More covers, customisation

More covers, customisation

Price competition will force insurance companies to reduce costs and customise products. Buyers would have a choice of distribution channels, which would lead to differential pricing.

Swaraj Krishnan

Insurance is still the best known form of financial protection against life’s uncertainties. However, as need, requirements and risk vary for people, there has to be some element of customisation. Administered pricing and free market seem to be a paradox; the dismantling of administered pricing has now entered the second phase, where insurers can develop additional covers to supplement and complement existing covers. Customers can now expect new covers, which would give them more benefits. Let’s indulge in some crystal-ball gazing and see how some of the envisaged plans can change the insurance landscape.

Waiver of depreciation: In motor insurance, depreciation of parts has been a major irritant among claimants. Most of the parts are now plastic or FRP, which make the vehicle lighter, but at the same time, are no longer repairable. This means an increase in costs and a likely increase in premium rates.

Change in deductibles: A vital tool for bargaining for a better price. For customers with a good track record and limited use, it may make sense to opt for higher deductibles to reduce the premium burden.

Alternate cars: When a car is being repaired, the policyholder has to rely on substitute vehicles. A daily allowance or a car could be a solution, with premium and cover restrictions.

Agreed value: Abroad, there is a popular product for high-end vehicles, where the insurer provides a new vehicle of the same model in case the insured vehicle is stolen or totally wrecked.

Future trends: Apart from expectations from the product development section, I’m sure the customers can expect a lot in terms of services. Innovation in services like online policy issuance have long become a reality. Cashless settlement is becoming quite popular. Turnaround time in claims has become a concern and today’s customer wants regular updates. But if one takes an analogy from other financial services like banking, credit card, mutual fund, stock broking etc, it is evident that things have changed for the better for customers. Insurance is likely to follow suit and provide easy customer interface and availability of simple personal insurances.

These developments will compel insurers to make tremendous changes in their business models. Price competition will force them to reduce their costs and customise products for various segments. Internet purchase would become predominant, and buyers would have a choice of distribution channels, which would lead to differential pricing.

The retail consumer would be one of the biggest beneficiaries. As a customer, you would be able to buy a policy on the phone, Web, etc, make price comparisons between various companies and always have choice. In order to reap benefits, however, you would have to do some homework. It is always better to read about the product benefits rather than rely on the sales spiel, understand the claims process before buying a policy. You should also never sign a blank proposal form or buy a product without going through the brochure. Finally, always negotiate with hospitals and workshops for lower costs, as these will ultimately determine the premium you pay for your policy renewal.

— Swaraj Krishnan, CEO, Bajaj Allianz General Insurance