Life insurance: How CLTP approach can help bridge the protection gap
3 min read 04 Aug 2023, 01:19 PM ISTFor this solution to work, three fundamental shifts are required: customer-centric design, analytics-powered targeting and innovation over status quo
PremiumAn untimely loss of the primary wage earner’s life can cause severe financial stress to the surviving family. Life insurance stands to financially protect the survivors, should such an untoward event occur. What is alarming that only 327 million life insurance policies were in-force as of March 2022 against a total population of about 1.4 billion. Also, Indians had less than 10% of the required financial protection against mortality. Clearly, the value proposition of life insurance is not well understood by the larger population. At the same time, those who appreciate and buy life insurance continue getting dropped due to many reasons.
During FY22, life insurers paid over 78 million claims worth more than ₹5 trillion. Mortality claims accounted for about 12% of the total claim payout. Policies attaining maturity or getting lapsed or even being surrendered constituted 96% of all the claims and 88% of the total claims outflow. This trend is perpetual causing massive loss of financial protection for customers and business value for insurers. While right-selling may save a portion of policies from getting surrendered, an organization-wide focus is required to stay engaged and relevant for customers.
The intent and ability of an insurer to financially protect the customer for lifetime ‘CLTP’ (customer lifetime protection), could well be the solution, we have been looking for. For this solution to work, three fundamental shifts are required: customer-centric design, analytics-powered targeting and innovation over status quo.
Customer-centric design
Many studies have established that customer-centric insurers outperform their peer on key metrics. A US-based multi-line insurer placed ‘customers’ at the heart of its business model and focused on achieving excellence in the way they are approached, engaged, onboarded, and served. The results have not been surprising at all – world-class NPS performance of above 70 and 2.4x growth in terms of premium per customer primarily through life-stage focused cross-selling. Insurers in India are also getting bold about their focus on customers with a few of them publishing their NPS scores. These are commendable starting steps. Building capabilities to measure business performance linked to advocacy is critical for getting shareholder and customer interests aligned.
Analytics powered targeting
Per a consumer survey, over 75% of consumers were ready to share their personal data for getting customized insurance and reduced premiums. Life insurance policies are issued for the long-term, yet the engagement levels suddenly drop post onboarding a new customer. Insurers across the globe are finding innovative ways to engage customers, progressively enrich data and deepen relationships with them. Towards this end, a leading life insurer in the Philippines successfully embedded real-time wellness propositions, built customer data platform, and linked it with AI-driven marketing automation resulting in personalized offerings as well as high engagement. Such integrated analytics approach can potentially address the issue of low persistency rates in India which range from an average of about 70% for the first year to about 45% in the fifth year in terms of number of life insurance policies.
Innovation over status quo
It is true that the regulations guide the market conduct of insurers. The insurance regulator in India has always promoted innovation and customer-centricity. Since FY24, ‘product-wise capping’ for intermediaries’ commission is replaced with a liberalized regime provided insurers maintain expense of management (EoM) limits set by the IRDAI. This move provides increased flexibility to insurers to manage their expenses and intermediary payouts. Insurers are also given extra headroom to spend for rural market expansion, partnering with insurtech, spreading awareness, and supporting government schemes. To encourage innovation a regulatory sandbox was set up in 2019. Earlier this year, the experimentation period in the sandbox has been revised to 36 months from previous 6 months. Loyalty was one of the first few use cases brought in the regulatory sandbox. A balanced criteria including premium amount, policy term, number of lives, individual health and financial well-being indicators can help improve attractiveness of life insurance loyalty schemes.
The CLTP approach demands everyone getting focused on customers, building functional interlocks, and maturing data capabilities. The insurance regulator has ushered in a new era of reforms including a conducive framework for innovation. A consolidated act of insurance and ecosystem players will define the quantum of protection gap that can be bridged.
Vivek Srivastava is Managing Director at PwC India. Views expressed are his own
