How has the life insurance industry grown this year compared to last year?
If you take out LIC, it has grown 15-18 per cent. What is more important is that sentiment in the life insurance industry is very positive this time - increase in foreign direct infl ows has brought cheers, listings and mergers have been happening, and this will result in growth for the medium- to long-term.
IPO of of ICICI Prudential got listed below the issue price and the industry has started showing signs of consolidating. Is it positive?
Insurance is a long-term game. And the long-term perspective is very good. Do you think consolidation is the way forward? I do not know. In countries like the US and Japan, which are much smaller, they have many more insurance companies and are all doing well. So that is really not the reason. There is a lot happening in distribution channels. So, insurance companies without banking partners are struggling. It is a challenge, but I think the market is big enough for more players.
Do you also plan to get listed? We have no choice because it is mandatory for all companies to get listed. We are in the eighth year of operation and listing has its own challenges. But there are also advantages. We are a transparent company with strong governance. We do not fear listing. We welcome it.
Is low persistency a concern for the industry?
Low persistency in the 61st month is a problem for the industry. It was less than 20 per cent because 80 per cent policies go off the books in five years. That is, however, improving now. I think insurance companies are focusing on persistency. They are selling right. The industry is taking a lot of initiative to ensure persistency is improved because that is what creates embedded value. I believe lapses appear at the point of sale.
It all begins with faulty selling. The selling process has to be made more robust through training. Second, (all this while) the focus of most companies had been on generating new premium. Now, with listing and embedded value coming into play, all of them have realised that persistency is important for their business. Companies have also started focusing on better sales management, better training, and better follow-up of renewals. All stakeholders are now employing this holistic approach to improve persistency.
Lapsation occurs more in traditional or unit-linked insurance plans. What's your thought?
Ulips have very peculiar features. Under the new guidelines, there is no surrender charge after fi ve years. So when a policy completes fi ve years, people go and cash in the policy if markets go up. People do not see it as a longterm policy. In traditional plans you lose some money, that is, you lose the cover.
How good are retirement plans of insurance companies?
NPS is a superior product. However, just like we should buy a health plan from a health insurance company and pure investment products from non-insurance companies, you should buy NPS. One should start planning for retirement much earlier and build a corpus, because we do not have a social security system in India. One should have a retirement plan because we have nuclear families, and the cost of hospitalisation and medical care are all rising. NPS is a better choice at this point in time.
Do you have a retirement plan?
We do not have a retirement plan now. A few years ago, we had one on the Ulip platform However, regulations have made it challenging for insurance companies to have a retirement plan because they mandate minimum guarantee - earlier they said a minimum guarantee of 4.5 per cent on unit-linked pension and now they have mandated non-zero guarantee. In retirement plans you take a long-term call on a customer. Because of long-term interest rate risk insurance companies are challenged to have good a retirement product. It is a challenge for the insurance companies on how to minimise interest rate risk.
What are some of the concerns for the life insurance industry?
Persistency is the biggest concern. Productivity of sales channel is another concern. The other challenge is to keep the costs low. Bancassurance is doing well, but it can do much better. Digital disruption is exciting. It has affected banking. It has affected travel. It is affecting every part of our lives. It has also affected non-life insurance products like travel, health and motor insurance. Life insurance is a complex product and requires explanation. Term insurance is picking up. Given their complicated nature, is it easy to sell traditional or Ulips online? We have to start with lower engagement, lower complexity. Today the best Ulip plan is online. They offer the lowest charges and best returns. There will always be a need for agents or banks to intervene and help.
The number of life insurance agents has come down significantly. Is it a challenge?
This is what I discuss with my team every day. Agency has been struggling for some years. But I do not believe there is no place for agency. We are talking of reaching 5 per cent penetration of GDP. If that is to happen agency has to be a big player. But yes, it is a challenge to revitalise the channel.
From October 1 one can hold one's policies in demat format. How will it affect customers?
Demat has been there for more than a year now. You can see all the policies from different providers on one screen. So it is effi cient and user-friendly. But it has not taken off yet because, unlike shares that you can transact electronically, you cannot transact in insurance policies.