Unit-linked products have seen huge redemption in industry

Written by Saikat Neogi | Updated: May 21 2013, 08:16am hrs
SBI Life Insurance is aiming for a balanced portfolio of both unit-linked and non unit-linked products. Atanu Sen, MD & and CEO of SBI Life Insurance, says during the last couple of year,s unit-linked products have seen a large redemption after expiry of lock-in period. In an interview with Saikat Neogi, Sen says the companys move from single to regular premium to long-term products was a conscious strategy to improve consistency of the business and the transition has worked well for the company. Excerpts:

Currently, linked products constitute less than 40% of SBI Lifes share. How are you seeing the appetite of link products and do you foresee redemptions of Ulips contracted prior to 2010, which had a three-year lock-in

We are happy with the current share of Ulips in our portfolio. We are aiming for a balanced portfolio that has healthy share of both unit-linked and non unit-linked products. During the last couple of years, unit-linked products have seen a large redemption after expiry of the lock-in period Though our redemption levels are lower than the average, we have taken certain steps to arrest the trend and hope to see reduction in surrenders this year.

First-year premium data for FY13 show that SBI Life is moving from single to regular premium to long-term products. How is the transition working for you

The reduction in single premium was a conscious strategy to improve consistency of our business. We have seen the transition work well for us. It has improved the renewal premium kitty for coming years, provided customers opportunity for consistent saving year after year and improved consistency of income earned by the sales force.

In FY13, SBI Life saw a degrowth of 20.6% in first-year premium. How do you see growth in FY14

We are hopeful for a reasonable growth in the retail business for FY13-14 as we have corrected the product mix in FY13 (unit-linked and non unit-linked, single and regular). There are, however, regulatory hurdles in the form of replacement of all products and withdrawal of some products, which would need to be surmounted before the target can be achieved.

Since micro insurance has more leeway in rural areas, do you plan to bundle micro insurance with other products and how would you do the pricing

The products need to be simple and requiring minimal paper work and underwriting. A lot would depend on the system interface. An efficient interface would lower the costs and, hence, the pricing can be competitive.

How are you targeting the pension market and what kind of growth do you expect to see in this segment

The industry is slowly returning to selling pension products after a gap of roughly two years post the issuance of the pension circular. We currently have a traditional product in this space. A lot would depend on how quickly we are able to roll out a few other products including unit-linked pension products.

You have a lot of expertise in risk management as you were looking after that area in SBI. What are the most important risks that life insurance industry faces and how are you addressing them

One of the key risk we are currently facing is a lack of hedging instruments for market risk we assume in sale of insurance products. The financial markets in India do not offer long-term hedging instruments that insurance companies require.

We are trying to do whatever possible to mitigate this risk. We have stripped long-term government bonds to increase the duration of the portfolio. We are the sole investor in the first inflation-linked bond issued by a corporate in India. We are also exploring other options to reduce the interest rate and inflation risk in our portfolio. We have various forums where risks are monitored regularly, analysed and quantified whereever possible and mitigation measures are put in place to control the risk.