Internet can play a vital role in enhancing transparency!
“A lot of activity is happening on the Internet and it is emerging as an extremely important channel. If you allow for the explanation of the entire process online and make the customer complete the sale online, it will dramatically change the business model. It is a far more transparent channel from customer’s perspective because there is virtual description of various terms and conditions, which allow customers to click. Moreover, he can get authentic information by comparing various products,” says T R Ramachandran, Chief Executive Officer & Managing Director, Aviva Life Insurance India Ltd.
A banker with Citibank for the last 19 years, Ramachandran held different roles in credit cards, assets, commercial and retail banking. In his last role, he was Head of Retail Banking where he was responsible for the entire retail bank, including wealth management, branch banking, investments and insurance, consumer assets and the NRI business.
Ramachandran holds an MBA degree from Bharathidasan Institute of Management and is an alumnus of the CSEP Management Program from Columbia Business School, New York.
Aviva Life Insurance India is a joint venture between Dabur and Aviva. Ram is also on the Board of Aviva Asia Pacific.
T R Ramachandran spoke to Harsh Roongta and Bienu Vaghela of ApnaInsurance in a candid Q & A session.
We present here the excerpts:
The most talked about aspect of insurance industry is its lack of transparency. How does lack of transparency in the industry affects the consumer?
We at Aviva have built our initiatives around increasing transparency and creating customer awareness. With many insurance companies in the fray backed by heavy advertising, concerted efforts have not been made to educate the customer or to lift the financial literacy level in the space that pertains to them. Mutual Fund as an industry has done an outstanding job in this regard.
Lack of transparency not only affects the consumers, but also all the four stakeholders - consumers, regulator, insurer and shareholders. It is affecting consumers for obvious reasons like making customers buy three-year products, where something is left unsaid like if he moves after three years, he will have to pay surrender charges to the tune of 15-20%. This is being highly unfair to the customer. The benefit of staying invested for a period of 15-20 years is not explained to him. Moreover the long-term perspective with which customer ought to buy long-term saving instrument either for children’s education or retirement, say to meet a lifetime goal is not served. So deconstruct the product, as you are saving something, which if you are around you will get the maturity value, if you are not around the family will get death benefit. But primary objective with which it is sold is not right and it is disadvantageous from customer’s perspective.
What is the Company’s perspective?
From a Company’s point of view, it is important that industry wakes upto this fact that premium payment is important. The way industry is tracked and reported is on the basis of who is climbing how many rounds of ladder in the first year in premium growth. Whereas UK and the US are very different sort of markets, they also chase first year premium and the associated disadvantage of this is that they get the hit with high amount of lapses. Customers often send renewal notice and want the money back in three years, and this has the large bearing on the revenue of premiums that these companies collect which in turn affects the intrinsic finances of the Company. This also has the bearing on the shareholders as they have pumped in capital into the Company.
The profit tools are limited. Currently the shareholders are asking for profit efficiency, capital erosion, and capital conservation, returns on capital deployed and obvious matrix like that. It needs infinite patience and deep pockets both from domestic partners as well foreign partners as they have to keep pumping money in anticipation of reaching the break even. That is how it will impact and it is already having an impact.
Now Companies are right sizing distribution and even distribution commissions. In this industry product/ customer pricing depends on how much you have to pay to the distributor, which is quite strange. But amidst all this Internet is emerging as very strong channel playing a vital role in enhancing transparency.