With costs on unit-linked insurance plans (Ulips) being downsized, insurers have resurrected traditional insurance-cum-investment plans. What has been your strategy?
Ulips are better than traditional products in many ways. About 98% of our sales are through Ulips. Insurance products are long term and, therefore, you need to ensure that your investments are able to beat inflation.
P. Nandagopal, managing director and CEO, IndiaFirst Life Insurance Co. Ltd.
If you look at the bonuses that traditional plans offer, the real rate of return is less. If you believe in the India growth story, Ulips are good products. Products such as fixed deposits and Public Provident Fund (PPF) may be safe but they don’t give returns like equities.
But Ulips are also focusing on capital guarantee.
True. But we are not focusing on capital guarantee products. Ulips that offer capital guarantee may sometimes give sub-optimal returns. Since they need to invest in debt as well, it will make Ulips underperform market benchmarks. In an insurance product there is always a built-in guarantee—death benefit. The other assurance that you can get is the performance pedigree of your fund and a fund option with a good performance track record.
In the name of product diversification, insurers have 2-3 plans in each category of child plans, pension plans and regular plans. Why so?
Broadly, there are six categories in the insurance space: protection, savings, pension, child plans, investment plans and health plans. To have two or more products in the same space is confusing the customers. We have two Ulips, one regular and a child plan. We have filed two more—one in the health space and the other for high networth individuals.
Health Ulips in the past didn’t pick up. Is it okay to mix health cover with investment?
I think the products didn’t do well because the tax benefits were not clear. Since they are life as well as health products, they qualify for tax deduction under sections 80C as well as 80D. The other thing was that on the health side, these plans were defined benefit plans (you get a lump sum against a pre-defined risk or ailment). What we need is an indemnity policy that will reimburse hospitalization expenses and also help save.
Online terms plans have really become popular and are cheaper. Your views.
Yes as awareness increases people will look to cover death risk first. Online plans pass the distribution cost to the customers. The distribution cost for all products ranges between 8% and 10%. Our online term plan is that much cheaper.
Is that because you largely use bancassurance?
Yes, currently it is largely through banks, but we introduced the agency model in February and 20% of our business may come through agents.
Which also means a rethink on the commission cap?
That’s a dilemma we are grappling with. But if we improve productivity, we won’t have to alter commissions.
The insurance regulator has said that the focus would now be on bancassurance and the agency model will soon become obsolete. Isn’t your focus on agency model against the tide?
There is opportunity for both bancassurance and agency. Customers prefer different channels for different reasons. While banks offer multiple products, operational stability and comfort, agents can give a personal touch and doorstep service. We focus on agency in a limited way.
P. Nandagopal is a managing director and CEO at IndiaFirst Life Insurance Co. Ltd.