Insurance Article: Innovations in insurance

India’s non-life insurance sector, though growing at 15-20 per cent annually mainly due to health insurance, has to become innovative and dynamic to spread rapidly in non-health segment and may even have to think of insuring pets as in industrialised nations.

“Innovation is required in non-life non-health segment to keep it dynamic. Since there are many players in this segment and more are expected to come, it is important for existing players to constantly develop new products,” said TA Ramalingam, chief technical officer at Bajaj Allianz General Insurance.

Pet insurance: Keeping a pet at home is a normal practice now a days, however, when for pet insurance, not many options are available. “In most developed insurance markets, specially the US, pet insurance is very popular. However, we might have to wait for few years to actually see such products here in India,” said S K Sethi, vice president of Insurance Foundation of India.

Motor insurance forms a huge portion of the overall retail portfolio for general insurance companies, and clearly, most of the innovations would be seen in this segment.

Motor insurance: Some of the interesting product innovations that might be seen in the next two to five years include new motor insurance policies where premium will be charged based actual usage of vehicle. “In countries life the UK, Norway, Sweden and other Scandinavian countries ‘pay as you go motor insurance’ are quite popular. This basically requires monitoring the actual extent of usage of vehicle and charging premium according to that,” said Amarnath Ananthanarayanan, managing director and chief executive officer, Bharti Axa General Insurance.

For this, insurers need to install global positioning system on the insured vehicle to monitor its usage and then charge higher premium for higher usage and lower premium for vehicle that are sparingly used.

Charging premium according to characteristic of driver is another innovative step by general insurers. In this model, premium may vary depending on age, profession and work timings. In this, higher premium may be charged to specific age groups for whom the perceived risk is higher, like in case of youngsters below the age of 25, while discounted premium rates for more safe drivers who are less prone to accident.

In countries like the US, the UK and Germany where leasing of vehicles is quite popular, residual value motor insurance is also in demand. In this insurance policy, the future sale price of the insured vehicle is fixed, and if the vehicle fails to fetch that value, insurer pays the deficit. Leasing of vehicle is predominantly practiced in higher segment vehicles and insurance company generally has tie-up with the manufacturer.

Another innovation that might take sometime to come to India is where insurance premium depends on the driver, rather than on vehicle itself. In the US for instance, motor insurance premiums depend on the driver’s track record and risk profile. “Insurers provide named motor insurance policy in the US that provides coverage for vehicle in case drivers who are mentioned in the policy drive the vehicle,” said Rakesh Jain, chief executive officer of Reliance General Insurance.

Catastrophe insurance: In the wake of recent cyclones in the US and in Tamil Nadu, fire and allied perils insurance becomes all the more important. Although the true extent of loss in such situation is beyond the coverage of any policy, insurance cover may help in starting over. “In more developed markets like the US, insurance against cyclone and hurricane is mandatory in areas where risk is high. So, as the domestic market matures, we expect awareness to increase here as well. Also the extent of coverage may increase over a period of time,” said Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance. This policy would provide protection against loss to shops or commercial establishments, with additional cover for loss of income and business interruption.

Cyber liability: As the e-commerce gains momentum up in India, insurance for frauds or online malware might also pick up. “In most developed countries, insurance plans are provided against cyber risks to cover websites and e-commerce companies,” added Datta.

Director’s and officer’s liability: This insurance plan protects chief of organisations against any fraudulent practice or legal liability arising out of routine duties. “Insurers might extend basic protection to cover legal expenses for the UK and the US Bribery Act. This cover would protect Indian directors or other important officials in case they are charged of any attempt of bribery to government,” added Ramalingam of Bajaj Allianz.

Home and property insurance: Although cover is available from insurance companies for fire, earthquake and flood, it provides bare minimum protection at present. “In developed markets like Japan and the US, it is mandatory for home owners to have insurance if they are mortgaging the property or living in a high risk area. In India, we might soon see plans with wider coverage to protect expensive electronic items as well as jewellery. In these developed countries, insuring expensive artifacts is also popular,” said M Ravichandran, president of insurance at Tata AIG General Insurance.

By Sagar Sen,

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