Chief operating officer of Kotak Mahindra Old Mutual Life Insurance G Murlidhar says choice of an insurance product should be based on an individuals life-cycle needs,financial capacity and risk appetite. In an interview with FEs Saikat Neogi,he opines that because of the low level of financial literacy and inclusion in our country,moving to an advisory fee model at this stage will be premature. Excerpts: As certain norms change for Ulips from September 1,how will this affect policy holders? Ulip customers have nothing to worry as the regulations will apply prospectively and not affect them in any way. Their policies will continue to be governed by the contractual terms already agreed between them and their insurer. What all should a retail investor keep in mind when buying new Ulips? Under the new dispensation,evenly spread charges,incentivisation of agents to service customers actively for a longer term and increase of lock-in-period to five years will enable the investor to reap higher benefits and better service. The new guidelines also restrict the penalty an insurer can levy on premature surrender. Cap on surrender penalty will ensure greater liquidity for the investor. On the other hand,insurers are expected to introduce a slew of products to adhere to the new guidelines. However,it must be borne in mind that Ulips are designed to maximise benefit over the long term and should be bought with a similar investment horizon. Premature withdrawals hugely reduce the benefit that can be gained by staying invested for the entire policy term. How should a retail investor look at life insurance products and how should a product be bought? Many investors look at life insurance from tax-saving point of view while a significant number also consider it an attractive investment avenue. Sure,insurance products do offer tax concessions and,in most cases,good returns. However,returns should be viewed as a bonus rather than the primary motive. Insurance has to be purchased to secure oneself and ones family against unforeseen eventualities such as death,permanent disability,financial emergency or loss of income and planned events with high financial implication such as childs education,marriage etc. Choice of a product should be based on an individuals life-cycle needs,financial capacity and risk appetite. It must be borne in mind that the savings and protection components in an insurance product are often inversely proportional. Greater the savings component,lower the cover and vice-versa. What are the various online tools insurance companies are trying to introduce to sell insurance products? Insurance is largely sold offline. Around three million individual insurance agents sell about 71% of policies. However,given the ever-increasing penetration of internet and target customers affinity to the online platform,insurers have already started actively leveraging these to sell their products. This may either translate to products being sold online or using the online platform to create awareness and build demand for products sold offline. Some insurers already sell products online,but in most cases,they do not differ much from their offline counterparts. Designing products exclusively for the online platform is a relatively new phenomenon. Several companies are mulling such offerings and Kotak Life,too,will shortly launch a pure term product exclusively for online purchase. How do you think insurance companies should come out transparent on the promises that agents make to investors on selling a product? The point of departure is the sale process which must be extremely transparent. Insurance agents must be trained to advise customers well on their insurance needs. If a product fulfils a genuine need,there should be very little reason to worry about any sort of customer backlash later. A lot of faltering happens at this stage,and this must stop forthwith. The second step is to ensure that the customer understands various attributes of the product he is buying such as charges levied,where exactly his money is being invested and the risks therein,besides what would happen if he/she was to discontinue mid-way. It must be understood that the importance of insurance is still not appreciated as much as it should be and mis-selling would only put people off buying insurance. Do insurance companies need to work on a fee-based structure for agents? Is it feasible in India? Given the low level of financial literacy and inclusion in our country,moving to an advisory fee model is premature. There are several reasons for this. Firstly,insurance agents in India have traditionally worked on a commission-based structure. Such a structure is not just restricted to insurance but by and large pervades the entire financial services space. So,appetite for the model is questionable.
