Overall insurance pie has not expanded as expected: HDFC Life MD and CEO Vibha Padalkar

HDFC Life managing director and CEO, Vibha Padalkar, discussed with Shilpy Sinha the industry's open architecture, protection growth after GST exemption, pricing pressures, margins, capital needs and investment priorities, while calling for regulatory stability. She said competition has driven innovation, but higher costs, weaker persistence and slow growth remain key challenges for the industry. Edited excerpts:

What is your view on competition in open architecture?

We operate and thrive in an intensely competitive open architecture environment, competing daily for business. But if you ask whether I am a fan of open architecture? Probably not. Costs have gone up, persistence has weakened in some cases, and the overall insurance pie has not expanded as expected. The positive outcome has been more product innovation and better economics for distributors.


Do you believe it has not delivered the desired outcome?

The pie should have grown many folds. Engagement levels go down when you are just jostling for counter share. Persistency becomes poorer, costs have gone up and the pie has not grown.

Will the proposed central bank guidelines to curb mis-selling affect products like credit life policies?

We should not throw the baby out with the bathwater. There is a real need for credit life.

Especially when you look at microfinance institutions, we see much higher levels of mortality.

We are playing a very vital role that should not be underestimated.

Do you believe commissions should be paid upfront or should they be staggered?

There should be equitable distribution between the customer, the intermediary and the manufacturer. The economics need to be compelling for the distributor because an insurance sale is a lot more difficult than other financial products. If distributors are not adequately incentivised, it will affect insurance penetration, particularly in underserved markets where advice and assisted sales continue to be critical.

How does an increase in FDI limit benefit the industry?

For foreign insurance companies India has become an attractive market. Many have got licences and others would probably be in the queue, conducting research on business models. They will bring not just capital but also technology and innovative products would be channelised to underserved markets.

Can protection growth sustain after the GST exemption?

GST exemption has helped. We are seeing two-and-a-half protection policies being sold for every one savings policy, although the ticket size is lower. Sum assured is growing at 30%, faster than the industry. Protection is becoming affordable and awareness has improved among younger customers. That said, underwriting and risk management are critical. It will be two steps forward, one step back, but I remain reasonably optimistic about the long-term opportunity. Growth may moderate because of the base effect in the second half.

Has pricing become very competitive in protection?

It has become extremely competitive on price. The only version of truth is that one can give any price you want. The question is, are you going to make the money that you priced for? If your actual assumptions don't hold, you are not going to make the money you had set out to make.

Your margins have been flat. What's the outlook?

Our margins have gone up, although the headline number looks flat because of several shocks. In Q1, GST ate up 60 basis points, while tax withdrawal and surrender charges also impacted margins earlier. We have found ways to grow margins through product innovation, cost efficiencies, productivity gains and new pools of profitability. Once there is some stability in the regulatory environment, margins should slowly continue to go up. It will be driven by a combination of product mix, cost control and proprietary channels.

Will capital be a constraint for growth?

We raised capital recently and have sufficient headroom for current growth. If needed, we will raise more. It would have been better if Risk-Based Capital (RBC) had come alongside IFRS because that would have released capital.