The Hindu Business Line : `Products should sell across bank counters too'

When a venture has the backing of the banking behemoth State Bank of India, it should, by no means, be reckoned a lightweight. SBI Life, the insurance venture between SBI and Cardiff, is no exception. Riding on the back of its clout in the bancassurance channel, the outfit has established a strong franchise ever since the insurance sector was opened up to private participation. Business Line caught up with Mr S. Muralidharan, Chief Marketing Officer of SBI Life, to glean insights on broad industry trends and specific initiatives undertaken by his company.

Excerpts from the interview:

Statistics put out by the IRDA Journal reveal that SBI Life has sold a sizeable number of group policies. Can you elaborate on the group business model of SBI Life?

We started out on the group plans in 2001, because at that time the IRDA regulation on corporate agents and banks, which is our preferred model, was not in place. We started off with introducing insurance for bank account holders as a group. That was our main target and still remains our principal one.

We were also looking at the home loan segment in which we saw a sizeable opportunity. The third segment was credit card holders, another big area that was growing fast.

Products to address these three areas were structured as group products; as such, they also tend to work better as group products. The pricing also makes these products eminently affordable.

This is borne out by the fact that we have covered 1.3 million lives through our group plans, which represents a substantial penetration when one considers that we have covered 1.4 million lives in total.

Though the group business started off as a response to a slightly difficult regulatory environment as far as we were concerned, we realised that with a standard product (such as group plans) the sale process is so much easier. The ease with which people are signing up for such plans is also encouraging.

In spite of the announcement in last year's Budget making single premium plans unattractive from a tax standpoint, SBI Life continues to get a fair share of business through this mode of premium payment. What, in your view, are the reasons for this?

We have a product called Setubandhan, which is a product aimed at NRIs. In their case, taxability is not a big issue.

They are only looking for certain specific features and a level of return. We also find that there is demand for other single premium products of outs, again driven by the NRIs.

Many go abroad on a limited contract of about three years. When they have they money, they find it convenient to put it away in the form of a single premium.

In the case of the home loan cover plan, we realised that if we were to collect premiums periodically, the product was getting priced out in relation to the cost of the housing loan.

We did not want to make the cost of this product, relative to the EMI, high. It does have an escalating impact on the EMI, but we wanted to keep it under tight limits. With the single premium option, the recurring yearly costs associated with regular premium collection are reduced.

While the current interest rate environment is benign, should interest rates inch upwards? Going forward, do you think we could see the return of guaranteed addition products that could see alter the competitive dynamics of the industry?

It is not simply the issue of interest rates going up, I think it has more to do with the stability of the interest rates. Yes, should interest rates go up, return expectations would also move up naturally.

That does not by itself mean that we can give a guarantee, because that assumes stability in interest rates at a higher level.

I do not think that the stability of high interest rate over a predictable time period is something we could look forward to.

There might be certain pockets or ranges within which we could see guarantees. As such, I do not see such products coming back in a big way.

Compared to competition, SBI Life's product basket is, though limited, focussed. Could you explain the rationale behind crafting a product range such as yours?

As the bancassurance route is our principal model, it is not a question of how many products you have on the shelf.

What we are dealing with is a banking force that is not used to selling. We are just about witnessing a situation where the large public sector banks have to go out and sell.

Just because I have put insurance products on the counter, expecting them to go out and start selling immediately would be unrealistic. Therefore, filling the shelf with products is not going to happen.

Selling through banks is going to be more supply led than customer-demand led. In this process, when the sales force is not trained fully and are not accustomed to a sales culture, to put 20-25 products on the shelf simply does not help.

Over the past year, unit-linked insurance plans have caught investor attention and delivered robust returns, too. What are the reasons for SBI Life not having launched a product in this space?

The unit-linked product is aimed more at the upper-middle-class end of the market. Obviously, those who have succeeded in this market have good asset management capabilities and have leveraged on pre-existing connections with an upmarket investment clientele.

Our thought behind this was different. We said we would bring to the market an insurance product, subject to certain caveats. One is that is must be far more risk controlled than a classical unit-linked plan.

We should also have flexibility without causing customer confusion. Our basic tenet has been to take complexity within the company so that the customer interface is simple.

This is one of the reasons why we have not flooded the market with products. Further, the product should also be saleable across bank counters, too. We also observed that to benefit from unit-linked plans, one needs to be an informed investor who can take advantage of market movements.

But the vast majority of our clientele does not have the expertise. As it happens, we are working on a unit-linked product, sometime in the later part of the second quarter, which meets our objective of keeping it simple for the customers.

Carrying as you do the SBI tag, do you think it acts as a deterrent when it comes to tying up with other banks, as you would be perceived a competitor?

We do not see that happening. As such, we have tie ups with United Bank, Union Bank and Repco Bank. One of the Cardiff's strengths is working with competing partners.

Branding is another area on which we received inputs from Cardiff. We are not hassled about branding at all. One of the biggest promises we make to our institutional partners is that the customers remain theirs.

Our purpose is to work with partners and create a profit centre for them, as opposed to saying we want their customers and will pay them a commission in the bargain.

What is the current size of your agency force and where to do you see that number at a year from now?

The size of the agency force is at 4,000; by the end of this year, we are looking to add a further 1,000 agents. What we are looking at is to increase the activity ratio so that it comes as close to 100 as possible.

The focus is going to be more on the quality and make the force quality oriented, which should translate to sales of higher value policies.

A few years down the road, do you believe that consolidation within this industry would be inevitability?

Some kind of consolidation is most likely to take place and all the players operating currently might not be around. It would also depend on how critical the Indian venture is from the perspective of the global partner.

Further, if the current cap of FDI does not move up to confer significant control to the foreign partner, then it would be interesting to see how many will still stick around.

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