Expect top-line growth to return from March quarter: N S Kannan

We were an 82 per cent ULIP company but today we are at 48 per cent. So, we have been able to transform the product mix, says ICICI Prudential Life Insurance's Kannan

Almost three years into the company, how satisfied are you with the transformation process since you took charge?

It has been a challenging, but satisfying period. We had articulated the 4P strategy - ‘Protection’ focus, ‘Premium’ growth, enhance ‘Productivity’ and continuously improve ‘Persistency’. This is leading to the expansion of Value of New Business (VNB). We also wanted to bring consistency and resilience to the business. On the product side, from having an excessive focus on unit-linked insurance plans (ULIPs), we wanted to further widen the product mix as well as increase the share of protection in the overall product mix. We were about an 82 per cent ULIP company and today we are at 48 per cent. So, we have been able to transform the product mix. Today, protection accounts for 18 per cent of our business and pension and annuity, which are a smaller part, have grown by about 70 per cent on a compounded annual growth rate basis in the last three years.

On the distribution side, we recognised the need to diversify and deepen distribution. The share of new business from non-bancassurance channels has risen from just about 40 per cent to more than 60 per cent. We have stitched up several bancassurance partnerships which includes IndusInd Bank, RBL Bank, IDFC First Bank, AU Small Finance Bank and NSDL Payments Bank. On the customer segment, we have a very solid franchise in the most affluent customer base. We said that over time it will be relevant to move from affluent to mass affluent. In doing all this, we also said that we have to keep a hawk’s eye on risk management because this is long-term business we are writing. We've been able to recover the solvency ratio up to 236 per cent.

What do you reckon as work in progress?

Sustainability of this process, and the final outcome of doubling of our FY2019 VNB over 4 years is work in progress.

Much of the business rehashing has come at the cost of growth. What should investors expect going ahead?

We have undergone several issues around the market that naturally people have moved towards non-ULIP products. We have also introduced some winning products in the non-ULIP space and given all these product introductions, we have seen robust growth on the non-linked side of our business. At some point it started working out in our favour and I believe that growth will come back. Till now, our focus has been to expand the margins to ensure our VNB continues to grow. We expect top line growth to come back from the March 2021 quarter.

Has Prudential indicated its interest to hike stake in the company post the Budget announcement?

The government increasing foreign holding cap to 74 per cent aligns the insurance industry to other segments of the financial services industry. ICICI Bank and Prudential are our promoters and should they agree, that is an option available.

For an industry which is highly dependent on human interaction at various levels, how do you envisage it evolve?

In the foreseeable future, I believe that insurance will continue to be a relationship-oriented and intermediated business. However, as a company, we have been moving from purely a physical model to being a digitally-enabled physical model. In the context of the pandemic, that movement has been accelerated. It has transformed into a hybrid model. It has become a digitally-assisted relationship and intermediated model and this change is here to stay. A BCG survey said that agents will remain relevant. But I want my agent, my intermediary to be digitally savvy.

Lately protection plans are hitting a wall because of higher growth in savings products and also due to reinsurance related issues…

There is an opportunity for us to grow not just in protection, but also the savings line of our business. The percentage mix is really an outcome of the relative growth rate of the two segments. However, I do believe that the under-penetration story in protection is more pronounced and over the medium-term, you can expect the 18 per cent protection share to go up to 20 per cent. Whether it can go to 25 per cent, only time will say, but directionally there is an opportunity. Protection business cannot be done without the support of the reinsurers because risk management dictates that a sensible amount of retention is done by companies and the balance portion is laid off to reinsurers. You cannot take out reinsurers from this equation – there has to be a partnership and collaboration for adequate risk management. In July 2020, we passed on the entire increase in the reinsurance pricing to customers and today’s pricing fully reflects the reinsurance side price increase. Going ahead, I do not expect any price increase from here on. But we'll have to see over the medium term, how it evolves.

Lately though, the stock market isn’t comfortable with the quality of growth, particularly as its coming out of savings products. Given that slowly tax arbitrage is getting plugged, how do you see the trend?

It is a fair question and has been in the public discourse in recent times. From an insurance industry perspective, the tax discourse was a dominant factor about a decade back, but not really in the last few years. About 10 years back there used to be hoardings, about income tax benefits around February – March, through insurance products. I don't see much of that happening now. The insurance industry has moved away from only tax based selling to goal-based selling – that’s a big shift. As for insurance being talked about like bank deposits, every product has its place in the customer’s wallet. Depending on the risk appetite and the environment, sometimes traditional products with guarantees, gain preference. In these uncertain times, we do see a little bit of push towards guaranteed type of products where customers want some certainty.