People with longer commitment and goal-oriented savings will opt for Ulips, while guaranteed products will be sought by those who want peace of mind, Sumit Rai, MD and CEO, Edelweiss Tokio Life Insurance tells ET Wealth.
Will the tie-up of India Post Payments Bank (IPPB) with Bajaj Allianz to sell life insurance, and the likely entry of Paytm and Amazon prove to be a game changer for insurance penetration in India?
If you consider how online has become the go-to option for so many things, at least for research if not the actual purchase, it will certainly become a game changer. Whether it happens in the next 2-3 years or takes longer is hard to say.
Even today, nearly two-thirds of the consumers who purchase life insurance go online to research or compare. This will accentuate further, but at the same time, products will need to be simplified. Since consultative products are not the most appropriate to be sold online, the whole ecosystem needs to evolve around it. The entry of players like Amazon, Paytm and IPPB will accelerate this for sure.
When you talk about simplification of products, are you referring to Ulips or traditional insurance plans?
I am referring to both. How can you simplify Ulips? If you look at our Wealth Plus plan, today it has no charges except the fund management charge, and this was unimaginable two years ago. Besides, there’s a large section of consumers looking for assuredness and guarantees rather than high returns.
So guaranteed products can be simplified because these are easier to explain; the challenge will be whether this can be done without anybody’s intervention. Moreover, as the eco-system evolves, the possibility of what you can do in that eco-system also evolves.
Will the capping of expense ratio in mutual funds push the sale of Ulips and insurance products?
We heard much the same thing when the long-term capital gains tax was imposed. There was some movement, but not a very large one. The consumer is a lot more aware today. So whether you push mutual funds or not, they have found a place and will continue to do so, just as other categories of financial products will continue to do well. We are arriving at a place where consumer has a better understanding of what he needs
Did you see an uptick in Ulip sales when the LTCG tax was imposed on equity funds?
Not really. Our Ulip sales remained the same, comprising 30-35% of the portfolio. However, our overall sales have grown 80-85% compared with last year.
Will the market for guaranteed products continue to exist ?
Guaranteed products are all about disciplined savings. Research and interaction with consumers tell us that a lot of them are not necessarily looking for high returns, but for peace of mind. They want their capital to be safe, get some bonus, and the assurance that if something happens to them, their family will be taken care of.
Also, as consumers become more aware and knowledgeable about financial products, they tend to gravitate upwards in terms of having insurance as the base and then adding other products. However, the number of people who truly understand financial products is very low and the rest prefer the safety and comfort of knowing what they will get. Asset allocation is a good term, but how many of us have the discipline to manage it?
Should Ulips be bought as an investment?
Ulips will always have a place among consumers. Their returns have been increasing steadily, charges have come down, yields have become better—today’s Ulips are very different from those of 10 years ago. In fact, many consumers buy both Ulips and mutual funds from a diversification point of view. The people who look for a slightly longer commitment and goal-oriented savings are also in the Ulip space. The average mutual fund SIP lasts for 24-30 months, whereas Ulip commitments are for a much longer time frame. People are also comforted by the fact that surrender charges have become more consumer-friendly. Mutual funds are more easily accessible and open-ended and, therefore, for shorter-term goals
Much of misselling, especially among senior citizens, happens in banks. Shouldn’t banks and insurers take steps to curb this?
Nothing can justify misselling, whether it is to a 20-year-old or a senior citizen. Both banks and insurance companies are aware of this and have taken steps in the past two-three years to control point-of-sale misselling. For instance, prelogin verification or welcome call is the norm.
In most larger banks, salespeople talk to customers and figure out whether they have understood the product. Banks are also under scrutiny from the RBI. Overall, a lot of effort has gone into training people, creating automated platforms to ensure that the right kind of sales process is followed, and using analytics to see whether the product is appropriate for the customer.
What are your future plans?
Over the past 6-7 months, we have been the fastest growing company in the industry. Last year, we ended with Rs 250 crore of individual premium, and by 2021-22 we should be able to touch the Rs 1,000 crore mark. In terms of distribution mix, we are focused on being multi-channeled, and plan to increase our bank tie-ups. We also want to focus on protection, taking it from 7-8% to 15% of the portfolio. We will introduce new protection products in the cancer and cardiac care areas. Persistency and claim settlement will also be big focus areas for us.