The fourth quarter usually accounts for the largest chunk of new business premium for life insurers.
The trend in the insurance sector of buying products only in the fourth quarter for the sake of tax saving is coming down. In an interview with Moneycontrol, Vibha Padalkar - Executive Director & CFO, HDFC Life Insurance, said that about 10 years ago, about 35-40 percent of the business would come from the month of March itself but that has come down to sub 25 percent.
JFM or January, February and March as the last three months of the financial year are called by insurers is the busiest time for the industry. Earlier, almost 70 percent of the business would come in from the last quarter. Industry sources told Moneycontrol that this has gone down to 50-55 percent over the course of the last three to four years.
“We believe that the trend of buying products in the fourth quarter purely for tax reasons is coming down. There are so many competing products in the 80C bucket now,” said Padalkar.
HDFC Life was listed on the stock exchanges in November 2017 and was the third private life insurer after ICICI Prudential Life Insurance and SBI Life Insurance to be listed on the stock exchanges.
Post the initial public offering (IPO), Padalkar explained that it is still business as usual.
“We have been gearing for the IPO for the longest time. So this was not an inflection point for us. We have been behaving like a listed company for long, putting out a lot more information than what is required by regulations. The internal rigour was always there. Now that it is a real thing, we closely monitor areas such as information and insider trading guidelines,” she added.
However, she admitted that insurance as a sector is still to be understood well by the end investors. She said that unlike other industries, they sell long-term products.
“The profit and loss (P&L) statement does not reflect the real picture, it is the embedded value and new business margins that reflect that. The performance parameters for the life insurance industry is different from that of other industries. Lot of nuances are there between the different companies, which is also a challenge. It will take time for the retail investors to understand all of these aspects,” she said further.
With respect to the business, on the rural side, she said that they do a lot of business with microfinance institutions and the rural business is a focus.
She said that approaching people living in rural areas directly would become an expensive proposition. Citing the example for the Pradhan Mantri Jeevan Jyoti Bima Yojana, where for a small premium (Rs 330), an individual gets Rs 2 lakh of life cover, she said that this was a success.
“We hope that the claims ratios do not turn adverse for this section of the population,” said Padalkar.
However, she was also quick to add that whatever business they do, should be profitable and each channel should be profitable on a standalone basis.
“This was set three to four years ago. There is no interest in topline if it does not make enough money for us and if it is not of good quality. It is not difficult to write a lot of business by paying more money in some channels but if that does not cross our profit thresholds, we are not interested in procuring such business,” she said.
Among other segments, she said that the pension space has a growth potential. HDFC Life in February, launched its Pension Guaranteed Plan which is a single premium annuity product.
“We have seen that people are outliving their retirement years by atleast 15 years. When you couple that with inflation and interest rates moving southwards, the real savings will be a paltry sum,” she said.
However, she also added that flexibility will make the product category more attractive, wherein those who are young, could be given the option to choose their asset allocation, let them have the facility to switch the asset allocation when they get closer to retirement.
