The net widens

Written by Saikat Neogi | Updated: Mar 25 2014, 06:23am hrs
With growing misselling in insurance, online polices are becoming increasingly popular. Most insurers are creating a robust online channel for distribution as it can enable seamless switching between channels and can give a transparent comparison of products.

Currently, online sale of various insurance products accounts for R700 crore annually. Digital sale of life insurance accounts accounts for R300 crore, motor insurance contributes around R250 crore and other insurance, such as health and travel, make up around R150 crore. By 2020, online life insurance sales are expected to grow 3-5% of the individual annualised new business premium and non-life insurance sales are expected to grow faster to 15-20% of the retail business.

A report by Boston Consultancy Group (BCG) and Google India says by 2020, online insurance sales market in India will be around R3,500-6,000 crore for life insurance and about R11,000-15,000 crore for general insurance. The industry aggregate would be in the range of R15,000 crore-R20,000 crore. Moreover, digital influence in insurance sales is likely to grow to 50% for life insurance and 75% for non-life. In other words, about R1.2 lakh crore of new insurance premiums will be digitally influenced by 2020.

Digital insurance in India will be driven by growth in internet penetration. The number of internet users is expected to grow from 200 million currently to 330 million by 2016. In the case of insurance, the BCG reports says digital influence is six times the digital sales in India. The usage of digital platform is higher for simple products like term plan and travel insurance for pre-purchase activities like product search and price comparison.

Health insurance is one segment that has benefitted the most from the digital platform. The percentage of health insurance policies sold online has gone up from 13% in 2012 to 19% in 2013 and motor insurance saw an increase from 13% to 16% in the same period.

In a short period of time, the internet has succeeded in becoming the second largest contributor to brand selection, after friends and family, says the BCG survey report. About 52% of surveyed respondents said the internet was instrumental in introducing them to the brand they finally purchased compared with 49% who learnt about a brand or insurance company through an agent.

The digital model of sales is profitable for companies. A Life Insurance Benchmarking Survey report by BCG and Ficci shows that for life insurers, online channels results in higher ticket sizes of policies, greater persistency and lower sales costs compared to other channels. The persistency is much higher for the digital channel across the 13, 25, 37 and 49 months of the policy compared to any other distribution channel.

Moreover, the direct cost of selling a policy for an insurance company is the lowest at 11% of the annualised new business premium for online channel and the highest at 62% for the agency model.

The digital channel improves the front and back office processes of insurers. The front-end cost can be substantially reduced through elimination of sales force costs and enhanced efficiency of advisory processes with digital tools. Tools like Straight Through Processing can save the office cost of insurers and tools like telematics can make risk management better and reduce the claim costs.

Even for policyholders, the online channel is a win-win proposition. Trust will be higher as the policyholder can directly interact with the insurer and take an informed decision that suits their needs. Misseling would be reduced as information being disseminated would be exactly what the manufacturer desires, and in accordance with regulatory guidelines. There would be complete transparency in the product construct for customers, along with superior pricing as manufacturers pass back savings in acquisition and servicing costs, says the BCG report.

However, the critical differentiator would be the change in customer mindset. The same customer, the report underlines, who gets 'pushed' or nudged into buying an insurance product offline is a seeker of information on the brand, product and pricing when online.

At present, insurers sell simple products online and more complex unit-linked insurance plans offline. In fact, banks took the early lead in developing web-based transactions through internet banking to enhance efficiency and reduce transaction costs.

Analysts say that with internet penetration set to grow in the country, online products will command a large market size as they are not only convenient, given the time and space independence involved in their purchase, but are also cheaper than their offline counterparts because of the high cost involved for the initial acquisition.

The insurance regulator has made it mandatory that for customer identification procedure, insurers will accept the e-KYC issued by the Unique Identification Authority of India. The letter issued by the agency containing details of name, address and Aadhaar number will be considered as an official valid document and will be accepted for know-your-customer purpose. This will help drive online sale of insurance products.