In an interview with Nidhi Sinha, Editor, Outlook Money, Anup Bagchi, CEO and MD of ICICI Prudential Life Insurance, spoke on various issues facing the sector, from simplifying the products and curbing mis-selling to reducing the possibilities of early surrender, which can help accelerate the value of insurance while extending its coverage to every Indian. Edited excerpts:
Making Life Insurance Simpler
Our interaction with customers shows they are anxious about buying insurance, mainly because of the complexity. The anxiety stems from their lack of confidence in what they buy. I have seen across the banking, financial services and insurance (BFSI) industry that customers shy away from complex products, even if they are good, and flock towards simpler products. Since these are long-term products, they are not liquid, and there are costs attached to exiting them midway, the decision becomes that much deliberate.
Simplifying The Concept Of Pre-Existing Diseases
The solution is explaining patiently and asking the right questions. For example, for the medical part of life insurance, customers are usually asked to just make disclosures on their own, but these may not always be validated. This can lead to issues at the time of making a claim.
We have started simplifying the questions. For example, one can just ask, “Are you taking any medicines?” rather than asking, “Are you under any medication?” It’s the same question but worded more simply. The complexity comes because the simplified words also need to be legally enforceable. So, to make it watertight, one ends up mystifying it too much.
The Insurance Regulatory and Development Authority of India (Irdai) has set up a committee to simplify documentation and wording which are legally enforceable. It is important to explain that disclosing a disease does not automatically mean it will not get covered.
The banking industry has a “most important terms and conditions” sheet, and the mutual fund industry has it (scheme information document). I am glad Irdai has also brought something similar because people must know what they are buying. Anything which increases trust is positive. A policyholder must be clear about the contract, how much they will pay, how long they will pay, when they will get money, what are the costs, etc. I think there are 7 to 8 things customers are interested in, and they should be told about them upfront.
Standard Policies Vs Customisation
Our feedback from customers is that they want options. However, they will get confused when you give them unlimited options, which may be complex. Customisation works better when customers understand a category. But when they don’t fully understand the category, customisation can confuse them. From a behavioural finance perspective, both should be provided, but standardisation can fulfil the needs of 80 per cent of the customers.
Surrender Charges Remain An Issue
It is an issue of need for liquidity, either temporary or permanent. Temporary liquidity issues can be resolved through loans against policies. When the policy needs to be surrendered, the real issue comes up. Clarity around how much one gets back would be useful as well as the process of surrender can be made easy. One has to bear in mind that all long-term corpus-building products, like the National Pension System (NPS), Provident Fund (PF), etc., do not provide liquidity except in special circumstances.
Irdai has come up with a discussion paper on surrender value. It envisages a higher surrender value for non-linked products to the policyholder, which would encourage demand for products. The product and the distribution structure will have to be adjusted for those changes. Transparency on surrender will again increase trust, which in turn will increase demand.
Life Insurance Products In Retirement Planning
Globally, there used to be defined benefits, which shifted to defined contributions. However, people’s demand for defined benefits is high. If you see many of our investment products, they are all defined benefits because there are guarantees. They, in turn, are risk-managed by buying government securities to mirror the cash flows. A large part of the retirement corpus must be in guaranteed products because interest rates are volatile. Saving for retirement needs the defined benefit approach partly and defined contribution as well because if the market grows, you must also take part in the upside. It is important to diversify to manage the risk.