COVID-19 could have an impact on customers and investors in the short-term, but the insurance outlook remains positive, particularly for the protection and retiral segments, HDFC Life’s Executive Director Suresh Badami tells Moneycontrol’s Preeti Kulkarni. Excerpts.
How has the Novel Corona Virus Disease (COVID-19) affected life insurance premium inflows in the last quarter of financial year 2019-20?
While there was disruption in the last ten days of March, we have been able to exhibit steady performance and deliver across all key metrics in FY20. We grew 18 per cent based on individual and overall APE (annualised premium equivalent), covering over 6.1crore lives in FY20. The impact of the outbreak has been seen across both new business and renewal collections, with customers wanting to conserve cash till clarity emerges. While it might take some more time for things to settle down and a new normal to emerge, we believe that the structural story for insurance remains intact and we expect business to emerge stronger at the end of this pandemic. Life insurance is a long-term-oriented industry and we need not look at the impact on a weekly or a monthly basis.
So, will the long-term impact be positive for life insurance as there will be increased demand?
There are two ways to look at it. The protection gap in India is wide. As a percentage of GDP, insurance premium is in single digits. Though the percentage of sum assured is going up, it is low compared to that of developed countries. Therefore, the opportunity and scope for growth in life insurance remain immense. The need for insurance across mortality, morbidity and longevity coverage remains high. Secondly, we need to see how the financial services sector will be affected due to COVID-19– how savings patterns change and what proportion comes into financial savings. If you were to look at the longer term, we expect the industry to continue to grow at 15 per cent. In the short-term, customers and investors will be impacted by the COVID-19 pandemic, but we should continue to have a positive outlook on insurance. We are bullish particularly on the protection and retiral opportunities in the life insurance sector.
Operationally, has the COVID-19-driven disruption led to a significant shift towards the digital mode for policy purchase and renewals?
HDFC Life has always been at the forefront of digital forays. We have stopped cash premium collection long back. A lot of sales and service processes had already moved online. Over 90 per cent of our renewals come through the online mode. So, for us, the digital adoption is already so high that the shift will not be dramatic. For customer convenience, we have been working over the last few years to see how everything can migrate entirely to digital – in terms of online sales, renewals and claims processing – wherever possible.
Our existing suite of digital assets is available across channels, partners and employees. This has enabled us to continue providing a seamless experience to the end customer from a new business and servicing perspective.
On the servicing front, adoption of our digital servicing avenues has seen an overall increase of 67 per cent during the lockdown period, while usage of our bots across WhatsApp, Twitter and web has increased by 70 per cent. We have settled around 3,000 maturity claims, 300 death and health claims, made nearly 21,000 annuity payouts, and processed close to 95,000 transactions in the first 15 days of lockdown.
How has the market turmoil affected your ULIPs’ performance?
What has happened in the recent days has been unprecedented. The ULIP funds’ performance has been impacted by the market fall. However, given the well-diversified nature of our portfolios and the positioning of the funds has ensured that the funds have performed better than the benchmarks and have also done well against the peer group during this phase.
Have you seen a rise in surrenders during the lockdown period? Could you share some figures to indicate the extent of increase? Do you see this as a temporary blip due to the lockdown?
Our persistency has been steady throughout FY20. Our 13th month persistency stands at 84 per cent. However, in light of the evolving situation we are closely monitoring persistency and surrenders at company level, especially in some segments like unit-linked plans.
Currently, loan against policy is only allowed for traditional business. We are also in touch with the regulator on allowing loan against policy for the unit-linked segment. Allowing the same will allow the customers to deal with any liquidity problems which could lead to surrenders or lapses.
What is your current product mix? Do you intend to alter this mix this financial year?
Our overall distribution strategy is to have a balanced portfolio, with a healthy mix of participating, non-participating, ULIP and protection products. This will help us sustain the business in various circumstances and changing scenarios.
This year also, our portfolio continues to be balanced. In the beginning of last year, we launched one really good traditional non participating product – Sanchay Plus. In the second quarter of FY20, we launched a participating product – Sanchay Par Advantage. We intend to maintain a balance between par and non-par and aim to take the proportion of pure term products to 10 per cent. The share of Ulips is reduced in our current portfolio mix and is around sub-30 per cent for last financial year.
What was your exposure to YES Bank’s to AT-1 bonds?
We have a Rs 105-crore exposure from our shareholder funds to AT-1 bonds which has been fully provided for in FY20.
There is panic among debt fund investors due to recent crisis at some of Franklin Templeton’s debt schemes. Have you witnessed calls from anxious policyholders? What is your message for individuals who are now increasing their allocation to bank fixed deposits or small saving schemes?
The funds that closed down are the high risk - high yield funds. The high-yield segment is only a small portion of the debt funds in India. These developments cannot be extrapolated to the entire debt market.
While these developments have increased anxiety among investors and policyholders, it is pertinent to note that at HDFC Life, we have always been following a prudent investment strategy while taking on credit risk. The entire debt portfolio of HDFC life is invested predominantly in the safe Govt securities and AAA-rated bonds. At the company level, the proportion of bonds that are rated below AAA is less than 4 percent of the portfolio. And the proportion of investments in the high-yield – high-risk segment of bonds rated below AA is virtually zero.
The other key difference lies in the liquidity profile of the liabilities. In open-ended schemes, investors can choose to exit at any time and apart from an exit load for a limited period, there is no hindrance to redemption at any time. The lack of market liquidity during the current trying circumstances led to the closure. However, in an insurance policy, the policyholder has a specified term of the product. Apart from the expected claims for specified events, the policyholder is expected to stay invested for the term of the policy. This feature helps us plan out the liquidity profile of our investments.
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