Go online to reduce mis-selling

The share of financial products purchased online is low at present, but this is set to change with the introduction of centralised and Aadhaar-based KYC

With the introduction of central is ed KY C and A ad ha ar-based KY C, purchasing financial products online is set to become faster and cheaper, writes SANJAY KUMAR SINGH

Sample this: Life Insurance Corporation of India’s (LIC) e-Term policy’s annual premium is ~23,861. The same policy, called Jeevan Amulya, bought offline will cost ~38,640 a year. Clearly, there is a huge benefit if policies are bought online.

But online sales account for only a small proportion of the total policies sold by insurance companies. In case of life insurance, online sales contributed only 0.22 per cent of new business premium in 2015-16 if both individual and group businesses are included, and 0.52 per cent for individual business only (source: IRDA’s annual report, 2015-16). In health insurance, online sales contributed only two per cent of gross premium (source: Handbook of Indian Insurance Statistic, 2015-16). In case of mutual funds, a recent report from Karvy says that according to its data online sales contribute only 0.92 per cent by value. Benefits of moving online One big reason for moving online is the cost advantage. “The price advantage can range up to 40 per cent (less costs) for customers,” says Martijn De Jong, chief digital officer at Aegon Life Insurance, a firm that does 50 per cent of its business online (see table).

By going to the web sites of insurance aggregators, buyers can compare features and prices. “When you buy through an offline agent, you only know what he chooses to tell you. You don't know the fine print. When buying online, buyers tend to look closely at the fine print,” says Anjla Dhir, senior director, Policybazaar.com.

Many platforms selling direct mutual funds also provide algo-driven advice to their customers (they are popularly called robo advisors), which has a few advantages. “Online advice is not limited by geography,” says Kunal Bajaj, founder and chief executive officer, Clearfunds.com, a platform that sells direct funds to investors and is also a Sebi-registered investment advisor. With human advisors, the quality of advice can vary from one person to another. There is also a higher chance of mis-selling. In case of online advice, since it is based on big data algorithms and global best practices, the advice is likely to be of a uniform quality (one will reserve judgement on quality until they have been around for a few years). Online advice is also inexpensive. Some platforms offer advice for free while others charge a small sum. They also allow you to invest in direct plans of mutual funds. The absence of trail commissions can make a huge difference to your retirement corpus. Low penetration: Arijit Basu, managing director and chief executive officer, SBI Life, in the Business Standard Round Table held recently, said that on the online channel front, they found that sales was linked to their ability to tie up with a distributor like a web aggregator, social media channels or with Google, so that their products are positioned higher and things like that. “It is still not a self-driven thing,” said Basu.

Web aggregators say that in case of life insurance, complex products like endowment dominate. “Endowment plans are sold by companies mostly through the offline channel,” says Dhir. LIC, the public sector behemoth, has small sales through the online mode currently. “In case of simpler policies like term and low-cost Ulips, the online channel accounts for as much as 75-80 per cent of sales,” adds Dhir. In motor insurance, when people buy a new car, they usually buy the insurance policy also from the dealer, via the offline mode.

Some experts attribute the low penetration to difficulty in changing traditional ways. People have purchased insurance through a known agent or broker in the past. "The absence of the human element is an obstacle. Lack of awareness about the advantages of online purchase is another factor. Ease of process could be a third," says Naval Goel, chief executive officer and founder, PolicyX.com.

Remember that Indians have become comfortable transacting online only in the past three years or so. Many e-commerce companies have been around for 10 years, but have seen rapid growth only in the past five years.

Experts are optimistic that as comfort with the online medium increases, people will shift their financial transactions online. “Health, motor policies, etc., have been available online for only about five years. But their online sales are growing rapidly year-on-year,” says Dhir. Many people who buy their first motor insurance policy from the dealer, she says, move online the next year. The government's digitisation initiative is also expected to provide a fillip to online insurance sales. In December 2016, the government announced a 10 per cent discount on general insurance and eight per cent on life insurance for buying a new policy online via public sector insurers' web sites.

On-boarding of customers is set to become easier and faster. "A big obstacle until a few years ago was the lack of a common KYC. With the introduction of a centralised KYC process, initially via the KRAs (KYC registration agencies) and now with CKYC (introduced in February this year) and Aadhaar-based KYC, account opening has become faster," says Bajaj. With the advent of CKYC, once you have done your KYC with a bank while opening an account, the information can be shared by all other financial players. Hence, you don't need to undergo KYC repeatedly. Points to remember Financially savvy customers may do the research themselves and invest in the best financial products they find by going online. Those who are not so savvy should take the advice of a Sebi-registered investment advisor (who charges only for advice) and then make the purchases online.

One mistake to avoid is to focus only on price. "Compare the different policies not only on price but also on features," says De Jong. In case of products like medical insurance, give the correct information while making disclosures to avoid problems at the time of claim.

When buying an insurance policy through an insurance aggregator’s website, be aware that sometimes they do not include all policies in their comparisons. If that is the case, look up information on those products at other sources. When selecting a mutual fund platform, opt for one that is simple to use, helps you avoid wasteful commissions, and gives all the tax reports you need at the year end.