The world today is changing fast and rapidly evolving into a place where the concept of ‘small is big’ is catching up. The trend has thus far been commonly seen in relation with everyday gadgets like the computers we own,or the pen-drives and the cameras we use. Bulky computers evolved to flat screens,laptops,and subsequently palmtops. Storage devices such as CD ROMs and floppy discs have transformed to miniature devices such as pen-drives. A camera which once stood only on a tripod is now tiny enough to fit in our pockets. But with regards to financial products,nothing yet quite fits the bill. The good news is that the insurance sector has initiated its first steps in this “nano” race.
So far,unit-linked insurance solutions available in the industry catered to people who could afford a minimum premium of at least Rs 12,000 or more. However,a major gap,existed in unit-linked insurance solutions for the category of people with investible premium of less than Rs 12,000. This segment of people mainly reside in tier II,tier III,and rural areas,thus making it an important segment to cater to.
That said,it is equally important to realise that the recent change in regulations on ULIPs by IRDA has made it difficult for life insurers to offer a plan with low premium size. As an alternative,most private sector insurers have started offering traditional plans to this segment.
Coming up with an affordable product suitable for a big segment of the population located in the Tier II,III and rural areas can be challenging from the insurer’s perspective. It is essential to ensure that the product acts as a win-win situation for all the distributor,the customer,as well as the insurer.
The biggest challenge for devising a product with a small ticket size is the aspect regarding pricing; more so in a unit linked plan. There is the inherent challenge of striking a perfect balance of commission versus allocation to investment while pricing the product.
The insurer has to ensure that the product attracts the customer in terms of features,while also providing enough for the agent so that s/ he too can meet expenses and needs.
For a small ticket size product,economies of scale play an important role. This means that the only way an inexpensive product can survive is by means of generating a large volume of sales. To generate large volumes it would require reaching out to the largest market segment,viz. small towns in Tier II and III areas,which also remains a largely untapped segment in terms of insurance.
In addition to that,simply creating the right product is not enough. There is also the responsibility of identifying the right customer segment and handling it well.
The backing of a robust operations system is what makes all the difference to ensure there is no bottleneck in servicing the customer end-to-end.
The cliché of “all good things come in small packages” is now a reality with the introduction of a small ticket-size ULIP in the market. Insurers are slowly introducing plans into the market that are now affordable as a regular EMI for most people in the middle class income group.
Today there are plans in the market that offer premiums as low as Rs 5,000 p.a. Such plans are the best solution for people belonging to most income groups,especially those who were formerly denied an affordable ULIP. What’s more,such products can also offer you a guaranteed double of the amount invested along with secure life cover throughout the term of the policy.
Even though India as a country is a force to reckon with,in terms of economic power,tThere is an imperative need to increase the penetration of life insurance along with the emphasis on financial inclusion. One of the deterrents in increasing penetration on the insurance front may be the unavailability of an affordable product,until now. But the increasing availability of such small ticket-size products can take life insurance to a wider insurable population.
Author is Head-Market Managment,Bajaj Allianz Life Insurance