Driving insurance sector digitally

Life insurance penetration in India, standing at 2.72%, lags behind the world average of 3.5%. Life insurance density in India lags too – it stands at $43.2 as against the world average of $346 (IRDAI, 2015-16).

The Indian insurance sector has received a lot of attention since the turn of the century when it opened its door for private companies. But 17 years later, it stands a decade behind.

Life insurance in India enjoyed huge growth for most part of first decade of the 21st century – increasing penetration levels, increasing insurance density and high growth in number of branches with these numbers peaking to 4.6%, $55.7, and 12,018, respectively, around 2009 (IRDAI, A Summary of Indian Life Insurance Sector). But post the global financial crash, where the Indian equity market slowed down considerably, life insurance saw a steep decline.

Because of cost pressures, many of the insurance companies cut down on their branches, reduced their workforce and started focusing on leaner cost structure where the focus on Financial Ombudsman Service (FOS) and distributor/broker network increased. Given these changes, the industry can no longer rely only on the traditional way of increasing footprint which was increasing the number of branches.

Digital penetration
Increasing the internet penetration into everyday lives of people presents a great opportunity. From the insurer’s perspective, it is quite appealing as it offers a unique blend of low-cost channel, lean structure, and live impact measurement.

All three are very important as increasing competition from competing asset classes such as mutual funds and direct equity has put major pressure on insurance companies. The customer’s return expectations have increased and so has the pressure on their bottom line. In such a scenario, the digital medium comes as a welcome solution.

The insurance industry is heavily skewed as the major market share is held by top five players. Their scale and distribution network makes it increasingly difficult for a smaller player to expand.

Digital is their window of opportunity and it can work wonders for them in short- as well aslong-termm. Digital marketers have an important role to play in taking the industry forward as it removes the need for creating an offline distribution channel.

This also presents an opportunity of eliminating ‘mis-selling,’ which insurance companies have struggled to contain in the past. To some extent, it has been arrested due to regulations of incentive structures and commissions by IRDAI, but the challenge still remains.

Both distributors and customers lack the knowledge to understand the true purpose of life insurance, leading to ‘mis-selling.’ Through the digital medium, it is possible to reach out to the right audience with the right messaging. Such direct contact between the insurer and the customer would not only prevent mis-selling, but also strengthen the brand-customer relationship.

Financial literacy
Customers have become very prudent while buying a financial product and the digital channel is playing a huge role in it. As per BCG Facebook Financial Services Report, 2017, 70% of urban internet users are digitally influenced during a financial product purchase and approximately 61% spend time in research and selection of financial product online.

Customers of a financial product today no longer rely on the word of the advisors alone, they tend to verify the same through their research and thus are open to information about the same. Reaching out to them with the right message at the right stage would bring great results.

It is win-win for both – the customer wants information which helps him in decision making and it gives an opportunity for brands to connect with them without being afraid of being intrusive or pushy if they do the targeting right.

Digital is a channel of immense opportunities for insurance companies. As financial literacy in India grows, the online pie would become bigger and the business potential would soar.

Initiatives such as Digital India by the Union government and campaigns such as ‘Mutual Fund Sahi Hai’ by the Association of Mutual Funds in India (AMFI) would go a long way in increasing financial literacy in India, from which insurance can benefit in a big way if the opportunity is appropriately leveraged.

(The writer is Strategy Head, Digibagg)
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