JOIN USLife insurance business in India is in for some tough time this year. Many companies are busy re-filing their traditional life products, the deadline for which is October 2013 by regulator Insurance Regulatory and Development Authority (Irda).
They are also waiting for the proposed hike in foreign direct investment (FDI) from the current 26 per cent to 49 per cent, the possibility of which, however, seems remote. The CEO & MD of private life insurer Max Life Insurance, Rajesh Sud discusses these and related issues in conversation with S V Krishnamachari of Deccan Herald. Excerpts:
Life insurance business seems to be at inflexion point, so to speak.
Well, it is in a period of transition, both on account of regulatory changes and product-related issues. The current economic situation of the country is another significant aspect. The long-term potential of the industry continues to remain attractive.
What will be the full year growth, from a gross written premium (GWP) viewpoint? The first quarter this fiscal saw a decline in individual premium sales.
It is hard to predict GWP growth for reasons mentioned above. Yes, in the first quarter, there was decline of about 28 per cent in individual premium collections. I suspect new sales may not grow this year.
What about renewal premium?
The industry is seeing a lot of surrenders in unit-linked insurance plans (ULIPs), policyholders who completed three years or so are disenchanted with stock markets and are taking their money out. Therefore, renewal premium income is also unlikely to grow. However, all these could change, depending on government action.
Could you elaborate?
I believe that long-term savings like insurance and pension should be separately incentivised. Insurers play an important in channelizing household savings. Further, out of approximately Rs 17.40 lakh crore of assets under management of the sector, Rs 7.77 lakh crore is in Central and state government securities. Thus, we contribute to managing the government’s deficit. If it really wants to give impetus to long-term savings, then they should not be clubbed with term deposits or equity-linked savings schemes, which are of shorter tenure.
The government recently released statistics that life insurance penetration (premium underwritten to gross domestic product) was 3.17 per cent in 2012. How does this compare with the rest of the world?
The Asia average is 4.1 per cent and in some developing countries, it is between 5 to 6 per cent. If seen from a density perspective, which is premium per capita, India is at $43, while the Asia average is $230. This shows that India remains largely under-protected.
The proposed hike in FDI limit doesn’t seem to be happening, despite assurances.
There is no point in even commenting about it. If the government does raise the limit, it will be good, as FDI is more domain-based and therefore tends to stick. But the talk of capping voting rights at 26 per cent would raise governance issues for companies.
But are foreign insurers interested in investing in India?
Earlier it was a one-way street, everyone wanted to enter (invest). Today, it is a mixed bag, some want to enter, some want to exit. The market is tough, overall growth rates have got impacted. The current business environment is a dampener.
You company seems to have done well in recent years. How could you manage that?
We have been emphasizing on training, technology, discerning approach to investments and change in distribution mix. These days, a large part of our business comes from bancassurance, which is more efficient than agency model. We focus on true insurance, which is based on protection and long-term savings rather than shorter tenures or investment-based products. The outcome is that we were at number four among private life insurers in fiscal 2013, up from seven in fiscal 2010. Our market share during this period doubled from 5 per cent.
You bucked the trend of declining business in the first quarter as well.
Yes, our individual premium sales at Rs 293.05 crore was higher by about 10 per cent, compared to RS 267.08 crore in the corresponding quarter of previous fiscal. We also plan to disburse Rs 297 crore as bonus to our participating policyholders this fiscal.
Irda recently gave approval to insurers to invest in category II Alternative Investment Funds (AIFs). What are the benefits for the industry?
It opens up more options for us to invest. These funds are essentially private equity funds, debt funds. Such investments are risky, at the same time, yield higher returns.
Have you spotted any significant trend among customers in terms of plan preference in the past three to four years?
Traditional life insurance plans have staged a comeback, certainly. The industry has seen a reversal of ULIPs because of volatility associated with it. Indians don’t like volatility.