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With more entities including corporate houses set to open banks in the country, this opens up fresh opportunities for the insurance companies and transform bancassurance structure, says Rajesh Relan, Managing Director and Country Manager, PNB MetLife India in an interview to Manojit Saha. Excerpts:
What will be the impact of the entry of new banks on the insurance industry?
Overall, it will be a positive development for the insurance sector and help in increasing insurance penetration. There could be multiple consequences of this. Since a part of the business will shift from existing banks to new banks, the existing banks will need to look at boosting their non-fund based fee income to make up for the loss in interest income. This would lead to retail wealth management model in public sector banks. Since banks have to increase fee income, this would come from wealth management activities.
Within wealth management, the share of life insurance, general insurance and health insurance will increase. A large proportion of income of the wealth management business of foreign and private banks already comes from Life insurance products, I am sure that banks will focus more on insurance.
One of the important consequences of new banks coming into the play is that this would lead to realignment of bancassurance partnerships in the country. Irrespective of whether IRDA goes for open architecture or not, there will be realignments. If a group that has insurance business and a distribution tie-up with a bank, gets into banking themselves, then of course they may prefer to shift the insurance business or explore the broking model. On the other hand, a bank may not want to partner with a particular group’s insurance company, if that group enters into banking. Non-equity based bancassurance partnerships will be completely realigned.
There is going to be a convergence in terms of financial product sales. Banks promoted by large institutions that have an insurance company, a mutual fund or a NBFC selling mortgages or retail loans, will leverage the existing base of customers that have been acquired through these entities. There could be a flight from existing banks, if they are unable to offer all the financial products, which are offered by the new banks. Research proves that customers tend to stay and are loyal to those entities, from whom they have bought multiple products.
The insurance regulator has allowed banks to become brokers. What are your views on open architecture regarding the bancassurance channel?
We believe that the customer should have the final choice to buy from wherever he wants and what he wants. He should certainly not be forced or coerced into buying, since the policies are not going to live their life (read term), though the customer will. At the same time, companies will have to be guided by their own agreements, arrangements, business models and strategy. The banks who want to choose multiple partnerships have already been allowed by the regulator through the broker route, which is a welcome step.
Punjab National Bank has acquired 30% in the company. What has been the impact of PNB’s partnership on the business?
PNB has about 6,000 branches and 78 million customers spread all over the country. They have a fair mix of branches in metro, urban, semi urban and rural areas. To that extent, PNB offers us with a vast distribution network which is being leveraged by Metlife to build its business. Even before we formed the JV, Metlife as a company had been progressing pretty well. We have retained our position and have always been among the top 10 players in the industry. We expect to grow faster than the market and improve our market share. PNB gives us a platform to achieve our vision of becoming a top tier life insurance company. While we continue on that journey we are also focusing on expense management to be one of the most profitable companies. We launched the new brand earlier this year and our brand awareness is at 96%.
How has the other bancasurance partner, J&K Bank fared over the last few years?
J&K Bank has been a shareholder as well as our strategic distribution partner since we started operations. It has contributed more than 1 lakh policies in the last 12 years of its partnership with us and more than 10% of our business comes from J&K Bank. While the business from the bank is growing on a month-on-month basis for the last seven years, however there has been an impact due to the political disturbances in the valley. In Jammu & Kashmir, we are the largest employer in the private sector.
What are your growth projections?
Our business plans from 2014-16 are getting firmed up and we are looking at a healthy growth for PNB MetLife and gain in market share. In the previous year, when the market was down by about 15% (premium income), excluding group business, we grew by 15%. We are currently not focused on the group business since the irrational pricing in the market that compromises the shareholder value. While that adds to the topline, it does not add much to the bottom line. We are focused on growing our embedded value through the long term regular premium business. In this segment, we expect to grow above the previous year.
Do you see industry grow this financial year?
The industry will largely remain flat and given the emerging market conditions, particularly in ULIPS, we may not see much growth. The industry has hit a stall and only a disruption that transforms the existing business models of a particular company, can make that company grow. So some companies will grow marginally and others will perform lower than the previous years, keeping the industry growth around the same levels. However, even if the industry declined from the current levels, the mix of the business within life insurance is bound to change given the ensuing product guidelines that will get implemented from 1st of October. Today, close to 40% of the business is coming from the group segment, which is masking the decline in growth from the individual regular premium segment. So in that context, we have not seen the retail market grow, it has actually declined.
How do you plan to face the new regulatory regime, which starts from Oct 1?
We strongly believe that whatever is good for the customer will be good for the industry in the long run. The regulator has been consistent in focusing on the long term health of the life insurance sector. We are already aligned to the new regulatory regime. Close to 50% of our sales come from ULIPs which have had minor changes. On the traditional side we are adhering to the new guidelines and believe that more transparency will help the industry regain customer confidence. Though the new guidelines will reduce the product margins and impact distributor commissions, I think that the market is just about entering the next cycle and it is hard to predict whether it will be a downward or an upward cycle and which way it will go.
