New Delhi: Kapil Mehta, director and chief executive of DLF Pramerica Life Insurance Co. Ltd, a venture of New Delhi-based property developer DLF Ltd and US-based financial services firm Prudential Financial Inc., wants insurance-focused plans to make for at least 50% of his company’s portfolio, in a departure from the industry trend where some 80-90% of premium income of private sector insurers comes from investment-focused protection plans. He spoke about the company’s expansion strategy and break-even expectations. Edited excerpts:
How long will it take for you to break even?
By and large, most companies typically take 8-10 years to break even. And a lot depends on the kind of model adopted by the company. If it’s an agency-driven model, it takes longer...to break even, and if you have lot of third-party distribution, it is faster. To us, all these are important channels. We look at 8-10 years to break even. The early break-even is not a good sign. If the company is growing very fast it will make bigger losses, but over time when renewals increase, it creates good value for the company.
What kind of product mix are you looking at?
I definitely want half of our policies from protection plans. There are a lot of interesting opportunities in the market. Though the market has more of unit-linked insurance plans, there is (also) a market for non-participating products, which are fully guaranteed products. Historically, nobody has brought these kinds of guaranteed products, which are very famous in Japan and the US.
New player: DLF Pramerica’s Mehta says his firm plans to invest up to Rs1,000 cr over the next five-six years. Ramesh Pathania / Mint
There is...pension..., which again has two parts: fund accumulation and annuity. Currently, the market is focused on fund accumulation, but annuity is also a big opportunity. The issue is (that) it is not a focused area (and), so the quality of annuity you get is not evolved as in other developed markets. So you can get a lot of innovations in the annuities market such as joint annuity to husband and wife. A lot of work has to be done on the health insurance side, too.
Why has the annuity business so far been unnoticed in India?
The industry opened around eight years ago. Everyone’s focus is on the life insurance business. So, I think, a lot of responsibility lies on new players like us, because we have to think how we can be distinctive…so new players will push the envelope... The issue with annuity is it requires high degree of sophistication in pricing.
When are you planning an entry into general insurance?
We don’t have plans to enter the general insurance business.
How do you plan to expand?
We have formed a joint venture between Prudential and DLF on the asset management side of the business and that is going through the approval process.
What are some of the major challenges for life insurance companies?
With a lot of turmoil in the market, there is a lot of nervousness. This is exactly the time for all...life insurers, who are well placed, to help people better in uncertainties. Life insurers are long-term players and this can serve in many ways. We should make customers understand the importance of buying long-term products.
Aren’t you wary of partnering a US firm despite the financial turmoil?
We are very well capitalized. We are in constant touch with the partner and there are no issues.
Has the insurance regulator (Insurance Regulatory Development Authority) asked you to submit the details of your foreign partner following the slowdown in global markets?
The insurance regulator keeps a check on solvency margins. Indian industry per se is very well regulated in this regard. And there is actually no fear or concern anybody should have for any company, because the regulator makes sure that there is enough capital to take care of any fluctuations.
How much is your capital base and how much do you plan to infuse in the future?
Currently, we are Rs110 crore. We will over the next five-six years invest up to Rs1,000 crore. For companies at our stage, the critical thing is our value proposition to customers.
How do you plan to be distinctive in the market?
We are opening up multiple channels. We are building up a team of qualified agents, which involves quality of training and quality of supervision. We are also talking to a lot of potential third-party distributors for them to distribute our life insurance policies. We will have specialized technology for that particular channel.