India’s life insurance sector has been maintaining its steady upward march over the past several years even as the penetration level is still less than three per cent of the country's GDP. G Murlidhar, Managing Director & CEO, Kotak Mahindra Life Insurance, says financialisation of savings and increasing financial awareness will continue to provide a major boost to the sector over the next few years. Murlidhar tells Kumar Shankar Roy about life insurance sector’s growth potential, the factors driving insurance need, effect of regulations and a lot more. Read on.
What kind of growth are you expecting in the life insurance sector over the next few years and why?
We expect the life insurance industry to grow around 15 per cent annually over the next three years. The growth in the sector is likely to be driven by rising incomes, increase in working age population, and increase in household financial savings over the last few years as compared to investment in physical assets like gold seen earlier. With customers now becoming more financially aware, savvy and demanding, insurance will continue to get a major push for investment and financial security purpose. Also, favourable tax environment created to promote insurance, and several government insurance schemes have created lot of awareness among the people, especially, in several tier-1 and tier-II cities in recent years.
What are the reasons for the growing need of insurance?
The growing affluent and mass affluent population coupled with lifestyle changes has fuelled demand for insurance over the past decade or so. With growing wealth in recent years, customers have been allocating funds for insurance along with other financial instruments. Data of incremental household financial savings show that insurance has consistently been among the most preferred instruments for long-term savings. Despite the steady growth, insurance penetration has been less than three per cent of the countrys GDP and hence, provides a vast scope for growth acceleration in the coming years.
Why do you think insurance sector is considered to be instrumental in nation-building?
The recent numbers show that annual premium mobilised by the life insurance industry stood at Rs5.1 trillion in FY19 and the total assets under management recorded a robust Rs 38 trillion. As per the latest figure, share of incremental household savings accounted for 17 per cent. It is also a significant driver of economic growth as 26 per cent of Central government securities is financed by the sector. Of the total funds mobilised by the insurance sector, the sector contributes Rs 4 trillion towards infrastructure investment. While the sector employs a total of three lakh people across the country, there are 22 lakh entrepreneurs who have benefitted from the same by becoming life advisors. On bringing assurance to people's lives, as many as 620 million lives are covered. While total sum assured by the industry stood at Rs155 trillion, Rs3 trillion has been paid as benefits, including Rs260 billion settled towards death claims. Thus, insurance sector plays an instrumental role in nation-building by mobilising public savings for long-term investments, financing government securities, funding infrastructure development, driving employment and economic growth, and providing assurance to people.
Do you expect the recent regulatory changes will help the industry in the long run?
The recent product guidelines are focused on policyholder interests and are a welcome initiative from the regulator. Key areas of change include enhanced surrender values and relaxed revival period for lapsed policies. Moreover, flexibility has been introduced in the design of pure protection products, which is in the interests of all stakeholders. The regulatory ‘sandbox’ initiative is a very good move as it allows insurers to evaluate and test innovative solutions. We expect this will enable introduction of innovative solutions or processes that could improve the proposition to customers.
How has been the growth in key life insurance parameters?
The New Business Premium (NBP) by the industry recorded a good 37 per cent year-on-year (y-o-y) growth to Rs1.7 trillion year-to-date (YTD) in November 2019. Further, Individual Adjusted Premium Equivalent (APE) grew by 17 per cent this year so far and is expected to end around the same level in FY20, as against an 11 per cent growth in FY19, while claim settlement ratios of the industry stood at 97.6 per cent for individual and 99.1 per cent for group business.
What are the key emerging macro trends?
We expect changing customer behaviour, evolving distribution, innovation, and value focus will determine the future landscape of insurance in India. Distribution channel has evolved in last few years, especially, after the introduction of new age channels like Insurtechs, web aggregators, PoS. Further, traditional channels going bionic, and digital partnerships and ecosystems have added wings to distribution channels. Key innovations such as AI powered platforms have improved customer service, fraud analysis and persistency, while underwriting, product development and sales efficiency has improved because of leveraging analytics.
What are the imperatives for the industry?
While digitization will be at the core of industry's transformation, delivering better value to customers and efficiently reaching out to a wider base will hold key for the industry going ahead. To deliver better value, we expect industry players to design solutions beyond just traditional products and instead look at innovating products and solutions to create a ‘pull.’ Further, to implement analytics across the value chain, companies need to offer the right product based on customer's life-stage and needs, and improve sales efficiencies through predictive modelling.
How has been the journey for Kotak Life Insurance?
Along with the sector, Kotak Mahindra Life Insurance Company Ltd has also reported strong growth parameters in several segments. The company has built a robust and balanced distribution network comprising Bancassurance, individual agents, corporate agents and brokers, and direct channels, besides new age distributors like web aggregators, digital distributors and insurtechs. The company's total gross New Business Premium jumped 17% on-year to Rs 39.77 billion in 2018-19, while group gross New Business Premium rose 29 per cent on-year to Rs18.46 billion during the same period. The company's Individual Adjusted Premium Equivalent grew six per cent to Rs. 16.68 billion.