With the insurance industry maturing over the years, focus has shifted to profitability and valuations
Private sector players have started eating into LIC’s market share. How do you see the industry growing?
The insurance industry has been growing at 12-15 per cent in the last few years. The private sector has been growing faster than LIC lately. But, we have seen the trends change once in a while. The overall industry will continue to grow on the back of a favourable environment – financialisation of household savings, young population, growing working age group, rising incomes, and rising awareness about insurance. India is also under-insured (low levels of penetration leading to a protection gap of 92 per cent). Hence, in addition to widening, we also expect deepening of the market. Moreover, life insurance is a preferred savings instrument, accounting for 17 per cent of household financial savings, which is next only to bank deposits. We expect the industry growth at around 15 per cent, which is faster than the GDP growth.
Do you see consolidation in the industry in the coming months?
As the insurance industry has matured over the years, the focus has shifted to profitability and valuations. Presently, the approach is balanced between topline and margins. This has resulted in constant pressure on cost management, product innovation, efficiency improvement, and customer experience. Hence, some of the players for whom this is a non-core business are likely to look for an exit.
Have you seen a significant jump in ULIP sales post introduction of long-term capital gains tax on equity-oriented products?
The introduction of capital gains has certainly given an edge to ULIPs. The demand is a function of customer awareness, as well as market movements.
In segments like pensions, there has been issues in terms of guaranteed return, because NPS is also going a lot aggressive. Do you see there is still a market for pension products?
Pension is a large opportunity. New product regulations have eased the guarantee requirements on group platform, which is a welcome change. However, on the individual platform, the requirement of guarantee continues; this works in policyholders’ interests by protecting retirement savings from any extreme market movements like the ones seen in 2008.
How is Kotak Insurance placed in terms of 13th month and 61st-month persistency ratios, net worth, solvency ratio, and embedded value?
For FY19, our 13th month persistency of 87.33 per cent and 61st month persistency of 60.4 per cent was on a par with the industry-best (among top players, as per public disclosures made). We have a net worth of ₹2,745 crore. Our solvency is comfortable at 3.02 times of the regulatory requirement. Embedded value as at last year-end was ₹7,306 crore.
Tell us about the growth of Kotak Insurance in FY19-20?
We have grown faster than the industry, and expect to maintain our success record. In the last five years, we have grown at a CAGR of about 26 per cent, which is 10-12 per cent higher than the industry. We are a multi-distribution insurer, and aim at growing all the distribution channels efficiently.
How has your market share numbers in the new and renewal businesses moved in the last three years?
Our market share in new business is at about 5.5 per cent, and it is constantly growing. Our renewal business has seen a healthy growth (three-year CAGR of 31 per cent) on the back of continuous improvement in persistency ratios, driven by quality of sale, and a focused business retention strategy.
Kotak Life logged one of the fastest growth rates in individual single premium policy collections (first year) among like-sized peers. What is driving this growth?
Single premium unit-linked products are usually suitable for higher income segments. This product has picked up due to relatively faster growth of some of our distribution channels that cater to this customer profile. We also have a single-premium guaranteed lifetime annuity product which has grown significantly of late.
What’s the current product portfolio? How has it evolved over the years?
Our product mix has moved towards traditional products, and now there is a reasonable balance. We have an extensive range of products to cater to customer needs in various income segments, risk appetites, and life stages. Kotak Life has a mix of traditional and unit-linked products, term plans, and lifetime annuity products, besides superior protection and fund-based products on the group platform. We continuously review the existing products and evaluate new products based on market feedback.
Where do you see growth coming from this year in terms of product segments?
Different distribution channels have different mix of customer profiles and needs. This results in a certain balanced product mix for us at the company-level. As we continue to grow all channels, we don’t foresee a significant shift in product mix. Having said that, we do aim at a higher mix of protection products, which is in line with our core purpose of adding value to the lives of people through financial instruments of protection and long-term savings.
What is the kind of asset allocation you would advise your customers?
We generally avoid giving a generic advice on asset allocation. We believe in a case-by-case need analysis based on customer profile, life stage, income, dependents, risk appetite, investment objective, and time horizon. The first objective should be income protection by obtaining a pure term cover of at least 10 times annual income; this is what we advise our customers.
Kotak Life prides itself on a claim settlement ratio of 97.4 per cent in individual & 99.1 per cent in group, which are among the best in the industry, and in keeping with our brand promise, ‘Koi hai … Hamesha’.
Once adequate term cover is in place, in a broad sense, customers should try and strike a reasonable balance between pure protection, debt products, and unit-linked products; and with age progressively reduce equity allocation.