There is no path more hazardous than the one taken in attempting to predict what the future entails. Given that the world we live in is in continuous flux and every industry faces uncertainties, this is more true today than ever before. Who would have thought even a year ago about de-globalization in a world that was being rapidly globalized over the past few decades? The world may still be flat, but it is not immune to the socio-political and technology changes which will either raise new walls or pull down the existing ones. The implications of these changes on jobs, productivity and economies in general are unknown today. Despite the challenges of predicting the future, I take solace in the fact that over the ages, human ingenuity has made life better for society-at-large.
A business like insurance will not be immune from some of the mega-trends that stare at us today. I consciously use the word mega-trends for events that I believe are going to be irreversible in the coming years.
The primary one among these is ‘digital’ which will manifest itself in multiple ways for customers, distributors and the back-office operations of insurers.
Insurers can tap in to open ecosystems
Always-on, mobile devices allow for context-aware, personalized interaction models where insurers can reach out to consumers like never before. Insurers can get deep insights into customer behavior, based on internal and external data sets. Machine learning technologies will allow for intelligent, predictive and learning capabilities to offer virtual advice and automate decision-making processes such as underwriting. Biometric identification can help prevent fraud and secure customers’ personal data without compromising customer experience. Insurers can tap in to open ecosystems of developers to create value-adding solutions like never before. In a world of hyper-connectivity, insurers can build digital ecosystems for different product categories.
Product-centric and channel marketing-driven
The traditional insurance model was largely product-centric and channel marketing-driven. The new age model will turn this on its head with the customer at the center and a suite of digital technologies, services and ecosystems to tap the customer. If incumbents are unable or unwilling to change their business models, they will cede space to new participants. Nothing prevents search engines or e-commerce platforms with hordes of customer information from disrupting the insurance sector. An equivalent of the ‘Banks vs. Wallets’ battle, while unimaginable today, could emerge in the insurance sector too.
One often-asked question is whether digital will make the existing distribution channels redundant? I, for one, believe in the contrary. Technology is rapidly equipping distributors to become more productive, and thereby to improve their returns on effort. An agent equipped with greater knowledge of the customer and supported by a digital virtual assistant is likely to be more successful. There is still some time for robo-advisory and other such platforms to scale up, both in terms of reach and domain knowledge, for them to make a difference to consumers in the next few years.
The digital push post-demonetization is leading to a migration of more customers into the formal banking system. Bancassurance, with greater insight into the consumer purchase pattern and real time connectivity, can help nudge the customer to purchase a variety of insurance solutions. Micro-segmentation and a targeted approach, backed by analytics, will help improve conversion ratios and reduce customer dissonance. Open architecture ecosystems in bancassurance will push insurers to improve customer value propositions and service standards. A greater presence of banks in the hinterland will help increase the penetration of insurance across the length & breadth of the country at lower fixed costs.
An additional opportunity will be to leverage the ‘India Stack’ architecture which enables insurers to on-board customers in a paperless fashion. Insurance today is largely seen to be lagging behind other consumer-driven sectors in ‘ease of purchase’ parameters; re-engineering of the policy issuance value chain will create a huge difference in customer experience.
In several other industries, regulations have lagged behind technological innovation, causing friction between corporations and regulators. The insurance industry and the regulator need to learn from other industries to minimize such friction.
Insurance sector is in a unique position
Another mega-trend is ‘ageing’ which is slowly but surely driving up the dependency ratio. In simple terms, the population of the elderly will increase not just in absolute terms over the next two to three decades but also as a percentage of the overall population. In a society that still has substantial savings in physical assets or in short duration, open-ended financial assets, the opportunity for ‘value migration’ both from physical and short duration financial assets is tremendous. With greater inter-state migration within the country for job opportunities, emergence of nuclear families and limited social security instruments, the ‘protection gap’ in India is amongst the highest in the world. The insurance sector is in a unique position to offer disciplined savings vehicles for the long-term and protection against either the risk of dying early, or living longer through a suite of product offerings. Historically, built on the edifice of a tax saving platform, the sector needs to become an integral part of any financial planning exercise.
There are a few other areas that insurance sector management teams would need to stay sharply focused on. Attracting and retaining talent is one of these. Insurers who offer superior employee value propositions will enjoy greater loyalty in an era where the workforce is younger; geographically mobile; technologically skilled; demands more flexibility such as work-from-home; strives for work-life balance; expects greater learning opportunities; and is more aware of what competitors, both within and outside the sector, have to offer them as a value proposition. The human resource practices of insurers would need to be grounded in this new reality.
Very soon, most insurers will also deal with a more diverse set of shareholders, either due to a listing process or an accelerating wave of mergers and acquisitions that the industry is witnessing. Greater public scrutiny and demanding shareholders pushing for sustainable and profitable business models will help create greater transparency for the sector & push insurers towards higher efficiencies and superior customer service standards.
Over the next couple of years, GST will be another discontinuity that the country will face. Applicability of different tax slabs can significantly change the affordability and thereby influence the growth of different product categories.
The challenges posed by the above changes are not insurmountable; the opportunities to grow and become more efficient are humongous. However, the sector can ill-afford uncertainties like the ones it faced in the earlier part of this decade. It is only with great effort that a renewed model of sustainable growth has re-emerged for the sector; for the fruits of this model to be reaped, all stakeholders need to work together in tandem.
Amitabh Chaudhry, Managing Director & CEO, HDFC Standard Life Insurance Company Limited writes this piece for FICCI-BCG publication ‘The Changing Face of Indian Insurace’