Insurance: A lot has changed and a lot needs to change

Insurance is on a roll. The recent past, especially the last one year, has seen a lot of action in the seemingly staid sector with the regulator coming up with dozens of new initiatives and the rise of InsurTechs leading to an aggressive digital push by all players. But what kind of difference will it all make? More importantly, what changes should insurance companies be driving? Here's my take.

Evolving insurance industry

Insurance companies today are talking about customer service, product innovation, collaborations with InsurTechs and building innovative distribution channels. This is a shift from the past, where the emphasis was mainly on increasing penetration and financial inclusion.

I have also seen a variety of innovative products being offered– from global covers to dedicated products for women. In fact, since the pandemic the insurance sector has been going through major transformation. In my view, there have been two major changes. First, a lot more people now recognise the value of insurance. Second, insurance companies are embracing advanced technologies at a much higher speed.

This week the GST Council also gave tax relief on transactions to the insurance companies.

What needs to change in insurance

Fifteen years ago, when I started covering insurance, I had to create a dictionary of industry jargon—terms like repudiation, free look period, solvency, underwriting, and sum assured, because they were not regular words and not easy to understand either.

Even after 22 years of privatisation and more than 100 years of the industry, jargon and dominance of English remains, keeping the layman confused and underinformed. Senior industry executives admit that people don't understand the products because of jargon.

One Chief Distribution Officer once told me that they hold numerous workshops just to explain products to their sales force. So why not use simple terms like "chalu khata" or "bachat khata" instead of "agreshit rashi" which banks use?

Insurance companies spend more money on advertisements than on educating customers. Needless to say, both are different. The commissions for the intermediaries are decided by the regulator but the challenge is they must be reasonable. Low commissions will not motivate intermediaries to sell products, leading insurers to find alternative ways to compensate intermediaries, like lavish trips abroad.

Companies should ask more questions while selling policies and fewer when a claim is filed. Currently, it's the opposite because everyone wants to boost their top line.

An insurance broker recently told me that InsurTechs offer any sort of discount just to get the business. It's not at all sustainable for them. They just need to keep the top line robust, and then they keep on delaying or rejecting the claims to save their bottom line.

Apart from the simple and jargon-less products, what I think will work the most is the trust factor. People are now understanding the difference between investment and insurance products. They know that investing in mutual fund and taking the SIP route will be far more lucrative than buying insurance as an investment product. So insurers cannot show the same cards now. There are enough case studies of how much more money customers made by investing in mutual funds than in traditional products in the last 10-15 years. A personal finance expert once told me that he only advises clients to go for term insurance and not endowment policies when it comes to life insurance. Hence, there is a dire need of revamping and redesigning the endowment policies. Also, insurance companies will have to pitch for insurance first and then investment.

Make it clear

Remember, the trust will go up only when you deliver what you promised. Often there is a mismatch. Only at the time of claim the customer realises that he is being taken for a ride, which is demotivating. You buy motor insurance and then you realise that it doesn't cover engine, car parts and many things… then the question the customer will have is what is he paying for? Still today the interlinkage between the companies and brokers is so high that it is an unwritten rule that the first-time vehicle buyer has to pay two to three times the premium for buying motor insurance. Why?

Also, the generational change has brought in new challenges. What if a customer buys motor insurance for a Scorpio SUV and then modifies the car with expensive accessories? Insurers have to be far more innovative and simple. A lot has changed. But a lot needs to change, too.

Apart from jargon I strongly feel that the whole product space should go through a content revamp. Customers shouldn’t be surprised to find that their motor insurance doesn’t cover essential parts. This will reduce mis-selling. For years, insurers exploited system loopholes, but this can’t continue. The market is going to be very different henceforth. Remember when you buy a car, it is mandatory for you to buy motor insurance from the showroom, which is almost double the cost. Why?

India next and insurance

When India is marching towards a developed economy we need a set of vision for insurance as well. We can't have the same product, same strategy and same approach when buyers are youngsters, who prioritise cashbacks and experiences. Under the Viksit Bharat theme, the Insurance Regulatory Development Authority has set a vision for “insurance for all” by the time we celebrate 100 years…but a lot needs to change for that. We must start planting the seeds of this transformation today.

Well, today is Insurance Awareness Day and we have lined up a show with industry veterans at 2pm. The show will be live on all social media channels of ETBFSI.com. Click here.

(Editor's View is a column written by Amol Dethe, Editor, ET BFSI. Click here to read more of his articles exploring several buzzing topics.)