With a life insurance penetration of just little over 3 per cent, India is pushing hard to expand the industry's footprint with a slew of legislative reforms, including raising the Foreign Direct Investment (FDI) cap in the sector to 100 per cent and introducing a unified license for insurers. The reforms are designed to boost accessibility and inclusion, especially across the country's highly underserved rural areas. In an exclusive conversation with Outlook Business, Casparus J H Kromhout, Managing Director and CEO of Shriram Life Insurance, discusses the implications of these changes and how his company is navigating the regulatory rejig even as it fosters financial literacy and inclusion.
Edited excerpts from the interview:
How will the new regulations introduced by the Insurance Regulatory and Development Authority (IRDAI) affect the industry?
The new regulations represent a significant shift for the industry, particularly in how it manages product margins and costs. We would now have to reassess the product offerings to ensure compliance, which means refilling or modifying several products.
The challenge lies in balancing the cost of doing business and maintaining customer-centric products. We are focusing on refining our product portfolio, adjusting distribution strategies and enhancing operational efficiency to adapt. Sure, these adjustments entail challenges, but they also offer an opportunity to innovate and realign our offerings with customer needs.
Do these regulatory changes affect asset-liability management (ALM)?
Not directly. ALM involves aligning the durations of assets and liabilities, which is a separate ongoing process, managed by our actuarial and investment teams. However, changes in surrender payouts may call for small adjustments. For instance, if higher payouts require additional reserves, it could slightly alter the duration of some liabilities.
The primary impact is on the costs side of doing business, such as how we structure commissions and manage distribution. While ALM processes remain stable, we are committed to maintaining financial balance and ensuring compliance across all areas.
Shriram Life Insurance focuses on low- to mid-income groups in rural areas. Financial literacy has been a challenge in these regions. How do you address this issue and reach these customers?
Though awareness of life insurance has improved, especially after COVID-19, challenges persist. In rural areas, the concept of insurance is often met with emotional and cultural resistance. People need to understand that they are paying for a benefit that might not directly impact them unless a claim arises.
To build this understanding, we have invested heavily in awareness campaigns. As the lead insurer in Telangana, we are driving initiatives to educate communities about the importance of life insurance. Our approach focuses on creating tangible experiences, ensuring that customers see claims being honoured. This builds trust and reinforces the value of insurance.
For many of our rural customers, their first policy comes through us. This requires us to create a market from the ground up rather than tapping into an existing one. Our efforts go beyond selling products. We aim to foster financial literacy and trust within our target communities.
The Indian government plans to amend insurance laws to introduce a unified license for insurers and raise the FDI limit from 74 per cent to 100 per cent. How do you think this will impact the sector?
The proposed changes are promising for the sector. With insurance penetration quiet low in a rapidly growing economy, there is a massive room for expansion. Raising the FDI limit and introducing a unified licence would attract more foreign players, bringing in capital, expertise and innovation.
Increased foreign investment would enhance competition and drive improvements in products and services. However, it is crucial to manage this influx carefully to avoid market consolidation that may hurt smaller domestic players. Overall, these reforms could significantly boost growth and help the industry achieve deeper penetration especially in underserved markets.
The Insurance sector is at a pivotal moment. While regulatory changes pose challenges, they also offer opportunities to innovate and grow. At Shriram Life we remain committed to adapting insurance, compliance and delivering value to our customers, particularly in rural areas where financial protection is most needed.
