Speaking exclusively to Moneycontrol, Vibha Padalkar, MD & CEO, HDFC Life Insurance Company Ltd, India’s second largest life insurance company in terms of assets under management, makes a strong pitch for predictability of regulations, including taxation changes. The life insurance industry has been grappling on these two fronts for almost four years. Padalkar is of the view that some certainty will aid in building robustness for the industry. When asked if the increasing preference of policy holders towards unit-linked insurance plans, known to be a volatile product and relatively low on margins and persistency ratios, worry her, Padalkar emphasised on the importance of ULIPs. In the medium-term, she’s confident that HDFC Life’s margins should stabilise and further expand. Edited excerpts:
Is insurance an overregulated industry?
If the foundation is correct, some relaxation thereafter can be made. Examples of this are moving to risk-based solvency, wherein you are giving a lot more autonomy on managing your capital requirements in the hands of the insurer. We have seen relaxation of solvency norms, investment norms and expense of management. Let's build in more transparency, and thereafter, start relaxing as maturity starts percolating.
Regulatory and taxation changes since 2020 have virtually forced the industry to have a major rethink. Are you getting back to normal?
We are a fairly young sector, and things are evolving. India is also evolving. HDFC Life has been at the forefront of some of these products, and then the industry has followed. There could be some more regulations that could define how we move forward on some products.
When I look back on HDFC Life, after every significant disruption, we have come out stronger. We felt pain after the very significant unit linked regulations in 2010, and thereafter the tax changes and surrender charges. But we grew stronger as a sector. While the change is required, the velocity of change is something I might have a different viewpoint. A person paying Rs 5 lakh premium per year cannot be construed as a HNI in today's situation. Whereas Rs 50 lakh premium may be a HNI. My appeal will be that the velocity of change can reduce. It will be nirvana if we could at the start of the year have whatever changes that need to happen and then we are left to conduct business.
India remains a sub-10% market in terms of term life penetration. What's your take on this?
When I joined the sector 15 years ago, people used to say, why do I need term insurance? Today, also thanks to COVID, nobody is asking that question. Term insurance used to be 0.8% of the total market when I joined this industry in 2008. Today it is almost touching 10% in certain months. That is a big shift. Pension is another product that is gaining popularity. People are moving away from just a family floater or employer-led medical insurance to having your own. These are movements in the right direction.
What about micro insurance?
Credit life is 1/3rd of our business. What was really holding us back was inadequate data needed to underwrite and give larger amounts of cover and second is, how do we get to them in a cooperative way, whether it is life, health, general insurer, so that there will be pooled risk. The regulator is in the process of rolling out Bima Vistaar, which is a combi-product with a bit of life, health and so on. Hopefully, this will start penetrating, because it is a simple over the counter product.
Is life insurance still a savings product?
Term insurance is pure form of life insurance, which is not savings-led. With credit life, they take a cover as long as the loan is there. Then there is group insurance. There are many people who would say nothing is going to happen to me and insurance is an expense. We would tell them that if something happens, let us take give you a cover. But if you survive for 10 or 15 years, I will give your premiums back. We are at that stage for many customers. Another avatar is ULIPS. We are relatively agnostic of which way an average Indian gets more covered. Ideally, it should be pure term, but there is a process to getting there. Younger people will get there faster.
Share of ULIPs to your total premium has risen sharply. Where do you see this settle?
It's now 36 per cent share. It will remain elevated as long as markets do well. Unit linked has a rightful place and we like the product. It is easy to understand and a transparent product. But the economics are not as compelling. Secondly, persistency tends to be somewhat lower than our overall persistency. Share of ULIPs will be range bound as is the case with our non-par products.
You don’t anticipate persistency to change because of ULIPs?
We are very happy that our 13-month persistency has increased by about 200 basis points, and will continue to inch upward. (Persistency of) ULIPs can go up further if some of the current features are no longer there. For example, why would we want to give someone who is in a way errant a guaranteed return? When we sell a policy, we do engage with customers and coax them to sign up for a standing instruction so that it goes as an auto pay. When we acquired Exide Life, their persistency was in the 70 per cent range. That has gone up by about 400 to 500 basis points, just by some of these tweaks like engaging with the customer. Many such big and small things have helped us stay ahead of the pack on persistency.
What about value of new business (VNB) margins? There isn’t much difference between any player and increased share of ULIPs can hurt that.
We have consistently maintained the margins as against a lot of yo-yoing happening in the sector. We have doubled our VNB in cohorts of four years, which I think not many peers will be able to say. We also talked about the regulatory disruptions. You will find some pressure on margins because of ULIPs. In terms of order of priority, our number one priority is growth. We must grow well in terms of new business, and we have been growing slightly ahead of the private sector growth and comfortably ahead of overall sector growth. Our value of new business growth will be 15 – 17 percent. Margins are an outcome of these factors. Also, if we are investing in certain technology, like we are doing now, we are going through a tech transformation, which is a close to about Rs 400 - 500 crore investment, there could be some pressure on margins. As we continue to write more term business that should see an upward bias. Second is some level of stability in regulations. I am little bit cautious on this because we don’t know at what level of stability we are in.
Where do you see HDFC Life in phygital curve because the industry remains a human interface business? In the West, they are moving away from it.
Absolutely. Even today, if the customer is okay with no human interface, I can do from solicitation to policy, issuance and servicing with zero human interface. We have the tools. We can much get most of the data, especially for a younger life (customer) less than 45 years of age, with next to no friction and no in-person medicals. We have virtual avatars where you can click on the link and hook up and talk to it. Claims process is zero touch. We will roll out the first of this in December, and then there, after every quarter, we will have different phases rolled out. We will become an insurtech company and that is how we see ourselves. Between our online channel and some of the digital channels, about 10–12 percent (of customers) buy insurance digitally and its increasing. Younger customers will move towards it.
From 2017 till Covid, life insurance had a reasonable acceptance in the stock market. That seems to have tapered. Does it bother you?
Banks and insurers work conversely on stock market worldwide. Insurance is seen as a long-term defensive play, while tactical advantage is based on where interest rates are. Second is the regulatory disruption that we saw and then Covid happened. Markets were perhaps spooked on where is this leading to. Our return has been in the range of 16 – 18 per cent and long-term value creation is nicely flowing. I think there is a little bit of expectation mismatch coupled with skittishness. Longer term view on just letting the sector (settle down) will bring the confidence levels back.
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