Insurance: Online channel an emerging trend

Sarju Simaria

One may say demonetisation in the short run impacts premium collection as people habitual of paying premium in cash may adopt a wait-and-watch strategy till the position of cash liquidity eases out. However, for cases where the renewal premium due date that falls during the demonetisation period beginning November 8, 2016 and ending December 31, 2016, then for such policyholders, they have an additional 30 days of grace period i.e. 60 days from the due date to pay renewal premium. For example, as may be applicable, if the renewal premium is due on December 30, 2016, they can pay premium till February 28.

But, the real glory is greater possibility of cultural shift of receiving premium payment through banking and/or a digital platform which is a healthy development from the money laundering angle.

One of the compensatory positive impacts expected from demonetisation move is it actually will bring in that savings which was otherwise parked in informal channel into formal economy thereby giving boost to the financial sector industry, including insurance. And by the way demonetisation has not changed the demographics of the country when it is estimated that 37% of the population will be represented by the middle class earning population in India by 2025-26.

In the next obvious phase of moving from demonetisation to remonetisation, the Government is likely to do its best to keep the public emotions optimistic particularly for masses. This is already seen in form of incentives for using digital platform and what is expected now is possible lower tax rates regime coupled with tax incentives to channelise savings. To meet dual purpose of income protection for individual citizens of the country and contribution to infrastructure development, the most rewarding play for the policymakers will be by giving thrust to the life insurance industry. So, to say insurance industry is actually at a sweet spot.

Key success factors 

It is going to be how insurance companies approach towards pursuit of value will become a differentiation. Insurance has a peculiarity in its business. On the one hand, while writing insurance contracts, the liability for the payment of claims arises at a later unknown date, on the other hand, the premiums are received in advance from the insured event. These manifest into art of pricing of the product, product mix and sound underwriting practices to be adopted by the insurance companies.

Certain micro aspects which would include productive agency force and expanding distribution on non-traditional distribution platform, brand value, operational efficiency in servicing the customer like claims ratio, managing persistency along with expense management could be the factors determining who will command a premium valuation in growing market, such as India.

Customer-centric approach

Once the customer observes that the insurance players are fully responsive to customer needs and are bringing modernisation along global lines as well as introducing healthy competition in the market, it will create eco-friendly environment. Regulations are to stay for orderly growth of the sector but even regulator becomes less prescriptive in monitoring the affairs of the insurance companies once collective conduct of business revolves around the truth that ‘Customer is the King’. Perhaps in future, volumes will come from rural/semi-urban sales and value from urban sales. And as rural sector moves towards urbanisation, it only enlarges the value spectrum for the insurance sector.

Role of distribution

The game changing shifts that had happened over the past decade has been the rise of bancasurrance channel which will be significant channel even in future. The new proposal contained in guidelines on e-commerce issued by the regulator, which sets ground for doing away with wet or physical paper signature and acceptance of digital signature with ‘e-kyc’ linkages, is becoming an emerging trend on how insurance is going to be sold and serviced. Therefore, emergence of direct online channel is an area to watch.

Standardised simple products that can be offered over the counter and niche products for more savvy customers could be the newer segmentation in the distribution pipeline.

Further, the regulation rolled out recently on December 20, 2016 by IRDAI on commission, remuneration and rewards to agents and insurance intermediaries brings in greater freedom on payouts to distribution channels. This step thus perhaps completes all desired regulatory changes delegated to IRDAI under the New Insurance Act.

Therefore, it seems the stage is set for better development, growth and performance of life insurance sector in the years to come.

The writer is CFO, Edelweiss Tokio Life Insurance. The views expressed in this article are personal