Sumit Madan, chief distribution officer, Axis Max Life Insurance called for prioritising term insurance as the first step in financial planning. He said 65 per cent of Indian households have only one breadwinner, which makes term insurance essential as without it, families could face financial distress.
Read more: https://www.outlookmoney.com/retirement/news/outlook-money-40after40-prioritise-insurance-as-your-first-financial-product-says-sumit-madan-of-axis-max-life-insurance
Read more: https://www.outlookmoney.com/retirement/news/outlook-money-40after40-prioritise-insurance-as-your-first-financial-product-says-sumit-madan-of-axis-max-life-insurance
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LearningTranscript
00:00First of all, thank you so much sir for sitting with us here today to discuss a very, very
00:09crucial topic which is insurance.
00:12Seeing how this hall is jam-packed and so is the event for the last two days, I would
00:17say financial awareness among Indians is rising, be it Gen Z, millennials or boomers.
00:22However, it seems there is one critical aspect of financial planning which is being missed
00:27out which is insurance and more particularly life insurance.
00:32Data speaks for itself, the latest ADI report showed that life insurance penetration in
00:38India declined to 2.8% in the last financial year from 3% in the year before that.
00:45So sir, what do you think is the reason behind such a decline?
00:49I think, thank you Anwadha for that question and it's a very relevant one because insurance
00:54penetration in India needs a lot of improvement.
00:57Some of these even should clearly help.
00:59People like us, we've got a job really cut out in terms of just improving the penetration.
01:03Largely, for example, if you look traditionally, insurance has not been at the forefront as
01:08far as investment ideas are concerned.
01:11I think as a population we've been far more comfortable with real estate, gold or keeping
01:16money in a savings account.
01:18Some of the awareness campaigns like these are just talking to or reaching out to more customers
01:22should really help.
01:23Those are the reasons.
01:24In terms of products also, for example, I think all of us have to really stand up and
01:29take more ownership around it.
01:31Just the design of the products over the last few years has really changed now.
01:35We were discussing outside as far as ULIP is concerned as a case in point.
01:39Today, for example, some of the products that we sell on ULIP are far more competitive with
01:43lesser charges.
01:44But there's a certain image that customers have.
01:46Similarly, for example, term plans as a case in point.
01:49So, I think to come back to your question, I think it has got to do with making people
01:53aware and bringing insurance at the forefront as far as the investment decision and the choice
01:58is concerned.
01:59Absolutely, sir.
02:00I think lack of awareness is one of the reasons why there is such a decline.
02:05However, if you could comment on what is its importance in retirement planning particularly,
02:11because, and also why should one buy term insurance?
02:14Sure.
02:15Yeah, that's again a very relevant one as to why buy term insurance and the importance
02:19in retirement planning.
02:20We run two very interesting studies and one is called IRIS, which is the India Retirement
02:25Index Survey.
02:26There is also something that we run called IPQ, which is the India Protection Quotient.
02:30The interesting trend is that the awareness around insurance and term plan is actually increasing.
02:36So, in the IPQ survey, for example, we've seen an increase.
02:40As far as the awareness of the insurance product and term insurance is concerned, but what is
02:44interesting to the audience to mention here and to Anwada you also, while the awareness
02:48has increased, people buying term insurance has actually come down.
02:52So that's a kind of a dichotomy, where people understand the importance of insurance, but
02:57they don't buy.
02:58So I think that's a trend which has to change.
03:01As far as the retirement planning is concerned, again, insurance has to come at the forefront of
03:05the insurance discussion.
03:06There is a very interesting survey that we did that there were two-three critical findings.
03:11One finding was that 93% of people at the age of 50 or 50 and above actually regret that
03:19they did not start the retirement planning much earlier.
03:21And, you know, we keep on saying the sooner you start, the better it is.
03:26Aapki jitni bhi savings hai, aap jitna bhi invest kar sakte hai, please start early because
03:29the compounding comes into place.
03:31And the more later you start in your career, obviously, it has a bit of an impact.
03:35Also what happens is as far as retirement planning is concerned, there are these products available.
03:39So today, for example, there is pension fund.
03:41There are different kinds of opportunities which are available as far as insurance products
03:45are concerned.
03:46So again, as part of the entire portfolio, nobody can ignore the importance of insurance
03:52or term insurance as a case in point.
03:53I know that the industry, for example, we've come across so many examples.
03:57Jaha peh, for example, let's say India has almost around 90,000 odd crores of household
04:01debt.
04:02Aapne housing loan liya hua hai, ya aapka kuhi or loan chalwa hai.
04:07When you look at a family, for example, in India, for example, 65% of the households
04:12have only one breadwinner.
04:14Now, imagine a situation where for whatever the eventuality, if the breadwinner is not
04:18there, what will happen to some of the household debt you've taken?
04:22And we have realized insurance, term plan specially.
04:25Agar apne housing loan ke saath, for example, agar apne term insurance liya hua and God forbid,
04:31if something happens to the breadwinner, then you still have a roof on your head and which
04:35is so important.
04:36And that's the reason why we keep propagating to the population at large, do not look at
04:40insurance as the fourth or the fifth product you want to buy.
04:45Insurance in fact, especially term insurance anwada, term insurance in fact should be largely
04:50the first product.
04:51And you know, everyone has to play a role.
04:53We did a very interesting survey where we realized that it's only 15% of the companies,
04:58for example, term insurance is given to the employees.
05:01And our request to every industry at large is that please make term insurance as an integral,
05:07critical and urgent part of your employees benefit.
05:11That's the first step to start with.
05:13Two, like I said earlier also, products have evolved, so there are far better products which
05:17are available today.
05:18And third, anwada, the initiative like these, this 40 after 40 outlook money, what you are
05:23doing.
05:24I think these are very critical initiative just to get more knowledge and understanding
05:28around insurance.
05:29Absolutely, sir.
05:30As you mentioned for a breadwinner of a family, it might be very critical to buy term insurance
05:35plans.
05:36However, I would also like you to touch upon who should not buy a term insurance.
05:39Is there a person, individual, given their financial situation or family situation that
05:44they should not be looking for term insurance?
05:46Yeah.
05:47I think everyone should buy a term insurance.
05:50My daughter is 20 years old and whenever I, they're just at the anvil of starting a professional
05:55career once the education gets over, I keep telling everyone that once start saving, the
06:00moment you start earning.
06:02And there are various rules.
06:03So people in the audience are very intelligent, there are various rules, whichever rule you want
06:08to follow, please do save.
06:09And I tell all the younger people also, please do buy a term insurance.
06:13Eventually, for example, life is uncertain.
06:15The sooner you buy, the better it is.
06:17As you move up the hierarchy and rather the products, like I mentioned, for example, when
06:22you just start earning, the criticality of the term insurance may be higher.
06:27Now there are products available.
06:28For example, Access Max Life Insurance has also designed some smart products.
06:31We realize that the need of life insurance as your coppers, as your savings, as your investment
06:37keeps on going up with the passage of your age, the need for, for example, pure protection
06:41may come down.
06:42So how does that mean that when you start with a plan, your benefit in case of an eventuality
06:47for the family may be far higher.
06:49As we see that your income is increasing, savings is increasing from protection, it may become
06:54a regular income kind of a plan also.
06:56So some of those products are becoming far more evolved in the industry.
06:59And the industry is actually working very hard on this.
07:02And I have to give credit to the regulator also Anwada here.
07:04I think regulator also is taking a lot of steps just to make insurance more affordable from
07:10a pricing perspective.
07:12In terms of awareness, like I mentioned, there are various schemes which regulators are running
07:16just to make insurance more popular in the smaller locations also.
07:19Is there an age where, particular age when one should buy insurance, as you mentioned
07:23that offices should start maybe suggesting people to buy term insurance.
07:29People start off their career at 25, 24.
07:33What age is the perfect age when somebody should start thinking now is the time I should buy a
07:37term insurance?
07:38Your first question was why insurance penetration is only below 3% at 2.8% as a country.
07:44So I think one, there is a huge untouched base which is available as far as the market
07:48is concerned.
07:49As I said, there is no specific age, whenever you realize that this is a missing chink in
07:54my armor, please do buy insurance.
07:57Our message is still the same.
07:58Please buy term insurance at the earliest.
08:01Everyone should have a term insurance.
08:03AccessMaxLife Insurance for example has worked on specific plans, for example, for housewives
08:07as a case in point, for self-employed as a case in point.
08:10Because as part of IRS and IPQ survey, we also realize the salaried class for example, does
08:15buy insurance especially on term side.
08:18But self-employed housewives are an area which is missing.
08:21So I think some of those factors, every company is working and so is the case with us also.
08:25Absolutely, sir.
08:27So there is one aspect about not buying term insurance is where maybe in India or globally,
08:33people do not think about death.
08:35Of course, it's a scary concept, nobody wants to think about death.
08:38Maybe that is one inhibiting factor, why somebody is not looking to buy term insurance.
08:42Another is that people buy for investment, not as a financial protection tool.
08:47That's right.
08:48So what is your take on that?
08:49Yeah, I think you hit the nail on the head Anwada with that question.
08:53Many of us do not like to talk about death and it's always a very kind of a, taboo would
08:59be too strong a word but yeah, the emotions run very high and everyone feels that I am not
09:04going.
09:05But you know, that's an eventuality, that's a reality of life.
09:08So I think with some of the campaigns, for example, with the awareness, for example, we
09:11have to make this entire discussion more financial because, you know, we've seen a lot of cases
09:17where you go to the family and the family members are telling the breadwinner, you don't
09:22have to do anything, what do you need to do?
09:24Now we understand the sentiments behind it and yes, we understand, we appreciate, we really
09:29like those sentiments, but it's a reality.
09:32So I think at some point you'll have to think about these discussions or these decisions
09:36in life.
09:37Again, bringing in the emotions from the family perspective, you have to do it for the family.
09:43And I think that that kind of a point of inflection is very important where you are able to just
09:48zoom out and look at some of these decisions devoid of emotions.
09:52Easier said than done, but yeah, that's critical that we have to do.
09:56So I think that's part number one.
09:57Part number two, like you were asking as far the entire discussion is concerned, another
10:01again, very interesting number that as part of the IRIS and IPQ survey, 57% of the respondents
10:08mentioned that I have enough savings only to last the next 10 years.
10:12With life expectancy actually going up, you need to understand not only insurance, but financial
10:17planning as a whole, you need to get into instruments which can last much longer.
10:21Today, for example, while death is a reality, the good part is we as Indians, the life expectancy
10:27is also increasing.
10:29Quality of life, the medical care is improving every passing day.
10:32So I think again, all the more reason to be aware about various financial products, just
10:36my insurance again has to play a critical role.
10:39Absolutely, sir.
10:40You have rightly said that one should be looking at term insurance from a various point of view.
10:45Okay.
10:46So my next question might pinch on the business side a little bit, but it is important for
10:50people who would be buying term insurance.
10:52Please.
10:53I was looking at the ADI report, not quoting the numbers per se, but I saw that profits
10:57have increased of life insurance companies and their operating costs have gone down.
11:02Has that had any effect on the premiums?
11:04Yeah, firstly, I want to mention that insurance premium rates in India are amongst the lowest
11:11as far as global data is concerned.
11:13So it's still far more cheaper, affordable to buy insurance in India.
11:18The best of the plans will actually come at a cost of 15 or 20 rupees per day.
11:22So it's not a huge expense and especially when you go to smaller cities, you break down the
11:26numbers in terms of per day kind of an expense.
11:29It does make a difference.
11:30So it's important to mention that, that India curtsy, the regulator curtsy, the product evolution,
11:35it's amongst the cheapest market as far as insurance products are concerned.
11:39Your question is right.
11:40The cost is coming down, which obviously leads to an increase in profit also.
11:45Having said that, it's a more evolved conversation that prices, like I said, are coming down.
11:51But the price of every product is a function of the lot of factors, mortality as a case in
11:56point.
11:57The mortality trends, for example, may move into a certain direction.
12:01People are becoming smarter and smarter.
12:03So, you know, there is an element of, you read recently, there's an element of fraud which
12:06is there.
12:07It is also a function of some of the investment decisions.
12:09So the good news is that the prices of the products are coming down.
12:13The efficiency, the entire adoption in the industry, as far as digital outlook is concerned,
12:18does help.
12:19Many companies, including Access Max Life Insurance, for example, we run something called
12:22a Bharoseka Tour, for example.
12:24As part of the Bharoseka Tour, we've shortlisted Bharosa Champions in Tier 2, Tier 3 locations,
12:30where, for example, they are going and making customers more digital savvy also.
12:35You can just go buy an online insurance policy, for example.
12:38And there is the non-medical limits, for example, are increasing.
12:42So not that you have to run on a treadmill.
12:44Some of those products are becoming far more simpler and the industry is getting evolved
12:47from that perspective also.
12:49So yes, the costs are coming down.
12:51It may not necessarily lead to a kind of a direct correlation and rather between the two.
12:56But like I said, still one of the cheapest markets to buy insurance.
12:58Okay, sir.
12:59That is very assuring.
13:00I hope there is more insurance penetration in the society.
13:04On to that, how can we bring more term insurance like policies for tier 2 cities because urban
13:11people being financially aware would be more willing to buy, but people in rural areas might
13:16not be aware or willing to.
13:17Sure.
13:18How would we solve that problem?
13:19Yeah.
13:20I'll answer it in two different ways, Anwada.
13:24One, we need to understand that the market around us is really changing.
13:29It's becoming a very different market today.
13:31In terms of knowledge, understanding, everyone is doing a lot of work.
13:35We keep on sharing example from various sports arena, for example.
13:39And, you know, for example, I was reading a lovely article in the morning where it was a
13:44discussion about in Olympics, how long jump has evolved.
13:48So there was a very interesting conversation where in 60s and 70s, for example, if the audience
13:54can just visualize with me for a minute, which is a long jump event, the athlete runs,
13:59you have to jump on it and you have to jump on it.
14:03So how this used to happen was that you were down below, and you were down below, so there
14:08are some pebbles, stones, kankar, so you need to be careful when you jump.
14:13So what the athletes used to do, and just try and visualize with me, please.
14:16The athlete used to come and run, he used to jump so that his hands fall first.
14:22And he is able to obviously protect his face, and then the jump happens.
14:26Over a period of time, that kankar got replaced with, let's say, some very synthetic turfs.
14:31There was an improvement as far as some of the gaddas and the cushions which are kept
14:34there.
14:35Just the bar, just the training, just the physical aspect really changed.
14:39Over a period of time, well, things around the entire event changed.
14:42But the athletes, just because they were used to a certain model, used to jump only in that
14:46particular way.
14:48Till the time a gentleman came in, and he just changed the way the jump used to happen.
14:54In this Olympic event, not even a small event, in this Olympic event, this particular athlete,
14:59instead of just walking up straight and falling in the face, he changed the entire dynamics,
15:04and he jumped up and fell down below.
15:09The important lesson was that he was not only able to create a new world record, but when
15:15he fell, obviously that's where everyone noticed that this is the right way to jump.
15:20So just the way the sport has evolved, the surrounding, the condition has completely changed.
15:27This particular athlete is called Frosbury, that's the name, and now this jump is now called,
15:32for example, the Frosbury flop.
15:33And up to 70s, this is the way now the long jump happens.
15:38The reason Anwada was sharing this story is that's how the products, that's how the industry,
15:43that's how the market and insurance has also changed.
15:46So I think the products are far more competitive than what it used to be.
15:50The digitization efforts that India has taken as a whole has really made insurance far more
15:55simpler in terms of understanding of the product, in terms of buying of the product.
15:59Today for example, the digital penetration is very good in some of the smaller cities.
16:05You look at the reels and you realize that the smaller cities, for example, come out with
16:10some very interesting reels, but it also shows that's where the reach as far as tech digital
16:14platform is.
16:15So I think Anwada, the larger point is market is changing.
16:19It's for owners like, players like all of us who have to now reach out at the earliest.
16:24Regulator, like I said, is playing a very critical role and a very efficient role.
16:28There are these rural and social obligation guidelines, which have been given to all the
16:32insurance companies.
16:34Those are also making it compulsory really to reach out to the customers in the hinterland
16:37of the country.
16:38So I think those things put together, I see a very bright future to go back to your first
16:42question of increased penetration, the right product to the right segment and the right
16:47age as far as term insurance, life insurance, retirement planning is concerned.
16:51So I'm actually very bullish about the industry.
16:53Amazing.
16:54So you have answered the question with a very, very insightful example and a story.
16:59Moving on to the next question.
17:00And you mentioned that as the competition increases and the products will become more innovative.
17:06On that note, budget was announced at the beginning of this month and there was good thing and
17:12there was something that was expected, but was not there.
17:15100% FDI was introduced for the insurance sector, which is being said will bring more options
17:21for the customers.
17:22However, there has been another ask, which was to remove the GST on premiums.
17:27That's right.
17:28So, but that did not happen.
17:3018% GST on life insurance and other insurance products is a bit limiting for people because
17:36it pulls out more from their pocket.
17:39So what is your take on that?
17:40What should the government be doing?
17:41Sure.
17:42Like I said, Anwadha, the products are becoming cheaper.
17:45GST, for example, the sooner the government takes a decision, it just helps in broadening the
17:49entire base.
17:50So for example, especially India as a market, for example, the idea of reaching out to the
17:55more customers also is to make products far more cheaper.
17:58GST obviously plays a role.
17:59But to be fair, I think there are certain products in the insurance industry where GST
18:03is already at the lowest level.
18:05Yes, the government is looking at it.
18:07We as an industry is very confident.
18:08Some decision positively will come in this direction.
18:11Okay.
18:12Absolutely, sir.
18:13So could you also comment more on affordability of term insurance plans?
18:17Because I think that is one thing hugely untouched in the present times.
18:21Yeah.
18:22How can we make these products more affordable for the people?
18:25As you said, we have to move on to more tier two cities.
18:27Sure.
18:28So affordability, I think, is one key aspect that needs to be tackled well.
18:30That's right.
18:31That's right.
18:32No, you're absolutely right.
18:33From an affordability perspective also and rather, we keep telling the customers that
18:37even if you do a comparison, keep a long term horizon in mind.
18:40See, there are many of the products, for example, where you may just feel the charges in year one
18:44are higher, for example.
18:45But when you do a comparison across all asset classes, you will find insurance actually to
18:49be equal or cheaper than similar kind of products available in the market.
18:53Affordability of product in India is still very high and rather, I think what we really
18:58lack is the understanding, awareness and knowledge around insurance.
19:02I think that is something that all of us need to collectively work on far more aggressively.
19:06Okay.
19:07Thank you so much, sir, for that.
19:08Also, I'll move on to my third question that I asked you.
19:11I think because we are at a retirement planning expo and that is one thing we should be talking
19:15more about is what is the importance of term life insurance when somebody's planning their
19:20retirement, not after, not before, but while they're planning it.
19:23Yeah.
19:24Like I said earlier, Anwadha, one, there has to be a sufficient corpus as far as retirement
19:30is concerned.
19:31In India, for example, the reliance on pension is still very less because it's a very self-employed
19:37market.
19:38So I think how and where we invest becomes all the more critical.
19:41Most of the insurance companies today have some very attractive pension funds as a case
19:45in point.
19:46So I think, again, whether it's a pension fund, term insurance, you have to carefully plan
19:50your retirement corpus.
19:52It's also a function of the risk.
19:54It's also a function of the time available because you know how much time you want to
19:59invest in.
20:00You should divide your investments into various buckets.
20:02There are these golden rules around asset allocation, for example.
20:05So I think one should do it wisely.
20:06Today, technology has evolved so much that even a chat GPT can give you a very good answer
20:12as to how asset allocation should be.
20:14The missing link is the execution and the discipline around it.
20:18So that's something that all of us need to be mindful of.
20:20Absolutely.
20:21Asset allocation, you mentioned, how will one touch that and bring it into while they're
20:26thinking insurance?
20:27Because insurance is not considered very actively while they're planning the financial plan.
20:33So how can one bring it into that aspect?
20:36Yeah.
20:37Again, for example, when you look at the asset allocation as a whole and we started the conversation
20:41by discussing about that, real estate, gold, still forms.
20:45It's like a top of mind recall for many of the customers still in India or the investors
20:49still in India.
20:50And that's where, for example, you have to think slightly more broadly and you have to
20:55bring in instruments like insurance as part of the entire portfolio.
20:58It starts from the very beginning, Anwada.
21:00One, it starts, like we said, from awareness and two, availability of the product also.
21:05So I think the journey starts from there.
21:07Again, for example, a certain component, depending on the corpus, because these are more individual
21:12specific conversation.
21:13Again, depending on the corpus, depending on the needs of the individual, whether it should
21:17form a part of 5%, 10%, 15%, 20%, those are specific individual needs.
21:22My request, not only to this room, but to people at large is it has to be term insurance
21:28or largely the insurance products have to be an integral part of the portfolio.
21:32Okay.
21:33So that is very rightly answered.
21:34So my next question is, I think people would want to know more about it.
21:39What if somebody misses out buying term insurance and is already in their later 40s?
21:44Will it cost them more?
21:46What happens if you buy it very late, the term insurance plans?
21:49Yeah.
21:50I mean, today, for example, the way products are designed, Anwada, yes, the younger you are,
21:55the mortality charges are then calculated accordingly, that it's cheaper as far as insurance are
21:59concerned.
22:00But the products have evolved so much that the difference may not be very high.
22:03Also, for example, depending on the age and the profile in the corpus, you have products
22:07available across various buckets.
22:09So whether you go for a term, for a retirement, for a pension, for a ULIP, for example, there
22:14are various instruments which will really suit the age of the investor, the investment horizon,
22:20and the needs and the requirements of the specific customer.
22:23So there are customized, segmented, depending on the age products available in the market
22:27today.
22:28And that's where I think industry has worked very hard just to be able to give the right
22:31set of products at the right age.
22:33So whenever, like we discussed earlier, whenever you decide to buy, you'll have the right product
22:39at the right cost available to you.
22:41And should housewives be buying term insurance as well?
22:44Yeah, everyone should buy term insurance, Anwada.
22:46There is no doubt about that.
22:47Housewives, to my mind, are actually the most critical part of any Indian household.
22:53All the more reason for them to be insured, all the more reason for them to be financially
22:57secure also.
22:58Because, you know, there are products available which will also make them financially secure,
23:01not just the death benefit, but I think largely to cater to the needs of the housewives also.
23:06They are products that industry has worked on.
23:08And if you were to touch more into the gendered aspect of it, breadwinners, people who are
23:13leading family use, typically, in a stereotypical way, somebody would think men in the family
23:18should buy term insurance.
23:20But what is your take on women and term insurance plans?
23:23Yeah, I think one thinking in India is that only the breadwinner should take an insurance.
23:28By definition, you obviously have a gender skew here, where more males are breadwinners.
23:33But like I said, insurance is for everyone, Anwada.
23:35Agnostic of the gender, everyone should buy an insurance plan.
23:38Great, sir.
23:39So you're saying everybody should buy term insurance?
23:41That's right.
23:42Absolutely.
23:43One last question, sir.
23:44As we had talked about earlier that Budget Head announced 100% FDI in the insurance sector.
23:49Your views on how it is going to affect the life insurance industry and what is going to
23:54bring in for the customers?
23:56We personally feel more competition is always good for the customer.
23:59With more players coming in, you know, just the, it's not about just 100% FDI.
24:05It's about just more quality, just more discussion, just more evolution around insurance as a discussion coming in.
24:12More players, once they come in, they will focus not only on selling insurance, but given our low penetration,
24:17they will also work largely on improving penetration around it.
24:21So with more players coming in, you will see more such events happening, more such awareness happening,
24:25more such discussion on financial products, especially insurance happening.
24:29Again, like we said, Anwadha, like we were discussing, it just helps us increase the base,
24:33which is the critical need of DR as for the country's concern.
24:36Do you also see that affecting the premiums?
24:39Like I said, we are amongst the cheapest markets as far as insurance is concerned.
24:43So we may not have a direct correlation there, but yeah, it just keeps everyone on toes,
24:47which is good for the customers at large.
24:49Thank you so much, sir.
24:50I think this has been very insightful for all of us.
24:53And I hope this creates more awareness for all of us in buying insurance
24:56and being more aware about it if not buying the term insurance.
25:00Thank you so much, sir.
25:01Thank you, Anwadha.
25:02Thank you very much.