Posted on Oct 13, 2011 by Sergio Ulloa
A new study released this week by international market research firm Nielsen has found that more than half of India's emerging urban middle class either already have a life insurance policy or are planning to buy one in the near future. Life insurance products have quickly become a popular investment tool in Asia's most populous country, as people look to more safe and reliable long-term savings plans in these volatile economic times.
Nielsen's Life 2011 report is an intermittent study that assesses how the currently under-penetrated insurance markets are developing, where they are headed, and what have been the resulting opportunities and challenges from their progress. Nielsen surveys and accumulates outlook and attitude data towards life insurance, including consumer preferences and the perception of the business as well as what factors ultimately go into the purchasing decision process in their respective markets. They also research the consumer attitudes and perceptions of individual brands active in the insurance market to determine who in fact is promoting their services most effectively.
Nielsen's periodic study of consumer life insurance and investment patterns found that over 60 percent of India's urban-dwelling populations now hold some form of life insurance. These same life policies were then quite likely to account for a large share of their holder's future investments as well. According to Nielsen, Indian respondents indicated that they would probably earmark over half of their investable income towards these products going forward. Over the past two years, life insurance has risen to become listed among the most popular investment options available in the Indian marketplace.
Nielsen attributed India's apparent shift in investment behavior to a larger overall return to safer fixed investment products, with investment in more risky ventures like equity continuing to decline. Despite the country's sustained economic growth and remarkable industrial and commercial development, Nielsen found that urban Indians, for the most part, remain risk averse and prudent. The main drivers behind India's investment habits remain steady returns, followed closely by cover for unforeseen emergencies and education planning for their children. Subhash Chandra, a Director at Nielsen, explained that Indian consumers were reacting to the current economic environment with increased interest in long-term savings products. "Given the recent volatility in equity markets and rise in commodity markets, urban Indians, being traditionally risk averse, are returning to safer, more traditional investment products like life insurance, given the tax benefits and limited risk associated with the product," Chandra commented.
Indian consumers have traditionally been very value conscious, and the inflationary environment has increased this tendency. This does not however mean that Indians are reluctant investors; in fact compared to many of their peers in Asia they are very open. According to Nielsen's Global Online Consumer Confidence 2Q 2011, Indians are amongst the most positive peoples with regards to job prospects and personal finances in the world. With an overall index score of 126, India has been able to consistently record the highest consumer confidence scores since Nielsen first began consumer confidence tracking in 2005. Justin Sargent, Managing Director for Nielsen India, noted that despite rising commodity prices, Indian consumers should remain more optimistic than average. "A host of factors are weighing heavily on the Indian consumer's mind. While still clearly the most optimistic across the globe, heated price inflation, fuel price hikes and an uncertain global economy are acting as constraints to a buoyant outlook," Sargent said, adding that "we are likely to see adjustments to the purchase basket in terms of greater 'value-consciousness' guided by robust demand, but a large pull back in terms of overall spending is unlikely unless inflation continues unabated."
India's tremendous economic potential, due to its large labour force, youth-leaning demographics and rapidly growing middle class, present a sizeable opportunity for insurance companies. The projected increase in per-capita GDP will correlate with an increased demand
for a wide variety of insurance and investment products. Nielsen's Life 2011 study noted that India's younger investor class now represents a fifth of the overall population and that most have yet to purchase a life insurance policy. Because youth salaries are considerably higher now, this same group have become more enthusiastic about investments, long-term planning and protection against risk. "Coupled with the historical acceptance of life insurance as a safe investment and the added tax benefits that it provides, life insurance seems to have retained favor with even the young investors," Mr. Chandra added.
Nielsen's research also revealed a nascent demand for additional insurance policies and dual ownership options amongst India's urban consumers. Around 16 percent of pre-existing life insurance policyholders surveyed said they would be interested in investing in a new insurance policy within the next six months. Nielsen said this was an opportunity for Indian insurance companies to begin promoting the benefits of second policies to consumers. This information corresponds with a separate survey conducted by ING and Nielsen targeting Asian middle class consumers earlier this year
. That study found that over half of all respondents were planning to buy a new insurance policy sometime in the next 12 months. Among the seven countries ING surveyed, India appeared the most willing to seek coverage with 85 percent of respondents worried about a lifestyle coverage shortfall and 75 percent planning to purchase insurance soon. While in the short term Indian insurers should look to increase their overall client base and the country's insurance penetration rate, the long-term opportunity for life insurance companies lies with increasing dual policy ownership and developing more specialized insurance products.
When it comes to improving awareness and promoting the benefits of insurance, India remains a nuanced market to operate in. Despite its standing as an emerging tech giant, most Indians avoid using the internet when it comes to researching and purchasing insurance. According to Nielsen's study respondents, the main source of education about personal finance and investment is television, followed by agents and newspapers. When it comes time to actually making a purchase, traditional agents have remained the dominant channel for buying life and health insurance followed by banks and then independent financial advisers.
The findings in the Nielsen report corroborated work done earlier in the year by Swiss Re. That report, titled"Survey of Risk Appetite and Insurance: Asia-Pacific 2011
," gleaned further information about what insurers could do to attract the emerging young urban middle class consumer in India. According to Swiss Re's report the most important criteria for Indians when choosing an insurance company is value for money first, followed by a good reputation and financial certitude. Overall, to succeed in India, insurers must be able demonstrate the benefits of insurance and sound cost-effective planning in order to meet the specific needs of Indian consumers, who have put strong emphasis on value, reputation and financial soundness.
The Nielsen Company is a global analysis and publishing company with leading market positions in marketing and consumer and professional information. Nielsen's operations include television, magazines, educational publications, online intelligence, and other media measurement. Nielsen has a presence in over 100 countries, and is headquartered in New York, USA.