Unfinished search for insurance reform

Luckily, Insurance Regulatory and Development Authority of India (Irdai) had issued a set of guidelines a few months back (in January 2020, just before the onslaught of Covid) which was supposed to make things easier for consumers like Shukla. The new rules were to create a “standard” product with a generic name – to make it easier for consumers to recognize – followed by the name of the insurance provider. More than 40 commonly used insurance terms and conditions had to be standardized across providers. Liability had to be clearly spelled out and an informed consumer choice was going to reign supreme. Deadline for these changes to take effect: 1st April 2020 (Time for an uptick in COVID-induced insurance demand).

However, these lofty ambitions did not materialize when Shukla was in the market for a good product. The first issue faced by Shukla was that a standardized health policy was not available for all insurance companies. They also quickly realized that standard products, even when available, offered limited coverage.

“I didn’t understand the co-pay clause or the premise of the price difference (why insurers charge different price tags when offering the same product),” Shukla said. Standardized insurance policies score on comprehensive health policies.”

Oddly, the guidelines which were meant to provide greater transparency and clarity in theory had the exact opposite effect in practice. Eventually, Shukla made an extensive purchase health insurance Instead of opting for a standard health policy from a major insurance firm.

This gap between the stated target and the actual consumer experience matters for one simple reason: The pandemic has changed the landscape of India’s insurance industry. Insurance penetration is expected to grow rapidly with the pandemic providing a tailwind for health, life and other insurance products. Until 2020, insurance used to be a “push product”, promoted primarily by an army of agents and banks. It is now progressively turning into a “pull product”, with consumers picking up the first query. Many of these new entrants in the insurance market will benefit greatly if a standardized product market functions effectively.

Whether the experience of these new entrants is good or bad matters as wider insurance penetration will bring down costs for all. According to the India Brand Equity Foundation (IBEF), a website set up by the Ministry of Commerce, Government of India, as of FY20, India’s insurance penetration is just 3.76% (life insurance products 2.82% and non-life penetration 0.94%). and industry.

For an industry that’s used to modest growth of around 3-5% year-over-year, this is a clear inflection point. Standardization could potentially facilitate further development. But will it work for consumers in India, many of whom are suddenly scrambling for cover on a rainy day?

need for standardization

What Exactly Is a Standard Cover? This effectively means that in this case the regulator will put in place a framework in terms of IRDA-specific coverage and product details. Within this framework, insurers can offer their individual plans. The only difference will be the price, which may have the added benefit of keeping consumer costs low as insurance providers will not be able to hide behind small differences in benefits to increase premiums.

Any major difference in price can be justified only when a markedly superior customer service experience is provided. Thus, it is a potential win for ordinary consumers.

Nishith Baldevdas, Founder, Shree Financial said, assuming all features (across providers) are equal, clients will have to make decisions based on certain verifiable parameters, which is registered with an investment advisor. Securities and Exchange Board of India (SEBI). “Basic parameters to keep in mind while shortlisting are affordability (advance value), readiness of service, number of claims settled in the last 5 years and whether the claim settlement record is good or not.”

Insurance providers can also benefit from moving towards standardization. At present, policyholders often get into extended arguments with firms during the claims settlement process due to ambiguity in terms and conditions. Product standardization can play an important role in reducing frequent disagreements. A standardized product will reduce the complexity of the claims process. But the main benefit is this: Products that bring more transparency will increase consumer confidence and build trust in the industry by simplifying price points and associated underwriting.

Trust is an essential lubricant for any well-functioning marketplace. Informed buyer choice is currently one of the major constraints in the Indian insurance ecosystem. Due to the huge range of policies offered in the market, consumers often get confused. For anyone with a day job and dozens of other priorities, buying the right insurance may not be an easy task. In most cases, insurance firms and their distribution agents are responsible for explaining the specific details of a product.

If this conversation is fair and transparent, it inevitably builds trust. For a person taking a policy for the first time, usually the first person is the insurer. And a well designed standardized product will make it much easier for a newcomer to get the right information from a firm or agent.

incomplete transition

The year 2020 brought a complete revolution for the health insurance industry. While the first steps towards greater simplification and standardization were taken, the quest for clarity on the regulator often created a slew of new confusions.

For example, after the introduction of the standard Arogya Sanjeevani Health PolicyThe regulator revised the product several times to attract insurers and buyers. This eventually led to more confusion, said an industry expert who requested anonymity. Thus, while the amendments may be aimed at benefiting policyholders and buyers, a lot of amendments in the last one year have unnecessarily added to the complexity.

In the field of life insurance, a significant regulatory intervention was the introduction of a standard term insurance product-simple life insuranceBy IRDA in October 2020. The policy came into force on 1 January 2021.

Generally, term life insurance policies cover almost all types of death and have no exclusions (except a clause on suicide in the first year after buying the policy). The product has thus become highly commoditized, and insurers usually struggle to uncover any genuine discrimination. Interestingly, however, some insurers are currently selling simple life insurance policies at almost double the price of a regular term insurance policy.

The industry expert mentioned earlier said that insurance companies often use filters such as income, education level and buyer’s demographics to evaluate term insurance products. He explained, “The problem with standard term insurance like simple life insurance is that there are no filters allowed… which means the premium will be higher because the risk is higher.”

Essentially, a person who earns reasonably well and lives in a city that is not dangerous may not find the standard insurance product relevant because the regular term product will be cheaper for them.

insurer resistance

Despite the odds, there are many benefits to standardizing India’s complex insurance web. Nevertheless, insurers are still reticent about marketing these policies.

“Generally, insurance companies are less inclined towards these standardized products as these products have lower premiums and higher comparison rates,” said Naval Goel, Founder and CEO, PolicyX.com. More competitive pressure on insurance companies to provide best after sales services at relatively lower prices than other insurers. Therefore, low profitability discourages insurers in marketing new standardized products somewhere.”

However, there may also be some genuine reasons why insurance companies are holding back, Goyal said. “Irdai may take certain steps to help the insurers in resolving the issues which are causing delays. It is difficult to predict whether Irda will do so.”

Echoing similar views, Sanaa Insure co-founder and director Srinath Mukherjee said insurers are not promoting these standard products as they do not want to compete only on price. Mukherjee said that standardization instills in them the fear of being treated as a commodity. “Hence, the insurers are only following the regulator while launching these (new) products, but (they) are not promoting them in any way. Their human agents and middlemen also do not like to sell these products due to low premiums and commissions.”

In addition, India’s problem of low insurance penetration is due to several factors- lack of trust, complexity of products and lack of distribution reach of mainline insurance firms. Standardization of insurance products currently focuses on only one of these underlying concerns – easing complexity. Some other issues are still unresolved.

Mukherjee says some of the standardized products that the regulator has approved may actually turn off a segment of value-seeking consumers. Mukherjee said the regulator has defined the co-pay clause, which does not suit the Indian mindset. “For example, if I am paying premium ₹5,000 for Sum Assured of ₹10 lakh, and hospitalization expenses amount ₹3 lakh… on 5% co-payment, I will be forced to make another payment ₹15,000 from my pocket. Such situations reinforce the trust deficit, and hence customers are still staying away (from such standardized policies).”

Therefore, the only way to increase insurance penetration is through a reliable, transparent and comprehensive digital platform, Mukherjee said.

Chandan DS Dang, executive director of SecureNow, an insurance broker, said things will inevitably improve as the new guidelines come into force and insurers adapt to the new system. “Insurers are beginning to understand the claim incidence rate (ratio of buyers who filed a claim) as these products are now in the market. This process will help them in fixing the right price. Keep in mind that the incidence of COVID-19 so far has been unpredictable.”

While it may indeed be a bit early to assess the success or failure of this new class of standardized insurance products from Aarogya Sanjeevani and Corona Kavach to Saral Jeevan Bima, all eyes are clearly on them. “In the long run, I think this practice of standardizing insurance products will prove helpful,” said Goel of PolicyX.com.