HDFC Standard Life Insurance is a joint venture between India's largest housing finance provider, HDFC and Europe's largest Mutual Life Assurance company - The Standard Life Assurance Company (U. K).
The Standard Life Assurance Co. is one of the very few insurance companies in the world to have received 'AAA' rating from two of the leading international credit rating agencies, Moody's and Standard & Poor's. Standard Life was recently voted 'Company of the Decade' in U.K. by the Independent Brokers called IFAs.
HDFC is a well-known & trusted name in India. Since its inception in 1977 they have maintained their position as the premier Housing Finance Institution in the country. They value integrity, commitment, teamwork and excellence in customer service.
HDFC Standard Life Insurance is the First Private Sector Life Insurance Company to be granted a license. It has increased its market share from 0.76% to 1.12% by collecting a premium income of 209bn. in the year ending March 2003-04.It has registered an premium growth rate of 61.88% over previous year.
Deepak M. Satwalekar is the MD & CEO of HDFC Standard Life Insurance Co. Ltd. He was the MD of HDFC from 1993 to 2002. He currently serves on the boards of several companies, including HDFC Limited, Tube Investments of India Limited, and Asian Paints (India) Limited. Mr. Satwalekar has served as a consultant to the World Bank and the Asian Development Bank. He also serves on the Advisory Council of IIT Bombay. He is a B.Tech. in Mechanical Engineering from IIT Bombay and a M.B.A.(Finance) from American University.
Replying to questions posed by Mr.Sanjay Kothari & Laxmikant of India Infoline, Mr. Deepak Satwalekar, MD & CEO of HDFC Standard Life Insurance said "Reputation & integrity matters a lot in insurance sector and we would like to be a company which the people look with trust."
You have been operating in India for the last few years, what has been reading of the Indian Insurance sector? What was the scene of insurance, which existed before the market, was opened for Pvt. Players and what is the current situation now?
I think that the insurance sector has grown not only in size but in maturity as well, in the sense that from very simple products, which were available earlier on to the present. What has been done is that Insurance Industry placed the customer in centre & developed products and services around the customer.
In the past what we had was a bundled product so you get 3 or 4 benefits out of which it may be possible that you may need just 1 or 2 benefits but in the process you end up paying for all the four. In fact we were among the first to divide the offering into two -a core product and the benefits or the riders. And then it is upto the customer to choose and customize his own scheme according to needs and desires and pay for such scheme. I think that is the single largest revolution that has come about. The other revolution in the Insurance sector is in terms of distribution channels. Earlier we were having only agents but now we have agents, Bancassurance, corporate brokers and direct sales people. Retail agents and bancassurance are the 2 biggest insurance distribution channels.
What are the penetration levels, which existed before opening up and what is the scenario now?
The insurance penetration levels has considerably increased from 1.6 % to about 2.75%. Now whether that growth is enough in three year period, we can always counter that. In the last 3 years private insurance companies have grown at 200-300 % levels. But if you look at a longer time horizon say at 10 years the insurance companies would grow at 13-14% rate which would make it one of the fastest growing sectors.
Could you brief us something about your products?
If we want an acronym of our products, we call it PIPS, which stands for Protection, Investment, Pension, & Safety. These are the basic requirements of any individual & thus our products satisfy each of these needs.
We have got conventional products, which are in the conventional structure i.e. available with profits like Endowment, Money back then you have Unit Linked plans which are for those investors who understand the capital markets, debt markets & equity markets.
In terms of popularity, a little under 50% products are savings products whether it is endowment, unit-linked or money back which are basically savings oriented. About 20% are investments oriented for eg single premium income policies where you pay in a shot and enjoy the protection & investments returns in future. About 20 % are in pensions. Pure protection is just about 5%. All these are in terms of premium income.
How would you compare your company vis-?-vis other players?
We measure our performance in terms of premium income. Sum assured is not a proper measure to judge the performance because in pure protection, the premiums are pretty low. Thus last year we grew by around 62%.
This year we are going for geographic expansion. Thus, this year we not only see widening of the market but also deepening of the market penetration.
We have also entered into bancassurance tie-ups & corporate agency market quite cautiously. Around 20% business comes through that. This year we are expecting it to contribute considerably. We have around 17000 retail financial consultants and over 100 corporate agents. We are also working with four banks.
What is your USP? Where do you see yourself after 3 years?
USP is something that the customer will have to find because life insurance is a long-term process and it is about stability, being conservative. We don't hear about aggressive life insurance companies who survive for a longer period.
To be in business when we are talking of an insurance policy for say 30 years, your perspective is different in comparison to when you are taking a short term loan say a car loan for 3 years. Therefore different companies have chosen different models. Some of them have chosen to be in for the long run while some have chosen to be in for the short run. For in the short run, you need to have a high valuation of company, for high valuation you need to have high & rapid sales. Higher the sales higher are the valuation & higher the valuation higher is the price that you can charge.
We would like to be a company at which the people look with trust. They should have faith in us and they should believe that we are working for their interest. For e.g. we have recently launched Unit linked products and though there are around 17,000 financial consultants we do not allow all of them to sell the unit linked plans. Only the top 1500 that were trained and appeared for an examination were licensed to sell the unit linked products. Every month more and more people are trained and assessment is done on that basis. Thus, it shows the cautious nature of the company because we do not want any ?mis-selling? to be done .The people should understand the risk involved in unit linked products, Thus, we have trained consultants to help them. That is why reputation and integrity matters a lot in insurance company. Rampant practices are there in the market to achieve sales but we have made it clear that if we catch you in such malpractices, which are not in the long term interest of the customer, we will sack that individual despite being best salesperson. Thus anything which hurts the long-term interest of the company is not allowed in HDFC and that is our USP.
What are the factors, which will differentiate one insurance company from another?
I think that in Insurance sector, you can?t differentiate on the basis of innovative products. The reason being, if yours is an excellent product it will not take too much time to be copied by other players. The thing which they can?t copy is your services and, I think, that would be the differentiating factor in the insurance arena for eg if you look at the HDFC model. There are banks that are lending at lower rates but even then HDFC is able to grow at 30% thus if HDFC grows at 30%, it is on that balance sheet, while others might grow 100% but that would be on that small size. Thus it is important that people trust you. It matters to do the right things even if they are not beneficial in the shorter run. Thus we know the purpose of our existence in this sector.
What do you see the future of bancassurance or selling insurance through Internet and their contribution to the premium income?
In the coming years, we expect around 1/3 of the business to come from bancassurance and corporate agency channels. Remaining would come from the retail financial consultants. Broking channels have not been active on the life insurance front.
Internet as sales channel is doubtful but it would definitely be used for product comparisons across various companies. Bancassurance is sure to stay in India as I have mentioned earlier.
What is the support from your foreign partner?
The main support, which we get from our foreign partner, is in terms of actuary support. Actuaries are the people who arrive at the premium rates. It is a monopoly market & there are not too many players who get into this. There is a shortage of actuaries in India but yes now the people are pursuing it as a career.
We get a lot of actuarial support from our foreign partner in terms of product development, valuation processes & it is necessary at each step to know what are the implications.
They also help us on the training front and in development of good products by utilizing the vast experience they have of other countries. The best thing about them is whatever support we seek from them, they are ready to offer. They do not impose anything since they say that you know and understand the local markets better.
Which are the segments you are targeting and what is your strategy in urban and rural sector?
The strategy in rural and urban sectors is different. In rural sector, we have to fulfil the government regulations because IRDA requires us to fulfill the minimum number of stipulated policies. We also work through NGO's and there we have an advantage because HDFC is working with about 80 NGO's and we have also interacted with them to provide social cover.
On the rural front, we have taken specific pockets & we are distributing products in which the premium is low or sum assured is low because if there is any sort of protection then there is a requirement of underwriting and in case of underwriting, medical testing is required which becomes difficult in far flung areas and therefore for rural areas. We have products, which don't have the requirement of underwriting.
In urban markets, we have a reach of about 75% of the insurable population that resides in urban areas. Now how much of that we can tap is another thing. We are also creating a range of products that not only caters to top end but also to lower end.
How much income is derived from the rural sector?
In terms of number of policies we did about 19% of the policies in the rural sector. But a large no of those policies were small policies because the premiums on these policies were small.
Are you planning to launch any new products?
As I already mentioned, the base products are already there in the market. Now we have to just turn and tweak these products to make them suitable for different classes of people. For eg we have children?s policy in the conventional format and now we are launching it in a unit-linked product format.
What needs to be corrected in the Indian Insurance sector?
The biggest would be in terms of channels of distribution. Buying business at any cost, to show growth is a challenge. Going and doing things that are not allowed by the regulatory authority is not good for long term. We owe ethical values and principles to the society and we must adhere to that.
When do you expect to break even?
We expect to break even in 6 or 7 years. The break even would also depend upon the pace of the growth in the insurance sector and company growth.
Does HDFC standard life leverage its HDFC AMC for its investments or HDFC clientele base?
We have an arrangement with them on the investment side and also on the execution side due to their expertise in this field. But at the end of the day, the investment profile of insurance company is different and that is stipulated by our investment team, which comprises of our directors because it has to match our liability products. The final decision regarding asset allocation is governed by us. We do use the clientele base of HDFC base to target people for insurance.
Does the regulatory authority regulate the insurance premiums?
Insurance companies use the mortality tables to arrive at the premium that needs to be charged on various policies. From next year onwards, detariffing is going to happen for motor insurance. We expect the same to happen in life insurance also. Right now, we have to file the new products with the regulatory authority and if they have any problem with the product, they will get back to us in the next 30 days and if they don't reply within 30 days, we can commercially launch that product.