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BW Businessworld

Chinks In The Armour

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There seems to be no end to the woes of the Indian life insurance industry. Even as the sector has been battling negative growth over the past five years, it has to contend with a dip in renewals. During 2011-12, just 67 per cent of policies were renewed compared to 70-75 per cent during the previous few years, according to an insurance broking firm. 
This has prompted analysts to stress on the need to revamp products and reassess client servicing to retain clients and woo new ones. The percentage of renewals needs to go up from current levels for the industry to turn profitable. And with life insurance penetration less than 5 per cent in India, the possibilities are endless. 
According to analysts, the reasons for surrendering policies could be many — financial needs, other investments, even wedding expenses. 
In the first nine months of 2012-13, however, the industry saw a negative growth of 3 per cent — an improvement over a 20 per cent negative growth in 2011-12. Analysts say that this year 90 per cent of the life insurance products sold were traditional savings (like pension policies) and non-equity linked products.
3% was the negative growth seen by the life insurance industry in 2011-12

“The Indian life insurance industry has witnessed a number of ups and downs amid the dynamic regulatory and macroeconomic environment over the last few years; however, the underlying demand created by GDP growth, a high savings rate and under-penetration of insurance continue to augur well for the industry,” says Jayant Dua, CEO and MD of Birla Sun Life Insurance (BSLI).

But, he adds that the industry continues to face challenges like product development and the need to balance unit-linked insurance plan (ULIP) with non-ULIP products. “At BSLI, we take steps to control surrenders and they have started showing results as well,” says Dua. These include distribution initiatives like recognition programmes for renewals, need-based selling and customer awareness campaigns. Dua says BSLI has a healthy 13th persistency (renewals in the 13th month) — 82 per cent, till September.   
There is a need to develop pension products, retain existing distributors and create a multi-channel distribution platform to retain clients, says consulting firm Towers Watson. 
“With  the recent changes in the regulations, bancassurance has emerged as an efficient distribution channel due to its established infrastructure, large branch network and existing customer base,” says Vivek Jalan, director, risk consulting, at Towers Watson, India, adding that it is fast gaining ground on the traditional ‘agency channel’ for the highest market share.
For life insurance firms the challenge is to scale the business and retain customers. Analysts say the industry will have to establish control systems and use technology to do this. “Profitability depends primarily on their ability to retain existing customers...and they’re working out their product and distribution strategies,” says Ashvin Parekh, partner at E&Y.  

(This story was published in Businessworld Issue Dated 21-01-2013)