The Indian insurance sector goes back two centuries. The formality of being regulated came about two decades ago, with the formation of the IRDAI (Insurance Regulatory and Development Authority of India). Insurance is still seen as a least needed financial product.
Most insurance products are bought by consumers without them understanding the full benefits and coverage constraints. The regulator has been trying to come hard on those industry participants who have been mis-selling, but without much success, yet. There has been much brainstorming on why insurance reach is still poor. The answer is simple — ‘trust’.
Consumer woes include low and opaque claims settlement, poor awareness of products, poor customer experience, etc.
Customers need to know in simple terms what the insurance product does for them, information and trackability of their claims process, and products suited for their protection. For a sector supposed to be focused on protection as a theme, it needs to redeem itself from the reputation of being an investment product pusher.
Unlike other financial regulators which penalise their entities for unsolved or delayed consumer complaints, one needs to see a tougher stance in the insurance sector.
Recently, the government is said to have raised its concerns that one-third of all consumer complaints in the country are about the insurance sector. They include issues of ambiguous contracts, unclear policy terms, insurance agents not sharing full policy documents with consumers at the time of signing of policy, and repudiation of health insurance claims on the basis of pre-existing illness.
But then, this has been known to all and sundry for long. What action has been taken so far?
The industry has to understand that it cannot grow profitable overnight. There is no shortcut for insurance profits. The core business of insurance is to price the risk well, and pay out claims quickly. That’s the best consumer engagement they can offer. Is that a difficult ask?
Capital commitment
The sector needs patient, long-term capital commitment from the promoters of insurance companies. The initial era of insurance promoters, lending their names to foreign JV partners, for a fixed rate of return is over.
Reducing the start-up capital might lead to issues of solvency as those entities scale up. The idea of serving different consumer cohorts with different types of entities is a good idea. But digitally-led insurance can offer the same outcome, with digital and data analytics.
The mis-selling that has happened in the past seems like an open secret. The insurance sector has also seen multiple cycles — including the one where private companies were paying more commissions than the premium amount collected — in the name of building up the industry. Many executives supposedly built parallel empires which were more profitable, and made more money than their insurance promoters.
Hopefully, the sectoral regulator can placate the worries that some insurance entities have also been used for tax evasion.
The emerging technologies and capacity building require the regulator to increase its bench strength of talent. Hopefully, the regulator will have true independence and not be mollycoddled by the dictates of the various stakeholders.
The writer is a policy researcher and corporate advisor