The Hindu Business Line : ‘Logical to grow via bancassurance’

The bancassurance business is a logical distribution vehicle to reach the bulk of our target markets in towns and villages, as people take crop and other small loans and interact with the local bank.

T. R. RAMACHANDRAN, MD AND CEO, AVIVA LIFE INSURANCE

Suresh Parthasarathy

N. S. Vageesh

ULIP products are a lot more transparent about their investments than traditional products, says Mr T.R. Ramachandran, CEO and MD, Aviva Life Insurance. Taking off after a 19-year stint with Citibank, Mr Ramachandran has a clear strategy planned for Aviva’s insurance products. He emphasises the need to focus on protection policies for the largely under-insured section of the country through multiple distribution channels.

Excerpts from the interview:

How should one interpret the charges made in the first few years in a ULIP?

The first few years’ charges of 60-70 per cent of the premium, if spread over the policy term of either 10 or 20 years, will be very minimal – it may be 1 per cent or even half a per cent per year. This is far lower than any entry or exit load charged by mutual funds. The problem could be that the agencies are not transparent about this This area needs improvement.

Why is the industry not selling ULIPs as a 10-20-year product instead, and spreading the charges over its life? Investors are not interested in the surrender charges or any other charges after three years. We have no choice but to front-load it in the initial years. It is true that spreading charges over a period would ensure customers do not feel the pinch. But, again, how will one cover the distribution cost? In the UK or the US, you have a concept of deferred accounting; so, if you pay the mortgage broker a fee for a mortgage loan, you can write-off the expense over the life of mortgage. Similarly, if we are allowed to defer the commission we pay and spread it over the policy tenure, it would help.

It is alleged that ULIPs are sold as short-term products to meet sales targets? Is there a lack of transparency?

ULIP products are more transparent then the traditional products. In endowment, for instance, policyholders will not know the investment philosophy – whether the money is to be invested in debt, cash or cash equivalent or what the money-back internal rate of return is.

Traditional products today are projected more as capital-secure products rather than money-back policies. I feel the industry has to diversify into savings, investment, retirement and protection. In the last 7-8 years, only the investment aspect has been over-emphasised.

The Government has been allowing more foreign players in India as Indians are under-insured; the average Indian customer needs more protection for his family. These are the kind of products that need emphasis, and we at Aviva are going to figure out how to do this.

The average premium collected (with relatively few visits) by a distributor in a ULIP is higher than in a protection plan. How would you emphasise the sale of pure protection policies with agents?

The whole industry cannot be governed by what one distribution channel does. For instance, we are all aware that in a developed market you can turn to the Internet and buy a pure-term product with minimum underwriting and medical check-ups.

We have to expand the distribution available and make it more affordable. Further, why would a distribution business that has no investment call for a profit margin of 10-20 per cent?

Talking about distribution channels, last year Aviva wanted to focus more on individual agency channels as against bancassurance. Coming from the banking sector, what would be your strategy for Aviva?

Aviva was a bank-centric organisation until 18 months ago and, therefore, the focus on the agencies was not so much to de-emphasise bank assurance as to improve competence in any distribution area. When compared to some of our peers, Aviva did not have bandwidth in agency space two years ago.

Now, there is much growth in agency – we have 37,000-38,000 individual agents. We have not lost a single bancassurance partner in competition but we lost a few that were not in our control. Centurion Bank merged with HDFC Bank and Canara Bank started to manufacture insurance products with HSBC. So we have lost them.

But for these, we have had 38 relationships in bancassurance and I don’t believe we have lost any one to competition. We will continue to focus on multiplicity of distribution.

Further, our target market includes 700 to 800 towns and 9,000 villages. We have relationships with bigger banks such as Punjab and Sind Bank and also smaller ones like co-operative banks. The bancassurance business is a logical distribution vehicle to reach those geographies People take crop loans and interact a lot with the local bank. So it’s logical to grow through the bancassurance channel rather than opening branches there.

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