What is driving the financialisation of savings in India?

Posted on by Chandan Sanwal


Mr Karan Sharma is 27-years old. He has been working for 4 years, joining his current firm right after he finished his post-graduation. He also holds a life insurance policy, is enrolled in his employer’s group health insurance scheme and is considering in a Unit Linked Insurance Plan too. Karan’s case of a very well planned financial portfolio is no longer an exception. Young Indians financialising their savings is becoming the norm. People are realising the advantages of life insurance and other investment products. There are multiple factors both on the pull and push side; no one keeps their savings idle and insurance providers are offering a bouquet of products to service all needs.

In simple terms, as mentioned in a May 2019 report by India Brand Equity Foundation, the financialisation of savings into the insurance sector is aided specifically by a growing interest in insurance among people, innovative products and distribution channels and the growing internet use. To add to that, there has been strong policy support in the form of life insurance tax benefits and repeated attempts to make the sector more lucrative for foreign participants.

It wouldn’t be wrong to say that the economic landscape is highly conducive to this trend – lower interest rates, evolving customer behaviour, the impact of digital adoption, competitive landscape and the dynamic regulatory situation. Higher personal disposable incomes result in higher household savings that are then channelled into different financial savings instruments like insurance and pension policies.

Let’s look at the driving forces behind the financialisation of savings in greater detail.

  • Life insurance is dynamic and covers end-to-end customer journeys. These policies are highly customised and made relevant to each policyholder individually. For example, the Future Generali Big Dreams Plan is a unit-linked insurance plan that lets you create wealth while enjoying the benefits of a life insurance plan at the same time. It lets you make choices with respect to your goals by offering various investment options like Wealth Creation, Retire Smart and Dream Protect. It also allows systematic partial withdrawals and switching. You can mould the plan so that it works for you.
  • The digital reach: Insurance plans can now be bought online with just a few clicks. The digital infrastructure has proven to be a great distribution channel by making the customer interactions highly personalised.

As per a report by FICCI and BCG (Boston Consulting Group), the global trend of digitization has seeped into the core insurance processes of sales, claims settlement as well as back-office operations in India. This brings productivity in the processes, improves process quality through standardization, lowers manual involvement and saves time.

  • The trends reflect a traditional preference

The industry is witnessing a shift towards the traditional non-linked insurance plans. The share of non-linked insurance increased from 59.1% in 2009 to 85.4% in 2018. 

Not only that, the life insurance sector has witnessed the launch of innovative products such as Unit Linked Insurance Plans (ULIPs) while the other traditional products have also been customised to meet specific needs of Indian consumers. So the demand for both investment and insurance needs are being met under various schemes whereby the investment risk in the investment portfolio is borne by the policyholder or a plan that cultivates the habit of saving systematically over a long term through monthly or annual payment modes. The plan gives you the option

of switching funds so that you are always in complete control of your investments.

For all of the instruments mentioned, there are also life insurance tax benefits: these plans are eligible for tax benefits under Section 80C and Sec 10 (10D) of the Income Tax Act, 1961. 

Summarily, insurance can help you meet your short and long term goals and make sound financial decisions for a secure future. Your savings are better off invested in one of these instruments!



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