Kotak Mahindra Life Insurance Company (Kotak Life) was founded in 2001 as a 74:26 joint venture between Kotak Mahindra Group and Old Mutual. The bank acquired Old Mutual’s 26 per cent stake in October 2017, making the insurance entity a 100 per cent subsidiary of Kotak Mahindra Bank. The acquisition further cemented massive growth expectations from the life insurance business. G Murlidhar, Kotak Life’s Managing Director, throws light on the performance of the company and the life insurance industry in an interview with Free Press Journal’s S Narayanan.
Your FY17-18 financial numbers would please stakeholders of your company. How did this come about?
We have had a good period during the last five years. Post-Lehman and the new product rules, we have invested a lot in building our distribution channel including the agency distribution. We also did pretty well in our group business, which we have been investing in over a period of time. The growth of Kotak Mahindra Bank, which is our holding company, and acquisition of ING by the bank, added more muscle to our distribution.
We focused on selling the right kind of products, on quality of sales and on persistency. As our quality of distribution improved, so did persistency. At the same time, complaints and surrenders decreased. Also, we got the right kind of people and galvanised our team to a common goal. It is important to get the people who understand that insurance is a long-term product and has to be sold in right. It is like running a marathon. It is not a 100-metre sprint. All these factors along with a lot of focus on execution have helped us put up a sustained performance.
What is your distributor mix?
Our distributor mix is 50:50. We are an extremely balanced company. Our individual and group businesses are more or less 50:50. Approximately, our individual business is 50 per cent agency and 50 per cent bancassurance. We try to keep everything balanced by design. Even our product mix is balanced. It is about 33:33:33 – participating 33 per cent, non-participating 33 per cent, and unit-linked 33 per cent. Our bancassurance channel is predominately through Kotak Mahindra Bank. We also have the South Indian Bank, Suryoday Bank and a few co-operative banks as our partners.
Equity, debt, forex markets are facing volatile times. How would the customers be affected?
Insurance is a long-term product and we give guarantees. All our products have sum assured; which is guaranteed. It is all the more important that people should look at our products in the current scenario. If there is more uncertainty, there should be more insurance. What would happen to a customer, if he has invested everything in equity and the market tanks at the time of his retirement? It happened during the Lehman crisis.
Insurance does not get affected by all these. All insurance companies are adequately capitalized. Then, there are investment regulations – where we invest is regulated. Insurance companies have good risk management processes. Of course, ULIPs come with market risks. But ULIPs are meant for people who understand markets, who understand risks. These are very good products, if you invest for the long-term. These are like natural systematic investment plans. Our calculations show that over a long period of time, ULIP charges are much lower. It also brings in discipline in investment. And investing is always about discipline.
Private general insurance companies occupy about 60 per cent market share at present. But private life insurance companies have been able to garner about 30 per cent, with LIC continuing to hold about 70 per cent (in terms of first year premium for FY18-19 up to August 2018; source: IRDAI website). What could be the reasons for this relative underperformance of private life insurers?
Well, this is very difficult for me to answer. But I can hazard a guess. LIC has a solid agency, they call it tied agency; they have built this force over a period of time. In general insurance, my impression is that it is more open distribution. There is very little captive agency. Since it is an open distribution, private sector players have been able to get a bigger share. Of course, they have been far more nimble footed.
What is the role of technology in life insurance industry?
Technology will have a significant role to play as we go forward. It will help in improving the process of selling and experience to customer. Insurance products can be very complex. Using technology tools, customers can be provided all information on products, etc; and this can be constantly updated. The customer experience can be substantially improved – cumbersome process of filling the form, getting it approved – all that can be made much smoother.
As a result, the distributor’s efficiency can increase. Distributors can be well equipped to deal with customer queries, servicing the customer, selling the right way. At the same time, companies’ efficiencies can also increase substantially – because of handling less paper, fast, straight through processing, information being easily available. It actually helps us reach every corner of the country – you can launch a product across the country sitting right here! Technology also plays a vital role in customer analytics, information sharing, risk management. It is a win-win solution for all.
Use of technology is driving costs lower for insurers. How will customers get the benefit of lower costs?
Participating products have a 90:10 sharing ratio. Naturally the benefit will go to the customer. Term insurance rates will come down as we get more and more efficient. In other non-participating products, specific benefits are specifically spelt out at the time of purchase. So the customer knows what he is going to get. In the case of ULIPs, what you charge the customer is spelt out very clearly – allocation charge, risk charge, etc. and the rest of the amount is invested. Hence, the product pricing could have an impact. I think efficiencies will get passed on and newer generation of policyholders may get better rates. .
The Lehman crisis, new product rules helped push insurance business to this level. What can take it to the next level?
One, the country’s growth. In general, when people prosper, then there is something for them to insure. They are prepared to borrow. Normally insurance also grows with it. Two, shift in savings from physical assets to financial savings. Third, increasing awareness. In particular, the government, through its projects and programmes is helping build awareness of insurance. All should help. We still are a long way from the world average on insurance penetration and density. There is a lot of scope to catch up. I do not see any problem in the next few years. It is not going to be steady. This year may be slower. But I think long-term trend will be steady growth.
What can come in the way of future growth of the industry?
Upheaval in markets, fall in people’s confidence, lesser availability of disposable income, and collapse of institutions – I do not think this will happen – these could come in the way of growth. Other instruments giving superior returns could also come in the way. Though insurance products are not investment products, they are meant to be bought for savings targets. How much do I target to save – is the primary focus of insurance. But market turmoil will always have an impact on a financial service player.