“Salesmen not allowed”
A decade ago, notices like these were a common sight on gates across the country. The advent of e-commerce led to the decline of sales people. These people used to go from house to house selling consumer products. Similarly, hoardings of insurance agents were a common sight across the country. They can still be found in suburban areas and small towns. The insurance agent may soon meet the salesperson’s fate.
Rapidly evolving technologies and their increasing adoption by insurers have changed the dynamics of the entire sector. The surging penetration of mobile phones has made getting in touch with customers very easy for companies, which has reduced the role of intermediaries. Improvement in online payment systems and use of advanced security tools have made transactions secure, taking care of customer apprehension. Factors like these, along with the added convenience, have partially contributed to the growth of online insurance policies in India. But the single biggest factor for the success of online policies is their low cost.
Why is buying insurance online cheaper?
No Agent Commission
When you buy an insurance policy online you buy it directly from the insurer and no intermediaries are involved. Intermediaries or insurance agents charge a commission from the insurance company on every policy sold. The commission gets added to the cost for the customer. The absence of the agent results in cost reduction by 18-20 per cent. Buying a policy online is very simple and hassle-free. Anyone who is comfortable shopping online will easily be able to buy a policy online.
Application Processing Cost
A lot of expenses like operating a branch, printing applications and getting the documents verified physically gets indirectly added to the premium of a policy. When you buy an insurance plan offline company personnel is required to help you with entering the details. These things are a substantial expense for an insurer. In the case of online insurance, the user directly feeds his data into the company’s system and no human resource is required. By eliminating these miscellaneous costs, an insurance company can save up to 2-3 per cent on selling a policy. For instance, you can buy various online plans from Future Generali India Life Insurance Company at a lower price than a comparable policy offline.
Quality of Disclosure
Suppose two of your friends—Chandan and Piyush—ask you for some money, but you can lend only to one of them. Now you are fully aware of Piyush’s background and financial condition but Chandan’s is not very forthright with his situation. Who will you lend the money to? Most people will trust Piyush with their money. Insurance companies operate on a similar premise, customers who provide clearer information are more likely to get their claims settled, whenever it arises. Generally, agents or bank executives fill in the details for customers in case of physical forms. They are more likely to leave out some details which gain a lot of importance at the time of settlement. While buying an online plan, customers directly deal with the insurer and provide more detailed information. This gives a clearer picture to insurance companies which reduces the risk for them. Lower risk for insurers transforms into lower premiums for policyholders.
Better Mortality Premiums
Insurance companies take into account customer profiles to decide insurance premium rates. Based on factors like age, gender, occupation, income, lifestyle, habits, family history and health customers are grouped into broad categories. For instance, life insurance premiums for people in dangerous occupations will be higher than other people. Moreover, insurers themselves work on the premise that people who buy policies online have a lower mortality risk than people who opt for offline policies. A lower mortality risk results in a lower premium for online customers.
When you buy a policy online you get all the information related to the plan without any exceptions. From the regulatory requirements to the monthly premiums, everything is clear. Intermediaries like agents often give limited options, while unlimited online policies can be compared side by side, which helps in making an informed decision. Transparency does not directly make an insurance policy less expensive, but it helps in choosing a cheaper plan.
Though online policies come with many benefits, a policy should always be chosen after taking financial goals into account. Online policies also do not have any advisory involved and the onus of conducting proper research falls on the customer.