The new tax regime has given insurance policies an edge over equity mutual funds. People planning for long-term goals will find them lucrative as there will be no long-term capital gain (LTCG) tax on their proceeds. But that is just one part of the story. In a freewheeling chat, Pankaj Razdan, MD and CEO of Aditya Birla Sun Life Insurance (ABSLI), and Deputy Chief Executive of Aditya Birla Capital, tells Teena Jain Kaushal what other factors will shape the life insurance industry in CY2018.
Q: The life insurance industry saw more than 25 per cent growth in 2017, largely fuelled by ULIP sales in a buoyant stock market. What is your take on it?
A: The growth was certainly a positive outcome, but ULIPs (unit-linked insurance policies that are tax-free) were not the sole trigger. It was a result of several socio-economic factors, which slowly but steadily charted out the growth path. Over the years, there has been increased awareness about protecting one's life, dreams and goals, and the financial instruments that can help. People are now willing to purchase life insurance solutions for holistic financial protection and don't consider them as mere investments. It is a social change, a change in the mindset of the masses.
Demonetisation helped as well. There was surplus liquidity in the system, more deposits took place and investments also increased. Of course, ULIPs riding a bull market added to the growth. But businesses like us thrived on a balanced product mix. Guaranteed products, protection solutions and traditional participating products have all contributed significantly to ABSLI's first year's premium.
Q: What about growth in 2018?
A: With interest rates falling and people looking for wealth conservation, guaranteed life insurance solutions will gain prominence. ULIPs, too, will retain the momentum owing to a bullish stock market and the new tax regime. Also, several over-the-counter solutions will be offered to enable hassle-free, on-the-go purchase, thus increasing penetration.
On the distribution front, the industry will leverage the open architecture model with more banks selling insurance solutions for more than one companies. It means there will be more and better options for customers while the distribution network will grow. The year 2018 will also witness the emergence of unique distribution models such as the India Post Payments Bank getting into insurance selling. These channels, along with the traditional agency, bancassurance and digital interfaces, will ensure better distribution and product penetration. The sector will see further transformation through innovation and digitisation. The growing use of the Internet will increase seamless access, fuelling demand for insurance products. All these factors will collectively lead the industry on the growth path.
Q: How will people benefit from investing in insurance policies now that LTCG is imposed on returns on equities? Will it apply to ULIPs?
A: LTCG will not be levied on ULIPs. So, for people looking at long-term savings/investments, ULIPs and other life insurance plans offering returns will be beneficial options under the new tax regime.
Q: Quite a few life insurers got listed in 2017. What do you think about their current valuation?
A: It is heartening to see that markets are optimistically valuing insurance companies. Their potentials are high due to a good growth trajectory and good margins, which will result in better profits. It is a positive for the entire industry.
Q: Has your company achieved break-even? When do you plan to get listed?
A: The company is already making profits. ABSLI is part of Aditya Birla Capital and its holding company is listed. As of now, we have no plan to list separately.
Q: What will be the benefits of linking Aadhaar with life insurance policy?
A: Linking Aadhaar to insurance policies is a great move and will benefit both insurers and policyholders. To start with, it will reduce the verification cost and provide better transparency, wiping out fakes and duplications while adding another layer of security. It will also simplify the onboarding process for a policyholder and provide accurate data for mass benefit programmes. It will be especially useful for senior citizens. Now people will not find documentation cumbersome and time-consuming. Pensioners and other claimants only need to register their Aadhaar numbers, and there will be quick verifications, and faster and timely pension payouts and claim settlements.
Q: What are the key concerns of the industry?
A: The biggest concern will always be people's lack of awareness regarding the importance of life insurance solutions. High level of operating expenses and customer retention are other key challenges. But things are steadily getting better with improved persistency ratios.
Q: What tech innovations should we expect?
A: Technology and innovation are going to disrupt this business. From understanding a product to buying it, executing a transaction, opting for a service or information - every touch point of a customer's lifecycle will see some tech intervention that will make his/her life simpler. Artificial intelligence will be integrated with the digitisation process to influence decisions, reduce mis-selling, increase transparency and enhance the ease of doing business.