Irdai, insurers push for protection-based plans

Such plans, which offer full financial stability to the policyholder's family, are now 45% of total life insurance products

Insurance Regulatory and Development Authority of India (Irdai) and insurers are focussing on long-term and systematic protection-based plans. The regulator has more than doubled the number of approvals given for such products.

There has been more than 160 per cent rise in the number of protection-based products and riders in the industry approved by Irdai in calendar year 2015. Irdai approved about 97 protection-based plans/riders in 2015, compared with 37 protection-based plans/riders a year ago.

Sandeep Batra, executive director, ICICI Prudential Life Insurance said the industry needs to do more in the protection-based space. “However, there is good news as there is a three-fold increase in the number of protection products approved by Irdai in the year 2015,” he said.

In 2015, about 215 products were approved, compared with 137 in 2014 by the Irdai.  Protection-based plans provide full safeguard and financial stability to the subscriber’s family in case of unforeseen events like death. These include pure term insurance plans which are usually low-cost in nature.

Global reinsurer Swiss Re has found big gaps in insurance coverage (pure protection) in Indian households. The mortality protection gap report for Asia Pacific by Swiss Re has found that the gap in India was $8,555 billion in 2014.

Clarence Wong, head of economic research and consulting, Asia Pacific, Swiss Re had earlier said while there was an increase in insurance coverage in India, it has not been adequate to fill the protection gap — the extent to which families were insufficiently covered for death of their earning members.

The study said the sum insured per working person with dependents in India was $2101 in 2014 (about Rs 1.3 lakh), which is much lower than other APAC countries like Australia, which has a sum insured of $303,401 per working person with dependents.

For a typical Indian household, for every $100 needed for protection, only $7.8 of savings and insurance is in place. Anup Rau, CEO, Reliance Life said there has been an emphasis on selling protection-based plans. Rau explained that ever since the focus has shifted away from unit-linked insurance plans, regulations were tightened in September 2010, insurers have turned to long-term and systematic protection-based plans.

Protection-based plans are now close to half of the total products available in the life insurance segment. Compared to 27 per cent in 2014, they now comprise 45 per cent of total life insurance offerings.

Batra said customers need to understand that they should at least have an insurance cover that is 10 times their annual income, just to sustain their current lifestyle. “We are grossly underinsured. Hence, we as an industry are working to bridge the protection gap. As a company too, we recently launched iProtect Smart, to bridge this gap,” he said.

Insurance penetration, measured as a percentage of premiums to a country’s gross domestic product (GDP), has been on a constant drop in India. According to the latest study from global reinsurer Swiss Re, India’s insurance penetration fell to 3.3 per cent in FY15, compared to 3.9 per cent in FY14.