The insurance industry is fast adopting digital technologies that are expected to give a push to market penetration of insurance products and their efficient process management throughout their lifecycles.
As a society, penetration of insurance in India has been low, compared to other parts of the world. In the past decade, penetration of insurance in society has grown from 3.17% (in 2004) to 3.4% currently. A large population, rising incomes and rapid urbanisation are creating an environment that is conducive for insurance. The insurance industry is fast adopting digital technologies that are expected to give a push to market penetration of insurance products and their efficient process management throughout their lifecycles.
The CII-PWC Report “Evolving Considerations for the Indian Insurance Industry” brought out in August 2017 discusses some of the key issues in the Indian Insurance Industry including emerging trends and the role of digital technologies in driving the industry’s growth through increased penetration and product innovation.
India’s insurance sector is undergoing unprecedented modernization – it is digitising rapidly, adopting modern techniques to tackle fraud, and exploring new avenues for risk management, customer engagement, operating models, investment and distribution.
The new-age customer is demanding simpler terms, transparent underwriting, easily comprehensible benefit structures and minimal human interaction. Product innovation is no longer regarded as an exercise for producing a complicated and intricate product, but an effort to simplify and connect to the customer in a hyper personalized manner like never before. Instead of all risk products, people are demanding simple, one-risk cover products which are easy to understand and therefore allow customers to choose discrete, individualized, need-based covers. The language of the policies needs to be simplified to keep pace with the expected customer centricity.
Penetration of insurance being low is not a new fact. The GDP is growing rapidly and the rate of penetration has to increase at a faster pace to reach the desired levels. Several distribution channel level innovations have been introduced by the regulator to help the industry reach out to a larger population. However, proliferation of distribution is not matched with the product simplification necessary to make it easy to sell and service.
The Government is actively driving digitisation through India Stack, direct benefit transfers and other initiatives under the Digital India umbrella. Given the unprecedented increase of smart phone proportion and ease of internet access through the competition of network providers, insurance companies will need to strategically adopt the technological infrastructure required to launch products that meet customer needs. The customer access across the vast geography of India so far has come at a great cost and involved investment of large amounts of capital. That is going to change dramatically now. Leveraging low cost digital distribution channels for sales and service could play a significant role in helping insurance companies deepen market penetration.
While digitising, insurance companies must be wary of, and take measures to tackle, the risk of new modes of fraud which will inevitably accompany it. Digitization is leading to an explosion of data and digital footprints; these can be tracked using Big Data analytics and artificial intelligence to not just investigate, but also prevent fraudulent activities. Machine vision, which allows computers to extract meaning from images, predictive analytics, which can be used to flag off suspicious events, and identifying and unearthing cartels and fraud rings are all going to be key applications in the fraud management experts’ armoury.
The expertise for bringing higher levels of integrated digitised solutions will have to blend with the disruptive potential of Insurtechs. PwC Surveys shows that while 74% of all insurance companies globally believed that Insurtechs will disrupt the business, today, InsurTech is becoming more widely understood and accepted. Gaining a better understanding of InsurTech has led the majority of respondents (56%) to estimate between 1% and 20% of revenues being at risk in 2017. The vision has become sharper and more companies are trying to align with them and create synergies.
The prominence of investments on an insurance company’s balance sheet and the impact of investment returns on its profitability make efficient investment management crucial. Companies must adapt to the changing nature of products, risks and regulatory frameworks, explore modern investment choices and question traditional ones. For instance, it is worth considering whether the traditional emphasis on liquidity, which has a large opportunity cost, should be replaced by investments in alternative asset classes to drive higher returns. Within IRDAI’s prescriptive regulatory framework, insurers must be dexterous in identifying appropriate assets and asset allocation strategies, with a focus on dynamic asset liability management and portfolio optimisation techniques. The newer instruments and techniques will bring in their wake newer challenges and risks, and the regulator will no doubt need to weigh in the benefits vis-à-vis the risks to the industry. However, if the industry has to move forward and offer better products as well as produce risk-hedged returns, newer horizons have to be explored with expert help.
The insurance sector needs to quickly understand these trends, expedite digitisation of processes, leverage data and technology to prevent digital fraud and make efficient investments to mitigate risks and stay one step ahead of the competition.
In 2016-17, the CII National Committee on Insurance and Pensions worked closely with the Government of India with a view to developing a vibrant insurance sector.
With regards to product pricing, CII was given the responsibility of reviewing the “Product Regulations (Linked and Non-linked) 2013”, a privilege extended only to CII.
CII was also asked to help draft Third Party Insurance rules for the Motor Vehicles (Amendment) Bill based on recommendations made to the Ministry of Road Transport and Highways (MoRTH) and the Parliamentary Standing Committee on Transport Tourism and Culture.
Further, two working groups were constituted to study critical issues and recommend reformatory measures for the development of the Insurance sector. Some of the issues analysed with respect to Life Insurance were profit business, fraud management in claims, enhancing penetration of protection business, digitization of insurance business and low-cost distribution including variable cost models. Fraud prevention, digitization/ repository / no cash and credit insurance were some of the main areas of focus on the Non-Life Insurance front.