'Minimum guarantee pension plan was a step back'
Canada-based Sun Life Financial Inc’s first stint in India was from 1891 till the life insurance industry was nationalised in 1956. The company again started operations in 2000, when the industry was opened up. Dean A Connor, president, Sun Life, in his first interview in India, tells Niladri Bhattacharya & N Sundaresha Subramanian the regulator should ensure a level playing field in the annuity business. Edited excerpts:
What is India’s share in Sun Life’s life insurance business?
Though India accounts for a very large part of the life insurance sales, it is a relatively small part of our profit. But that is the nature of the life insurance industry, in which you sell a product today, and the profits emerge over a very long period of time. In addition to that, since we are building our business in India, we are building infrastructure, and this takes money and defers profitability. Overall, Asia accounts for the largest part of our life insurance sales in the world. For example, in terms of new business, we conduct twice as much business in India than in Canada.
How do you assess the new regulations that came into force from September 2010?
The regulatory changes in the last year were challenging for the industry. Though changes happen in every country, one thing unique to India was the relatively low notice for the industry to get there. In the end, the industry rallied. We pulled up our socks, changed our products and cut what we had to. We strongly believe in the importance of a strong regulator and the regulator has an obligation to continually adjust to new situations. However, we need regulations that lead to fewer and more gradual changes, keep it moving, but don’t apply the brakes. Going forward, I feel the regulator and the industry need to collaborate better.
Another important area is pension products. What do you think the regulator needs to do to revive the sector?
For India, it is very important for policymakers to think long and hard about how to structure both the tax act and the insurance act to enable the insurance industry to service pension requirements. When government or state organisations create pension products, they need to be sold. Just building a product and hoping people would come and buy does not work. They need to be sold, they need to be marketed as first-class, long-term saving options, and people need to be incentivised to use them. That’s how the insurance industry has been successful in other parts of the world. Changes by the Insurance Regulatory and Development Authority (Irda) in October 2010 to the pension plans, in terms of a minimum guarantee, were steps backwards. It is difficult, if not impossible, for life insurance companies to apply that kind of a guarantee on very long-term commitments.
The annuity business is concentrated in the hands of Life Insurance Corporation (LIC) of India. How do you see LIC as a competitor?
As a group, we always embrace competition. Today, the vast majority of annuity is sold by LIC. And, LIC has access to infrastructure investments and long-dated instruments which support government investments. This is very important. Irda is thinking in the right direction to ensure competition and help diversify risk in the sector, but it should also ensure a level playing field.
Will Sun Life increase its stake in the insurance business when the foreign direct investment (FDI) norms are relaxed?
If and when the FDI rules change, we would be keen to increase our percentage ownership in the business, keeping in mind the interest of our partners. We believe in India, and this is a market which has enormous opportunity. We see opportunity in life, pension, health and asset management businesses, which are huge categories.
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