Insurance products can be replicated, but hard to build distribution network5 min read . Updated: 22 Jan 2019, 10:20 AM IST
- It’s important for companies to be balanced, or customers will be sold products that may not be suitable to them, says Tripathy
- Tripathy underlines the importance of having a balanced product portfolio and robust distribution network
Max Life Insurance Co. Ltd has a new head. Prashant Tripathy, who has been with Max Life for nearly 12 years and was working in the capacity of the chief financial officer, took charge as the new managing director and chief executive officer in January. Talking about his vision for the company, he underlines the importance of having a balanced product portfolio and robust distribution network
As the new CEO, what will be your key focus area from a customer standpoint?
The main focus area is to increase the protection portfolio. Nearly 30% of our policies come from selling pure protection plans and that will continue to be the focus area. Customer satisfaction metrics like persistency and claims settlement will continue to be our focus as well. If you look at persistency of channels, internet is the most persistent followed by direct sales, agency and then bancassurance. I would like our own channels comprising agency, direct sales and internet to contribute about 40% sales in 2-3 years and we are working on that. We would like to expand our agency network qualitatively and quantitatively. Last but not the least, we will also focus on creating a digital organisation—be it customer journey, distribution effectiveness or employee processes.
So in about 2-3 years time if agency becomes more robust and we have good bancassurance partners and have automated and digitised services and improved persistency, I will be very happy.
What about products? How important is having a balanced portfolio for the life insurance industry now? A Ulip-heavy insurer may suffer during extreme volatility and traditional products-heavy insurer during a bull market.
Having a balanced portfolio lends stability. We have about 40% of our portfolio in Ulips and the remaining in traditional products and that’s largely because we want predictable and stable growth. Even in terms of customer segments, there are customers who are returns-oriented and those who like guaranteed products, then there are customers who like predictable returns. Having a balanced portfolio helps us cater to all of these segments. It’s important for companies to be balanced, otherwise customers will be sold products that may not be suitable to them.
With this approach in the last nine years, we have had stability of growth. Also, the moment you start to sway in one direction you are up for a challenge. For instance, in 2011, we were heavily into traditional products and that could be risky in a bull market and growth can take a beating. So a balanced approach is better, but we still want to increase our protection business because we see an emerging customer segment that is focused only on protection.
The Insurance Regulatory and Development Authority of India’s (Irdai) latest draft rule on traditional products proposes to reduce surrender costs, albeit slightly. Given that a huge chunk of your portfolio is in traditional plans, how will it impact you?
We welcome the draft guidelines because it has tried to maintain balance. In participating products when a person surrenders, existing policyholders feel the impact through suppressed returns. This is because 90% of the profits in a participating fund go to the policyholders. So it’s really a question of striking a balance between what you give to those who stick with the policy and the ones who quit mid-way.
My personal view is that if somebody signs a long-term contract, then she shouldn’t get rewarded disproportionately especially when it comes at the cost of policyholders who decide to stay in the policy. I am happy the way Irdai has approached it. In fact, the draft is a net positive as it has increased the revival period for lapsed policies, given more flexibility to unit-linked pension plans and insurance riders.
What about non-participating products where the insurers can pocket all the profits? High surrender costs allow insurers to book lapsed profits and this may also encourage some to design lapse supported products.
Non-par products offer guaranteed return which is good for risk-averse customers wanting surety of returns. But it’s also important to understand that non-par can be very risky because when you sell long-term guaranteed products, you are taking on interest rate risk. So our board policy is to not have more than 15% exposure in non-par products and for the first half of this fiscal our total non-par mix—inclusive of pure protection—was in the range of 11-12%. It’s also important to note that we don’t differentiate between par and non-par products as far as persistency is concerned. So it’s not as if there is special focus on maintaining persistency in par products, while ignoring non-par products because customers can lapse and insurers can book profits.
In fact, we pride ourselves in maintaining healthy persistency of policies. We will close this fiscal with a persistency ratio of around 84% for the 13th month—measured by value—and for the 61st month it will be about 55%.
For us, surrender profit is minimal. In fact, even during the Ulip era, surrender profits for our company was the lowest among top companies. In the non-par category, we typically sell shorter-pay products so that people end up paying all the premiums. My sense is that the regulator is keeping a watch on specific cases. And this has reflected in better persistency numbers for the industry. Earlier the 13th month persistency number was in the 60s and now for a lot companies the 13th month persistency is in the 80s.
According to the latest annual report of Irdai, you are number one in claims settlement. Going by the number of policies, you have settled 98.26% of the claims, but going by the sum assured or insurance cover, you have settled 95.26% of the policies. In your case, the delta between the percentage of claims settled by number of policies and sum assured is 3%, but for some companies it’s as high as 9%. Isn’t that problematic because it means that big-ticket policies are getting rejected?
We don’t endorse that philosophy. If your underwriting and sales processes are strong, then you shouldn’t see such a big delta. If you are hugely sales orientated, intermediaries could get tempted to misrepresent which will land on your door in the form of a huge pile of early claims. If you are someone who wants to grow the protection business, you have to be careful. Companies could still see a smaller delta as a result of a big-ticket claim getting rejected but if the delta is big, there is a problem and needs to be looked at and worked upon.
While talks to acquire IDBI Federal Life Insurance Co. Ltd has fallen through, will you still look for acquisition opportunities?
We will remain active because we want to expand distribution capabilities. India is a market where distribution is at a premium whether it’s building your own franchise or building third-party networks. So the reason we will acquire any company is if it has good access to distribution in the financial market.
Products can be replicated; when you launch a product you have a headstart of about six months until it’s replicated, but what’s difficult is to build distribution and that’s what we will be after.