New Delhi: Chief executive of Reliance Life Insurance Co. Ltd P. Nandagopal plans to invest around Rs700 crore and hire some 9,000 employees by the end of this fiscal year. Considering the slowdown, he discusses some concerns relating to asset-liability mismatches and high management costs of insurance firms. Edited excerpts:
As pointed out by the regulator, do you see any asset-liability mismatch for insurance companies in the period ahead?
Asset-liability mismatch can be a concern for companies with guaranteed products and traditional plans. Our company is essentially (getting) most of the business from unit-linked plans and we are happy about it. We don’t have much of annuity business also. But we have good pension business. We don’t have return-guaranteed products. We have principal-guarantee products. And capital-guaranteed products are much safer than return-guaranteed plans.
Varied offers: Nandagopal says the firm’s philosophy is there is a rural segment in urban population as well. Ramesh Pathania / Mint
In most life insurance there is some sort of guarantee...like death benefit is a guarantee. That way life insurance companies have mechanisms to handle risks. But... unless you have superior actuarial techniques and models where you offer return guarantee...(it) can be an issue because in this kind of market you can’t be sure what can be returns on a long-term basis.
Can many companies get into trouble this way?
In case of single premium plans, you have guaranteed assets that matches liabilities. Like you buy in corporate debt (of AAA rating) for five years and it gives you 8% and you issue policies for the same year. You lock in money and they match. Then there is no problem.
To the best of my knowledge, most of the companies are either offering capital guarantee on long term or they are offering a single premium guarantee where they have assets matching with liabilities.
How has slowdown impacted your investment portfolio?
Our investment portfolio caters to investment objectives of each fund. In that way we don't see any relationship of short-term volatility to long-term.
How do you plan to expand?
We have been expanding very fast in the last three years. Even in this financial year we are growing very fast.
Our expansion is...in two directions. One direction is expanding distribution reach...covering depth and width (are) the two dimensions of the expansion...depth means deep into the markets having more officers and advisers. We have 1,145 offices this year compared with 745 last year.
For width, we have just now launched an electronic channel. We did soft launch a couple of months back.
Another facet of expansion is product expansion. Health is definitely a focus area. Pension will be a focus area. And there is definite need for reading into rural micro-insurance.
Do you have overseas expansion plans?
We are looking at an appropriate time to do that. We are looking where the Indian population is high to start with such as South-east Asia, Middle East and Australia.
Do you plan to raise headcount?
We have recruited over 40,000 advisers in the current financial year and have added 8,000 employees in sales functions. We are planning to add close to another 90,000 advisers by the end of the year and 2,500 employees.
How much is the attrition rate?
It’s in line with the industry. At salesmen level it is around 12%. The industry standard is if you recruit 100 agents within three years, two-third will leave and one-third remain.
The regulator has expressed concerns over high management costs of the industry. Your take?
It is important for people not to look only at topline (revenue) growth but also quality parameters such as persistency, expense ratio, claim settlement record and customer care. Once people monitor these things the accountability stands.
As long as the expense ratio is met through shareholders’ funds, it is fine. Over time, companies reduce their expense ratio.
How much is your expense ratio?
We plan to reduce it to 26% by the end of this financial year (to March).
How much premium comes from rural and micro-insurance?
It accounts for 18% of total premium collected. Important point here is not what percentage is of the total premium but are we addressing the needs of the people. And again, our philosophy is that there is a rural segment in the urban population as well.
Like in Bombay we have Dharavi as a slum area where income levels of people may be different so they need different kind of products and different premium collection mechanism. So our initiative is to address that kind of layers.
Does rural business make a good business sense?
It can. I definitely like to operate under group business. We believe these segments may have different needs and different kind of structures but it does not mean they are loss-making propositions. It is you (who) have to do it through cost-effective channels and reduce operational expenses lowest possible. Once we do it, it makes business sense.