Big Interview: Insuring Life
In the life insurance sector dominated by public sector Life Insurance Corporation, private companies have been increasing their market slowly and steadily. Unlike other private players, Shriram Life Insurance Company has been focusing on the markets where LIC holds its fortress. It has been able to grow commendably, working among rural masses and selling mostly traditional plans. Casparus Kromhout, Managing Director and CEO of Shriram Life Insurance in conversation with Sangeetha G talks about how it works towards increasing insurance penetration in markets with low levels of awareness
Shriram Life reported some very good numbers in terms of gross premium as well as profits in FY18. How did you achieve this growth and how has the general buoyancy in the industry helped?
Shriram was able to achieve the milestone of 1500 cr in the financial year; these figures were driven by a strong focus on individual renewal premium collection that grew by 37 per cent. Individual business APE grew around 15 per cent. The last financial year was a year of consolidation for SLIC with focus on fundamentals like business quality, underwriting, fraud management, claims and cost efficiencies. Even with significant channel restructuring, SLIC was able to perform during the transformation due to its strong focus on fundamentals.
The insurance industry has been growing rapidly. The low level of penetration at 2.7 per cent and the growing economy will ensure that the growth is sustained. The net financial savings are expected to grow at 15 per cent and are moving towards taking a greater pie in India's household savings. The buoyancy in the capital markets will continue to fuel the growth of investment-linked products while product innovation in protection will be the key to expansion in the protection segment, thus eventually improving penetration levels in the country. It is estimated that growth in new business premium (NBP) will be in the range of 15-25 per cent for the industry with private players leading the pace. Considering the market factors and SLIC positioning, it expects to grow at a much stronger pace for the coming financial year.
You have also made good progress in terms of persistency despite working with rural customers. How did you achieve this?
As part of the Shriram Group, working in the rural and mass market is ingrained in SLIC's heritage. SLIC works with customers that are generally overlooked by the mainstream commercial insurers and banks thus working towards true financial inclusion. With most of our customers; the SLIC policy is the first and only insurance policy (and in some cases the only savings instrument) that they possess. Considering this our responsibility towards our customers has increased manifold. Thus at SLIC we consider it our duty to ensure that families that are most vulnerable to the loss of a breadwinner get covered and no family loses the precious cover it deserves.
Working with this segment has its challenges. The education and awareness levels on the need for insurance are low; another challenge is the lack of contact-ability. These factors have made achieving desired persistency levels challenging. Over the last few years SLIC has focused intensely on improving the contact-ability of customers. Today over 80 per cent of our customers are "contactable". We have also set processes where customers are contacted regularly and educated on the policy features and importance of continued financial protection. Special focus is given to lapsed policies. Today SLIC makes personal contact with over 5 lakh customers annually and the numbers are increasing every year. SLIC persistency is touching 60 per cent, which is a benchmark for the said segment. Our target is to take our persistency levels past 70 per cent.
Going ahead, this year what would be the factors that would help your growth and where will be your focus?
SLIC is currently ranked 8th amongst the private players on Individual Policies; meaning that we are not a small company on volumes. But at the same time our ticket size is amongst the lowest in the industry. Over the coming years SLIC plans to improve market position on premium; while continuing to serve the mass market. Our focus would be to reach more customers in the "aam admi" segment where the need for insurance is critical but penetration is very low.
Serving this segment demands innovation in discovering new distribution avenues. We are making excellent progress with our digital business. One such example is our tie-up with the international insure-tech SureBüddy that provides free insurance to Android users. We would be focusing on more unique and novel ways to reach our customers.
Another focus area would be developing products that serve segment specific and unique needs of the "aam admi". In addition, we also plan to use technology to help develop a more congenial sales environment for our sales force.
Unlike other private insurers, Shriram has been trying to establish itself in the rural market. How has been your journey and what are the opportunities and challenges in pursuing rural market with volatile incomes?
The Shriram Group has been working in the "aam admi" market for over 4 decades now. Thus serving this segment has been a part of our DNA. A large portion of these customers is in the rural area and over 50 per cent of our business is sourced from these rural markets. SLIC; with an average ticket size of around Rs. 17,000 has developed competencies of working with the rural and urban "aam admi" segment as opposed to most private insurers that are focused on the urban affluent class. The average ticket size for the private sector is approximately Rs. 50,000.
Working in the rural market has additional challenges. Apart from the low awareness levels and contactability challenges; the sector possesses challenges in terms of distribution and reach; where the closest bank or financial institution could be around 60 km away from the village. In addition, there are challenges brought by seasonality of income and the risk of no income during a slump.
There has been active government focus in bringing inclusion to rural India. The Digital India campaign along with the earlier "Jan Dhan" and PMJJY schemes have brought a measure of change in terms of connectivity and financial inclusion; and increased awareness levels.
The opportunities that lie in this segment majorly rely on cracking the distribution mechanism and the unique service needed with continuous improvements and innovation. SLIC in the footsteps of the Shriram Group has been constantly evolving with new service offerings to cater to this segment.
You have a portfolio heavy with traditional plans. How have you created a niche market competing with the public sector giant LIC in traditional plans?
Most companies have seen tremendous growth in the last year riding on the ULIP wave. But these plans are mostly targeted towards the higher ticket size affluent class. The challenge in selling ULIP in the mass market is majorly the limited knowledge of the mechanism of ULIP plans and designing products to meet the required pricing. Also, it is difficult for an agent to travel so many kilometers in rural areas to sell ULIP policies for a low commission. We feel that ULIP is a very good product but that a very large customer segment is being excluded because of the distribution economics issue. Some relaxation in the ULIP guidelines for these segments will enable companies to serve them better.
Further players with higher linked portfolio are vulnerable to cyclical shocks in the capital market. Thus the return of focus on traditional plans cannot be ruled out.
The low awareness levels in the mass market have made us focus mostly on the guaranteed-return plans for our specific segments. LIC is also vastly operating in our market with a traditional plan portfolio but we have managed to create a niche on the back of innovative products and processes.
Private insurers with bank parents or partners were seen doing well off late. What are your plans of further exploring the bancassurance channel and how will you ensure that you reach out to the customer when the bank is selling products of different companies?
Bank-promoted insurance companies have the advantage of a ready strong distribution network with a captive customer base. Today the bank-promoted companies provide for nearly 70 per cent of the Private industry's business and have grown at 25 per cent APE in the last financial year. Thus the lure of Bancassurance cannot be denied. Shriram has a strong NBFC ecosystem that is similar to having a bank as partner. We are actively cross-selling to Shriram customers. For SLIC, the answer to Bancassurance mostly lies in the synergy with our customers and products. SLIC would be open to work with banks that serve our specific segment of customers.
Private insurers are gung-ho about protection plans as the penetration of these plans is very less. What are your plans with regard to protection plans?
Protection plans should be the core of the life insurance industry. India has a vastly under-insured population. With increased awareness levels amongst the population, we have seen a demand for these products rise. Life-cover was earlier sold as a sub-set of a saving instrument; where the customer mostly focused on the returns. This situation has changed, especially in the urban areas, where customers are slowly getting more interested in the protection features that a plan offers.
Pure protection plans with their lower ticket sizes also provide a ready offering for various "mass market" offerings in our Shriram Ecosystem and Digital channel; like our collaboration with SureBüddy that provides Rs. 50,000 free term cover to android users. We plan to explore more partnerships and mechanisms that can help spread the protection cover to our customers.
Studies show that tax-saving potential is the biggest driver for life insurance. What changes should the government bring in to increase life cover of people?
Tax saving has been one of the major drivers for investment in insurance plans. But with the addition of various other instruments in the 80C bracket the competition has become severe. Urban customers are also more aware that the main offering of an insurance product is the life cover and that the investment and tax savings are the by-products.
The governments focus on providing life cover through the Pradhan Mantri Jeevan Jyoti Bima Yojana where a life cover of Rs. 2 lakh is provided for a small amount of Rs. 330 has created awareness on the need for insurance especially for the mass market. The Insurance Regulatory and Development Authority of India have also revised certain guidelines to promote the growth of the industry. The products are more transparent now and the cost structures have been revised. The regulator is also keen on adopting marketing mechanisms to help increase the insurance penetration in India. The penetration gap in India is at a huge Rs. 480 lakh Cr reflecting the growth potential and the quantum of effort needed for the Industry. To bridge this gap government intervention would be strongly needed in terms of creating further awareness, tax subsidies and penetration intensive schemes. Reviewing the ULIP regulations for lower segments will also be a positive step forward.
How has been the response of customers to your online products? What should be done to increase the purchase of online policies considering the fact that India's internet savvy population is growing big?
We launched our digital channel in November last year. In less than 3 months the channel was able to sell 2000 policies. We currently have 4 plans selling online including a cancer care and a term protection plan. We plan to expand the digital frontiers further by developing newer avenues and upselling from the lead sources thus achieved. We are also looking at digital solutions to enhance sales efficiencies.
With the reduced data costs down to more than 50 per cent and the estimated 500 million people on smartphones, India's digital landscape is changing rapidly. The industry has witnessed a great surge in the growth of plans sold online. Though, percentage wise online sales are believed to be only 2 per cent of the total sales, their numbers have shown strong year-on- year growth. The penetration of digital in the mass market is also heartening. Aided by the government's push on Digital India and demonetisation; customers in the tier II / III and rural areas are more open to online purchases. But the scope of digital cannot be limited to only selling online; to make a larger impact we need innovative and cost effective solutions aided by the digital platform to service these customers.