At a time when the life insurance industry has seen a decline in new business premium collection (in individual business), Bharti AXA Life Insurance has managed to grow at 50 per cent in the current fiscal. The low base certainly has something to do with these impressive numbers. In an interview to Business Line , Sandeep Ghosh, Managing Director and CEO, talks about the company’s strategy and growth plans. Edited extracts from the interview:
The fourth quarter has typically been the best selling period for life insurance products? What has been the response, especially to the newly launched revamped life insurance products?
Overall, business since February has been somewhat sluggish. Now, how much does this have to do with the products versus macroeconomic factors, I am not in a good position to give a definitive call on it.
Within products there are two factors at play. When you have such a major overhaul of products what often happens is that many companies have had to discontinue flagship products, so getting used to a new segment of products will take some time.
Also, while the new product regime is pretty customer-friendly, they ensure certain minimum benefits, which have also led to an increase in premium rates. So, on the one hand, you have got a whole new bunch of products that distributors have to get used to for selling and pitching. On the other, you have got the premium rates going up.
So, due to a combination of factors, we have not seen the momentum pick up, which the industry is used to seeing in February and March. It’s only in February that we started see the impact of the new products. Business looks to be much slower than last year, but where we’ll end up I am not sure. However, so far it has been a bit worrisome.
At a time when several players are seeing a dip in new business premium collection, you have seen a rise. Tell us about your strategies.
We have seen very good pick up in agent licensing since the middle of last year, so that has helped our agency grow. We have some new partners to deliver for us in the broking space and third-party distribution. We have also had good growth in the group life business, which is a single premium business.
Why has the private industry fallen out of selling unit-linked insurance plans (Ulips)?
In 2010, at the peak of the unit-linked plan boom, we used to be a 94 per cent Ulip player. We are now a 95 per cent plus traditional player, so in that sense our pendulum has shifted dramatically from unit-linked to traditional products.
Our ideal mix is a function of what channels we distribute through.
So today, we are one of the few players which do not have a bancassurance channel. We are hoping for open architecture and other enabling changes in the environment which allow us to get into bancassurance.
If we had a bancassurance partner, we could potentially see ourselves being 80 per cent traditional and 20 per cent unit-linked.
But in the absence of a bancassurance partner, I am happier being 95 per cent in traditional business because for us to distribute unit-linked business, unless we have an extremely cost efficient channel like banks, does not make economic sense given the way regulations have changed. It is not just the cost of distribution, today. The biggest issue for the industry is agent attrition and that’s because they don’t make enough money selling insurance relative to doing something else.
Now, if you sell unit-linked products where you are allowed to pay very low compensation (commissions are capped at around 4 per cent), how will an agent make enough money to be serious about the business? In some ways the regulatory regime does not allow us to play with unit-linked products in the agency channel. It’s a different story in banks, as they already have captive customers, especially high net worth individuals who understand these products. Without bancassurance, it is very difficult to get a meaningful mix of unit-linked products.
What is your capital requirement at present? When do you expect to book profits?
On a statutory basis, our timeline for break-even is 2016, which is our tenth year of operation. Our solvency ratio is around 190 per cent. We keep a comfortable margin over the mandatory solvency requirement and shareholders’ fund capital. As a company we are not yet capital self-sufficient.
We expect to have some infusion of capital. Although we have brought that quantum down significantly, we will need infusion of capital for the next couple of years. When we sell a lot of traditional products, we have to maintain reserves, so we need to provide for that.
We do have some expansion plans, not necessarily in branches but in technology and other areas which need to get funded. In a couple of years’ time, as the renewal base grows, we hope to become capital self-sufficient.
What is your outlook for the life insurance industry?
The industry will, over time, get used to the new products. We are all hopeful and bullish that if we get a stable Government and the economy improves, they will be a catalyst for the industry. So, in 2013-14, if you take out the group business, there will be little growth, and in fiscal 2014-15, as things stand, unless the fundamentals improve dramatically, the industry level growth rate will be in single digits.