The year gone by may not have been as good for the insurance industry as some people believe, says Amitabh Chaudhry, MD & CEO, HDFC Life. In an interview with Vishwanath Nair, Chaudhry talks about the outlook on growth in the new year, problems with the bancassurance guidelines and probable ways to improve insurance penetration in India.
The year 2013 was considered a good one by a number of private life insurers. How has it been for you?
It depends on how one defines a good year. If you look at net premium as a metric, i.e., total premium collected less surrenders and claims, only three of the top seven players are positive as of September 2013. We were 50% higher than the second biggest player in net premium earned. If you define it by new business growth, you will see a few players stand out while there are many others in not so good a shape.
We have retained our position as a top-3 private player in new business premiums and our sum assured, an indicator of protection levels, has seen a quantum jump. Our renewal premiums and group business continue to outperform the industry.
Also, our operating expense ratios are better, our AUMs have grown faster and benefits paid as a percentage of AUM are lower than our peer group. We have been reorienting our product mix over the years and that has seen substantial progress in 2013. Also, we have taken steps to reduce mis-selling and service-related complaints and are on track to achieve those goals.
What kind of premium growth did you see in the last year and what will be your growth like this year?
Our total premium has grown about 11% in the first nine months of this fiscal. In 2014, we will continue our focus on being a sound long-term player delivering quality growth across our business metrics. We will continue to grow existing partnerships and add new ones.
Public sector banks have been asked to take up the broker model for bancassurance and it is expected that private banks will have to follow suit. What share of your total business comes from the bank channel? What is your take on the broking model?
Bancassurance contributed 43% to the new business premiums collected by private insurers in 2012-13 and is the largest channel for private insurers. With two-thirds of business from bancassurance, HDFC Life is geared up for open architecture as we bring in a wealth of experience in terms of driving efficiencies and penetration levels. The regulators need to look at the right degree of open architecture. Also, a period of at least three years needs to be given for such a transition to both banks and insurer to put in place the necessary processes and systems. As of now, we are awaiting clarity on how the regulations will unfold.
Would each bank be given independence to decide if it wishes to undertake insurance broking? What will be the transition date?
Currently, the broking guidelines state that “not more than 25% of the insurance handled by the insurance broker in any financial year is placed with the insurance company within the promoter group”. But there is no ceiling imposed on placement by bank acting as a broker with an insurance company outside the promoter group and this creates an unfair dichotomy. Per se, we are against regulators imposing any arbitrary ‘quota-share’ but for encouraging competition.
A lot of discussion has happened on improving the penetration of insurance. However, the results aren't very encouraging.
Over the last 4-5 years, the life insurance growth rate is more a reflection of a mature, developed market than that of a developing nation. These years have seen high consumer price inflation and, hence, lower disposable incomes for consumers making insurance plans less attractive. The changes in Ulip norms were swift, leaving little time for the industry to adjust, and these were followed up by a series of other regulations. Economic returns to distributors and shareholders also reduced. This resulted in the industry rolling back branches and vacating market space.
As 77% of premiums come via individual agents, open architecture for individual agents would help increase reach. Digitisation would also be critical. Insurers need to focus on right positioning of insurance as part of overall financial planning in line with customer life-cycle needs through marketing efforts. A recent study showed that ~50% of life insurance customers had post-purchase dissatisfaction. Enforcing checks and balances at the customer on boarding stage would ensure higher persistency.