After more than four years during which the financial sector expanded,the tide turned in 2008. Several sectors woke up to the reality of contracting demand and falling prices. But the insurance industry by and large remained insulated from these negative developments. It continued to register growth,although at a sluggish pace compared with previous years. During April to November,the life insurance industry grew at 1.4 per cent and the general insurance industry by 9.7 per cent. Now both these sectors are modifying their strategies to maintain growth momentum.
Riding on the back of bullish stock markets,which resulted in skyrocketing sales of unit-linked policies ,the life insurance industry grew at 50-60 per cent rate during the last few years. However,things have changed now.
From market-linked to guaranteed returns. Investor confidence has taken a beating during the last one year as customers witnessed the flip side of market-linked products. The thrust will be to get customers to shake off their inertia and invest. Companies will try and move customers from unit-linked to conventional products, says S.B. Mathur,Secretary General,Life Insurance Council.
Customers are now looking at guaranteed returns or additions and principal protection. 2009 will see products that are either debt oriented,or guaranteed-return products,or capital-addition guaranteed products. New products will provide a floor and limit downside risks, says Sunil Kakar,chief financial officer,Max New York Life Insurance.
Safety first. Against the backdrop of the current market turmoil,there is a clear shift from a returns-oriented approach to capital protection. Earlier,people looked for annual returns of 15-20 per cent,but now they are more concerned about the safety of their capital. With the markets continuing to be range bound,and interest rates expected to fall,life insurers are expected to bring in products with balanced fund options and automatic asset allocation funds.
In the last quarter of 2008,a flurry of single-premium products were launched. Life Insurance Corporation introduced Jeevan Aastha; Aegon Religare,Guaranteed Return Plan; IDBI Fortis,Bondsurance; and Reliance Life,Guaranteed Return Plan. More companies are expected to bring in such plans that lock in your returns for a given tenure (usually five to 10 years).
Plans that offer guaranteed additions are making a comeback. Fear psychosis has gripped customer sentiment. We expect products that offer premium guarantee,return guarantee,or NAV guarantee to become popular this year, says Pranav Mishra,senior vice president,product and sales development,ICICI Prudential Life insurance.
This year you could also see a few novel concepts. Says Shekhar Bhandari,head of tied agency,Kotak Life Insurance: To get more business,companies could introduce products based on unique concepts like payments based on the best NAV in the last three years. You could have dynamic floor fund,where funds are automatically transferred to debt or equity depending on the customers risk profile and market conditions.
Recent policy changes like the reduction in solvency margin will also work in customers favour. Reduction in solvency margin will help pull up sales of pension and health products. It is also expected to lower the costs of Ulips, says R. Kannan,member-actuary,Insurance Regulatory and Development Authority (IRDA).
Pension. The year will also see the opening up of the new pension system (NPS) by the Pension Fund Regulatory and Development Authority (PFRDA) to private sector workers. NPS will not only come with lower charges but will also offer flexibility in terms of fund options and fund managers. We will have to see how it is executed. But as of now it looks very attractive. Customers will have the choice to not only change the fund but also the fund manager without paying any extra cost, says Bhandari.
The non-life sector has a lot to offer its customers this year in health,terrorism and motor insurance cover. The ongoing price war in the industry is likely to continue for some more time. I dont think prices will stabilise very fast. It will take at least this calendar year for prices to stabilise, says M. Ramadoss,chairman and managing director,Oriental Insurance Company. 2009 will continue to be tough. There will be strain on investment income and underwriting profits of companies, he adds.
Mediclaim portability. People who are unhappy with their current health insurance provider will be able to switch to another company without losing out on the bonus accrued. The general insurance industry is working on mediclaim portability and should launch it soon. However,there is a catch to it. Only people in the age bracket of 18 to 45 years will be able to subscribe to it and enjoy the benefits up to 70 years of age. Portability is meant to provide continuity to the customer. Any person within the age bracket of 18 and 45 years will be able to avail of this facility, says S.L. Mohan,Secretary General,General Insurance Council.
Motor insurance. With the latest leg of deregulation happening,from this year onwards insurers will be able to offer customised policies. Customers will be able to enjoy add-on facilities like a replacement vehicle from the insurer while the vehicle owned by them is sent for repair,pick and drop facility,and so on. The retail customer stands to benefit a lot from the motor insurance cover. However,all these services will obviously come at a price, says Darvesh Panchal,practice leader,Prudent Brokers.
Other developments. The year is expected to bring in more non-conventional products. New products are likely to be launched in liability,health and terror insurance segments. Moreover,as the sector is being deregulated in phases,the customer stands to be the biggest beneficiary. Freedom from pricing means more underwriting by insurers and risk-based premium for customers.
All in all,the new year promises to bring in a lot of product innovation and offer more choices to customers. However,do remember to go through the fine print and take a note of exclusions before you buy these policies.
What 2009 has to offer
• Thrust on single premium,return guarantee,premium guarantee and NAV guarantee products
• Conventional products expected to find more buyers
• New Pension System opens to private sector workers
• More variety expected in motor and health insurance
• Mediclaim portability to be introduced
• More products in health,liability and terrorism insurance