‘There is vast untapped potential for the life insurance industry’

Private life insurance players have not had it easy in recent years with declining premium collections and the regulator tightening the rules governing this sector. But Puneet Nanda, Executive Director, ICICI Prudential Life Insurance Company Limited, who heads the largest private life insurance company in India, thinks that the worst is over and the regulatory changes will ensure that the road is smoother for investors in the future . Excerpts from an interview:

Why are premiums in the life insurance space going down? What is the way forward?

The flow of money into any financial product is largely governed by the household financial savings rate. Over the last few years, these savings have seen a decline.

During the period following the opening up of the life insurance industry, household savings rate was around 22-23 per cent of GDP; almost equally divided between physical and financial savings.

Over the last two-three years, despite household savings remaining the same, financial savings have come down. The RBI data, last year, revealed that it had fallen to 8 per cent from around 11 per cent earlier. Slowdown in the economy and other macro-economic factors affected the allocation of investments towards financial services products. Volatility in capital markets is another factor impacting investment decisions of consumers.

There have also been various regulatory changes which required life insurers to recalibrate their business models. This may be another reason why flow towards insurance has not been that great. The first half of this year has started to see increased allocation of funds towards life insurance. There is a definite change in the way life insurance is being looked at by consumers. Products now offer a much better proposition and there’s a lot that the new regulations have done to ensure that maximum benefit is provided to the customers.

What will be your strategy to grow volumes?

Our strategy has always been that of offering need-based life insurance solutions that meet customer requirements.

That’s not all, we have endeavoured to create products that are comparable with other financial savings instruments.

These products, supported with good customer service along with strong technology-driven solutions, have made us the preferred choice when it comes to life insurance. Our technology solutions have empowered customers, facilitating the making of informed decisions and providing a smooth buying experience.

When the industry opened up, the penetration of life insurance as a percentage of GDP was less than 2 per cent. With changes in the economic environment, there have been fluctuations. The penetration for FY2013 stood at around 3 per cent.

This implies that there is vast untapped potential for the life insurance industry.

India has a huge working population that is growing; the challenge here is to reach out to this young working population to enable them to secure their future.

The regulator is getting stricter with the norms governing agents and data show that agents are leaving. How is the industry going to look at distribution from now on?

Traditionally, the life insurance business in our country has been based on an agency-led model. With the entry of private players, innovation is the order of the day in the distribution channel too.

Today, we have a multi-channel distribution network and thanks to technology, buying life insurance products has become a very simple and easy process. A customer can choose between buying from an agent, a bank or online. What’s important is the experience and the time spent in the process — the objective is to enable customers to make an informed decision.

We have managed to maintain a fair balance. In initial years, about 50 per cent of the business came through the agency channel, about 30 to 40 per cent from the bank channel and about 10 per cent from other channels.

This has seen some change in the last three years. Currently, about 50 per cent comes from bancassurance, 30 per cent from the agency channel and the rest from other channels.

What are your thoughts on increasing competition in the industry and many players considering exit?

Different companies have different objectives and strategies. There are 24 life insurance companies today. Some may want to exit, at the same time, there could be others lining up for fresh licenses. Over time, it is likely to become a more segmented market. While there may be a few national players of scale, depending on their strategies, some companies may prefer to become niche players based on customer segments, geographies or products. For instance, now we already have pure health insurance companies.

It is a natural evolution. Competition is good as it improves the proposition for the customer and makes the industry more efficient.

Life insurance is a difficult market since it has long-gestation products and players need to have the right mindset.

While we have seen joint venture partners of some players exit, this may have been primarily due to their individual compulsions or views at international level.

Globally, India is viewed positively from a long-term perspective due to its growing middle-class and increasing income levels. However, since the life insurance industry is capital-intensive players should have sufficient funds to sustain over the long term.

We find insurers misleading consumers about returns from their products in the advertisements they give. What is your take on this?

The regulator has given clear guidance on advertising in any medium on what you can say and what you cannot say. All advertisements have to be filed with the regulator.

While it may be difficult to have complete standardisation in terms of the information shared about returns, let us remember that when a person buys a traditional plan, he/she buys it keeping in mind a long-term goal with corresponding financial obligation.

So, the objective of the advertisements is to help consumers realise how these plans can enable them to get closer to their goals.

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