Vibha Padalkar: ‘Insurance should be bought for right reason’

‘We do not believe in fire sale. We don’t do it.’

Photograph: Kind courtesy HDFC Life/Instagram

Vibha Padalkar, managing director and chief executive officer, HDFC Life, will complete seven years at the company’s helm next month.

In a conversation with Aathira Varier and Subrata Panda/Business Standard in Mumbai, she says how the firm and the sector have navigated various regulatory and taxation changes and outlines HDFC Life’s growth plans and strategies to achieve them.

How do you look at the company’s performance amid regulatory and tax changes?

We had the big-ticket change in terms of tax, effective April 1, 2023. At that time, it looked like it would be an uphill task.

At HDFC Life, we started covering more and more customers.

Last year, two-thirds of our new business came from Tier-II and Tier-III towns, which was quite meaningful.

We have started seeing growth in Tier-I cities from this quarter onwards.

Growth is largely back and HDFC Life outgrew the sector. We grew 31 per cent but there was a favourable base effect. We grew 21 per cent on a two-year compound annual basis.

So, we are seeing more than healthy levels of growth. Also, in terms of profitability, persistency levels, and the solvency ratio, there are no red flags.

How does the company plan to double annualised premium equivalent (APE) and the value of new business (VNB)?

Growth will be multi-pronged. We will ring-fence our existing distribution mechanism — agency channel, HDFC Bank, and our current partners.

Their growth is what we will piggyback on in terms of selling insurance to their customers.

Additionally, we will continue to win new distribution relationships like we have done even in the past 12 months.

The third part is in terms of using technology … whether it is in credit life, upselling, the pre-approved sum assured, or reducing the time taken to convert our policies.

We are undergoing a major tech transformation through Project Inspire.

We want to become the first insurer of choice that any partner wants to tie up with or any customer wants to buy from.

These are largely the three buckets that will lead to the doubling of APE.

It will roughly translate into 17-18 per cent growth every year.

Are you seeing fire sale policies because of the impending implementation of surrender value norms?

We do not believe in fire sale. We don’t do it because insurance should be bought for the right reason, not because some fire sale is happening.

Also, we don’t believe the internal rate of return (IRR) will change. IRRs will go up or down, depending on the interest rate.

Whether these surrender regulations are going to come or not, we would have done it in the normal course. So we are not expecting any uptick.

How do you plan to roll out all your products on time?

There is no refiling that is required. We have to internally certify the products.

What is changing is the amount of money we are going to return to the customer at the end of first year, second year, etc.

We believe the revised surrender value norms should become effective from October 1.

Customers are expecting to get customer-friendly products and I think the more we defer it, the more confusion it causes in people’s mind.

So it is better if it is rolled out from October 1. Yes, we have many products. We will pick and choose which products are the most meaningful for us and the customer.

We will be selective in what we want to roll out first and have started the process.

In six months we should have all the products rolled out.

How is your product mix going to change?

In Q1, the share of unit-linked products (ULIPs) was 38 per cent. Par and non-par had the largest share.

Term products were 6 per cent and annuities were similar. We will bring down the share of ULIPs.

It has come down quite meaningfully and in Q2 we will be back into a zone that is reasonably comfortable for us despite where the markets are.

The ideal ULIP mix for us would be 30-32 per cent.

How do you look at the premium revision most players did recently?

We do dynamic pricing when we see stress on a portfolio either due to mortality experience, persistency experience, and interest rate experience.

So for us it’s a non-issue. Despite us not being the cheapest, our persistency is the highest.

So those who buy our products don’t surrender our product.

How is your distribution strategy shaping up?

Our agency channel will grow faster than company-level growth. Our standalone agency is one-fifth of the business, and this would become one-fourth of our business.

Our overall proprietary channel should be one-third of our business.

How is the insurance industry placed with households looking increasingly towards alternative avenues of investment?

About 50 per cent of household savings goes to the financial sector.

Of the 50 per cent, 17-18 per cent is coming to the insurance sector over the last many years despite the tax changes that have been brought in.

If not for the tax changes, the share of household savings coming to insurance would have gone up.

You are raising Rs 2,000 crore sub debt.

It is mainly for solvency. Also, we are underwriting more and more term products. Our sum assured has gone up by 48 per cent and all of that needs reserving.

So, it’s purely for new business growth.

What is your vision for the company?

The doubling of APE and VNB is an important target. It would be a significant achievement if term products make up 10 per cent of our portfolio by the time I retire.

When I joined the company, they accounted for just 1 per cent.

Feature Presentation: Aslam Hunani/Rediff.com