Change in law could come in way of growth: V Philip

Interview with MD & CEO, Bajaj Allianz Life

Despite industry growth coming down, Bajaj Allianz Life has made a profit of Rs 1,311 crore during 2011-12. V Philip, managing director and chief executive officer of the company, tells Niladri Bhattacharya in order to pursue profitable growth, the insurer chose not to chase new business at high costs. Edited excerpts:

When do you see growth coming back to the life insurance sector?
The sector has seen a contraction since the new regulatory guidelines came into force last year. Life insurance as a financial product class is not typically an over-the-counter product, and requires quite a bit of effort in the sale process. This means such a sale would need significant distributor involvement and, hence adequate remuneration for their efforts. Any change to the remuneration structure will mean the distributors will take time in getting used to the reduced remuneration. The contraction you see is a part of this process and over a period of time, it will come back to normalcy. However, if there are any further changes in the regulation then the gestation period to acclimatise to such changes would naturally increase.

Being a non-bank-promoted insurer, what are your views on bancassurance regulations?
The bancassurance channel has been a major contributor to several insurance companies. As a non-bank-promoted life insurer, Bajaj Allianz can be a natural ally to several banks for bancassurance partnership. The guidelines in its current form have generated a lot of debate within the key stakeholders on the implementation front. We are keenly awaiting this and we believe this will be a positive regulation for the insurance industry.

What is the reason behind Bajaj Allianz Life’s healthy profits during FY12, despite drop in new business premium?
FY12 posed a challenging environment, as we witnessed a lot of regulatory changes. In our pursuit of profitable growth, we chose not to chase new businesses at high costs. While our gross written premium did decline in line with the industry trends, there were some notable positive factors, such as our funds outperforming several indices in spite of volatility in the market with assets under management of Rs 39,000 crore. Our solvency margin also stood at a healthy level of 516 per cent against the requirement of 150 per cent. This means there are more funds allocated for the ben-efit of our customers.

Is this a deliberate shift in strategy to concentrate more on profitability, thereby sacrificing growth?
Bajaj Allianz has always believed in balancing growth and profitability. We strongly believe that only a profitable insurer can stand by the customer throughout a tenure. Growth is never the only key driver as investors and shareholders also need to have a positive return on their investment. Further, only a profitable company can serve and safeguard its customers and employees. In a long-term product, like life insurance, a profitable insurer can give its customers and intermediaries the stability over the long term. We are serious about the life insurance business that we do and believe strongly in its sustainable growth.

What is the rationale behind the restructuring exercise that started in September 2010, which led to reduction in number of branches and headcount (by 30 per cent)?
We would like to state that even during the last financial year, which was difficult in all respects, our reduction in manpower was just seven per cent, which is purely due to natural attrition and is inherent in a personal selling intensive industry like life insurance. With the industry attrition over 15 per cent, it is clear that we have been adding people. We have over 1,000 offices in five years by which it is evident that we have not resorted to closure of offices or withdrawal from markets. We have consolidated some offices that were on rentals in some locations and have moved to our own spacious premises — for example, the Bajaj Allianz House in Andheri, Mumbai. In other cities, too, we would like to do this. Thus you will find a nominal reduction in office count, but that cannot be construed as us withdrawing from those many markets. As one of the largest issuers of policies, we need adequate manpower to service our customers. We are not re-structuring in any way.