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Capital requirements for insurance companies may go up significantly as a result of the new regulations for unit-linked insurance products (ULIPs).
Unless insurers can write book of business that is really long-term, profitability might get depressed, Mr Kshitij Jain, Managing Director and CEO, ING Vysya Life Insurance Co, told Business Line.
How has the past year been for ING Vysya Life Insurance?
The past year, the entire industry for new business premium was a challenge; the overall market for the private sector slowed down because most organisations did not make significant investments in distribution. Having said that, the market has responded very well to the challenge since most companies, including us, have concentrated on building efficiencies. We have been able to make a significant reduction in the losses incurred in the year before that. In fact, we made a reduction of close to Rs 60 crore in the losses incurred in 2008-09, as against 2009-10. So it was a phase when the industry responded very well to the dynamics of the market and we have come out much stronger.How is this year in terms of new business?
Looking at the first couple of months this year, the market seems to be turning around. In fact, in June our business has grown 20 per cent over last year. I see no reason why we shouldn't be able to increase our gain, going forward. The objective for this year as an organisation is to grow new business premium by upwards of 30 per cent; in total premium income we expect to grow upwards of 20 per cent. Overall, I am expecting a far more positive year, and the first three months are pointing in the right direction.
What is your current market-share? How much do you plan to increase it to, say, in the next five years?
We look at the individual business, because the group business is not something we participate in. In the individual business, our organisation's market-share is 1 per cent of the total industry, and we are expecting to increase it significantly in the next five years. If we are able to increase our business five times, which is our objective, certainly we are looking at a market share which could be triple this number if the industry grows at the expected 12-15 per cent.What is the target for new premium?
Our new premium last year was roughly Rs 640 crore; we expect it to grow upwards of Rs 3,000 crore in the next five years.What are your expansion plans in terms of branches and agents?
The entire focus of the organisation is going to be towards building a qualitatively superior organisation. We are not looking at doing a land grab by recruiting millions of people, but the agency force will increase. We are currently at about 50,000 people, and it would increase. I am not setting an objective for the organisation that we should go from 50,000 to one lakh, because that's not the stated approach. But we must have a relatively fewer number of people recruited, who stay long term with the company and serve customers effectively.
What are the challenges before you?
The biggest challenge we face is that the market, clearly, is intensely competitive; so, to gain any market share is always a big struggle. Two, organisations need to learn to be efficient; so, we need to make sure that we are careful with the costs we are incurring, especially when we are expanding distribution. Three, the largest challenge for any company, that is long term, is to be writing qualitatively superior business, and you need to make sure the business that you write stays in your books. Those would be the three big challenges for the industry.
What is your mix of traditional and unit-linked products? How has your traditional business performed?
As an organisation, we have believed in maintaining a good balance between traditional business and unit-linked business. We would be one of the few companies that have been able to achieve this. In the last fiscal, we had 50 per cent of business from traditional products. Interestingly, in April-June 65 per cent of our business has come from traditional products. I have always believed that we are in a long-term protection and savings business, and very often traditional products tend to lend themselves much better to that philosophy rather than what a short-term investment-oriented horizon with some unit-linked products had exhibited in the past.
How has your strategy to focus more on traditional products helped during the ULIP controversy? What has been the impact of the ULIP controversy on your company?
Our philosophy has paid off a lot, because traditional sales tend to lend themselves towards long-term value creation for all stakeholders - customers and life insurance company, and there are relatively fewer surprises in the traditional business. The ULIP controversy, touch wood, is now over and I hope it will not rear its head again. In this entire phase of uncertainty, our organisation was relatively insulated because our dependence on unit-linked products was relatively lower. The feedback from the field is that we had a large number of customers who were concerned about their investments. The regulator made sure that they were able to come out with statements that buying unit-linked products was not unsafe.
What is the way forward in light of the new guidelines for unit-linked products?
Three-fold impact: The customer is going to come out on top because the regulations are very customer-friendly and I think customers will get a better deal than in the past. For distributors, there is every possibility that distributor margin will get depressed, so, perhaps, the distributor community could not completely benefit from these new regulations.
As far as the organisations are concerned, we are yet to completely analyse the impact. But I would expect that capital requirements may go up significantly. And unless you are able to write book of business which is really long-term, then profitability might get depressed as well.
From our organisation's perspective, we welcome these regulations as the spirit of the regulations is longer-term contracts offering more protection and guarantees to customers, which is the philosophy of our organisation as well. In exact execution and implementation there might some hiccups, but we truly respect the overall spirit of the regulations and support completely.
Source : http://www.blonnet.com/
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