Why Life Insurers Will Be Cautious While Selling New Standard Term Policy

The Insurance Regulatory Development Authority of India, in its October circular, directed all life insurers to launch a standard term insurance plan, Saral Jeevan Bima, effective Jan. 1, 2021, to reduce complexity and help customers make an informed choice. The product will have a policy term of five to 40 years. The sum assured will range from Rs 5 lakh to Rs 25 lakh.

“Most private life insurers would have very limited data, experience in the segment that is opened up by Saral Jeevan Bima and hence it’s expected that many would approach this cautiously," Samit Upadhyay, chief financial officer and head of product at Tata AIA Life Insurance Co., told BloombergQuint. "But in the medium term, we expect stiff competition, whether using Saral Jeevan Bima or similar products, for the relatively new customer segment.”

Upadhyay said given the features are mostly going to be standard, brand, ease of on-boarding customers and price will be key differentiators. "Customisation of offerings based on consumers’ needs and smart underwriting will be key to customer satisfaction and profitability.”

The standard product is aimed at making it easier for customers to make an informed choice, enhance trust, curb mis-selling as well as potential disputes at the time of claim settlement. As different plans and features are available in the market, it is confusing for people, especially those who have limited knowledge, to understand the difference between two policies offered by two companies and make an informed decision, the IRDAI had said in its statement.

Typically, a standardised product is best suited for the mass market, which tends to be more price-sensitive and a right balance needs to be found between ease of access, process and pricing, according to Sonia Notani, chief marketing officer at IndiaFirst Life Insurance Co. “The price is expected to remain in line with current available term products or it may actually be marginally higher if we look to give a simple, over-the-counter purchase journey,” Notani told BloombergQuint. This, she said, is because there is limited reinsurer support forthcoming in this segment, which may not allow insurers to be aggressive.

Even as pricing is at the discretion of insurers, they remain cautious.

SBI Life Insurance Co. Ltd. doesn’t expect aggressive pricing, but said it will vary from insurer to insurer. “Each insurer is permitted to price the product as per their mortality experience, cost base and other considerations,” Abhijit Gulanikar, president-business strategy at SBI Life, told BloombergQuint. “The pricing for this product will evolve over time as the current base of mass market pure term products is small.”

According to Max Life Insurance Co., the product is expected to be priced taking into account risk parameters or nuances of this user segment. “At first, the industry may wait and watch with regard to pricing as many reinsurers are not seen getting interested," Aalok Bhan, director and chief marketing officer at the insurer, said. "But in the long term, this space is expected to grow with innovations from the industry.”

Rakesh Wadhwa, chief customer and marketing officer at Future Generali India Life Insurance, agreed. “The pricing may vary depending on the view insurers adopt on risk, volume as also on their reinsurance arrangement, among others. As for impact on future pricing and margin, that would be guided by the claim experience insurers will have overtime.”

Yet, life insurance companies are optimistic that the plan would boost penetration in India, which according to Switzerland-based reinsurer Swiss Re, was 2.8% of the gross domestic product in 2019.

“This is a positive step forward for the industry as it will help to expand the market, further insurance penetration for a larger and new customer segments,” Max Life’s Bhan said. Customers would be free to choose the product that best suits their needs and pocket, he said, while companies would have a large segment to tap into.