‘I don’t believe insurers can cut costs further’

May 04, 2015 01:28 am | Updated 03:33 pm IST

BL 2-5-2012 MUMBAI:( Reporters for Priyanka)(Right) Mr. Amitabh Chaudhry, MD & CEO, HDFC Life at the announcing company's results in Mumbai on Wednesday. Pic by SHASHI ASHIWAL

BL 2-5-2012 MUMBAI:( Reporters for Priyanka)(Right) Mr. Amitabh Chaudhry, MD & CEO, HDFC Life at the announcing company's results in Mumbai on Wednesday. Pic by SHASHI ASHIWAL

The margins of Indian insurers are the lowest among global insurers. Most charges are capped by regulations and the profitability is low. The route to profitability lies in greater scale, operational leverage and technology-led productivity, says Amitabh Chaudhry, Managing Director & CEO, HDFC Standard Life Insurance Co. Ltd., in an interview with Oommen A. Ninan

With the passage of Insurance Bill, what are the changes you are expecting in the insurance landscape ?

I expect more capital inflow, which would fund industry growth and enable product penetration and employment generation. It would also lead to a public listing of a few insurers, and, therefore, lead to greater public scrutiny, accountability and transparency. We have untapped opportunities across life, health and pensions, and I believe all segments would grow well. Insurers need to be even more prudent at the underwriting stage, as claims cannot be rejected after three years.

Are you planning to hike the stake of foreign partner immediately?

Both HDFC and Standard Life are committed towards HDFC Life and have been supportive of its growth aspirations and associated capital requirements. Given the change in regulations, I do expect Standard Life to increase its stake in the joint venture, once a roadmap is agreed upon between the shareholders.

Post the regulatory changes, there is an effort to make products more transparent and customer-centric. What are your views?

I understand that there are issues of mis-selling and complex product structures. We are addressing these issues on a war-footing through themes of product simplification, need-based selling and verification prior to policy issuance. Our focus on simple protection plans, which offer mortality and health benefits to customers, is greater than ever before. We will expand this portfolio further.

We have a tool called ‘MyMix’ where our distributors sit with customers, and, based on an analysis of their needs, we ensure that they purchase the products which suit their needs. We ensure that for every policy that we sell, an independent verification is conducted on whether the customers have fully understood the terms and conditions of the products they have purchased. We issue the policies only after this check is completed.

The industry worked on very thin margins and low profitability during the last fiscal. Will this scenario continue?

There is enough data to prove that margins of Indian insurers are the lowest among global insurers. Most charges are capped by regulations already. So, the upside is limited. I don’t believe insurers can cut costs further. So, the route to profitability would lie in greater scale, operational leverage and technology-led productivity. Also, players with an appetite to sustain initial strain on protection products and have sound risk management practices can see increase in profitability. Since stock markets are moving up currently, do you see any inclination towards unit-linked insurance plans (ULIPs)?

Yes, inflows into ULIPs do increase during such periods. We have seen our assets under management (AUM) grow substantially. However, customers, who have invested for long, also find an exit opportunity due to low surrender charges.

We believe ULIP to be an extremely transparent plan. It gives good returns if bought for long-term capital gains. Besides, it offers protection cover too. For the last few years, the demand for traditional insurance plans has considerably gone up overshadowing the ULIPs. However, our faith in ULIPs continues to drive us to bring forth innovative plans under this umbrella. We launched Click2Invest last year, which is a unique online ULIP. In order to offer a choice of smart ULIP to Internet savvy customers, we have launched this plan at a very low cost by removing premium allocation, policy administration and discontinuance charges. We believe this plan will change the way insurance is bought in our country.

Has technology been a game changer?

Insurance is not immune from this mega-trend of our times. As we talk, HDFC Life is in the midst of a large technology-enabled business transformation programme that touches every part of the organisation. Today, we have a point of sale underwriting engine that has taken decision-making from the back-office to the front-end. We have the ability to track every customer interaction with our sales teams through a customer relationship management (CRM). Organic traffic to our website is growing by the day as more and more customers search online. We are leaders in social media not just in insurance but among financial service firms in India. Many of them also end up buying through our website.

How do you plan to grow the agency channel?

The decline in agency channel is a big concern, and the regulator had taken steps to address the same last year. So, our focus in agency is two-fold — professionalization and profitability. We are running a programme that will, in the long-term, help to professionalise the agency force. But the results will take time. To fast-track this, we will have a pipeline of resources that will come in via a self-funded university programme. At the next level, our focus is to nurture agents who are serious about life insurance distribution. Agency is a vehicle where we have been successful at driving sale of health and term plans.We measure our growth in this channel not in revenue terms but in profitability terms as the economics of the insurance industry has changed drastically in the last five years. As we run a tight ship, premiums may have decreased over the years but profitability trends are best in class for us.

How, according to you, the pension industry will be shaping up in future?

In order to promote social security conditions in the country, the Finance Minister, in his recent budget, announced ‘Atal Pension Yojana’ to all unorganised sector workers, who currently do not avail themselves of any social security scheme, and increased the deduction limit under the NPS (National Pension System) by Rs.50,000 under Section 80CCD. These initiatives definitely will boost long-term financial savings towards retirement. Life Insurance industry plays an important role in achieving this objective by providing long- term savings instruments. Very few financial instruments provide guarantee with the underlying investment for 20-30 years. Pension plans from life insurers do that.

We also provide long term guarantees. What are your thoughts on theeconomy and the key challenges faced by the industry?

We have seen positive action from the Government, and with several bills passed in the Parliament session. I expect the wheels of the economy to move faster than ever before. Also, our governance is becoming more transparent on allocation of resources which is good for the long-term. Inflation seems to be tamed, and now it should be a question of time before the pace of growth accelerates. The budget also laid an emphasis and provided a framework for pensions and insurance. oommen.a@thehindu.co.in

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