Private life insurer HDFC Life is looking to sustain its performance for another year before going in for an initial public offering (IPO). Amitabh Chaudhry, MD & CEO, HDFC Life, in an interview with M Saraswathy, talks about the company’s gameplan for the year ahead. Edited Excerpts:
The last financial year was a tough for the company. However, profitability has been steady. What are the reasons?
We introduced number of measures including pre-verification call, higher KYC standards, surprise visits concurrent audits and HDFC Bank also stopped accepting third party customers. Lot of measures were put in last three-six months. So, as a result we growth was far less than the industry, but we are confident that we have used this opportunity and institutionalised these practices.
The overall premiums did quite well, renewals saw a healthy growth of 17 per cent. Our persistency came down due to the regulator changing the meaning of persistency with one month lag. Plus, the exit costs on surrenders have come down and markets have done well in the latter half of the year. Since we have a large unit-linked (Ulip) portfolio and people started encashing it since they could get out at low surrender charges, this impacted persistency.
Why do want to diversify into other distribution channels other than banks?
Fortifying existent relationships and building newer channels will be our focus. HDFC Bank is a very important partner for us, but other relationships are as important as it. For the top private sector players, bancassurance contributes more than 50 per cent of business. For us, HDFC Bank contributes 63 per cent to overall business. We are trying to diversify or reduce the proportion of sales coming from HDFC Bank. That does not mean that we will reduce sales, but means that we will grow other channels where the base is zero. This arbitrage of banks restricted to one insurance partner will go away at some point. Regulator should ensure that the model should promote insurance and have a level playing field.
Your company was to be one of the first ones to go for an IPO. Is the plan still on?
Our investors want to go for an IPO, but the insurance Bill is pending. We would like to do an IPO with a foreign institutional investor (FII) component in it. I think our performance is good and if we can sustain our performance for one more year, we will be IPO-able. Our Shareholders expect a certain price, certain valuation and a surety that we can continue to deliver to new shareholders when we do an IPO. HDFC and Standard Life are very concerned that whoever buys into the IPO is a satisfied shareholder.
So the passage of the Insurance Bill, how market moves in the next 12 months and how we do as a company will determine whether we do an IPO. It won’t happen this financial year, but let’s hope that it happens in the next financial year. We hope to get some signals in the next three-four months on the insurance Bill; on how serious the new government is.
Is the company ready for its new innings in the pension sector with the recent Delhi High Court ruling against the pension regulator disqualifying from HDFC Life’s bid?
Right now, the Delhi High Court has ruled in our favour. We believe that on technical parameters we should score quite well. But still there are some points of contention and we are hoping that Pension Fund Regulatory and Development Authority (PFRDA) can cross that bridge and over a period of time give us a licence. We hope that regulator will allow us to be part of this opportunity.
Will this year be a better year for the company?
I believe that this year will definitely be a better year for us. The premium numbers in this financial year have been on the positive side. April and May give us hope that we are on the right track. Our renewal numbers are also looking good. But, we are confident on the basis of the relationships that we are winning that this year will be a much better year than last year and definitely better than the industry.
Does this mean that the agency channel size would also be increased?
The agency force size will be similar, but we are hoping that productivity has come back. We had invested in the DNA (Develop-Nurture-Achieve)channel where we were training our people for eight months and then deploying them in the field. We are tripling the size of the DNA channel this year. There was a de-growth in the agency channel for the last three-four years because of reasons like cost-cutting among others. It has been a profitable channel, especially on the basis of the new business margins.
HDFC Life had been one of the earliest players to enter niche segments like women.
How have these businesses performed?
The child segment is become the centre of every insurance company. However, the women segment has not done exceeding well. But we always knew that it will take time. Ultimately, working women is an untapped segment. The idea is to create a need.