Online term life insurance – Race to the bottom?

The online term life insurance market is heating up with more players entering the fray. The premium is now similar to personal accident cover offered by non-life insurance companies. Is it sustainable? Are the products priced too aggressively? 

Many insurers like LIC, HDFC Life, Bharti AXA Life, Tata AIG life are set to come out with term plans which may be pure online or combined with offline mode of distribution.

Term life insurance used to be almost three times expensive than personal accident cover offered by non-life insurers. Not anymore. It is now at par and if the trend of race to the bottom continues, term life premium can be unsustainable. While personal accident covers disability as well as death, the trigger has to be accidental which needs a lot more documentation like police first information report (FIR), post-mortem report and so on. Term life without a rider will cover death which may or may not be due to accident. The current online term premium rates are a good deal for customers, but the competition is just getting started.

Some of the current online term plans may re-price the products with 10% to15% lower premium for a specific target segment based on lifestyle. Increasingly insurance companies are offering discounted premiums for non-smokers, female policyholders and now will start looking at detailed lifestyle like occupations to arrive at a reduced premium. There may be a proportionate increase in sum assured for existing customers to ensure they get benefit of the re-pricing initiative.

According to Deepak Yohannan, “There are sceptics who scoff at this claiming it to be un-sustainable—that only time can tell. At least it has forced the large players to sit up and play the game with the new rules being set by others. Complete disruptiveness at it best and I think the life insurance industry will see a lot more and it will not all be restricted to pricing.”

A new product ICICI Pru Life iCare tries to address the major hiccup with the online term insurance buying process. The medical tests which online term insurance products require for all (or higher age groups) has been done away with this innovative product. There were issues like premium hike after medical tests which used to catch customers by surprise. This one-of-a-kind product will have no medical tests and no surprises of premium hike. This is online term plan in complete sense.

Recent entrants DLF Pramerica U-Protect and Edelweiss Tokio Life Protection have premiums which are the lowest in offline term plan space. Their premium is Rs5,956 and Rs5,984 respectively for Rs50 lakh sum assured for a 27 year old non-smoker male based in Mumbai for policy term of 25 years. Both the products are offline as of now.

 
Select term life plan options for Rs50 lakhs sum assured for 27 year old non-smoker male based in Mumbai for policy term of 25 years. AR – Accidental death rider, CI – Critical Illness rider, DR – Accidental Disability rider, WP - Waiver of Premium rider.

According to Akshay Mehrotra, chief marketing officer, PolicyBazaar.com, “Online term insurance has become very popular today; we get close to 3,500 active interested queries on our website everyday. Currently the estimated number of online policies sold per month is close to 6,000. This growth in online term insurance has been fueled by the drastic drop in premium rates online over the last three years.”

There has been talk about online term plans having low renewal ratio due to price-sensitive customers getting lured with ever decreasing premium offered by competitors. There are some deterrents like medical exam and increasing premium with age which may prevent a customer from jumping the ship. According to Aegon Religare, they have 91% of policies renewed which is healthy renewal.
 
It is estimated that Rs50 crore sum assured of life insurance is sold through the online channel everyday. According to PolicyBazaar.com data analysis of leads, the main trend which is very sharply visible over the last couple of years is that the average sum assured on health and term insurance has almost doubled and increased to Rs5 lakh on health and Rs50 lakh (even up to Rs1 crore) on term insurance across all markets. Women are still non-existent in searching for life insurance products while 10% of visitors looking for health insurance are women. A high number of visitors from metros are looking for insurance products; 74% of the visitors looking for car insurance are from metros, 60% of the visitors looking for health insurance while 62% of the visitors looking for term insurance are from metros. The maximum searches for any insurance are done by people from age 26 to 35 years.

 

Comments
Poonam
1 decade ago
The cheapest among the slot is Aviva.
Glad I bought it
ramchandran
1 decade ago
its high time insurance companies sell term products which is true insurance instead of loading people with products which the consumer fails to understand. As regards pricing its the risk appetite of the insurance company. Also one must access the claims settlement ratio going forward.
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