Life insurance industry has been going through a slowdown phase. Manoj Kumar Jain, managing director, Shriram Life Insurance, talks with Priyadarshini Maji on how 2016 budget going to impact the life insurance industry.
Your views on the budget...
The budget 2016 according to me is quite good. It's focusing on the rural economy. More money will be available and more people will buy insurance, which is a very good step the government has taken. Companies like us we are in the tier 3 and tier 4 terms and so for us if the rural economy grows, a lot of money can come as a saving.
Service tax has been lowered on single premium pension plans? What does it mean for policyholders?
Service tax should be charged only for a risk premium. In the pension plan the risk premium is not there, it's more like a saving scheme. So on saving you cannot have service tax. For that you have to have service tax on fixed deposit also but there is no service tax if you go in a bank. Service tax is there only for a risk premium, so if you are buying a risk policy you have to pay the same service tax .
How developed is the annuity market in India? How much interest rate do they offer?
Annuity is always a long term contract, when the interest rate ratio is not certain we really don't know 20 years hence what will be the interest rate. In Japan it's minus, so when they are guaranteeing it, there are companies who can go bankrupt also so you have to be very careful in guaranteeing, because annuity contract goes even for 50 years and nobody knows what's going to happen then.
So that's the reason the insurance companies are conservative and the regulator also has put a cap, that the minimum guarantee is 3.5%-4.5%, and that's the reason if somebody is looking for a short term investment it doesn't make sense for them. Because they compare that the insurance company is paying say, 5-6% on annuity but if the money is deposited in bank then its 8-9%, but the bank fixed deposit is only for 3 years, but whereas with the insurance company it's a contract which is valid for the next 30 years.
That's the reason annuity worldwide looks conservative but it is not because it's locking your money for a very long period. Insurance companies also doesn't pay from their own pocket, the money which is coming we have to invest and the long term paper which is available in the market, the first 50 year paper is not available, so the coupon rate is quite low.
There was announcement in the budget relating to commission earned by agents? How is it going to affect agents?
In the current Union Budget applicable to agents, brokers and other intermediaries, TDS on commission reduced from 10% to 5%, this is a welcome step as this puts more money in the hands of agents, early, without having to wait for the TDS refund. This will also help the more disposable income with the agents and intermediaries.
Though the reduction is 5%, this will help the small agents, who are very critical in reaching out life insurance in small towns. Many of them may not be in the income tax slab limits and hence their money need not be locked up with the department till refund. About Service tax exemption on regulatory fees, payment to regulator like annual registration fee etc by Brokers, Insurance marketing firms are exempted from payment of service tax.
This will reduce the cash outflow. The threshold for TDS on commission earnings reduced from Rs.20000 to Rs.15000; this is in line with all other earnings like brokerages etc. This may also have an effect of including more agents, who are earning between Rs.15000 to Rs.20000, and were not covered so far.
Low persistency ratio is one of the biggest concerns for the industry...
It's because it's a pushed product. Customers think 'I don't need it anymore', so when the renewal time comes, they are like, 'I have taken the product in the first place but I don't want to continue it anymore'; the behavior is such because they think they did not see any benefit from the product.
The second is the target segment. We are selling policy for the entry level customers. They are buying and they want to pay but they don't have money to pay, so policy lapsing is quite high in India. only policy lapses are less if you bank a channel, when the customer is a runoff customer, is already having money in his account and gives instruction that please debit from my account but those percentage are exclusive.
What are some of the biggest concerns for the industry?
The biggest concern in the industry is the awareness. In the Life Insurance segment itself the awareness is very low, and that's the reason the life insurance penetration is lowest in India. Out of every 100 person only 4% has life insurance. And even among those 4%, it's hard to say how much is adequately covered.
Adequately here means, each individual has a different life value, a factory worker who is earning 2lakh per annum will have a different value of his life from somebody who is earning 20lakh in a year. In simpler terms a scooter insurance and a Mercedes insurance has difference. In India on 4 out of 100 person is having life insurance and with guarantee I can say, among them 90% is Mercedes and have taken cover for scooter.
So we are quietly under-insured from that point, because it's not compulsory by law. But general insurance is compulsory by law; I can't drive my car even for a day without insurance/renewing my policy; the person who is driving the car is more important, but he doesn't have a life insurance. Because we all think that nothing is going to happen to me, it's only going to happen to my neighbor. The Second problem is qualified agents, who can go and explain properly.
There is a huge shortage of qualified agents and insurance selling itself is tough. Out of 100 agents only 5 gets successful, it's all because selling insurance is tough. Out of 10 customers 9 says, 'I don't need one', or 'I already have one'. Another thing in India, Life Insurance is always considered as a saving product, it is never considered as a risk product. Till date also in the young generation, if they have a life insurance it will be under the influence of the parents.
Your father will say I know an insurance agent or I already have taken a policy, you just have to pay the premium. You don't know whether that policy is good for you or not and most of those policies are just saving policies, either money back or endowment. But things are changing, people are buying online but still it's a long way to go. So to sum up the first concern is awareness, then there is lack of trained agents, and then the product itself is hard to sell because there is no visible benefit just at the time of buying, because nobody thinks about dying, nobody things in long run the bigger picture.
Life Insurance sector-outlook in the coming financial year...
This year the industry is going to grow by around 15-16% in the private sector, our new business premium this year will be around Rs650-700crore, overall premium will be around Rs950-1000 crore, and we are looking forward to 75 new branches opening in the next financial year, that makes 600+ branches of Shriram Life.
Our focus is there in northern India, 75 branches that we are opening, around 30-35 branches we are opening in northern India and the balance we are opening in the east. Our branch network also if you see 40% is south, 20% are there in west, 20% in north and 20% in east
We will be a replica of the GDP, if the GDP is going to grow, we will grow on the same basis. Technology in the Life Insurance segment... I think we are still behind the banking industry. Banking has really taken a good lead there, but Life Insurance has also done a lot of work. In technology there are two aspects, one is digital, in that a lot has been done, for company like us where 95% of our customers doesn't even have an e-mail id, but definitely they have mobile phone.
So for premium renewal, payment collection, all are connected through the mobile phones with us. Other technology initiative which we have taken as a company is we have tied up with Telenor, where we have covered almost 60lakhs customers, and on mobile itself they are buying life insurance, so it's completely digitalized. It's 100% technology driven and it's a success, because there is no physical involvement not even in the time of buying.
Only the physical involvement is during the time of claim settlement. If they want to claim, they have to go to the store of Telenor, and submit their certificate and within 7 days the claim is cleared. So it's completely digital and technology driven, because the margins are so low that we cannot even afford to have a hard copy of the policy, it's all on SMS. So a lot of work is happening.
Why are investment plans of life insurance companies so complicated?
Just last month we launched Shriram Life Insurance Assured Income Plan Plus. Since we are operating in a segment where the majority is tier 3 or tier 4 customers, we cannot have a complicated product, all products are simple, easy to understand and we offer a guaranteed return. The assured income plan which we have launched is a simple plan. For the first five years the customer has to pay and then wait for the next five years, and from the 11th year they can start getting money.
So broadly if you ask me, somebody is paying Rs.100 now and for next five years he has paid Rs.500, from 11th year he can get Rs.162. we are guaranteeing properly and it's an easy to understand product. The product is so well accepted in the market. So the customers understand very well that what he is paying and what he is getting. Couple of more products is there in the pipe line which is waiting for the regulatory approval. One is the pure tem plan, two riders are also there, among which one is a health rider.
The term plan is a pure Life Insurance plan, we are targeting customers who are looking for up to 50lakhs Life Insurance cover. We are also adding a feature there, that 50% of the claim is paid in lump-sum right at the time of the claim and the balance is paid in installments, this kind of option is available in our term plan. We will launch it in the next 10-15 days. We also have few riders coming up; they are the add-on benefits with the main insurance policies.
Like I am taking a Life Insurance policy and I want a health insurance too, so instead of buying one separately I can just take this rider and then combine the both. Or sometimes during heavy travelling, so the chances of death there is more on accidental death, in that case I might have a Life Insurance policy, with that I can take a rider which is at a much cheaper price, that if I have an accident I will have a double sum assured.
Some investment tips for the younger generations...
For younger generation my suggestions will be to go for PIPS. P stands for Production, I stand for Insurance, P stands for Pension and S stands for Savings. So a young person will have a more stake towards life. And at a younger age normally people tend to have less money also. So they should only go for pure term plan, in less money he/she can get a higher sum assured. And as income grows and more milestones are achieved then he/she can go for savings plan.
At the age of 50-55 when they have already lived most of their life and will be having money, then they can go for investment plans, and in-between they should plan for a pension plan. As in India the life expectancy is increasing and a long after retirement life so youngsters should have pension plans, they can start with small amounts and as their income grows they can increase the amount.
They can start with just a thousand rupee but should start early, as Warren Buffett said 'I made my first investment at age eleven. I was wasting my life up until'. So this is the thing we have to get in our society. You can go for a simple term plan to start with, its available online and it's no issue at all. But if you have a financial planner it is always good. They will understand your complete requirement and even in long run guide you properly.
So a good financial planner is always recommended, because they will review your financial positions regularly, but what we feel is that there is a huge shortage of good financial planner.
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