Working in a life insurance company makes you come across a set of people who have a very strong dislike for this industry or the ones who are staunch believers in this industry.
I have been thinking about these two categories and have been encouraged to pen down my thoughts. In simple terms, the life insurance business is about three aspects, protection, long-term savings and investment.
Let’s focus on protection first. Though the life insurance industry has been in existence for decades, including the private sector industry for a couple of decades, awareness about protection is not as widespread as one would expect a focused industry of this size to execute.
There are only few who are educated about the importance of financially protecting their dependents when they are no more available or are incapable of providing for the dependents. Penetration of protection in terms of number of lives covered as well as the amount they are covered for is far below expectations.
One has to go through a few claims experience, which is at the heart of an insurance company to be able to appreciate the importance of this aspect. The state of financial dependents and the importance of financial protection are only experienced when an event occurs, however low the probability may be.
Financially, it can be seen as low probability but a high impact event. The emotional loss is recovered over time but a financial loss may take years for the family to recover. All earning individuals should make a pledge to protect their families from the financial impact they will have after his or her demise.
The level of protection should also be enhanced at each life stage of an individual, which is often ignored once a basic life cover has been taken.
Let’s look at savings now. The savings-to-GDP ratio of India is reasonably adequate. The challenge, however, is most of the savings is not goal-based, neither is it focused on appropriate assets. There are no adequate retirement schemes in our country.
However, if we observe the amount of withdrawals (though there have been efforts to restrict) in the provident fund savings during working life, it reflects the behavioural aspect of lack of discipline for goal- based savings even when it is a mandatory retirement
savings (for a few who are covered).
A savings product of an insurance company, whether guaranteed or participating, can be a good tool to save for specific goals and for a long term to ensure the compounding effect is at work. Here again, the number of people who stick to their goals like any other savings product needs a lot of effort.
In fact, the cost of acquisition is too high at this stage, which needs to be worked on, but it is primarily also due to the effort required to convert people to buy a savings product and stick to it. The effort required and the number of meetings required to convert a customer needs a lot of improvement, which is primarily the reason for lack of productivity. Efforts are also required from insurance companies to improve awareness and also work on better ways to distribute with lower costs.
Moving on to investments, Ulips offered by life insurance companies are primarily investment products and tools to create wealth. Design-related cost issues faced by traditional savings products do not exist here, since the ticket size is higher leading to lower cost.
This product is addressed to customers who have taken care of their protection and savings needs. These are informed customers who are willing to take market risks to enhance returns. In fact, on the cost front for a policy of 10 years and above, the cost of a Ulip product can be lower or at par with any other financial product, which is sold through distributors.
Various degrees and varieties of equity and debt products are available to ensure appropriate asset allocation to reach ones goals.
