Thanks to some progressive initiatives by the Insurance Regulatory and Development Authority (IRDA), the life insurance industry has undergone a major metamorphosis.. In this interview with The Hindu, Managing Director and Chief Executive Officer of ICICI Prudential Life Insurance Company Limited Sandeep Bakhshi discusses the road ahead for this evolving industry. Excerpts:
The life insurance business has started showing positive signs. What has caused this upturn?
The efforts initiated by the IRDA and the industry over the last few years in terms of better products, a much higher level of protection, and far better returns for customers have started showing results. A lot of investment was done in products, process, technology, and distribution. The efforts over the last three years have brought about a positive sentiment.
A journey of three-and-half years of thought process, distribution and awareness-building by companies and regulator has led to an improvement in the overall business.
How is the industry evolving in India?
Right now, there is constant evolution and convergence in the financial services. Broadly, there are four components of life insurance licence. One is the safe savings reimbursement. In the savings and investment space, it competes with fixed deposits, mutual funds, government bonds, and other offerings from public sector undertakings (PSUs). Then you have health and health and life insurance, which compete with standalone health companies and general insuarnce.
Besides, pension products have competition from national pension schemes and the pension mutual funds. Interestingly, the life insurance companies are the only category in the financial system which offers annuities. The idea is to make life insurance competitive against other investment and saving opportunities such as gold and real estate . These are the Asian sort of trends, which are beginning to show. A tangible progress could be seen in the areas of integrated grievance management system, insurance repositories, and opening of new distribution channels all across the country.
What is making e investors have a re-look at ULIPs (unit-linked insurance plan) ?
Thanks to the guidelines of 2010, ULIPs are the best financial instruments for savings now. Basically, a product should meet two requirements — it should be good for the society and should be cost-effective. ULIPs, which were in the ecosystem during 2001 and 2008-09, were relevant in the context because the stock markets had moved from 2500 to 20,000. That was the period of unprecedented growth in ULIPs, where the equity markets ensured good returns.
Then the whole cycle changed, and they have become irrelevant for a larger part of society. Now, the normal growth is about 10 per cent. The charges were recalibrated to the most realistic level, and now ULIPs are perhaps the best products in the market. Fundamentally, it was the most relevant reform that happened. ULIPs are continued and people are coming back. Now it’s a fresh look and start.
How are the changes made in the design and distribution areas helping customers, agents and insurance firms?
Broadly, there are two changes in terms of expected returns and the way insurance is sold. The return expected out of the product has become the most important aspect. Now, the return is only decided by the market but not by the company. Efficiency in distribution pay-out has gained prominence. There was also a major change in the agent commissions. An agent should earn basic minimum amount but the focus should be on absolute earning, not percentage. At ICICI Prudential, it will be the amount of earnings for agents and distributors, not percentage.
This apart, we are completely digitising the insurance-buying process. One should be able to buy an insurance policy by just a click of a button without any flow of paper. Our agent should be able to complete the transaction with the customer with an iPad, sitting across the table.
How is ICICI Prudential Life placed in the Indian market?
We have grown ten per cent from last year. Our strategy is pretty much simple, make products competitive. Growth in the first-half of the year was good. Our annualised premium income was close to Rs. 1,500 crore in the first-half of this fiscal. Besides, there are so many macro-economic factors that may influence the growth. It might work either way based on the building blocks and market behaviour.
What are the major challenges for the life insurance industry in India? How are companies finding ways to face the issues?
As an industry, there are two fundamental challenges. One is our competition with other domains of financial services. And, the other is educating customers. We have to constantly look at our work architecture, adoption of technology, and adoption of the best practices which are happening in other parts of financial services. Today, our major effort is on improving the cost efficiency ratio in terms of annualised premium.
Educating customers is another major challenge.
Is the low density and shrinking penetration of insurance in India a concern?
Financial savings have come down. It’s a larger issue at a systemic level. Savings, for instance, have come down, and they impact the life insurance industry. We have to constantly innovate and customise products for the changing requirements to create a bigger market. If customer gets better returns and protection for a long time, it is something which is surmountable.
Unlike in the past, a range of distribution channels is now available for the industry. Do you think this wide range can contribute to faster growth?
Historically, we just had one channel, the tied agency channel. Now we have variety of options such as bancassurance, corporate agents, brokers, direct internet sellers and web aggregators. What I feel is that there is a lot of distribution operating in the fixed income space. The insurance distribution has become an attractive proposition for the people who had not looked at insurance at all in the past. The growth of distribution and technology are the two major positive developments in the insurance industry.