No IPO without regulator mandates: MD & CEO, Tata AIA Life Insurance

In a Q&A, Naveen Tahilyani explains how focussing on retail has paid off. He says he expects new business premium for the retail segment to grow at 30%

Naveen Tahilyani, MD & CEO of Tata AIA Life Insurance explains how the strategy on focussing on retail has paid off. In an interaction with Manojit Saha for the Business Standard The Banking Show, Tahilyani says he expects new business premium for the retail segment to grow at 30 per cent. Edited Excerpts:

Tata AIA Life is the 6th largest private sector life insurance company in terms of the IRDA data on new business premiums, there has been a steady growth in the recent years. What has been a strategy that has led to this growth?

I would just like to clarify that when you look at new business, we are a player which is very focused on retail business. And within retail, when you look at the annualized premium equivalent, last year was a very good year for us where we had about 60% growth on retail AP, and we were number 3 in the industry, and in fact, we are the only non-bank owned player in the top five on this metric.

What is driving this market position of No 3, I think first and foremost, we are a very protection-focused player and on protection, we have done some innovations on product in particular. But again, as per IRDAI public data on the retail sum assured, which is a measure of the quantum of protection that we are writing, Tata AIA was #1 in the private sector with a 27% market share in the private sector.

Secondly, we are very focused on some of our consumer metrics. Because when you look at persistency data … you will see that in the 13th, 21st, 25th, 37th and 49th cohorts, we are actually number one in the industry. And on the 61st month cohort, which is the 5th year renewal premium, we are No 2 in the industry.

The third thing is we've been working very hard to improve our consumer experience at every point of the customer interaction with us. Last year, FY23 was a landmark here for us, where we crossed 99% claim settlement ratio on the retail front.

In FY23 the growth in new business premiums was almost 60%. What kind of growth do you expect for the current financial year?

The Protection Gap in our country is 91%, which means the quantum of protection that we should be writing every year should be 10 times of what it is now. My own estimate is that this industry should grow between 15 to 20% over this decade, over the next 10 years or so. And obviously, over the longer term we want to grow faster than the industry. So we want to grow, at least, 25 to 30% over the long-term. Again, I say we are quite focused on the retail front. We expect to grow our retail new business premium by about 30%.

What is the proportion of participatory products and non-participatory products in your portfolio?

Roughly speaking, participation products were about 15% of our retail business last financial year.  Non-participatory products, which are Guaranteed Rate products, were about 45% of our retail business last year. I don't expect this to shift materially this year or even over the medium term.

Is there a plan for an initial public offering?

No, not really at this moment. Unless IRDAI mandates that companies of a certain scale and size need to list, we have no immediate plans to list. The reason is pretty straightforward. We are very well capitalised. Our solvency ratio is more than adequate at this moment, and should we need capital, I think both our shareholders, Tata Group as well as AIA Group, are very committed to injecting that capital. So there is no reason to go to market to this capital.

You are one of the top players who is not promoted by a bank. So, you have tied up with five, or six banks for bank assurance partnerships. What is the share of premium from the bank assurance partners and how do you plan to increase it?

We do work, as you rightly said, with a lot of banks  - private sector, public sector and foreign banks. We work with banks of all natures - large banks as well as small banks. Banks which are more retail oriented, banks which are more HNI and affluent oriented. And we are very privileged to have these partnerships. These are all partnerships in the open architecture, which by the way, has also been one of the recent enabling reforms by Mr [Debasish] Panda [IRDAI chairman] and his team.

While we have been growing this bank assurance premium strongly, what we are equally or probably more focused on is growing our own proprietary channels - our own agency, our own direct sales force and our own web sales or digital channel. Last year our agency channel grew by 73%. So while the company grew at 60%, the agency grew by 73%. And in the agency also, we have a very differentiated strategy of focusing on what we call the Premier Agency.

In the past two years, we have added 200 branches--100 branches each, to support our agency and to drive penetration in line with the opportunity that exists as well as in line with the regulatory mandate to deepen penetration.  This year, we've got approval from our board and from the regulator to add another 110 branches. And I think broadly speaking, I expect us to continue to add 100 branches each over the next three to four years.

You talked about your agency force. Now the IRDAI’s new regulations allow giving some flexibility to the insurance companies on Commission. Will you be offering higher commissions to agents and other distributors?

So first, again, you know this is a sign of the progression and the focus on the development agenda within IRDAI, which I was talking about earlier. Now there is more flexibility in creating Commission structures. I don't think this will necessarily result in higher commissions. Our approach is a little different. Given that we have this Commission flexibility, what we are trying to do is, make sure that for certain products which are good for the consumer, we are able to offer higher Commissions.

I'll give you a very specific example - pension products. Earlier, the commissions were capped at 7.5 per cent. Now as part of this commission flexibility, we can increase the Commission. We have, in fact, increased the commission on pension products already, and, you know, that is a good product for our agents to take to the customers. So that is one change that we have brought in.

Second, because we are very focused on renewal and quality of sale, we will look to link more and more of the commissions of our agents or distributors to the quality of renewals that they bring or to the quality of assets under management. If I look at unit-linked products, which we don't sell much.. last year unit linked was less than 20% of our total new business premium.. but you know, you can kind of incentivize distributors now to make sure that they encourage customers to stay on for longer in the unit link product.

So, some of those changes of linking commission to renewal performance to assets under management kind of performance and selectively tweaking Commission in products like pension or some aspects of protection is what we will do. But, very excited about these changes. Because while these may sound like minor changes, when you look at the impact on the quality of our business and the growth it can bring, it is very, very material. And this is something we and the entire industry are very thankful to the IRDAI.