Business insurance

“Acquiring Exide Life will help us grow our business in Tier II and Tier III cities”

“Even today, our protection prices are well below those in markets with longer life expectancies,” the CFO said.

HDFC Life Insurance hopes to obtain various regulatory approvals for its merger with Exide Life Insurance during this calendar year, said CFO Niraj Shah. In an interview with Mithun Dasgupta, Shah said, through this acquisition, the insurer aims to expand its business in Tier II and III cities, mainly in South and East India. In addition, the good quality of Exide Life’s business will add to the intrinsic value of HDFC Life. Edited excerpts:

For HDFC Life Insurance, new business premiums for February and through February this year were up 9.5% and 22.5% year-over-year, respectively. What are the reasons for these healthy growth rates?

At HDFC Life, on a two-year CAGR basis, we saw 14% growth compared to 4% growth for the industry. We have grown around 17% on an annual basis (YTD) in line with the industry. Our VNB (value of new business) margin continues to increase and VNB growth for 9MFY22 was 26%. This performance is based on a diversified and balanced business model, product and process innovation and a strong focus on risk management.

We see the opportunity in life insurance in three segments: long-term savings, protection and retirement. Regular product innovation across all categories has enabled us to build a balanced long-term savings portfolio. Our protection journey began earlier than the industry as a whole – both in personal and collective protection. In the retirement segment, a few years ago we introduced a deferred annuity product, which expanded the annuity market and more recently, we introduced the systematic retirement plan, a product that allows regular savings for retirement and then to have a regular income after retirement. Today, we are among the biggest players in the retirement space.

We continue to expand our distribution. We have a multi-channel distribution in terms of agency, bancassurance, online, direct and brokers. We had new banking partners in the recent past such as Yes Bank, Bandhan Bank, South Indian Bank. We have partnerships with groups such as ICICI Securities, SBI Capital Markets and Bajaj Finance. Through the acquisition of Exide Life, we aim to expand our business in Tie-II and -III cities, primarily in South and East India.

What is the outlook for March? Do you see new business bonuses increasing month over month for the company?

As more people get vaccinated and immunity levels increase over time, we seem to be better prepared to deal with the pandemic as a nation. Although we remain vigilant, the adverse mortality experience has certainly diminished and normalized. We hope that the current growth momentum will also continue.

What is the current business mix from the agency channel versus the bancassurance channel?

We are diversifying our distribution through bancassurance and even within own-account distribution such as agency, direct and online sales. Our agency channel accounts for approximately 13% of our individual business. Exide Life’s agency business would add about 4% to that number once the merger is complete. Bancassurance accounts for around 60% of our individual business. Five years ago, our bancassurance channel contributed about 70% of our individual business. As the business continues to grow well, our proprietary and other enterprise channels are growing and now contribute approximately 40% of our business. Our aspiration would be to see our branch network contributing 20 to 25% of the business over the next five years. Likewise, our direct business is also growing. The strength of the agent is greater than 1 10,000 for HDFC Life. For Exide Life, it’s just over 35,000. The agent’s combined strength is said to be the third highest in the industry.

Given that the acquisition of Exide Life Insurance has already been completed, when is the merger process expected to be completed? How will this acquisition drive growth?

We are optimistic that we will be able to obtain approvals for the merger during this calendar year. This is what we are working towards with various regulatory authorities. There was a clear rationale for this combination from our perspective. First, good quality business (from Exide Life), which adds to our intrinsic value. Second, a strong agency business, which complements our business and aligns with our strategy to improve agency contribution. Thirdly, their strong geographic presence in Tier II and III cities in South and East India complements our geographic presence and strategy.

Have you increased the premiums for term insurance plans? And, what is the current plan on the premium?

We increased our prices by 15-25% in January. We believe this would be consistent with the underlying experience. If you look at how prices have moved over the last six to eight years, that’s largely in line with inflation. Even today, our protection prices are much lower compared to markets with longer life expectancies.