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First among all forms of savings

First among all forms of savings

In future, insurers and financial services providers will work in tandem to offer solutions to customers based on their career. life plan and risk appetite.

Life insurance has emerged as the fourth basic necessity of the modern world— after food, shelter and clothing. This is a natural consequence of the post- Independence change in the social structure—the time-tested joint family system giving way to nucleus families.

Although the history of the life insurance business in India predates Independence and the annals list Oriental (1818)as the earliest life insurance company on Indian soil, its operations were mainly restricted to the coverage of European population in the sub-continent.

On September 3, 1870, seven earnest men of Bombay with just seven rupees as initial expense gave shape to a plan of offering insurance to the public. They formed the Bombay Mutual Life Assurance Company.

T. S. VijayanThe Indian Life Assurance Companies Act of 1912 was the first law enacted to regulate the insurance sector in the country. It was followed by the Insurance Act of 1938. These regulations streamlined insurance contracts. But the existence of 256 companies in the market led to malpractices and the customer interest was unprotected.

Recognising the potential of life insurance in channelising funds for building infrastructure, the Central government proposed nationalisation of life insurance.

 The Life Insurance Corporation Act of 1956 ensured consolidation of the life insurance industry and formation of one the premier financial institutions of modern India—the Life Insurance Corporation of India (LIC). The corporation thrived under monopoly and surpassed the expectations of its most ardent critics. The nationalisation of the company benefited the customers and the economy.

The opening of the insurance sector in 2000 was to keep up with the globalisation of the economy and to offer more choices to the customer. Today, every life insurance company is competing for the share of savings with other financial instruments.

However, in its purest form life insurance is the first choice for any financial savings of an individual. The basic products are term insurance and endowment in which the sum insured is available on the expiry of the term. Various factors and customer preferences have introduced many variants of these simplest forms of life insurance. The speed of product innovation has left the customer gasping.

Recent trends suggest a shift in consumer preference due to rising awareness about financial markets. The term and endowment insurance policies so prevalent till recently have been overshadowed by marketlinked insurance products.

More and more people want to have a share of the booming equity markets. The sudden spurt in unit linked-insurance products and the rapid growth of the mutual fund industry point to this trend.

With enhanced knowledge levels, the customers are willing to pay separate premium for risk coverage and other benefits being offered under the insurance policy. For an individual investor, the insurance portfolio should have a right mix of endowment, risk cover and ULIP depending on his personal investment choices.

The presence of multiple players in the insurance market will lead to further innovation in products and discovery of new parameters of customer preference.

The other major shift in life insurance has been in the distribution channels. Till recently, life insurance was marketed mainly through tied agents transacting business through the office network of the life insurance company. Entwining of different financial products has attracted various financial service providers to insurance.

Banks and brokers have tied up with various life insurers to become alternate channels for distribution and servicing of the life insurance products. Many consumers have developed a comfort level in dealing with their bankers over the years. This customer loyalty is being leveraged by banks to offer an array of financial products.Safety cover

The financial service providers are making full use of the various technology innovations. In fact, some technological innovations were necessitated by the huge demand of financial services sector. Being the global back-office, India has experimented and employed all the distribution and servicing channels associated with the information highway. One instance is the mushrooming of ATMs across cities.

Life insurance being a legal contract has not been able to benefit from technological advances to the same extent but the servicing and customer awareness programmes have reached the masses through broadband. A customer is able to access his insurance policy details, pay premiums and ensure servicing sitting at his desktop. This fusion of financial services and technology may produce derivatives of various financial products in the future.

In future expect co-creation of solutions by insurers and financial service providers. The young entrants to the job market will be approached by financial consultants and depending on their career and life plan and risk appetite, comprehensive solutions will be drawn. It will take into account the saving potential and financial needs of the individual at different stages of his life. The solution may be bouquet products which include life insurance, deposits, mutual funds and a whole lot of other financial products and their derivatives.

The approach will be towards wealth creation and retirement planning. The individual may be provided with a singular customer ID number and a franchise card to access all information relating to his portfolio. The ever alert and enlightened Indian consumer deserves such next generation solutions.

With the opening up of the Indian economy, the insurance industry in the country has come a full circle. The IRDA Act of 2000 paved the way for private life insurance companies to re-enter the Indian market. There are 14 private life insurance companies along with the LIC in the market and the competition is forcing mergers and amalgamations.

The presence of the regulator ensures immunity to the customer from the market turmoil. More players are likely to enter the market in future, which will provide customers with even more choices. Since the basic premium rates for all the products on offer by insurers are approved by IRDA and are hence compatible, the choice of insurer will be guided by the servicing and brand image that the customers carry.

(The author is a Chairman of Life Insurance Corporation)