Business Today

Clash of the titans

ICICI Prudential and Bajaj Allianz are the two largest private life insurers in India and both are expanding furiously. The former leads on some parameters and the latter on some others. For now, the race is too close to call.

By Anand Adhikari | Print Edition: October 21, 2007

Citic Prudential Life Insurance Company, headquartered in Guangzhou district of China, clocked a gross premium of RNB 1.61 billion (Rs 805 crore) in 2006. Launched in 2000, CITIC Prudential, a joint venture between China’s CITIC and Prudential UK, now ranks third among the two dozen foreign insurers in the Chinese mainland. In Shanghai’s Puming Road, the fourth-largest foreign insurer, Allianz China Life Insurance Co., ran neck and neck, with gross premium income of RNB 1.20 billion (Rs 600 crore).

In the first five months of 2007, however, Allianz China has displaced CITIC Prudential from the third slot by recording gross premiums of RNB 1.02 billion or Rs 510 crore (CITIC Prudential managed RNB 0.72 billion or Rs 360 crore) and is sending jitters down the spine of #2 Generali China Life, by equalling its premium income.

Sam Ghosh, Regional CEO (Middle East and India) Allianz AG
Sam Ghosh

China is not the only emerging market where Germany’s m1 trillion (Rs 56 lakh crore) Allianz and the UK’s $500 billion (Rs 20 lakh crore) Prudential are slugging it out. That story is being repeated in India where the Bajaj Allianz Life Insurance Company, a partnership between the German insurance giant and two-wheeler biggie Bajaj Auto, is breathing down the neck of market leader ICICI Prudential Life Insurance Company, a JV between India’s largest private sector bank and Prudential. And these two, clearly, are the markets of the future. India and China have an insurance penetration of 3 per cent and 1.8 per cent, respectively, of GDP compared to the UK (8.9 per cent), Japan (8.3 per cent) and South Korea (7.3 per cent). And with both the Asian economies growing at over 9 per cent annually, the business opportunities are huge.

Two-horse Race

In India, ICICI Prudential, better known in the market as ICICI Pru, is clearly the largest insurer, with assets under management (AUM) of Rs 15,800 crore, but Bajaj Allianz, which manages about half that amount, has stolen a march over its bigger rival by declaring a net profit of Rs 66 crore in 2006-07. ICICI Pru, which incurred a net loss of Rs 648 crore in 2006-07, expects to break even by 2009-10 as it focusses on “capturing the explosive growth in the industry rather than being worried about bottom lines”.

Bajaj Allianz, incidentally, is the second new generation Indian insurer, after SBI Life—which reported a symbolic net profit of Rs 2.2 crore in 2005-06—to come out of red. “Our goal is to be profitable and, at the same time, maintain our position among the top three private sector life insurance players,” says Sam Ghosh, the new Regional CEO of Allianz Middle East and India, who almost single handedly scripted Bajaj Allianz’s success and took it from the #5 position to its current numero dos slot in three and a half years. Potential rivals HDFC Standard Life Insurance, SBI Life Insurance and Birla Sun Life Insurance, are way behind on all parameters (see Carving up the Pie).

Shikha Sharma, CEO, ICICI Prudential Life
Shikha Sharma

But from here on, it may have a real fight on its hands. ICICI Pru, which declined to participate in this story, is aiming very high. Its CEO Shikha Sharma is pushing hard for growth, and K.V. Kamath, Managing Director and CEO, ICICI Bank, the parent company of ICICI Pru, recently told Business Today: “I want ICICI Pru to now set its eyes on the top slot (in the life insurance sector).” Kamath was clearly hinting at the 800 pound gorilla in this space, the public sector Life Insurance Corporation (LIC).

It has already built up a formidable track record. For six years now, ICICI Prudential has maintained its leadership among private sector insurers. But the rapid strides made by Bajaj Allianz over the last three years, and its firstever profit, makes this fight interesting. Also, the life insurance business requires frequent infusions of capital (in the form of equity) for solvency margins. Today, ICICI Pru is the most-capitalised insurance company in the country, and cannot go on adding equity capital. How it sorts this problem out will be watched carefully in the industry.

New Products

Meanwhile, what has allowed Bajaj Allianz to power along is its low-cost distribution network comprising satellite offices (now being replicated by its rivals) and the launch, in early 2004, of actuarial-based products, like Bajaj Capital Unit Gain (where expenses are distributed over the life of the product unlike other products where 30-40 per cent of the first year’s premium is written off as expenses). But the Insurance Regulatory and Development Authority, the sector’s regulator, recently banned actuarial-based products, reportedly under pressure from some of its rivals, because of their complex nature and opacity. But Bajaj Allianz, which mobilised a bulk of new premiums under this head, is now readying to launch three new ULIP products, which are awaiting IRDA’S approval. “We will now aggressively sell regular premium policies that will further improve our profitability,” says Sam Ghosh. “We can roll out the products fast as we have a wide distribution network,” adds Malay Ghosh, Head (Sales), Bajaj Allianz. Ditto for ICICI Pru where unit-linked products (as against traditional endowment products) bring in a majority of its premium.

Different Strategies

ICICI Pru, which enjoys a strong brand recall, thanks to the clout of its Indian promoter, had initially focussed on the metros and large cities, while Bajaj Allianz spent the initial years on building its brand and setting up a low-cost distribution network comprising branch and satellite offices. “Till December 2003, we focussed on traditional endowment life products,” says Malay Ghosh. In 2002-03, Bajaj Allianz was ranked #7 among the 14 players battling it out in the then recently liberalised life insurance market.

On the other hand, ICICI Pru, one of the first players to commence operations in December 2000, has been on the fast track almost from Day 1, and by end-2003, had already sold 300,000 policies and mobilised new business premiums in excess of Rs 750 crorein 2003-04.

The distribution strategy of ICICI Pru was a combination of alternate channels like bancassurance and branches in Tier-I cities. When Sam Ghosh took over in January 2004 as the Country Head and CEO of Bajaj Allianz, he turned the focus from traditional endowment plans to ULIPs. He also came out with an innovative distribution plan, called the Banyan Tree Distribution Model, wherein branch offices set up small “sibling” satellites, which are turned into full-fledged branches when they grow to a certain size and so on. This approach helped Bajaj Allianz grow from about 30 branches in a dozen towns and cities in early 2004 to 870 offices in 800 towns in India. This exponential growth in its network is what has allowed Bajaj to also grow its revenues. A year later, Bajaj Allianz rose to #3 position from #5, and in 2005-06, it displaced Birla Sun Life from the second slot to emerge as the new force to reckon with. “We have managed to build a strong insurance brand in the market,” says Sashi Krishnan, Chief Investment Officer, Bajaj Allianz.

The success of Bajaj Allianz’s distribution strategy is now forcing its rivals, and even its German parent, to follow suit. “Our model is being replicated by Allianz in other emerging markets,” says Ghosh.

Bajaj Allianz’s CEO Kamesh Goyal: The new man at the helm
Bajaj Allianz’s CEO Kamesh Goyal

In fact, distribution is one area where ICICI Pru has made major strides recently. Till March 2006, it had only 177 branches in 132 locations, manned by 7,700 employees and 72,000 advisors (insurance agents). Today, just a year later, it has 583 branches in 421 locations manned by 16,000 employees and 234,000 advisors. The aggressive expansion of its distribution reach pushed up sales, but also swelled the losses to Rs 648 crore in 2006-07.

Clearly, ICICI Prudential doesn’t want to sacrifice growth and may pump in more capital (as it has done more than a dozen times over the past six years, pushing its capital base from Rs 150 crore in 2000-01 to Rs 2,372 crore in July 2007) to scale up its pensions and health businesses. But in a blow to its plans, the Reserve Bank of India has put on hold its plan of setting up a separate holding company for three of the bank’s subsidiaries—in life insurance, general insurance and asset management, valued at almost Rs 45,000 crore—for raising capital (equity and debt) independently from the market without affecting the bank’s balance sheet. The idea behind this was to fund the insurance venture by combining the profitable general insurance and asset management business. The RBI’S objections were lack of regulation for intermediate holding company and possibility of excessive debt funding. If the proposal doesn’t go through, ICICI Bank will have no option but to fund the life venture from its own balance sheet.

If the ban of actuarial-based products came as bad news for Bajaj Allianz, then this is a major setback suffered by ICICI Pru. But neither appears fazed. “We’re not scaling down our targets because of the discontinuance of products,” says Rajesh Viswanathan, CFO of Bajaj Allianz. ICICI Pru, too, is not about to slow down anytime soon.

So, can Bajaj Allianz do a CITIC on its larger rival; and can ICICI Pru fend off this challenge and overtake LIC, as Kamath has threatened? The battle has been joined. And whatever the outcome, the winner, undoubtedly, will be the consumer.

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