'Core of insurance lies in long-term security': Vibha Padalkar, MD & CEO of HDFC Life
With a wealth of experience and a visionary approach, Vibha Padalkar, MD & CEO of HDFC Life, has been instrumental in shaping the insurer’s success amid an evolving market landscape. In an interaction with Business Today, she talks about strategic insights, innovative initiatives, and reflects on HDFC Life’s performance in FY24. Edited excerpts:
How has HDFC Life performed in FY24?
Despite changes in the Budget, we delivered a healthy growth of 20% in Q4 after adjusting for the one-off business of `1,000 crore in March 2023. We achieved our aspiration of double-digit growth for a full year by clocking 11% growth in FY24 on a normalised basis. We achieved individual Annual Premium Equivalent (APE) growth of 1% on an unadjusted basis. Growth momentum continued across ticket sizes of up to `5 lakh with robust growth of 19% for the full year. Tier II and III markets recorded growth of 13%. The number of policies for the year has increased by 11%.
The two subsidiaries are doing well. The pension subsidiary, which is wholly-owned, has crossed `75,000 crore of assets under management (AUM), and our Dubai subsidiary (HDFC International Life & Re) was the first one to set up its branch in GIFT City, and two products have already been launched. One is a dollar-denominated student savings plan, and the other one is a dollar-denominated health plan.
Why were there margin pressures this year?
New business margin in FY24 is 26.3% compared to 27.6% last year. The drop of 130 bps was primarily due to two reasons—the first one is the operating leverage gap caused by a one-time Rs 1,000 crore additional APE received in FY23 due to Budget changes; the second one is the higher unit-linked proportion on account of buoyant equity markets. We believe that value of new business growth will continue to be led by growth in APE. Our value of new business is Rs 3,501 crore, implying a two-year CAGR of 14%.
In March, last year’s non-participating policies were sold because of the Budget changes of `5 lakh (maturity proceeds on premiums exceeding `5 lakh annually being subject to taxation). So how has the product mix changed this year?
We have maintained a healthy balance in terms of product mix with unit-linked insurance plan (ULIP) at 35%, non-par savings at 30%, participating products at 23%, retail term at 5%, and annuity at 6%. While ULIPs continue to see strong traction driven by buoyant equity markets, Click2Achieve, our first DIY non-par savings solution, has been received well across channels, leading to a healthy increase in the non-par savings proportion in the last quarter.
What is your opinion of surrender charges?
I welcome the Insurance Regulatory and Development Authority of India’s (Irdai) decision on surrender charges. I believe that blending long-term guarantees with liquidity could disrupt the insurance model. Providing a guarantee of 15-20 years necessitates investing in assets with long-term returns, which may lack liquidity in the short term.
The core of insurance lies in long-term security rather than immediate liquidity. However, transparency is crucial. Customers must understand that early liquidity is limited, with surrender value increasing progressively.
Maintaining transparency, enhanced free look period of 30 days, and implementing video verification can improve customer understanding, especially given the complexity of insurance products. Additionally, addressing persistency issues at a strategic level is essential to ensure customers remain committed.
What are your views on Bima Sugam?
Bima Sugam will be an online insurance marketplace where customers can buy policies, pay premiums, and have their claims settled via a single platform. Settlement of claims and renewal of policies will become faster and reduce paperwork. Lower cost of customer acquisition and consent-based access to information through the platform can make products more attractive. We expect customers to benefit as Bima Sugam will be a regulator-backed platform for all stakeholders, promoting transparency, efficiency, and collaboration.
There have been discussions about agents’ commissions being higher than other products. What are your thoughts?
It is important to consider the nuances of different products when discussing commissions. For instance, ULIPs may offer better returns after a certain period, but they also have mortality charges and a longer lock-in period compared to mutual funds. Additionally, traditional insurance policies are more complex and require extensive advisory services, and that justifies higher commissions. It is essential to look at commissions holistically, considering the value proposition for both customers and agents.
Should larger insurance companies be listed to enhance transparency?
Listing larger insurance companies with AUM of `50,000 crore and above is a good move. It aligns with the trend of regulatory mandates for larger financial institutions to go public. I also believe it will contribute to the development of the sector, and improve transparency.
What innovations can we expect from HDFC Life?
FY24 has been another landmark year for launches such as Click2Achieve and Sampoorna Jeevan. Our subsidiary has also established a presence in GIFT City and we have launched dollar-denominated products as well.
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