HDFC Life has a cautious outlook at renewal premiums: Vibha Padalkar, MD & CEO

Vibha Padalkar, MD & CEO, HDFC LIFE, talks about the first-quarter results, growth prospects, distribution strategy amid COVID lockdown, inorganic growth opportunities and reason for the rise in insurance premiums for term policies among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: Your profit has increased by 8% in this quarter. What supported this growth when there is a decline in net premium income?

A: Indian GAAP profit is up by 6% and the overall the new business margins have done well due to: 

1. The product mix is very good – if you have a look then protection has more than doubled. Last year, protection stood around 5%, which has moved up now to 11%. So more than double in terms of protection share and the growth in protection have grown by 50%, which we typically see that post the pandemic people have realized that there is a need for insurance.
2. Our expense ratio has gone down from 13.4% to 11.5%. 
3. Our overall new business compared to the market has de-grown lesser due to which our market share has increased by 1% in the quarter. 

So putting all these together means we have been able to deliver a healthy bottom line. 

Q: The renewal premium has seen an increase of 24%. Can we say that the growth will continue in the segment, if yes, then can you say the kind of trend that is visible to you?

A: We have grown by 24%, which is a good percentage but we have a cautious outlook on it because COVID is still present and we are not sure about the shape of the recovery, .i.e. it is a W-shaped recovery or something else. Secondly, there are ups and downs in the number of COVID cases due to which people are worried. Cash conservation is very important for people at present but we are connecting with the policyholders and asking them to not stop the premium as insurance is of utmost need amid the pandemic. So, they should pay the premiums but we will watch this space carefully.

Q: APE and news business premium has seen a decline this quarter. How do you see the trend going forward?

A: On deconstruction of the first quarter we will get to know that the degrowth was about 28%-30% in April and May but the degrowth in June stood at just 3% compared to a growth of 87% in June last year. Thus against the 87% base, we de-grew by 3%. So things are getting better and if we have a look at the month-on-month trends then compared to April and May, things are picking up. However, I am not saying that we are back to the normal but directionally we are doing a lot better. 

Q: What has been your distribution strategy especially during the COVID lockdown?

A: Clearly, the process of buying insurance is moving online and if you will have a look at our contribution in terms of online contribution then in the first quarter of the last year it stood at 11% and this year it moved to 17% and this has happened because online hasn’t de-grown at all and has remained steady Vs what was the new business last year. It is also intuitive that if you are being not able to meet face-to-face then you will have to shift to online accepting that it is going to be as no one knows how long COVID will be there and when it will end. This is why people are slowly getting used to transacting online and our bank assurance partner’s hand the business on that part is also transacting through online mode. Thus, we are seeing a gradual shifting is happening. 

Q: You have said earlier that you are looking at inorganic growth opportunities. So, can you tell us about the kind of growth opportunities that is visible to you and your company would like to look forward to them? What is the nature of opportunities that you are looking at?

A: Our Chairman at our recently concluded AGM has said that the LIC is thinking about an IPO and that is a great evolution. Similarly, amongst the private sector, you will see that the top 10 private sector companies are contributing about 88% of the business. So bigger companies are getting bigger for various reasons and this consolidation is inevitable. We have a strong balance sheet at HDFC Life and have currency and have seen at least 4-5 different prospects in the past but it hasn’t worked out. So, we continue to look at it but two things are important (i) what is the quality of the back book and (ii) good distribution is required. If these two things are present in the prospect then we are always willing to look at the opportunities. 

Q: There are reports that term insurance premiums have seen a rise of 30%, and another 30% hike likely on the back of COVID pandemic. What is your view on it?

A: What has happened is a pure coincidence and has no relation with COVID. This occurred largely because reinsurers have re-priced. Re-pricing of all the life insurance companies has happened. For some companies, they have been affected more and some less. HDFC Life, fortunately, has been impacted less than our other companies in the private space. This is the main reason why the companies saw to pass it on. But if you have a look at before we raised our prices then the insurance rates in India were amongst the lowest in the world compared to some of the Scandinavian countries. So, it was not sustainable and now people have realized that there is a need for insurance and that’s why they are getting used to the fact that they might have to pay little more.

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We haven’t raised it a lot especially the low age-groups would hardly be impacted. So the people in age-group, especially below 45, should definitely look at buying insurance as rates are still very affordable. So, I would like to appeal to them to look at protecting themselves as well as their families.