The insurance industry is now facing an unpredictable set of customers. The new-age customers are habituated in the process of ‘subscribe’ and ‘unsubscribe’. Today they subscribe to something and in the next month, they are free to unsubscribe. They can buy a product very quickly and can return it within hours.
Is that kind of flexibility available in insurance products? To some extent, yes. You can cool off from a contract within 15 days of receiving the policy document. You get back almost the entire premium paid. Unit-linked insurance plans (Ulips) are popular because there is very little surrender charge. But, similar kind of flexibility cannot be expected from most conventional insurance products. That is why many new-age customers have problems with insurance.
Freedom to curate product mix
In a recently held conference of C-level executives of the financial sector, it was concluded that customers are now displaying a ‘Spotifying’ mind-set. Spotify is an online digital music service that enables the purchaser to bundle and unbundle music albums whenever they want. The objective is to provide customers unlimited freedom to curate the product mix very fast from their laptops and smartphones.
In fact, Ulips cater to the needs of ‘Spotifying’ mindset. Under this product, it is possible to add top-ups anytime during the term, withdraw units partially, switch funds and go for settlement options. That the private insurers are able to get bulk of their business through Ulips is not just attributable to the higher returns they can generate but also because the products offer the customers opportunity to make experiments with the product during the policy term.
How far is it possible to satisfy such customers through conventional products? There are products that allow the customers to change some of the policy conditions anytime. The new Insurance Amendment Bill, 2015 offers further flexibility to the customers and insurers are likely to add more flexibility.
However, customers need to understand that there is difference between consumer products and financial products such as insurance. There will always be more temptation to buy products that give immediate utilities. Music system, air conditioner and cars give you immediate gratification. Insurance is for future consumption. And that can be a pretty distant future.
Insurance for long-term needs
So, even if insurers build exciting flexibility in all insurance products, the products will remain insurance products which you cannot consume right away. Even the most ‘Spotifying’ customers know that. They may buy any plan of their choice, term or Ulip or annuity and they may even be allowed to subscribe and unsubscribe some of the policy conditions. But no utility is available immediately. Even Ulip can be surrendered after a lock in period. But, in spite of it being designed for future use, you cannot do without life or health or motor insurance.
The insurance product can be made complicated by adding a lot of add-on benefits which can be subscribed and unsubscribed. But, customers need the guidance of insurance intermediaries to understand the implications of such benefits properly. Unfortunately, the contribution of the agents is always under-rated and people are worried about the commissions. Very few people take insurance agents seriously.
What is the way out? I would suggest the new-age agents to undergo courses on Certified Financial Planning and related subjects so that customers are more confident about consulting them. Needless to say, insurers have to be sure that the complicated products are sold only by the more experienced and trustworthy advisors.
Tech-savvy customers
Though insurers are using digital channels extensively to sell and are registering impressive new business growth, it is more important to ensure that a large proportion of customers remain loyal for a long time. That can not be achieved by technology alone. Insurance intermediaries have to engage customers on a regular basis. Technology can only act as an enabler in this process of customer engagement.
Insurance is not a typical ‘Spotifying’ product. It is important for customers to understand that. No doubt, there is scope to bring in more exciting features in traditional products. It is more important for insurers to build a committed band of agents who can take the customers away from the typical ‘Spotifying’ mindset.