While January was a very successful month for Bharti Axa Life Insurance, February has seen lukewarm response from the market, says Sandeep Ghosh, chief executive officer. In an interview with Vishwanath Nair, he discusses the reasons for the growth phase, the ensuing slowdown and some of the challenges being faced by the insurance industry and the company as well. Excerpts:
2013 was seen as a successful year for most private life insurers. What was your business like? What is your outlook for 2014?
From a calendar year perspective, we have had one of the best years. On a calendar year basis, we grew about 31% in new-business premium from a year ago. In the second half of the year, between June and December, our growth was in fact higher, almost 50% in the new-business premium. Of course, we are a mid-size company; so, our growth needs to be looked at with respect to the current base of our business. Nonetheless, it is a very positive performance.
As far as 2014 is concerned, we had a strong January, but February saw a lukewarm response. We do not yet have the published industry data for February, but we have informal market feedback, which suggests that a number of companies have faced a fair amount of headwinds. We are not sure how much of this is coming from the overall macroeconomic scenario ? perhaps, some slowdown in the market is due to people adopting a wait-and-watch approach before the elections ? or our getting into the new new product regime in January. It?s still early days to get a firm grip on what might have caused the February slowdown, but there was definitely one.
But the new product guidelines were effective in January. Why is it that the impact is coming only in February?
A lot of the business that got issued by companies in January was also locked-in in December. Typically, when you pick up business in the last week of December, all of does not get issued in the same month; it slips into the first few weeks of January. We saw a 20% year-on-year growth in our January business, which is a healthy growth rate for the month. But come February, when the new product guidelines really started to take effect, we did not see the kind of inflection we see every year.
Are all your products currently compliant with the design guidelines issued by the regulator? How many more products will you be launching?
Bharti Axa did not wait for January 1 to come out with the new products that were compliant with the guidelines. The guidelines had been made known well in advance and we launched a number of products specific to our customer base. We used the extension between September 30 and December 31 to get more of our existing products compliant and we ensured that, come January, 90% of our products were compliant under the new guidelines. One or two products that were not approved on January 1 were approved eventually. Like every other insurance company, we have plans to launch 3-4 new products over 2014.
What were some of the challenges you faced during the growth phase?
There were definitely some challenges during the growth phase. Some were internal to the company and others external. Overall, as an industry, we are facing a problem in trying to grow our agency and making the agency force a profitable and sustainable channel. We did reasonably well in the second half of 2013, by licensing 9,000-odd new agents. The industry and ourselves continue to face significant attrition of agents.
The second challenge for the entire industry is that the cost of doing business continues to rise. There is a natural inflationary pressure of 9-10% in India, be it salaries, travel cost or communication cost. In this environment, unless you are able to grow 20-30% or better, a lot of benefit of growth gets wiped out due to inflation. The third is of persistence ratios. A lot of customers surrender or lapse policies after one, two or three years and that goes against the basic premise that a life insurance policy is a long-term contract. For a variety of reasons, the business is not quite functioned on those lines. At a company level, the only unique challenge is that we are operating without a bank partner. We thought the open architecture would allow us to function in a level playing field.
Has any bank indicated its intention to get into a broking partnership with you?
As of now, we are not aware of any bank that has agreed to adopt the proposed broking model. Why banks are not motivated to do so is something they need to answer themselves. I can definitely say that the current construct has some gaps. Today, if a bank is a corporate agent, it is allowed a certain compensation and its compliance onus is low, relative to becoming a broker where they have to spend more money, the onus shifts to banks and ironically the official compensation is much lower for brokers.