Heralding a new era of customer centricity in insurance

India’s insurance sector is poised for robust growth in the next decade, and likely to become the 6th?largest insurance market globally. Supported by a trifecta – a bullish macroeconomic environment, rising per capita income, and a conducive regulatory environment – the sector is likely to expand at a commendable pace in the years to come.?

While several trends will play out in the near term, one that will make a noteworthy impact on the industry is the recent easing in distribution norms. With a vision of ‘Insurance For All by 2047,’ the regulator recently announced a score of measures including raising of the maximum limit of tie-ups with insurers for corporate agents from the existing 3 to 9. This move will permanently alter the bancassurance landscape, heralding a new era of customer centricity in the sector.

Here are some noteworthy impacts that we are likely to see:

a.?????Support growth in Banking sector:

While this move will significantly improve the distribution width of insurance companies, it will also accelerate growth of the banking sector. Not only will their insurance earnings balloon, but also banks will be able to effectively cater to varied customers as per their evolving requirements.?

Given a wider choice of offerings resulting from multiple partnerships, Banks will be better equipped to offer a more holistic advisory to customers for their end-to-end financial needs. Banks will also be able to deep dive into the needs of niche customer segments like their digital banking customers or credit customers, etc. to find newer avenues for improving business. With a captive customer base, Banks will also be able steer their insurance partners in creating contextualised and personalized solution for different customer as well as service segments.?

b.?????Promote competitiveness:

With a larger number of partnerships now possible, we will see the Bancassurance space become far more competitive. We will see the relatively younger insurance companies gaining ground, particularly those that are not currently promoted by banks. These companies have also been at the forefront of product innovation, which will prove to be an advantage for them when seeking new partnerships.?

c.??????Customer is the King:?

Given the geographical length and breadth of India, reach has been among the chief challenges facing the sector. Banks, by the virtue of their expansive distribution infrastructure, offer a great tool to reach a larger customer base present in pockets that may not be easily accessible to insurers. They also have a large captive base of their own that is looking for productive avenues to park their savings.?

With tie ups with a higher number of insurers now permissible, banks will be able to leverage multiple partners, build stronger product competencies and give their customers access to innovative product?offerings that are flexible and versatile to meet a range of financial needs.?This diversity of partners will also force insurers to look at their product proposition more holistically to offer a wholesome experience to customers across product segments.?

d.?????Overhaul the advisory approach in Banks:?

Every customer has unique requirements based on their educational, social, or financial background. Their context typically determines their financial priorities and therefore their protection requirements. For instance, some customer segments may need micro-insurance products. Banks will be able to leverage the expertise of specific partners that are proficient in certain product categories to meet the varied customer needs.?

e.?????The proof is in the pudding:?

The mutual fund industry is a great exemplification of how an open architecture can become a power engine for a sector that is heavily dependent on advisory. After commercial banks forayed into the mutual fund business, the industry has exploded on the financial retail map. Given their captive customer base, banks have been better positioned to take the mutual fund proposition to a larger audience.?

Not only has the awareness and reach of mutual funds improved over the years, Banks also have found a lucrative value proposition to mobilise the customer savings. Indians generally save 25-30% of their salaried income and prefer parking that money in financial products. This underscores the massive scope of life insurance penetration for those looking to multiply their money with a risk-averse and secure instrument.?

India’s protection story is at an inflection point, more so in the aftermath of the Covid 19 pandemic. As insurance companies look to improve their distribution width, these recent measures will come as a welcome relief to improve customer access. For younger companies especially, it will level the playing field and drive them to effectively serve the customer’s dreams and aspirations.?

(First published in The Financial Express on Dec 28, 2022)