January to March is a crucial period for insurance companies. GV Nageswara Rao is optimistic that innovative products and new approaches will improve business for IDBI Federal Life Insurance

Managing director and chief executive officer of IDBI Federal Life Insurance,. GV Nageswara Rao, says that while ULIPs are still popular, traditional policies are gaining the attention of customers. In an interview with Moneylife, he discussed how the company was adapting to the requirements of customers and the new regulations for the business.

How has business been this year and specifically what are your expectations during the crucial period, this month and next month? How much business is generated through bancassurance?

We had a healthy 37% increase in new business premium at Rs990 crore. We are projecting a growth of 70%-75% in terms of total premium income by the end of this fiscal. We have sold 2.5 lakh policies since inception with a sum assured of Rs13,647 crore. Two-thirds of business, in terms of premium, comes from bancassurance, while one-third is from agents. The number of policies sold via these channels is equal.

We have been focussing on improving efficiency and profitability. Unlike some other insurers, we have not downsized. We have doubled the number of agents. We have come out with innovative products to meet customer needs. We are trying out different approaches of direct marketing, like telemarketing and even salaried employees selling policies.

January sales were disappointing, but we are optimistic about the current and next month. March is the biggest month for insurance companies. The mix of ULIP to traditional policies is 60:40 now, earlier it was 80:20. The ticket size of traditional policies is smaller when compared to current ULIPs and that also leads to lower premium collection.

How many offices, agents do you have? How many branches for bancassurance?

We have 57 offices and 9,545 advisors. Bancassurance operates through 1,500 branches of our partners.  

How do you see the prospects of the just-launched traditional pension plan Retiresurance? Also, you are waiting for approval from the IRDA for a single premium pension ULIP. Why not regular premium pension ULIP?

We have designed Retiresurance to suit the definitive needs of people post-retirement. With an increase in the life expectancy, many Indians could be spending a good 20 to 25 years of their life in retirement. The product offers a guaranteed corpus for every premium paid. Moreover, if the customer continues the policy till maturity, the plan offers guaranteed loyalty additions. We will come out with a single premium pension ULIP soon. But regular premium pension ULIP is not practical for 4.5% per annum guaranteed. It is difficult to forecast future interest rate when premium is received each year over a long term.

New guidelines from IRDA, effective July 2011, require terminating the contracts of agents who fail to get more than half the policies sold by them renewed in the subsequent year. How will this impact business? What is your renewal ratio for policies?

It will be a challenge for us, but good for customers. The agent commissions in ULIPs have gone down, but renewals will add to commission. We are working on improving productivity through better training and sales aids. Our renewal ratio is 70-75%.

Is the single premium ULIP getting more sales compared to the regular premium ULIP? What would be the commission percentage for agents?

Yes, it is because of the reduction in the commission gap between single and regular premium ULIPs. It is also easier to sell the single premium ULIP. Agents sell a mix of products (ULIP, traditional) and the average commission is 8% of premium.  

Any expectations on the IPO guidelines, in terms of the number of years required in the business to be eligible to go for an IPO?

We would be happy if the number of years in business before going for IPO is seven or less.

How do you see the impact of DTC if the tax-savings aspect of ULIP changed?

It would have a big impact on business. Tax benefit is an important selling aspect of ULIP.

What has been the response to your TV advertisement campaign?

It's been great. We have received over 45,000 SMSes evincing interest in the product.

Are there any customer service initiatives for online premium payments?

We already have a functional online gateway for policyholders to make online premium payments.

Is term insurance sold more in urban or rural markets?

It is sold more in the urban market than the rural market. People who want something back at the end of the policy term don't go for term insurance.

What is your claims settlement ratio? Any plans for capital infusion?

We are nearing only the third year of operations and hence have only a few claims till now. We will look at capital requirement in the next fiscal.