Life insurance is getting sold differently to customers today, when compared to say 10 years ago. Life insurance products provide solutions across the customer lifecycle, catering to the varied needs of the end customer. In addition to a savings component, there is also a risk cover that addresses mortality risk. In this week's Finapolis Conversation, Kumar Shankar Roy talks to Suresh Badami, executive director, HDFC Life, to understand the operational performance of the company, how its online business is doing, whether the life insurance industry is affected by the Budget 2020 tax changes and much more. Read on to know.
What are the highlights of HDFC Life's 9-month financial and operational performance?
We have maintained our performance across all key metrics. Based on Individual WRP, our share has increased from 12.6 per cent in first nine months of FY19 to 14.3 per cent in 9M FY20, while the share in the group segment increased from 28.2 per cent to 28.6 per cent for the same period. Our overall New Business Premiums have grown at 22 per cent in 9M FY20, leading to a Market Share of 21.4 per cent amongst private players. Our Individual and Overall APE have grown at 31 per cent in 9M FY20, supplemented by product innovation and growth momentum across our distribution channels. We covered over 4.5 crore lives in this period, a growth of 29 per cent over the corresponding period. Our New Business Margin for 9M FY20 is 26.6 per cent, an increase of 260 bps over the same period last year. Our Value of New Business has grown by 45 per cent, increasing from Rs. 971cr in 9M FY19 to Rs 1,407 cr in 9M FY20. Our operating return on EV was 19.0 per cent. Our Profit After Tax grew by eight per cent to Rs 984 cr. New business strain was offset by sustained profit emergence from our backbook, which grew by 27 per cent. Our 13th month persistency has improved from 82 per cent to 87 per cent and 61st month persistency has improved from 49 per cent to 53 per cent, for individual business.
How big is the online business for your company? How are you tapping it? Tell us about your digital strategy?
Online business is a fast growing part of our business. We work across both proprietary platforms such as our website, mobile app, ecosystems as well as with web-aggregator partners. Our online channel has been our fastest growing channel over the last three financial years. Our direct channel (which includes online) grew by 57 per cent in 9M FY20 and accounts for 21 per cent of our distribution mix basis Individual APE.
We tap the market by continuous product, process and technology innovation. Our social media presence is also best in class. Building a superior brand recall also helps us stay on top of the customer consideration set.
How is your core protection business doing? Is it growing better than the core investment products? What is the average size of protection premium vis a vis industry?
India is significantly underinsured and underpenetrated in terms of insurance. This offers a huge opportunity to life insurance. We believe that the protection segment has a considerable runway for growth. We are focused towards the three tenets of protection i.e. mortality, morbidity and longevity.
Protection accounted for 28.1 per cent of our business in terms of New Business Premiums. Total Protection APE grew by 32 per cent to Rs 886 crore in 9M FY20, with the share at 16.7 per cent. Individual Term Protection was at 6.7 per cent of Individual APE in 9M, growing by 31 per cent over previous year. Our Credit Protect business grew at 21 per cent despite a soft lending environment. Our protection segment has been growing better than other product segments.
In Budget, the government shifted the tax liability from dividend payer hands to dividend receiver hands. Do you think this gives an edge to ULIP products over other investment products like mutual funds? If yes, how?
The payouts that policyholders receive from life insurance companies are in the nature of policy payouts and not dividend. Policy payout (i.e. maturity/surrender) from a ULIP, which is section 10(10D) compliant continues to be tax exempt. Life Insurance does have an edge over some of the MF and investment products. We need to remember that Life Insurance provides protection and also ensures a long term savings discipline.
Products that offer tax exemptions have a higher product recall. The government has indicated it may do away with tax exemptions in the long run, though it has not mentioned a timeline. Does such a stance not present a big risk to financial security of Indian people who have low levels of social security?
India is a country with low levels of social security. An increase in nuclear families and advancement in healthcare have led to an increase in life expectancy. This is turn makes it imperative for individuals to prepare themselves for dealing with financial emergencies. With an increase in the young working population, the need for financial protection is greater than before.
Life insurance companies provide products that offer not only a savings component, but also a protection cover to address the mortality, morbidity and longevity risks faced by the customer.
We believe that the impact of the new tax regime would be minimal on the life insurance industry due to changing consumer behaviour and demographic profile. A recent study on usage and attitude conducted by Nielsen showed that tax saving under 80C is the 8th/ 9th reason for buying life insurance. The top reasons were securing children's future, improving standard of living and providing financial security in case of emergencies. The 80C bucket already provides multiple options for statutory deductions like PF, PPF, Housing loan, etc., to avail tax saving.
HDFC Life's reliance on Q4, which is usually the tax planning season has been coming down, with the share of business reducing from 44 per cent in FY17 to 35 per cent in FY19. With one of the lowest insurance penetrations, life insurance in India has a vast opportunity for growth. We expect players with a diversified product mix to be affected minimally by the budget. (~43% of HDFC Life's new business premium is comprised of protection and annuity business). Given that India is an ageing country, there is an inherent need to accrue long term savings which life insurance companies provide. Annuity products are a must have for individuals who want to live their retired lives independently.
At this stage in financial product regulation, upfront distributor commissions are banned in both mass market products like mutual funds as well HNI products like PMS. But life insurance still offers upfront commissions. Do you feel this will allow life insurance penetration to rise since financial product distributors will naturally be drawn towards life insurance?
Life insurance products provide solutions across the customer lifecycle, catering to the varied needs of the end customer. In addition to a savings component, there is also a risk cover, which addresses mortality risk. ULIPs have proven to provide better returns than MFs for an investment horizon of greater than 7-8 years. The online plans like Click2Invest or Click2Wealth will be more effective as there are minimal charges. The ability to offer first year commissions does supplement the attractiveness of Life Insurance products over other financial products for distributors. Our objective is to provide goal based solutions through products with a focus on right selling through our distributors.
One of your biggest private sector peers is promising to settle death claims in one day for policies that have been continuously active for three years, do not require any investigation and where the total claim amount does not exceed Rs 1.5 crore. What is HDFC Life's track record in this area? Can you settle similar claims within a day?
Claim settlement is the ultimate objective of insurance and the settlement experience is the moment of truth for customers/claimants. HDFC Life has one of the industry leading claim settlement ratios of 99.03 per cent for FY 2018-2019. We have traversed the journey by consistently investing in data analytics, evolving underwriting methods and in technology. And today, of the claims intimated under the parameters specified in the query we settle almost all of our claims within a day.
Along with speed of processing and turn-around-times, convenience, is a key factor which defines the customer experience at the claims stage. For this purpose, we have developed an industry-first, online, mobile friendly and intuitive claim intimation journey of less than five minutes. This journey, called LifeEasy, completely eliminates the need for multiple forms and branch visits. During the initial phase, LifeEasy is being offered in fixed locations with low risk of fraudulent claims. At HDFC, Life it is our objective to ensure that claimants get financial support when they need it the most, in a quick and convenient manner.
Global investors come to India chasing high fixed income yield, but annuities sold in India to Indian customers offer extremely low almost saving account interest rate yields. Why does this happen? Can this change for the better?
We are focused on transferring the mortality, morbidity, longevity and interest rate risks from the policyholder to us. Our annuity products offer competitive rates compared to competing financial products. Annuities are long tailed products, while most savings products offer rates for a much shorter tenure. The average age of the purchasing customer is usually around 60, and the payouts continue for the entire lifetime of the customer.
Your company is among the ones to have launched new-age low-cost online ULIPs. What has been the customer reception to them? How are you innovating in this front?
At HDFC Life, we have always given priority to customer centricity and innovation across our product line. It is our constant endeavour to create newer and better products. Low cost ULIPs have been well received from customers when it comes to planning their dream goals or long term investments primarily because of two reasons:-
1) Comfort of an underlying life cover; in case of an unfortunate event
2) Cost effectiveness of our ULIPs when compared to any other market linked investment products
Some of the facts that differentiate us from competition are features like loyalty additions in the first five years of premium payment as against the loyalty additions given in the later years. An early start and long stay enables delivering larger maturity corpus to the policy holders, thanks to the power of compounding. Our industry first ‘Classic One’ has been well received by cost conscious and market savvy customers looking for market linked returns along with safety at a minimal cost.
The government plans to list LIC. Would this affect the life insurance industry in any way?
We believe the government's move to list LIC would be beneficial for the entire industry. As a listed insurer, LIC would have to provide greater disclosures, promoting improved transparency. We expect this to spur innovation and dynamism in business strategy for the other players.