Private life insurer HDFC Life Insurance has been seeing growth in a market where tough economic conditions have affected the bottom-line and topline growth of other players. In an interaction with Moneycontrol, Vibha Padalkar, MD & CEO, HDFC Life talks about what went right for the insurer and the strategies to keep the growth momentum.
Excerpts:
Q. Players in the life insurance market have slowed down in FY20. How have you maintained the growth path?
A. What worked for us is that we have stuck to our strategy. One is innovation (including product and technology) and next is balanced distribution. We have been de-risking the dependence on any one distributor. Whatever products are being launched is keeping this as the core, in order to protect the needs of the average Indian.
This is why we were able to grow our H1FY20 topline by 38 percent in a tough market.
Q. Protection seems to be driving this growth. Will this continue?
A. We have been talking about protection for quite some time now. We believe that it has to be a bottoms-up fundamental strategy and HDFC Life as a team has focussed on this. We should wire core insurance and not just investment-led insurance. While other companies could be doing protection since it offers better margins, for us it is our core.
In the protection segment, we are of the view that there needs to be a bouquet of products. Currently, protection constitutes 17 percent of our annualised premium equivalent or APE (which is 100 percent of regular premium plus 10 percent single premium). We want protection to increase to 25 percent of our APE in the next three years.
Q. Would it be right to say that your growth is linked to the fact that HDFC Life is not dependent on one major distributor?
A. We are a multi-channel distributor. For instance, our agency channel constitutes 15 percent of our business. We want the agency to contribute 21 percent of the business in FY21. This does not mean other sales channel will slow down, we only want the agency to grow faster.
Compared to negative margins for the agency channel post-September 2010 Ulip regulations, agency margins in FY19 were better than company-level margins. Agency needs to be profitable because it is our own proprietary channel.
We have learnt it the hard way. If all your eggs are in one basket, some regulatory change can happen or macroeconomic can occur. It cannot be that the entire dependency is on one channel.
We have now working with 40 new ecosystem partners like Airtel and Paytm. But this is still a new ecosystem and our ticket-sizes are low.
Q. Is this why there has also been a rise in the lives covered whereas several other insurers have seen a drop?
A. In FY19, we covered 5.1 crore lives which is a 55 percent increase over the year before. We are covering more lives. We are phy-gical (physical plus digital) and the mode is irrelevant. We want to be where the young Indian is.
We have also seen a 22 percent growth in the credit life business despite this being a difficult period for the economy. This is because we have realised that the company can achieve deeper penetration through banks and non-banking financial companies.
Q. Given the growth trajectory, is this the right time for acquisition and are you open to foreign partners?
A. We have evaluated several proposals in the past. We have the currency and the hunger for an acquisition. But HDFC Life would not do it just for the sake of it. We haven’t had a single merger in the life insurance industry because it is a complex process. If we get the right partner, we will look at it.
As far as a foreign partnership is concerned, we have not yet reached the upper limit in FDI. We do have space though being a listed entity means that 25 percent has to be public shareholding. However, getting a foreign partner will also depend on our JV partner Standard Life plans and whether they want to exit.
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