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An unrepentant industry

The life insurance industry measures its success not by how much its customers are insured for, but how much money the customers pay

An unrepentant industry

Researching and writing about the Indian insurance industry is always a disheartening experience. For the unsuspecting saver, whose financial needs must start with insurance, getting a useful (or even a non-harmful) insurance product is almost impossible. This is something that is brought home to me every single time Value Research tries to delve into the kind of insurance products that are available to people.

When doing research for a story recently, the first thing we discovered was that online term plans, which are the cheapest form of real insurance, and what everyone should buy, are available only at a relatively high ticket size. There are almost no options less than about Rs 25-35 lakh and many insurance companies start online at Rs 50 lakh.

Not only are offline products more expensive, they also push savers into the clutches of agents, who work hard to divert them into wasting their money on ULIPs and traditional insurance policies.

These financially harmful products are designed to provide the smallest amount of life cover while earning higher commissions than term insurance for agents and increasing the margins of the insurance companies. It's an endless cycle of cynical sales pitches which every company does and which the insurance regulator appears to have no real interest in stopping. Indeed, the very realisation that the primary purpose of insurance is to provide real insurance is only paid lip service to.

Do you have enough insurance? You personally may have because our readers tend to be smart about finance; but generally speaking, for most Indians, the answer is no. The strange thing is, in my experience, a lot of people know how much premium they pay to insurance companies but do not know what their family will get if they were to drop dead. Actually, it's not strange because the life-insurance business is optimised around taking money and indeed measures its success not by how much its customers are insured for but how much money the customers pay.

By the way, this is the official attitude. The insurance regulator (IRDA) also measures success by how much money the industry takes from customers rather than how much insurance they have delivered and to how many people. No published data in this country reveals the actual extent to which people are insured. Instead, IRDA uses something called 'insurance density', which is the per-capita premium charged from customers as well as the premium as ratio of GDP. Here's what the latest (2018-19) IRDA Annual Report says on the subject: The measure of insurance penetration and density reflects the level of development of the insurance sector in a country. While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium).

What a self-serving measure! These ratios do not tell us how much insurance cover is delivered but only how much money the industry has extracted from people. The real questions are: When a customer dies, how much money does his family get? How many customers have what amount of this cover? What is the ratio of the total premium collected to the cover provided? No one knows.

Moreover, as we discovered, it's possible to get the right product only if you are knowledgeable, resourceful and determined. Only a small fraction of savers fit the bill. The rest continue to be victims of the insurance system.