Life insurance cover became cheaper and more convenient to buy in 2011. The new online term plans launched during the year were 25-30% cheaper than the existing ones and 50-60% less expensive than the most competitively priced offline product. Experts believe that the online mart will only become bigger in 2012.
"The Indian amazon.com is on the horizon. Consumers will find true value for money for any purchase, including insurance, through the Web," says Sanjay Tripathy, executive vice-president and head of marketing and direct channels, HDFC Life. The company launched its Click2protect online term plan in November, joining the seven others who already offer such plans. Some companies even offer Ulips through the online platform.
There was good news for health insurance buyers as well, with the much-awaited medical policy portability finally becoming a reality. However, a lot of glitches could crop up in the arrangement. For one, when a buyer shifts to a new insurer, only the policy benefits and waiting period shifts, but the accrued no-claim bonus doesn't. This could mean a higher premium for the buyer. Still, the introduction of portability has put the fear of losing business into insurance companies and should result in improved service.
Not everything went the customer's way during the past 12 months. The insurance market saw a major shift in the type of policies being pushed by agents and companies. With the charges on Ulips capped, insurance companies moved away from the market-linked products to focus on traditional endowment and money-back plans. Experts see this as a mixed blessing. "The reduction in the hardselling of Ulips is a good thing provided policyholders do not blindly substitute them with traditional products," says Jayant Pai, vice-president of Parag Parikh Financial Advisory Services.
IDBI Federal Life Insurance managing director and CEO, GV Nageswara Rao, says that the regulatory changes in the insurance sector and tougher licensing norms have led many insurance agents to exit in the past year. "Customers used to rely on agents for advice and policy suggestions. With fewer agents, they will have to do the research themselves," he says.
Irda's war against mis-selling continued in 2011, with the regulator training its guns on NAV-guaranteed Ulips. While expressing concern on the way they were being sold to customers, Irda allowed the existing plans to be sold, but refused to clear any further applications for such products. This was good for customers because many buyers don't realise that the highest NAV they are being promised is with respect to the plan, not the market.
Irda also came out with guidelines for pension plans being sold by insurance companies. As per the new pension guidelines, customers will have to buy the annuity from the same insurer from whom they purchase the pension plan. They can't change over to another company for annuity payment. This also means that customers have to examine not only the investment options offered by a company but also the payment distribution methods before they enter. "The new guidelines state that the proceeds from discontinued or surrendered plans cannot be paid to the customer but have to be put into an annuity plan. So, buy a pension plan only to create a retirement corpus," says Suresh Agarwal, executive vice-president and head of distribution and strategic initiatives, Kotak Mahindra Old Mutual Life Insurance.
As we enter 2012, the one big fear for many insurance buyers is the lower tax deduction for life and health insurance under the new Direct Taxes Code. From Rs1 lakh for life insurance and Rs15,000 for health insurance (plus another Rs15,000-20,000 for parents' medical cover) the combined deduction will only be Rs50,000 a year.
What's more, other deductions, such as children's school fees, will also be included in this combined limit. There is also a clause that insists on a life cover that is 20 times the annual premium for a policy to offer tax deduction and tax-free income.
"The important lesson for buyers is that insurance provides financial security to their families and is definitely not an instrument for investment," says Kamalji Sahay, managing dircetor and CEO, Star Union Dai-ichi Life Insurance Company.
Not everyone is happy about the imminent changes. "The DTC is too dramatic a shift. It should occur in phases, not as an overnight jump from five times to 20 times. Let us start with 10 times and then scale it up to 20 times after a few years," says Rajesh Sud, managing director and CEO of Max New York Life Insurance.