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Interview of Deepak Satwalekar,
Managing Director and CEO,
HDFC Standard Life Insurance Company
(Date: 17 May 2005)
How has the FBT on superannuation affected your
business?
It is too early to say how the FBT on superannuation will
affect our business. We have heard that some companies are
reviewing their own compensation policies in the light of
the FBT. They may move to a CTC structure. We shall have
to wait and watch how this plays out.
Recently the IRDA has barred insurance companies
from selling keyman covers stating large scale abuse of
the product. How many keyman covers have you sold in March?
And how much has the IRDA diktat affected your business?
The IRDA diktat does not affect our business, as we have
not been big players in the Keyman policy market. I do agree
with IRDA’s action in restricting the Keyman policies to
being a pure ‘risk’ product. That is the real objective
of a Keyman policy and I am glad that action has been initiated
early in this regard.
Your position from among the top three has gone
further down. Your comments pls
There are different ways in which the ranking of insurance
companies in a newly opened market can be measured. New
business premium is one of them. For the long term success
of an insurance company, the sale of regular premium policies,
as opposed to single premium policies, is very important.
We measure our New business premium income in Effective
Premium terms, that is, we give only a 10% weight to a single
premium policy. While we agree that market share is important,
we would not engage ourselves in any practices that would
hurt the long term profitability, or worse, the viability
of the company. The quality of the book is very important
in determining whether a life company is successful or not.
ULIPs have been doing roaring business. But with
lack of transparency and these being sold as investment
products the IRDA plans to come out with stringent guidelines
for the same. How much do you think it will affect the sale
of unit linked products.
It is extremely unfortunate that without a clear understanding
of the unit linked product, the media as well as other affected
segments of the financial sector have harped on the ‘lack
of transparency’ of these products.
At HDFC Standard Life Insurance,we disclose, up front, all
charges that would be payable, whether one time or on a
recurring basis. In fact, these are factored in the preparation
of the ‘illustration’ that is made available to all our
customers.
These illustrations give the customer an idea of what the
terminal value of his policy can be at the end of the policy
term. Mutual funds do not have an equivalent facility. These
are as much ‘investment’ products as any other conventional
product offered by insurance companies.
The difference is that the customer now has a choice of
what asset class he prefers to invest in. This is of great
value to customers as they can now choose the asset class
depending on their age, risk preferences, financial needs
and existing investment portfolio. This choice, enhances
transparency, not reduces it.
I have not understood this fascination that the media has
had in trying to show this as a fight between the mutual
fund industry and the life insurance industry. Please try
and understand that these are two different products that
are offered by these players and they address very different
needs, especially in terms of the period of the contract.
Unit linked policies, like other life insurance policies,
are long term contracts, extending as long as 30 years,
and do offer significant benefits in terms of maturity values
arising from the low recurring charges that insurance companies
levy.
I agree that these are new products in the Indian market
and not something that the customers were offered during
the days of a non-competitive market environment. We have
therefore put in place an additional programme for training
and licensing our Financial Consultants to permit them to
sell unit linked products.
I believe we are the only life insurance company that has
such a programme in place. As of now, a little over 25%
of our sales force is permitted to sell unit linked products.
This is one of the ways how we manage the risk of mis-selling
that the regulators may be concerned about.
I am not aware of the nature of the guidelines that are
being planned and hence would not be able to comment on
how they will affect us. All I can say is that the ‘needs
based’ approach that we have adopted for selling is a natural
hedge against mis-selling.
How do you plan to further strengthen your retail
business?
We have 104 offices across the country, including in B
and C level towns. Through these offices we are able to
offer our products and services to customers in over 440
towns. During the year we have plans for significantly increasing
our reach through additional offices, so as to both widen
and deepen our presence across the country. We also plan
to leverage the wide distribution network of our bancassurance
partners to reach a wider customer base.
How different is insurance selling in rural areas?
As different as chalk and cheese. It is important not
to carry pre-conceived ideas about what is required by the
rural market. It helps to listen to them. We need to keep
in mind the shortage or non-availability of adequate medical
testing facilities in rural areas, and therefore need to
design appropriate products for these markets.
As you go deeper into rural India there isn’t a facility
whereby they can pay their premiums on a regular basis.
The desire to have insurance facilities reach rural India
often runs ahead of the availability of adequate banking
facilities.
There are also difficulties in finding approved training
institutions and testing facilities for getting our Financial
Consultants licensed to sell insurance policies. Having
said that, I do believe that with the increase in rural
incomes that we are seeing in recent years, there will be
a large opportunity to offer life insurance products in
the years ahead.
How much has bancassurance contributed to your
business?
Bancassurance is an important element of our distribution
strategy. The past year has seen this channel contribute
over 35% of our New business premium. Going forward we do
plan to intensify the existing relationships and fully leverage
the strengths of this channel to offer our services to a
larger client base. We may also consider extending our relationships
to other partners which have a similar value system as ours.
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