Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance
With the Covid pandemic resulting in a heightened awareness around risks, insurers are looking to tap the opportunity and expand their business. In a conversation with Moneycontrol, Kamlesh Rao, Managing Director and CEO of Aditya Birla Sun Life Insurance, spoke about the prospects of the life insurance industry, why he thinks the provisioning for Q2 would be completely utilised, and the company’s product and distribution strategy. Edited Excerpts:
What is your outlook for the life insurance industry?
A few things have made a big impact. One, risk awareness and risk averseness has gone up — the need for people to ask if they are insured is going up, and people who are insured are asking themselves if they are insured enough. Second, life insurance has been a push business (until now) and I have seen that change in the last 18 months. Third, so far the digital quotient has gone up in payments, cards, lending, mutual funds, and broking — in insurance the pandemic has given a push and here also it has gone up significantly.
There’s an opportunity for the life insurance industry to do the same amount of business in the next five years that it has managed in the last 10 years. We will have to capitalise on this opportunity and the life insurance industry is at the sweetest spot it could have gotten into in the last so many years.
For Aditya Birla Sun Life Insurance, have you done a remodeling/reassessment for a third wave scenario?
Both the industry and the company are still grappling with the impact of the second wave. Large claims were reported in the first quarter of FY22; we got hit by Rs 118 crore. Keeping that in mind, we have created an additional provision of Rs 100 crore and my sense is that the provisions might get utilised. The second wave fallout is still happening as claims reported have been high even in July and August.
On the third wave, by going on what’s happening in other countries, if vaccination is up, infection numbers may be high (but) with lower hospitalisation and mortality significantly lower. The impact of the third wave on the life insurance industry might not be that high; it may go back to the first wave kind of impact. We will definitely provide for it; whatever provisions we carried forward on account of the second wave impact will get utilised for sure.
Amidst all this, you have reduced prices for term plans…
Protection in the individual life insurance business has not even crossed double digits for the industry. Last year, on account of Covid-19, there was repricing by reinsurers in the individual life insurance business, which made premiums slightly costlier. The group business has bled badly on account of the Covid-19 impact and reinsurers have already increased the reinsurance premium by as much as 100 percent.
My sense, given the current Covid-19 scenario, is that reinsurers will again come back on the overall individual life insurance business and may evaluate a change in insurance premium two-three months down the line. If the vaccination rate is going up significantly then it may not happen; it is a possibility and therefore we thought if vaccination is going up then it’s time to play a contra strategy. (We are) using price as a lever because price is very important in the protection side of the business.
A lot of players in the industry in the protection business normally do 50-60 percent medically underwritten protection and 40-45 percent non-medical. To manage the risk, we do 95 percent of our business medically underwritten. We work on that element and keep that risk under control. We thought a genuine opportunity is there at this point of time when the reinsurer changes its premium. It has a multiplier effect on the premium for customers. If that is round the corner, in three months’ time, we would not have had the opportunity to do it later.
Can you throw some light on your product mix and distribution strategy?
Last year the market grew by 8 percent. We were close to double of that and we want to walk that path. Our product mix at one point of time was 40 percent ULIP and 60 percent traditional. We have brought ULIP down to 33 percent with traditional at 67 percent. Over the next one-two years we have set a guideline to have ULIP at sub-30 percent and our traditional products at 70 percent.
The protection business will be at 10 percent plus and it was 6 percent last year. We closed the first quarter at 8 percent on the protection business and intend to be on the same trajectory for the balance of FY22.
We aim to bring the protection business to 13 percent in the next two to three years.
On distribution, we have bancassurance and our own proprietary model. HDFC Bank is a large partner for us, so at the end of the year, we would be about 45-47 percent on our proprietary business and about 50-53 percent on our banca business. The top 3-4 banks don’t work on open architecture but PSU Banks are going out in a big way to do open architecture. We are actively chasing PSU Banks.
Direct contributes around 5 percent and we intend to take this to double digits in the next two three years’ time.
We see an opportunity to grow in metro cities and our branch presence is close to 350. We are creating a common ABC (Aditya Birla Capital) footprint and have all the businesses of ABC operate out of a single branch. Our aim is to maximise urban share.
Do you have any immediate fundraising plans?
Right now there’s no need for capital. It (the need) may come up 18 months from now. We first planned to raise a sub-debt issue of Rs 550 crore, and we did two tranches. The first was finished at Rs 150 crore and recently we finished the second tranche of Rs 195 crore. The balance will be raised in the next six months’ time. Whatever we have raised so far, our solvency ratio is over 1.92 and that is not a problem at all.
Discussions around the capital infusion plan will kick in around 18 months from now.
Are you looking at inorganic growth opportunities?
Whenever we get an opportunity we keep looking at it and it has to make sense. More importantly, it’s about what value addition it will do from where we are; that’s the important metric we evaluate. As I’m speaking to you, there’s nothing on the horizon.
We are actively looking to get more banca tie-ups as it is value accretive both from the top-line perspective and the VNB (Value of New Business) margin point of view.
What is your outlook for Q3 and Q4?
Our Q1 growth rate was 5 percent. By the time we end Q2, the H1 growth rate will be about 15 percent. Our plans are to keep the Opex-Premium ratio to 13.5 percent this year and hopefully by next year it will be at 12 percent.
Our productivity numbers have been going up significantly over the last 18-24 months’ time. In H2, we will actually invest more in capacity across various channels as we have reached the desired levels of productivity. We compare our productivity metrics with some of the better ones in the marketplace.
Adding more capacity, signing new bank tie-ups, strengthening broker tie-ups and more traction on web aggregators like Policybazaar would be the priorities for Q3 and Q4.
What is the growth estimate for FY22?
The group business growing at 20 percent and individual business at 16-17 percent for the year is something we are looking to achieve. The third-wave impact will be largely on claims and we will have to see how it pans out. We expect low hospitalisation and low mortality. The third wave won’t impact new business — we have set out our VNB margin expectations from an earlier negative to double digits at 10.5 percent last year, and we are looking at 12 percent and (should) definitely touch that.