‘Open to exploring options for strategic tie-ups’
VIBHA PADALKAR, managing director and chief executive of HDFC Life, is satisfied that the troubles of the pandemic that hit the sector last year have been tided well. In an interview with and Hamsini Karthik, she says tax sops gradually moving away for insurance products doesn’t bother her much and is open to the idea of new partnerships with FDI norms set to change. Edited excerpts:
Can life insurance as a business penetrate without tax support?
Over the years, consumer surveys have shown that tax benefit is no longer amongst the key reasons to buy life insurance. A recent Usage & Attitude Study conducted by Nielsen showed that tax saving under 80C was prioritised as the eighth or ninth reason for buying life insurance. The top reasons were protecting one’s family in case of death, securing children’s future, and one’s own retirement. We believe that these reasons will continue to drive the demand for long-term savings, protection, and retirement solutions going forward. Even without the tax benefits, the existing products can effectively compete with other investment classes over a longer-term horizon, while addressing the customer needs.
To that extent, would the Budget announcement on ULIPS (unit-linked insurance plans) impact the portfolio?
The announcement around ULIPS would put high-ticket size policies on a par with equity mutual funds. While the product category continues to be attractive for customers, the impact on business for insurance companies would depend on their product mix and average ticket size. Death benefit continues to be exempt under section 10(10D) of the Income-tax Act, 1961. We have a balanced product mix, ULIPS comprise 23 per cent of our portfolio as of December 31, 2020, and our average ticket size in ULIPS has been in the range of ~65,000-70,000. Hence, we expect a limited impact on demand.
The Budget has opened up the sector to 74 per cent FDI participation. Would a foreign collaboration interest you?
Standard Life Aberdeen currently holds 8.9 per cent stake. They have been reducing exposure to the insurance business globally in line with their strategy to focus on the asset management business. We are a professionally managed company and our interaction with our promoters is at the board level. While we keep benchmarking with global players in terms of their best practices and keep evolving our business model, we are open to exploring opportunities for strategic collaboration.
The reinsurers are raising rates in the term portfolio.
We have re-priced our protection products during the year based on emerging experience and reinsurance price revisions. This has also been factored in our new protection product, HDFC Life Click 2 Protect Life, which provides multiple innovative features aimed at providing all-round protection coverage. We have followed a nuanced approach while pricing our products taking into consideration our target segments, claims experience, cost of reinsurance, and competitive dynamics.
How has the experience been on Covid-19 claims and its impact on capital?
We created a Covid-19 reserve of ~41 crore in April 2020 in addition to our regular mortality risk reserves to allow for potentially higher claims in light of the pandemic. We settled 1,271 individual and 542 group Covid-related claims as of December 2020. Claim intimations increased in Q3 and it has normalised since then. While our actual overall mortality experience remains within our estimates, we continue to monitor the claims trends closely and will keep re-evaluating the adequacy of the Covid-19 reserve. Our solvency ratio is healthy at over 200 per cent and we do not foresee any capital requirement on account of the pandemic.
The regulator is nudging the industry towards 13th month persistency of 90 per cent.
There has been a gradual improvement in persistency ratio over the years. We remain focused on providing relevant and innovative solutions to our customers. Our persistency ratios have been stable with 13th-month persistency (individual) of 89 per cent. While we had anticipated some weakening in persistency due to the pandemic, our overall experience has been in line with our estimates at the start of the year. There has been heightened engagement with customers to communicate the benefits of continuing with their existing policies, especially in these uncertain times.