Three-fourth of Indian households prefer to buy life insurance and pension products based on parameters like product features, performance and provider’s brand, shows a recent report called ‘Pension Business in India’, jointly published by the Confederation of Indian Industry (CII) and Ernst & Young LLP.
Around 58% of respondents take their decisions after analyzing products feature while 38% and 37% of respondents rely on performance and provider’s brand respectively. Also, 36% of Indian households involve their friends and family members in taking a final call on such products.
The survey results indicated a low level of personal interaction by product providers with consumers, although most consumers (94%) believe that adequate interaction and interpersonal discussion are an essential part of the decision-making process. The report suggests establishing a strong relationship and communication link with customers so as to understand their needs and tailor the products accordingly.
The report shows that 74% of Indian households are willing to pay for advice on pension products. However, despite their level of willingness and interest, they think sellers do not put in much of effort to sell their products effectively. Almost 50% of consumers feel that the service quality of insurance companies is below their expectations. This perception is worse in lower income groups where 55% feel that service quality is sub-standard. The report stresses the importance of customer servicing and advices the product providers and distributors to deliver on promises made at point of sales. According to the survey, personal contact and frequent communication is an important factor in earning a customer’s loyalty.
About mutual funds, the report says that heavy exit loads and taxation structure of schemes make it less attractive to use as a pension vehicle. Also, there are only a limited number of schemes that are currently offered by mutual funds. Today, assets under management in the mutual fund pension scheme category is around Rs 1300 crore, which is a small fraction of the current market size, says report.
Besides, the report claims that AUM of Indian Pension Fund would reach Rs 83 lakh crore by 2025 at an estimated CAGR of 16%. Presently, the retirement funds corpus is estimated to be in the range of Rs 12 lakh crore to 15 lakh crore out of which one-third of the corpus is in the Employees Provident Fund (EPF).
Other key findings of report:
· Sale of pension products through insurance sector declined after IRDA’s regulation in 2010
· Current schemes mainly cover organized sector leaving out bulk of the workforce of unorganized sector
· India has a lower pension fund to GDP ratio, compared to global standards
· Gross replacement rates (GRR) vary from 3% to 95% in the world. India has a low GRR due to lack of a robust pillar one pension system
· In India, Inflation is a key risk for subscriber and manufacturers of pension products. Inflation risk is compounded due to the long-term nature of pension plans
· 40% of customers demand life and insurance products for retirement
