HDFC Life CEO Vibha Padalkar
Subrata Panda and Hamsini Karthik, she is confident that tax sops gradually moving away for insurance
products doesn’t bother her much and is open to the idea of new partnership opportunities with FDI norms set to change. Edited excerpts:
Tax arbitrages are slowing the gap down. Can life insurance as a business penetrate without tax support?
Over the years, consumer surveys have shown that tax benefit is no longer amongst the key reasons to buy life insurance.
A recent Usage & Attitude Study conducted by Nielsen showed that tax saving under 80C was prioritized as the 8th or 9th reason for buying life insurance. The top reasons were protecting one’s family in case of death, securing children's future, and one’s own retirement. We believe that these reasons will continue to drive the demand for long-term savings, protection, and retirement solutions going forward. Even without the tax benefits, the existing products can effectively compete with other investment classes over a longer-term horizon, while addressing the customer needs.
To that extent, would the budget announcement on ULIPs impact the portfolio?
The announcement around ULIPs would put high ticket size policies on a par with equity mutual funds. While the product category continues to be attractive for customers, the impact on business for insurance companies would depend on their product mix and average ticket size. Death benefit continues to be exempt under section 10(10D) of the Income-tax Act, 1961. We have a balanced product mix, ULIPs comprise 23 per cent of our portfolio as of December 31, 2020, and our average ticket size in ULIPs has been in the range of Rs 65,000 - 70,000. Hence, we expect a limited impact on demand.
The Budget has opened up the sector to 74 per cent foreign direct investment participation. Would a foreign collaboration interest you?
Standard Life Aberdeen currently holds 8.9 per cent stake. They have been reducing exposure to the insurance business globally in-line with their strategy to focus on the asset management business. We are a professionally managed company and our interaction with our promoters is at the board level. While we keep benchmarking with global players in terms of their best practices and keep evolving our business model, we are open to exploring opportunities for strategic collaboration.
The reinsurers are raising rates in the term portfolio…
We have re-priced our protection products during the year based on emerging experience and reinsurance price revisions. This has also been factored in our new protection product, HDFC Life
Click 2 Protect Life, which provides multiple innovative features aimed at providing all-round protection coverage to our customers. We have followed a nuanced approach while pricing our products taking into consideration our target segments, claims experience, cost of reinsurance, and competitive dynamics.
How has the experience been on Covid-19 claims and its impact on capital?
We created a Covid-19 reserve of Rs 41 crore in April 2020 in addition to our regular mortality risk reserves to allow for potentially higher claims in light of the pandemic. We settled 1,271 individual and 542 group Covid-19 related claims as of December 2020. Claim intimations increased in Q3 and since then it has normalized. While our actual overall mortality experience remains within our estimates, we continue to monitor the claims trends closely and will keep re-evaluating the adequacy of the Covid-19 reserve. Our solvency ratio is healthy at over 200 per cent and we do not foresee any capital requirement on account of the pandemic.
The regulator is nudging the industry towards 13th month persistency of 90 per cent …
There has been a gradual improvement in persistency ratio over the years. We remain focused on providing relevant and innovative solutions to our customers. Our persistency ratios have been stable with 13th-month persistency (individual) of 89 per cent. While we had anticipated some weakening in persistency due to the pandemic, our overall experience has been in-line with our estimates at the start of the year. There has been heightened engagement with customers to communicate the benefits of continuing with their existing policies, especially in these uncertain times.
Savings products are growing faster than protection products. You see this trend continuing as long as FD rates remain soft?
Based on the macro-economic environment and the launch of new products, we do see a pickup in demand for certain product segments within savings. Our product mix remains balanced with ULIPs at 23 per cent, non-par savings at 30 per cent and par at 35 per cent. We expect the trend in savings growth to sustain and believe that the protection and retiral categories will grow faster than savings in the coming future. We see signs of demand for individual protection reverting to a normal level but with respect to the savings business, people were hesitant in the initial phase of the pandemic due to uncertainty around the economic environment. We see a pickup in the savings business on a sequential basis on account of an increase in average ticket size as well as the number of policies.
Irdai chairman has talked about indexing the annuity rates to government securities or the inflation rate. What is your take on this?
Assets backing the annuity business are predominantly invested in long term government securities to manage asset-liability mismatch risks. Consumer pricing is generally determined by prevailing interest rates, credit spreads on corporate bonds and risk charges of insurers to manage interest rate and longevity risks. Index-linked annuities would be an interesting option for customers and will require further development of the asset market in India.
Irdai's annual report shows banks, brokers receive the maximum mis-selling complaints. How can this be improved?
Our focus on improving the quality of the business is reflected in improving persistency and lower customer complaints. We have witnessed a 65 per cent reduction in customer complaints over the last 5 years. This has been achieved through a culture of equal focus on the quality of business and measures such as incorporating customer satisfaction (CSAT), persistency, and customer complaints in the key performance indicators (KPIs) of our management teams. There is a lot of focus being brought in by Insurers as well as our proactive regulator on improving the consumer experience, business quality, and ensuring the right sale. Several initiatives like mandatory pre-conversion connect with customers, simplification of documents at the time of selling, and sales management practices with embedded controls are being reinforced. I am confident that we will continue to see more and more usage of analytics and AI models to maintain quality of business and highlight any poor quality of business both at the distributors and insurers end..