Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now

You can switch off notifications anytime using browser settings.
Stock Analysis, IPO, Mutual Funds, Bonds & More


Insurance is becoming a key force in Indian economy. Life insurance is evolving into a big challenger to banks and mutual funds in channelising financial savings.

ET Bureau|
Updated: Sep 13, 2017, 12.07 AM IST
Satyan Jambunathan, CFO at ICICI Prudential Life Insurance, in a conversation with ET journalists talks about the opportunities & challenges in the sector.
Insurance is becoming a key force in Indian economy. Life insurance is evolving into a big challenger to banks and mutual funds in channelising financial savings. Satyan Jambunathan, CFO at ICICI Prudential Life Insurance, in a conversation with ET journalists talks about the opportunities & challenges in the sector. Edited excerpts

Is this insurance industry’s time under the sun? Is it on way to becoming as prominent as it is in the West for the investing community?
The insurance industry comes in three shapes — reinsurance, life insurance and general insurance or property and casualty business. Many countries permit a single entity to do both life and non-life business. For example, Ping An (Chinese insurance giant) does life, nonlife, asset management, investments in interim businesses, becoming a conglomerate in itself. Asia did not have too many listings, except for China. A decade back, China Life was sitting on a $100-billion valuation. It came off sharply. Ping An used to be $75 billion.

In rest of Asia, insurance businesses are run by European or American conglomerates. Therefore, they are not listed specifically. AIA created a huge novelty value when they listed on the Hong Kong exchange. Today, pure-play insurance business in Asia is AIA. SBI Life and HDFC Life are likely to list. GIC is talking about listing, which has a net worth of `45,000 crore. We are looking at `3-lakh crore valuation just from these few companies in market cap. It is not a small number even in the Indian market perspective. Most indices will have insurance

Is it the new tech?
I don’t think so. Fundamentally, if you see where insurance business operates — it operates on two big needs. One, saving for a goal, where it is competing with any asset manager. Other is a tool to financial security. It is true in life, health, motor, travel or in business-related areas like marine, fire, business continuity insurance. It is a first step to financial risk management for everything. If the fundamental hypothesis is that the economy is on the growth trajectory, then it is quite logical that these will be driven by the growth of economy. The need for insurance is permanent in nature. It is not for a service need or for a product created for a limited time.

The government has come up with many schemes. Does private sector participate in a big way?
Public sector does a lot of this business and so does private sector. But at one level, they are talking about the need for consumer which is not adequately utilised. As long as individuals have their coverage, burden on state is less. The language of the government has been crop insurance. Crop has been the fastest growing segment for general insurers last year. So far, the burden was borne by government. Now, it will be paid by insurance companies. They are using good times to prepare for bad times. The other is simplicity of government products. We create fancy products which are complex in nature. The government is focusing not just on simplicity of products but also on simplicity of the delivery of products.

In India, insurance is seen as an investment product. Will it remain so forever?
If a customer wants a pure investment proposition, insurance is not the product. Every insurance product comes with life cover. If I as a consumer do not value the life cover, I might want to buy a fixed deposit or a mutual fund product. The idea of a life insurance savings product is that I will be able to meet my financial objectives whether dead or alive. From a general insurance perspective, the industry has been steeped in talking about savings elements. There is a history to it.

When LIC was operating before the industry was opened up, their spread was huge. Its agents were almost everywhere... even where banks had not reached. LIC products were banking the unbanked. Lot of us are comfortable talking about child’s wedding, child’s marriage than talking about death. Every distributor is comfortable talking about savings than death.

Mutual funds have seen huge investment in the last few months. Is it eating into insurance?
If I have to break it down, the biggest driver for their success has been SIP. Arguably, insurance savings product is the original SIP. In the financial savings hierarchy, cash and deposits are about 60% of financial household savings, insurance is about 20% then mutual fund, shares, debentures at 6-7%. Clearly as an industry, which protects life, it has a reason to grow. People found mutual fund as an equity product. They have been able to position as asset allocator.

Historically, insurance companies are more retail compared to mutual fund. MFs are focused on large cities, corporate distribution driven and their concentration is high. Insurance has been able to do better than mutual fund in asset build-up. In 2000, when the industry was opened up, LIC’s asset under management was same as UTI. Today, LIC’s AUM is 15 times UTI’s AUM.

Are Ulips disadvantageous than mutual funds?
Over a shorter term, mutual fund is better. In 8-10 years, any unit-linked product will end up being better. LIC’s average premium is Rs 3,000 to Rs 5,000. Out of 10 people the agent meets, three will agree to buy. Smaller percentage of commission makes it unviable. Remuneration in insurance is based on premium, and in mutual fund it is on AUM. A distributor earns more as trail basis on AUM, than an agent earns on insurance. It is about tenure. A lot of MF business is done by institutional distributor. Insurance is a very different business. In a shorter term, insurance seems expensive and in the longer run, mutual fund seems expensive.

What is the best way of reaching out to customers? Protection or savings?
I am a believer first in protecting life and investment later. For a young person in early days, there is a lot of orientation towards savings when the need is for protection. The first step towards financial savings is protection. The average age of term insurance customers is 30 years and for savings portfolio, it is 40 years. Life stage needs are the biggest triggers for life insurance. In mature markets, savings starts early. It is also part of the socioeconomic system.

Why is there an increase in frauds?
One of the things is that the industry is collaborating on frauds data similar to what banks did with Cibil and credit rating companies. Like credit, insurance risks have to be assessed at the time of selling. Most important is whether you know the customer enough when you are selling. IIB (Insurance Information Bureau of India) has done a lot on frauds in motor, health insurance. When you see patterns of fraud, people try to buy cover for the lowest premium, for level of cover which is disproportionate to income, residence patterns. Now, government has mandated insurance to be linked with Aadhaar. It will become a strong tool in knowing the customer.

Is the 51% cap on Indian shareholding an obstacle to raising funds?
Now, I see as much interest from domestic as I see from international investors. Till a few years back, if I did not have foreign participation I could not execute an issue, but today flows in domestic asset management company are huge and the story is flipped.

With 24 companies, will mergers be a norm?
Contrary to that, Sri Lanka has more companies than India. In the savings business, I have to have scale, but not in protection. Do I see a case for 24 companies to exist in savings with fragmented pool, I suspect not. But in protection, I would vehemently argue: yes.
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Follow us on

Download et app
