Insurers are now focusing on building balanced portfolios
Insurers have altered the product mix after regulatory changes related to unit-linked insurance plans. GV Nageswara Rao, managing director and chief executive officer of IDBI Federal Life Insurance, in an interview with Shruti Verma Khare says that challenge for the insurance industry is to increase profitability and efficiency to cope shrinking margins and dip in sales post regulatory changes. Excerpts:
n How has the business been for life insurance companies post September 1, 2010 after new charge structure for unit-linked insurance plans (Ulips) came into effect?
After September 1, insurance sales in the industry have seen a sharp decline. Official data is not yet out, but the decline is primarily in the segment of Ulips. On the other hand, there is an increase in the sale of traditional products, which include term plans, money-back, endowment and pension. Sales have come down because even though Ulips have become much more attractive for the customer. It has also resulted in causing huge dip in agents’ commission. Agents and distributors are not selling their products. There is a dip in distributor’s interest to sell Ulips.
n So what is the industry doing about it? Are you offering incentives to agents to sell Ulips?
As an industry, it is important to have a diversified portfolio of products. In past few years, Ulips have dominated sales. Growth was also coming from the same. For some, proportion of Ulips was as high as 90 per cent. With these regulatory changes, everyone is now focusing on building a balanced portfolio. We will see a gradual shift. But, in my view, this shift will take some time.
n How much commission is being paid to agents now?
It varies from product to product. Our cheapest Ulip pays 1.5-2 per cent of premium. But compared with earlier commission structure, agents’ payout has fallen by two-third. I think it is a challenge for the industry to educate distributors that since the product is attractive it is easier to sell. So, they can increase their total income by increasing volume of sales.
n What will be the strategy for insurance companies in 2011?
Focus for all companies will be on profitability management along with growth. In the past few years, companies were concentrating only on growth. As margins are shrinking, the key is to be able to increase volume at every level, efficiency per branch, per employee.
n When do you plan to break even?
We plan to break even in the seventh year of operation. We are in our third year of operation at present. Breakeven point in insurance industry also depends on growth. Higher the growth, more time it will take to break even.
n What is your capital base right now? Do you plan to infuse more capital?
Our present capital base is Rs 450 crore. We don’t plan to infuse capital in this financial year. We will infuse capital depending on the growth.
n Do you think your product portfolio is complete? Are you planning to add new products in your products basket?
We have a complete portfolio. But we will like to strengthen our portfolio in child as well as the health segment. We already have plans in this category.
n Do you plan to launch a universal life plan (ULP)? The insurance regulator had temporarily banned sales of all ULPs.
Irda has issued new guidelines. We will be also be coming out with ULPs in the next financial year. ULPs have been a recent innovation. They have done exceedingly well in mature markets such as the US and Europe.
n What kind of growth are you expecting for the present financial year?
In terms of total premium, we have grown by 77 per cent. In new business premium, we have grown by around 45 per cent. These numbers give an indication of how we grow in the remaining months of FY11.
n Are you planning to hire more agents this year?
We are planning to double agencts’ force from 9,000 at present in a year’s time.