Are insurance companies in India listening to the customers?

Life insurance companies in India are realigning their business models as the new regulations on ULIPs have shaken them out of their comfort zones.

The IRDA has done several things in response to mis-selling of ULIPs – increased the policy lock-in period of ULIPs, asked insurers to guarantee a certain return in some categories of ULIPs, and put a cap on the portion of premium that insurers can deduct as upfront charges.

ULIPs account for 50% of the business of life insurers. The cap on up-front charges means that ULIPs have become cheaper, hence more attractive for customers. Since insurance companies were using 40-50% of the first year’s premium as charges primarily for paying the agents, the new regime will mean lower commissions for insurance agents.

Insurance companies are worried about this. They are highly dependent on individual agents for selling policies, though many private companies have also been pushing bancassurance. So the focus of their marketing strategy, to a very large extent has been the agents rather than the end customers themselves.

The competitive intelligence efforts of insurance companies have centred around the channel strategies of their competitors – commissions on various products, discounts on group insurance schemes, promotional activities, etc.

A pitfall of concentrating on what the competition is doing, is that companies come up with me-too products. It is easy to spot this trend in India. Customers are forced to pick from a bunch of similar products, and pretty much rely on the advice of the agent to do so. Many of my otherwise informed friends have bought insurance this way.

As far as the end customers are concerned, the industry has focused on “educating” them. The rationale being that insurance penetration in India is low because consumers don’t understand insurance.

Perhaps the current shake-up is a good opportunity for companies to take a hard look at whether their products really meet the needs of Indian customers. And this is less straight forward that it seems. The imagination of most customers is limited by the products they have seen so far. Perhaps it is time to get to the need behind the need (which is indeed likely to be different for different customer segments), and offer appropriate innovative products to the customers.

If insurance companies can come up with offering that meet their customers’ need, they will not be dependent on the agents to push their sales.