One of the most significant and far-reaching outcomes of the liberalisation of the life insurance industry has been the change in how products are developed. Competition has seen the entire industry move towards creating products that are not necessarily the easiest to structure or manage for the company, but offer the maximum flexibility and benefits.

The biggest beneficiary of these developments has been the consumer.

With advisors being trained to sell insurance as a solution that meets rational and emotional needs, life insurance is no longer a poorly understood product that is pushed onto people. Nor is it a product that is only to be bought hurriedly at the time of filing taxes. There is a willingness to evaluate life insurance as an important element of the overall financial basket; one that is purchased to fulfill specific needs and has clear benefits.

Broadly speaking, most customers have four financial needs -- asset creation, such as purchasing a house, car, etc; saving for their child's education; protecting their family against uncertainty; and creating a nest-egg for their retirement. The driving force behind innovations in the industry has been to better meet any or all of these needs.

As a result, a wide range of simple, flexible products, customer-focused service and professional advice has become the mainstay of the industry, and we have seen a considerable increase in customer awareness and acceptance, with penetration of the category cutting across socio-economic classes and attracting people who have never purchased insurance before.

From the industry's point of view, these changes are essential if one wants to increase penetration of life insurance and appeal to people with different financial and personal needs, payment abilities and at different life stages. Sure, many, if not all, private companies launched operations with a basic suite of products - such as endowment, money-back and term policies - that were understood and accepted by the masses.

But innovations followed swiftly, either in the manner of modifications or additional features to existing products, or in the form of completely new products. Different companies approached the task in line with their own strategies, but the philosophy behind each of the introductions remained constant - to better meet a consumer need that was not fulfilled in the existing product range.

Amongst the first innovations was the unbundling of benefits through the introduction of riders - add-on benefits with which policyholders can customize basic products to suit their specific needs. Through medical riders, the scope of a policy can be expanded to include further benefits for extraneous circumstances; such as accidents, illnesses and surgery.

For a customer, this meant that he/she could select a base product for a minimal premium, and then simply include and pay for the additional features. For the company, it meant that a limited range of products and riders could provide enough combinations to meet the needs of practically every customer profile.

Other research-driven innovations were in child products category, to more completely meet the needs of parents and their children. For instance, while existing products paid a lump sum to the child at a particular age, ICICI Pru SmartKid match the guaranteed payouts to each of the educational milestones, when a child is most likely to require funds.

Further, a rider that provides regular payments for maintenance expenses, in case of parent's death, can also be added to the policy. Clearly, using insights, policies can be structured to appeal to parents who want to leave no stone unturned in securing their child's future.

Another significant change in the product baskets has been due to the fluctuating interest rate regime. The days of high-guaranteed return products, which were unsustainable, are over. Products are now priced, flexibly, realistically and 'sustainably.'

This is not to say that assured return products do not have a place in a life insurer's product basket. No doubt, they should be there, but should be reviewed regularly and repriced according to the changing rates. Such an environment has been one of the main reasons for the introduction and acceptance of market-linked life insurance and pension policies, such as ICICI Pru's LifeTime and LifeLink policies.

These policies are based on the premise that the markets earn superior returns in the long-term and hence are suitable investment avenues for insurance policies. The policies are one-stop financial instrument, giving the policyholder flexibility, transparency and liquidity and hence complete control.

It separates the two main components of an insurance policy -- protection and investment - so that policyholders themselves can determine how they want to allocate their premium to suit their needs.

For instance, the protection component gives one peace of mind by providing protection and safeguarding against the "3D effect"- death, disability or dreaded (critical) disease, without affecting the investments. On the other hand, the investment account provides for asset accumulation and asset creation in the long run. Using Rupee Cost Averaging, once can create a kitty and earn reasonably high returns.

One has the option of investing in three fund options -- income, balanced or growth -- depending on the risk profile. Such policies let policyholders adjust their investment and protection components depending on their lifestage, within the same premium amount. So, if one is young and single, the investment levels might be higher, whereas as he starts a family, he might want to increase the protection element. These adjustments can be made within the same policy and same premium payment.

The other main benefit of a market-linked policy is the transparency and liquidity it offers a policyholder. Because they are linked to listed securities, ICICI Pru discloses a daily NAV of each of the funds for the policy, and also releases a quarterly newsletter to its policyholders, detailing fund performance.

Policyholders also have the option of withdrawing units after a fixed lock-in period, or even topping up their policies.

The results of the combined efforts of product innovation, better service, sophisticated investment and risk management frameworks, and improved selling techniques are evident. Today, the private players have captured about 9 percent of premium income in just over two years of operations, a figure that is poised for growth.

The writer is Managing Director & CEO, ICICI Prudential Life Insurance.

This article forms a part of 'Money Simplified – Life insurance: Hear it from the experts', a free-to-download online guide from Personalfn. To download the entire guide, click here.