Life insurance is severely underpenetrated, but the growing awareness about the need for protection is helping the industry increase its growth from the current average of 29 per cent. The upcoming alternate
channels like small finance banks, payments banks and increasing use of technology including Aadhaar cards and digitization will help players like Birla Sun Life Insurance, which grew at 35 per cent
in FY17 tells Anil Kumar Singh its Chief Actuarial Office to Sunitha Natti. Excerpts:
How has the sector evolved over the past decade?
Initially, it was mainly LIC, which was selling products including minimum guarantee products, offering bonuses every year. Private players started with unit-linked products, where nothing was guaranteed. The set of funds (premium collected) would be invested in the market and paid back to customers based on the fund’s performance.
That did very well for one reason that private firms were expanding, reaching across the country and availability of products expanded phenomenally. Plus, the stock market was doing well and was moving only upwards. Then came the 2008-09 financial crisis that impacted our market. Unit-linked products were sold to everyone, including those who didn’t understand the risk profile. So, when the market fell, the fund value dropped and policies went down, people started complaining. This forced the IRDAI to intervene, which subsequently came out with regulations, provided a framework for companies to design products, and put a cap on charges.
How many products do you have?
In all, we have 55 products covering wealth creation, saving, and protection (insurance cover, health). Some are fully-guaranteed products that have zero element of misselling. and there are products that offer lumpsum benefits and income benefit options, besides others. People now have realisation about the need for insurance and are automatically buying products. We see traction for products with the protection cover. Of the 55 products, there are both individual and group products and the basket is well diversified. But if you see, there are around 6-7 products that are the fast selling like income products, endowment plan and endowment plus within retail segment.
What’s your business mix currently?
We have both individual and group business. In FY17, we garnered Rs 920 crore as individual premium and Rs 1,505 crore from group business, which is a big chunk. But it’s the individual business, where good margins lie.Within group business, we are the fourth-largest in the market, but as we go forward, we are focusing on increasing individual segment, which currently contributes over 40 per cent of the business. This will grow in the coming years. Even for the industry, the real competition, real struggle for market share is the retail business and we are channelizing our energies in getting a larger, strategic focus on retail. The biggest challenge here is getting the second premium (renewal), where the maximum lapses happen.
Are the customer acquisition costs reducing as awareness increases?
Acquisition costs depend on the channel mix. If you have completely retail network with agents and advisors, recruiting, training, and engaging with agents incurs certain costs, which are high. On the other hand, you can have corporate distributors, which are banks. This channel protects costs as banks already have the presence and the database of customers.
Even the relatively new payments banks, small finance banks etc will help grow our customer base at lower costs. But this will not reduce our dependency on agents significantly. Insurance is an underpenetrated market, and right now, there’s a lot of focus on metros. But penetration in cities and towns will need training and supervising agents until technology supports us with centralized data.