 "Vibha Padalkar, managing director and chief executive officer, HDFC Life Insurance")
Following HDFC Life Insurance Company’s second-quarter (Q2) 2025-26 (FY26) earnings, Vibha Padalkar, managing director and chief executive officer, spoke to Aathira Varier and Subrata Panda about the impact of the goods and services tax (GST) cut on insurance premiums, the withdrawal of input tax credit (ITC), and the company’s plans to mitigate these changes. Edited excerpts:
How has the GST cut and the withdrawal of ITC impacted the company in Q2FY26?
The removal of GST on insurance premiums is a monumental step because it reinforces the importance of life insurance in the minds of ordinary Indians. A developed nation cannot exist without adequate insurance coverage. The overall attractiveness of insurance should rise significantly. Early signs are encouraging: retail term product sales in September increased by over 50 per cent. Some of this may reflect pent-up demand, but if this trend continues, it will meaningfully boost growth. Clearly, the government’s intent is coming through.
Regarding ITC, our back book already shows a 0.5 per cent impact on embedded value, roughly ₹260 crore. For new business, it will take a couple of quarters to neutralise this effect. However, we’re confident of reaching a balanced position, similar to what we achieved with surrender charges. While there will be a gross impact initially, we’ve identified levers to offset it.
One of these levers is reduced distributor commissions?
Yes, reducing distributor commissions is one lever. We’re also looking at improving the product mix — offering more profitable products, cutting costs. It’s a combination of four or five factors, and we’re confident we’ll get there. This quarter, our margins were hit by about 50 basis points (bps) because we had less than a month to react. That’s why it will take a couple of quarters to fully adjust.
How are you planning to change your product mix to offset the ITC impact?
With the retail protection segment at an inflection point, we’ll sell more retail protection products and riders. We’ll continue to focus on credit life, which is starting to show green shoots after a period of stress in our microfinance portfolio and among lenders. Credit life has grown about 15 per cent, and we expect this trend to continue or even improve. These are all margin drivers that should pan out nicely.
Will there be no change in product pricing?
No. We’ve assured the government that we will pass on all benefits to customers, and that’s exactly what we’re doing.
Your investment income has seen a major decline this quarter…
The decline is largely due to equity markets, which have fallen meaningfully.
The company’s persistency ratio has declined across all time periods…
Two factors are at play. Previously, higher-value policies — ₹10 lakh or ₹15 lakh — had better persistency, but these policies are now less common. Second, customers delayed premium payments due to GST changes. Also, our focus on Tier-II and Tier-III cities has changed the underlying customer segment, which naturally has lower persistency than Tier-I due to affordability constraints.
Could you provide guidance on margins going forward?
Margins expanded by 100 bps in Q2 but were offset by GST. I had earlier indicated that margins would remain around 25.6 per cent, as reported last year, but GST has impacted that. By the end of FY26, we expect the GST effect to be neutralised, and from 2026-27 onwards, we’ll start with a clean slate.
Do you think some of the GST cut pain will be offset by higher sales going forward?
Yes, though it will take time as these changes are very recent. Insurance growth depends on awareness, accessibility, and affordability. The government has addressed affordability by lowering pricing, but awareness will take time to spread. In the medium term, this should grow the pie.
Is the insurance sector out of firefighting mode now?
Absolutely. The finance minister has indicated that the major direct and indirect tax changes are largely complete.
