We should end Q4FY25 on a robust note: HDFC Life MD & CEO Vibha Padalkar

The new surrender value norms, which came into effect at the start of the third quarter (Q3) of 2024-25, were expected to impact insurers’ margins. However, HDFC Life Insurance Company has successfully protected its margin through a series of strategic measures. Following the earnings announcement, the company’s share price closed nearly 8 per cent higher than the previous day's close. VIBHA PADALKAR, managing director and chief executive officer, spoke to Subrata Panda about how the company managed to maintain its margins and its preparations to end this financial year on a strong note. Edited excerpts:

 

Despite the surrender value norms being implemented in Q3, your margins were hardly impacted. What strategy did the company adopt? 

Earlier, we had said that there would be a 100-basis point (bp) impact on the margins because of the surrender value norms if we did nothing, but we had many interventions to try and reduce that impact to a non-material amount.

 

So, we have managed to reduce it, and the impact this quarter has only been about 10 basis points (bps). We have repriced and also looked at many product features that have given us inherent margins about 100 bps higher. Persistency has held its ground, and expenses are also in line. So, there was no big negative as such. The share of unit-linked products has also been range-bound.

 

So, the repricing was aimed at protecting margins… 

There was no reinsurance pressure. We focus on understanding the core factors, such as our experience with persistency and mortality. If these experiences turn out to be unfavourable, we may need to reprice or adjust our product offerings.

 

For instance, if persistency is particularly poor with monthly policies, we might implement measures like requiring standing instructions or encouraging customers to switch to an annual premium policy.

 

Monthly payments can cause customers to reconsider their commitment frequently, while an annual policy allows customers to pay once and not think about it again until the next year. These are examples of targeted interventions we've made to improve both customer experience and business sustainability.

 

How have you adjusted the commission structure following the implementation of surrender value norms? 

It is a combination depending on the level of business, partners, inherent persistency in that channel, and so on. We have done a combination of commission clawback, commission deferral, and reduction in commission. It is fairly bespoke for every relationship.

 

How are you preparing for the busiest part of the year? 

We are very optimistic because some of this was just a distraction. All our partners have been very fair and equitable in having discussions with us because now we have to align with the new normal of having customer-centric products. That is done and dusted.

 

Second, our repricing is done and dusted.

 

Third, we have opened 100 branches in the last one and a half years. Our manpower is also in place. So, we should end the fourth quarter on a robust note.

 

We have a balanced product mix. So, whether equity markets are volatile or some interest rates are volatile, we have all kinds of offerings in our product suite. It should be fairly agnostic of whatever is happening.

 

Has the Insurance Regulatory and Development Authority of India communicated to the companies its stance on the bancassurance (banca) business of insurers? 

No, we have heard nothing from the regulator. We have reached out to the regulator. So far, it is only from what we have heard from the media. In our case, HDFC Bank’s contribution to our banca business is around 41 per cent, and in terms of premiums, it is about 25 per cent.

 

Protection as a percentage of product composition hasn’t changed much… 

It will take some time to show a meaningful increase because we have to sell about two and a half policies of protection to match one savings policy. However, if you were to look at the growth in protection, it has grown by about 28 per cent year-on-year while my overall company annual premium equivalent has grown by about 24 per cent. So, it is growing faster than overall growth, and that just means that the contribution is increasing.

 

Non-participating (non-par) savings products have seen good growth… 

It is working very well. We have had new product launches. Also, if you were to look at it on a nine-month basis, the growth has been close to around 50-plus per cent – almost 2x company-level growth. The new product launches have helped, as well as we are now fairly competitive on internal rate of return, thanks to surrender charges. We have also kept a lid on unit-linked products. Hence, our focus has been on non-par savings products. Additionally, what we are seeing is even the above ~5 lakh ticket cases are beginning to pick up in non-par.

 

What are your expectations from the Union Budget? 

I think it will be a growth-oriented Budget. Probably, we will have liquidity being infused into the economy. Other than that, we don’t know if the amendments to the Insurance Bill will be taken up. We will have to see.

 

An old ask has been that annuities are taxed twice and that too in the hands of the pensioner. So, we are hoping there will be some relief on annuities for pensioners.