In an interaction with Industry Outlook, Indranath Mukherjee, Head of Operations, Strategic Analytics, AXA XL shares his thoughts on how digitization is transforming the insurance industry.
The insurance sector registered a growth of 17 per cent in April-May this year. How do you see the current evolution of this market in India? What are the major factors driving its growth?
The current state of growth in the Indian insurance sector is primarily driven by the uncertainty that we have witnessed during the pandemic. The growth rate of insurance hasn't been very significant in the past two decades, even though the insurance industry was opened up for international investors, and global players had entered the market, having their stake in partnership with domestic players.
The year 2020 hasn’t been great due to the pandemic, but there has been a drastic shift in this landscape in 2021. Insurance carriers in the Indian market have seen significant growth in the Life and Health Insurance sectors.
Also, in 2020 which saw stringent lockdown measures, the motor insurance premium levels diminished a bit as people wanted to defer their renewal since they were not using their four-wheelers much.
Alongside the uncertainties and increased awareness among people, product innovation and distribution channel has also aided the growth.
Insurance has been more traditionally a largely distribution-based business. An agent would meet customers in person or connect with them over the phone. In India and a large part of Asia, bancassurance has been a large channel where customers can visit the banks and get an insurance product. However, people were not visiting banks in-person due to the pandemic and the interaction between an insurance agent and customers were limited. But since some of these leading carriers have made significant investments in digitization, it has helped them make the distribution channel more direct, which in turn has helped the customers buy the insurance products directly. So, part of these improved channel work through digitization, which has also helped drive this growth.
Digitalization is breathing life into insurance, disrupting its operational models. How do you see this change? What challenges does it bring along for insurers?
Companies have invested largely in digitizing some of the processes. They have invested significantly in having some kind of AI product. For instance, most insurance companies' portals have a chatbot to interact with clients.
However, during the pandemic, they had to implement it at a larger scale, since employees were working from home. Moreover, to reduce a lot of paperwork, many of the processes were digitized, which has in a way helped the direct channel of business and consumers to directly buy from the insurance through their channels or aggregators.
On the other hand, digitization also helps in claims servicing owing to limited human/in-person interaction. Claims servicing has two aspects, for example, while an unwell person has to get treated physically in a hospital, the claims processing can be done digitally since the necessary documents can be easily uploaded on websites or sent through email. And since the company/the insurance carriers are also ready to scale these up at the Digital level, and going forward, the service is going to improve, in terms of operating models.
How do you see the emergence of usage-based insurance or on-demand insurance? How will it reshape the customer segment?
If you look at the traditional insurance product like travel insurance, it is a type of on-demand/usage-based insurance cover, since people obtain travel insurance only when they travel, and don't buy it throughout the year. The traditional usage-based insurance has seen a significant shrinkage in terms of its premium because people did not travel during the pandemic.
Over the last five to six years, globally, we have observed that IoT product like Vehicle telematics is fitted in cars that could monitor driving behaviour and the insurance premium gets calculated in real-time depending upon it. Technologies like blockchain also help in maintaining on-the-go complex real-time bookkeeping. We are observing similar innovations in the marine insurance space as well.
Given the advancement in technology, usage-based insurances could very well be a trend.
How is the transition towards wellness along with the application of IoT changing the insurance servicing? What impact is it going to have on the bottom line of insurers?
Over the years, the structure and features of health policies have evolved significantly, to cater to the specific requirements of the customers of the health insurance industries.
From a customer perspective, they realize the importance of health coverage and wellness and preventive health measures and implementing a healthier lifestyle. Insurers tell customers to maintain a healthier lifestyle so that they would end up paying less for their insurance coverage and protection coverage on the health insurance.
Therefore, what we might see is that insurance companies come up with many benefits using IoT technologies. For instance, the insurance companies may request the customers to wear smart wearables and monitor the steps taken per day and other relevant indices and provide a discount on the health insurance premium for a healthier lifestyle. However, there is a question of how much privacy of an insured will be invaded by the insurance carrier in such cases.
Insurers could offer an incentive to do regular health check-ups or be active through gym, yoga, or some other kind of sport. There are multiple ways in which health insurance or wellness products will be linked to these types of incentives in the future.
The bottom-line impact should be positive for the insurers. Thoughtful implementation could help them avoid the problem of moral hazard and adverse selection.
Where do you see the insurance market in the near future and which technologies do you foresee being implemented?
From a distribution perspective, there will be more penetration of direct insurance sales through the online channels because the companies are becoming digitally more mature. And the customer base is also savvier in buying insurance online owing to the whole digitization scheme. In the future, we should also see more efficient claim servicing and customer servicing through online interaction and faster intervention and settlement of claims as well.
With an increased adaptation of digitization, there will be more innovation and new products coming up in the insurance market.
