When you consider that the first insurance company in India was founded a little more than 200 years ago, it’s surprising that life insurance penetration remains at a remarkably low 2.76 percent. But the country’s huge population of 1.4 billion means that even such a small percentage accounts for 360 million life insurance policies. In fact, India’s life insurance sector is the largest in the world, and it’s only going to grow from here.
“This presents a huge potential for growth, which has been happening rapidly over the past decade,” said Priti Ajit Kucheria, LUTCF, CFP, an 18-year MDRT member from Mumbai. “It would not be wrong to say that the Indian insurance industry is in its golden era.”
That era began early in the 21st century, when the insurance sector opened up for privatization. Prior to that, it was exclusively serviced by Life Insurance Corporation (LIC), a public sector company. Today, India boasts 24 life insurance and 31 general insurance companies. The industry is expected to reach $280 billion by 2020.
“Since early 2000, more than a million individual financial advisors (IFAs) and approximately 1,000 large financial institutions have mushroomed and spread across the entire country,” said Ravi Pahlajrai Rajpal, a 14-year MDRT member from Haryana. “As compared to the USA and U.K., India has a long way to penetrate the life insurance business.”
A substantial part of that growth is creating awareness among the Indian population, advisors believe.
“Customers need a good deal of education,” said Sukanta Singha Roy, CFC, FSS, a five-year MDRT member from Kolkata.
Kucheria also thinks a better understanding of insurance and what it can be used for could lead to an increase.
“Earlier, almost all people bought an insurance product only to save taxes, and almost always, the premium they paid was decided by the amount of tax rebate available,” she said. “Now insurance has become more relevant. People buy for the right reasons — to cover the risk of dying early or living too long.”
The advent of private insurance companies has also caused increased competition in the sector, which has produced more customization and a focus on clients’ needs. Rajpal said he makes sure to focus on fact-finding, both to build trust with the client and to make sure his recommendations are fully meeting the client’s needs. In addition, he believes this human touch is especially useful to clients in an age where they can buy products online.
“One of the major challenges I face with clients is decision-making for the products,” said Plabita Priyadarshi, a six-year MDRT member from Mumbai. “Clients have various options and many companies approach them, so the clients take time to decide and sometimes refuse to buy. To overcome this, I always do a needs analysis by checking their financial health index and then suggest an appropriate solution.”
Roy points out that “our clients’ success will drive our own,” so advisors should be keen to ensure their clients’ finances are healthy and the products in place fully meet their needs.
While in many places, regulations are seen as restrictive or even obstructive, Indian advisors believe that they’re truly focused on the well-being of the client. The Insurance Regulatory and Development Authority of India (IRDAI) oversees the industry across the nation, working in the interest of clients. In fact, Priyadarshi goes so far as to say “everything is in favor of the client.”
India has a long way to penetrate the life insurance business.
— Ravi Pahlajrai Rajpal
For example, Kucheria cites a regulation that mandates that all life insurance companies provide a benefit illustration for all unit-linked insurance plans. This illustration compares two standard growth rate scenarios (8 percent and 4 percent) and the net yield, making it easier for clients to fully consider the plans and make an educated decision.
In recent years, there has been a reduction in commission payouts, as well as a mandated disclosure of commissions, leading to greater transparency between advisors and their clients.
Rajpal said that, perhaps counterintuitively, commission disclosures actually make his work easier.
“The life insurance company prints all this data in the illustration and policy document, hence there is no ambiguity,” he said. “The clients know the cost of the services offered by the advisor and the life insurance company.”
Similarly, Kucheria said the mandated disclosures actually can be helpful for advisors to position themselves as an important asset to the client.
“This does, many times, become a point of discussion during a client presentation,” she said. “As an advisor, you learn to highlight the value that you bring to the table for the commission received. It will also help in forming a basis for eventually charging fees when commission structures are revised downward or done away with.”
In addition, IRDAI monitors persistency ratios, requiring that advisors disclose how many of their life insurance policies are retained after the first policy year and fifth policy year.
“There is a severe cost to be paid by the advisors who neglect persistency,” Rajpal said. “What gets filtered out is that clients get only dedicated advisors who promise to stay forever in the life insurance business.”
Although persistency ratios are beginning to improve in India — 65 percent retention for the first policy year in 2017, as opposed to 61 percent in 2016 — they still lag significantly behind the global average, which is approximately 90 percent.
So regulators are attempting to ensure the quality of their country’s advisors by introducing basic certification and requiring a written test and license to sell insurance. Kucheria believes this has also generated an increased esteem for financial advisors, shifting them from merely “product pushers” to respected professionals.
And in the future, these enterprising advisors will be able find new opportunities to go along with the challenges. Roy believes there are substantial untapped market segments that can be explored, particularly the semi-urban and rural areas.
This presents a huge potential for growth, which has been happening rapidly.
— Priti Ajit Kucheria
“A major chunk of business for LIC comes from these areas,” he said. “But there are difficulties in approaching this segment, which will take us back to issues of customer education.”
As in any country, client acquisition remains a focus. Rajpal frequently turns to advice he learned from late MDRT member Ben Feldman, claiming it as his mantra: “No. 1: Meet people. No. 2: Meet more people. No. 3: Meet more and more people.”
That means that he considers himself somewhat of an opportunist, taking advantage of every introduction, referral or casual encounter.
That’s also how Priyadarshi acquired one of her most memorable clients. While traveling home to Mumbai from Cape Town, South Africa, she met a father and daughter in the airport lounge who ended up in her same row during the long flight. She told them her profession and requested an appointment in their office, which ultimately has turned into a profitable client-advisor relationship.
“We all should have the capability to approach anybody,” she said. “We can find clients anywhere; it’s all about taking the first step.”