‘We have been careful not to burn capital’

At Shriram Life Insurance, every second policy is sold to a rural customer. The focus on rural areas has been part of the group philosophy of reaching out to the financially-excluded. Despite the low ticket size, the company has managed to turn in profits, thanks in large part to its focus on keeping costs low. So, for instance, its offices in many places are often about 300 sq. ft, unlike the sprawling offices that many other private insurers have. As Manoj Jain, the Chief Executive Officer, says, insurance is sold in the field, not in the office.

As part of its business strategy, the company initially relied heavily on group companies to generate business volumes. This has come down from a high of 80 per cent in the first year to about 50 per cent now, its eighth year of operations.

After making profits for seven consecutive years, the insurer is now planning to expand its domestic operations and open more branches to enhance its distribution reach, says Manoj. Edited excerpts from an interview:

What is your business mix? Are you looking at expansion on the retail front?

We expect to close around ₹400 crore in new business premium collection this fiscal. Around ₹120 crore comes from the truck customers of Shriram Transport Finance. We have an affordable credit shield group insurance product for the tenure of the loan, which is a hot-selling product.

Around ₹140 crore comes from Shriram Transport Finance, which has become a corporate agent and hence canvasses other products too. Another ₹40 crore comes from Shriram City Union Finance — we provide cover on consumer durable loans and loans to small and medium enterprises.

The strategy we have adopted is to first take the low-hanging fruit. So, in the first year, almost 80 per cent of our business came from the Shriram group alone. Now, 50 per cent of our business comes from the Shriram group umbrella, and simultaneously we have started expanding in the market. We want to bring down our dependence on the group to 25 per cent gradually.

On the retail side, we are doing around ₹250 crore. Last year we opened 60 branches. This year we have applied to IRDA (Insurance Regulatory and Development Authority) for opening 60 more branches. So, by this financial year end, we should have around 300 branches. Last year the number was around 185.

Despite slowing growth in the life insurance industry, Shriram Life has maintained growth in both premium and profit. How did you achieve it?

We have been careful not to burn capital. Our paid-up capital is ₹175 crore, while our cumulative profit is ₹300 crore. Cost focus, the DNA of the Shriram group, is also one of the factors. Most companies, rather than harness their group customer base, have gone to the open market and undertaken massive expansion. The moment you go to the open market, there are 24 companies along with LIC, which is the dominant player. Therefore, branch productivity is far lower than if you sell to existing customers.

If you see our branches, each one is only 300 square feet. Initially, everybody was talking about top-line. The perception was that only if you have a good office, people will come in. But realisation has dawned that insurance is about going to the field and selling.

We are very clear that cost is important and we operate in a high variable model and never chase top-line. The focus in the industry has now shifted from top-line to bottom-line, and there is a lot of focus on sales process and persistency. The distributor now has a target for renewals along with new business.

What has been the response to new products? How will it impact growth during the year?

New products are very good from the customer’s point of view. Currently, almost 35 per cent of profits of life insurance companies come the wrong way — where the customer is losing and the money is coming to the insurer. Now the surrender penalties are going to dry off. So, in these products, the customer gets better value in the short term and this will affect companies.

If you look at January growth numbers, though the industry is growing, it is not on account of life insurance products but on the back of group gratuity products. Earlier, it was managed by companies directly, but most of them have decided to move to professionally managed insurance companies.

Today, if you to go to any bank branch, it will have around 23 products to sell. Insurance is one such product and it has targets for all. Today, banks sell products of only one company, by becoming brokers they can offer a choice and let the customer decide.

We were a late entrant into the life insurance industry. Building an agency force will take its own time, and we are very clear that agency will be our long-term model. But we need intermediaries for short-term growth.

Today, not more than 20 per cent of the 1.1 lakh bank branches sell insurance.

It is impossible for one insurance company to penetrate all the branches because the resources that are required are huge and we cannot be completely sure about the results.

As brokers, banks will be responsible for any mis-selling since they will represent the customer.

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