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Decoding Growth of Online Insurance Sector in India

February 17, 2017

Online Insurance Market in India is Growing Every Day, says HDFC Life CEO & MD Amitabh Chaudhry

In an interview with finance platform The MoneyMile, Amitabh Chaudhry, CEO & MD, HDFC Life, and Yashish Dahiya, CEO & Co-Founder, PolicyBazaar.com, discuss the state of online insurance in India, the change in consumer attitudes, the all-encompassing persona of health insurance, and the emergence of ULIPs as a beneficial long-term investment option.

The insurance industry in India has undergone a profound change since the global financial crisis of 2008. Of course, the new IRDAI guidelines that aimed to restructure the cost of insurance policies to make them more customer-friendly, also contributed to this transformation. But that is all in the past. To make sense of what is currently going on in the insurance space, including the challenges and opportunities, Amitabh Chaudhry, , and Yashish Dahiyashare their views in a live panel discussion with The MoneyMile Founder, Vivek Law.

State of the Online Insurance Market in India

As internet penetration continues to grow in India, more and more people are becoming increasingly comfortable with making transactions online, and a surge is evident in the e-commerce space in the country. According to Mr Chaudhry, the insurance space, especially the online insurance sector, is also a part of this growth story. He says, “The number of people who are buying insurance online is rising rapidly, day by day. Giving a push to the growth of online insurance is a host of benefits that insurance policies bought online offer.” For example, online insurance plans cost less  than their counterparts which are purchased through offline channels. These savings are usually passed on to the customer in the form of lower insurance premiums. He adds, “Also, for the top 5-7 players in the industry, there has been an improvement in the persistency ratios—that is, how long the customers are staying invested.”

Attitudes and Preferences of Millennials

Indians who are buying insurance online are mostly millennials (aged below 35 years), reveals Mr Chaudhry. He states, “Millennials are great at multi-tasking and are always on the lookout for a quick fix, which means that online platforms that make shopping for insurance quick and easy, resonate well with them.” Also, the internet has bridged the financial literacy gap amongst this Generation Y. Since they generally have lower incomes and lesser assets, they tend to be more vulnerable to the bad things that may occur. And because they have less room to rebound, it’s not surprising to see, he explains, that they are looking at insurance as a financial safety net that, if they were to fall, will catch them before they hit the ground.

For a Better Insured India

Even though the insurance sector has witnessed a rapid upsurge in the past few years, he states that India is still grossly under-insured. But why have many Indians abstained from ensuring their lives? A part of the answer lies, , in the general belief that insurance is expensive. But buying the policy as early as possible can help you get the lowest possible insurance premium. He explains, “The good news is the younger you are, the cheaper the insurance coverage. For example, at 25, you would be spending less to book a policy than say, at 45.” Mr Dahiya adds, “So every additional year that you delay buying insurance is going to cost you extra.” Of course, you also enjoy certain tax benefits on the premiums you pay, which can offset the buying cost to some extent.

Even the Invincible need Insurance

Something that is holding the insurance industry back, however, is the perception of many citizens, millennials included, who often feel invincible when it comes to potential health setbacks, says Mr Chaudhary. They therefore, believe that they do not need health care or insurance. But the reality is that long working hours, poor eating habits, and a lack of exercise have led to an increased occurrence of lifestyle disorders such as heart diseases, claiming even younger lives. He states, “Contrary to popular belief, the advancements in medicine cannot always safeguard against death, disability and disease.” Mr Dahiya says, “The need of the hour, therefore, is to get people to understand that unforeseen things can unfortunately happen to anyone.” For those who are concerned about the cost of health insurance premiums, he points out that insurers such as HDFC Life are providing coverage at low cost. He states, “There are some policies in the market with premiums that cost less than Rs.1,000 per month.”

The Changing Face of Health Insurance

But, for those who believe in the sheer necessity of health insurance, says Mr Chaudhry, there is a growing interest in benefits customised to his or her requirements in addition to the basic coverage. Because the incidence of lifestyle ailments has increased, insurers have started offering disease-specific health insurance plans for a host of conditions such as cancer, diabetes, stroke, and most recently, dengue. “In fact, HDFC Life's Cancer Care, launched three years ago, was the first cancer plan in the market,” he says. “So, on the disease-specific health insurance front, we’ve made good progress.”

ULIPs for Profitable Investment

Instead of a medium for financial security, many people look upon insurance as an investment avenue, which is why there is a high demand for products such as unit linked insurance plans(ULIPs). Mr Dahiya says, “The beauty of ULIPs is that policyholders can switch their investments from debt funds to equity funds or vice-versa, as per their risk appetite and financial goals.” ULIPs changed for the better after insurance regulator, IRDAI, capped charges and raised the lock-in period to five years, in 2010, in order to protect the investors’ financial interests. The cap on charges has led to the cost structure of ULIP policies becoming significantly rationalised. Mr Chaudhry points out, “The HDFC Life Click2invest ULIP plan became a game changer for this segment when it got rid of both policy allocation and administration charges. The rest of the costs, including fund management and mortality charges, were minimal.” Thanks to the lower costs, the returns on ULIPs have improved substantially. In the long run, ULIP returns will probably be equal or similar to those of mutual funds.

This discussion is part of the ‘Insurance Decoded’ series by The MoneyMile. 

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