‘By September end, we will have four products in guaranteed savings space’

For Kamlesh Rao, managing director and CEO of Aditya Birla Sun Life Insurance, covid-19 came at a time when he was only a few months into heading the life insurance firm. He was previously the CEO of Kotak Securities Ltd. Rao talks about how he dealt with the unprecedented situation, why the company is going big on guaranteed savings products and how insurers should revamp offerings. Edited excerpts:

You recently completed a year in the life insurance industry, but you’ve had to deal with unknown circumstances. How did you navigate the situation?

I have spent the last 25 years across unsecured lending, mortgages, SME, wealth management and broking business before coming to the world of life insurance. On joining the industry, I realized that it had a lot of catching up to do in the digital space. We started strengthening digital interfaces. The other focus was on creation of products from a need-based customer model, backed by analytics. While we were in full swing, the pandemic hit the world, demanding business continuation plans. Thanks to the work we had done in the prior 12 months, we were able to manage the challenges of mobilizing a large workforce to work from home, reaching out to customers digitally and aligning our proprietary channels to adopt the digital ways.

How has the pandemic affected your new business? How many covid-19 claims have you settled? Also, are you experiencing any drop in persistency?

The private industry is down 18%, but we are up 4% year-to-date till July in terms of new business. Every month this number is looking better. We are looking at a double-digit growth in August. We’ve settled about 68-70 covid-19 claims, which is about 2% of our overall claims. We haven’t received any big-ticket claims.

Coming to persistency, we had some issues in April, but by May we were back to doing more collections than the pre-covid-19 times, and in June-July, we did significantly better than we thought. The 13th month persistency has gone up by 215 basis points compared with last year and for the first time, our 60th month persistency has crossed 50%. Digitization has played a big role as 71% of our renewal premium is now coming via online channels against 49% last year.

When there’s a higher demand for term plans, why did you launch two new savings products?

Reinsurance rates for term plans went up 30-50% even before covid-19, and almost all companies hiked premiums starting March. Reinsurers have started differentiating between medical and non-medical term plans. This means if I am selling a non-medical policy, then I am not conducting any medical tests on the prospect, and when this happens, reinsurers charge a higher rate. Due to this, protection business margins came under pressure, as covid-19 meant selling more non-medical term plans. Our protection numbers have gone up 15-20% compared with pre-covid-19, but we’re not pushing the product irrationally as it impacts our margins.

We want to look at things from a risk-adjusted point of view, so we have not launched any products in the protection space. Also, we were able to position our guaranteed savings plans, which can be compared with fixed deposits and we see an opportunity in this space. We want to be careful about the interest rate risk that these products can bring in because we guarantee returns. However, today we have fixed-rate agreements (FRA) with banks, so we can lock in interest rates. By September end, we will have four products in the guaranteed savings space.

What investment strategy are you adopting given how markets are behaving?

My brief to colleagues who manage investments has been that insurance investment strategy should better be boring than overly interesting. Also, there is no pressure on them to deliver alpha over shorter periods. While there have been issues with fixed-income credits, there is hardly any with insurance investments. Our debt portfolio is larger than equity, and we have no such issue in any of our credit risks that we have subscribed to. The regulator keeps a close watch on where insurers are investing, and over 90% of the money goes into government securities (G-secs) and AAA bonds. The strategy is to focus on the guarantee and to make sure we are reasonably hedged. For unit-linked insurance plans (Ulips), which are 25% of our portfolio, the equity part mirrors the Nifty strategy. We haven’t made any changes due to covid-driven market volatility as these are short-term.

Do you think there’s a case for life insurers to sell indemnity-based health policies, as demand for health products is soaring?

We’ve been representing to the Insurance Regulatory and Development Authority of India (Irdai) and there is a committee looking into it. We are trying to get a go-ahead, but it has technical challenges. As long as it is allowed to be built into a term product, it makes sense for customers, because if you’re conscious about buying a health policy and if you’re then able to get a term along with it, then you’ve taken care of your hospitalization needs and covered your life. This is one way in which term insurance penetration can go up.

Having said this, underwriting and claims experience is very different for health because you learn something new every year and you can change the premium accordingly, which is not possible with life insurance because it’s the same premium for the entire tenure. There is a lot of change that’ll have to come in to allow us to sell indemnity health policies.

Should insurers change the way they design products? Which category will see a surge in the future?

Use of data analytics should be adopted as a key component while designing products, ensuring that the solutions cater to the evolving risks of the new-age customer. With increasing internet penetration and inclination towards mobile-friendly digital purchases, the products have to be digital friendly, easy to understand and purchase. Given the current environment, risk aversion and changing investment patterns, demand for protection and guaranteed products will see a surge.