India must look at uniformity of insurance – Mint
The regulator, probably for the first time, acknowledged the problem of choice the common man was exposed to. When customers go looking for insurance for their family, they are flooded with an endless number of products with each having its own unique features.
The motive behind the standardization of policies was simple. Let’s have insurance products with standardized wordings designed by the regulator. Customers wouldn’t get overwhelmed with fancy products and their fancier benefits and drop out. They could simply compare prices among brands and cover their basic healthcare risks.
Two years down, when our research team at Beshak went to check the success of these products, they found the adoption rate for such standardized products to be dismal. Especially long-term products like term life and health insurance, where customers commit big premiums for the long term, in most cases for their lifetime.
A quick dipstick check by Beshak on toll-free numbers of leading insurers was enough to figure that these plans are not being offered or even mentioned when one inquires about health or life insurance. Only when our team specifically demanded these policies was there a reluctant mention of these products.
The situation is even trickier when it comes to term life insurance. IRDAI has not only mandated a standardized product but also removed many key underwriting restrictions that were an integral part of the products on offer so far. So, while many insurers are displaying this product online, our research found that they are being sold at a premium that is 50% higher than that of a regular term life insurance plan.
Why did standardized products not work?
My observation from more than 15 years of experience in this space is that the distribution-driven insurance industry is simply resistant to the plain commoditization of products.
Commoditization of products would simply mean commoditization of the brand. Sales based on standard products would be primarily price-driven, which will only bring down the margin and profitability of large brands that command a premium today.
Successful standardization of products is also likely to make many distribution channels redundant. There would hardly be any “sales” involved – thus probably reducing the distribution margins too.
Insurers are, in fact, under constant pressure to benchmark their product with the latest ones in the market and stay relevant to distributors. As per our check on the IRDAI portal, there have been 19 new products and 75 product revamps filed only in retail health insurance in the last year alone.
The problem continues
The problem of complexity, the regulator originally wanted to solve, hence remains. As a research platform, we are constantly scrutinizing insurance policies. Our team finds it arduous to compare policies and their often twisted wordings.
We just can’t imagine a customer being able to find the time and inclination to compare and comprehend the differences in the various insurance policies.
For instance, comparing the reinstatement benefit in health insurance can be a frustrating experience. There are probably an equal number of variations in the restoration benefits as there are products. Every product, even two products from the same insurer, could have different restoration benefits.
Another case in point is the definition of permanent disability as a rider in different life policies.
The three top life insurance policies that we picked up had varied definitions for total permanent disability. For instance, one insurer defines disability in terms of the capacity to perform activities like mobility, bending, etc, while another insurer defined the same rider in terms of disability of a certain part of the body.
On one hand, the world is moving towards simplification of products and experience, and on the other hand, the insurance industry is caught in a vicious war of features and benefits that only puts off a serious customer.
Standardization efforts need a 2.0 version!
Now that the new chairperson has joined IRDAI, we think the regulator should focus on the standardization of definitions instead of standardizing entire products. This would be a much better win-win solution on the ground for both the industry and the customers.
Standardizing all core offerings and conditions in the product across insurers can dramatically reduce the anxiety and the pain the end consumer goes through in understanding and comparing complex insurance products, thus helping faster, well-informed decisions from customers, which is the ultimate goal of every stakeholder in this industry.
Mahavir Chopra is founder & CEO at Beshak.org.
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