1273665,vikas sharma, F2,Q.45 ,Comment on product innovation matching the risk profile of the policy holders

Comment on product innovation matching the risk profile of the policy holders

Introduction   

 The Indian insurance industry seems to be in a state of flux. After a decade of strong growth, the Indian insurance industry is currently facing severe headwinds owing to:

• Slowing growth
• Rising costs
• Deteriorating distribution structure
• Stalled reforms

Despite strong improvement in penetration and density in the last 10 years, India largely remains an under-penetrated market. The market today is primarily dependent on push, tax incentives and mandatory buying for sales. There is very little customer pull, which will come from growing financial awareness and increasing savings and disposable income.

In the long run the insurance industry is still poised for a strong growth as the domestic economy is expected to grow steadily. This will lead to rise in per capita and disposable income, while savings are expected to be stable.

Insurance growth drivers in India

The demand for insurance products is likely to increase due to the exponential growth of household savings, purchasing power, the middle class and the country’s working population. Listed below, are the various underlying growth drivers for India’s insurance industry:

• Growing of the financial industry as a whole
• Growth of life and non-life industry
• Promoting innovation and removing inefficiency
• Competition and orderly growth
• Growth of specific insurance segments such as motor insurance

Conclusion

The non-life insurance industry has been growing in excess of 20% over the last two years however the penetration was as low as 0.7% of the GDP in FY10. The key factors for growth include:

• Product pricing, innovation and simplicity
• Distribution
• Compensation
• Micro-insurance in non-life widening reach
• Governance and regulatory changes
• Health insurance
• Innovative products to counter the competition
• Improved fraud control mechanisms
• Standardization to reduce claims loss
• Reducing inefficiencies by revisiting third party administrator (TPA) agreements

Significant latent market - The insurance market has a considerable amount of latent potential, given the fact that the Indian economy is expected to do well in the coming decades leading to increase in per capita incomes and awareness.

Channelizing industry focus - In meeting the significant potential, the industry has an increased role and responsibility. Three areas of focus could be — a) product innovation matching the risk profile of the policy holders b) reengineering the distribution and more significantly c) making sales and marketing more responsible and answerable.

Distribution - Distribution channels evolved in response to market dynamics and changing consumer preferences. The alignment of economic incentives with distribution dynamics should be driven by market forces rather than regulatory intervention.

Regulation - The industry should be given time to adjust to regulatory changes in a phased manner aligned with a regulatory impact assessment. Regulations need to drive transparency and simplification of products and services.