India’s insurance market is moving to the next stage of development, believes David Nish, CEO of Standard Life Plc, the foreign partner of HDFC Life. In an interview with Niladri Bhattacharya, he says recent regulatory changes will ultimately make India a better place to invest.
Since September, the Indian insurance industry has undergone a host of regulatory changes. How do you perceive these changes? How do you see the Indian insurance market going forward?
The Indian insurance market has matured over the last 10 years. What these changes mean is that the regulators want the companies to be more focused on customers. Like we have seen in the UK, in the initial stages companies do offer high commissions as they try to get people engaged in the industry, put in place the distribution network and proper infrastructure. Then you get into the next stage where people perceive charges are too high, so you get capping of charges. Then, there is a move towards greater transparency and ultimately you get where the UK is now headed — a no-commission stage. The idea is to evolve into a stage where companies understand the requirement of the end customer, which means a situation where the customer would want to buy the product, as compared to push sales. So, the Indian market is moving to this next stage of development.
How would you compare the Indian insurance market with the UK’s market, where it is much more matured?
As I said, the Indian market has moved to the next stage of development and in a lot of ways, it is heading towards a stage where industry will be more transparent and ultimately reach where the UK market is now headed. At this stage where there are no commissions, agents recover their fees from customers, who pay them based on the quality of advice they provide. But in India, the industry will move a lot quicker towards becoming customer-centric. It took 50 years for the UK and in India it might take 15 years and we are already 10 years into that journey.
There is a sense among Indian insurers that the changes made by the regulator were too frequent, which has resulted in a sharp drop in sales. Don’t you think the industry needs some time to adapt to the changes?
Doing right things too fast could affect the customers, so regulators will have to be careful. What I would like the regulator to do is to have a planned roadmap. It means that over a period of time, companies will start to develop changes in distribution strategy. Today, agents operate on commission levels and moving overnight to fees would deprive them of income.
In the UK, we had been working towards the big change (of a no-commission system) over three or four years now. We started before the regulator, so we were working on the change five years before the regulation came.
We were the market leaders in 2005 and we removed commissions because we felt it was not the appropriate way to do business. We went from the number one spot to sixth overnight. We lost 40 per cent of our businesses and changed 80 per cent of our distribution. We changed our distribution channel, worked on our business model and last year, we were back to number one because we are focused on the quality of business.
Coming back to India, with the insurance Bill pending in Parliament which will allow a 49 per cent FDI limit, how do you see your partnership with HDFC Life going forward?
We would like to increase our shareholding to the largest extent possible. There has been a very significant growth in HDFC Life over the past year and we are very pleased with our association for more than 10 years. Insurance as a business is long-term in nature and you have to accept losses in the initial stages. From here on, we expect profits. Going forward, irrespective of whatever happens to the Bill, which is beyond our control, our main focus will be to move towards a sustainable and profitable growth. As HDFC Life CEO Amitabh Chaudhry said, we would like to maintain margins at high teens and that should give us sustained growth.
Are you in favour of guaranteed returns on products?
Guarantees are important, as it gives confidence to the customers. But as one moves forward, there is a need for the customer to access long-term flexible savings, as they need to have liquid savings. There is also a need of products that will ensure high return in the longer term. Hence, the key challenges in the Indian market right now is the focus on right customer underwriting and segmentation of customers. Instead of having products for 3-4 years, people should have access to products that are for a longer term, say for 10-15 years.
