There is still room for us to reduce commission: Bajaj Life Insurance MD

MD & CEO of Bajaj Life Insurance, spoke about how the company has navigated the challenges related to the withdrawal of Input Tax Credit (ITC), how life has been after Allianz's exit

Tarun Chugh, managing director and chief executive officer (MD & CEO), Bajaj Life Insurance, in an online interview with Aathira Varier and Subrata Panda, speaks about how the company has navigated challenges related to withdrawal of input tax credit (ITC) and life after Allianz’s exit from the joint venture, among others things. Edited excerpts: 

How do you see the company’s performance for the quarter? 

After the surrender value revision, we had a significant change in our business models. We reconfigured our product structures and product mix, brought our commissions down, deferred commissions, among other things. This quarter, our margins have gone up significantly, our value of new business (VNB) bottom line is up by 47 per cent to ~512 crore, and new business premium (NBP) has gone up by 31 per cent till September. We are the second largest in terms of product mix, where term is the highest.  On an annualised premium equivalent (APE) basis, it is close to 10 per cent, which is quite encouraging. It was under 5 per cent last year. We should retain our product mix, grow our term slightly further, and we also brought down our unit-linked products (Ulips) for the first half. This has been the core transition. There is a goods and services tax (GST) impact on ITC because it is something that we need to work on, and that would be the focus of the entire sector. However, I do expect that the trajectory of margins is on the upside. 

How is the company mitigating the impact of withdrawal of ITC? 

Last year itself, we had started the process of cost optimisation. We have been able to cut costs substantially. This will continue for the next 18 months. The GST rationalisation has improved confidence among customers, which should help increase productivity. We are working with our distributors, like all other life insurance companies, and trying to see how we can together take the ITC impact into play. The manufacturer, the distributor, and the vendors will be taking the bulk of the impact. The entire benefit has been passed on. As we go ahead, we will see a product mix change also helping us manage the impact. 

Following the completion of Allianz’s exit from the partnership, how have things changed for the life insurer? 

It is business as usual for us. Bajaj was running the company; Allianz’s presence was on the board, and it was assisting us on board matters. So, nothing really changes. 

You are among the top 5 private-sector life companies. Do you have ambitions to break into the top 3? 

These things don't worry me. We are clear that we want to look at sustainable and profitable growth. We have been the fastest-growing life insurance company in the last seven years. Our compound annual growth rate (CAGR) is upwards of 29 per cent.  We have been able to grow various parts of the business. We don't ever forget that we are not owned by a bank, and that becomes a challenge. At the same time, it keeps us on our toes to be more flexible, more innovative, and build more competencies around us — around data, product innovation, and digital innovation. 

Has the GST cut resulted in affordability, whereby people are buying more protection products organically? 

Yes, to an extent. GST rationalisation has had a positive impact. But it doesn't mean that by itself it will be enough for customers. It also requires training our entire workforce, making them go back to customers and reminding them of the 18 per cent reduction that has come to them. As I stand here, November is looking quite strong at this point. 

Should we go back to the previous regime of capping commissions? 

Our commissions are paid upfront, unlike mutual funds that pay over time, mainly because selling an insurance policy requires much more effort and has much lower closure rates. Over a 10-year period, when persistency is good, the total cost to customers is actually lower than mutual funds. There is still room to reduce commissions, and we are talking to our partners to ensure that we bring commissions to match the effort involved. 

From FY27 onwards, would you say the insurance industry will focus on growing business and not firefight external situations? 

I hope so. There is a positive aspect to firefighting — we have become much more resilient. Even after the big ITC impact, we are resilient enough to handle this. 

Resilience has become part of our DNA and is what helps the sector. But yes, if there are fewer shocks, it will always be good. 

What are your thoughts about listing the company? 

Listing is a shareholder subject, but we don’t require capital.