)
Insurance companies supported by bank channels are better placed than those supported agency channels, according to a research report by Barclays. Bank channel in India has lower fixed costs in comparison with the agency channel, the report noted. Therefore, insurance players such as ICICI Prudential Life, SBI Life, HDFC Life and Max Life, which have a higher share of business from the bank channel, can generate new business at lower costs.
"Since the regulatory changes in FY10-FY11, most of the bank-led players have managed their performance better than the other players, gaining market share as well as improving in terms of operating efficiencies and policy persistency. We expect this divergence in performance to continue going forward," said the Barclays report.
According to the report, the series of regulatory changes (mainly around unit-linked products) in FY10-FY11 significantly impacted life insurance profitability. In particular, caps on surrender charges and aggregate policy charges for unit-linked products had a significant margin impact (reducing unit-linked new business margins from 18-25 per cent to 10-15 per cent), the report noted. Prior to the regulatory changes, surrender charges were about 40-100 per cent of annual premiums in the first few years. These were capped effectively at 5-20 per cent of annual premiums.
The report explained that the high fixed cost agency channel was significantly impacted by the regulatory changes. "New business from the agency channel was impacted significantly, given the lower incentives to agents from the policies sold," it said.
Giving examples, the report said in particular, the top four bank-led players - ICICI Prudential Life, SBI Life, HDFC Life and Max Life - have a high bank channel share (40-65 per cent of new business premium), as they leverage the available access to the extensive branch networks of their partner banks. According to the report, this results in significantly better cost performance than the other key players. "Operating costs and commissions stand at 30-60 per cent of overall new business premium. Other players manage the ratio at 80-100 per cent, significantly impacting overall margins. Hence, access to the bank channel becomes a 'ticket to play' in this industry environment," it further said.
ICICI Prudential Life has ICICI Bank as the bank partner, HDFC Life has HDFC Bank and Indian Bank. SBI Life has State Bank of India and its associates as bank partners while Max Life has Axis Bank and Yes Bank as its partners.
The report mentioned there is limited scope for a new bancassurance partnership. "Most large and mid-sized banks already have bancassurance tie-ups, and are bound by regulations to a single life insurer for selling life products. Given the limited availability of new bank partners, we expect high competition for new bancassurance deals (if any); any new tie-ups are likely to happen at a significant premium, in our view," it noted.
