We will grow VNB in line with industry after FY23: ICICI Pru Life MD & CEO

'Beyond FY23, our focus will be on the absolute value of VNB, not so much the margins', said Kannan

After the company’s Q1 earnings, N S Kannan, managing director and chief executive officer, ICICI Prudential Life Insurance, spoke to Subrata Panda on the factors propelling growth and the path the company will embark upon. Edited excerpts:

How close are you to achieving the target of doubling the value of new business (VNB)?

In the past we mentioned our objective of doubling our absolute value of new business (VNB) of FY19 in four years. Given what we have done between FY19 and FY22, what needs to be achieved is about 22.5 per cent growth in VNB in FY23. We have grown our VNB in Q1 by 32 per cent. Given that our target is about 22.5 per cent, we have made a good beginning. We should be able to double the FY19 VNB by the end of this year.

Is the protection business driving the VNB margin expansion? If so, what is the ideal product mix you are looking at?

Two lines of business have done well. Protection has grown by 22 per cent, because of which the protection mix as a percentage of Q1 product mix is about 22 per cent. Similarly, annuity has grown at 70 per cent and it has become about 6.5 per cent of our product mix. The fact that the mix of these two products has grown has supported our margins. Directionally, the protection segment has the ability to be 22-25 per cent in the medium term because of the general under-penetration and the pandemic. The share of unit-linked and non-linked business will depend on market conditions.

What are the reasons for the underperformance of the retail protection business?

The group business, which has done well, is being driven by the credit life segment. In the group term business, more and more companies are increasing coverage for their employees. So, these two factors have been driving growth in the group protection business for us. The retail protection business has been affected and I feel it is because of supply-side constraints. There is no lack of demand and the pandemic has made this product into a “nudge product” from a “push product”. The supply-side constraints started during the pandemic and we were not able to send the prospective customers for medical examination. Subsequently companies like us and the re-insurers started tightening the underwriting standards. Sequentially retail protection for us has stabilised. I think in Q3 we will see growth in the retail protection business.

Are you looking to relax some of the underwriting standards that were tightened because of the pandemic?

I do not think there will be wholesale relaxations. We will look at the data and see if there are certain customer segments where our experiences are better and tweak the standards at the margin. It will take a long time before it gets completely relaxed. But the frequent change of processes is behind us.

You have opted for higher retention on your books as far as retail protection is concerned…

In the retail protection segment, there are two lines of business -- pure retail term and return of premium. In return of premium, the retention is Rs 40 lakh. In pure retail term, we increased retention to Rs 1 crore. When we looked at profiles of customers, in the desirable segment, our mortality experience was such that we would have paid too much if we agreed for reinsurance. The reinsurers’ experience versus our own experience was instrumental in us retaining more on our books. And, we did not want to split the profit of that portfolio with the reinsurers. We will keep evaluating this as right now we have a negative report on the retained books.

Have the rates now stabilised in the term segment?

They have. We have seen two-three rounds of rate increases. The last hike in rates we took was 0-10 per cent, depending on the customer profile. And, with that we thought it was adequate from our perspective to protect our margins. So, we do not have plans to increase rates any further.

What will be the company’s target when it comes to VNB margins after FY23?

Beyond FY23, our focus will be on the absolute value of VNB, not so much the margins. Margins will be the outcome of the product mix. We will grow the VNB in line with industry growth. Now that the product mix and the channel mix are well diversified, we do believe that at this stage, we have to come to a situation where we can grow our VNB in line with the growth of the industry.

The regulator intends to move towards a risk-based solvency regime…

It will be great for the industry if we move to a risk-based capital regime because we are importing too much capital for a business that is a pass-through. The intention of doing this would be to release capital from non-risk businesses and deploy it in risk-taking businesses such as the protection segment. Our solvency ratio will be close to 400 per cent once it kicks in.

There is a strong buzz that life insurers might get the Insurance Regulatory and Development Authority of India’s (Irdai’s) nod to sell health indemnity policies. If the regulator allows such a move, how will the business model of life insurers change?

It is high time health indemnity products were opened up to health insurers because they are an under-penetrated market, so more players should be encouraged. Secondly, the distribution might of life insurers is huge, with over 2.5 million agents. So this will increase penetration. Also, we are experts in mortality assessment and the morbidity assessment goes more with the mortality assessment. Hence, it is a complementary product to what we are manufacturing and selling now. Till 2015, life insurers were allowed to sell health indemnity products, so we are just looking at status quo ante being restored.

Irdai has given some indicative premium growth targets to life companies for the next five years. Is the target feasible?

The regulator has articulated by 2047 every Indian family should have life insurance and health insurance. In that context, the growth targets have been given to companies. If all of us come together and with the regulatory push on ease of doing business, it can be achieved. To be fair to the regulator, it is relaxing whatever it can.