Gain More From Insurance Makeover

Gain More From Insurance Makeover

Enhanced and flexible plans in life and health segments meet the varied needs of digital-age consumers.

Are you insurance savvy? Many people who claim to be financially smart never fail to review and realign their budgets and investment portfolios. But they would rarely monitor and analyse their options to get the best out of a fast-evolving, consumer-centric and technology-driven insurance ecosystem. In India, the industry was off to a flying start in the first decade of the new millennium. But due to a high-cost structure and the severe downturn during 2007-2008, prospective consumers were reluctant to buy insurance products by the end of the decade. It prompted the Insurance Regulatory and Development Authority of India (IRDAI) to come out with several path-breaking reforms which shredded the earlier cost structure and made the segment more customer-friendly. As a result, insurers have reinvented their products and minimised costs, especially in rapidly growing categories such as term plans and unit-linked insurance plans (ULIPs). The health insurance segment has also kept pace with the changing times, providing better offers and including medical conditions which were not covered before.

Apart from the regulatory push and competitive pressure, technology, too, has played a significant role in operational improvement and cost-cutting. Thanks to rising Internet penetration, smartphone invasion and disruptive technologies, companies have automated and synchronised their processes, and established direct contacts with customers, ensuring affordability and easy access. Mobile apps from insurers are also playing a significant role in raising the bar of customer service. According to Kalpesh Mehta, Partner at Deloitte India, "The insurance industry, both globally and in India, has come a long way with the introduction of new technologies across the value chain. Some of the biggest evolutions in this space have been triggered by innovations such as blockchain, Internet of Things, artificial intelligence, drones and Big Data analysis."

Now that long waits, tedious procedures and cumbersome paper form-fillings are well behind digital-age customers, let us take a look at the innovations on the product side in life and health insurance space that will help you save money and leverage more benefits.

The Rise of Term Life Cover

Terms plans have been here for a long time, but they have become popular since the last decade and seen phenomenal growth in the recent years. For instance, ICICI Prudential Life Insurance has posted a three-year CAGR of 80.4 per cent in the first-year premium under term plans, the company says. Max Life has a similar story. Its term plans accounted for 2 per cent of the total policies sold in FY2013/14, which grew to 20 per cent in 2017/18. Simply put, term plans provide life cover for a set period, say 10-30 years, at a relatively low cost. However, they have gradually evolved and currently provide coverage up to 80-85 years. "The recent addition is whole life term plans which will cover you throughout your lifetime. These term plans are ideal for those looking at guaranteed payouts or those who are keen to leave a legacy for the family," says Santosh Agarwal, Associate Director and Cluster Head of Life Insurance at Whole life policies usually have a maturity period of 100 years and offer flexible terms for premium payment. In fact, one can opt for a premium-paying term which will be lower than the policy tenure. Return of premium is another new feature. If the insured person survives the policy term, the entire premium will be paid back.

Aegon Life Insurance was the first company to introduce online term insurance plans in India. Now, almost all major insurers offer them online, thus saving on the distribution commission and bringing down the cost. "Ten years ago, a term insurance plan for Rs1 crore did cost Rs20,000-30,000 a year for a non-smoking, 30-year-old male. Now, the same quantum of cover can be purchased for an annual premium of Rs10,000-12,000," says Puneet Nanda, Deputy Managing Director at ICICI Prudential Life Insurance.

"Insurers are experimenting with newer digital technologies and using predictive analytics to lower onboarding costs and ensure quick and frictionless policy purchase," says Aegon's CFO Rajeev Chugh. Customers have also become more tech-savvy and more informed which have helped in bringing down the cost. "People who buy insurance online are different - they are more health conscious, generally more aware of the risks and have better access to healthcare. These factors translate to lower mortality charges for the same life cover," points out Manik Nangia, Director Marketing and Chief Digital Officer, Max Life Insurance.

Inbuilt features: Besides life cover, term plans are offering a plethora of innovative features to ensure a wider choice and enhanced coverage. Some of them could be purchased earlier as riders, but they are now available as inbuilt features in online products. For example, ICICI Prudential iProtect Smart pays a sum assured in case of terminal illnesses, including AIDS. HDFC Life offers premium waiver under its Click2Protect 3D Plus plan in case of total and permanent disability due to an accident. It also has an inbuilt cover for terminal diseases.

Disease-specific plans: Standalone insurance plans are available for life-threatening diseases where insurers pay lump sum amounts at early stage of the disease. DHFL Pramerica Life Insurance covers both cancer and heart conditions under its Cancer + Heart Shield Plan and ICICI Prudential Life has a similar offering under its Heart/Cancer Protect policy.

Critical illness plans have also witnessed a broader coverage - from the earlier five-six medical conditions to as many as 40. Once again, insurers pay lump sum amounts based on the diagnoses of critical illnesses. SBI Life Poorna Suraksha has an inbuilt critical illness feature that covers 36 diseases. "Technology has enabled up-selling of products, especially niche, low-ticket plans like cancer policies," says Sanjeev Pujari, President, Actuarial and Risk Management, SBI Life Insurance. Max life provides a critical illness rider, covering up to 40 medical conditions. One can buy critical illness policies as standalone plans or riders.

Cover against loss of income: Get income protection if you are unable to earn due to accidental disability. HDFC Life provides an income benefit in its accidental disability rider so that the insured will get one per cent of the sum assured as a monthly income for 10 years in the event of total and permanent disability. Plus, companies offer bundled products to provide comprehensive protection under one policy. HDFC Click 2 Protect Health is one such innovative product that offers both health and life insurance.

MWPA benefits and more: One can buy life insurance under Section 6 of the Married Women's Property Act so that his spouse and children will have the absolute right to death benefits of the policy and not even his creditors could supersede the nominees. ICICI Prudential Life is offering this policy on its website. Some life insurers are also giving the option to increase the sum assured under term plans. Among them are Max Life's and DHFL Pramerica Life's online term plans that come with an optional feature for enhancing cover, keeping in mind life's significant events such as marriage, the birth of a baby or buying a home. It enables to keep up with the increased liabilities without purchasing another plan. Again, premium paying tenure can be lower than the term cover, and you get flexible payout options, from lump sum to recurring to step-up recurring payment.

ULIPs in a New Avatar

ULIPs, a combination of life insurance and investment components (investments are made just like mutual funds do it), have undergone a transformation. To start with, insurers have slashed intermediary costs and commissions by offering these schemes online. Policy administration charges were brought down, and now some companies have done away with premium allocation charges. "Online ULIPs are low-cost and zero-commission products where premium allocation or policy administration charges are typically zero. Fund management charges are capped at 1.35 per cent by the IRDAI and range between 1-1.35 per cent," explains Santosh Agarwal, Associate Director and Cluster Head of Life Insurance at HDFC Life was the first company to introduce zero-commission ULIP called Click2Invest in 2015, she adds.

The regulator has capped expenses, thus maximising investors' gains. "A ULIP spanning more than 10 years comes with a regulatory guarantee that the maximum reduction in yield will not exceed 2.25 per cent. It means if a fund earns a gross yield of 25 per cent, the maximum reduction which is legally allowed on account of charges is 2.25 per cent. Hence, a net yield of 22.5 per cent is assured," says Anshuman Verma, Chief Marketing and Digital Officer at DHFL Pramerica Life Insurance.

ULIPs provide life cover as well for which they levy mortality charges. "Our new product called Bajaj Allianz Life Goal Assure does not have allocation charges and the mortality charges deducted throughout the policy term is returned to investors on policy maturity," says Saisrinivas Dhulipala, Appointed Actuary at Bajaj Allianz Life Insurance. Edelweiss Tokio Life has launched a ULIP Wealth Plus plan that provides additional allocations under which it invests a fixed percentage of the premium paid by the insured, thus raising the fund value.

Tax benefits: Post the Budget 2018 announcement about taxing long-term capital gains (LTCG) from equity and equity MFs, ULIPs hold a big tax advantage. As of now, an LTCG tax of 10 per cent is levied on capital gains of more than Rs1 lakh from equity, but maturity proceeds of ULIPs are tax-free due to a compulsory lock-in of five years. ULIPs also qualify for a tax deduction of up to Rs1.5 lakh invested under section 80C. Moreover, under ULIPs, one can switch funds without any cost and tax incidence, but under MFs, a switch between schemes will be subject to exit loads and tax. Earlier, ULIPs were typically offering seven switches between schemes, but now, some of them offer unlimited switches. This can be utilised to rebalance your portfolio as per changing market conditions.

Performance: New-age ULIPs are incredibly cost-effective and expenses are nearly in line with MFs, if not better (offline ULIPs may have a higher cost). But they are yet to catch up with MFs in terms of performance. According to data provided by, the best-performing fund under ULIPs in the high-risk category (Bajaj Allianz's Accelerator Mid-Cap Fund II) has delivered returns of 28.51 per cent over the past five years (ended on September 10, 2018). On the other hand, Canara Robeco Emerging Equities Fund-Regular Plan (the best-performing equity MF after excluding small cap and thematic funds) has posted returns of 33.58 per cent as per Value Research. Also, the average five-year returns from funds under high-risk category ULIPs is 17 per cent while the MFs post 19 per cent returns. There is another catch. Unlike ULIP funds, MF returns come after the deduction of total expenses, including the fund's management fee and operating expenses. If we consider MF returns without expenses for the sake of parity, these will be around 2-3 per cent higher than ULIPs. While considering MFs, we have also excluded direct plans that do not charge distributor commission and hence, are cheaper.

However, there are a few benefits that are unique to ULIPs. In child plans under ULIPs, many insurers offer premium waiver in case of untimely death of the insured, the sum assured will be paid to the beneficiary and the insurer will pay all future premiums. All these provide an extra layer of protection.

"ULIPs have been misunderstood for a long time, but the perception and awareness about the product have improved over the past year owing to these new-generation products," says Anup Seth, Chief Retail Officer at Edelweiss Tokio Life Insurance when asked about its potential as a convenient growth-cum-security tool.

Faster, Broader Health Plans

Health insurance is most crucial as the future of affordable healthcare is still uncertain. Without a health cover, you will most certainly have to foot a huge medical bill, be it an accident, a chronic disease or a critical illness. Innovative products are also coming up in this space to cater quickly to savvy customers. "Max Bupa's AnyTimeHealth is a technology-based solution that enables a customer to run instant health assessment and purchase a health cover in flat 180 seconds," says Ashish Mehrotra, MD and CEO at Max Bupa Health Insurance. "The ATH machine runs on five simple steps - registration via e-mail ID and phone number, a non-intrusive health assessment, an automated policy recommendation based on the details entered and test outputs, instant payment and instant policy issuance."

Then there is tele-underwriting where an assessment is made based on the risk-related information gathered over a call. "The tele MER (medical examination requirement) initiative has reduced turnaround time to just one day, offering an easy and quick buying experience to our customers. Direct engagement with end customers gives the underwriters a better understanding of their health and helps in decision-making," says Sasikumar Adidamu, Chief Technical Officer at Bajaj Allianz General Insurance.

Broader coverage: With customers demanding a more extensive coverage, health insurers are including more medical conditions to their list. "We have included up to 33 critical illnesses, an upgrade from our original list of 18. Some of these are cardiomyopathy, major head trauma and poliomyelitis," details Sanjay Datta, Chief of Underwriting, Claims and Reinsurance, at ICICI Lombard General Insurance. According to Mehrotra, Max Bupa Health Assurance provides critical illness cover for up to 20 medical conditions such as cancer, bypass surgery, first heart attack, kidney failure and major organ transplant. Alzheimer's, Parkinson's and angioplasty are some of the health disorders added to the existing list of critical illness covers, says Sasikumar Adidamu, Chief Technical Officer at Bajaj Allianz General Insurance.

Regulatory push is further helping consumers. In 2016, IRDAI had prepared a list of 199 non-payable items and insurers were given the flexibility to include or exclude them. But recently, the insurance regulator has removed certain medical procedures and ailments (dental problems, infertility, obesity and HIV, to name a few) from that list.

"The regulator has taken the initiative to enhance the spectrum of health insurance plans. It has also issued circulars on diseases like genetic disorder and mental illnesses although both are generally perceived to be part of exclusions. Getting them included has enabled insurance companies to tap into a market that has great potential," says Prasun Sikdar, MD and CEO at Cigna TTK Health Insurance.

Maternity expenses cover: It is mostly available as an add-on rider and covers maternity expenses after a waiting period of three-four years. But now the waiting period has been reduced to one year. "Our recently launched super top-up health plan called Extra Care Plus covers maternity expenses just after 12 months. Additionally, we have introduced a credit-linked health plan that takes care of existing loans if the insured is diagnosed with critical illnesses or has an accident," says Adidamu of Bajaj.

OPD charges: Earlier, health insurance policies covered only hospitalisation expenses, but a handful of insurers, including Apollo Munich, Cigna TTK, ICICI Lombard, Bajaj Allianz and Max Bupa, now cover OPD charges, especially consultation fees and prescription costs. Some of the policies also include the cost of dental treatment and eye gears.

Plans for senior citizens: These are relatively new offerings for people generally above 60 years. Under these schemes, insurers mostly provide coverage up to 80 years but the waiting period can range between one and four years. A few plans such as Apollo Munich Optima Senior and TATA AIG MediSenior are lifelong renewable.

Health wallets: Apollo Munich has come out with a health wallet plan under which the unclaimed amount gets carried forward and earns a six per cent bonus. The accumulated kitty can be used to pay 50 per cent of the renewal premiums post five renewals.