It has been a tough year for the life insurance industry after the norms were changed from September 2010.
T R Ramachandran, managing director and chief executive officer of Aviva Life Insurance Company, tells Niladri Bhattacharya the industry would see marginal growth during the rest of this financial year and feels the days of selling insurance as short-term products are over. Edited excerpts:
Since September, with the shift in the regulatory environment, life insurers had to realign their strategy and focus. How have things changed with Aviva Life?
We have used the opportunity to diversify our product suit. We are concentrating on four segments: Traditional plans, retirement solutions, child plans and micro insurance. For instance, Aviva i-Life is the cheapest online term plan in the market, with more than 10,000 policies sold within three months of its launch. This proves there is a huge market for term plans.
Unit linked insurance plans are 50-55 per cent of the total business. The other 45 per cent includes retirement products, endowment products, child plans and term plans. In micro insurance, we covered 1.5 million life policies last fiscal. We have tied up with micro finance institutions, cooperative banks, regional rural banks and dairies to explore the sector. The days of selling insurance as short-term products are over.
Aviva Life has been trying to rope in a bank as a equity partner. What is the rationale and how much are you willing to divest?
I cannot comment on the extent of equity which Aviva Life (the parent US company) is willing to divest, as it is purely a promoters' call. However, worldwide, Aviva is a bancassurance company. Whether in Europe or in Asia, bancassurance is in our DNA. In Spain, UK, Korea and Asia, we have banking partners. So, bancassurance will be our primary distribution channel in India as well. That is why we would like to add a bancassurance partner.
The premium collection for the life insurance industry has dropped by nearly 28 per cent so far during the current financial year. When do you see growth coming back?
This year, growth will be in two buckets. April-August is one and September-March is another bucket. Right up to August, we are going to see negative growth, primarily because of the base effect. I think the industry will see marginal growth during the September-March period, between five and 10 per cent.
As far as Aviva Life is concerned, our collection is also down, but the rate is lower than the industry. For example, during the period January-June 2011, the industry has shown a negative growth of 39 per cent in terms of overall premium collection, whereas Aviva Life was down (only) 29 per cent.
Aviva Life broke even last year and reported a profit of Rs 29 crore. Will you be able to maintain the profitability this year?
It is difficult to tell whether we would be able to, as a lot would depend on the types of product we underwrite. For instance, the more term products you write, one has to set aside more capital in the first year, so the more is the loss in the first year. It becomes profitable from the second year. Renewals last year were about Rs 1,510 crore, growing at about 15 per cent and this year, it should be in the region of Rs 1,800 crore. Our conservation ratio is about 78 per cent and solvency margin is 5.45. Currently, we are comfortable with the business we are underwriting, but it is too early to comment on the profitability.
