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| Q&A: P Nandagopal, MD & CEO, IndiaFirst Life Insurance | | 'At least half the inactive agents will go out of business' |
| Shilpy Sinha / Mumbai Aug 27, 2010, 00:00 IST |
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 The youngest of the life insurance companies, IndiaFirst expects to break even within five years of operation, despite the recent regulatory changes affecting margins. In an interview with Shilpy Sinha, the company’s MD and CEO P Nandagopal, talks about his strategy. Edited excerpts:
How will the new norms impact your business?
In overall impact, the industry will not be affected in the long term. Margins will come under pressure and I expect them to fall by up to 30 per cent. Business will fall in the next couple of months, as companies will take time to train their people. Agency channels will be impacted the most. Corporate distributors who have been selling insurance for higher commission will see a dip in business. Whenever there is a challenge like this, there is a drop in business in the short term, but it eventually bounces back.
Will you extend your break-even target of five years?
We will stick to our initial target of five years, despite all the regulatory changes. We will introduce new lines of business like group insurance, health insurance and endowment plans. We will look at all kinds of alternative distribution channels, including agency. We have got approval for opening around half a dozen offices. We won’t have a vast network of agents, we will be very selective at the time of recruitment and continuously assess the employees’ performance. Selling insurance is a specialist’s job. We will hire around 1,500 people this financial year.
Insurers are now increasing their dependence on traditional plans. Is it a strategy to recover cost, by focusing more on traditional lines than on Ulips (unit-linked insurance)?
If companies are focusing on traditional products only to improve margins, they are going in the wrong line. Ulips are good products, given the transparency associated with them. Insurers should not try to run away from running business in a cost-efficient manner.
What will be the strategy of new versus old players to manage the changes?
While older players will have to relook at their business models and reduce cost, newer players will have to think about the different channels of distribution. The game has suddenly changed from running after the top line to running after the bottom line. The strategy will vary with the distribution channel one depends upon. They will have to look at how to leverage their existing branches and employees.
All those not meeting the benchmark will go out of business. If you look at the activity ratio of agents, it is 15 per cent. This means 85 per cent of agents are inactive on a month on month basis. That is a substantial number and at least 50 per cent of such agents will go out of business. Most branches will have to shore up their performance. Insurance companies believed that opening new branches will bring them more business. But that is not true.
Do you think the commission paid to agents will go up in case of renewal premium?
My preliminary calculation shows the commission on both renewal and new business will go down.
Will the capital requirement for insurers go up after the proposed changes? How much do you aim to infuse in the coming years?
If you are not able to reduce cost, you will need shareholders’ capital. We still don’t have the final approval from Irda (the sector regulator), but we will be capital-neutral. Our initial target was Rs 25,000 crore in the first 10 years, including the solvency margin requirement. So far, we have infused Rs 320 crore. In the first five years we will infuse Rs 1,500 crore in the business.
Do you think Irda has been harsh on the industry, with a slew of cold measures?
Irda has been industry-friendly. The measures will favour the industry in the long run. The guidelines have been bunched but the market is also dramatically changing and one has to respond to change. All the revisions the regulator has come up with are required.
Now, both the regulator and the industry should try to dispel the fear about Ulips being high-boost products. Ulips are not bad products but badly priced and badly sold. To my mind, they are better than traditional plans.
Do you think new players will be interested in entering the market after the recent tightening?
There is cautious optimism. The good news is that there is no uncertainty about the regulatory regime. New players entering the market will have a more realistic approach. We have not seen a full-blown market so far, since penetration of term plans is very low. If newer players do not have access to a cost-effective business model, it will become difficult to run the business. Having a bank as a promoter makes half the work done. The industry will also see some consolidation.
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