Home / Money / Personal-finance /  ‘Online ULIPs will eventually become pull products owing to performance’

Tarun Chugh, who joined Bajaj Allianz Life Insurance last April, wants to focus on pension, health and savings products and develop a multi-distribution channel company. Talking to Mint, Bajaj Life’s managing director and CEO talks about why the insurer lost market share over the years and what it’s doing about it.

During early days, Bajaj Allianz Life Insurance was among the top 3 private sector insurance companies, but it has lost its market share now. What went wrong?

As someone from the insurance industry right from the time it got privatised, I know that Bajaj Allianz Life was once the biggest insurer in the private sector and was mostly in the top three.

In hindsight, if I were to analyse, I think we should have been a multi-distribution channel company. Also, there should have been consistency in senior management.

What do you plan to do differently now?

There has been a certain way of looking at life insurance that doesn’t let us realize its full potential. Life insurance is pitched as a product that comes into play only if something goes wrong. But this is addressing only one aspect of life insurance and that’s insuring lives or mortality. However, our licence allows us to operate in four verticals: mortality, morbidity (health insurance), pension and wealth creation.

As an organisation, we will focus on the living benefits of life insurance and cultivate products in all the four verticals and improve services for our customers.

We have a mass market and we are popular in smaller cities. These people are not interested in knowing what happens if they were to die, they are interested in the living benefits. Also, the average age of an Indian is 28 years and this person is not interested in mortality alone. So in terms of our products, we have to start focussing on pension, health and savings products.

As for our distribution network, unlike the top three industry players, we aren’t promoted by a bank. However, keeping in mind a host of new-age banks coming up, we will be announcing new tie-ups soon. We are still number three in terms of our agency sales force and a lot of our business comes from agency channel and micro financial institutions. We are also setting up a proprietary sales force (direct face to face sales) where we will control selling. Further, with the launch of our online unit-linked insurance plan (Ulip), we have now started to focus on online sales as well.

But hasn’t the industry always focussed on savings?

Mortality protection is still fairly under-penetrated in India and the covers are relatively small. However, the shift has started in the industry and I believe with increase in customer awareness and a host of newer propositions such as new payment banks, small financial banks and fintechs, we will see increased penetration of mortality products.

How significant is bancassurance for an insurance company that’s not promoted by a bank? For these companies bancassurance can be a very expensive proposition.

In India given the regulation structure, it is the agency channel that is the costliest. For a non-bank promoted company, bancassurance helps create balance in the channel mix and stabilize costs, adding to the top-line in a significant manner. There are multiple new-age banks in the ecosystem such as payments banks and small finance banks with significant customer base that insurers can look at for expanding penetration with innovative low-cost models.

In terms of products, you are once again focussing on Ulips. You have nearly 60% of your portfolio in Ulips, what’s the idea?

Today, we are undertaking a city-wise sales approach rather than focusing on product mix. The idea is to offer customers products that are need-based and goal-based, no matter where the customer is from. So in the metros, we see a higher skew towards Ulips keeping their risk appetite in mind, whereas in tier II and III cities, we may have more traditional products being sold. Having said this. Ulips are now seeing an uptake even in small towns and cities.

Why do you think Ulips will sell now? We are seeing a slow but steady comeback to Ulips.

When I look at the things that life insurance sector is good at, it’s long term performance, and when you compare the returns of mutual funds with the funds of the insurance industry, you will realise that over the long term insurance industry is capable of doing a better job. Long-term savings and investments are our forte and in recent times mutual funds have entered our space.

Today’s investors are looking for value-packed investment solutions, and keeping the long-term performance of Ulips and restructuring of charges, Ulips have become an attractive proposition. Our Goal Assure, for instance, competes with direct mutual funds. It’s an online Ulip with a fund management charge of 1.35% of the fund value. We just have a policy administration charge of Rs400 and then there is no other charge except mortality which is the cost of insurance and this gets returned to you and then we have boosters to get you to stay longer because we want to focus on a 7-15-year horizon. Now a Ulip bought online starts returning money to the promoters in four years’ time versus the offline version which could take more than a decade. We are very clear that we want to go to the online Ulip market space and because our long-term fund performance is so good, we are confident that online Ulips will eventually become pull products.

So is it safe to assume that traditional plans have lost their relevance? Although there could be a certain section that needs the comfort of a guarantee, but does it make sense to sell mainly traditional plans, especially when these plans come at such high surrender costs and opaque structures?

Every individual needs insurance and a combination or a healthy mix of traditional and Ulips is ideal, keeping in mind life goals and risk appetite. The industry continues to sell traditional products for the reasons you mentioned, and as customers become more aware and Ulips become more value-packed, I believe we may see a balance in the product mix of companies.

When I look at persistency ratios of Bajaj Allianz, the fifth year persistency has been poor. Is there a link between persistency and the fact that the company is largely agent driven?

Our persistency is moving up for sure. Our Ulip persistency is far higher compared to traditional plans. And that’s because a lot of Ulip sales happens because you are attracted to the product. Traditional plans, on the other hand, are still a push product and poor persistency in this case is also because of how it’s sold to customers and then the service aspect. But there are other aspects as well. Persistency is also a function of customer profile, the payment options available, and customers’ awareness on staying invested and so on.

Since we have been a mass market insurer, reaching out to customers, especially in far-flung towns and cities has often been a challenge, impacting the persistency. However, we are correcting things and have started looking at it by offering flexibility in terms of premium payments and having revival campaigns across cities and small towns. And hence, we are sure that this will positively impact our persistency ratios.

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