SBI Life has a strong network and bancassurance automatically becomes your preferred distribution channel. Yet you have a strong agency model.
For SBI Life, bancassurance is the preferred model. Our foreign partner BNP Paribas Assurance is the undisputed leader of bancassurance in Europe. Banks work on the super market model. As the markets evolve, customers who visit banks are looking for value addition. They are looking not only at banking products but also comprehensive investment advice and products. Such value-added services increase the customers’ loyalty.
Our business plan envisaged the bancassurance model initially and we started with simple products. But soon we realised the need to service non-SBI customers to reach the scale we desire and the agency channel was the right way to tap these customers.
But agency is an expensive proposition and the industry is already seriously exploring the bancassurance model.
The agency model is a little more expensive than bancassurance for SBI Life. But with SBI Life’s agency productivity, we make profit in this channel. That is why we have continued opening new branches and adding to our work force in the agency channel.
In order to reduce costs, will “open architecture” in bancassurance—one bank selling insurance policies of multiple insurers—help?
Market is still not mature and bancassurance is in a nascent stage. It needs to develop in terms of grievance redressal and knowledge pool. An open architecture at present, in our opinion, is not opportune. However, eventually, open architecture is the way to go.
Coming to products, after unit-linked insurance plans (Ulips) were brought under cost caps, there has been a surge in traditional plans. What has it been for you?
The number of traditional policies have gone up as a result of the recent regulatory reform. Ulips continue to dominate our business with 57% presence. However, I agree that there has been natural movement towards traditional plans. For us, traditional plans have grown by 53% post the regulatory changes.
The regulatory reforms were a result of rampant mis-selling that plagued the insurance industry for a very long time. How have you been able to tackle issues of mis-selling?
We did have our share of mis-selling but we have introduced very stringent measures. For instance, for policies with a premium above Rs 1 lakh, we have pre- and post-issuance calls to ensure that the person has understood the policy well. For premiums above Rs 50,000, we have post-issuance calls. We also have an SMS facility that promptly looks into queries. We also carry out detailed investigation of complaints and we have not hesitated in taking severe action, including dismissal. I feel this has had an impact, which gets reflected in renewals.
Give us an idea.
The 13th month persistency ratio of SBI Life was 58% in FY10 (persistency ratio is the ratio between the amount of renewal premium actually collected and the renewal premium expected). In FY11, our 13th month persistency ratio improved to 69%. Our renewal premiums saw an increase from Rs 3,000 crore in FY10 to Rs 5,300 crore in FY11.
In the last couple of years, the focus has been on customer awareness. More and more people are looking towards pure protection products. This will put a lot of pressure on underwriting. In fact, insurers are now focusing on tightening their underwriting practices. Must be the same for you.
Actually no. We have in fact relaxed our underwriting norms. Earlier, underwriting was completely centralized; we have progressively de-centralised it. Underwriting is decentralized to ensure faster turnaround time and better customer service. We have an excellent IT system that does rule-based underwriting at regions. This helps us maintain consistent standards across the country. In fact, good underwriting also depends on the fit of products. One needs to understand what kind of products are suitable for which investors.
What will be the focus of the insurance industry in future?
Growth for India is set to continue which only means potential for the insurance industry. The trend will be to institute cost control measures and focus on productivity.