Can we provide more cover at lower costs?

June 21, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

When it comes to financial products, does the general rule “low cost = low quality” hold true? By quality, I mean the quality of experience and service levels that should be expected from a standardised product.

One industry which consistently beats this rule is the electronic hardware industry which keeps packing in more punch into phones, laptops and cameras at more or less the same price or even at lower prices. For a limited period of time, the niche gadget charges a premium but very soon the same power gadget is available at a much reduced cost. Is it even fair to draw this parallel between a hardware industry and a service industry?

Does it require regulatory intervention to put an end to pre-payment charges on loans — and even then selectively? Does it require regulatory intervention to slash entry and exit loads on mutual funds? Does it require regulatory intervention to cut down the excessive charges on unit-linked insurance plans? Since time immemorial, interest rates on credit cards have been ridiculously high — once you get into the revolving credit trap with a card it’s almost impossible to get out.

High costs being charged by all players in a financial space has an even more negative impact — the moment a disruptor charges something low, it runs the risk of being termed ridiculous and hence maybe of a low quality. There were days when online term insurance plans were being viewed very suspiciously by a lot of sceptics — some still do. But they were such a strong proposition that one life insurance company after the other has been forced to launch them.

Once the charges in unit-linked insurance plans were limited, the focus of insurance companies shifted to traditional insurance plans. The fact is that the traditional plans are a lot more opaque and the charges too are very high. So will some innovator take the lead and launch traditional life insurance plans which are a lot more attractive to the customer? I certainly am betting on it. With 23 life insurers fighting for 30 pct of the share and LIC having the balance 70 pct, there will be some player who will take the plunge and force the market to follow.

The customer needs more insurance, but at a much lower cost.

(For more articles by Deepak Yohannan, please visit

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