Evolution of Life Insurance

Products
Issues & Concern

by

Shri S P Chakraborty
&
Shri P K Maiti

CILA Seminar, Mumbai, 28th Augu 1

st, 2009
Agenda
 Factors Operating in the product
evolution process
 Consumers’ needs
 Current issues
 The way forward

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Factors operating in the product
evolution Process

Economic and Social environment

 Economic structure, conditions and
trends
 Demographic structure and trends

 Community values and attitudes

 Cultural factors

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Factors operating in the product
evolution Process

Economic and social environment

 Work and employment patterns
 Technological developments
 International economic environment
in general

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Factors operating in the product
evolution Process

Government and Regulation

 Social assistance and social
insurance
 Taxation

 Government policy on insurance

 Regulations

 Political and judiciary decision

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Factors operating in the product
evolution Process

Industry environment
 Range of products and services

 Product distribution and

intermediaries
 Competition

 Technical expertise

Physical Environment

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Consumers’ needs – An important
factor

Risks:
 Income Risks – Death, Disability
and unemployment
 Expense Risks – Medical cost and
inflation
 Savings risks

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Current issues
Product Statistics

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 Current Issues
Grievance Statistics - Number

Number Number Outstanding

Year Received Resolved March,31st
2003-04 519 65 454
2004-05 899 308 1125
2005-06 1391 737 1779
2006-07 861 2341 299
2007-08 2057 2339 1017

Grievance Statistics - Category

Premium Policy Claim Agents Misselling Others
Year
Related Serivicing Related Related
2004-05 20% 25% 26% 5% 5% 15%
2005-06 16% 26% 25% 5% 5% 23%
2006-07 19% 32% 24% 4% 4% 17%
2007-08 18% 23% 20% 11% 19% 9%
2008-09 11% 24% 20% 3% 31% 11%

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 Current Issues
Mis-Selling

New Business cancelled as NB Cancellation

a percentage of total NB
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2006-07 2007-08 2008-09

NOP Premium

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Current Issues

Distribution Channel:
 Product targeted thru’ a particular
distribution channel.
 Distribution channel may help
explore innovative products
 Commission structure – an
important element in the product
evolution process

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Current Issues
Productivity of Distribution Channel

60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2006-07 2007-08 2008-09

Indiv. Agent Corporate Agent Broker

Referral Arrangement Direct sale Bancassurance
Other CILA Seminar, Mumbai, 28th Augu 12
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Current issues

Micro Insurance products:

 Another dimension of insurance

 Regulation is framed to aim at

meeting insurance needs of the
poor
 Simplicity

 Riders permissible

 Non linked

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Current issues
Micro Insurance Products
(Figures in Rs. Crore)

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Current Issues
Unit Linked Products:
 Insurance and investment – a new
dimension
 Flexibility
 Transparency
 Value of Risk appetite
 Sensitive to changing environment
 Guarantees

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 Current Issues
 Guidelines on ULIP
 Revision in relationships of Premium and
SA.
 Benefit Illustration
 Flexibility in group rates
 Flexible premium payments
 Money Market Investments
 Cap on charges
 Appropriation and expropriation price

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 Current Issues
Indian Life Insurance Business

Year Linked Non Linked

2005-06 45% 55%
2006-07 70% 30%
2007-08 75% 25%
2008-09 51% 49%
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 Current Issues
Progress of segment wise Private life insurance business in India
(In terms of Number and total premium income)

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Current Issues

Target Population
 Rural and social obligation

 Products to target multiple strata of

the society
 Different geographical location

 Different risk groups

 Special class of the society.

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Current Issues

Development of OTC products

 Simplified underwriting
 Pricing
 Simplified proposal forms
 Waiting period/lien
 Better reach
 Cost savings Vs. anti selection

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 Current Issues
Riders
 Health:
Critical Illness
Major Surgical
Hospital cash benefit
Dreaded Disease
Accidental CI, ADDR
 Accidental
Death, Permanent and Total Disability
 Pure Term Rider – Term + AD
 Others – Life Guardian, FIB, Payor, PWB on
death and disability

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Current Issues

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 Current Issues
Pricing Assumptions – Pure Term assurance

Year Interest Mortality Expenses - 1st year Expenses - renewalr

Rtaes PP (Rs.) Premium related PP (Rs.) Premium related
2001 5% - 6% 100-110% Nil 25% Nil 25%
of LIC (94-96)
Commission Year -1 25%
Year -2 7.50% Withdrawal Assumed
Year -3 7.50% Nil
Thereafter 5%
2008 6% - 6.5% 70% - 80% Min(Rs.250-750 70% (RP) 50%(SP) 120 (RP) 50 (SP) Nil
of IALM (94-96) , factor*term) Inf: 5% p.a.
Commission Year -1 25% 20% (Yr 1)
Year -2 7.50% Withdrawal 10% (Yr 2)
Year -3 7.50% 10% (Yr 3)
Thereafter 5% 5% (Yr>3)

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Current Issues
Pricing Assumptions – Pure Term assurance

 Minimum SA increased from an average

of Rs.50000 to Rs.200000 for the same
target population
 New distribution channel added
 Riders restructured
 Profit Margin and taxation are factored
into pricing explicitly

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 Current Issues

Pricing Assumptions – Unit Linked Endowment

Year Interest Mortality Expenses - 1st year Expenses - renewalr
Rtaes PP (Rs.) Premium related PP (Rs.) Premium related
2003 Unit - 10% 100% 650 25.00% 250 5.00%
Non - 6.5% of IALM (94-96) Inf: 3% p.a.
Commission Year -1 40% 15% (Yr 1)
Year -2 4.00% Withdrawal 7.5% (Yr 2)
Year -3 4.00% 7% (Yr 3)
Thereafter 4% 5% (Yr>3)
2009 Unit - 8.5% 70% - 80% 750 7.50% 480 0.25%
Non - 6% of IALM (94-96) SA and Marketing Inf: 5% p.a. Of Fund value
Commission Year -1 22% 25% (Yr 1)
Year -2 7.00% Withdrawal 10% (Yr 2)
Year -3 2.00% 15% (Yr 3)
Thereafter 2% 5% (Yr>3)

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Current Issues
Charging structure- Unit Linked Endowment

Year Policy FMC Premium Surrender

Admin Charge Allocation Charge
2003 RS.480 p.a. 0.9% to 50% (yr 1) 100% (yr1-2)
to Rs.720 p.a. 1.75% 15-20% (yr 2) 4-30% (yr 3 -9)
1-2%% (Yr 3) 0% (>yr 9)
0% (>Yr 3)
2009 0.8% of 0.95% to 20-30% (yr 1) 50% -90% (yr1-3)
1st yr prem 1.75% 0-5% (yr 2) 20-49% (Yr3 -4)
0% (>Yr 3) 5-10% (yr 4-5)
0% (>Yr 5)

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 Current Issues
Charging structure- Unit Linked Endowment
 Pre and post ULIP guidelines
 Guaranteed addition
 Guarantee on charges
 Optional charges
 Risk Coverage

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Current Issues
Exclusions:
 Very important issue in product design
 Depend on the type of product
 Suicide clause
 Exclusions are stringent in health
products
 Terrorism risk
 Occupational hazard
 Travel

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Current Issues
Demographic Pattern
1970 1990 2007
1970 1990 2007 100
USA
100 INDIA 50
50
0 Life Expt. CBR CDR
0
Life Expt. CBR CDR

1970 1990 2007 1970 1990 2007

100 100
UK CHINA
50 50

0 0
Life Expt. CBR CDR Life Expt. CBR CDR

Data source: www.unicef.org

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Population Pyramid of India

Population Pyramid: 2001 Projected Population Pyramid: 2026

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Population Projection
 The population will increase @1.2% pa during 2001 to
2026
 The CBR will decline from 23 to 16 in the same period.
 The CDR will decline from 7.5 to 7.2
 The combined effect of the above on the population age
group will be as follows:
70.00%
60.00%
50.00%
40.00%
2001
30.00% 2026
20.00%
10.00%
0.00%
Below 15 15 to 59 60 & above

Data source: Census 2001, Govt. of India

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 Pension as a % of Total Business

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009

Linked Pension Non-Linked Pension

Total Pension
CILA Seminar, Mumbai, 28th Augu 32
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 Challenges to the industry
 Expenses – an important current issue to
the life insurance industry
 Lapses
 How guarantees are to be managed
 Health insurance with mortality coverage
–a combination of Non life and Life.
 Impact of Proposed direct tax code

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The way forward
 Pension products
 Long term care
 Reverse mortgage
 Variable annuity

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Thank You

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