Life insurance premium set to double in 5 years: Study

By 2012, penetration in urban areas is likely to increase to 35-40 per cent and in rural areas to 35-42 per cent from current levels of 30 per cent and 25 per cent respectively. “Third, changes in the product mix as players make moves to lower the share of single premium products will lead to more regular premium collection. And finally, the growing demand for long-term savings and investments products, which in India is a gap that life insurance products bridge,” said the McKinsey report titled ‘India Insurance 2012: Fortune Favors the Bold’.

Impressive growth in the sector over the past six years has been driven by liberalisation, with new players significantly enhancing product awareness, promoting consumer education and information, and creating more organised distribution channels. But the study asserted that the sector is yet at a nascent stage. “While players are at different stages of development and market presence, their strategies and business models are largely ‘one-size-fits-all’, with significant reliance of low margin single-premium policies and Unit-linked products as well as fairly undifferentiated distribution models,” it said.

According to the study, players wanting to capture a substantive share of this growth opportunity will need to make distinct plays to cater to the increasingly differentiated needs of different consumer segments in rural and urban areas in addition to addressing distinct challenges in the face of intensifying competition.

The four key challenges include:-

• Significant reliance on single-premium products and potentially volatile unit linked policies;

• Under-developed agency channels — overall inactivity and attrition rates for agents in India is about 50 per cent to 55 per cent in comparison to the average global benchmark of 25 per cent;

• Under-utilisation of alternative channels, in particular bancassurance, which is an increasingly preferred channel for Indian customers; current bancassurance cross sell rates are a mere 0.5 per cent at public sector banks; 1 per cent to 2 per cent at private Indian banks; and 2 per cent to 4 per cent at foreign banks, considerably lower than international benchmarks;

• Lack of a meaningful presence in high growth areas like health insurance and pensions, where today only 1.5 per cent to 2 per cent of the total health expenditure in India is covered by insurance and barely 10 per cent to 11 per cent of the estimated working age population in India is covered by formal old-age social security mechanisms.

“We see the need for life insurance players to develop bold, new approaches in several key areas as competition intensifies and the consumer base evolves. Doing so is a must if players want to create a winning proposition,” said Tilman Ehrbeck, Partner, McKinsey & Company.

The four key approaches referred to as imperatives are — crafting differentiated strategies for three emerging distinct customer segments; achieving excellence in distribution by raising agency productivity; improving operational efficiency as scale increases; and capturing the health and pensions opportunity profitably.

growth Agents

• Rising per capita incomes will increase insurance intensity per capita

• The emergence of bankable households and substantial hike in supply-side

• More choice in the offered products

• Growing demand for long-term savings and investments products