 "For us, bancassurance is a biz model: John Holden")
Private life insurer Canara HSBC OBC Life Insurance, which has one of the strongest bancassurance partners in the industry, is looking at leveraging this channel as its main growth driver. John Holden, chief executive of the company, in an interview with M Saraswathy, talks about this strategy and expansion plan for the current financial year. Edited excerpts:
The company has three bank partners (Canara Bank, HSBC and Oriental Bank of Commerce). At this juncture, do you see any need to have an agency channel?
When the company was formed five years ago, there were a lot of things we got right. We have no agents. Our banks have 50 million customers, and we have about 300,000 policies. So, I do not need to rethink our strategy of bancassurance at this point. We are a bancassurer. From a bank’s point of view, all customers have insurance needs. In that sense, the vision is that bank customers should buy their insurance from their bank. We are adding and continuing to license bank staff to deal with customers’ insurance needs. Last December, we had 1,800 licensed bank staff. At the end of June, it stood at 3,200, and there are 1,000 more in the pipeline.
For us, bancassurance is not a channel, it’s a business model. We have always been a proud 100 per cent bancassurer. That strategy and business model are working. If you had an agency model, you are head-to-head toe-to toe with others. What is your differentiator or competitive advantage? Agents come and go, but bank branch is always there. When you look at our structure, all our partners have a reason to stay together.
How has the company progressed in terms of meeting the product refiling deadline?
The group product refiling has been satisfactory. Over the last three months, our social sector and first single premium product have been approved. Now that we have clarity on product regulations, things are beginning to move. But we don’t believe in having a lot of products. Our 12 products are just about the right number. Further, we have also filed our first participatory product. Since the new regulations do not permit products linked to government securities, our assessment is that a par product would be a good substitute to it.
But since you have a fairly large unit-linked insurance plan (Ulip) portfolio, will there be any change in this strategy?
Two years ago, about 90 per cent of our products were Ulips. Now, we are a 70 per cent Ulip company. In the future, we are looking at a 50-50 mix. Like the other players in the industry, we chose not to make any sudden shift towards traditional products. Out of our total product portfolio at present, in the individual space, we have four Ulips, one traditional and one pure term products.
Was the bank-driven business model the reason why you booked profits within five years of entering the business?
First of all, we are a low-cost operator. So, the opex (operating expense) to premium ratio is about 14 per cent, and bancassurers tend to be lower on costs than agency companies. That’s how we are able to book profits. Secondly, we are in the regular premium business. If you have big chunk on single premium, next year, it comes back to zero. We get more money through renewal premiums, which will help you manage the operating cost, assisted by new premiums.
The life insurance industry is staring at another year of flat premium growth. Would this hold true for the company, too?
We are looking at growth as we are growing capacity. The game is about activation and reaching out to more customers. We need to find Canara, HSBC and OBC customers, who buy insurance and need insurance to buy it from their bank. We are in the business of growth, but we need to be careful of how fast we grow. I am not interested in the race of who has got the biggest top line growth. This is because some players may have large top line, but lousy persistency may lead to the book shrinking, on a net-net basis. There is a balance to be struck, which is new business and keeping what you did in the past years for a long-term sustainable profitable business.
Compared to your peers, do you have plans of aggressively entering the micro-insurance space?
I believe micro-insurance is an interesting segment. However, for such high volume low-cost operation, you need to automate and use a lot of technology. With low internet penetration, regional rural banks provide an opportunity to solve this problem. Our banks are planning to open about 901 offices this fiscal, and many of those will be in smaller towns. We look at slowly and steadily entering this business, with the help of a pilot project with an NGO (non-governmental organisation). We would be sober in the approach and build a good sustainable business.
There have been reports of one the joint venture partner exiting. What is your response?
It is a market rumour and speculation. These reports have been going on for a long term; and we are still here. It’s a shareholder matter. If you look at where we are, this is a great business. In 2008, when the JV was set up, all banks made five-year exclusive distribution agreements. Those agreements are being reviewed for another five years. So, there is declaration of intent and everybody is still in the game. Everybody has got a reason to stay married.
The company has three bank partners (Canara Bank, HSBC and Oriental Bank of Commerce). At this juncture, do you see any need to have an agency channel?
When the company was formed five years ago, there were a lot of things we got right. We have no agents. Our banks have 50 million customers, and we have about 300,000 policies. So, I do not need to rethink our strategy of bancassurance at this point. We are a bancassurer. From a bank’s point of view, all customers have insurance needs. In that sense, the vision is that bank customers should buy their insurance from their bank. We are adding and continuing to license bank staff to deal with customers’ insurance needs. Last December, we had 1,800 licensed bank staff. At the end of June, it stood at 3,200, and there are 1,000 more in the pipeline.
For us, bancassurance is not a channel, it’s a business model. We have always been a proud 100 per cent bancassurer. That strategy and business model are working. If you had an agency model, you are head-to-head toe-to toe with others. What is your differentiator or competitive advantage? Agents come and go, but bank branch is always there. When you look at our structure, all our partners have a reason to stay together.
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How has the company progressed in terms of meeting the product refiling deadline?
The group product refiling has been satisfactory. Over the last three months, our social sector and first single premium product have been approved. Now that we have clarity on product regulations, things are beginning to move. But we don’t believe in having a lot of products. Our 12 products are just about the right number. Further, we have also filed our first participatory product. Since the new regulations do not permit products linked to government securities, our assessment is that a par product would be a good substitute to it.
But since you have a fairly large unit-linked insurance plan (Ulip) portfolio, will there be any change in this strategy?
Two years ago, about 90 per cent of our products were Ulips. Now, we are a 70 per cent Ulip company. In the future, we are looking at a 50-50 mix. Like the other players in the industry, we chose not to make any sudden shift towards traditional products. Out of our total product portfolio at present, in the individual space, we have four Ulips, one traditional and one pure term products.
Was the bank-driven business model the reason why you booked profits within five years of entering the business?
First of all, we are a low-cost operator. So, the opex (operating expense) to premium ratio is about 14 per cent, and bancassurers tend to be lower on costs than agency companies. That’s how we are able to book profits. Secondly, we are in the regular premium business. If you have big chunk on single premium, next year, it comes back to zero. We get more money through renewal premiums, which will help you manage the operating cost, assisted by new premiums.
The life insurance industry is staring at another year of flat premium growth. Would this hold true for the company, too?
We are looking at growth as we are growing capacity. The game is about activation and reaching out to more customers. We need to find Canara, HSBC and OBC customers, who buy insurance and need insurance to buy it from their bank. We are in the business of growth, but we need to be careful of how fast we grow. I am not interested in the race of who has got the biggest top line growth. This is because some players may have large top line, but lousy persistency may lead to the book shrinking, on a net-net basis. There is a balance to be struck, which is new business and keeping what you did in the past years for a long-term sustainable profitable business.
Compared to your peers, do you have plans of aggressively entering the micro-insurance space?
I believe micro-insurance is an interesting segment. However, for such high volume low-cost operation, you need to automate and use a lot of technology. With low internet penetration, regional rural banks provide an opportunity to solve this problem. Our banks are planning to open about 901 offices this fiscal, and many of those will be in smaller towns. We look at slowly and steadily entering this business, with the help of a pilot project with an NGO (non-governmental organisation). We would be sober in the approach and build a good sustainable business.
There have been reports of one the joint venture partner exiting. What is your response?
It is a market rumour and speculation. These reports have been going on for a long term; and we are still here. It’s a shareholder matter. If you look at where we are, this is a great business. In 2008, when the JV was set up, all banks made five-year exclusive distribution agreements. Those agreements are being reviewed for another five years. So, there is declaration of intent and everybody is still in the game. Everybody has got a reason to stay married.