New Delhi: Gaurang Shah, managing director of Kotak Mahindra Old Mutual Life Insurance Ltd—a venture of UK-based financial services firm Old Mutual Plc. and Indian private lender Kotak Mahindra Bank Ltd—plans to add some 60 branches across India in the first half of the year to March. In an interview with Mint, he talks about the company’s expansion plans and break-even expectations. Edited excerpts:
How do you plan to expand?
Matter of choice: Kotak Life Insurance MD Gaurang Shah
Currently, we have 151 branches in the country. We plan to increase the figure to 210 by the first half of this fiscal. We are benefiting from the expansion of our promoter Kotak Mahindra Bank, which plans to expand to 250 branches from 185 now in the next one year. This means that 12 months from now, we will have around 500 outlets to sell our policies. Most of the expansion —around 75%—is in tier II and tier III cities.
We also intend to open a branch in the Middle East if the regulator approves.
How long will it take you to break even?
The company’s last year’s loss was around Rs71 crore, or 4.85% of the total premium collected. We are efficient users of capital. Our capital is Rs532 crore, which is lowest in the industry for the size of our operations. To break even, 4.85% has to comes down to 0%.
But breaking even is also a matter of choice. If you keep investing and expanding, you will go slower to the break-even point. When the industry (private life insurance) growth tapers off to 18-20%, it would be time to think about it.
When are you planning an entry into health insurance?
We are planning to do a study on the way to launch health products. We have an advantage in assessing the situation since many players have already entered into this segment.
How much do you expect to grow this fiscal?
We expect to grow by 100% this fiscal, compared with 88% a year ago.
Recently, the Bajaj group set up a separate company for its financial services division. ICICI Bank Ltd also has plans to do so. Do you also plan to set up a separate listed entity for insurance?
We don’t have any such plans at this stage.
Has market volatility hurt sales of unit-linked insurance plans (Ulips)?
No. In fact, we registered 100% growth in Ulip sales last year, at par with our target. Some companies have slowed but some have grown faster.
Do you plan to balance your portfolio with more traditional plans?
A lot of choice depends on distributors, who prefer selling more Ulips.
Currently, Ulips constitute over 90% of our total fund size. Even in rural areas, Ulips are preferred over traditional products.
As a company, I would like to have a balance of 75:25. Ulips and traditional policies have different objectives. While traditional plans can support your insurance needs, Ulips cater to long-term investment needs.
What is your investing strategy in a declining market?
We keep investing in the market. Only 10% of the total investible assets is maintained in cash. Everything else is invested.
Is the securities lending and borrowing scheme useful for insurance companies?
Ultimately, it is about creating depth in the market. For any market to work smoothly, you need more players. If you get into lending and borrowing without participation of domestic players, success would be elusive.