Insurers need to introduce bite-size products: HDFC Life CEO Vibha Padalkar

Coronavirus pandemic will bring a 'paradigm shift in how people view insurance in India', says Vibha Padalkar in an interview.

HDFC Life will focus on growth and profits as it manages the coronavirus pandemic and takes up new technology, said Vibha Padalkar, managing director and chief executive officer of the insurance company in an email interview with Subrata Panda and Hamsini Karthik. Here are edited excerpts from the interview.

Life insurance business involves more human interaction but social distancing being the new norm, what will be the strategy going ahead?

The sudden lockdown has exhibited for most other players the undesirable dependence on manual, paper-bound processes and has made it imperative for them to move towards the online distribution model. Our investments in digital assets have paid off and we have been able to provide more seamlessly end to end digital journey to customers. We will continue to prioritize our digital and cloud-based platform solutions. We are seeing a lot of traction on the online channel even from non-metros. But we need to be cognizant of the fact that many customers may still be reluctant or may not be tech-savvy to do online purchases, and we will need to handhold such customers and over-invest in evangelizing digital purchase journeys for insurance.

Will the pandemic be an inflexion point that the life industry was hoping in terms of penetration?

The pandemic is expected to bring a paradigm shift in how people view insurance in India. Potential customers, especially the younger generation, will appreciate that it does not cost too much to safeguard their families against such unforeseen circumstances. Also based on past regional experiences, it has been observed that such pandemics provide tailwinds to protection products. Post the SARS outbreak in 2003, there was a sharp uptick in new business sales due to increasing demand for protection. I am optimistic that post this pandemic an insurance product will be reckoned as a much-needed risk cover, propelling overall life insurance penetration in the country.

Given the volatility in equity markets, will the focus now shift towards guaranteed and term products and ULIPs will take a back seat?

We have always maintained that our overall distribution strategy is to have a balanced portfolio, with a healthy mix of participating, non-participating, ULIP (unit-linked insurance policies) and protection products. The share of ULIPS is less than 30 per cent in FY20. We expect the mix to remain similar for this year with par products and non-par savings products ranging between a third to a fourth of our product mix each. We continue to focus on the protection and annuity segments to address the mortality, morbidity, and longevity risks of customers. While the ULIP performance has been impacted by the market fall, the well-diversified nature of our portfolios and the positioning of these funds has ensured better performance than the benchmarks.

Will the pandemic also fasten innovation in the industry?

With changing consumer preferences and sensing the need for lower ticket sizes (especially in the current scenario where people are fearing salary cuts, layoffs etc.), there’s a call for the insurance sector to introduce bite-sized or sachet products. Bite-sized insurance products can help unlock the potential of our under-penetrated market. Time is ripe for such products as they aim to provide customized insurance services to digitally-savvy customers and low and middle income groups. The trend of small duration and on-demand insurance product is picking up globally and we expect a similar response from the Indian market, though they may not entirely replace the traditional long-term products, but rather supplement them.

Going forward, do you see surrenders rising given the economic scenario? If surrenders do rise?

There are challenges with reducing income and the likelihood of individuals losing their sources of income. We are closely monitoring our persistency and surrenders at the company level and at product level - especially for ULIPs. The facility of loans against policy can enable customers manage the situation better. We have reached out to the regulator and are in discussion about allowing loans against ULIPs. The loan facility is already available with traditional policies. This, we believe will enable customers make their payments and continue with their policies instead of having to surrender or lapse their policies.

In FY21 what will take precedence- preserving market share or ensuring growth and profitability?

We remain focused on our strategy of pursuing sustainable profitable growth. We believe that we should be able to maintain market share and our leadership position as a profitable life insurer. 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.

If higher reinsurance costs aren’t fully passed to customers, what is the guidance on new business margins?

The premium for term plans has increased. This increase by re-insurers is varied, depending on their mortality experience with the various insurers. The quantum of the hike varies across age groups, sum assured, policy term and premium payment terms. Our price revisions are based on our previous mortality experience across customer segments. We will be able to maximise the value of new business with our pricing strategy and also expect to maintain our margins on the back on a higher share of protection plans, operating leverage and higher share of margin accretive products.

FY20 was a period of asset quality issues for most life insurers. Based on your estimates of the book and the current market condition, how do you expect FY21 to pan out?

We have a stringent credit evaluation process. More than 96 per cent of debt investments are in government bonds or AAA rated securities as on Mar 31, 2020 implying that less than 4% of the bonds are rated below 'AAA'. The proportion of investments in the high yield - high risk segment of bonds rated below 'AA' is virtually zero.

Do you feel if life insurers were to re-enter the health insurance segment once again, that will be a huge relief from a business perspective?

Statistics reveal that insurance covers a mere 5 per cent of the overall health expenditure in India. Out-of-pocket spends are around 65 per cent and with a growth rate of 18 per cent year-on-year, the coverage gap is a concern. Health indemnity plans for individuals are best suited for bridging this gap. Life Insurers already offer fixed health benefit products such as critical illness and cancer cover etc. As the underlying risk remains the same, health indemnity is a logical path to offer more holistic product solutions to our customers. Health indemnity plans are largely sold by individual agents and direct channels, a distribution forte of life insurers. Life insurance companies with their efficient and large multi-channel distribution will be able to reach out to a larger section of the Indian population at a lower cost.

Are you comfortable on the solvency front? And when are you looking to raise Rs 600 crore via NCDs?

Our solvency as at 31st March, 2020 was at 184 per cent which is well above the regulatory requirement. While we are comfortable on the solvency front, we would like to ensure that there is adequate capital buffer in the event of volatile capital markets accompanying an acceleration in protection growth in the short term. We have received board approval to raise Tier II capital. It is an enabling resolution and the extent and timing of the fund-raise will be assessed in due course.