Also, in the credit protect space, our mortality experience in six cases was not as good as we had originally envisioned. So, we went back to our partners (finance firms, which lend to customers with HDFC Life insuring the borrower’s repayment) and repriced the policies.
We are also focusing on persistency as we have realised that we are not among the top three in terms of persistency. It has remained steady at 87 per cent, though we want to take it a couple of notches higher.
What about new products?
Retiral and product innovation are our other focus areas. We have to go to the consumer with the intention of meeting his needs whether it is dying too early, living too long or how he locks in at these higher interest rates. We have to give differentiated products that don’t exist in India. For example, as people get older, they would want to reduce life cover and ramp up health cover, without changing the premium. We are focusing on making insurance a pull product rather than a push product.
How would you assess your company’s performance in Q4?
We are the market leader in margins by a mile and this is despite us paying market commercials to our partners. In agency distribution, we are not among the top three players. I want our agency to grow but with a product mix that works for us. We don’t believe that the agency customer is the right one to buy unit-linked insurance plans because it is a different channel from bancassurance.
Insurance has to be a business which is carefully built brick by brick with adequate risk management. We want to be innovative within a framework wherein the embedded value doesn’t have any skeletons in the closet. Growing top line in insurance isn’t as difficult as it is made out to be, but to be the most profitable requires guts to say no to risky business.
How is distribution evolving?
The propriety channels – agency and direct – are about a third of our business. That will grow to about 40-45 per cent over the next three-five years and bancassurance will progressively continue to go down because, open architecture is here to stay. Market economics will mean that banks, which have not opened up, will do so.
And the aggregator channel?
It will continue to be a meaningful channel for us and we need to be present where the customer is. We sell on several online platforms. We can’t say that a certain channel is profitable or not. Until a few years ago, the insurance company was dictating how the customer will buy but now the customer is dictating how he will buy.
What has been your experience with the non-banking financial companies crisis after IL&FS?
Our exposure of Rs 75 crore isn’t material compared to our assets under management in excess of Rs 1.25 trillion. So, the learning has been to focus on fundamentals wherein we stick to the underlying value of that process. Second, we have to keep on doing our asset rebalancing. We also have to remain true to the underlying fund. And, we are not chasing the number one slot. This is a long-term business unlike mutual funds and over a five-year horizon, our returns need to be in the top quartile.
The Max Life merger didn’t work out... Are you open to acquisitions?
We have looked at three-four companies
in the past, apart from Max Life. We will continue to look for a company with good distribution tie-ups, quality book and a meeting of minds between both sides. We don’t want to inherit someone else’s problem. We have the appetite but will use it selectively as we believe we are at the highest level in terms of margins.
Term insurance is attracting a lot of attention lately…
Term insurance is still a push product. The inflection point should happen the way it did in China. When an average Indian has something to save that he is worried about, he will start searching for the product. We are there in certain pockets. But I do worry that with too much push, the consumer may go away. Look at Pradhan Mantri Jeevan Jyoti Bima Yojana, where we continue to make profits. But some of our competitors said they have made three times as much loss as our profits. It means that pure term products that were sold through bank branches were perhaps not suited for the customers.
Do you prefer a risk-based capital regime as against the current solvency mechanism?
Yes, it would release a lot of capital and we would encourage that. But at the same time, the regulator could do this in a phased manner, like for companies
that have existed for 10 years or more. Also, it’s equally important for the regulator to look into the liability side of insurance companies. That’s completely unaudited.
What, according to you, are the key metrics for insurance companies?
Total annual premium equivalent (APE) growth, embedded value (EV) and margins are important, and then EV operating variances and EV sensitivity. Everything else is subsumed into these metrics.
Is there anything the regulator needs to look at?
I would like the regulator to ask all insurance companies or at least the ones that have completed 10 years to disclose EV at the waterfall, which can make companies comparable.
We have a balanced product mix. So, we can use different asset pools and do our asset-liability management (ALM) matching and that’s the structural advantage we have. However, there are smaller companies that do not have ALM matching in place. They have given longer-term guarantees and are unhedged. This is something that the regulator needs to focus on and ask questions about.