The year 2012 was a mixed year for the life insurance industry. While the challenges and uncertainties of last year still cast a shadow, the long-term prospects remain bright, given the strong fundamentals of the life insurance industry.
The sector saw some significant long-term developments that will enable it to move to a sustainable long-term growth trajectory.
Although the year started on a slow note due to inaction on the investment norms and annuity side, there was an increased willingness on the part of regulator to engage in frequent dialogue with insurers on all guidelines. This resulted in the removal of a 4.5% minimum guarantee on pension and annuity products. Clearing of the insurance Bill by the Cabinet was a long-awaited announcement. Though deferred to the Budget session, the action provided the industry the much-needed impetus and motivation.
One of the most significant developments for life insurance industry has been the strong emergence of the online channel. In 2012, players opened up the platform further and expanded the online product suite from just term plans to health and retirement as well. The platform will further reinforce the central theme of customer centricity and have multiple advantages for insurers, including controlling costs.
But the sector continues to grapple with challenges, such as choppy equity markets, high interest rate-high inflation scenario and regulatory pressures. Owing to the dismal macro economic conditions and sluggish domestic economy, in 2012, we saw a shift in consumer behaviour. There was a tilt towards low-risk products that impacted the product pies of the players with an increase in pure protection and guaranteed returns plans. Further, the year saw no new pension products in the market until the last month. This was mainly due to the guidelines issued by the regulator that mandated insurers to provide a guaranteed minimum investment return and annuitisation with the same company providing the accumulation benefit. The industry, as a result, witnessed a de-growth of 3%, with private players’ business shrinking by 5%.
The coming year will continue to focus on key themes of customer centricity, financial penetration, technological innovations, and creating guidelines and frameworks to revive the life insurance industry. At the same time, the life insurers will also need to focus on increasing productivity, controlling costs and spreading the risk by not concentrating on a single product category. One of the key facilitators