Covid was the moment of truth for the life insurance industry: Experts

India’s life insurance industry has emerged from the Covid pandemic relatively unscathed, even though it suffered losses owing to higher claim payouts. That said, insurers reckon that the Covid period was a moment of truth for the industry. Top honchos of life insurance companies, including ICICI Prudential Life Insurance Managing Director (MD) and Chief Executive Officer (CEO) N S Kannan; SBI Life Insurance MD & CEO Mahesh Kumar Sharma; Life Insurance Corporation of India (LIC) MD BC Patnaik; Bajaj Allianz Life Insurance MD & CEO Tarun Chugh; and Max Life Insurance MD & CEO Prashant Tripathy, spoke to A K Bhattacharya, Editorial Director, Business Standard, in a panel discussion on what the industry is planning to do next to capitalise on the opportunity offered by Covid to drive insurance penetration in the country. Edited excerpts:

How has the industry managed Covid, and what are the key takeaways from this kind of black swan event?

Tarun Chugh: It was a transformational catharsis. It got customers to understand how important life insurance is for them. As a result, the sector grew despite everything else happening in the world. We gained in a lot of other sub-formats. The importance of digital innovation, the customer at the centre of all decisions, risk and capability to keep processes simple — a lot of these trends accelerated. One thing we struggled with was onboarding customers at the back-end for term policies.

We banked a lot on reinsurers and that was a homecoming moment for us, because we realised we have to do these things on our own. While reinsurers had data for the whole world, customers needed us there at that moment. That is where we learned that processes had to be simplified and we had to take more risk on our books. And a lot of us have done that. At the same time, the insurance sector really stood up to the task in terms of offering its core value proposition, which is paying claims, and paying them on time.

N S Kannan: The Covid period was very difficult for the industry, because it was completely unanticipated. But, Covid was the moment of truth for the industry. We had to make sure that all genuine claims were paid on time. Claim volumes spurted during that period, which the industry was not prepared for, because that kind of claim was unusual. The industry stepped up, thanks partly to the regulator’s intervention, and we came out quite okay in meeting the promise. That is our big takeaway: We were reminded about the purpose of our existence. The need for insurance and awareness became much higher.

By no means would I say that it has reached where it should be. For a brief time during the second wave, when people realised the importance of insurance and the demand for term insurance spurted. In the third wave, the mortality outcome was not bad, so, there was some waning of demand. But, post-Covid, we have a better understanding and awareness of term insurance. In doing business, customers, companies and employees were forced to adopt technology in a massive way. I hope some of the good takeaways stay with us.

B C Patnaik: We should thank the life insurance industry for standing up to such a difficult situation. I think some analysis can be made to find a correlation between the economic revival taking place currently and the good work done by the life insurance industry.

Mahesh Kumar Sharma: One thing we learned was that a good business continuity plan never goes waste. Nobody in their wildest imagination would have thought that things would be so drastic. But thanks to having a good business continuity plan, we were able to tackle problems. Almost within 72 hours of the lockdown being announced, we were able to start processing claims, take calls, and divert customer calls to our own people where the call centre would not take them. We learnt that it is always nice to plan ahead and have a good business continuity plan, even though events may look remote.

To be at the forefront of technology was also critical. This was not something which we could have managed on the day the lockdown was announced. The fact that we had tried to digitise many of our processes much before Covid struck helped us to put together an alternative sales process. Conventionally, when we talk about mortality, we think of old people, sick people, or vulnerable sections of society. But now we found that there are diseases which do not respect any of these ideas. So, insurance is something which needs to protect all people. As an industry, we matured immensely during this period.

Prashant Tripathy: When I reflect back, I feel immensely proud of being a member of the life insurance industry. We are all financial services institutions and work through our balance sheets. We have our capital requirements. During this period of adversity I did not find any players go bust, or run for capital, which means the conservatism deployed in each company has been of a very superior order.

This was an unprecedented situation. The way the regulator supported us was tremendous. This period also broke the stereotype that life insurance is more of a face-to-face sale product. I believe we are all proud of being in an industry which was relevant at the time of Covid and did whatever was needed. The only downside is, as soon as the fear of Covid went away, we saw a decline in the desire to buy term plans. Google searches for term plans have gone down 30 per cent. Overall term acceptance has also come down.

If such a crisis were to arise again, would you tackle it in a different way?

Tripathy: At a human level, we would handle a crisis in a similar way. But, across all companies, we struggled the maximum amount at the claims level. We were all equipped to handle claims on a business-as-usual basis, and suddenly we got five years’ worth of claims in one year. We struggled to process the claims and, at the same time, because of losses, reinsurance companies became very hawkish.

If I were to correct one thing, I would want to capacitise properly, automate, and perhaps have clear-cut agreements with reinsurance companies as to how we would deal with it, so that we can process claims earlier. In many cases, we took longer to process claims. While we did process them, it is not desirable that we pay claims late.

Sharma: We need to increase awareness of insurance, and make more efforts to achieve this. The insurance industry has the responsibility to create awareness around insurance, but a lot of it will also depend on the media and government agencies not pulling down the industry, but strengthening the hands of insurers. The regulator has been doing a spectacular job in creating awareness.

Patnaik: All of us know that India has to traverse a long distance to be called a really insured country. After Covid, awareness has actually come down. So, any sort of insurance is good, because at least consumers will invest some part of their money in protecting themselves. This will help the industry reach the expected levels of growth. Unless a large number of people get insured, calamity-like situations will become difficult to traverse.

Kannan: The way the industry has handled the Covid situation gives us confidence to face any such situation in the future. A takeaway is that the resilience of our operations has to be maintained. We are probably one of the few industries in the financial services sector which never ran to the regulator for any dispensation. On the assets aside, we have great balance sheets across the industry. The problem of non-performing assets is miniscule. We have adequate capital and we did not go to the regulator for more capital.

Having said that, a few companies took a hit in terms of losses for a few quarters, but that’s the moment of truth. If life insurance companies do not make losses during a pandemic, it means we have not done a good job in terms of coverage. Despite all that, the fact that we have been resilient through this period makes it even more important for us to continue this resilience.

What needs to be done to improve the penetration level?

Chugh: I think more self-governance in regulation is required. The insurance regulator is swiftly moving in that direction. All that is happening from the regulator’s side is perfectly timed. We can’t have a product which is made once a year and made available to the entire country. The decision has to be left to the life insurer to tweak the product according to geographies. More digitisation support is also required. The regulator stepping in and taking a more developmental approach is a welcome change, in the right direction.

How do you take life insurance beyond India’s urban metropolises?

Kannan: For life insurance companies to be viable, both sides have to be focused on — urban and rural. I believe that there is a commercial opportunity for life insurance companies to thrive by focusing on rural as well as urban markets. If you look at LIC’s business model, they have always been in the mass segment. When unit linked plans came in, and people wanted exposure to the market, private companies gave their customers that opportunity. It could be argued that it was targeted to the more affluent sections of the society. 

Then we had the Pradhan Mantri Jivan Jyoti Yojana driving penetration in the mass segment. While banks distributed the products, insurance companies manufactured them. I believe that is one area where overall awareness improved. More recently, the regulator is talking about a product called Bima Vistar, to be distributed through Bima Vahaks. By Bima Vistar what they mean is at a customer level, why can’t I offer a composite product? Why is there differentiation at the customer level between life insurance, general, property, a d motor insurance?

Give him one unit of full risk cover, which could be manufactured by various companies, depending on their line of cover, to be distributed by Bima Vahaks. At a gram panchayat level, they are talking about predominantly women distributing these products. So, this is an opportunity which we should embrace as an industry. I think we are in a policy sweet spot.

This is a financial services industry and will remain regulated forever. But on the government side, there have been a lot of initiatives. Recently, we saw the department of financial services propose amendments to the Insurance Act. On the part of Irdai, they have relaxed capital requirements in certain lines of business. So, while we have to do our job in terms of creating awareness, we have a huge tailwind in the form of a policy sweet spot. I think this is a golden period for the industry.

How do you think the life insurance industry will respond to this policy sweet spot?

Patnaik: Life insurance is a very difficult business. There should be a certain number of regulations. But the industry has matured. We can sit together and find out what rules and regulations can be dropped now. There is ample space for everybody in this industry. LIC has a lead, and it continues to lead because we continue the good practices of earlier times. But, we have learned many good things from the private players who came in.

Sharma: LIC has a lead of 50 years. We have been there for just 20 years. The policy sweet spot has started recently. If you look at the structure of the industry, the narrative around insurance was earlier as a savings instrument with an element of insurance. It was never about insurance first. One topic that we shy away from is death. And, this industry depends on people realising that they are mortal. So, this awareness is missing from the industry. The UPI moment in the insurance industry has not arrived with a bang because of awareness of the need to protect oneself from risks.

Tripathy: The need to buy insurance is very different from the need to buy mutual funds. It’s more covert than overt. So, the kind of effort needed to reach out, propagate, and penetrate will be of a higher order. To achieve that, we have to burn the candle from all sides. Awareness is required, and will be required over a long period of time. I don’t think we have done a great job in terms of creating awareness.

The big issue that we need to solve is to find a sweet spot in the combination of distribution and product, which can economically reach out to the lowest strata of our society. That is where we have struggled. The industry has focused more on premiums, as against sum assured. That is why the ratio of sum assured to GDP is quite low. So, we need to continue to drive the sum assured through a combination of distribution and product vehicles that can reach out to the lowest level.

How can life insurers increase persistency?

Kannan: Persistency has to be far higher than what it is currently, for customers to get the full benefit. That said, persistency has consistently improved in the last five years. During Covid we saw a little bit of a dip because of the inability of customers to pay premiums. But now persistency has gone back to better than pre-Covid levels. If you look at unit linked products, even if persistency is low, it does not bite the customer. But on traditional products, it is important for customers to get to 90 per cent persistency to get the full benefits.