Internet: The challenge is to take it to the rural population!
7^th Jan 2010

Over to Q & A

Insurance is in the reach of only 2% of Indian people. How do look at that?

Customers are quite savvy about the products like credit cards, loans, mortgage loans and even long-term life insurance. But overall the insurance industry needs higher level of understanding.

In life insurance, particularly in India, banks are not only protecting but also providing investments. The premiums are big and they are making commitment for a long period of time. As insurance is bundled with investment, this makes it more complex than mutual funds or credit cards. Tax around it, is also complicated.

There is a need to extend the reach to people especially to those people who are not interested or are not aware, we should explain them the importance and the features etc. The mass market does not constitute HNIs and for reaching to general public, the product has to be simple.

 

If the Life Insurance strips the investment portion, will that sell in India?

Actually Indians like the idea of bundling things together. So we have made products at HSBC Canara and OBC which appeal to the people. We are doing many things to simplify the product. We have launched the product called Saral Bima, which is a very simple product. This is designed for serving rural and semi rural population of the country. Therefore in this product, we have kept one page application form. There is not much writing required, no declaration of health and is a balance fund. As Indians like to invest in the market hence the people will be very interested in the product because of its design. We have sold 10000 policies in the single month.

The product is not designed for people paying Rs. 3 lacs as premium.
Here the minimum premium is Rs. 1000 only. So for further increasing our reach in the rural markets, we will have to simplify it further.
As we are doing it through banks, we are looking at the customers who are borrowers and at the same time looking for protection.
We have to simplify the application form and product features, and to the extent that we like it to be pure risk product – the term policy. We have signed up with three regional Coop rural banks of Canara Bank which is a very big bank with Pan India presence through its 2600 bank branches. Amidst all the three banks, we have 6 million customers, who are rural customers and self help groups. This way we see a very valuable opportunity here.

 

So these would be health declaration based or group policies paying the risks compulsorily bundled with the loan product.

Even for a bank to start off, it is to be bundled with some product. The way you protect say the coverage validity is very small, and you have the grip, fortunately in life it doesn’t lend itself to more hazard in the same way as in health insurance, motor insurance and general insurance. We are an IT enabled company and have spent a lot on technology. We have Online application forms from our banks which they mail us electronically. This way we want to give much more capability to our channels so that customer is serviced online, which again means we have to simplify the product.

 

Is IRDA allowing buying life insurance Online?

Applications need to have physical signature. We are lobbying with the Life Council and regulator as in the IT explanation amendment law act, there is a clause which says that you can have digital signature.
Our shareholders have the extensive coverage with their branch network as half of their branches are in rural areas and we have to increase the reach in rural areas by spreading insurance. We make sure that we target with products which are needs driven.

This is where we feel that our bancassurance model is very appropriate because they have more than 4000 branches across India. We don’t have to pay to go there to serve the customers. That is why PSU banks in particular provide vast coverage which is to be used for extending insurance reach in India. Suppose your infrastructure is IT enabled but you do not make money if you keep the cost of premiums high. It is important for the structure is to be effectively leveraged. It is in recognition of the fact that if you have to grow in any particular part of the country then you have to have branch network. It is on priority for the Government, for the Regulator, for the Insurer to reach out to the vast rural population. It is pretty important that whole structure is leveraged.

 

Bancassurance, from a consumer’s perspective makes good sense as there are no fixed overheads and strong existing relationships. But from bank’s perspective, it has reasonably high commission structure. Hence doesn’t it lend itself to the huge mis selling?

This fact is pretty well reported that the industry has got the challenges by way of its wholesale prices and rightly so regulator is tightening it. At one extreme you have bancassurance model like ours, where we are wholly-owned by our shareholders, HSBC, OBC and Canara bank, who are distributing for us. Then there are very long-term relationships, where they have already invested and continue to invest heavily. On the other end of the spectrum, there are banks which may not have any relationship with the insurers and they are investing big monies to bring them in their fold. But chances are that they may switch so there is higher risk in the long-term behavior in their model.

We are telling the customers of HSBC, Canara Bank and Oriental Bank of Commerce that there is no absolutely no question where these products are sold. But if a customer complains, then relationship with that customer spoils who not only has check in account but also 4-5 other accounts. So banks feel it important to protect this customer. Our relationship with the customer is very strong and in rural parts of India these banks are like a family.

That is why mis selling can happen because you have customers who trust you blindly.

So in Bancassurance model, what ever the commission, is it does not go to the individual, it goes to the bank. None of our banks are inconsistent with the general approach to pay. What you are referring, happens when insurance company’s representative sits in the branch because he gets the commission from the insurance company.
We are absolutely controlled by the bank. We cannot get commissions what these banks get from the market. Of course, Insurance companies have stakes in these companies so that they have pre formed return on this dispenser so they get commission here. This way it is a win win situation for them. It is hard to sell insurance plan unlike credit card or car insurance.

Those companies which have investment in life insurance are given a pre emptive shares and they say that it is a very good quality long-term income stream. So banks are very careful about this scenario. And if this is the case where we have the shareholder as distributor, we make sure that customers are well looked after. The control practices are very strong and this is the reason there is a case for simplification. You are better off if you have simple product and not if you have 20 products in your portfolio.

 

Are you dealing with the customer with very limited bouquet of products?

We don’t have agency force. We have a big customer base; hence it is the product which distinguishes us. We have a very limited product set. When you come to me as the customer, we as bankers have only 6 banking products in my kit bag and I don’t want to put 20. I might get confused and end up giving wrong product to the customer. So we don’t look forward to many more products but we study the customer to assess what are his needs. So we leapfrog from there and invest more in technology like many micro-finance companies are doing. The product, the pricing, and the training have to be different in different segment and we recognize that.

 

How do claims get handled considering the fact that you don’t have agency network or even your own offices? So where is the mechanism for it to come back?

Claims are something we are very passionate about. It is important to note which part of customers we are selling. This is where our banks network comes into play and we use their infrastructure and relationships with customers for claim settlement as well. Like today we have 29 regional offices supporting the banks so if we double them or even treble them or make them even 500 branches, it is not going to be enough. So alternately we bank on the relationship they are having with the branch. We have strong investment performance till date which we hope to continue. Going forward, it is high time that people realize the value of insurance, irrespective of the fact that they have a claim. Unfortunately in life insurance people have to claim, when the insured person dies, who is typically a bread winner. In this situation the expenses of family are to be met but we have realized that not enough focus is given to that. In case of a claim, we immediately pay according to the fund value, till the time paper work happens, we issue the balance money. We make sure that the family does not have to struggle.