ULIP policies great instruments for long-term savings, wealth creation

As per the new tax rule, if the annual premium of a unit-linked insurance plan (ULIP) policy is more than Rs 2.5 lakh, the returns on the investment will no longer be tax exempt. "Regardless of taxation rules, ULIPs are great instruments for long-term savings and wealth-creation for planning for life goals along with protection/life cover, along with various riders like waiver of premium benefit and critical illness benefit," says G Murlidhar, MD & CEO, Kotak Mahindra Life Insurance Company (Kotak Life), a 100 per cent subsidiary of Kotak Mahindra Bank, in an exclusive interview with Bizz Buzz

We are seeing an increase in the demand for 'protection' category of products, including term plans, riders like critical illness benefit and permanent disability benefit, and our recently launched health plan Kotak Health Shield. We continue to be among the largest recruiters of agents and we also have large number of tie-ups with banks and digital partners

We have been able to make personalised pre-approved offers to customers using data and analytics, enabled hassle-free customer on-boarding, easy buying of policy through eSigning using Aadhar during the pandemic. For our distributors, we have completely re-defined the processes: our distributors today are on-boarded digitally, trained on digital platforms

Finance Minister has proposed to hike FDI limits from 49 per cent to 74 per cent. How do you see impact on the industry?

Increase in FDI limit from 49 per cent to 74 per cent is a positive development and will attract additional capital to the industry. We will have to wait and observe how the effects will unfold, but it is certainly a sign of confidence of the government in the industry and a signal that it expects the industry to expand and deepen insurance penetration in the country. India continues to be under-penetrated and any additional capital can be expected to strengthen the balance sheets of insurers & help them scale up their distribution network.

With the new tax rule in ULIPs in the recent Budget, will there be demand now in this segment?

As per the new tax rule, if the annual premium of a ULIP policy is more than Rs 2.5 lakh, the returns on the investment will no longer be tax exempt. Hence the ULIPs below that threshold will continue to enjoy complete tax exemption as earlier, which is great news for retail investors. As per our experience, a huge majority of regular premium ULIP customers (well over 90 per cents in our case) fall below the threshold and hence will continue to enjoy the exemption. Therefore, we see no significant change in demand. We expect this segment to grow further.

Above the threshold, the tax rule is broadly in line with other savings instruments. Hence there is no relative disadvantage for large-ticket ULIP investors. Most importantly, customers should keep in mind that, regardless of taxation rules, ULIPs are great instruments for long-term savings and wealth-creation for planning for life goals along with protection/life cover, along with various riders like waiver of premium benefit and critical illness benefit.

What was the impact on claim process in cases where people have hidden facts during purchase of life insurance?

Insurance is a contract based on the principle of "Uberrima Fides", a Latin term meaning "Utmost Good Faith". It is the proposer's responsibility to disclose full information regarding their health history and financial facts so that the insurer has a fair understanding of the risk; this in turn makes the processing of claims smooth in case of any eventuality. In case of wilful suppression of material information, it does affect the claims process; such cases may require investigation and may lead to repudiation of claim, keeping in mind implications on pricing and interests of genuine policyholders.

Insurance products are all about sum assured, that is there is an assurance of value that will be paid at time of policy maturity or death of the policyholder. KLI is committed to bringing assurance to people's lives and claims is one such important commitment. Keeping this doctrine in mind, we aim at settling each and every claim. Therefore, we have put in place various checks to ensure complete disclosures at the on-boarding stage, such as a video call facility where the customer can disclose personal health history (with the assistance of a medical professional where required), integration with external sources like credit bureaus to verify financial/insurance history of proposer, and analytical modelling to predict high risk proposals.

Have term insurance rates fallen?

Term rates started falling around 2013-14 across the industry as a result of competitive pressures and fell by around 30 per cent-35 per cent over the following few years, before stabilising around 2017-18. In the last twelve months or so, there have been some increases in the term premium rates across the industry, largely driven by the mortality experience of the insurers and reinsurers. However, the demand in this category continues to be robust, driven in part by rising awareness and the pandemic. Overall, we are seeing an increase in the demand for 'protection' category of products, including term plans, riders like critical illness benefit and permanent disability benefit, and our recently launched health plan Kotak Health Shield.

How has the claims settlement ratio been during Covid-19 at Kotak Life?

We have always ensured that settlement of claims is a top priority. During initial stages of the pandemic, we geared up our systems and processes to ensure uninterrupted services to existing customers, particularly timely claim settlement. Digital platforms for claim intimation were strengthened for seamless customer experience, and we fast-tracked the settlement of Covid related claims. Overall, claim settlement ratios have been at par with pre-Covid levels.

What changes have you brought at Kotak digitally during Covid-19?

During the lockdown, we were able to continue uninterrupted services to our customers without the need to visit our branches. We also enabled our distributors to operate remotely through various digital tools. We have taken various digital initiatives significantly enhancing customer experience. We have been able to make personalised pre-approved offers to customers using data and analytics, enabled paperless and hassle-free customer on-boarding, easy buying of policy through eSigning using Aadhar, enhanced servicing capabilities through self-service portals, WhatsApp, insta-servicing bots etc. For our distributors, we have completely re-defined our processes: our distributors today are on-boarded digitally, trained on digital platforms, manage their sales leads digitally, log-in policies through mobile based apps, get instant commission, and even track their performance on mobile apps. We continue to be among the largest recruiters of agents and we also have large number of tie-ups with banks and digital partners. We will continue to innovate with a view to ensure superior experience for customers as well as distributors.

How do you see the demand for bite size /sachet insurance? Will such products increase insurance penetration across India?

Bite-sized insurance offers risk coverage for a short period of time at small premiums with almost no underwriting, making the process easy and quick. The demand could be fuelled in part by very young earners, when they look for very short-term covers for specific purposes, along with ease of buying. In a sense, it does increase insurance penetration, but if one takes a closer look, it will increase penetration only if this is bought by people having no insurance earlier, and even so, the size of cover may only be a fraction of the customer's needs. Hence, bite-size insurance may help increase insurance penetration but may not reduce the protection gap.

How do you see the growth in insurance sector in the upcoming months in FY2021-22?

Insurance demand is seeing recovery post-Covid, with growth in new business premiums in the last few months. As economic recovery picks up, we expect life insurance industry growth to return to normalcy in the next financial year and continue to grow by around 15 per cent per annum over the next few years. Key growth drivers would be increasing customer awareness, an under-penetrated market, and favourable demographic factors like a young population and growing working age group with rising incomes.