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BUSINESS: INSURANCE
Coming To Life
With the end of state monopoly, private insurance companies
are offering wider risk coverage and better customer relations
By Sumit Mitra and Shilpa Nayak
 The
insurance market in India today bears comparison with the car market prior
to its opening up. As Maruti and Ambassador once ruled the garages, the
state-owned Life Insurance Corporation (LIC) and General Insurance Corporation
(GIC) lorded over the market of risks. But with 14 private companies already
registered with the Insurance Regulatory and Development Authority (irda),
covering both life and non-life sectors, the market is readying for a
tide of competition. At the moment, though, the competition is showing
up more on the roads, with the new entrants edging out the LIC's flame-cupped-in-the-palms
symbol in the battle for hoarding space in Mumbai. However, a few new
policies have also appeared in the market.
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D.M. SATWALEKAR, CEO, HDFC Standard Life
"Most
of the customers have taken a life insurance policy with at least
one additional benefit."
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In the insurance business, the newcomer is handicapped
by the lack of data. It is the data on every form of risk-frequency of
car accidents, burglary, fire or death-that ultimately determines the
premium. The new entrants are therefore cautious not to unroll too many
new policies before getting their data banks in place. Despite this limitation,
the new insurers are selling fresh policies that promise to challenge
some of the basic paradigms of the state-owned insurance monopoly. For
instance, so far a life policy has been more of a saving scheme than an
insurance and general insurance, merely a statutory obligation.
In life insurance, private companies have begun
hawking term insurance with a fervour not seen since the nationalisation
of the business in 1956. In a term policy, the return on maturity is negligible
but is offset by low premium and the size of the sum assured on the policyholder's
death during the insured period. It is distinct from the endowment policies
marked by high premium and popularised by the LIC for the savings growth.
Interestingly, the LIC marketed its own term policies on such a low key
that they do not contribute even 2 per cent to its annual premium earnings.
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DALIP VERMA, CEO,
TATA AIG
"In
the software industry, the risks depend on the laws of the country
where the charges originate."
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ICICI Prudential Life Insurance, a major player,
is focused on term insurance. Its Level Term Assurance provides sizeable
financial support to the family in case of death of the insured member.
The return on maturity of the policy is far from alluring but the premium
is low. It is thus a policy that a saver will avoid, but is ideal for
the family breadwinner who is concerned about his dependents. On the other
hand, Birla Sun Life's Flexi Life Line Whole Life Plan requires the policyholder
to pay premium for his entire life or up to 100 years of age, whichever
is earlier.
In both the schemes, the benefits are meant for
the insured's nominee and there is a "reward" in case of death
during the insured period. That is a major departure from pure endowments.
However, the Birla Sun Life policy offers the policyholder even more value
by giving him options to decide the manner in which a part of the premium
paid by him will be invested. In the lowest risk option, called the "protector",
85 per cent of the invested premium goes into government and government-approved
securities and only 10 per cent is put in listed equities approved by
the IRDA. In the "builder" option, the respective shares are
70 per cent and 20 per cent. In the highest risk "enhancer"
option, only 55 per cent of the invested amount is kept in gilt and safe
securities while up to 35 per cent may be invested in IRDA-approved equities.
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POLICY ...
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LIC & GIC
# Life policies are sold
by the LIC as savings schemes rather than insurance. Premium is
too high for the sum assured.
# General insurance for
industry is a statutory requirement. The GIC being a state monopoly
till recently, it witnessed idle growth.
# Customer is of no concern
in a state-owned insurance environment. Claims can take up to
months to settle. Rampant corruption in damage assessment.
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... OPTIONS
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PRIVATE INSURERS
# Emphasis is on benefit to policyholder's
nominees if he dies during the insured period. Premium is kept low.
# In a competitive market, new entrants
can survive only if they are innovative. The scope of actual insurance
is enlarged.
# Private insurance companies have call
centres and helplines for their customers and offer experts' services
on matters like investment options.
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While the assured returns policies are a major
departure from the LIC format-it makes the policyholder a partner in the
investment decisions, something that will make LIC officials shudder-the
basic change in the life policies offered by private insurers is the thrust
on underwriting. In insurance, risks are not uniform. The mortality risk
in case of a heavy smoker, for example, is higher than that of a non-smoker.
A car with a bad brake is more likely to crash than the one without such
a problem. A house in a city with more burglaries is prone to being broken
in. The job of the underwriter is to assess the independent risks and
to set the premium. The LIC and GIC were accustomed to working in a regime
of tight tariff control which set uniform prices on a wide range of risks
that were extremely dissimilar and therefore needed to be priced differently.
Before the nationalisation of life insurance
business and general insurance in 1973, insurance deals were generally
finalised without watertight tariff specifications, with the underwriter
evaluating most policies based on his judgement and skill. After several
decades, the private insurers are bringing the same skills back into focus.
An example of the flexible pricing of covers depending on the risk assessment
from case to case is evident in the riders or extra benefits that the
private insurers are offering on life policies, against additional premium,
of course.
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