an industry aspiring to be world class.
  • Over the last five years, most of the private insurers have been able to reduce the number of customer complaints quite significantly. The last column is arrived at by using the appropriate excel functions. The insurers who have reduced complaints have a negative annualised growth rate. We find that 18 out of 23 private insurers have reduced number of complaints over the years.
  • LIC of India and four private insurers namely, Bharti Axa, IDBI Federal, India First, Sahara and Shriram have seen increase in the number of complaints received against them. LIC, the market leader, who depends on tied agents in servicing its large number of customers, has seen their customer complaints increasing at a slender 4% annualised rate. Since, LIC is the market leader with more than 70% market share, it is expected that they motivate their agents to provide post sales services to the customers more effectively, so that the customer complaints for the entire industry comes down.
  • All top private insurers have significantly reduced annualised deceleration rate of complaints with HDFC Life (28%), SBI Life (18%), Max Life (25%), Bajaj Allianz (35%), Kotak Mahindra (28%) and Aegon Religare (31%) showing exceptional improvement.
  • The insurers which are bank promoted and procure policies primarily through their partner banks have reduced the number of complaints remarkably. Even the companies who sell products through digital channels have been able to control the customer complaints. This only proves that it is not necessary that only agents can offer post sales services effectively and promote customer satisfaction.
  • Private insurers need to improve customer servicing further. It is found that they are responsible for 37% of the complaints while they have about 30% market share in the industry.

Settlement of claims

One yardstick to measure the standard of servicing of a life insurer is how quickly it can settle claims. Let us put focus on death claims here as settlement of maturity claims is no issue these days thanks to the facilities available to all the insurers to make payment through NEFT (National Electronic Fund Transfer). If the insurers can obtain bank particulars of the customers in time, all maturity claims can be settled on time. But, settlement of death claims requires real customer sensitivity. Table-7 shows the time for which the death claims are pending with the insurers. Table-7 also shows the percentage of claims repudiated/rejected by the insurers. Since this is an extremely important indicator of servicing quality, we can see the performance of all the insurers.

Table-9: Position of Individual Death Claims as on 31.03.2019

Insurer % Claims Repudiated or Rejected (No. of Policies) % Claims Pending Duration wise (No. of Policies)
<3 months 3-6 months 6-12 months >12 months
Birla Sun Life 2.4 87.5 12.5 0 0
AEGON 7.96 0 0 0 0
Aviva 4.17 100 0 0 0
Bajaj Allianz 4.69 100 0 0 0
Bharti Axa 2.33 71.43 14.29 14.29 0
Canara HSBC 5.86 0 100 0 0
DHFL Pramerica 2.9 100 0 0 0
Edelweiss Tokio 4.18 100 0 0 0
Exide Life 2.97 0 0 0 0
Future Generali 10.63 62.5 37.5 0 0
HDFC Life 0.7 52.94 20.59 0 26.47
ICICI Prudential 1.18 76.19 23.81 0 0
IDBI Federal 3.56 100 0 0 0
India First 6.78 55.56 11.11 11.11 22.22
Kotak Mahindra 2.21 33.33 0 58.33 8.33
MAX Life 1.24 100 0 0 0
PNB MetLife 3.76 0 0 0 0
Reliance Nippon 2.25 75 0 0 25
Sahara 7.49 68.75 18.75 0 12.5
SBI Life 4.47 46.43 50 3.57 0
Shriram 13.32 28.21 10.26 51.28 10.26
Star Union 2.86 100 0 0 0
Tata AIA 0.93 0 0 0 0
LIC of India 0.89 46.78 36.03 5.94 11.25
Industry 1.17 49.66 32.15 7.47 10.72

Source: IRDA Annual Report, 2018-19

Let’s look at Table-9 very closely. This table gives us two important information on the service quality of the insurers. One is the repudiation/rejection rate and the other is the period for which claims remain pending. The main points can be mentioned as under:

  • Although there is clear IRDAI guidelines that the death claims have to be settled within 15 days of receiving all claim papers (3 months if a thorough investigation is required), many of the insurers are not adhering to this guideline. For as many as 13 insurers claims are kept pending beyond 3 months. Even top insurers like LIC, HDFC Life and SBI Life keep claims pending beyond six months.
  • Many insurers keep the claims pending beyond one year. Prominent among these insurers are HDFC Life (26.47%) and LIC (11.25%). As a result, the industry keeps 10.72% claims pending beyond one year. One reason can be that there are too many claims in which thorough investigations are necessary. But, even then, claims have to be settled expeditiously and can not be left unsettled for more than a year.
  • Both LIC and HDFC Life has a good record of repudiating least number of claims. For LIC, the figure is 0.89 and for HDFC Life, it is 0.7.
  • It is extremely unfortunate that quite a few insurers are repudiating/rejecting a large number of claims. These are AEGON (7.96%), Canara HSBC (5.86), Future Generali (10.63%), India First (6.78%), Sahara (7.49%) and Shriram (13.32%). How can people hold on to their policies if they get news of insurers rejecting claims for such a large number of cases?
  • As most of the claims are non-early in nature, investigations are not required. It is a common knowledge that the death claims requiring investigation is never more than 20%. It is unfortunate that only 49.66% claims are settled within three months. The insurers can not consider themselves as sensitive to the needs of claimants if they can not settle claims promptly.

IRDAI has taken certain steps in right direction

IRDAI is aware of the fact that life insurance industry has not yet been able to realise its full potential. The regulator has taken initiative in making the insuring public and also the general public knowledgeable about the value of life insurance. The following initiatives taken by IRDAI in developing the industry is worth mentioning:

  • Bima Bemisal campaign of the regulator launched both in print and electronic media aims at making the people understand what life insurance is and how various life insurance products can help people make proper financial planning.
  • IRDAI is cautioning the public against spurious phone calls and fictitious offers made by fraudsters in the guise of insurance intermediaries.
  • IRDAI’s customer connect initiative through its portal policyholder.gov.inis aimed at informing the life insurance customers about the updates about the industry and its latest initiatives.
  • As a core committee member of National Centre for Financial Education (NCFE) among financial sector regulators, IRDAI has taken an important role in drafting the National Strategy for Financial Education (NSFE), 2019-2024.
  • IRDAI has advised insurance companies to adopt certain districts for spreading insurance literacy and insuring all families of these districts. There are 117 such aspirational districts identified by NITI Aayog which are expected to be covered by insurers (life and general) under the aegis of IRDAI.

It’s clear what is choking the Industry

From the discussions in the foregoing sections, it is clear what is choking the life insurance industry of India. These can be summarised as under:

  • The data clearly shows that neither LIC nor the leading private insurers have been able to insure any significant portion of the insurable population. There are only 33 crores of in force policies in India in the space of individual insurance, pertaining to may be 25 crores of Indians. Even if we assume that about twenty crores of Indians are covered by group insurance schemes of various types (including government sponsored schemes), the total people insured is not likely to exceed forty crores (as many people are covered both by individual and group policies). It is estimated that India has 105 crores of working population. It can safely be said that at least 50% of insurable people have not been covered under life insurance of any type.
  • Many of the people insured are underinsured. Sum assured in force for the LIC customers is very low. The sum assured in respect of private insurers is much higher but it is doubtful whether these are really used as savings or protection tool as a large proportion of these policies are Unit Linked products where insurance cover is of “incidental type”.
  • Thirdly, customers are not too happy about their association with insurance policies as more than half the policies go off the books even before the expiry of five years (average policy term being 15 years). Even the market leader does not have a high 61 month Persistency Ratio.
  • Fourthly, claim settlement performance is not too great for the insurers at the moment. Some reputed private insurers have high repudiation/rejection ratio. Again, many claims are pending beyond six months (18.19%). Many of these are even pending for more than one year!
  • Customer complaints are too high both for LIC and for private insurers. While most of the private insurers have been able to reduce the number of complaints significantly, LIC is yet to do so. Rising number of customer complaints mean that people are not too happy with the policy conditions or the quality of servicing.
  • Finally, the insurers have not been able to develop agents into professional advisors as the productivity of agents is low and their attrition rate is very high.

In the light of foregoing discussions and on the basis of experience of working in the industry for several years, certain recommendations can be humbly put forward for the insurers as under:

  • Insurers need to develop products and services that customers look for. Let us consider the findings of a survey conducted by Bajaj Allianz7and sponsored by none other than IRDAI. The survey report says that 44% of Indians are worried about their post retirement days and look for products that can help them build a reasonable pension corpus. The survey also points out that 1 in every 3 millennials take financial decisions on the basis of their interactions among peer groups in social media. This research also points out that 60% Indians believe life insurance is the right vehicle for meeting life’s goals. Now, the research therefore clearly says that there is a large market for traditional products but there has to be need based selling. Products can even be co-created with the customers to improve their worth.
  • IRDAI’s own research points out that the insurers are not catering enough to the life insurance needs of the women of this country. Although women consist of 48% of insurable population, only 36% of the policies have been sold to women. Women specific products are very few in numbers although women have special types of insurance needs. Although 27% of insurance agents are women (for LIC, this number is only 24%), the insurers have not done enough to engage them properly to market products to women. The insurers need to train their women agents properly so that more need based insurance can be sold to the women customers.
  • LIC is an overwhelming market leader of the industry. It is characterised by a strong and all pervasive agency force bringing more than 95% of business for the insurer. But, LIC needs to professionalise the agency force. With average productivity of 16 policies per annum and Rs. 4.2 lakh first premium, the income of an agent per annum can not be much. Even if 25% of premium is assumed to be the commission (the commission under single premium policies being only 2% of the premium), the average per annum income can not be more than Rs. 1 lakh from new policies. Even if renewal commission and other incentives are added to it, total commission of an agent is never too much for him (given the low persistency of policies), to be a true professional. Therefore, an average agent either remains a part time agent or soon loses interest in the occupation itself. True, the insurer boasts maximum number of MDRT agents. Now, MDRT agents number about 10,000 which is not even 1% of its agency force and they primarily procure business from big cities. According to IRDAI Annual Report 2018-19, 6,45,745 people joined the industry as agents in that year but 5,33,665 did also leave the industry. The agency profession has to be made more honourable and fulfilling by giving the agents quality training followed by hand holding in the initial years. Then only the agents can understand their role properly and sell right policies and also help customers in getting various post sales services.
  • Private insurers have a huge task in positioning products more appropriately. That they earn more than 44% of premium income from ULIPs clearly proves that they are heavily dependent on ULIPs for their business fortune. Top private insurers like SBI Life and ICICI Prudential are earning 57.37% and 73.45% of their premium incomes from ULIPs alone. Now, it is in everybody’s knowledge that these products are for wealth generation only as the lion’s share of the premiums go into equity/debt markets for fetching high returns. These policies are used more like Mutual Fund products. In 2018-19, ULIP surrenders were for Rs. 35948.72 crores for the private insurers, i.e. 85% of the total surrenders effected on their policies. Therefore, most of the private insurers are not really into the business of marketing savings or protection type products. While ULIPs are useful products for certain sections of the market, life insurance needs to be sold more like life insurance products. A better product positioning strategy can do the industry a world of good. The private insurers need to think deeply about the product development and marketing strategy.
  • Insurers must improve their claimsettlement record. People buy life insurance with the hope that the insurers will take care of their families if something happens to them prematurely. In my opinion, repudiation/rejection rate should never exceed 1% in case of life insurance. Only 3 out of 24 private insurers have the ratio less than 1%. Again, no claim should be kept pending beyond three months whatever be the need to investigate such claims thoroughly. If the insurers can not procure sufficient proof to repudiate claims, they have to make the claim payments. Six or twelve months’ wait for the claimants is surely sending wrong signals to the market. The lives should be carefully selected at the proposal stage so that the claimants don’t have to suffer for a long time to get claim monies. The insurers are within their rights to investigate doubtful cases or high sum assured cases even after issue of policies (when the life assured is still alive). Some insurers like HDFC Life are doing that, too. But, it does not speak well of the insurers if they spend months or even years in investigating claims after the death of the assured. Insurers have to stop such practices immediately.

Action Speaks louder than Words

Indian economy is poised for higher rates of growth. According to the Bain & Co.’s Research (reference has already been made in the beginning), the growth and increasing urbanisation of the country will push 85% of India’s population in the category of “Middle Class” in 2030 under best case scenario. So, Indians will be requiring more savings, retirement and income protection products. India is already moving towards that direction. This is an opportunity for life insurers to develop innovative products and market them more vigorously. If insurers fail to meet the increasing life insurance needs of the people, other financial products will have a field day at the expense of insurers.

We have already mentioned about Max Life Kantar-IMRB research report, which has been prepared on the basis of interactions with millennials across the country. While we have a habit to say that the youths of the country are inclined to buy term policies more and other traditional policies much less, this research report says that 57% of the owners of such policies do not have any idea on how much they can get under term products and under what circumstances. The research finds much to its dismay that India’s Protection Quotient (IPQ) on the whole is only 35%. The factors which have been taken into account in arriving at this figure are the awareness and ownership of life insurance, level of preparedness for future uncertainties and the degree of preference for protection plans.

So, from various seminal research papers, it is clear that the country needs innovative savings, protection and pension products for various segments of the market. Even ULIPs can be marketed but not ignoring the needs of savings and protection needs. The insurance intermediaries have to be discerning enough to let the people have a mix of useful insurance products which can help meet financial goals.

One insurer uses the catch line, “SarUthakeJio” to improve their brand image. Now, the insurers should not just impress the customers with catch-lines but also do more useful work to spread insurance awareness further and help people live their life with head kept high throughout their lives.

The insurance major asks the youths of the country to leave nine to five jobs and take up insurance agency as a “career insurance” in which they can “Be their own Bosses” and earn pretty well. If that really happens in the country, the industry will be the preferred employer for youths. For that, the insurers need to consider agents as business associates and not as people who join the profession only after doing badly elsewhere. The agency can really be an honoured profession like doctors, lawyers and Chartered Accountants. The millennials have to be groomed and mentored properly in the initial years. There should be no undue pressure to sell some particular plans to achieve business targets of units. The Development Officers and Agency Managers should act more like trusted friends and not as bosses.

The insurers should always walk the talk. India is struggling to come to terms with the deadly Pandemic, Covid-19. Life insurers (together with health insurers) can exceed the expectations of the customers by providing services that can strengthen their brand image. In addition to settling claims within 3 days and extending grace period by 30 days, the insurers are setting up up 24 hour helpline to assist customers in case they need immediate assistance. They can arrange for some value added services to the customers suffering from Covid-19 and senior citizens (being the customers of pension products) in distressed condition. Insurers can tie up with NGOs and voluntary organisations to help people survive in the days of crises.

Tata AIA is doing things that make the industry proud8. They are paying additional Rs. 5 lakhs (or the sum assured whichever is less) to the claimants of those dying in Covid-19. They are also bearing all expenses of treatments of their agents or their family members (with an upper limit of Rs. 25,000), in case they are afflicted by the disease. The insurer is going beyond the worries of profitability at this hour and doing something very precious for the families of deceased customers.

Insurers can take this as an opportunity to come closer to people. This will automatically evoke interest in life insurance products and also life insurance companies. Customers will understand that insurers do not just hard sell life insurance. They actually are in business to serve the society.

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One thought on “What chokes the life insurance industry of India -Answers are hidden in Data

  1. Abhishek Rai says:

    Dear Team,

    What an editorial master piece with data, facts. Thank you so much for the same. It is just an 👁opener and shows the way forward..

    Thank you so much for such knowledgeable editorials.

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