The life insurance market in India has recorded a consistent premium growth over the years, but insurance penetration is yet to reach the desired level. Quite in line, HDFC Life Insurance has shown a growth of 5 per cent year-on-year in its total annual premium equivalent in the nine months until December 2023 and has grown on other parameters as well. Its assets under management (AUM) went up 20 per cent, while it recorded a net profit of 16 per cent y-o-y, in the period. Even in terms of penetration, the company’s growth in Tier II and Tier II cities are positive. Vibha Padalkar, managing director and chief executive officer of HDFC Life Insurance shared the secret sauce for the growth in a conversation with Nidhi Sinha, editor, Outlook Money, talked about the challenges the insurance industry faces, and the road ahead in view of recent regulatory proposals. Edited excerpts:

While on one hand the insurance market is expanding in India, penetration is reducing. How do you explain this?

Penetration is usually expressed as a percentage of the gross domestic product (GDP), and so it depends on the GDP growth as well. If I were to look at it from a standalone basis, there is a large opportunity for life and health insurance penetration in India. The reasons are many: a larger population is coming into the lower middle class and middle class segments, people are living longer, aspirations are rising, and people are beginning to understand the value of life insurance. Also, India is among the top countries in terms of overall GDP, so there is percolation of the overall GDP at an individual level, which will also continue to rise.

I think that with the right regulation, the right level of product innovation, and rising affordability and awareness, India can reach an inflexion point in 5-10 years and move towards a point where by 2047 every Indian will have insurance.

Penetration went up during Covid, but now those memories seem to be fading. Along with that, will last year’s new tax norms for high-ticket policies and the new tax regime making the Section 80C benefit irrelevant, pose a challenge?

We saw an uptick in term insurance after the onset of Covid. But the need for term plans has not been lost, in terms of messaging, even now.

For most insurance companies, the term insurance portfolio is growing at a faster rate compared to the company’s overall growth. Term insurance is unlikely to grow more meteorically, but it can in some quarters, over the next 2-5 years. Also, as GDP per capita rises, we will see the need for term insurance rising. We are already seeing healthy rates—in terms of sum assured, HDFC Life grew upwards of 38 per cent in the first nine months of the current financial year.

In terms of taxation, a little sweetner via tax is seen even in developing countries, as a nudge. The withdrawal of the Section 80C benefit is not that significant because Section 80C is anyway overcrowded for the middle-class with other products. But many research reports show that while earlier tax benefit was one of the top three reasons for buying insurance, now it is seventh or eighth.

But the announcement in the last Budget concerning Section 10(10D), on the taxability of withdrawal at maturity, is quite significant.

You spoke about the growth numbers in term insurance at HDFC Life. The company has been doing well on other metrics too. What’s the secret?

We are happy that over the last four years, we have doubled every metric and our track record has been good. One of the reasons is product innovation. Before term insurance became a household name or was being talked about by insurance companies, we were right out there. Being a product innovator is something that we are known for.

Second is distribution. We have about 300 partners; we are working with traditional banks, building our own agency channel as well as getting new-age ecosystem partners. We also have an entirely end-to-end digital avatar, with seamless onboarding for the customer.

The combination of innovative product offering along with making inroads to reach out to the customer has been our secret sauce for growth.

When we talk about increasing penetration, term insurance comes to mind because of the aspect of protection. How can the uptake of term plans be increased?

It has its own challenges, and it will grow brick by brick.

Say, your employer has a group term cover (but then between jobs, you have no cover), the next step would be to extend that cover to, say, your in-laws, besides your parents. After that, you could cover credit, such as a home loan so that if there were to be a calamity, then you are not leaving liabilities as a legacy for your family. On that, Indians have started doing very well.

Those who believe that ‘nothing is going to happen to me’ and the company will just make money, there is the option of return of premium at the end of the policy term. Then, there are people like businessmen, who have visibility on income for, say, four years. They can choose for a limited premium payment plan for a cover with longer tenure.

We don’t want to say there’s only one way to sell term insurance. Any form that provides protection to an individual is good.

The regulator has proposed allowing life insurers to sell health insurance. What is happening to that?

It is part of the Draft Insurance Amendment Bill and is now in the Parliamentary Standing Committee Report. We are hopeful that it will see light of the day as the new government is formed. The nuances on how it will pan out will be worked thereafter, though.

I feel the main reason for doing this is customer interest. So, suppose I am the customer and I have an overseas mediclaim policy because I travel abroad, along with a standard mediclaim and life insurance from another company. In an unfortunate situation where I pass away abroad, the nominee will have to go through four or five different solutions as against one mother policy.

Also, penetration in health insurance is less than a percentage, while life insurance has a much higher penetration. So it makes sense both in terms of increasing penetration as well as giving customer a seamless experience.

As a life insurer, I can have many incarnations of product innovation. I can give a comprehensive policy where I am covering overseas medical, standalone, cancer and cardiac care, major surgeries, pension, guaranteed solutions and ultimately life insurance. There may be options to top up existing covers.

But will comprehensive policies also lead to increase in complexity of policies?

Today, we have policies that cover cancer, cardiac and so on, and provide long-term solutions, such as post-retirement guarantee along with life cover through riders or other solutions. In fact, about 40 per cent of our business is some sort of incarnation of these kind of solutions. The one missing piece is health indemnity, which we can add to our policies. I don’t think it’s a big paradigm shift but more in terms of a customer-centric product. I don’t see any complexity in this.

I think moving away from complexity for the customer is something that many of us are trying to solve. For instance, in terms of technology, UI/UX has to be simple and intuitive, and it should be solving a particular need.

The regulator has approved new guidelines on surrender charges, doing away with the proposal to increase surrender value. Your comments.

The approved guidelines have made it more customer-centric.

We must realise that there’s a lot of heavy lifting behind the scenes to construct a (traditional) product, because we are giving long-term guarantees on the back of lock-in with long-term bonds, hedging instruments, and others.

A traditional product structure cannot sustain its long-term proposition if a large number of customers start to surrender these in a short span—say there is an interest rate movement and people may be induced to surrender and move to another policy.

To give a guarantee like that you need a lot of capital requirement. So, the limited point we convey is let’s try and address it from every customer's perspective.

Let’s make it clear to the customer that after the first year there will be zero liquidity because this is a long-term guarantee product. Though, down the line, liquidity also emerges because you can borrow against a policy. A lot of other competing instruments don’t give this guarantee, but give liquidity, and they are meant for different objectives. So, if you want liquidity, buy those. These facts need to be communicated simply. That is exactly what the revised guidelines have incorporated now.

The latest product regulations require a customised benefits illustration which, among other things,  should also give the guaranteed and special surrender values, signed by the prospective policyholder and the distributor.

What is the idea behind individual risk profiling that the regulator recently spoke of?

Underwriting happens at a macro level. It means younger and healthier people are subsidising the old and those with compromised lives.

So, the question is can we make it more nuanced so that a younger and healthier person can get an attractive price and frictionless onboarding experience.

At the same time, we need to cover the other end of the spectrum, including people who are older, or cancer survivors or those at the bottom of the pyramid. That’s why nuanced underwriting will help us to look at the mortality experiences of different cohorts and expand insurance penetration. We do understand that underwriting is holding us back to some extent.

How would you engage with seniors given all this?

Right now, we are engaging with senior citizens from the perspective of which policy they need. However, they may be looking for other solutions, such as medicines, or equipment for the mobility impaired. They may be asking where I can get a nuanced equipment; where can I borrow a specialised wheelchair from for a limited period instead of spending `2 lakh to buy it; how do I find social networks in a new city so that I remain socially relevant.

It’s important to develop this ecosystem and that kernel of an idea finds a mention in the Draft Amendment Bill, which talks about insurance companies being allowed to invest in insurtech companies who are doing such interesting work. If we can invest in them, we can provide growth capital and then we will stop having a conversation only about a particular policy and we will start engaging with the senior citizen community which will expand the pie in terms of realisation of products to cover their risk.

We see this as a very big opportunity and a step in the right direction. With such partnerships I can provide the capital, the experience of underwriting and customers, and they can provide the idea, technology, and so on.

nidhi@outlookindia.com