Retail protection demand should come back in H2 of FY23: HDFC Life MD & CEO

Vibha Padalkar talks about the company's performance in Q1 and its growth plans going forward

The life insurance industry has seen decent growth this financial year (FY23) so far, though on a low base, with the unlocking of the economy and easing of supply-side constraints. In this backdrop, Vibha Padalkar, managing director and chief executive officer, HDFC Life Insurance, spoke to Subrata Panda about the company’s performance in Q1 and its growth plans. Edited excerpts:

What is driving the margin expansion?

We have been consistently talking about a smooth upward curve, whether it is in margins, the value of new business (VNB) growth, top line, and so on. The margin expansion has come amid a volatile environment and the source of this has been a combination of growth in our overall top line, a better product mix, as well as growth in the rebounding of credit life, which too was not doing very well in the thick of the pandemic. The savings business has continued to grow well.

Protection APE (annual premium equivalent) has shown decent growth but retail protection is lagging ...

This is very much in line with our peers. What appears to be the reason is that in the pandemic there was an acute need to protect oneself, which created a demand, resulting in good growth in retail protection. However, now with some of the headwinds in terms of inflation, supply-side constraints, and so on, perhaps, in a basket of goods, people are postponing the decision to buy term plans right now. I am reasonably hopeful this is a temporary phenomenon and people will start rethinking their risk-transfer strategy to protect themselves and their loved ones. I think, in the second half of the year, retail protection should bounce back.

Have the supply-side constraints eased when it comes to the protection segment?

Prices have gone up because of reinsurers. However, some things have been relaxed. We have rolled out an automated underwriting engine for financial underwriting. We are also looking at how we can use Employees Provident Fund data, tax information data, etc. We are doing a lot of video medicals, and looking at scheduling medicals at home.

So, we are differentiating between various profiles so that we know which ones we to keep and which to reject, also which we have to reinsure. The intention is to have more and more protection within the parameters of risk that we understand.

What is the ideal product mix you are looking at?

We have been focused on a balanced product mix. This has been a core stated strategy for us. So, non-par savings should be one-third of our product mix; par would again be one-third; and everything else would constitute one-third. In the third category, unit-linked will be 25 per cent and the balance is split between retail protection and annuity.

Will the company be more aggressive this financial year, given there are no restrictions because of the pandemic?

Over the past four years, we have shown a stellar improvement in market share. At the end of FY22, our two-year compound annual growth rate was 17 per cent, more than double the industry growth. We have delivered 20 per cent growth in Q1 with a market share just shy of 15 per cent in terms of individual APE. We are looking very closely at the geo-political situation, interest rate movements, and the pandemic in terms of mortality rates. And these factors form the bedrock of how we launch our products. We are also focusing on the annuity business and the retiral products. As a listed company, we look at triangulating top line growth, bottom line growth, as well as risk on our balance sheets.

The regulator (the Insurance Regulatory and Development Authority of India) has given indicative growth targets to life companies. How feasible are these targets?

The regulator is signalling that we can do better, and we can do better. If we look at the overall penetration, the protection gap, etc., it is the tip of the iceberg. So, we need to be cajoled and prodded for more aggressive targets. At the same time, we will have to be responsible when it comes to mis-selling because we cannot pedal too hard without the right checks and balances. So, we need to balance the growth targets and must be mindful of the risk on the balance sheet because it could very well come to bite a company, especially the small companies.

The regulator has taken steps to ease the regulatory burden in the past few months. How do you look at those measures and what more needs to be done from the regulator’s side?

What has been rolled out so far -- use & file -- has been phenomenal. Also, some of the rationalisation, whether it is in terms of ease of doing business, as well as relaxation on solvency requirements for the Pradhan Mantri Jeevan Jyoti Bima Yojana, has been rolled out, and so have a few other exposure drafts. So, there is a continuous dialogue with the regulator, which we welcome. There is a lot of access between the insurer and the regulator. Eight reports have been submitted by as many committees on varying topics. What the regulator does with all the recommendations is critical. We have been asking the regulator to allow life companies to sell health indemnity policies. The report was submitted over 18 months ago and we have not heard back. Typically, worldwide, health sits with life insurance companies rather than motor insurance companies. Also, can we distribute each other’s products that are regulated by the same regulator?