Life Insurance Industry Outlook for 2024

Here are the 7 big changes to watch out for in 2024.

1. Higher Guaranteed Surrender Value

Certainly, higher guaranteed surrender values of life insurance policies are superbly positive for the policyholder. We don’t label it as some sort of a victory of the consumer over the insurer, because in the long run, they both are on the same side. We see this as a win for the entire market. For example, the automobile industry has been keeping up with increasingly higher quality standards that were demanded by the regulator and not by the consumer. And yet the automobile market has been growing (despite steepest taxes!), and automakers are thriving! Higher standards of product quality in the automobile market, albeit enforced by regulation, have only increased safety, and led to increased product adoption and expanded the overall market of automobiles.

Life insurance is typically the first ever financial product to be purchased by an individual on her path to financial security. A better first experience for her will pave the way for higher satisfaction, repeat purchases and better word of mouth recommendation in future (which drives sales like nothing else!).

Nevertheless, we are eager to observe how IRDAI wrestles with the comments and feedback it receives on the draft. Because, let’s agree, it is trying to do something that should have been done by competitive forces already by now. We think IRDAI will need some solid muscle in pushing down the threshold value for the new calculation of guaranteed surrender value.

2. Index Linked Insurance Products (ILIP)

Index-linked insurance products will be exciting, although not new to the Indian consumers. Index linked products have been phenomenally successful in the US life insurance and retirement market. Linking the account value to a market-cap-weighted index can lower the manufacturing cost of policies since those pesky mutual fund ‘management’ fees will go away. Insurers may need to pay for a small licensing fee for the index, but it will be a fraction of what mutual funds charge to ULIPs. Moreover, ILIPs will make it easier for retirees to allocate a portion of their savings to equity, leading unarguably to higher growth in account values and more prosperous retirements.

3. Commissions Going Down

More online aggregators, more competition, lower commissions, and hence more money for the policyholder.

4. Election ‘Semester’

We are calling it a semester of goodies because, let’s agree, it will be over by June. India’s public debt is rising fast, but tax to GDP ratio is not rising commensurately. Oh, by the way, we are assuming (our base case scenario) that the government will remain in power. And even though the government may not immediately shift towards a higher tax (or lower subsidy) regime, markets will certainly want to price it right away.

5. Risk of Weakness in Credit Markets

Credit spreads, which show the difference between a corporate bond yield and government bond yield of corresponding maturity, have been the lowest ever that India debt market has seen. And, while the yield curve is still upward-sloping, any shocks to credit or inflation will create mark-to-market losses and reduce the investment earnings of insurers. Inflation is already running above target and it does not seem that RBI will be in a position to cut rates even if the Federal Reserve does cut rates by mid-2024.

6. Higher Regulatory Burden

IFRS 17 and Risk-Based Capital are two separate and major accounting overhauls that are coming soon. We reckon that both steps are in the right direction. To put it politely, the life insurance industry has a flair for making sure that no accountant or auditor is ever out of a job. But then, we the people, also wonder whether is it not the poor retiree who is paying for it all.

Most actuaries will agree that the reporting burden on India insurers is already high by international standards. Moreover, this increasing regulatory and reporting burden makes it even harder for new entrants and smaller insurers to do business.

7. Technology Acceleration

Thanks to the internet and advancements in communication technology further accelerated by AI, consumers are more informed than ever. We see that most prospective policyholders have already done some market research before initiating dialog with their retirement advisor. This shift in consumer behavior will undoubtedly force life insurers to make significant efforts towards enhancing the quality of their products and offering higher value for money.

On behalf of the entire Annuity Risk team, we wish everyone a very happy and successful new year ahead.

Hello 2024!