Insurance is no longer a mundane source of protection from life and accidents. Innovative products are offering investment opportunities. Money saved is money earned.

By Gautam Chakravorthy

There are no two ways about it: the primary reason for picking up an insurance product is to protect yourself, or your kin, from the vagaries of life. You don't invest in insurance for the returns; rather, you invest in what they refer to as regrettable necessities. Of course, a large proportion of the instruments available in the country today does offer some sort of return to the investor. But these endowment products, as they are dubbed, benchmark their returns to the inflation rate. No, you aren't chasing that 6 per cent. You shouldn't be.

Perhaps you seek tax-concessions. For years, insurance products have been an attractive vehicle to extract concessions from the tax-man. Even now, come February and March, there is a rush for insurance policies in order to reduce the tax bill. But 3 things have changed: first, tax rates are not as high as they used to be (thankfully, the peak rates of 70-90 per cent in 1960s have come down to 33 per cent). Second, the concessions are still limited to a 20 per cent tax-shelter: investment of Rs 10,000 in life insurance policies will net you a tax rebate of Rs 2,000. And, finally, other tax-saving schemes-primarily, the Public Provident Fund-offer higher returns, and are more liquid.

So, what does insurance offer? Peace of mind, perhaps, but even that takes its time, with poor claim performance. Conventionally, insurance is sold-not bought. Unfortunately, we buy insurance products. And therein lies the problem. In fact, the Life Insurance Corporation (LIC) has nearly 80 products, but investors know only about a handful. That's because the agents employed by the LIC push policies with the highest premium to, obviously, pocket a higher commission. Charges Sanjay Sachdev, 37, Country Head, Principle Financial Group: ''About 92 per cent of the LIC's products are pure endowment policies. Of them, 4 products account for 90 per cent of the revenues.'' Counters G. Krishnamurthy, 59, Chairman, LIC: ''LIC has been constantly innovating to provide varied products to meet the demands of customers and also niche markets. Its products cover practically every possible life insurance need of the customer. In the past few years, LIC has launched as many as 10 new products.''

Companies offering general insurance products-like medical, housing, motor, and industrial insurance-have more than 150 products to sell. But awareness is even lower than for life insurance products. Complains M. Chainani, 61, Managing Director, Mavich Insurance Service: ''General insurance companies have failed to educate the customer about its products, and agents have little incentive to market them aggressively because of the low commission rates.'' It is obvious that companies like the General Insurance Corporation (GIC) lack the requisite marketing skills. Claims S.K. Mahapatra, 58, General Manager (Marketing), GIC: ''GIC will shortly, for the first time, launch savings-linked insurance products as a strategic intervention to market personal insurance products coupled with the purpose of mobilising small savings within the country.'' Don't hold your breath.

Whether the public sector companies like it or not (they don't), change is round the corner. In fact, it has been in the air since 1993, when the R.N. Malhotra Committee on insurance sector reforms was set up. Without going into the policy flip-flops, it does appear that the general insurance sector will soon be opened up to private-and foreign-competition. It goes without saying that the potential is immense: life and non-life premiums add up to a paltry 2 per cent of India's Gross Domestic Product-well below the global average of 8 per cent. Bridging that gap excites insurance companies.

Says Dalip Verma, 45, CEO, American International Group: ''Indians have a high savings rate, and insurance companies have immense potential to tap savings through a combination of products. The LIC is going to face more competition than the GIC in terms of offering new products.'' What does this mean for you-the consumer? BT examines what lies in store for the insurance mart in the future. And how you can maximise your returns.

PRODUCTS. Insurance companies will introduce more term-policies. These policies provide protection for a specified time-frame, and do not offer any returns. Says M.N. Gopalakrishnan, 35, Associate Vice-President (Insurance), Business Consultancy Group: ''New firms will aggressively market term-assurance policies which will cover the simple requirements of the investor.'' In effect, term-policies translate into a low premium outgo for the consumer. Which frees money for other investment vehicles. Currently, term-assurance constitutes only 1 per cent of the total number of policies issued by the LIC versus 15-20 per cent in the developed countries.

Apart from the plain-vanilla term-assurance policies, the insurance firms will also offer consumers a choice of products with low premiums. In the US, for instance, the Principle Financial Group offers a First-To-Die Policy. Under this policy, a couple pays 1 premium for covering the lives of 2-and the survivor receives the claim. The end result: the premium is low. Says Principle Financial Group's Sachdev: ''The introduction of new products, and competition will bring down premium rates.''

Endowment policies will change too. The insurer, in line with his precise risk appetite, will be able to invest in a variety of indices or specific sectors wherein the returns could be higher. Instead of the current fixed-return regime, insurance companies will issue unit-linked schemes, indexed funds, or even real estate funds, which will enable the investor to earn higher returns.

The dismantling of the fixed-returns regime will also usher in an era of the judicious balancing of the portfolio of an investor through a combination of risk-cover and investment products. For instance, the GIC is planning to offer a savings-linked insurance scheme. According to the plan, the GIC will collect an additional premium on personal insurance policies-such as motor insurance, burglary insurance, or holder insurance-whereby the insured will get a return at the end of a specified period. Predicts Kamesh Goyal, 33, Manager, KPMG Peat Marwick (KPMG): ''In future, insurance companies will offer policies to match the policy-holder's risk-profile.''

Another significant window of opportunity is the pension contract. Although these are a part of the life insurance business, the LIC's pension business is negligible. The Indian market needs a variety of choices. For instance, the options could range from indexed annuity (the returns are linked to certain indices targeted to beat inflation) through immediate annuity (the investor makes a lumpsum payment for future returns) to deferred annuity (the investor chooses his own repayment schedule for retirement or old-age pension). The potential is immense: the annuities business is $725 billion (Rs 3,081,250 crore) big in the US.

Like their counterparts abroad, the new insurance firms will offer specialised products for niche segments: disability products, workers' compensation insurance, renters' coverage, and employment practices liability insurance. The policy offered by general insurance companies covers merely 100 weeks of disability, which is inadequate. Insurance companies estimate that 1 out of every 6 individuals is expected to face some sort of disability for 3-5 years in a lifetime. Warns KPMG's Goyal: ''The prospects of an individual facing permanent disability at the prime of his age are more gruesome than death.''

Indeed, the trend of buying assets, instead of hiring or leasing them, translates into a rich potential for non-life insurance products, where the current penetration is low. The scope of new products is also immense in the general insurance category. Says Anthony Jacob, 39, the CEO of the Royal & SunAlliance Insurance's India Liason office: ''With the opening up of the market, the entry of joint venture partnerships, increased marketing activity, and tapping of new customer segments, the general insurance industry could witness a compounded growth of 25 per cent over the next 5-10 years.''

In fact, with the threat of new firms looming large, insurance companies have started offering new policies to cover a variety of risks. For instance, the GIC has launched the Raj Rajeshwaree policy, which covers disability from accidents, the accidental death of a spouse, and legal expenses resulting from a divorce, irrespective of who initiates it. The annual premium on Raj Rajeshwaree is Rs 15 for every Rs 25,000 insured. The policy also funds the wife's legal expenses incurred in divorce proceedings. The limit on these expenses, however, is Rs 2,000 for every Rs 15 of annual premium. This means that if a woman pays Rs 1,500 as the annual premium for a divorce case, she can claim legal expenses of upto Rs 2 lakh. Explains the GIC's Mahapatra: ''The policy was launched to provide multiple benefits to the rural folk and the underprivileged under a single document with the least amount of trouble.''

CHANNELS. Insurance companies will get savvy in distribution. They have to if new companies are to compete with the armies of agents deployed by the LIC and the GIC. Like banking, insurance too is moving towards a round-the-clock mode globally. In fact, banking and insurance will, eventually, merge, as the banks have greater retail reach and higher contact with the consumer than insurance companies. Points out Priya Suri Dhawan, 31, Assistant Vice-President (Insurance), 20th Century Finance Corporation (TCFC), which has a tie-up with Canada Life Assurance Co.: ''Banks with large retail networks will be able to service the customer in each district, including the rural areas.'' Another eventuality is the rise of specialised insurance intermediaries, which will represent the insured rather than the insurer.

Enhanced marketing will, thus, be crucial. Companies will pull out all the stops in offering greater services. Already, many companies have full operational capability over a 12-hour period. Facilities such as customer-service centres are already in the 24-hour mode. These will provide services such as motor-vehicle recovery, which will be important in case of an accident when the customer is far away from home, and the insurance office is not expected to open for, say, another 10 hours. There are similar facilities linked to medical insurance. Likewise, round-the-clock legal advice and counselling for large corporate and individual clients will become commonplace.

What will help is technology. In fact, it will be the cutting-edge. Smart cards will store information about an individual's policy, which could be retrieved by, for instance, a hospital, a doctor, or by a motor-repair garage. Reasons TCFC's Suri Dhawan: ''The backbone of success will be technology, customer service, and innovation.'' Adds Mavich Insurance Service's Chainani: ''Despite innovation and easy storage of information, the real test for insurance firms will be in technological development. The service-provider needs to be technology savvy.''

Even the telephone can come into play. For instance, in a home insurance policy, the customer can have the option of reducing his premium outlay by going in only for insurance against fire. But, in the case of a severe flood or rainstorm, the firm can give an emergency helpline number where the customer can find a 24-hour plumber or roofer, or even, say, Rs 5,000 towards his bill on an uninsured risk. Another future trend: insurance companies will be able to offer replacement deals to the customer. Says Greg Johnson, 55, Technical Manager, Royal & SunAlliance Insurance: ''A genuine claimant does not want cash when the TV set falls off the cabinet-she wants a new set without the hassle of going to the shop.'' Insurance companies abroad are forging arrangements with retailers to supply replacements directly.

The Malhotra Committee has estimated that the average penetration level of life and non-life insurance in the country is about 22 per cent, indicating that a vast majority of the rural population is not covered. While 52 per cent of the LIC's total business comes from rural areas, through a variety of products like the New Janraksha, and mandatory life insurance cover through bank loans, the GIC offers as many as 26 products out of its portfolio of 150 products through a combination of cattle policy, crop policy, silk worm policy et al, specifically for the rural areas. The reasons for the low insurance coverage lie in the high level of population-48 per cent-falling below the poverty line. Additionally, the operational costs in rural area are higher compared to urban areas.

Despite this, the new insurance entrants are hopeful of covering the vast tract of rural masses. Says Suri Dhawan: ''There is tremendous potential for growth in rural areas. The new companies will tap these areas too because that makes sound commercial sense.'' All this will, eventually, increase the comfort-levels of the consumer vis-a-vis insurance. Long relegated to being a seller's market, the insurance sector will, hopefully, be driven by buyers. And the greater flexibility and options that lie in store will encourage the investor to plan for that, God forbid, rainy day.

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