Urgent Need for a Course Correction to Ensure Universal Coverage
By Pawan Verma
MBA, FIII
www.pawankverma.com
The two service sector industries, telecom and insurance, that were opened up to competition in the aftermath of the economic liberalization of 1991, had promised to change the face of the Indian economy and become the flag bearers of liberalization. The telecom sector, with a basic service network of merely 385.95 lakh connections as on March 31 2002, got a giant leap with liberalization. Today, it has achieved a tele-density of 76.55% with a total subscriber base of 957.61 million, including 388.05 million rural connections. It has made a huge transformational impact on the economy as well as on citizens’ life-styles while still promising to do more through facilitating e-commerce, payment banking, etc.
Insurance too had started with a similar promise, but unfortunately, it has failed to live up to the expectations. Post-liberalization, insurance penetration – percentage of premium to GDP – moved up from 2.71% in 2001 to 5.10% in 2010 and insurance density – per capita premium – moved up from US$ 11.50 to US$ 64.40 during the same period. But for the last five years, this sun-rise sector has been struggling for growth even in the face of massive under-insurance and under-penetration of the market. As on March 2013, both insurance penetration and density have come down to 3.90% and US$ 52 respectively with no signs of revival still in sight.
As a practicing insurance professional, it makes me feel sad that we have wasted the mandate given to us by the parliament of India. What has gone wrong with the sector? While the industry may offer myriad explanations, the fact remains that it has misinterpreted the mandate given to it and hence failed to implement the same.
In modern economies, insurance is no longer merely an instrument of risk coverage. By ensuring protection against unforeseen eventualities; insurance also encourages individual entrepreneurship and a better utilization of individual capital, so critical in a globally competitive economy today. Also, for the poor, it is an instrument that prevents the family from falling back below the poverty line in case of loss of life, health or property. In the process, it also mitigates the economic burden of the state towards lifting people from below the poverty line.
Accordingly, the primary mandate given to the insurance sector is to provide financial protection to the citizens against loss of life, health or property. However, post-liberalization, insurers have bypassed their protection mandate and aggressively focused on generating higher premium income, which, during the first decade of liberalization, had only resulted in diverting mutual funds money to insurance with very little incremental benefit to the economy. In the process, insurers have become more self-serving than customer-centric as they focus more on what they receive from customers, i.e. premium, rather than what they give to their customers, i.e. protection. Ironically, IRDAI’s both performance measurement parameters are premium-specific and it has not developed any indices to measure what percentage of population has been insured and the extent of protection provided to it.
Today, the level of life insurance protection in the economy, measured in terms of ratio of Sum Assured to GDP, is just around 55% as against the benchmark of 150% to 250% in the developed markets. Post liberalization, most of the growth opportunities have veered around innovating investment products targeted at affluent customers, which has further brought down the level of protection within the economy. Sadly, it has also resulted in organized mis-selling at a mass level, leading to a huge trust deficit vis-à-vis the customers.
The message to insurers therefore, is pretty clear :
If you continue doing business today with the methods of yesterday, you will go out of business tomorrow.
The industry therefore, must shift its focus from premium to protection so that future innovations in the sector take place around creating products and distribution channels to facilitate universal coverage. Towards this end, it must take a few urgent steps. First, it should encourage sale of low cost pure protection plans offering higher protection at lower cost. Secondly, it must develop standard OTC products which could be easily sold through bank counters, malls, kirana stores, etc. Third, Group insurance riding on the platforms of NGOs, MFIs, etc should be encouraged to ensure low cost mass coverage at a faster pace. Fourth, innovations around technology-based channels like ATMs, internet, etc, should be encouraged to reduce distribution cost and facilitate faster coverage. Fifth, the quality of the mandatory rural and social business must be closely monitored to ensure providing meaningful coverage to the targeted population. Sixth, insurers must start designing products and fulfillment models to cater to the emerging generation of customers, who prefer to operate on digital platforms. Finally, regulations around products, sales and fulfillment processes must be liberalized to encourage more innovation and creativity within the sector for its growth and development.
The insurance industry needs to make strategic choices today in order to fulfill the pressing need of universal coverage, taking into account demographic trends, customer preferences and technology evolution. Also, in the fast changing environment today, where past ceases to be a guide for the future, insurers must shun their actuarial obsessions with the past for predicting customer choices and behavior patterns in future. They must embrace change with a greater vigor and alacrity to rise up to the challenges before them.
