There's need for saving through pension products

In Indian context if you look at it, people prefer liquidity more than the need to save for the future. "Hence, there is a need to create an awareness for saving through superannuation products," says Subhendu Kumar Bal, President, Institute of Actuaries of India and Chief Actuary and Chief Risk Officer, SBI Life Insurance Company in an exclusive interview with Bizz Buzz

Pension products are generally of longer policy term, so we need to incentivise people more for putting their money in the pension products for longer duration. So, I believe, there is need to increase the awareness of longevity risk and the need for pension products

The term pricing has been aggressive, and these were cheaper than the term premiums available in many of the developed countries. This is nothing to do with Covid-19 impact, the price of the term insurance products was expected to be increased due to the experience being not favourable for most of the companies

You have taken over as IAI President recently. Kindly tell me about your agenda.

As you rightly said that I have taken over as the President very recently. You must be knowing that Institute of Actuaries of India (IAI) is 75 years old. Just last year we have celebrated the 75th years of establishment. We at the institute are taking lots of initiatives to increase the number of members, increase the number of Fellows but without compromising on any quality of education of actuaries. So, we must maintain a balance between the number of actuaries to increase, and at the same time, the quality should not be compromised upon. To achieve this, the institute is providing coaching and counselling support to our students so that they can qualify as Fellows. IAI is also working on increasing awareness about actuarial science.

What is your view of IFRS17 implementation in the country?

We have shared our comments with the accounting standard board on the Exposure draft of Amendments to Ind AS 117. We have requested them for delay of at least one year so that the insurers have adequate time for the implementation. IAI is committed to supporting insurers in the implementation of IFRS17. IAI had created the Advisory group on IFRS 17 to work on this. The group already has conducted seminars/webinars to discuss on the practical issues in the implementation of IFRS17 in India.

IRDAI chairman wants insurers to come up with superannuation products in view of the increasing longevity. What do say about it?

Yes, about superannuation products, very rightly agree with what IRDAI chairman has mentioned. The retirement savings gap is huge. Few years ago, a report of World Economic Forum stated that India's retirement savings gap is expected to touch $85 trillion by 2050.

If you look at it from the Indian context, our average life expectancy has increased over the years. And this poses a significant risk of individuals outliving their savings. As we grow older, expenses on account of health and day-to-day living generally increase. It is essential to have some savings that can help enjoy life post retirement. Superannuation products would help individuals in better planning their retirement.

Other developed countries have the social security and still they have the pension product and these products are very much popular. But in Indian context if you look at it, people prefer liquidity more than the need to save for the future. Hence, there is a need to create an awareness for saving through superannuation products.

Women have a longer lifespan as compared to their male counterparts.

Yes, you are right. Females have higher life expectancy than male. And this signifies that women should also invest in pension plans.

But insurers are providing the cover for 100 years or something, will it be useful here?

There are two types of products, one is the life insurance product and the other is pension product. Let us understand the difference between these two products.

The life insurance product basically covers the death of the life assured. As you know, when life assured dies, his/her nominee receives the benefits. So, when someone takes cover for hundred years, if he/she dies during any time within 100 years, then the family money receives the money.

Let us think the other way around, suppose if someone survives longer than expected, then what will happen. Someone retiring at age 60 or so and suppose he/she survives till hundred years of age. i.e. from 60-100 years, the person has no income, other than some investment interest if any, but at least the pension / annuity products can meet these needs by providing regular annuity payments.

The insurance companies can't offer the pension product?

They can, in fact lots of insurance companies offer pension products. The general feedback is that most of the customers are not aware about the longevity risk. As we insure ourselves from mortality risk by buying term assurance products, we should also invest in pension /annuity products to insure ourselves from longevity risk. Pension products are generally of longer policy term, so we need to incentivise people more for putting their money in the pension products for longer duration. So, I believe, there is need to increase the awareness of longevity risk and the need for pension products.

Can you tell me about the index-based products?

In Index linked products, the benefits are generally linked to an Index. This helps in making the benefit structure more transparent so that customers can understand the benefits easily. As the benefits are linked to index, this helps insurers to price these products more realistically.

So the index linked product can make a good balance between the customer to get the good value, and for the insurance companies to better price the products. I think the insurance regulator created a committee to recommend these type of products. I feel that this will augur well for the industry.

There is a talk that all the insurance products are likely to get costlier by 10-15 per cent from April onwards, so I wanted to understand from you so what is the scenario like?

The term pricing has been aggressive, and these were cheaper than the term premiums available in many of the developed countries.

This has nothing to do with the Covid-19 impact, as far as the current year is concerned, even if the Covid-19 has impacted the industry little, the price of the term insurance products was expected to be increased due to the experience of it being not favourable for most of the companies.

So, you rightly said that premiums may have to be increased based on the target market and the level of initial pricing assumption. If a company priced it higher initially, keeping in mind the sustainable premium, then the increase in premium may be say 10 per cent or five per cent or zero per cent. While if some companies' premium was lower initially due to some reasons and if experience has not been favourable, then they may increase the price by 20 per cent or more but overall basis average would be around 10 per cent to 15 per cent may be for the industry, so you may be right.

How are micro insurance products doing at SBI Life?

They are doing well. We have the micro insurance products, which meet the needs of those at the bottom of the pyramid. As these products are generally lower in ticket size, it is little difficult to compare as them with other products in terms of premium percentage.

To increase the micro insurance penetration in the industry, flexibility around premium payment options may be allowed. This would enable the customers, not having regular fixed income, to buy and continue with the micro insurance policy.