Life insurers go slow on expansion to check costs

Most private players see a decline in premium income.

The slowdown has taken a toll on life insurance companies, which have taken their foot off the growth accelerator to keep costs under check.

During the first half of the current financial year, the 22 licensed life insurers hired 91,000 agents, less than half their total hiring of 200,000 in the corresponding period last year, data with the Life Insurance Council showed.

The entry into new centres also slowed as these companies opened 86 branches in the first six months of 2009-10 as against 1,806 in the corresponding period last year.

This is the result of a slowdown in sales. While the industry saw a 12.85 per cent increase in premium income from new policies, the rise was the result of a higher mop-up by Life Insurance Corporation of India. Other major players such as ICICI Prudential, Reliance Life and Bajaj Allianz saw a decline in first premium income.

“It’s an effect of the slowdown. It has given the companies an opportunity to consolidate and look at profitability. Since we are a four-year-old company, we will hire agents and open 200 new branches next year,” said Reliance Life Chief Executive Officer Malay Ghosh.

The slowdown was witnessed across new and older players.

“After the financial meltdown, the growth of the market was coming down. Therefore, we slowed expansion. But in the last few months, we have witnessed some momentum. We are looking at opening 20 branches and intend to add agents when the market picks up,” said IDBI Fortis Managing Director and Chief Executive Officer GV Nageswara Rao. Though the insurer has not opened any office, it has added 2,000 agents.

The older players, such as SBI Life and ICICI Prudential, are trying to consolidate on the platform they have already created. And, players such ICICI Prudential and HDFC Life, which complete nine years of operation later this month, are yet to report their first profit.

“We are expanding rapidly but the industry is going through consolidation,” said Aegon Religare Life Insurance Managing Director and Chief Executive Officer Rajiv Jamkhedkar. Aegon Religare, which started operations in September 2008, added 5,000 agents in the first six months of the current financial year.

Star Union Daiichi, which started operations in February this year, has so far largely focused on bancassurance, seen as a low-cost model, and is selling policies through the 7,000 branches of Bank of India and Union Bank of India. The latest entrant has hired 900 agents since inception.

“Our business model is different. Expansion is important for those who cannot service customers. But we do not feel the necessity to put in capital. We may plan to expand through the agency model and will open 20 regional offices in phases,” said Star Union Daiichi Chairman M Balachandran.

Slow growth in new business underwritten has also resulted in a 66 per cent decline in the capital deployed during the first six months of the current financial year. Insurance companies need capital to write new business and open branches. According to the norms, insurance companies have to maintain a solvency margin of 150 per cent. So, for a policy of Rs 100, they need a capital of Rs 150.