Private sector life insurance player Bajaj Allianz Life has been focussing on being a living benefit segment player. Here, M C Vaijayanthi speaks to Tarun Chugh, MD and CEO of the firm on how they approach traditional plans, life goals and asset allocation. Excerpts:
Tell us about your focus on “living benefit”. How does it go with traditional plans?
The bulk of India are used to buying traditional plans. The good thing for us is traditional plans can have various kinds of features. We can easily project cash flows, particularly in non-par plans where we are offering guarantees. So, when we have to fix this towards the living benefit like a life goal, I can easily project the time by which certain life goals can be completed. Plus, when it comes to traditional plans, riders usually go well... so, there is a rider for a child, spouse, etc., and focussed pitching is a lot easier. That is how we have improved our product mix to a larger traditional mix than earlier.
When you talk about life goals, what is the tenor you are talking about and does that make it interesting for younger investors?
Very clearly, the focus for us is long-term. Which is why it is not a goal, but a life goal we are focusing on. Normally, we prefer to talk for seven to ten years... but 5, 7, 10, that is how we are looking at the tenor. Given the fact we are talking about life goals, we are able to get to the millennials. Typically, millennials are from age 18 to 35. Of course, 18 may not be relevant for us... maybe 25 to 35. We are seeing a shift there, but it is gradual. Because the bulk of our buyers are older than 35, as we bring in anything new, they will be the first consumers. And then, as we go for a higher penetration, maybe youngsters would also step in.
What about returns?
See, the moment you start talking about life goals, it is not about returns. Returns can be misleading. But, what I have seen is a significant percentage of our traditional plan topline earners are between five to eight per cent net of tax on a long-term basis. It is actually quite good in terms of net post-tax return.
Do ULIPs hold out well vs mutual funds?
SIP, of course, has now got a ‘tip of the tongue’ recall … and the fact that the mutual fund industry has come together in its campaign and approach has worked well. It was an industry privatised a long time ago and had a lot more presence in metros. What has started working for ULIPs now is the lower charges. Fund management charge is capped at 1.35 per cent, and another benefit that has come in is the LTCG... a very big plus. As far as SIPs are concerned, they basically are monthly systematic investments. ULIPs also allow people to make monthly investments in a systematic manner and that is working well for us. We are seeing a lot of movement, online particularly, where these kinds of monthly investments are showing a significant trend. Youngsters under 35 are the ones coming in with this kind of ULIP investments.
Pension funds per se haven’t done very well, is that going to change?
The pension industry hasn’t been much last year. This year, we are planning to launch some really unique pension plans, so that should work well. Particularly, with some IRDAI guidelines coming into force, pension as a sector will pick up in the coming year. As far as our product mix is concerned, traditional forms 40 per cent and 60 per cent ULIPs. It was 75 per cent ULIPs earlier and the rest traditional. Annuity plans are taxed in the hands of the consumer and are coupled with income. But, there are some good structures available like our pension plan, where you can get the best of both worlds: tax benefits as well as equity.
What is the kind of asset allocation you would advise your customers?
The way people should work is to figure out how much proportion they want to keep for long term goals. The moment they decide those long term goals clearly, 50 per cent should be there in long-term asset classes. Short term, that is not a game we play. Overall, maybe it can still be about 7-8 per cent of pre-tax earnings. For the long term, 50 per cent should be in life insurance.