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.

 

  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Poonam

    8 years ago

    The cheapest among the slot is Aviva.
    Glad I bought it

    ramchandran

    9 years 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.

    Pension revamped by IRDA—Will the customers stay away?

    Pension ULIP products will enter the market after 4.5% per annum guaranteed return has been scrapped, but some guarantee will ensure high exposure to debt and hence returns will not even beat inflation. Will customers shy away?

    The Insurance Regulatory and Development Authority (IRDA) has announced new pension guidelines for insurance companies. The guidelines need all pension products to explicitly define the assured benefit that the customer would get at the time of surrender or vesting age. At the time of vesting, the annuity shall be provided by the same insurer who contracted the original policy. On surrender of policy post the lock-in period or on the date of vesting, the policyholder can commute to the extent allowed under Income Tax Act (1/3rd at this time) and utilise the remaining amount to purchase immediate annuity guaranteed for life at prevalent annuity rates, or buy a single-premium deferred pension product.

    Insurance companies except Life Insurance Corporation of India (LIC) have been reluctant to launch regular premium pension plans post September 2010. Will anything change after the new guidelines? Will the customer really benefit? Gorakhnath Agarwal, chief actuary, Future Generali India Life Insurance, gives a realistic perspective. According to him, “The new guidelines, though appear to be relaxed in terms of guarantee, may still not achieve the objective of reviving sales of pension products.”

    In less than two years there have been a lot of changes in pension ULIPs (unit linked insurance products). From allowing high equity exposure due to ‘no guarantee’ to high debt exposure due to ‘4.5% p.a. guarantee’ to possible continuation of high debt exposure due to ‘non-zero guarantee’, pension products have undergone frequent changes. Here are three hiccups in store for customers along with ‘what could have been better option’:

    1.    High exposure to debt will continue – Mr Agarwal says, “Retirement saving is meant to provide protection against inflation. Any kind of guarantee would restrict investment freedom (insurers will invest in debt products in order to meet the guarantee) and hence may not achieve the objective of providing protection against inflation. This might lead to under provision for retirement.”

    ‘No-guarantee’ option not on the table – Pension ULIPs prior to 1 September 2010 had no guarantee and hence the policyholder had the flexibility of high equity exposure. According to Amitabh Chaudhry, managing director and chief executive officer, HDFC Life, “Would we have liked an option for no guarantee? Yes, since that would have allowed flexibility for the funds to be invested in equity in a higher proportion which would have meant potential higher returns. But I think the regulator is rightly focused on ensuring capital protection for customers who are saving up in a pension plan for their retirement.”

    2.    Annuity from same insurer – IRDA may have genuine reasons for enforcing same insurer to continue with annuity phase of the product due to LIC taking 95% burden of it, but where does it leave the customer? According to Gorakhnath Agarwal , “We already offer our deferred pensioners purchase of annuity from our company, but we are still of the view that choice to purchase annuity from any insurer should have continued as it is in the interest of the policyholder and he should be given the opportunity of a competitive deal.”

    Annuity at what rate? The captive customers for annuity phase may ensure less motivation for insurers to offer best rate. The annuity rates will be decided at the time of vesting of pension. If at that time another insurer offers better annuity rates, you are struck with your insurer for literally rest of your life. To top if off, annuity in India is taxable which itself is the biggest snag.

    3.    Enforced annuity – Pension ULIPs, prior to September 2010, did offer lump-sum payment (taxable). This option was removed post September 2010 regulatory changes. The window of opportunity was left in traditional pension products, but it is now closed. While one-third of the corpus can be taken out tax free at the time of vesting, the remaining two-third will be forced into annuity. Even if you surrender the policy before the policy term, the annuity is mandatory. Mr Agarwal says, “While we appreciate the need of annuitisation of pension corpus, making it compulsory in all cases may lead to problems. The examples are—surrender value is generally too small to buy the pension or the policyholder might be suffering from some critical/ terminal illness, etc. In such cases lump-sum should have been allowed.  In other countries including the UK, lump-sum is permitted in such cases which, of course is subject to tax.

    Exit option – Taxable lump-sum withdrawal used to be an exit option, though there are valid arguments against it. Mr Chaudhry adds, “Pensions are meant to accumulate a corpus during your productive years that can be then utilised in a systematic way during your non-productive years. A complete withdrawal leaves the customer open to risk of choosing another investment vehicle based on the right advice at a particularly vulnerable stage in her life. While a lot of us might differ on forcing an option on the customer, I think we should consider the maturity of our market and see this as the right move in the interest of the customer.”  

    The million dollar question is whether customers will get attracted to non-zero guarantee even if the returns are low, annuity from same insurer and enforced annuity? A veteran LIC agent summarizes it accurately. He says, “What is the real incentive for customer to go for pension product anymore? They can as well take regular life insurance policy and get the corpus on maturity as tax free. If they wish to lock money in annuity, immediate annuity is an option. If they do not want to lock anywhere, invest in any other instrument. There is flexibility here for high equity exposure in life insurance policy, choosing any insurer for immediate annuity, tax benefits and not worry about locking money forever at any stage.”

    Moneylife view is that pension ULIPs prior to September 2010 did not have anything harmful (except for high charges). As the saying goes, “If it ain’t broken, don’t fix it”.

  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    PGOURISHANKER

    9 years ago

    Illuminating. The return on the corpus in case of Pension products are very low and is of the order of 4% to 6% throughout the life time of the Pensioner and corpus being paid to the Pensioner's nominee after the life of the Pensioner.How to step up return on the corpus to the Pensioner and provide for bulk payments for medical and other unavoidable expenes affecting the very life and peace of the Pensioner need to be examined.

    Should IRDA allow agents to sell products of more than one insurer?

    IRDA may allow agents to sell products of more than one company similar to opening bancassurance to two insurers. Will it help agents increase remuneration or confuse customers and undermine the intension of the change? Will it increase mis-selling?

    Insurance Regulatory and Development Authority (IRDA) plans to allow agents to sell products of more than one insurance company just as they are considering opening bancassurance to allow selling insurance products of two companies. There are arguments from both sides, but private insurers will stand to benefit more than LIC.

    An official from the Life Insurance Corp of India (LIC) said, “Customer buys LIC product due to trust in the company. If agents sell insurance products of more than one company, they will be seen as mere individual and no longer carry the goodwill of LIC. The customer will get suspicious and not make buying decision. Even if 2% of the agents indulge in mis-selling to earn higher commission, it will ruin the whole system. As such, insurance is push product in India and takes lot of efforts by the agents to make a sale.”

    Private insurers on the other hand have lot to gain as they may be able to tap into the huge pool of about 13.5 lakh agents of LIC. Their interest will mainly be the big agents of LIC who can drive volumes and help penetration. There has been steep decrease in the number of agents in life insurance business and opening of tied agency will only help private insurers. According to Life Insurance Council, “The number of agents came down from 3 million in 2009-10 to 2.65 million in 2010-11.”

    Amitabh Chaudhry, managing director and chief executive, HDFC Life, said, “I know the regulator has brought this up in a recent interaction with media. However, I think it is a bit early to comment without getting to know more about this. On the face of it, such a move will help agents to offer more choice, which is good for the customer. It might also help bring agents back to the industry since the completion of a licensing process will enable them to get two licenses which is a positive for the agent”.

    “We have seen almost three lakh agents have gone out of the pool in the last year since the economics of life insurance business doesn't enable them to go out and connect with customers, provide right financial advise and service the customer over the long term. The small and mid-sized agents who were instrumental in spreading life insurance across the country are not willing to get into the industry. Will allowing agents to sell products of two life insurance companies redress that? Also, will we have safeguards against unintended consequences of such a move like agents churning the customer portfolio between two insurers? I don't think we can answer these till we have a more detailed proposal from the regulator. If it does manage these issues, I am sure the industry and the agents will welcome it,” Mr Chaudhry added.
     
    The bigger question is whether IRDA will really open the tied agency model? According to a life insurance agent, “IRDA talked about it when it came in existence. Due to opposition from LIC they (IRDA) put it off for 10 years. Over 90% of LIC agents work part-time and allowing them to sell other insurer products will help in increasing their remuneration. Ultimately, the choice should be left to customer and agent. Today, agent cannot talk about products from other insurance company and hence cannot offer best insurance to a customer. Moreover, if brokers are allowed to sell all insurance company products, why not agents?”

    “General insurance agent association had in the past recommended to IRDA about allowing agents to sell mediclaim and other general insurance products from more than one insurance company. IRDA argument in the past for not allowing was about insurance company spending on agent training. At that time they were thinking of opening of tied agents if they had completed certain number of years in the business,” said another agent who sells general insurance products.

    Life and general insurance agents also sell other financial products like mutual funds and there may be no real need for them to be tied to one insurance company. In UK the tied agency model has vanished. Are there any local circumstances that prevent from India to adopt the same?

    You may also want to read...
    Bancassurance turns into an assurance that is not bankable
    Bancassurance:The more the merrier?
    IRDA chairman not convinced on opening up bancassurance to two insurance companies

  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Tushar

    9 years ago

    Agents should be allowed to sell products of different companies. It will allow agents to provide better service to buyers as they will be able to offer them products that best suit their unique situation. Currently agents push buyers towards products that their company offers even though it does not cover the clients requirements. To prevent agents from simplying selling based on commission the agents incentive should be clearly mentioned in all products. In fact insurance incentives should be modeled like mutual funds.

    i have personally facted this problem when i was buying insurance. it was a huge hassel to contact multiple agents and then compare their offferings. each agent would talk down the other companies product.

    Venkat Aiyer

    9 years ago

    The apprehensions of losing business expressed by LIC regarding IRDA allowing insurance agents to sell products of two insurance company is baseless. On the contrary, LIC will gain as agents of private insurers will also opt for LIC as LIC products are much easier to sell since LIC is a household name and much respected insurer.

    Abhijeet

    9 years ago

    IRDA as an organization failed to do for which it has formed.When ULIP policies were selling like hot cake by fooling the policyholders it was sleeping.when rome was burning nero was fiddling. In ULIP cases SEBI took the strong objection. You can give me only one single remarkable decision taken by IRDA for the benefits of policyholder &/or insurance industry. Now this decision is taken only because pvt insurers are suffering. When 2 years back when LIC's business was snatched by pvt insureres due to ULIP policies IRDA was sleeping. IRDA is to be dismasntled with immediate effect and all the IRDA officials should be made AGENT so that they can know how hard is to sell insurance business.

    Hemanshu Parekh

    9 years ago

    I belive this is a good move. In fact you should welcome every change and except it as an opportunity.I think this will reduce Mis or biased Selling,on the contrary I would like if agents can be allowed to sell products of all insurance companies as in case of brokers and Mutual fund IFA"s.One thing to be noticed is that agents should be given proper trainings.Every new change is first opposed strongly and then accepted later.

    ANIL VANJPE

    9 years ago

    long time misconception for ins. agent has to change.they r better equipped with technology,study,seminars, etc.traditional image of ins. agent ghost has to to be done with.max. misselling takes place from corporates,bankassurance.their knowledge,vision is limited. if they r permitted multi product selling, euality must for individual agents.

    Madhusudan Thakkar

    9 years ago

    This is a step in right direction."Better late then never".It makes no sense of having tied-agency concept.In mutual fund there is no tied agency concept
    After new rules of ULIP came into existence the premium collection,number new policies,activisation etc has come down drastically.The average earning per agent has also reduced.New recruitment of Agents is also down because average earning per agent has reduced to Rs.3000/- per month from Rs.5000/- per month after new ULIP guidlines.
    Tied-Agency made sense when there was no other distribution channel except agency channel.Presently all Life Insurance companies have muliple distribution channel like Banks,Brokers,Business Associate and so on.Furthermore most of the life insurance companies are also selling Term & ULIP plan on ONLINE platform also.
    If an agent is allowed is sell products of more than one life insurance company the customer will have meaningful choice .
    So it is a WIN-WIN situation for Insurance Companies,Agents & Customers
    In the beginning IRDA should allow Agents to sell products of TWO companies without further delay.

    VIPUL PANDYA

    9 years ago

    The proposed move will only bring unathecial practice in the industry , some companies will give temptation of illegal type benefits to agents for business and all these will be on the cost of loss to customer

    REPLY

    Madhusudan Thakkar

    In Reply to VIPUL PANDYA 9 years ago

    What is preventing Insurance Companies from launching contests,and other type of benefits ?On the contrary Agent will sell product of those companies whose fund performance/Bonus rate is high.Whose death-claim settlement is and other services are better.It will make Insurance companies more RESPONSIBLE if the want Agent to sell its products

    Santosh Bhandarkar

    9 years ago

    It is the customer who will benefit the most due to this change. The Customer has a faith with one agent / advisor and he is selling only one company product. If the same agent sells insurance of many companies, he shall help the Customer to chose right insurance product. This shall also reduce the cost of Term Insurance over the period due to competation. And we all know Term Plans are very important in Financial planning.

    v chandru

    9 years ago

    LIC will be the beneficiary,if the agents can act for more than one insurer. LICs trust and high net worth will attract more agents to procure business for them. The other insurers agent will get more remuneration by procuring business for LIC. On the other hand LIC agents have to face still
    more competition with other agents.

    REPLY

    Madhusudan Thakkar

    In Reply to v chandru 9 years ago

    I agree with you.LIC can be a beneficiary.Most of the Agents of private Life Insurance companies will also take agency of LIC because of its popularity & acceptability.But at the end of the day CUSTOMERS will be greater beneficiary.

    Abhijeet

    9 years ago

    IRDA as an organization failed to do for which it has formed.When ULIP policies were selling like hot cake by fooling the policyholders it was sleeping.when rome was burning nero was fiddling. In ULIP cases SEBI took the strong objection. You can give me only one single remarkable decision taken by IRDA for the benefits of policyholder &/or insurance industry. Now this decision is taken only because pvt insurers are suffering. When 2 years back when LIC's business was snatched by pvt insureres due to ULIP policies IRDA was sleeping. IRDA is to be dismasntled with immediate effect and all the IRDA officials should be made AGENT so that they can know how hard is to sell insurance business.

    Sanjay

    9 years ago

    This is one of the path breaking reforms IRDA is doing by doing away with tied agency. This will decrease the number of employees of Private sector companies and hence profitability would be better in the coming years. IRDA should complete the process and make it a law form Jan 1st 2011.

    REPLY

    Sanjay

    In Reply to Sanjay 9 years ago

    Please read Jan 1st 2011 as Jan 1st 2012.

    prashant bhawar

    9 years ago

    I think this will very bad for working agent instead of this IRDA have to make a criteria for selling multi insurance like one more exam! Means only talented people who have the knowledge of financial market and study of all plans of all company this will help full for customer for right product and IRDA moto will complete

    REPLY

    Madhusudan Thakkar

    In Reply to prashant bhawar 9 years ago

    You must be aware that new syllabus of pre-recruitment of Agents is MUCH MUCH BETTER than previous one.Previous syllabus had only INFORMATION and new syllabus has KNOWLEDGE.Furthermore training is an on going process .

    Vikas Gupta

    9 years ago

    I think that it would be a welcome move for the Industry, Insurance Advisors & Common man. It would be a win win situation for all as the Total No. of agents working for all Insurance Co.s would increase, The advisors have more choices to seek a product according to his Customers requirement & the Customers could ask his trusted Advisor the more options as per their needs.

    REPLY

    Madhusudan Thakkar

    In Reply to Vikas Gupta 9 years ago

    You are right Vikas Ji, An Agent by SWOT[Strength,Weakness,Opportunities,Threat]of a particular plan of different life insurance company will help customer to select the best plan according to needs,budgets,expectations and so on.It will be DEMOCRATIZATION of Agency force in the true sense of terms.

    NAVNEET MITTAL

    9 years ago

    Allowing insurance agents selling products of more than one co will be the best practice in the industry because

    a) It will allow agent to sell the best product available in the industry and earn rather than telling mine is better as he can't sell other.

    b) In turn the real competition will take place as the co's would have to make the better product available to his agent otherwise he will sell others.

    c) The new rule would allow new breed of full time agents as they can earn good amount becoming full time insurance agents.

    d) It's truly in favor of clients as they can expect the best product from their existing agent and not wandering here and there in search of best product.
    So IRDA should allow all agents to sell products of all insurance companies (life and general) and offer the best product in the market.

    e) If a agent can't compare the products of different co's then how an ordinary customer can choose the best . He is always trapped by the best sales person not by the best product.

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 4 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone