‘There is no long term relationship without transparency’

Each insurance company has a niche that it operates in, what is Aviva's focus?Initially the private sector insurance companies in India repl...

Each insurance company has a niche that it operates in, what is Aviva’s focus?
Initially the private sector insurance companies in India replicated LIC’s model of selling money-back and endowment plans and using agents. So, though we were the 12th entrant two years back, we pioneered the more innovative products like unit linked plans and selling through bankassurance.

With unit linked plans, are you not entering the territory of mutual funds?
We offer more than a fund does, because we have protection sitting on top of all the products, while a fund is simply offering an investment channel. If you want to buy pure insurance we sell that, else we have other products that suit the diverse long term needs of the customers

But insurance is mostly sold and not bought, so it is unlikely that a person will come looking for a cheap Term. Advisors push higher-commission products like money-back or endowment.
We have pushed for greater transparency in the market. We believe that there is no long term relationship if there is no transparency. In fact, unit linked plans are the most transparent as they disclose costs. Also Indian commissions are much lower than the international norm. UK, for example, has a convention of 150 per cent of the premium in the first year as commission as against a maximum of 40 per cent in India.

That still sounds like a huge cost for the customer. Why can’t an individual buy straight from you and save on this cost?
Because of an old law that prevents us from selling directly. In the UK customers can buy directly and the rebating of the commission is perfectly legal. It need not be cash, but more sophisticated ways like increasing the cover or reducing the premium.

Are not mutual funds cheaper, at a maximum one time load of 2 per cent and annual costs that don’t exceed 2.5 per cent?
Any comparison must keep in mind the tax break that insurance gives. Insurance lump sums, even in unit linked plans, are tax free at the end of the policy period. Aviva’s figures show that over the long term, our insurance products are cost competitive as the alternative comparable mutual funds are.

Is buying term and investing the difference a good strategy?
Sure, for people who can manage, but the truth is that most people do not manage to invest regularly over a lifetime. Also funds are yet to develop their retail service lines. We are already there in small towns through our bank tie-ups. Access becomes a big issue here. We are there already.

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