Mahesh Balasubramanian, Managing Director, Kotak Mahindra Life Insurance, says the changes to tax laws implemented from April 1, 2023, has dented the life insurance industry and this is being represented to the authorities. On the positive side, costs have stabilised which should support growth in the coming quarters. Edited excerpts
Post budget, growth has come off the mark for the life insurance companies. Is it the taxation effect or normal course rebalancing given that FY23 was very good?
It’s a combination of base effect and taxation changes in the ₹5 lakh plus premium segment. In the era before that, the ticket size was helping the industry. Therefore, the taxation changes have had an impact, and all of us are reorganising ourselves to ensure we can get more policies, customers, etc. Hopefully, by the end of FY24, we’ll be able to post double-digit growth.
Is life insurance still a tax dependent industry?
Tax is an important element in selling insurance. Life insurance is probably the only product that encourages customers to invest for the long term. In this era of instant gratification, to make sure that there is a long-term discipline of investment, a certain amount of tax break is always welcome. Also, we buy long-term papers like 30-year G-Sec more than anybody else which goes into infrastructure funding. Since we provide support at the long end of the market by investing in long term paper which helps nation building, it will greatly helps if customers also get some incentives on their long term investments.
At Kotak, how are you handling it?
For us as well, growth has been lower than what we saw last year. We may be slightly lower than the industry growth rate on the individual business, but the group business has done well. We are focusing more than ever before on expanding our distribution partners both on retail and corporate agency. Group credit and group protection business, we are happy with our progress. In the individual protection business, more can be done. Overall premium is still single digit on the individual side. But overall, at a company level, it is upwards of 30 per cent.
Is growth in group business is sustainable amidst talks of cost cutting?
There are two aspects to this - the employer-employee business, which is the group term business that is offered as a multiples of salary. While the credit term business is where life insurance is offered on the loans being given by financial institutions. Then there is the funds business which takes care of the gratuity and retirals. On the group term business, we don’t see any slowdown, though the growth is slightly lower than last year. The credit term business is growing in line with the industry expectations. The fund business keeps shifting in terms of the theme, but we’re not seeing any slowdown.
How do you see costs panning out for the sector?
The pre-pandemic prices themselves were on the lower side, and India was probably one of the cheapest markets and the pandemic hurt the industry. So, post-pandemic, prices went up. But we are seeing a softening of rates from that peak. As for the group term business, immediately after the pandemic, prices went up and have reduced. Prices have now reasonably reached a level of equilibrium.
You don’t expect hikes any soon?
No. But what we would love to have is more reinsurance companies and better reinsurance capacities. That would help us write more premium. Underwriting norms have also become tight and that causes friction. We would be happy if the underwriting norms are relaxed and is in tune with market requirements to enhance penetration so that we can all add more customers.
Below the top four private life insurers, the competition is heating up between you, Tata and Bajaj. How would you want to secure your spot?
As much as market share and size is relevant, sustainability is more relevant. We’d like to continuously build value for all our stakeholders- customers and shareholders and grow faster than the industry. It’s possible only by strengthening distribution by offering products which are more meaningful to our customers, by increasing our footprint in terms of the number of distributors, number of distribution outlets and customer service. Whether we are the number three or number four player is the outcome of that.
There’s a growing preference towards health insurance and some of your peers are open to evaluating composite licenses. What’s your take?
Composite license is something we’ll have to wait and see. It’s still under conceptual discussion because it has implications for the industry. There is merit in life insurance companies selling health insurance products, but whether you need to be a manufacturer or distributor is something that we need to decide. We just launched a combo product with Kotak General Insurance, where Kotak General Insurance is manufacturing the health product and we are manufacturing the life insurance product and delivering to both our channels. There is distribution synergy. But for manufacturing synergy, we’ll have to wait and see.
Do you have listing as a mandate from your shareholder?
Kotak Life Insurance will list if it requires capital to grow the business or regulatory requirements. Our solvency position is quite comfortable at 2.6x. It gives us enough headroom for growth, and life insurance companies like banks are also a balance sheet business. In a regulatory way, under the current dispensation, we don’t have to compulsively list. The third most important thing is our shareholder, which is Kotak Mahindra Bank and therefore, listing is for them to decide. In fact, despite being unlisted, our disclosures are in-line with most listed companies, and we are a significant subsidiary of Kotak Mahindra Bank. All the detailed data is published periodically as required. So, in the term, listing is not in sight.