SBI LIFE INSURANCE IS AIMING TO BE AN LIC ALTERNATIVE

Uday Sankar Roy took over as managing director & CEO at SBI Life Insurance Co. Ltd just two and half months back. After 34 years as a banker with the SBI,. Roy enters the life insurance market at an interesting time when behemoth Life Insurance Corporation (LIC, is actually increasing market share, while several other players are vying for a piece of the pie. The veteran banker, who has marked LIC as his only competition, told C Chitti Pantulu about the challenges and strategy to achieve his goals at SBI Life Insurance. Excerpts:What is your immediate task at SBI Life? The first task is definitely to make our relationship with SBI more intense. We have got substantial business through the SBI linkage, but we have to use the network more effectively and aggressively on a full time basis. The funny thing about life insurance is that everyone is doing business and making losses. Customer acquisition costs are higher in insurance than in banking and that is why we will have to leverage the existing SBI network more effectively. Significantly however it would be worth noting that we were the first private sector company to breakeven in the very first year. How does the Insurance industry look? The market is huge but there are 16 players in life insurance and more will jump into the fray. Four to five more companies are slated to set shop in the next two-three months. The important thing is how many will actually survive. Two to three years down the line there will definitely be a shakeout in the industry. What will it take to survive in this competitive market? Three basic ingredients are needed for survival in the life insurance market, wherewithal to penetrate the market, customers’ trust and selling skills. Starting from scratch is costly and it affects viability as there is a price you pay for reach in this vastly spread out market. And then, while gaining customer confidence or recognition at the least in metros is relatively easy the real challenge is in the tier 2 and 3 centres. Finally, selling insurance is a different ball game that everybody can’t do. Fortunately for SBI none of these are a concern. All we need to bother about is the competition which for us is just the LIC. So how do you plan to beat LIC? We have decided not to copy the LIC model of business to do it. LIC has a history of life insurance and 1.2 million agents country-wide. We are young and have just about 25,000 agents. When LIC started in the business, things were different and the agency model was the only one available. Today, there are many more channels for marketing insurance products. For instance we will use SBI’s Bancassurance more intensively. Now it is extensive. There will be more emphasis on reaching non-customers and leveraging the 14,300 plus State Bank group branches across the country. So we are actually looking at deploying a hybrid distribution channel that is innovatively designed and deployed. Our strength is in the tier 2 and 3 centres and we are working on plans to have this hybrid network in place within a year. What kind of market size and business volume are you targeting over the next few years? Currently SBI Life has a three-four percent of the Indian life market. Unless we get to a 15% plus size, we cannot challenge LIC. Moreover, LIC has got aggressive with the advent of competition and has actually increased its market share to 75%. But I must add that this is a period of experimentation, consolidation and growth for SBI Life. We are likely to close the previous year with a business volume of over Rs 3,000 crore. It is possible to multiply this figure ten fold over the next three to four years. The market has the potential for this and everything depends on how we play our cards. What we have to work on is the huge population beyond the metros which is by and large still untapped. As I said we should be a around the 15% level in three to four years and in a position to be considered a strong alternative to LIC and second in size in the country. Also, there isn’t place enough for too many companies to be making money in a spread out market like this and there is bound to a shakeout soon. However, we are not really looking at the inorganic route to increase our size even though there will be some rich pickings in the market. We have the strength to grow on our own steam.

Source: Daily News & Analysis, April 11, 2007

POLICY TRADING IS FINE, BUT REGULATE IT

A recent Bombay High Court ruling lets you sell a life insurance policy to anyone you want. Previously, it could only be to an entity that had some insurable interest in you — like a bank you took a loan from. For you, it’s a shot of liquidity, as you can sell a life insurance policy in case of an emergency, even get something more for lapsed policies than what insurers offer. For insurers, the development of a secondary market means servicing lapsed policies, translating into lower profits. Sam Ghosh, chief executive officer, Bajaj Allianz Life Insurance says the issue is not more payouts, but the absence of regulations that will prevent misrepresentation and fraud. In an interview to Deepti Bhaskaran, Ghosh talks about how policy trading is useful for policyholders and what needs to be done to make it safe. Even before the court ruling came in, there wasn’t any law that prohibited policy trading. So then, why did life insurers discourage it?It wasn’t insurers, but LIC (Life Insurance Corporation), which was the sole life insurer till a few years ago. LIC insisted on the presence of the principle of insurable interest policyholders could assign a policy only to entities that had an insurable interest in them. When a policyholder sells a policy, his rights in the policy get transferred to the buyer. So, if the policyholder dies, his death benefit goes to the buyer, instead of the beneficiary. Free trading goes against the principle of insurable interest, and that’s why LIC didn’t allow policy trading. The insurance regulator also agreed with LIC’s argument. So, when the life insurance sector was opened to private players, we took this as the norm. Of late, the number of lapsed policies has increased, and policyholders are the losers — they paid premiums for some part of the policy tenure, but they forfeited the entire gains due to them. Trading will help such policyholders get some money for their policies. Also, by giving liquidity during the tenure, it enables policyholders to review their reasons for buying the policy. Yes, it does. As a policyholder, when you can’t afford to pay premiums, you either accept the surrender value being offered by the insurer or the policy lapses. The policy has acquired some value. If the policy can be sold and a higher amount realised, it is good for you. Even the buyer can manage higher returns. We are not opposed to trading in life insurance policies. But we would like to see rules in place before it begins However, the problem with policy trading is that it could lead to moral hazards. Since the policy benefits get transferred to the buyer, the unscrupulous could buy a policy and then kill the seller to get the sum assured. Having said that, chances of such incidents are rare. The other problem for insurers is that, in the absence of an insurable interest, it is difficult for us to keep a track of the policy once it reaches the secondary market. When does it make sense for policyholders to sell their policy? Only in one case: if you are facing a severe cash crunch and can no longer service your policy. For you, trading is helpful, as it helps you get some value for your policy, and it is only fair that you do. If you took a policy that you now think is inappropriate for you, a secondary market offers an exit route. The flip side to this is that if this becomes the overriding principle, the secondary market will be all over the place. Take Ulips. With every fall in the market, policyholders will try to sell off their Ulips, and vice versa. Are you suggesting only some kinds of policies be traded?No. Since trading happens during hardships, there’s no reason why any policy shouldn’t be traded if it is not being serviced. More than the type of the policy, what is more important is the reason behind selling the policy. How important do you think will the intermediaries be who help people buy and sell policies? Once the secondary market picks up, we need a pricing mechanism that ensures fairness to both policyholders and buyers. Intermediaries will do the pricing. But how that pricing will be done, what conditions will enable selling, what will be the commissions of the intermediaries need to be decided. Right now, there is nothing in the regulations that can ensure fairness. Once the secondary market picks up, the regulator will introduce guidelines on selling. In developed countries, there’s an active secondary market in insurance policies. Some of those insurers are in India and they are opposed to introducing it here. Isn’t that double standards?That’s not true. Overseas markets are active, but there are guidelines in place for brokers and policyholders. Once guidelines are introduced for trading in India, the skepticism will go. But is the reservation only about guidelines? Or, is it also because insurers will now have to pay for policies they had thought had died?Well, this is a very small issue. Moreover, the way we look at business, it is profitable for us if premiums come to our books and a policy stays alive for its entire tenure. Any lapse is seen as bad. So, revival is really not an issue with us. The only problem is when it is traded carelessly. What about tax laws? Will the same tax laws apply to the secondary market as in the primary market?That still needs to be decided. A meeting of the Life Insurance Council shortly will touch on these issues.

Source: Express Money, April 10, 2007

WE HAVE JUST TAPPED 40% OF SBI NETWORK

SBI Life MD and CEO wants the company to be market leader in 3 years. Uday Sankar Roy, the new managing director and CEO of SBI Life Insurance Company, has set an ambitious target of making the subsidiary of State Bank of India (SBI) the largest player among new players within five years. In an interview to Business Standard, Roy sounded confident that the strength and reach of SBI will catapult SBI Life to the position of an undisputed leader after LIC. Roy has taken charge at SBI Life after serving at the parent bank for 36 years at various senior positions. Excerpts from the interview: How different is insurance from banking? Banking products are bought by customers whereas insurance products are sold to customers. To sell insurance, one has to reach out to people and convince them. This requires a high degree of selling skills. Also there has been a major shift in the way the young generation thinks about future planning. Youngsters today do not see themselves working till 60 years of age. So there is a need to convince young people to use insurance to meet their financial needs after their planned working life. Where do you see SBI Life say a few years from now? We want SBI Life to be the market leader (after Life Insurance Corporation) in the next three to five years. We want to be the undisputed leader among new life insurers, with the gap between SBI Life and other private sector life insurers large enough for us to be described as the “undisputed” leader just behind LIC. The aim is to take SBI Life to a position where SBI is. How will you achieve it? SBI is our strength. We have till now tapped only 40 per cent of the 14,000-strong branch network of SBI and its associate banks. Unlike competitors, we do not have to set up large number of offices as we can achieve the intended reach through SBI group’s network. As we move towards our goal of becoming the market leader, we would have tapped about 80 per cent of the branch network of SBI group. We will also be increasing the number of agents (from 15,000 now to 20,000 by next year), but our primary channel will remain SBI branches. SBI hasn’t done as well as it should have considering the fact that the SBI brand is synonymous with trust. Some other private players are doing well despite not having the backing of a strong institutional brand. Why? We have 3 to 4 per cent market share at present and you can say that we are going through a warming up period. We can’t follow the model of other life insurers as we already have SBI branches. An insurance company spends Rs 20 to 30 lakh on a branch besides additional management expenses. We have to train people at the bank. Since we follow the bancassurance model more diligently, our bank employee is a financial advisor-cum-insurance seller. Besides, protecting the SBI brand is also important. Is there any plan to create more brand awareness about SBI Life? We do have plans. We are talking to market research firms for getting to know the market perception of our company and also advertisement agencies for a brand campaign to get visibility at the mass level. In another six months time we should be finalising a campaign.

Source: Business Standard, April 8, 2007

GENERAL INSURERS MAY CUT SHARE OF TPA BUSINESS

With big names in the insurance industry buying equity interest in third party administrators (TPAs), general insurance companies are planning to withdraw their business from them. This could blow a Rs 500-700 crore hole in revenues of TPAs like Paramount, Family Health Plan and Medi Assist say experts. A third party administrator works on behalf of an insurance company to manage claims and customers. Sources said United India and National Insurance have sent out circulars to these TPAs informing them of their decision. Others like New India Assurance, Oriental Insurance and private players like ICICI Lombard and Iffco Tokio are also expected to follow suit. At present, TPAs earn over 75% of their business from the public sector companies, with the balance coming from private players. These TPAs are being viewed as competitors in health insurance space since their parent firms have active interests in same space, says a source close to the development. When contacted APV Reddy, CEO, Family Health Plan, declined to comment. These developments follow consolidation in the health insurance business. Last year, for instance, the Anil Ambani group acquired a major stake in Bangalore-based Medi Assist India to make it a captive TPA for its own health insurance business. Similarly, the Apollo group, which owns Family Health Plan is tying up with a Munich Re company DKV to set up a standalone health insurance company. Additionally, Munich Re owns a 26% stake in Paramount and the remaining 74% is likely to be sold to an Apollo group nominee. However, there may be an exception for Bangalore-based TTK Healthcare, now a part of Swiss Re. Says Girish Rao, managing director, TTK Healthcare, "We have been talking to the chairmen and heads of the insurance companies clarifying that neither TTK nor Swiss Re have any intentions to get into health insurance directly. Globally too, Swiss Re is a reinsurance company and has no direct health insurance business." While this is bad news for these three TPAs, it means more business for the remaining 23 TPAs in the country.

Source: Times of India, April 8, 2007