New Delhi: Several private life insurers, forced by the economic downturn to cut costs and stall expansion, may soon break even, as they focus more on policy renewals than generating new business.
“This year we will break even,” said Gaurang Shah, chief managing director of Kotak Mahindra Old Mutual Life Insurance Ltd. “We are concentrating on the existing business. Our regular premiums will soon be more than new business premiums.” The company posted a net loss of Rs71.8 crore in 2007-08.
State-owned Life Insurance Corp. of India (LIC) posted a net profit for Rs844 crore in 2007-08. But most private life insurers—which opened shop after the insurance sector was liberalized in 2001—have been suffering losses as they raised more capital to cover the cost of fresh business.
Insurers start booking profits when regular premium income exceeds new business premiums.
“With people preferring bank accounts over unit-linked insurance policies (Ulips), topline (revenue) growth will come down for these insurance companies,” said Abizer Diwanji, national industry director of financial services at consulting firm KPMG. “Companies that are in the business for long can break even by driving their growth through productivity.”
“But it has to be seen how sustainable the break-even can be when markets again start moving up,” he added.
The Bombay Stock Exchange benchmark Sensex has fallen around 40% in a year. India’s growth is forecast to drop to 7.1% in the fiscal ending 31 March, the slowest in six years.
“Break-even will start coming closer when the growth is driven through improvement in productivity,” said Sunil Kakar, chief financial officer of Max New York Life Insurance Co. Ltd. But he declined to say how soon it would break even. In the fiscal year to March 2008, the insurer recorded a net loss of Rs256.93 crore.
Most companies are concentrating on better agent productivity with better training, said R. Krishnamurthy, managing director of consultancy Watson Wyatt. “Lack of improvement in productivity earlier impacted the break-even which can now be corrected,” he said.
“We don’t make forward-looking statements but unlike in the past, improvement in productivity is the main focus. We are doing it through a well-organized sales force, offering the right type of products in the right time and keeping cost under control,” said Amish Tripathi, national head, marketing and product management, at IDBI Fortis Life Insurance Co. Ltd.
In April-January, fresh business, or first-year premiums, in life insurance has grown by 3.5% to Rs65,337 crore. This is, however, lower compared with the growth seen in the past few years: 23.31% to Rs92,989 crore in 2007-08 from a year ago.
In the two preceding fiscal years, business had grown even faster at 94.96% and 47.94%, respectively, according to Insurance Regulatory and Development Authority data.
However, some insurers have already started showing profits. SBI Life Insurance Co. Ltd, in which India’s largest lender State Bank of India is the majority shareholder, had a net profit of Rs3.83 crore in 2007-08.
The same year, tree smaller life insurers posted profits—MetLife India Insurance Co. Ltd (Rs21.25 crore), Sahara India Life Insurance Co. Ltd (Rs3.34 crore) and Shriram Life Insurance Co. Ltd (Rs5.58 crore).