With higher inflation and lower disposable incomes, the overall intention to buy life insurance policies in India has taken a hit. According to a study by global information and insights company Nielsen, the intention to buy life insurance has dropped from 20 per cent in 2010 to 17 per cent in 2013.
The study, LIFE 2013 (a usage and attitude study), said penetration of life insurance as an investment vehicle in urban India gained three percentage points from 63 per cent in 2010 to 66 per cent this year. The gain is on the back of significant increase in penetration in the metros from 59 per cent to 64 per cent.
However, non-metros, with limited diversification in portfolios, continue to lead with a penetration of 68 per cent. Southern India continues to remain the lowest in terms of penetration. Traditional policies continue to make up a large part of the pie (86 per cent), while unit-linked policies (Ulips) are down to 14 per cent (from 23 per cent).
Ulips, which used to be a darling of investors, took a beating following stiff norms set by the Insurance Regulatory and Development Authority in September 2010, mandating a minimum mortality cover and increase in the lock-in period from three years to five years. As a result, Ulip premiums, which accounted for 90 per cent of the first-year premium of life insurance companies, saw their share fall to less than 30 per cent. Demand for life insurance has waned as savings of the lower social economic classes (Sec B and C) shrank owing to inflationary pressure.
In terms of the differentiation based on age-groups, the study said people between 22 and 30 years of age continued to exhibit a higher intent to purchase (18 per cent) life insurance.
However, the study said that the upside of a drop in purchase intention amongst lower socio economic classes is the likely increase in the average premium paid per policy.
“The consumption and savings story in India is at an interesting stage. There is evidence of higher absolute savings, although share of savings is lower. Lower income groups in Urban India are impacted much more by the economic slowdown and inflation and this may have a significant impact on insurers targeting consumers paying lower premiums,” said Subhash Chandra, Executive Director, Nielsen India.
Chandra further explained that while overall intent to buy insurance has seen a drop, the affluent class has still not made any drastic changes in its lifestyle and would still continue to have similar quantum of investment in instruments like including life insurance.
To purchase life insurance, the study noted that the main trigger is protection. However, during this period the coverage to income ratio is only 1.07, down marginally from 1.3 in 2010. The low coverage indicates a significant opportunity for insurance, specifically term insurance. The other key reasons are children and retirement.
The study also found that the trigger for purchase of first insurance policy and subsequent policies are different. The first policy which is normally purchased at a younger age is primarily for investment (52%) followed by life cover (49%), whereas the subsequent policies tend to have a higher weightage on children’s security.
Older customers, however, primarily purchase a policy for securing their child’s future followed by retirement.
In terms of gender bias towards life insurance, the study showed that the incidence of women investing in life insurance has increased to 59 percent this year, up six percentage points from the last round of the study (53% in 2010).
“Women in non-metros have a lower intent of purchase of life insurance, as ownership is already high; the corresponding figure in the metros stands at 19%,” the study said.
Chandra said that there is a far higher awareness of financial products amongst women today, and hence it is now important for marketers and advertisers of life insurance products to actively involve and engage women via their communication.
Apart from the economic slowdown, customers indicated that the long term nature of the investment, followed by the low rate of returns and the challenge of getting the money back on maturity were primary reasons for not investing in life insurance.
While it is a fact that the life insurance density and penetration in India is low, this study said that this factor could provide huge opportunities for insurers. Chandra informed that since the cover taken by people was minimal, life insurers could look at increasing their cover size and reach out to the underinsured. Further, he added that insurers also need to devise strategies to introduce retirement planning to the younger customers.
LIFE 2013 primarily covers individuals’ behaviour and attitudes towards life insurance in India. This is the fifth round of the study. The survey covers 17 cities in urban Indian with a sample size of 11,584 working adults belonging to SEC A, B & C.