As chairman of state-owned Life Insurance Corporation of India, T.S. Vijayan is one of the most powerful men in Indian finance today.
With $238 billion in assets, LIC is the country's largest insurance company, holding 70% of the life insurance market by premiums and number of policies. It is also the single largest investor in India's stock market, owning around 5% of the market's total value. LIC invested nearly $13 billion in Indian stocks in the year ended March 31.
The mild-mannered Mr. Vijayan, 57 years old, has been steering LIC since May 2006. Under his leadership, the insurer's profit, or "valuation surplus" as the company calls it, has grown by nearly 50% to $4 billion. LIC gives 5% of its profit to the government, and distributes the rest among eligible policyholders as a bonus.
Mr. Vijayan met with The Wall Street Journal recently. Edited excerpts
WSJ: Where is India's insurance industry headed?
Mr. Vijayan: Until 2000, in India, Life Insurance Corp. was the only player offering life insurance. Then the Insurance Regulatory and Development Authority came into being, which started giving licenses to private companies.
Now there are more than 22 private players.
The industry has been evolving bit by bit over the last 10 years, in tune with what's been happening in the Indian economy itself.
The distribution channels have expanded, from just direct agents of the company to now corporate agents, bancassurance [selling insurance through banks.] Products have also evolved. Unit-linked plans came into being. [These are a type of life insurance policy in which a part of the premium is invested in stocks or bonds, at the risk of the policyholder.]
Insurance penetration has grown tremendously. But India has still got a very huge potential for insurance, provided companies find the appropriate products and the right distribution mechanism is put in place.
WSJ: New rules for unit-linked plans come into effect on Sept 1. Are these too harsh?
Mr. Vijayan: Any regulation that is favoring the customer can not be termed too harsh. It may be that the margins of insurance companies get squeezed.
WSJ: How are the new rules good for policyholders?
Mr. Vijayan: In India, insurance is linked with savings. The new rules require a minimum five-year lock-in for all unit-linked plans [up from three years.] If money is being saved for the long-term, any policyholder will benefit. That's reflecting the spirit of insurance.
Another major change is that the charges will be lower. Insurance companies will be forced to cut their expenses. For instance, the new rule requires that fees for surrendering a policy within a short period of time be lowered.
LIC is comfortable. Previously also we never had any surrender charges.
WSJ: Will these changes cause some private players to shut shop?
Mr. Vijayan: This may not force rationalization in the industry per se.
Companies will be forced to contain expenses. They will have to focus on generating more volumes. They are already doing that. Look at their recruitment of agents; the number has been going up.
WSJ: Will these rules curb misrepresentation in sales of insurance products?
Mr. Vijayan: Mis-selling is everywhere. For many years, a soap was being sold in India as if it was used by film stars. I don't think any of the film stars were using it. Isn't that mis-selling?
In insurance also there have been exaggerated claims of returns. IRDA has come very heavily on it, requiring all sales literature to be approved by it.
Since we are a very big company with 1.4 million agents, we are very, very conscious of it. There is a possibility that some rogue element somewhere may make exaggerated claims but we are very strict about it.
WSJ: Financial literacy is one of the biggest challenges in India. How is LIC pitching in to promote this?
Mr. Vijayan: Debate and discussion in the media helps raise awareness.
When the insurance industry was liberalized in 2000, there was opposition to it. It generated a huge amount of media debate. All of that contributed to a jump in the [size of the] pie itself. Life insurance premiums have gone up from less than 2% of India's gross domestic product to 4% in 10 years.
So an integral part of this awareness program is how the general media takes up issues.
We are also working to increase education through our agents. Last financial year we sold 38.8 million policies. That means, 38.8 million individuals have been told something about insurance.
Of course, there's a lot to be done. The education has to become more sophisticated now that we have new products which don't guarantee returns to the customer.
WSJ: Any other initiatives?
Mr. Vijayan: Our information technology initiative has been a major change in recent times. It has helped us become more efficient and increase out productivity. Otherwise, we would not be able to service 250 million policies at such low cost.
WSJ: When can we buy insurance policies online?
Mr. Vijayan: We are not offering that yet.
But now one can pay LIC premiums at any branch across the country, or in selected banks, and also through our web site.
We have embarked on a very ambitious project of a paperless office by scanning all papers. Around 70% of the work is over. Three years ago, we built up a huge data warehouse and now we have management information systems which help us analyze the profitability of our products and campaigns very quickly.
Now, we're trying to restructure our work.
Traditionally, the branch office has been the hub of all policyholder documentation.
We want to liberalize that so you can do transactions, like getting a claim, or changing the address or nomination on a policy, through any branch across India.
WSJ: What about mobile?
T.S. Vijayan: Mobile is evolving. We are in discussions with two to three banks to tie-up such that if you have a bank account with them, you'll be able to use your mobile to transfer funds to pay your premium. We should be launching it soon, probably this year.
WSJ: What are LIC's plans for overseas expansion?
Mr. Vijayan: We have operations in seven countries, where there's a lot of Indian diaspora, among whom LIC is a big brand. In the Gulf countries, for instance, people want to take policies and bring them back to India one day.
This fiscal year we expect to start operations in Singapore.
WSJ: You are one the largest investors in India's stock market. What do you make of the recent volatility in markets?
Mr. Vijayan: Overall, stocks have been creeping up. I believe that will continue. Basically, it reflects the Indian growth story. Most of the stocks are led by Indian consumption
As long as policyholders trust their money with us, we'll remain bullish
WSJ: What do you think of the pension market in India?
Mr. Vijayan: Pension products have to become more predominant here.
Until some years ago in India, government was the major employment provider. Today, the private sector has become a big employer but their employees don't have any government-guaranteed pension. They have to build their own pension fund.
Pension has got two stages – the investing stage and withdrawal stage. All the debate and products have so far focused on the accumulation and investment stage. But more products have to evolve at the payout and annuity stage. That's a lucrative market.
Sunday, July 25, 2010
Irda's fiat on insurance agents finds many supporters
Insurance Regulatory and Development Authority’s (Irda) latest proposal to make life insurance agents more responsible while selling policies has elicited mixed reactions from life insurers.
While some are of the opinion that the move is a step in the right direction and will bring in much-needed accountability, others feel the conditions prescribed are too stringent, resulting in many agents winding up their businesses.
The insurance regulator’s proposal, which was placed in the public domain last week, proposes to de-license agents who fail to achieve a persistency ratio of at least 50%. Persistency is defined as the proportion of policies remaining in force at the end of the period, out of the total policies in force at the beginning of the period. It is an indicator of the number of policyholders who have chosen to renew their policies, broadly signifying their satisfaction with the product sold to them.
The move follows widespread complaints of mis-selling by agents who carry out their task with an eye on commissions rather than policyholders’ needs, eventually leading to the latter deserting policies, which typically entail a tenure of more than 10 years, mid-way.
“The move is aimed at ensuring that the agency force acts more responsibly while selling policies. In that direction, we support it. The interests of insurers, distributors and customers have to be aligned, and persistency is a key factor here,” said Max New York Life MD and CEO Rajesh Sud. “The emphasis on persistency will be approved by one and all — agency as well as industry bodies. In our case, we already follow this principle,” added Reliance Life president and executive director Malay Ghosh.
In addition, Irda has put forth certain other recommendations as well. If the draft norms are implemented, an agent will have to sell a minimum of 20 policies every year and bring in a first year premium income of at least Rs 1.5 lakh. Should they fail to fulfil either of the criteria, they will have to achieve proportionately more in either one to make up for the shortfall in the other, states the proposal.
“Agents in India are not full time as most of them enter the agency force as a stop-gap arrangement and the successful ones stay on. After the revision in charge structure, commissions have come down and it has become even more difficult for an individual to earn a living as an agent,” said the CEO of a life company on condition of anonymity.
In India, the commission paid to banks and corporate agents are in many cases higher than the commission paid to individual agent. The proposed guidelines will leave individuals at the mercy of banks and corporate agents who have a bad track record in terms of mis-selling. The new guidelines will hurt the agency channel,” he added.
“Some of the conditions seem harsh, considering that nearly 30-35% of agents in the country are unable to sell even 12 policies in a year. If these norms come into play, many agents could go out of business,” pointed out GN Agarwal, chief actuary of Future Generali Life Insurance.
Some also feel that since many agents do not meet the requirements at present, the regulator needs to allow a reasonable transition period to enable companies to train agents and boost their productivity. Irda has set July 31 as the deadline for receiving comments and suggestions on the draft norms from the general public, life insurers and other stakeholders.
Insurance Regulatory and Development Authority’s (Irda) latest proposal to make life insurance agents more responsible while selling policies has elicited mixed reactions from life insurers.
While some are of the opinion that the move is a step in the right direction and will bring in much-needed accountability, others feel the conditions prescribed are too stringent, resulting in many agents winding up their businesses.
The insurance regulator’s proposal, which was placed in the public domain last week, proposes to de-license agents who fail to achieve a persistency ratio of at least 50%. Persistency is defined as the proportion of policies remaining in force at the end of the period, out of the total policies in force at the beginning of the period. It is an indicator of the number of policyholders who have chosen to renew their policies, broadly signifying their satisfaction with the product sold to them.
The move follows widespread complaints of mis-selling by agents who carry out their task with an eye on commissions rather than policyholders’ needs, eventually leading to the latter deserting policies, which typically entail a tenure of more than 10 years, mid-way.
“The move is aimed at ensuring that the agency force acts more responsibly while selling policies. In that direction, we support it. The interests of insurers, distributors and customers have to be aligned, and persistency is a key factor here,” said Max New York Life MD and CEO Rajesh Sud. “The emphasis on persistency will be approved by one and all — agency as well as industry bodies. In our case, we already follow this principle,” added Reliance Life president and executive director Malay Ghosh.
In addition, Irda has put forth certain other recommendations as well. If the draft norms are implemented, an agent will have to sell a minimum of 20 policies every year and bring in a first year premium income of at least Rs 1.5 lakh. Should they fail to fulfil either of the criteria, they will have to achieve proportionately more in either one to make up for the shortfall in the other, states the proposal.
“Agents in India are not full time as most of them enter the agency force as a stop-gap arrangement and the successful ones stay on. After the revision in charge structure, commissions have come down and it has become even more difficult for an individual to earn a living as an agent,” said the CEO of a life company on condition of anonymity.
In India, the commission paid to banks and corporate agents are in many cases higher than the commission paid to individual agent. The proposed guidelines will leave individuals at the mercy of banks and corporate agents who have a bad track record in terms of mis-selling. The new guidelines will hurt the agency channel,” he added.
“Some of the conditions seem harsh, considering that nearly 30-35% of agents in the country are unable to sell even 12 policies in a year. If these norms come into play, many agents could go out of business,” pointed out GN Agarwal, chief actuary of Future Generali Life Insurance.
Some also feel that since many agents do not meet the requirements at present, the regulator needs to allow a reasonable transition period to enable companies to train agents and boost their productivity. Irda has set July 31 as the deadline for receiving comments and suggestions on the draft norms from the general public, life insurers and other stakeholders.
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