For significant cost advantage, buy your term plans and Ulips online

This will give you a significant cost advantage, much like investments in direct plans of mutual funds

According to the Insurance Regulatory and Development Authority of India’s (IRDAI) annual report, the online channel accounted for only 0.54 per cent of the total new business premium gathered by life insurers in 2016-17. Private players garnered more business online (1.13 per cent) than the industry average while the Life Insurance Corporation (LIC) had a lower share (0.12 per cent). While these figures are indeed low, recent initiatives by life insurers are set to make the online channel far more attractive for customers in the near future. 

Low base, but growing: In India, the agency channel has traditionally been very strong. LIC, which has a dominant 71.81 per cent share of the market by premium, gets an overwhelming 95.99 per cent of its business from agents. Many insurers promoted by banks derive a large percentage of their premiums through sales at branches. Traditional policies account for a large portion of sales and they are sold mostly through personal interaction.

  

Term insurance, on the other hand, is predominantly sold online. Since the figure given above (0.54 per cent) is in terms of premium, it paints a slightly misleading picture of the penetration achieved by the online channel.  “Most policies sold online are term plans where the ticket size is much lower than in investment-oriented plans. If one were to look at the number of customers acquired, the number would be significantly better,” says Manik Nangia, director marketing and chief digital officer, Max Life Insurance. 

Industry personnel put the size of the term plan market in India (both online and offline) in terms of premium at Rs 8-10 billion and its growth rate at 20-25 per cent annually. “Almost 55 per cent of all term policies are sold online,” says Martijn De Jong, chief digital officer, Aegon Life Insurance.  

Growth in online sale of insurance products will be driven by India’s demographics. The number of young, digitally savvy, customers who want to do their own research and buy online is growing rapidly. Moreover, so far it was mostly term plans that were sold online. In the future, insurers are likely to push unit-linked insurance plans (Ulips) too through this channel. The Ulip market for private life insurers is at around Rs 155 billion. “Ulips have a lot of scope to grow because of rising equity markets and the SIP culture taking root. In future Ulips will also move online. Once that happens, the online channel’s contribution to total premium collected will improve,” says Anup Seth, chief retail officer, Edelweiss Tokio Life Insurance.

Low-cost advantage: Insurance buyers should move online to avail of the price advantage. Since an online term policy doesn’t pay any commission to an intermediary, it is sold at a lower premium. “The difference in premium between an online and offline plan from the same player can vary for five to 30 per cent,” says Santosh Agarwal, head of life insurance, Policybazaar.com.

One significant development that will make the online space more attractive is the recent launch of low-cost Ulips. Lower charges here will translate into better fund returns. Edelweiss Tokio Life has launched an online Ulip called Wealth Plus, whose net effective charge is only 1.40-1.45 per cent. This is comparable to the average expense ratio of a direct mutual fund.

Besides low charge, the plan also adds units to the investor’s fund periodically, which will provide a kicker to his returns. Max Life Insurance has just launched a low-cost Ulip called Max Life Online Savings Plan, which has zero premium allocation charge and zero policy administration charge.  

Moving towards simpler processes: As digitisation progresses, Indians are becoming accustomed to shopping, ordering food, taxis, etc with a few taps on their mobile phones. Life insurers too are working on developing processes that will enable customers to purchase insurance just as easily. They are trying to integrate Aadhaar and e-KYC to make on-boarding easier. 

Purchasing insurance is perceived as tiresome because customers have to undergo medical check-up. “If the customer gives his consent, we can use third-party data to arrive at a risk score, estimate the customer’s risk profile, and based on it skip the medical check-up,” says De Jong. If the customer is young and the sum assured is not very high, insurers are already skipping the medical check-up, especially in case of investment-oriented products, where the insurance component is low. 

Another impediment to adopting the online route is that many investors find filling up the long forms themselves intimidating. “Recently we reduced the number of questions from 33 to 22. Using third-party data will also allow us to fill the forms automatically so that customers will have to fill only a few fields themselves,” says De Jong. Aegon Life has also placed icons next to questions to make comprehension easier. The more common option, say, non-smoking, is kept as default to make form filling easier.

Tips for online purchase: Before you set out to buy a term plan, do some research in advance. “Compare the premium as it can vary 2-2.5 times between the lowest and the highest priced online term plan,” says Agarwal. Besides price, make sure that the insurer’s claim settlement ratio is high. Also compare the riders available with the plan. Agarwal suggests buying waiver of premium, critical illness and disability riders. Next, decide on the sum assured–it should be at least 8-10 times your annual income–and the age till which you want the cover. Nangia suggests that you disclose all the health information correctly at the time of buying. “Hiding facts may create a problem at the claims stage,” he says. 

When buying a Ulip, understand the product’s features, cost, and historical returns. “Look for consistency in returns. Also, look at the performance of all the funds and not just one,” says Seth. Nangia says that you should look at your life stage need, calculate your risk profile using a risk assessment tool, and then choose a fund that suits your risk profile. 

According to Kapil Mehta, co-founder and managing director, Secure Now Insurance Broker, customers who lack understanding of product features such as lock-in, surrender value, returns expectations, etc should buy through a broker or agent.