ICICI Prudential has the lost the top slot in the private sector life insurance sweepstakes. In an interview, the company’s Managing Director & Chief Executive Officer V Vaidyanathan tells Sidhartha that the insurer will be back at the top by the end of the year. Besides, he expects the company to break even earlier than the 2012 target, due to cost cuts and efforts to increase revenue. Excerpts:
How has life changed in the The first half saw a decline in new business. What’s it looking like now?
Yes, but we have made a strong comeback. We expect a 25 per cent year-on-year growth in the third quarter and 30 per cent growth in the fourth quarter. The trend is looking good. This has made us confident of growth for the future. This confidence stems from the steps we have taken. We have filed many new products, which are configured at specific market segments, and we are very confident these will be winners. In our new filings, we have heavily loaded all our products in favour of the customer by increasing customer allocation and by reducing our charges.
All insurance companies, including yours, have made big losses for eight to nine years, while you talked about breaking even in seven years. Where did you go wrong?
Profitability is an issue that will get fixed soon. We are working on it. For a long time since 2000, the industry was in a growth phase. When India Inc was booming between 2004 and 2007, everyone across different sectors invested heavily, probably over invested. This stretched the profitability even more.
People say it will take a long time for companies to address this. Even you had said it was going to be a while…
Yes, our immediate goal is profitability. But this won’t be addressed by charging more from customers. Profit will come by reducing our own expenses, and that is what we are doing now. But cost cutting is no long-term strategy. There is no doubt that our medium and long-term goal is growth.
So, this year the focus is on the profit and loss account instead of the balance sheet?
We are cutting costs and raising revenue. This will help us achieve the breakeven faster than predicted. It will show in our results soon. We will focus on our balance sheet next year by growing again.
You have been talking about cost cuts. Have you taken any concrete steps?
We drew up a comprehensive plan. We have optimised our premises, stationery and electricity costs, merged divisions, eliminated the duplication of resources. Ironically, this has given us more efficiency without compromising on our service levels. Our service levels have always been very high.
When are planning you an IPO?
We are watching the situation, it depends on the needs of our shareholders.
Is it a function of the capital requirement for the company?
Capital is not an issue. We planned an infusion of Rs 300 crore, but in the last three quarters, we have not infused any fresh capital. We have saved expenses which have straightaway added to capital. Also, we have introduced products with lesser strain, with lesser commissions than before.
Will Prudential increase its holding when the foreign investment norms change?
As and when the norms regarding foreign direct investment (FDI) change, we hear Prudential will like to increase its stake.
Will there be a lot of change in the way life insurance companies operate in the second decade of liberalisation?
Soon, insurance companies will enter the profit zone. Many will get listed. That’s a big shift from being unlisted, and so will be even more exciting. The first decade has seen rapid growth. The next will still see growth on a large base, may be by 12-15 per cent annually. In the era of profitability, the insurance industry will contribute significantly to the tax revenue of the country. Right now, investment from insurance in infrastructure is Rs 1,30,000 crore. This could increase 4 fold in the next 10 years. Also the total industry revenue will grow from Rs 2,00,000 crore to Rs 8,00,000 crore. With profitability and listing, the industry will enter adulthood.
Is the industry still heavily regulated even after 10 years? The regulator still looks at advertisements and products?
I don’t see it that way. You see, many players in the insurance industry are still very young. Also, insurance is a highly sensitive product and, even globally, this industry continues to be very regulated.
Will the next decade see some sort of consolidation in the insurance industry?
Given the long-term growth of the Indian economy, even companies starting operations today can build momentum over the next few decades and can gather critical mass. The issue of consolidation becomes real when the industry is not growing and companies have to consolidate to survive like in western economies. I do not think that the insurance industry has reached that stage in India.
