The company has cut down its losses to Rs. 99 crore from Rs. 275 crore and aims to increase premium collection by 15- 20 percent in the current fiscal, Vibha Padalkar, CFO, HDFC Standard Life Insurance tells Pallabika Ganguly
On what bases are you projecting to break even this year?
We are looking at increasing the top-line by 15-20 percent without any increase in costs. That means that we would sell 15-20 percent more, keeping the cost same. We will keep a close tab on all the expenditure to increase our productivity as people will have to sell that much more.
By what percent did you cut down on operational expenses? Going ahead what steps do you plan to take to reduce your expenses?
In 2010-2011, our expenditure ratio came down to 16 percent from 19.7 percent last fiscal. So, our expenditure ratio has gone down and our overall revenue has grown by 29 percent. So, we have rationalized our cost on every head.
Our branches have gone down from about 560 to 495. So, we have been tightening up and questioning every rupee that we spend with respect to the returns we get.
The sharp fall in commissions of distributors has led to a drop in sale of policies. How do you plan to overcome it?
We were not affected in a big way with the fall in commissions of distributors. Our average commissions have gone down to 5.3 percent from around 7.6 percent in FY08-09. But, in our top selling products in the retail sector, our commission has gone down from 7-9 percent to 5-6 percent.
Earlier you could recover a lot more so you could pay a lot more. And as your recovery has come down so what you can pay has also come down. Now, on a ten-year policy you can only recover three percent. Previously there was no such cap because you could recover as much as you could and pass it onto the policy holder.
Are there any changes in your marketing or distribution strategy this year?
We have some strategic changes though we will continue with many of our initiatives. Our focus is on growing new channels, strengthening our retail channel and looking at customer service.
How did you perform in the last financial year?
We have grown by 18 percent, whereas the market has shrunk by 20 percent in the individual space. During the second half of the year, post-regulatory changes we grew by a couple of percentage points while the market followed a negative trend and reduced by about 40 percent. So, we have been able to outperform the market in the second half.
Among the things that worked well for us was bancassurance. As the regulations did not affect banks so much, they didn’t have to curtail their branches. In fact, they are in an expansion mode.
Similarly, new channels have started doing well. For example, direct channel has been doing very well. Although in the whole scheme of things, it is a very small part but we believe it holds a lot of potential. During 2008-2009, it generated Rs. 40 crore of business and in the last fiscal it has generated business of Rs.80 crore.
We are also concentrating on our distributors because in our distribution pattern the 20-80 rule holds good. Twenty percent of our distributors produce eighty percent of our business. We have been very successful in attracting the high performing million dollar round table members (MDRT) to come and work with us.
What do you do for those twenty percent distributors?
We try to design incentives that suit them. We ensure that the whole process of sale is seamless. There are many such small things that we take care of and which help us to retain the high performing distributors.
The company plans to infuse Rs. 120 crore this year. By when do you plan to do it? How do you plan to utilize this capital?
This capital will be solely for funding new business. In insurance business, the more we sell the more we incur cost which puts a strain on capital. This would help in funding the capital strain for new business. For example when we sell a policy, we have to pay our agents and the sales team. This money is not recovered in the first year; it is recovered in five years. This money is shelled out by the share holders and then over a period of time we keep on repaying our shareholders. This is how capital strain is met.
After the regulatory changes, what are the new products that you plan to launch?
We have launched a NAV guarantee product which we did not offer earlier. In this product, the policy holder is guaranteed the highest NAV over a seven year period or Rs.15 whichever is higher.
Many life insurance companies want to get listed. But the rules are still not clear. What is the HFDC Standard Life Insurance plan on getting listed?
We need to look at a few things before getting listed. For one, the new regulations have affected our numbers adversely; those numbers need to start moving up and show better results. That itself could take almost four quarters. So, we don’t see an IPO happening before the end of this financial year. Also, the margins have been affected significantly. Our margins were 28 percent in the first half of the financial year and now they have gone down to 19 percent for the full year FY10-11.
HDFC has been around for ten years. What were the biggest challenges and achievements?
One of the big achievements has been to build a trust worthy brand. Creating trust is very important in life insurance. We have also been successful in propagating the idea of need based selling. We have been commended on our underwriting practices. We have also won several awards in brand space.
