Topic of Discussion: Role of Information Technology in increasing penetration of Life Insurance in India (Mr. Shivaji Dam, Om Kotak Mahindra Life Insurance Co. Ltd.)
Source:
Mr.Shivaji Dam, Om Kotak Mahindra Life Insurance Co Ltd
Abstract:
INDIAN INSURANCE SCENARIO
The insurance industry is today witness to a dramatic transformation from its earlier days. The industry was nationalised in 1956, a hundred years after life insurance first came to India, leading to the formation of the Life Insurance Corporation. The industry today sees a deluge of multinational insurers all charging in to set up shop here considering the existent vast unexploited potential.
The global Life Insurance Market in year 2000 was estimated at $1231.8 billion compared with the Non-Life market of $896.9 billion. The size of the Indian insurance market is estimated to be around Rs.50000 Crores (Annualised premium income). The ratio of life insurance premium collections to GDP is just 1.4% compared to 12% in UX and about 9.9% in France. Additionally the current penetration rate of life insurance in India is around 8% of total insurable population and thus the market is expected to grow at a rate of 20-25% in the next five years. Another factor to be considered is that India is a heavily underinsured market. There is therefore an opportunity for providing the right amount of insurance and the right product to the already insured customer.
The winds of liberalization have initiated vast changes in the functioning of the industry today. Increasing number of multinational partnerships with private insurers have paved the way for a radical shift in insurance selling through a number of new distribution channels besides bringing about more awareness on the need for insurance and also stressing on the important role technology can play.
With major trade barriers gone, the Indian insurance industry is slowly opening itself from a protected environment to e-business, incorporating newer technologies in insurance, thanks to competition, that will hopefully bring forth a marked improvement in customer service, insurance marketing, risk management, claim settlement, underwriting etc in comparison to its earlier days.
INFORMATION TECHNOLOGY AND LIFE INSURANCE
World over, technology in the insurance industry has been playing a critical role in all aspects of business. However in recent years in comparison with other sectors of the Banking, Finance, Insurance Services (BFIS) Industry Insurance has been perceived as a laggard in the use of IT. This is primarily because of advancements made by banks and retail financial institutions in reaching customers through the Internet, ATIVIS, and POS Terminals etc.
Annual investments in technology account for between 34% of the annual revenues of insurance companies. While technologies are generic, companies are applying these in different ways to obtain comparative advantage. A peculiarity of the insurance industry is that the actual consumption of the product happens only on maturity or death. Thus the time lag between purchase and actual consumption can be anything between 10 to 30 years. This facet of life insurance only increases the importance of putting in place flexible, easy-to-upgrade technology solutions, which can withstand the test of time. Also there is a requirement for continuous data capture such as recording premium payments, policy conversions etc.
Technology in the insurance industry is essential and among other things:
1. Facilitates need-based selling
2. Promotes product and features transparency
3. Assists distribution
4. Facilitates operational efficiencies
5. Enables closer interactive relationships with customers, and supports all distribution channels
6. Enables consolidation of information for management etc.
7. Continuous data capture
The importance of the above-mentioned roles of Information Technology is evident across functions for any insurance company. The foremost challenge today for all life insurance companies is to increase market penetration and reach the smaller towns and rural areas; this calls for supporting human resources with the latest technology. There is also a need to revamp internal operations and make them more efficient and customer friendly. This will allow companies to invest more time and money into intensifying their sales and marketing effort.
1. Increasing market penetration & acquiring customers
India has obvious under penetration of insurance. The under penetration is of two kinds:
i. Consumers are not insured at all
ii. Consumers who are insured are not adequately covered Technology can help sell to both the uninsured and underinsured. The uninsured are both in urban and rural areas.
New IT enabled channels such as the Internet and direct marketing channels can help sell simple products such as term or single premium products to hitherto un tapped segments.
These lower cost channels can bring the distribution costs down and such savings can further be funneled into price reductions for the end customer.
The key to increasing penetration of life insurance in India lies in improving the depth and width of the various distribution channels. Information Technology has a very important role to play here because it can help reduce the cost of distribution. We can improve the depth of the channel by equipping the agents with the latest technology and thus allowing them to contact more prospects.
Alternatively the depth of the channel can also be increased by more focused customer targeting. This calls for intensive prospect profiling through IT enabled systems.
On the other hand, the width of distribution can be improved by adding new channels such as the Internet and bancassurance. Utilising the extensive network of banks for selling insurance will over a period of time bring about an increase in insurance density besides improving insurance penetration in rural areas wherein a large unexploited potential exists. At the same time price quotations on the Internet will ensure price transparency as well as allow potential consumers to undertake product comparisons across competitors.
2. Building relationships with customers
After acquiring the customer we have to retain him or her through improved service levels and allowing two-way communication. The insurance industry, with competition increasing, has woken up to ground realities and is in the process of implementing software solutions for better customer service.
Policy servicing, an area that has long remained neglected will now receive a major thrust with insurance companies redefining strategies to weed out sluggishness and provide the policyholder with prompt service. Online policy servicing too will soon become the norm thereby cutting down on the unnecessary delays. Here the role of the call centre and website is crucial as they can provide prompt information on new products, value additions & other additional services introduced recently.
3. Sales & Distribution
The need here is to integrate and manage the sales force. There has to be free flow of information between various arms of the sales force, which include agents, corporate agents, corporate individuals, and brokers. We need to convert the life insurance agents into a financial advisor by putting information such as premium quotations at his or her fingertips. Here we will require user-friendly technology such as a need analyser. Another Widespread use of technology is in managing and controlling telemarketing and direct mail activities. The success rate of such activities can be dramatically improved through more targeted database mining.
4. Actuarial & Underwriting
Information technology can assist in developing new products by providing information about competitor products and consumer behavioral patterns through various research databases. Claims settlement that was hitherto a time consuming affair will see a marked difference in operations. With competition building and improved customer service becoming the new mantra the time taken for claim settlements will reduce considerably. World over underwriting risks, claims management, risk surveys etc are far more simplified thanks to technology.
5. Internal Operations & Service channels
Today, information dissemination is increasingly faster with the advent of information technology, which will largely help individuals gain access to every bit of information they would require, enabling faster decision-making. This is in stark contrast with the pre-liberalization era wherein information sourcing was virtually non-existent except from the recruited agents of the insurance company.
Consider policy information being made available online. Tracking policy details, the premiums to be paid, premiums paid so far, the bonus percentage, maturity date of the policy and several such details can be accessed at the mere click of a mouse soon. With an organized system of data collection and storage, data analysis and claim management system, keeping track of the claim applicants’ behavioral patterns becomes easy.
6. Investments
The objective here is to enable better investment decisions through knowledge management. The oncoming technological revolution is all set to totally revamp the very concept of Knowledge management. Automating knowledge management will become the sole aim to increase productivity. Large databases of raw information on individuals investment patterns can be fed into computers to enable faster segregation of information as per required categories.
CONCLUSION
Information technology is increasingly becoming all pervasive in all walks of our life be it cell phones, computerized ticket bookings, systems in automobiles, ATMs, email etc. In insurance too it is bound to play an ever-increasing role in providing information to widen consumer choice and drive down costs.
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