Embedded Value: Time for no-frills policies, online purchase

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August 28, 2020 12:40 AM

The pandemic has upset many age-old assumptions about financial security and has put the focus on preparedness to tackle the worst. Now all these need to be offered without massive paperwork that insurers generally heap upon a prospective customer.

Using data analytics to lower policy prices and settle claims fast and convincingly could be a winning proposition.

The life and general insurance business in India is currently facing the pressure of massive transformation because of the disruptions caused by the Covid-19 induced changes in lifestyle as well as in the financial security needs of people. Many people have lost their jobs, livelihood and even their lives.

Today, both existing and potential customers understand the need of insurance much better than the customers who bought insurance on persuasion by an intermediary in the pre-Covid era. The pandemic has caused a massive disruption in the way insurance is marketed and demanded by potential customers. Insurers now need to move fast from their traditional strategies of marketing to providing customers ease of buying policies. The potential customer is none other than the one who orders groceries online or consults a doctor through video calling.

Rewriting the rules of business

All the transformations have created opportunities for various businesses to streamline processes to cut costs but enhance efficiency as well as productivity. Now that owning a policy is perceived to be an urgent activity for each adult individual, buying the policy could be possible anytime, anywhere and from any insurer of choice. People now realise the importance of having a life insurance or a health insurance policy. Insurers need to rise to this new dawn and make efforts to reach the untapped market on a massive scale. The disrupted market certainly provides a great opportunity.

Insurers need to immediately attract potential customers by offering no-frills policies which would relieve them of the anxiety of protection to their families. The pandemic has upset many age-old assumptions about financial security and has put the focus on preparedness to tackle the worst. Now all these need to be offered without massive paperwork that insurers generally heap upon a prospective customer.

The insurance industry needs to bring down its expense ratio and break away from the mindset that fosters high acquisition cost. Back office expenses also need to be rationalised and the regulator needs to intervene in the matter by suitably pruning its own demands on the insurers for a plethora of returns. Compliance should be only system-based and should never require an additional hand. The core issue vis-a-vis a customer is convenience and pricing.

Lower expense ratio

Insurers keep loading a variety of expenses on the basic premium making a policy unattractive for the common man. In order to navigate profitably the new scenario, insurers must keep premiums low, building up income through enhanced efficiency and higher volume of business. They must innovate processes to ensure ease of buying a policy as a transformational strategy, since for almost all the policyholders buying a policy, life or non-life, has been a tedious activity always.

Using digital tools such as data analytics to lower prices and settle claims fast and convincingly could be a winning proposition. The problem with our insurers is that they love to stick to one technology application even beyond its redundancy and thus forfeit opportunities to upscale their productivity and reduce expenses. Digitalisation is a sequential process and one has to be highly flexible and alert to maximise value from technology. Unfortunately, the traditional conservatism of the insurers plagues their policy for digital systems and their utilisation.

The current disruption in procuring new business may kill some entities if they do not see opportunities in the otherwise gloomy market. Today, people may not have enough money to buy a policy but they have a realisation that financial protection for the family is one of the foremost requirements. Insurers must adopt new technologies to comprehensively meet the demand for insurance surfacing today or else they would be replaced by some other innovative financial tool. The industry leaders must train their people to take on the new challenges thrown up by the disruption affecting almost every aspect of life today.

The writer is former MD & CEO, SUD Life

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