Life insurance had only one large state run behemoth before better senses prevailed. The entry of private sector players was supposed to transform the sector. Perennially, India suffered from low penetration of life insurance and it was marketed more as a long term investment instrument, seldom on pure insurance centric features. Those were supposed to change.
Cut to now, nearly 2 decades later, we seem to be no better off! Take this fact, Indian decadal population growth rate is 17.5% (as per 2011 Census) while Indian life insurance effective coverage (policies in-force) grew by only 13.7% in last decade (Figure 1). So, broadly we can fairly say that overall effective penetration has only gone down. That’s not great news as India is not growing any younger, from average age perspective.
The other interesting point is that private sector contribution rose to a high of 13.1% in FY1011 before dropping to FY0809 levels in FY1617. FY1718 saw a slight upward tick, though.
We can safely say that in last decade, despite maturing of private sector, life insurance penetration and also contribution of private sector have failed to match the initial expectations. Now why this may be happening?
The answer is not easy but we would like to believe that this is an outcome primarily driven by mentality of Indian populace and the corporate greed to keep fueling that. With LIC, Indians looked at life insurance as 10-20 year savings plan. The private sector also played along, introducing Unit Linked products which were more mutual funds surrogates and less insurance products. The additional attraction was the hope of better & quicker returns. The short sightedness and the initial euphoria around it was short lived. With change in market scenario and new regulations, linked product lost the sheen and the private sector players started to drive a more balanced portfolio as evident in below figure (Figure 2).
Even LIC learnt the same. First followed the footsteps of private players (from fear of losing market share) and then learning the hard way (Fig 3).
The impact of product portfolio on business comes out very clearly in the below figures (3 and 4). Bajaj Allianz Life (BALIC), ICICI Pru, BSLI have been worst hit due to their skewed product range (higher %age of linked policies in initial years). The ones with a more balanced approach, e.g. HDFC Life, Max Life or even SBI Life (it course corrected fast) have done relatively better. Hence, policies in-force overall did not grew that much but there was a shift across individual players.
If the product positioning (investments vs. insurance) wasn’t confusing enough (address the greed of Indian consumers); the distribution channel surely was. LIC had mastered the art of agency force over more than half a century and it was going to be tough for new players. Not only commissions were regulated but also, higher payouts & cost of agency channel was a drag on the profitability of the insurance players. Obviously the ones with strong Banca were better placed. Hence many insurance players found it challenging to navigate. For same reason, many are trying to leverage digital in their acquisition of new business to reduce cost of acquisition and also allow a more effective approach to reach to masses beyond the metros and larger cities.
We will like to illustrate the effect of channel on the business of private sector players. When BALIC dependence on Individual agents grew, the business in force policies fell. With recent Banca tie ups, there is a slight uptick. We believe that FY1819 will bring some cheers for BALIC.
HDFC Life, on the other hand, has done better because of its strong Banca presence and also increasing contribution by Direct channels (which includes Online as well).
Among the smaller players, Aegon has done quite well with a steady increase in policies in-force and a strong contribution coming in from the digital channels.
Overall, it seems, the synergy between consumer greed (investment returns from insurance premiums) and corporate greed (showcase higher/ quicker returns for customers and also for it) has resulted in not so a great end game for Indian Life Insurance sector. Will it change and change for good, is only for future to tell but as long as market dynamics drive corporate behavior (which is not necessarily bad), it will be very difficult for Indian life insurance sector to mature.
Question is what do we recommend? Again no easy answer. Leaving everything to market forces has not helped till date. Short term benefits have always got precedence for both consumers and the corporates. Probably the newer generation can realize the foolishness of looking at insurance as investment and go for insurance for the sake of insurance only! Consumer awareness is going to be important and also, with rising income levels and decimating social nets, the need for pure insurance will slowly but steadily be felt. Till date, bodies like IRDA can help ensure that they play a more constructive role in shaping this sector. Can we make the next decade count?
Annexure: Sharing details of a few more LI players.
IRDA Public disclosure data for the different LI players
IRDA Handbook of Indian Life Insurance Statistics: FY09- FY13; FY14-FY18
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