Pension and annuity products are the need of the hour

With the Insurance Regulatory and Development Authority (Irda) nudging private insurance companies to come out with annuity products, Rajiv Jamkhedkar, managing director and chief executive officer of Aegon Religare, says the pension market is the next growth potential in India. In an interview with FE’s Saikat Neogi, he says the company is planning to come out with more annuity products and leverage the expertise of Aegon, a global leader in annuity. Excerpts:

Sales of insurance products have declined ever since the new regulations came into effect from September last year. By when do you expect to see the industry recover and how have the regulations benefited consumers?

Consumers still do not know the benefits of the new regulations and we will have to educate them and create awareness about the new regulations. The other issue is that a lot of agents have come into the industry because of the lure of high commission. Now, with the new regulations, the commission structure has come down and a lot of them are going out of the business. So, these factors have affected the business and there will be a two-year transition period for the industry to recover to the pre-September 2010 level.

Moreover, the regulator is working to strengthen and augment the training process of agents, which will help improve their quality and bring in professionalism. By doing a proper need-analysis, agents will be selling the right product to the customers and that will be very good for the industry and the customers in the long term.

What kind of a distribution model is the industry looking at in the long run?

The distribution model in India will remain multi-channel because of the large target group. Agents and brokers will form a large part of the distribution model and banks will also play a leading role in the distribution of insurance products. We are one of the pioneers in online distribution and that model will grow as we have a large population in the young age group. For us, the online channel gives us 10-15% of our volume and we expect it to grow to 25% in the next 3-5 years. So, all channels will have their own importance and are unique in their own way.

How do you think bancassurance will curb mis-selling of products. Are you looking at partnering with banks to sell insurance products?

Banks tying up with one insurer is limiting the choice of the consumer as he gets products of one insurer. Now, if banks can tie up with more than one insurer, customers will get a multiple choice as banks will have a variety of products to offer to its customers in various income brackets.

We would like to tie up with committed players and not with many banks to sell our insurance products. With the few banks that we would tie up, we would do complete dedicated work, right from training to systems, to technology and provide end-to-end solutions. We will not work like a manufacturer and ask banks to sell the products. We will, instead, offer complete solutions, so that the banks and customers gain. We are in talks with banks like Punjab National Bank and Syndicate Bank.

How are private insurance companies looking at the pension market and, more specifically, the annuity market?

Aegon is a global leader in annuity space as it has been managing annuity for a long time. We want to leverage their expertise in annuity as there is a big need for pension products in India. People are living longer because of good medical facilities and would need some kind of regular income in their old age. So, there is a need to develop a robust pension market in the country as there will be a huge population in the old age bracket.

Earlier, the family system was such that the parents were taken care of by their children. Now, that is changing in the metros and tier-II and tier-III towns.

Most people save in instruments like PPF (public provident fund), postal savings and bank deposits, which give low returns. Early entry in pension planning is important to build a good corpus. There is a need to develop the pension market and we, at Aegon Religare, are planning a lot of products in this area. We will take Aegon?s expertise to bring in annuity products in India and this is the core focus area for us.

What are the issues that need to be addressed in terms of investment instruments for private insurers to launch annuity products?

In the annuity market, one of the major constraints that we face is that we are not allowed to hedge risks because we can?t buy and sell derivatives. That?s the reason why we can?t structure products. It was because of the financial meltdown that the regulators thought that it was prudent not to allow trading in derivatives. But, in the future, we can look into those options, so that we can provide flexible annuity products to consumers. We also need to develop the skill sets to come out of annuity products and it will happen gradually. Irda has also emphasised that private players must develop good annuity products for its customers and there is a clear direction from the regulator and we are very much interested in it.