Bajaj Allianz Life Insurance Managing Director and CEO Kamesh Goyal is not willing to make any growth projection saying it will be foolish to do so. In an interview with Shilpy Sinha, Goyal says there is a need to change the business model and increasing efficiency since expansion entails capital infusion and puts pressure on finances. Excerpts:
The industry is talking about consolidation. Is Bajaj Allianz also thinking along these lines?
Any business model which depends on recruiting more people and opening more offices for growth does not work over a period of time. Your revenue per person keeps coming down while the expense per person keeps going up. In such a case, business is hugely loss-making and capital requirements go up dramatically.
The industry needs to keep in mind that growth has to come from profitability and increase in productivity. Second, with the meltdown in the stock markets, a lot of customers have lost money. When stock markets kept going up for four years, every one forgot that there is risk associated with some stock-linked investments. We need to educate customers about the risks.
Thus, we as a company and the life insurance industry have no choice but to change the business model. We took corrective steps in early 2008. So, were are in relatively better shape than most.
So, have you stopped expanding?
We stopped opening offices one-and-a-half years ago. This model will not generate results. If others are doing it now, it’s a good step. Anything one can do to enhance capital efficiency and reduce losses is welcome.
What is your growth estimate for 2009-10?
In the present scenario, coming up with a growth estimate will be foolish. Last year, we managed our expenses in a fairly efficient way. This year also, we will focus on increasing persistency, see if we manage our expenses without an overrun and generate profit. We will focus on reduction in the commission ratio and increase the revenue per employee. The start does not seem very encouraging as April continues to see a slowdown. Last year, April-September was fairly good for the industry. This year, we could see a decrease in the first half and from October, hopefully, things will be better.
We have achieved some success in persistency but not to the extent we would have liked to. Despite the slowdown, we have seen a substantial reduction in the commission ratio. Also, we would like a better product mix. We don’t want any product to account for more than 25 per cent of the total business. We would like do a lot more in health and traditional policies than what we have been doing. Last year, our renewal premium increased by 100 per cent.
Mutual funds often say that insurance companies offer high commission and lack transparency in unit-linked insurance plans (Ulips). Do you think this needs to be corrected?
We should ask whether mutual funds should be allowed to manage a large chunk of money when the capital of some of the funds is Rs 10-20 crore. If you look at insurance companies, most of them have a capital of Rs 1,000 crore. So, commitment from shareholders is a lot more in life insurance companies, while it seems non-existent in mutual funds. Mutual funds have a long way to go to gain the confidence of the customers because of the way some of the investment has been done in the last six-nine months. As for the expenses, most Ulips beat mutual funds in five-six years from the cost perspective. With free switching across funds, Ulips are much better than mutual fund schemes.
By when do you intend to start your mutual fund business?
The joint venture has been signed. We are in the process of getting a licence from Sebi. The process could take 12-18 months.
Do you think the New Pension Scheme will affect the pension business of life insurers?
It’s too early to say how it will affect the pension business of life insurers. Any financial product which does not have any distribution margin will take time to take off. Second, life insurance companies offer a lot more fund options than what the NPS is offering. It should not impact the life insurance industry to that extent.
What are your listing plans?
Both the shareholders are clear that until and unless the regulator makes it mandatory, they have no interest in listing the company. Last year, we did not put in any capital in life and general insurance companies. Over the next six months, we would not need any capital. With strong promoters and our capital efficiency, raising capital is not an issue.
Will Bajaj Allianz acquire another small company after the M&A guidelines are in place?
If you go and acquire a small company, it comes out with lot of issues in terms of integration. And if one wants to grow 10-15 per cent, organic growth is a much cheaper option than going for an acquisition.
Your life and non-life companies were looking at integrating key operations. How far has it progressed?
We have not integrated any operation. What we are saying is that we stand for one brand, Bajaj Allianz, both for life and general insurance. So, when customers call us at one call centre, can we attend them? We are looking at areas like customer service, branding, and some policy issues. We are looking at synergising. Integration is probably the wrong word.
