Page 35 - The Insurance Times October 2021

Parliament. However, it cannot be denied that the products. Also, the claim settlement has been fast. The
amendments to the General Insurance Business second wave of the pandemic led to a rise in claims by at
(Nationalisation) Act, 1972, made in the Bill, were, in fact, least two to three times for health insurance compared to
necessary to keep the three unlisted public sector general the first wave last year, and insurers are now preparing for
insurers afloat and prevent a crisis in the sector. The a third wave as well. Some companies have also indicated
amendment allows the central government to hold less than that they may increase premiums for health cover across
51 per cent in General Insurance Corporation, National the board this year. Insurance companies have paid Covid-
Insurance Company, Oriental Insurance Company, United related health claims of over Rs. 15,000 crore since the start
India Insurance and New India Assurance Company, paving of the pandemic.
the way for a strategic sale in these insurers to a private
entity.

The buyer would have the freedom to bring about changes
in the operations of the company. In the MSME sector, only
5 per cent of the units are insured in the country. This sector
needs much higher level of protection. The regulator is
coming out with two standard products in this segment; one
for micro enterprises and another for small industries. The
Regulator should increase protection in this segment from
5 per cent to atleast 25 per cent in the next couple of years.
Standardisation of products is not against innovation, rather
it will cater to the common needs of the customers.

Some people feel that standardisation is against innovation, Customisation of Insurance products
but these standardised products are required to cater to the
Currently, there are several products that are standardized
common needs of the customers. These standard products
across insurers. Motor insurance is one such legacy product.
will not be frozen in time. These standardised products will
The core product has two sections - own damage and third-
create a benchmark in the industry such that the industry
party liability. The basic coverage is the same across insurers
can be proded to go for products that are better than the
for both sections. However, insurers can issue add-ons to
standard products.
differentiate their offerings for the own-damage section.
Most add-ons are now similar. Pricing for own damage is
Premium hike post standardisation
defined based on a discount to the motor tariff. This discount
Standardisation of products is not against innovation, rather varies substantially across insurers. The premium for third-
it will cater to the common needs of the customers. In the party liability section is identical across insurers. Another
standardised regime, the price for flood insurance is the same legacy product is Fire insurance.
for Rajasthan and Meghalaya. This naturally deters buyers,
especially the first-timers. To drive insurance adoption, we However, heavy reliance on standardization may not be the
need to tailor customised products for specific occupations, best for insurers. Recently, the regulator asked all life
lifestyles, geographies, sizes and risk conditions. Much of insurers to issue a standardised term insurance, Saral Jeevan
these have to be driven by insurers and intermediaries. Bima. Term insurance is highly commoditised, and insurers
Some aspects of standardization are good because they set have been struggling to differentiate. Term insurance
the minimum bar for all insurances. products cover all kinds of death and have no exclusions,
except suicide for the first year. In insurance, after-sales
However, insurers should innovate much more; otherwise service is tested by the policyholders or the nominees, several
they risk becoming undifferentiated and creating an industry years after making the payment. So, in a standardised
that is completely price driven. The insurance industry has product regime, price becomes the principal differentiator.
been able to respond to unforeseen risks and it has come Standard health products already witness more than 50
out with new products and new features in the existing percent price difference among insurers. It is likely that

The Insurance Times, October 2021 35