With nearly Rs 4,000 crore in gross premium income for Q2, Kotak Mahindra Life Insurance Company ranks among India’s top 10 private life insurers. In an interaction with Narayanan V, the company’s MD & CEO Mahesh Balasubramanian discusses the company’s recent performance, the impact of surrender value guidelines, and its product and distribution strategy.
Why was Kotak Life’s individual premium growth of 17% lower than the industry’s 24% in the latest quarter?
Kotak Life predominantly has a traditional book, with about 72% of our policies being traditional in nature. In contrast, the private industry has been leveraging the buoyant capital markets to drive the sale of unit-linked insurance plans (ULIPs). Our proportion of ULIPs is among the lowest in the industry. We believe that life insurance is fundamentally about protection and long-term savings. This focus has shaped our strategy over the years. Our emphasis remains on traditional long-term products such as term life, participating and non-participating policies, and annuities, which we consider to be value-accretive for both the company and our customers.
But the industry is going a whole hog on ULIPs?
We do sell ULIPs, but we maintain a balanced portfolio rather than going too far in either direction. The market is vast, and each company adopts the mix it believes works best for its business model. From a topline, bottomline, and margin perspective, we believe it’s more effective to maintain this balance.
Despite our focus on traditional products, our assets under management (AUM) have grown by 28%, and we rank among the top 2-3 players in terms of AUM. Our surrender-to-AUM ratio is also one of the lowest in the industry. Customers often exit ULIPs after the five-year lock-in, we believe life insurance is a long-term savings product, benefiting those who adopt a long-term investment approach.
We allocate 5-10% of our business to protection policies, with the remaining 90% equally divided among participating, non-participating, and ULIPs.
How have the surrender value guidelines impacted your business?
The surrender regulations have affected all insurers. It’s not just about the volume of surrenders, but the value consumers receive now compared to earlier periods. In the short term, this has cost us, as we had to revise and refile our products. We also need to absorb the impact of higher surrenders, which we are addressing in three key ways: reviewing the commissions we pay to our agents, reevaluating the types of products we offer, and absorbing some of the impact at the margin level.
We are closely monitoring this and expect things to stabilise by the end of this quarter. Ultimately, we must absorb the impact with minimal disruption to the customer, which means finding solutions within our company, distributor network, and product offerings to ensure customers continue to benefit.
Some insurers have already quantified the impact?
We are exploring 2-3 options. For large institutions, clawback is one approach: you pay the commission upfront, but if policies lapse prematurely, you can recover the commission. With individual agents, clawback is more challenging, as many are not full-time agents for us. In these cases, we need to reassess the commission structure, and in some instances, we may offer additional commission in the second or third year. So, deferment, reduction, and clawback are the methods we are considering, and we are refining these approaches.
It’s too early to quantify the impact on our value of new business (VNB) margin. Until now, we have been focused on product filings. November and December is when things start to play out and by January we will have more clarity.
Is dependence on Bancassurance a challenge for Kotak Life?
Despite being promoted by Kotak Mahindra Bank, our agency business contributes nearly 45-50%, with Bancassurance also roughly contributing a similar share. We have heavily invested in the agency business over the years, especially when the Indian market was less focused on agency distribution. On the premium too, we maintain a balanced approach. Of the Rs 17,700 crore premium collected last year, 50% was fresh premium, with the remaining 50% from renewals. Within that, the share of group and individual premiums is also balanced, with a 45-55% split. We aim to maintain this balance in both our product and distribution mix moving forward.