The Hindu Business Line : ‘Insurance industry needs to focus on larger volumes’

IDBI Fortis Life Insurance, a joint venture between IDBI Bank, Federal Bank and Fortis, plans to increase the number of branches to 100 in the next two years (from 35 now) as well as double its agency network. The company, which was floated in March 2008, is also trying to leverage the branch network of the domestic promoters. Mr G.V. Nageswara Rao, MD and CEO, said the company has achieved a growth of around 29 per cent in fresh business premium in the first six months of the current fiscal and is hopeful of improving it in the second half. In an interview with Business Line, Mr Rao explained his growth strategy.

What will be IDBI Fortis’ focus in the future?

We are a young company. There are some segments where we are still not present. We will be looking to introduce new products to expand our presence. The new product offerings will be a mix of traditional products and unit-linked products. We will be expanding our health offerings also.

We are also looking at the rural segment. IDBI Bank and Federal Bank have branches in rural areas. We are leveraging those branches to meet our rural sector obligations. Besides that, we have tied up with micro-finance institutions and NGOs to sell our products. We have two specific products to target the rural customers — Microsurance and Termsurance.

Do you need to infuse more capital into your business?

At present, we are capitalised at Rs 450 crore. We do not need to infuse more capital.

Is the bancassurance model working well for you?

Bancassurance has got a lot of potential to develop in this country. It has just been a few years that banks have become active in the insurance space. When we take into account the experience of other countries, bancassurance will become a large and dominant channel for insurance sales. However, it may take some time in India. When the market matures, the bancassurance channel will become much bigger than the agency channel.

Bancassurance model is working well for us. However, we are growing our agency channel as well. We started the agency channel from scratch. Now we have more than 7,500 agents. The agency channel has been increasing its share. Last year, 75 per cent of our business came from bancassurance and the remaining 25 per cent from the agency model. Now, two-third is bancassurance and one-third is agency.

What is the optimal mix considering that reliance on bancassurance reduces costs?

We don’t have an optimal mix in mind. We think that bancassurance will continue to be a higher contributor among the two.

How do you see this fiscal for the industry?

This year growth will be higher compared with last year. However, it will not be like the boom the industry saw a couple of years ago. The industry needs to focus on larger volumes in the face of lower margins.

IDBI Fortis will continue to maintain aggressive growth. Usually, the sales start picking up in the January-March quarter. The last quarter accounts for 40 per cent of the industry’s sales. We are no exception to that.

Should banks be allowed to sell policies of multiple insurers?

There are pros and cons of this. On one hand, customers will have greater choice of products. On the other hand, banks will need to be equipped to handle multiple products and provide the right advice to the customer.

We need to move towards this but it has to be spaced out and has to be a calculated approach.

Do you need to change your product structure post the cap on ULIP charges?

We do need to make some changes in our products. But they are not very material. The changes that we have to make are a lot less. Right from the beginning, our charges have been at the lower end of the market. As a result, the impact of the cap on us has been very less. We only need to rework two of our products, which we are in the process of doing.

What about the existing arrangement with your corporate agents?

We have not yet worked out those numbers. We have time till December to decide on the pricing of our new products and the new arrangement with our agents.

Are the high expense ratios of companies a concern for the industry?

There are some companies where the cost ratios are a concern. Going ahead, the industry focus should be on better cost management and improvement in productivity of sales. We are beginning to see that companies are looking to become more profitable.

In IDBI Fortis, we have focussed on cost management and productivity right from the beginning. Our cost ratio last year, excluding the commission expenses, was at 38 per cent. It was the lowest achieved by any insurance company in its first year of operations. Even in our second year of operations, only one insurance company has matched us. Our productivity is much higher than other players. We want to continue in that direction and maintain that. We are looking to break-even in 6-7 years.

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‘Insurance industry needs to focus on larger volumes’