Private insurance comes of age

ULIPs major contributor to private life insurers' 26%-plus market share.

The numbers tell the story. In a span of five years since December 2000, private insurers have cornered more than a fourth of the total life insurance market with a share of 26.18 per cent. And it does not end there.

Swiss Re, one of the world's largest re-insurance firms, estimates that real life premiums will grow by a staggering 300 per cent or at a 15 per cent compound annual growth rate (CAGR) in the next 10 years.

Moreover, industry watchers believe private life insurers can grow at a CAGR of around 37 per cent till 2011, and achieve a market share of new business around 55-60 per cent by financial year 2008-09. Premium income in financial year 2004-05 was Rs 18,700 crore.

One of the key factors that has contributed to the success of private players has been the introduction of the unit linked insurance policy (ULIP).

ULIPs, which marry investment and insurance and account for as much as 70-80 per cent of premium incomes for top players, have attracted the "younger, affluent Indian" who is keen to dabble in the stock market and at the same time buy an insurance product. Thus, insurers have cashed in on the increasing participation of individuals in the stock market.

Says Shikha Sharma, CEO, ICICI Prudential, "Some of the more educated people have opted for ULIPs because they find it easier to understand than the traditional endowment products. In that sense, there is a new customer base."

According to Deepak Satwalekar, managing director, HDFC Standard Life, the company' growth has been faster after it launched ULIPs. He believes that HDFC Standard Life will continue to be the best-selling product for some time to come. Ticket sizes, too, are becoming bigger: the average premium per policy was nudging Rs 11,000 in the first quarter of 2005-06, up sharply from Rs 6,000 in 2003-04.

The other reason why private life insurers have done well and in some sense scored over their mutual fund counterparts is the strong distribution network they have built. HDFC is now present in 480 towns, while Bajaj Allianz is in 400 towns.

Says Sam Ghosh, CEO of Bajaj Allianz, "Our strategy has been to penetrate the tier-II towns where the costs are lower and the mutual funds have virtually no presence.' Experts give their reasons for this.

Satwalekar believes that mutual funds have not focused on expanding their reach as much as insurers have. Sharma feels that effective use of tied agents -- where an agent is affiliated with only one insurer, compared with the mutual fund industry where wealth managers and banks are the main advisers -- has also helped insurers.

Besides, insurers have also used the banking channel -- ICICI Prudential has seven bancassurance partners. In fact, owing to their strong customer focus, insurers have actually managed to extract high fees and upfront charges from customers.

Satwalekar, however, contends that the maturity value for an insurance product is superior to that of a mutual fund over a 25-year period.

Within the private sector, there has been some churn. In the initial years, it was ICICI Prudential and Birla Sunlife which were ahead, the latter having been the first to launch ULIPs.

Today, ICICI Prudential retains its premier position (7.26 per cent). The company's strategy is to target volumes, as evident from its aggressive marketing. Bajaj Allianz (5.94 per cent), the star of 2004-05, which now occupies the second spot, has set its sights on the the tier-II cities where Life Insurance Corporation is the main competitor.

HDFC Standard Life (3.11 per cent ), which started out slowly, has based its strategy on the 'quality plank' and has moved up steadily to the third place. Says Satwalekar, 'We have been accused of being conservative, but in a long-term business like insurance, there are no short-cuts.'.