Consumers' awareness and profits help insurance sector grow by 50%

“Insurance is a still a push product. It is yet to become a pull product,” said the managing director and chief executive officer of an insurance company at the Business Standard Insurance Round Table, earlier this month. However, this seems to be changing as protection products are seeing demand from consumers on increasing awareness about pure insurance.

In India, life insurance has mainly been considered to be an investment product, and is the product of choice after bank deposits in households’ financial savings and investments. According to a February 2019 report by brokerage UBS, the share of life insurance has improved by around 100 basis points to 11 per cent over the last two years and that of banks deposits has gone down. Policy buyers have increasingly started looking at insurance to protect their family members in case of death. This is pushing protection products, which are mostly term plans.

There has been an upsurge in the demand for protection products among policyholders and the industry is witnessing a 50 per cent growth in this business, albeit supported by a lower base.

The top private players have been pushing protection products hard across different categories: individual term life, individual health benefits, credit life (tied up with loans) and employer provided term life (group term insurance).

Guarav Dua, head of research at Sharekhan says, “Investors have now started using insurance mainly for protection and investing through other channels such as mutual funds. This is mainly a result of financial awareness being created by regulators and stock exchanges among others.”

According to Puneet Nanda, deputy managing director, ICICI Prudential Life Insurance, “Affordability is another driving force for protection products. The learning over the years and better underwriting practices has enabled life insurance companies to reduce the prices by about 50 per cent.”

The trend of rising awareness can also be seen from sum assured as a percentage of GDP, which has moved up from 60 per cent in FY16 to 76 per cent in FY18. Dua believes the trend is structural and should continue going ahead. Sum assured is the amount the insurer or insurance company pays to the policyholder when the insured event (death of policy holder in case of life insurance) takes place.

Protection plans also fit in with the profit objective of insurance companies. Such products earn twice the margins compared with unit-linked insurance products (ULIPs), leading to faster expansion of profitability. Santosh Aggarwal, associate director-life insurance at Policybazaar says, “Insurance companies are now talking about the fact that pure term insurance is the real form of insurance and hence the consumer demand has gone up.”

Four listed players – HDFC Life Insurance, ICICI Life, SBI Life Insurance and Max Financial Services, which houses the life insurance business Max Life – have around 64 per cent share in private life insurance market in terms of annual premium equivalent (APE) based on data for the first nine months of the current fiscal.

During April 2018-December 2018, the share of protection business in total value of new business surged by 300-500 basis points year-on-year for Max, ICICI Life and HDFC Life, while protection contributed to 11 per cent of SBI Life’s APE, 600 basis points higher year-on-year during the same period.

Life Insurance Corporation of India – the country’s largest insurer and the only public-sector life insurer – has not focused on this segment like its private sector peers. This is because its customer base prefers savings and hence, its money-back and endowment products are more popular than protection products.

Besides products as term plans, life insurers are also focusing on credit protection segment, aiding overall protection business. Credit protection provides debt-repayment cover (such as home loans) in the case of death of a retail borrower. In the case of HDFC Life, for instance, credit-protect insurance products accounted for 11 per cent of its new premium

Highlighting the rising demand for its credit protection product, Aalok Bhan, director and chief marketing officer, Max Life Insurance, says, “It is gaining attention as retail borrowers have started realising the importance of taking protection while availing loans for buying assets like house or car.”

Private players would cash in the opportunity even going ahead. “The top private players have the brand and distribution edge to further grow this business in the long term,” says Avinash Singh, analyst at SBICAP Securities.