.Tips on how to deal with insurance

Rajiv Jamkhedkar, CEO, Aegon Religare Life Insurance, spoke with Abhay Rao of The Financial Express about the insurance sector, providing investor tips on how to deal with insurance during these times and what the sector is going to be focussing on in the future. Excerpts.

Topics
1.Industry overview
2.Outlook
3.On competitors
4.Advice to investors
5.Common mistakes
6.New products
7.Lean Periods
8.Innovative products
Industry overview
Given the global recession and economic slowdown, where does India and its insurance industry stand?

I do not feel the country is going through a recession phase, as recession means negative growth. While the latest government data suggests that the economy will grow at about 6.5% this year. Having said that, the growth has slowed down, as compared to the last few years. However, most private life insurance companies are still growing at the rate of 25-30% year-on-year and hence the effect has not been so deeply felt within this industry.

Outlook
What do you expect the year 2009 to be like for the insurance industry?

The year 2009 will be a tough year for the life insurance industry. But given that a majority of India's population is still under-penetrated, there is a significant customer base that requires life insurance. It is our domestic market that should keep the insurance sector going through 2009.

As a company, are there any specific future plans and strategies you would be adopting to ride out these turbulent times effectively? After AIG collapsed, have insurance companies re-thought their strategies in investing methods and outlooks?

We are committed to building a long-term, customer-centric business. At the outset, we have set a well-defined business plan and we shall try our best to execute that plan. We have a multi-channel distribution strategy that holds us good at all times. All in all, we feel we are fairly well-prepared and equipped to take on these times and have not had to adopt any major changes to cope with these times.

On competitors
What do you feel makes your organisation better than your competitors?

The answer is three-fold. One, our vision is to help people plan their life better. Therefore, as a company, it is our focus to educate the customer on the right solution and provide a need-based solution. Two, we are the only life insurance company to have launched with 14 IT systems that work in the back-end to ensure better throughput and better customer experience. Three, we have some of the best and the most competitive products available in the market currently.

Advice to investors
What insurance advice would you give to investors in the current situation? Are there any particular products or types of insurance, which you feel are more relevant to people now than earlier? How would you choose which insurance is right for you, given the complications and variety this industry already offers?

Insurance products afford a very good opportunity to plan for the longer term. As a unique product category, insurance plans offer the benefits of life cover, provide customers with long-term saving for financial goals, while offering customers a great deal of flexibility and control as well. The first thing investors should do, is to assess one's goals for savings, be it a child's education, buying a house or retirement. Secondly, a change in life circumstance also warrants a periodic review of life cover. It is imperative that the life cover keeps pace with changes in the life-stage of the investor. Failure to top-up could leave one woefully under-insured and put one's dependants at risk in case of death or disability. Possessing life insurance is a good step, but making sure it is up-to-date and warrants the amount you are insured for based on ones stage in life is also equally essential.

Common mistakes
What are the common mistakes that insurance clients and customers often make, which costs or may cost them later on?

There are three common mistakes that customers often make. First, is that they buy insurance for all the wrong reasons. The primary purpose of insurance is protection and long-term savings. It should not be seen as merely an investment or tax-saving instrument.

Second, is that some customers tend to redeem their policies much earlier than the maturity period. This often results in much lesser returns or benefits to the investor, especially when one considers what one would get over the full term of a policy. Hence, this may not always be the wisest decision to make. Third, is that most people do not review their life cover and savings periodically. Changing life circumstances warrant for a re-assessment and one should constantly top-up depending on the change in lifestyle as one moves on in life.

New products
Are there any new areas of insurance being covered in the market now? Which are the areas of insurance that are yet to be covered, which you feel will be done soon?

The two areas are that of Guaranteed Return plans and Health Cover plans. These are big steps for the insurance industry and a good platform to start. Given the fact that basic insurance is still not available to a sizable chunk of our population, market penetration is currently the priority and takes precedence over newer products.

Lean Periods
How have individual's salary cuts or job losses or expected lean periods affected their insurance?

As of now, there is little impact. The protection and long-term savings needs are still there for all the middle-class Indians. And insurance, safety and security are themes that resonate better in these uncertain times.

It is in such times that people feel the need to secure themselves as well as they can. Insurance offers investors the kind of products they need to do so, working things more in favour of this industry than against it.

Innovative products
What do you feel about the new innovative products, which mix insurance and investing? How useful or not do you feel they are as a product and why?

The newer innovative products, which mix insurance and long-term savings, are designed keeping in mind the needs of customers.

For example, the age group of 24-30 is typically the period when one plans for marriage as well as a constantly rising income. This is a good time to buy a unit linked insurance plan (ULIP). At this early stage, you have considerably higher risk-taking capacity in terms of the fund options you can choose. This would also ensure steady long-term savings, apart from protection for your family or dependents.