Life Insurance Industry and New Age Technology
“Jo dikhta hain, Wo bikta hain” (What is seen, can be sold), told one of our marketing professors in B-school. After working in life insurance industry, I can totally relate to what my prof was trying to say. The basic features of life insurance as a product is the obstacles in selling it. How do you sell a product which,
1. The customer can’t see
2. They can’t touch or feel
3. Customer must pay money upfront without any assured income (term life insurance)
4. The only time people think about buying life insurance if anything bad happens to them or to their close circle (Or unfortunately, if they have a friend who works as a life insurance agent)
Why life insurance?
One question I asked myself before writing this article, is there any benefit in putting our mind into life insurance industry? This sector is not that ‘interesting’ to many of us. Well, here are some facts. For the last 6 years, this industry is growing at a CAGR of 14.44% in India. Another fascinating fact is that life insurance penetration is only 2.76 (As a % of GDP), one of the lowest across industries. Below is a comparison of India’s situation with respect to other countries.
It is evident from the above table that above countries have huge insurance market except India. As India is a developing country and as it gradually moving towards a more developed one, insurance market will grow exponentially. Current market growth in India is also huge compared to other countries in the list (except China).
Now that we have established the fact that this sector is worth looking into, let’s start analyzing the case at hand, how can life insurance companies leverage new technologies? One thing is sure that the tried & tested use cases from other countries may not work here as consumer behavior in India is very different (We have seen this scenario in ecommerce industry as well). Companies must come up with new ideas & use cases which suits Indian customers well.
Where are we today?
Life insurance is a ‘push’ product, period. Life insurance agents need to convince the customers big time before the actual buying happens. This is the reason of life insurance agents (distributor of products) earning a top end commission across industries. The distribution strategy of life insurance companies has not changed so much since liberalization of the sector in 2000. Private players were not able to gain a significant market share even after serving 20 years in the industry (70% of the market is still dominated by LIC).
One of ways the companies can reduce the distribution gap and reach to customers directly is the use of new age technologies. We have seen aggregator companies like Policybazar disrupting the market by reducing the information asymmetry between the customer & the insurance provider. Core target segment of the product (people who are in the age bracket of 22-35 years) are extremely tech savvy and they want to do most of their purchasing over internet only, if possible. This is the basic mismatch in terms of distribution between the insurance providers (seller) & the customers (buyer). Only being present in the web & doing mass marketing is not going to help the companies.
Identifying the goal
So, what should the companies do to grow sustainably or how do they reduce the distribution gap & reach out to their customers directly? The most obvious way of doing this can be providing incentives to the customers for buying the products online and do effective marketing for that. This is easier said than done. The target customers are typically bombarded by lot of sales people daily on different products. Every other salesman is trying to sell them something. That is the reason when they get another call from life insurance providers, they are not interested at all. The age-old formula of selling life insurance by pushing hard is not going to work in the future era. Companies need to find out the ‘warm’ prospects who are really thinking about buying life insurance and then try to convert.
Main Challenges
Now the question is how to do it. There is two part to the question
1. Creating technical capabilities to serve the customer / prospect better
2. Creating a better presence of the company can make better presence over internet
Problem 1: Historically life insurance providers were heavily dependent on FoS (Feet on Street). Some companies have already started moving towards ‘digital first approach’. It is still not late considering the huge market that is still unpenetrated in India. So, how are these life insurance providers going to execute this? Main challenges they need to overcome are as follows:
1. Moment of truth: If we see the business from a lens of finding the moment of truth, one thing that comes out very well is the ‘percentage claims settled’ and average TAT (Turn Around Time) to settle a claim. This is the parameter customers look at first in a life insurance product & this is one of the building blocks of creating trust & brand. At present this claims process is quite complex and lengthy. We must keep in mind that the customer is claiming the life insurance at a very difficult time in his/her life. So, simplifying this process & reducing the TAT would go a long way. The companies can make this a differentiating criterion for their company to stand out in the market and can proudly advertise this. Recommended technology to solve this problem is block-chain. With the use of block-chain, companies can reduce the process complexities and TAT by a drastic amount.
2. Approval from higher management: Some of the life insurance providers still has legacy system in their technical capabilities. Companies did not find the need & ROI to convert the legacy systems as majority of their business still comes through agency distribution. Though for the last few years, the share of the online businesses is increasing & orientation of higher management is changing slowly.
3. Data science & cross sell: Many industries has mastered the art of cross sell i.e. e-commerce, banking etc. Now it’s the time for insurance companies to do that. Generally, the agents try to do some cross selling on their personal capacities, but this process is not scalable. One good tool to solve this problem is data science & machine learning. Use cases for machine learning are several including cross sell, finding propensity for surrender, fraud minimizing etc.
Problem 2: From the surface of the second problem, it is quite evident that the companies need to invest a lot in their marketing capabilities. This part requires marketing expenses and a creative team who can produce great content. For a product like life insurance, it is very important to remain on top of their prospects’ mind.
As India moves towards a more developed economy, penetration of life insurance will increase. It is up to companies whether they are going to catch the train or not.
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References:
https://www.insurancefunda.in/indian-life-insurance-industry-2018-19/
Product @ Alyve Health | Ex. Founder, TheButterApp | IIM Calcutta
4 年Hi koushik, very well written about insurance. Being from same industry and a sister company, I can understand most aspects of this article. Just wanted to add few points which will show why insurance will grow exponentially in years to come. 1. Median age of country: Median age of countries with high Insurance penetration would be late 30's to early 40's. More than 50% population would be married, health counscious, would have a home, car etc. So they will be more interested in insuring their health, life, assets etc. India's median age is 27 years. More than 60% population won't be concerned about health risks, may not have a home or a car, so chances of buying insurance decreases. However, with decreasing birth rate and mortality rate, median age is on the rise. In 20-30 years time, median age should be around 32-33 years. Proportion of people with home, automobiles, health concern will rise, that will be the time when insurance will become a 'Pull' product. 2. Per capita income: India is a developing country and per capita income is much lower (1.35 lakh/year) compared to developed nations. However, it's increasing at a good rate. Increase in disposable income will give people opportunity to invest in insurance plans.
Product Designer @ Delhivery | IIT Delhi
4 年One of the classic articles I have come across in recent days and thanks for the reference.