There has been stiff competition in the term plans business recently, with premiums nose-diving as insurers scramble for a larger market share. But LIC’s business in this segment is still miniscule and the insurance giant is gearing up to launch a competitive product
Raj Pradhan
The Life Insurance Corporation of India (LIC) is planning to come up with a new term plan to make the premium rates competitive in the market. S Roy Chowdhury, executive director (marketing), LIC, said, "We have not sold pure term plans in large numbers and we are taking a relook to launch a new product. It will be an online and an offline product. The mortality experience has undergone changes and the new product will reflect this."
A few months ago, Aviva Life launched i-Life which is now the cheapest term plan available in the market, competing with online term plans like Met Life's Met Protect, Aegon Religare's iTerm, Kotak Life's e-preferred, ICICI Pru Life's iProtect and IndiaFirst's Anytime. LIC must be feeling the heat in the term plan competition and will soon come out with new term plan. It is not known if the premiums will come down drastically, but it would aim to make it more competitive in the market.
Consider the premium of Rs4,046 offered on Aviva Life's i-Life product compared with the premium of Rs12,650 for LIC's Amulya Jeevan that has similar parameters. (Term life, Rs50 lakh sum assured for a 27-year-old non-smoker, male, based in Mumbai for a term of 25 years.) It is hard to resist the Rs4,046 offer unless you have read Moneylife's cover story 'Online Term Plans'.
The mortality table 1994-96 is based on LIC's experience over numerous years. The new mortality tables that will be put out soon, will replace the Indian Assured Life Mortality Table 1994-96. It is expected that there will be a drop in the mortality charges by 15% to 20%, due to the higher life expectancy. But there could be an increase in the mortality rates for the younger ages due to the higher rate of accident deaths and lifestyle-related diseases.
Term life is a miniscule business for LIC and its brand value is enough to draw customers who will not settle for anything other than LIC's term life insurance.
There are a couple of other reasons also why LIC may not drastically reduce the premium rates on the new term plan. First, it may not be a pure online product that has the advantage of targeting a specific segment of net savvy, financially secure individuals, expected to lead a healthy lifestyle and also have access to better hospitals.
If the insurance company is selective in choosing customers, there is bound to be a better experience. On the other hand, LIC's customer base is across the country and is a truly heterogeneous group. The wider the group, the higher the mortality experience.
The other reason could be the level of tolerance in the claims experience of LIC. S Roy Chowdhury says, "Some insurance companies reject death and accidental death claims on technical grounds. For example, accidental death of a person crossing the road outside the zebra crossing can be a technical ground for some insurers to reject the claim."
Another company that plans to launch a new term plan is Bajaj Allianz Life Insurance Company. According to Rituraj Bhattacharya, head-market management & product development, Bajaj Allianz Life Insurance, "We will be launching a new term life product, but we should not judge solely on the price point. Some insurers have a very aggressive premium pricing for term insurance. It will impact the way claims are treated; offering so low a premium will entail stringency on claims, else it will be a loss-making portfolio."
Mr Bhattacharya asked, "How does an insurer evaluate a claim? What is the tolerance to disclosure? Is there no tolerance or reasonable tolerance to customer disclosure at the time of taking the policy? Nothing comes free. There is price to it. It will reflect in the price you offer in the product. It is not a one-year contract."
According to Deepak Yohannan, chief executive officer, myinsuranceclub.com, "Online term insurance has created awareness and affordability for term life insurance of higher amounts (Rs25 lakh and above) instead of remaining underinsured." On the other hand, industry experts don't see much popularity for term life insurance due to customers getting nothing back. It is a sad state of affairs that Indian customers think insurance is something purchased to grow money rather than risk protection. Bundled insurance and investment product is a big market in India. The major advantage of a bundled product is a forced systematic, long-term savings discipline.
Life insurance is a 'push' product in India, but term life insurance is hardly 'pushed' by agents. Interaction with agents reveals that term life is not even discussed in most cases. The low commission for agents due to the size of premium, as well as the Indian mentality of getting an amount equivalent or more than the premium back from the insurance company has left term life insurance the best-kept secret. It is a minority market, when compared to the endowment and unit-linked insurance plans (ULIP) market. The worst part is that a majority of customers taking endowment or ULIPs remain underinsured, due to the need for a high premium to get decent coverage.