Deepak Mittal, the managing director and chief executive officer of Edelweiss Tokio Life Insurance, feels that the company has reached a point where customers have started noticing it. In an interview with Falaknaaz Syed, Mittal say the insurance company is likely to break even in FY21. Excerpts:
How is insurance industry coping with the competition from mutual funds that are seeing strong inflows?
After 2015, India is seeing financialisation of household savings. Insurance, mutual funds and bank deposits are all getting good inflows. We are not facing the heat of competition as the financial market is growing fast. In the last two years, household savings are flowing in on a monthly basis, indicating that people are now investing systematically.
Returns from insurance products are 2-6 per cent while mutual funds offer much better returns and have lower expense ratios. Please comment.
If one has a short-term investment horizon, then mutual funds (MFs) are better, but for the long-term, Ulips are a better choice. In insurance, debt returns are tax-free, and you can switch between funds without being subject to capital gains and charges (as is the case with mutual funds). It is not an ‘either or’ choice between mutual funds and Ulips, as we have seen quite a few customers invested across MFs and Ulips, depending on their short term and/or long term goals and needs.
There are two dozen life insurers, but of them only thre have been able to list. Will others take time to list as they have not achieved size and scale?
It depends on the need of the insurance company and its promoters. I think others may take some more time to decide on listing.
You have got a capital infusion of Rs 670 crore. How do you plan to use it?
We have been growing at 35-40 per cent even when the industry was growing at 14-15 per cent. Post-demonetisation, the private life insurers are growing at a good pace of 25 per cent and a lot of the capital infusion will be used to ensure that we grow at a sustainable growth rate of 40-50 per cent in the next three to four years. The good news is that, our growth due to productivity improvement is at 25 per cent and the rest of the growth should come from partnerships, new branches, distribution tie-ups and platforms already created. We have reached a point where customers have started noticing us.
This year, we started our direct channels, where in addition to our agents; our full-time salaried employees also reach out to prospect customers and sell insurance to them. We have 350 employees currently selling insurance and plan to have 1,000 employees in a year’s time. Similarly, our online channel (selling insurance products) is doing well. We are also looking at expanding our bancassurance footprint, which would work out customised solutions (for banks) depending on the needs.
You don’t have a large bank for distribution. Is this a handicap?
Having a large bancassurance distribution helps in reaching scale and we are looking at expanding our bancassurance footprint. However, it is important to have multi-channel distribution. All large private life insurers have large bancassurance businesses, but are also quite strong across channels like agency and direct. The IRDAI has allowed for open architecture (one bank allowed to sell products of multiple insurers) so opportunities for us will open up. Different types of banks have the need for different propositions. For example, small finance banks and payments banks do not want to replicate the same bancassurance model. They want to make their savings bank account offerings more powerful and want differentiated propositions. We are in a good position to use the open architecture model, as we can take lessons from our Japanese joint venture partner, Tokio Marine.
When will you break even? What are your accumulated losses?
We are a six-year-old company, so we expect to break even in FY21. We have a net worth of around Rs 1,300 crore and our accumulated losses as of FY17 were Rs 600 crore. We will continue with our expansion plans – adding 20-30 branches every year. This year, by opening 30 branches, we will have 120 branches by December, covering our footprint across India.
The new regulations do not allow an insurer to reject a claim after three years. So aren’t you taking risks by aggressively selling insurance covers online without medical underwriting?
Online products do have medical underwriting if the covers are very high. This law came only two years ago, but if you see, insurance companies have had more than a 99 per cent claim settlement ratio for policies that have been with them for three years.