Life Insurance Sector in India - Then & Now: The Customer Angle

There was a time when Life Insurance in India meant LIC and nothing else, but after the liberalization policies and opening up of Insurance sector, lot of new insurance companies came up mainly as joint ventures between the leading Insurance Companies of the world and the leading corporate houses of India. This article pertains to the general business environment in the Insurance sector and the journey of the sector towards the present condition and the customer angle to the whole sector.

Before liberalization, there was a big monopoly in the Life Insurance sector with LIC as a sole major player and consumer faith on LIC was very high, primarily because of the government holding in the company. LIC also basically sold traditional plans which were of secured nature and people do get a secured returns at the maturity along with some bonus. Indians have till date not understood the basic concept of insurance cover and the basic mentality of the consumer is what will I get in return at the time of maturity. This thought drove LIC towards endowment and cash back plans.  

After liberalization of the Insurance sector, lot of competition came in the form of new private players who had to add new customers to their business. These new players started aggressively and hired lot of agents and insurance sales officers. These people were lured for the want of commissions on the first premium paid by the new consumers. These private players started pushing different forms of ULIPS (Unit Linked Insurance Plans) in the public. This product was also favored by the public since stock exchanges and equity were giving phenomenal returns. The agents would generally dupe public in buying those ULIPS which gave them maximum commission, not what they actually needs and they would be made to believe that the money would double in 5 years etc. LIC also introduced the ULIPS , but agents were not so aggressive and LIC would have its 50% traditional and ULIPS plans.  

Everything was good untill we saw the start of recession in the global economy, with it the Indian Stock markets took dive and the NAV of all the ULIPS came to a real low level, triggering a panic reaction among the ULIP investors. But people were not told that ULIPS/Insurance products are long range products and if you redeem them before 5 years then various charges would be deducted from your investment and most of them did not even get, what they invested in total leading to lot of distrust for private insurance players. Initially LIC was losing a lot of market share to these companies, but now after the recession stage LIC is regaining the lost space and again is a major player in life insurance.

After Sept 2010 IRDA the regulatory body in India took some proactive steps for the regulation of ULIPS like there has to be some set life cover access in every product and commissions were also regulated for agents. The actions were taken after lot of complaints and tussle with SEBI over the control of these market oriented products. Now there are lot of educational shows on television which guides investors for the right kind of insurance product the investor needs. Customers are educated about the need of insurance and often told to look for term life insurance cover and not for their investment vehicles. After initial hiccups the life insurance sector in India is maturing and is poised for a long term growth leading to better risk coverage for the Indian customers.