(Date: 17 May 2005)

How has the FBT on superannuation affected your business?

It is too early to say how the FBT on superannuation will affect our business. We have heard that some companies are reviewing their own compensation policies in the light of the FBT. They may move to a CTC structure. We shall have to wait and watch how this plays out.

Recently the IRDA has barred insurance companies from selling keyman covers stating large scale abuse of the product. How many keyman covers have you sold in March? And how much has the IRDA diktat affected your business?

The IRDA diktat does not affect our business, as we have not been big players in the Keyman policy market. I do agree with IRDA’s action in restricting the Keyman policies to being a pure ‘risk’ product. That is the real objective of a Keyman policy and I am glad that action has been initiated early in this regard.

Your position from among the top three has gone further down. Your comments pls

There are different ways in which the ranking of insurance companies in a newly opened market can be measured. New business premium is one of them. For the long term success of an insurance company, the sale of regular premium policies, as opposed to single premium policies, is very important.

We measure our New business premium income in Effective Premium terms, that is, we give only a 10% weight to a single premium policy. While we agree that market share is important, we would not engage ourselves in any practices that would hurt the long term profitability, or worse, the viability of the company. The quality of the book is very important in determining whether a life company is successful or not.

ULIPs have been doing roaring business. But with lack of transparency and these being sold as investment products the IRDA plans to come out with stringent guidelines for the same. How much do you think it will affect the sale of unit linked products.

It is extremely unfortunate that without a clear understanding of the unit linked product, the media as well as other affected segments of the financial sector have harped on the ‘lack of transparency’ of these products.

At HDFC Standard Life Insurance,we disclose, up front, all charges that would be payable, whether one time or on a recurring basis. In fact, these are factored in the preparation of the ‘illustration’ that is made available to all our customers.

These illustrations give the customer an idea of what the terminal value of his policy can be at the end of the policy term. Mutual funds do not have an equivalent facility. These are as much ‘investment’ products as any other conventional product offered by insurance companies.

The difference is that the customer now has a choice of what asset class he prefers to invest in. This is of great value to customers as they can now choose the asset class depending on their age, risk preferences, financial needs and existing investment portfolio. This choice, enhances transparency, not reduces it.

I have not understood this fascination that the media has had in trying to show this as a fight between the mutual fund industry and the life insurance industry. Please try and understand that these are two different products that are offered by these players and they address very different needs, especially in terms of the period of the contract.

Unit linked policies, like other life insurance policies, are long term contracts, extending as long as 30 years, and do offer significant benefits in terms of maturity values arising from the low recurring charges that insurance companies levy.

I agree that these are new products in the Indian market and not something that the customers were offered during the days of a non-competitive market environment. We have therefore put in place an additional programme for training and licensing our Financial Consultants to permit them to sell unit linked products.

I believe we are the only life insurance company that has such a programme in place. As of now, a little over 25% of our sales force is permitted to sell unit linked products. This is one of the ways how we manage the risk of mis-selling that the regulators may be concerned about.

I am not aware of the nature of the guidelines that are being planned and hence would not be able to comment on how they will affect us. All I can say is that the ‘needs based’ approach that we have adopted for selling is a natural hedge against mis-selling.

How do you plan to further strengthen your retail business?

We have 104 offices across the country, including in B and C level towns. Through these offices we are able to offer our products and services to customers in over 440 towns. During the year we have plans for significantly increasing our reach through additional offices, so as to both widen and deepen our presence across the country. We also plan to leverage the wide distribution network of our bancassurance partners to reach a wider customer base.

How different is insurance selling in rural areas?

As different as chalk and cheese. It is important not to carry pre-conceived ideas about what is required by the rural market. It helps to listen to them. We need to keep in mind the shortage or non-availability of adequate medical testing facilities in rural areas, and therefore need to design appropriate products for these markets.

As you go deeper into rural India there isn’t a facility whereby they can pay their premiums on a regular basis. The desire to have insurance facilities reach rural India often runs ahead of the availability of adequate banking facilities.

There are also difficulties in finding approved training institutions and testing facilities for getting our Financial Consultants licensed to sell insurance policies. Having said that, I do believe that with the increase in rural incomes that we are seeing in recent years, there will be a large opportunity to offer life insurance products in the years ahead.

How much has bancassurance contributed to your business?

Bancassurance is an important element of our distribution strategy. The past year has seen this channel contribute over 35% of our New business premium. Going forward we do plan to intensify the existing relationships and fully leverage the strengths of this channel to offer our services to a larger client base. We may also consider extending our relationships to other partners which have a similar value system as ours.

(Courtesy: www.Insuremagic.com)