Srikumar Bondyopadhyay

Life insurance is getting livelier. The winds of change are blowing across the board, both in terms of products and services. At least 10 companies (including the LIC) are vying for the big pie of an estimated 800 million uncovered lives (only 80 million of India’s one billion population is covered) with their multi-option life insurance products. Another 10-odd aspirants are waiting for the final go-ahead from the Insurance Regulatory and Development Authority (IRDA) and the Reserve Bank of India. A number of these new applicants are scheduled commercial banks such as Punjab National Bank and Vijaya Bank.

Even a year ago, you could not think of a ‘free trial’ of a life insurance plan. You would have bought a policy from the LIC at the agent’s insistence. And in case you subsequently found it to be a mismatch with your risk profile or financial capacity, there is nothing you could have done? Either, you would surrender the policy after paying one or two installments with no provision to get the money back, or you would continue with the wrong policy paying the premium installments till the maturity. But no longer now. Thanks to Max New York Life Insurance Company, a new entrant in life insurance business in India, you can get a ‘free look’ at any of its products for a period of 10 days!

“We are the first life insurance company to launch the free look option in India,” boasts Anuroop ‘Tony’ Singh, CEO-cum-MD with Max New York Life Insurance Company. He adds: “With the free look option you have the unconditional right to return the policy, if you so wish, within 10 days of receiving it. In fact, the policy is personally delivered by our agent-advisor and the customer is explained the entire policy and its benefits.”

The first private life insurance company in the country to cross the Rs 1,000 crore sales mark, MYNLIC also offers a Personal Insurance Plan, which gives the customer complete details of his policy with a year-on-year summary. “The Personal Insurance Plan is also presented to a potential customer even before he buys a policy,” says Mr Singh.

So, now even if you buy a wrong insurance policy, you can replace it with a suitable one or get your initial premium back without losing a rupee. “In the Western countries, giving customers a cooling off period in respect to a particular product is a common ethical business practice,” explains Dharmendra Kumar, regional manager of north zone (marketing), LIC. He adds: “In India, there was no such practice till recently. However, the IRDA is already considering formulation of a general policy framework for policyholders’ protection. Here, the authority has proposed to allow for a free look period to policy buyers. And once it is promulgated, it will be incumbent upon every company doing life insurance business in this country to adhere to it. We too, will introduce a cooling off period for our products.”

Max New York is also the first private life insurance company in the country to offer the facility of premium payment through credit cards. For this, Max New York has formed an alliance with HSBC, whereby the cardholder—irrespective of whether it is a Mastercard or a Visa card, a credit card or a debit card—can pay the premium through the plastic card. HSBC cardholders can also give the bank a standing order to debit their premium directly from their credit card account. In case of a direct debit, the policy holder gets a two per cent discount on his premium. MYNL also sends its policy holders an annual statement on their policy status so that they can keep track of the sum assured, annual benefit accruals, amount of premium paid, etc.

LIC is also becoming technology friendly. In fact, LIC has already started accepting premium online. The Internet (www.licindia.com) facility introduced by LIC enables one to check policy status as well as pay premium online. The premium can be directly debited if the policy holder has an account in UTI Bank, Bank of Punjab, Corporation Bank, HDFC Bank or ICICI Bank. Says Mr Kumar: “We are also working on developing a system of consumer identity at a national level so that a consumer will be able to keep track of the status of all his policies by logging in his consumer ID into our system. At present, this service is on offer in select cities of the country.”

In terms of products, though the new players are right now sticking to two or three basic plans—namely endowment, money back and deferred payment annuity plans—they are also offering a number of rider options such as critical illness, waiver of premium payment in case of an accident, term assurance, accidental death or disability benefit, reimbursement of hospitalisation expenses, etc, which a policy buyer can customise according to his own requirement.
Besides, a company like Allianz Bajaj Life Insurance also gives its customers the flexibility to exclude or include a combination of riders during each policy anniversary. “Unlike before, a customer now has wider options in terms of riders which he can even customise according to his requirement with the aid of our insurance advisors,” says A S Sodhi, regional manager (north zone), Allianz Bajaj Life Insurance Company. “LIC, even now, doesn’t offer the critical illness or terminal illness rider with its other basic plans,” he adds.

Says Mr Singh of Max New York, “We provide a flexibility in our products so as to ensure that a customised solution is sold rather than a pre-packaged product. The biggest value addition that we offer to any of our basic products is the rider/option to suit the specific needs of a customer. We offer over 200 rider/option combinations to choose from, which also include exclusive options such as the Option to Participate in Progressive Bonuses, Guaranteed Insurability and Dread Disease. Further, we offer a Terminal Illness Benefit across all products.”

Mr Kumar, however, adds that what these new companies are offering as riders to their basic plans, LIC has been already offering these products as pre-packaged stand-alone plans. “Take, for example, a cover against critical illness. While the new companies are offering this cover as a rider, LIC is offering this cover as a stand-alone plan—Jeevan Asha Deep II,” cites Mr Kumar. “These new companies are just couching their basic plans with a number of riders and to avail of those extra covers a policy buyer will have to pay an extra premium,” Mr Kumar says. He then adds, “The IRDA has stipulated that no company can charge more than 30 per cent of the basic premium as an additional premium for any rider combination. This assumes significance so far as the extra premium and the rider options go.”

Mr Kumar explains: “In the Western countries, the general practice is that the insurance companies offer unbundled products and depending on the life covers a customer chooses, the premium is calculated. Here, this is not the practice. However, sooner than later unbundling of products will also come here and LIC will also live up to that kind of product offerings.”

Mr Sodhi, a former LIC employee, admits: “For any of the new entrants in life insurance business in India, it is never easy to compete with LIC. However, LIC’s big stature has its disadvantages, too. With so many products, so many agents and so many customers, you are bound to lose your customer focus and, hence, fail to render professional services. Since we are new and small, so we can put in much more effort to deliver a superior customer services and that’s what all new players are doing.” All new players are concentrating on promptly attending to a customer, helping a customer to understand his risks and liabilities, framing a customised insurance plan on the basis of this, and facilitating premium deposit.

Besides, private companies are also offering competitive rates. For example, Allianz Bajaj is offering the lowest premium cost among all the companies, even lower than LIC! If you are 34, then for the basic endowment plan, maturing in 15 years, with an annual premium payment option, LIC charges a yearly premium of Rs 34,130 on a sum assured for Rs 5 lakh. Whereas, for its Save Care Economy Single Cover plan (a basic endowment plan) with the same premium payment option, Allianz Bajaj charges a yearly premium of Rs 26,625, which is over 25 per cent less than that of LIC. In other words, in 15 years you can save as much as Rs 1,12,575 on premium cost if you go for Allianz Bajaj. “In fact, the lower premium cost is one of our USPs,” says Mr Sodhi. He adds: “For some plans and age brackets, our premium cost is even 35-40 per cent lower than that of LIC.”

Allianz Bajaj is also offering a discounted premium for women customers across all its products. The basic premium discount Allianz Bajaj is providing to its women clientele is equivalent to the premium for a two-year younger male policyholder. ??

You now have different options for redeeming your annual bonus accruals also. Max New York Life offers at least four such options to choose from: you can either encash it on a yearly basis, or compound it to get at the time of maturity, or use it to buy a one-year term maturity or fully paid-up additional whole life cover, or you can use the yearly bonus to offset premium of your in-force policy!

Take another basic life insurance product—money back policy. While all other life insurance companies give back only 100 per cent of the sum assured (excluding annual bonuses and loyalty additions) as the survival benefit at the maturity of the policy, Allianz Bajaj Life gives back 125 per cent of the basic sum assured as survival benefit at maturity (this is excluding accrued annual bonuses).

Even in group term insurance product category, new comers are offering value-added products. For example, Tata AIG Life is offering a credit cover for the persons taking a home loan from Tata Home Finance. In conjunction with Royal Sundaram Insurance, a general insurance provider, Tata AIG also started offering credit cover for Citibank credit card holders. However, IRDA (Insurance Regulatory and Development Authority) has asked these two insurance companies to reformulate their product distribution proposal at the instance of Citibank credit card holders who cited that the bank had started debiting insurance premia to their credit card accounts without consulting them beforehand. The Citibank might have stopped providing the insurance cover, but it’s only a matter of time and modality before similar facilities are offered again.

In keeping with the trend, LIC is also restructuring its product range—by reconstructing the existing products and by introducing new products. In the new product category, LIC is the first company to offer an equity and debt linked insurance plan, called Bima Plus. It is a growth plan which is built upon individual’s Fund Unit Account. The Fund Unit Accounts of individual policy holders are created out of a significant (more than 95 per cent) portion of the premium paid by the policy holders. The total fund so accrued is then invested in equity shares and corporate and government debt papers. The Fund Unit Account of an individual policy holder is divided into several units the value of which increases or decreases depending on the investment return made out of the fund. Each individual policy buyer is given three options to choose from under Bima Plus plan. Depending on the extent of money (out of the fund) invested in equity and debt instruments, the three fund options are called Secured Fund, Balance Fund and Risk Fund. The LIC also gives a policy buyer of its Bima Plus policy the facility to switch from one fund to another within the terms of the policy.

The Bima Plus thus provides for a higher growth (consequent upon the investment in capital markets) along with a life cover during the term of the policy. The benefit to the policy holder accrues in the form of higher bid value of the units of one’s Fund Unit Account.

In fact, the market rate of return on investments is going to dictate the survival benefits on a life insurance policy, irrespective of the insurer. Hence, you can see that no new company is assuring an annual ‘guaranteed addition’. Even LIC has already submitted its proposal to IRDA for reducing the rate of ‘guaranteed additions’ in its several deferred payment/ annuity plans such as Jeevan Akshay, Jeevan Dhara, etc. The corporation is also set to reduce the rate of return in its most successful scheme this year, Bima Nivesh, which is single premium policy which saw more than 200 per cent growth between July and October this year, from December 15.

“Conservatism is our strength,” says Mr Kumar. He adds: ‘‘So, when we feel that it is going to be inconvenient for us to sustain the high rate of return as assured to our policy holders, we do restructure our products offering a reasonable rate of return. And in terms of return at any point of time, no new player can match us.’’

But buoyed by its tremendous success within only nine months of operation, Max New York banks on its financial strength. “Our financial strength is reflected in the fact that we meet both Indian and US reporting norms,” points out Mr Singh. He adds that the company has invested only in debt instruments to ensure safety of policyholders’ funds and has kept aside one per cent of the annual premium income in a contingency fund.

The 2001 is the first year of entry for all the new comers in domestic life insurance business. Come next year, all these companies, including the LIC, are expected to get their act together more professionally. Max New York is currently evaluating the pension fund segment and single premium based products to come up with new schemes. HDFC Standard Life Insurance Company is also set to launch a unit-linked life insurance product beginning next year.
LIC has also submitted a few proposals to the IRDA for new products. “These new proposals involve some innovative products,” Mr Kumar gives an hint. Come next year, you may find a new hybrid product combining a whole life cover with a premium refund! Guess, from which stable?