Compared to the globally leading insurance markets, India remains far behind in terms of product innovation even though demographic changes are taking place very rapidly. The socio-economic profile of our population is undergoing rapid transformation. With an upward shift in income and aspiration levels of the youth who form one third of our population, there is a vast market opening up every year for a variety of products and services.
Lack of social security
Patanjali’s success in capturing the middle-class market at a phenomenally rapid rate is symptomatic of more factors than just the swadesi slogan. The financial services market is also getting impacted by the upsurge in income and aspiration of the youth who independently think and plan their future. The parents and the earning children are independent of each other in financial matters as smaller families have substantially reduced long-term financial commitments.
On the other side, consistently increasing longevity and gradual disappearance of the joint family system is creating a large segment of ageing citizens who would require not only regular cash flow for their survival but will also require a formal arrangement for their long-term care. In fact, senior citizens are on the verge of forming yet another underprivileged class in our society. In India, the social security system is woefully inadequate to take care of such needs of senior citizens.
Role of life insurance
Life insurers have the responsibility to provide to the population at both ends of the spectrum some innovative plans so that any citizen is able to provide financial protection for himself during and even beyond his earning life. This scenario opens up opportunities for innovation in product design and development for the insurers. Globally, the digital economy is growing five times faster than the global GDP. We are surrounded by an economy which is digitally induced and digitally managed. Digitalisation is causing redundancy of thousands of goods and services. Unfortunately, the insurance industry has so far confined itself to digitalisation of operations and online sale of existing products in a limited manner.
Nothing truly disruptive has happened so far. State-owned Life Insurance Corporation (LIC) of India and other leading private insurers must look beyond the obvious and take life insurance beyond its current identity as a financial product. This is, however, not possible with the existing methodology. To be effective in this regard, insurers must have a very talented and forward-looking leadership so that innovation takes place routinely in all classes of products. Actuaries working in the industry are treated like human computing machines. They need to be groomed to develop insight into the current needs of the market for the right products which can serve customers 30 years hence. They also need to devise products to align the industry’s interest to a fully transformed economic landscape. They must create value for the stakeholders.
When competition among financial products becomes increasingly intense, consumer grows more conscious about value for the money invested. Actuaries have to work in close contact with finance, marketing and IT people as the process and products to be devised cannot be shaped in isolation. Actuaries will have to find a progressive role for themselves or they will be replaced by artificial intelligence.
Market and longevity risks
The European market is facing the same challenges today which the Indian insurance market will be confronting in 2030. In Europe, insurers have stopped selling traditional products and they have introduced products such as Constant Proportion Portfolio insurance, index linked policies and variable annuities instead of fixed annuities to cope with interest rate fluctuations. Market and longevity risk are to be balanced by the product designers if customers and insurers have to be dealing with each other in a mutually beneficial manner. Techniques have been developed in Europe to control volatility in investment and return on the purchase price paid by an annuitant. The investment managers work to reduce cost of hedging investment guarantees. In India, LIC and other major players have to lead insurers in asset management techniques, product development and cater to the needs for those who depend on insurers for long-term care. Today, if you look at the plans offered by insurers, you have the feeling that you are being forced to buy frozen products and there is no option for buying fresh plans for yourself.
The author is former MD & CEO, SUD Life