The Three Cs For The Future

Customers, choice and convenience will be the words to watch for the insurance industry in the next decade
The business of life insurance is all about risk mitigation, be it financial risk associated with loss of life or risk of erosion of value of investments. Today, life insurance may mean different things to the insured, suiting his different needs, but it remains unaltered even in a rapidly changing social and financial milieu. However, for the insurer, it is about risk management. Increasingly, the risk of investment guarantee is getting passed on to the policyholder through the recent genre of unit-linked insurance plans (Ulips).
Even then, insurance is associated with guarantees and moving on, it will also be seen as a financial planning product, for an individual if he survives, or for his nominees upon his death. However, what is likely to change is the way insurance products are distributed. Financial products have reached an advanced stage of evolution where they now come coupled with other products in the market. For instance, you can now get a loan coupled with insurance.
Such combinations are also indicative of the fact that investors have become more discerning and, with technology taking evolutionary leaps, have started looking for convenience. With the emergence of a strong middle class, the cost-benefit proposition of any financial product has become a challenge. In such a competitive market, insurance products present us with a lot of opportunities to look beyond the conventional distribution model, which is currently the driving force.
For the next 10 years, the thrust will be on distribution of products. I foresee stand-alone distribution companies emerging, which will offer an entire product suite, from insurance to mutual funds to banking products.
The traditional channel will remain active and vibrant but the new channel will show a bigger growth rate, thus cornering a bigger market share. Like other products available today at the click of a mouse, life insurance too would be sold online. In addition to the convenience of the online medium, it will also help in customisation of policies.
Suggestions have been made to have a different pricing model in the industry and in the future, if insurance companies are able to price their products differently depending upon the distribution channel they choose, we would be able to pass on a lot of cost-cutting—in terms of less paperwork and elimination of intermediary involved while transacting online—to policyholders.
With so many new channels of distribution emerging and the human interface gradually petering out, focus will also increase on providing after-sales service to policyholders. The need is to look at efficient ways of providing customer service to enable policyholders to forge long-term commitments.
Any insurance product is a bundle of specific benefits. Since premium rates are linked with benefits, the premium does not vary across different distribution channels and service delivery models for a given product of a company. However, this could change in the future and there could be regulatory changes which would allow different premium rates to be offered to customers for the same bundle of benefits, depending on relevant factors like intermediaries or service delivery platforms.
With improved distribution, penetration of insurance will also increase, which will make insurance policies viable collateral for loans or credit cards. It will be an asset which will empower you to negotiate with banks for lower rates of interest.
Guarantees were not so much of an issue during the stockmarket boom, when policies were giving erratic returns. But today, when the markets are volatile and people are looking for guarantee, products that guarantee protection of capital and loyalty additions offering some kind of safety net will gain focus. The concept of guaranteed returns, which takes a backseat with a certain section of investors, will again come into prime focus. Again, the insurer will take more long-term risk than it does now in terms of returns.
All in all, the next decade will be the decade of customers, choice and convenience