Should You Buy Insurance Online?

Buying Insurance Online

Digital technology is a new force that is driving massive changes in the insurance sector and with an increasing number of people buying insurance policies online, it is important to understand the positives and negatives of such a choice

A mammoth digital revolution is sweeping across our life. It has dramatically changed the way we interact and transact with the external world. The corona virus pandemic, in particular, has acted as a catalyst and accelerated the process of adoption of a digital life. In that sense, analysing and buying insurance products is no different. Just a few years ago insurance was more of a personal affair. For most of us, one of our friends or relatives who was also an insurance agent would have come to our house one evening and over a cup of tea would have explained the intricacies and benefits of buying an insurance policy. There would have been no comparison, very few questions asked, and you would have got an insurance policy in your name a few days later.

The growth of e-commerce and the emergence of insurance web aggregators are factors that have changed this dramatically. Digital technology is a new force that is driving massive changes in the insurance sector. According to CRISIL Research, insurers are moving towards adopting a digital services’ model, enabling customers to complete the entire insurance processes online right from discovery of information to advice and purchase either on their own or with the help of a service provider.

Insurers are now harnessing digital technology to scale their business model and provide a hassle-free experience to their customers. This is reflected in the growth in the business of insurance companies from various channels. The table below shows compounded annual growth rate (CAGR) of the different channels that sell insurance to individuals for the five-year ending FY21. It clearly shows that for most of the insurance companies ‘direct business’ has grown at a faster rate than any other channels – mainly driven by rise in online purchases. What has led to such growth is the increase in the use of smart phones and internet penetration.

India is already the third-largest internet base in the world. Besides, the ever-improving infrastructure and the spread of mobile phones in remote areas aided by affordable internet facilities have resulted in a much wider acceptance of online insurance. Users in lower tier cities are actively seeking out online avenues as digitisation provides them access to higher quality products and services that may not be available through offline channels in their cities. Besides, insurers are also leveraging technology to further drive the growth of direct sales. They are now using artificial intelligence-based customer interface solutions such as chat bots for product queries, sales and payment reminders. This has contributed to better customer relationship management, thereby supporting growth.

Online Insurance Business

In the last few years, the online business of insurance has grown exponentially. However, it still forms a miniscule part of the entire insurance business. For example, in case of life insurance, individual agents continue to be the major distribution channel for individual new business. At the end of FY21, the contribution of individual agents to the individual new business premium was at 58.14 per cent compared to 60.09 per cent in 2019-20. One of the reasons for such a high share of individual agents to the individual new business premium is due to the higher market share of Life Insurance Corporation (LIC) in the new business premium.

LIC commands 66.17 per cent of the total market share and for this behemoth individual agents are the dominant channel of distribution with a share of 93.87 per cent in individual new business premium. The same figure for the private sector is 23 per cent. Nonetheless, in a bid to reduce its dependence on agents in the field, the life insurance major is slated to line up an entirely new vertical that would stand cemented on a digital platform. This will further boost the online insurance business.

The story is no different for general insurance. Online business grew by leaps and bounds but is still not a significant part of the entire business of general insurance companies. The table below gives you a glimpse of the business performance of insurance agents and intermediaries associated with general insurers.

Buying Insurance Online

Buying insurance online has a distinct advantage – lower premiums compared to buying the same insurance offline. In some cases, they are lower by 50 per cent from their offline counterpart. There are a couple of reasons for such lower premiums. First, you purchase from the insurer directly and therefore there are no intermediary costs involved and the savings is passed on to you. Secondly, insurance companies themselves work on the premise that the mortality risk of customers who buy policies online is lesser than those who opt for policies offline. Therefore, they are agreeable to offering them products at a lower premium.

In many cases, specific policies have been tailor-made for online selling which are also cheaper than their offline counterparts. Another benefit of buying online insurance is that it gives you enough time to compare policies offered by various insurance companies. You can research and analyse different policies and select and buy the policy that suits you the most. While doing such research you can also go through the reviews of such insurance companies and their products. An online comparison from an insurance broker or insurance web aggregator can save substantial amounts on premium while buying a policy for a new car or renewing the policy on an old one.

Buying online insurance also saves you a lot of paperwork. You can scan and upload all the required documents without visiting the insurance company’s office. When you fill online details, chances are low that you will fill wrong details. In case you are using agents, there are instances when details are not filled properly, and this can create a problem while getting a claim. Hence, buying insurance online make sense if you are comfortable going digital and you understand your needs properly.

Look Before You Leap

When it comes to buying life insurance online you need to understand that it is a long-term commitment from your side as well as any insurance company. Hence, selecting the right insurance company with good claim settlement ratio history is advisable. In some cases, the insurers are not comfortable with large sums insured despite those being shown as available in their online or offline sales material. So, you need to check this and choose a policy you require despite all the benefits of buying insurance online. In some cases, the declared premiums are meant for super healthy individuals and additional premiums are charged even for minor deviations from the standard health profile for a given age.

Also, check for availability of other riders such as accelerated sum insured for critical illnesses or permanent disability rider, which might not always be available in case of online insurance. Another thing that you should keep in your mind is that the payment should happen directly to the insurer and not to the intermediary. There have been a few cases reported, even online, where the payment is accepted by an intermediary.

Your rights as an insured individual get impacted when you pay to the intermediary instead of the insurer. Besides, there should be a clearly identified process established with the intermediary to make a claim. While choosing a channel, you should build your comfort as you must bear in mind that as much as buying insurance online comes with many benefits, there is no advisory involved. The onus is therefore solely on you to carry out the right kind of due diligence and opting for a product that perfectly matches your overall financial plan.