 "T R Ramachandran")
Private life insurer Aviva Life Insurance will continue to concentrating on the traditional product segment in this financial year. In an interview with M Saraswathy, T R Ramachandran, MD & CEO of Aviva Life talks about strategies to up premium growth and venture into newer areas for distribution. Excerpts:
Aviva Life has seen 11.3% drop in new premium in FY13. What kind of growth figures you have in mind for this fiscal?
There has been a marginal de-growth in the last financial year and the April 2013 data has also been more or less flat. It is a factor of two things, shift to traditional products and tough macroeconomic conditions.
Traditional products have lower ticket size as compared to Ulips. The macro-economic scenario is not all that rosy. Further, most insurance companies are busy refiling products to comply with the new regulations. With a low base, I expect a single digit growth this year.
Would that hold same for profits too, since there was a marginal dip in your profits for FY13 as compared to FY12?
The higher the new business, higher is the loss. If volumes are low, then profits may go up as one would keep getting investment income. Fixed income yields will go up as interest rates go down. If there is one more drop in rates, this would add to investment portfolio of insurers. Profits for us were slightly lower due to areas like investments among others. But we believe that the profits will be a tad better for FY14 than FY13.
Your peers are going heavy on the group segment. What about Aviva Life?
Ours will be a retail focussed strategy. Group tends to be opportunistic, and depends on as and when you get the business. On group side, group term is an interesting opportunity. On retail side, focus will be on protection and protection oriented products.
The other interesting segment is retirement.
We will launch a pension product this fiscal, it will most likely be on a traditional platform where customers gets a guaranteed return. In absence of equity derivative, we will not be able to offer such non zero positive return on a linked platform. Another area is child plans. Child plan segment offers good potential for growth. Persistency on child plans tends to be 7-8% higher in this segment.
While guidelines for offering products in rural segment is on the anvil, would you be setting up additional branches in rural areas?
The opportunity in rural markets is large, but you need to have enabling distribution architecture. For instance, if the regulator were to say that cooperative banks and regional rural banks can sell insurance of more than one company, that would allow us to tie-up. To set up a brick and mortar branch is not feasible in areas with a small population. Further, other challenges include technology solutions for premium payment.
How do you bancassurance channel as a growth opportunity?
Bancassurance would be a major area of growth, if the regulator allows banks to become brokers or sell more than one insurance company product. There are 72,000 bank branches and penetration of insurance in bank customers is less than 4%. Not more 15,000 branches have trained personnel to sell insurance.
Especially in areas like the north-east, even banks that have tie-up as manufacturer, joint venture partner or distributor, the awareness of insurance is low. It is an exciting model and a cost effective manner to have insurance in semi rural and semi urban areas. It will be a big game change, if and those regulations change.
We have been informed that the regulation is under active consideration. If the broker regulation is bought up, there has to be congruence of thought between what Reserve Bank of India (RBI) wants to do and what Insurance Regulatory and Development Authority (Irda) wants to do. This is a challenge. It is on the radar of the regulator.
Your solvency ratio stood at 4.23 at end of March 2013, as against 5.15 at end of March 2012. What is the reason for this?
Some companies tend to get capital every quarter. At Dabur and Aviva, the shareholders tend to give capital on an annual basis/cycle. When we get in the capital first the solvency position looks unnaturally high and when capital is used up, it keeps coming down. But, we are way above the required solvency of 150%.
Persistency is an ongoing process among life insurers. What are the additional steps that you will be taking this fiscal, in wake of new product regulations being passed?
We will hire an additional 10,000-12,000 agents by the end of this fiscal, predominantly in the non-Top 10 cities.
We also have an in-house retention department to remind customers and explain why policy lapsation is bad for them. Persistency is a ongoing dialogue.
In the second year, we have found that a customer is needed to be resold the benefits of a plan. It is not automatic and about making premium payment as convenient as possible. We have also enabled direct debits and tied up with banks too, to remit premium.
