Mr. Ghyanendra Nath Bajpai, a distinguished leader in Indian business was the Chairman of the Securities and Exchange Board of India (SEBI). Earlier Mr. Bajpai was Chairman of the Life Insurance Corporation of India (LIC). Mr. Bajpai is known for his visionary leadership and exemplary integrity. He has served/serves as non-Executive Chairman and Director on corporate boards in India and other countries, received awards for contribution to business, and authored several books. Mr. Bajpai has been Chairman of the Corporate Governance Task Force of International Organization of Securities Commissions and the Chairperson of the Insurance Institute of India, (III) a counterpart of Chartered Insurance Institute UK.

Mr. Bajpai has been a member of Board of Directors at General Insurance Corporation of India, ICICI Bank, Unit Trust of India, UTI Bank now Axis Bank, Tata Chemicals, Jindal Steel, Thane Electric Supply Co., National Housing Bank, Discount & Finance House, Indian Railway Finance Corporation, India International Insurance Ltd., Singapore and Ken-India Ltd. Nairobi (Africa).

Mr. Bajpai was also Non-Executive Chairman of National Stock Exchange (third largest in the world by transaction volume), Stock Holding Corporation of India, LIC Housing Finance Ltd, and LIC International EC Bahrain and LIC Nepal Ltd.

Currently, Mr. Bajpai is the Non-Executive Chairman of Future Generali India Life Insurance Company Ltd.

Apna Paisa is honoured to have him on our board of Directors.

For a common man who does not have access to expert advice for making investments, insurance as saving instrument is great and very convenient too. It is helpful as money is invested at regular intervals, says the Doyen of Indian Insurance industry in an exclusive conversation with Harsh Roongta and Bienu Vaghela of Apna Paisa.

In India, people perceive life Insurance as a vehicle for investment, and only 2% of the total life insurance premium is directed towards covering risks, which is significantly lower than other comparable countries. How do you look at that?

From an individual's perspective, it is good to buy insurance, mainly because this puts him on track, to achieve his financial goals. This is especially beneficial for people who are on the ascending curve of the income. But they have current desires to fulfill. Hence, it often becomes difficult balancing the two (expenditure and investments) thus the saving does not happen but buying an insurance policy introduces discipline in the habit of savings because more often than not it is perceived by the policy holders as necessary expenditure.

As you know an ordinary middle class person does not understand the complexities of financial systems, nor does have time and the ability to manage those instruments. Therefore it is important for such persons to invest through life insurance policies where they have some kind of regular continuous savings. This factor led to the success of SIPs (Systematic Investment Plan) and also made RDs (Recurring Deposits) another very important instrument of savings. But insurance as an instrument of saving offers additional benefit where you can determine the amount of savings you want, it is guaranteed whether you live or you don't, which is not the case either with SIP or RD. Therefore, if you look at it in totality, and imagine a middle class person, who is not in a position to decide which way to go in terms of financial planning and is always balancing between desires and savings, insurance becomes a very effective instrument.

The nation like ours need large amounts of savings. These can come from institutions, which channelize savings for long durations. This ultimately has the cascading effect on the economic growth. Therefore it is important to engage the society in some long term savings. Thus savings element becomes important in insurance.

Does that mean that Indians are inadequately covered?

I would imagine most of the Indians are inadequately insured. In fact the concept of human life value has not been sufficiently propagated in India. Even though, various forms of financial instruments do provide incase of some Indians, adequate financial security for future, most Indians need to supplement their savings.

Going from here you see a regulatory view that the intermediation costs are way too high, moreover they are not transparent. Not just intermediation cost but also production cost of the financial product is way to high. What do you have to say on that?

There is a distinction between Insurance and Mutual Fund. Even today life Insurance, not only in Indian market, but in the entire world continues to the business of hawking, as most people don't buy by themselves. Some where down the line banking industry moved from being a 'sellers market to buyers market.

Also Mutual Funds and Banking both have become pull market whereas Insurance continues to be push market. The kind of resources required to paddle a pull market is different than that of paddling a push market. Therefore the compensation for intermediation between Banking, MF and life insurance cannot be compared.

If you don't differentiate in the compensation then why would someone put that kind of resources and time? Different instruments belong to different categories, each of which have inherent strengths but have different issues too with regard to pricing and product manufacturing. In insurance you guarantee a sum where on the happening of an event, even on the average basis, calls for higher pay outs. New for these resources, the manufacturer has to adjust by receiving higher amount monies from larger number of people over a period of time. But this is not the case in Asset Management. So if you say that the manufacturing cost of the insurance product should be the same as the Mutual Fund product, it is not appropriate.

Coming back to the manufacturing costs, the main difference lies in the cost of marketing the intermediation fees. An endowment product or a money back product cannot be compared with asset management product.

Since these instruments are of different creed and variety, the cost of manufacturing and cost of marketing, are going to be different. Now what is reasonable is determined by the market place. You suddenly can't enforce from the top and destroy the order in the marketplace, which is going to happen in case you pick up the standard, of one instrument and enforce on the other.

Do you see the competition rising and driving down prices. Competition is not just from Asset Management Companies but also from ULIPs where redistribution charges are coming down significantly.

It is a pity that Mutual Fund industry has allowed its own space to be captured by the life insurance industry. If you look at the total collection by the asset management industry, and ULIPs, it is not even 90:10. So where is the question of competition?

They are not in competition mainly because they do not have reach and are not able to distribute this product. Moreover they do not even pay to the distributor adequately under new rules nothing is paid by AMC. It is as simple as that. If you have no distribution network and no feet on the street, then how will you extend your reach. It is not like collecting the bulk money from a corporate guy and manage it for a short while. ULIP has been in India since 40 years. They never got popularized because of the intermediation compensation and if you attack the compensation under ULIP, this money may not come at all.

Do you think that proposed Direct Tax Code is positive for the insurance industry?

It is quite negative and MAT is going to impact the life insurance industry as companies are going to be taxed on their assets, which belong to the policy holder and not shareholders. Similarly, if you tax the investment income and do not give credit for the underwriting losses, then you are going to kill the non-life industry. If you remove the section 10 DD, which keeps life insurance as EEE, actually it is not EEE it is TEE, most of us pay tax on insurance premiums paid, life insurance will not remain attractive.

Actually, in effect, it is TEE, which is now sought to be reversed as ETT which will seriously impact life insurance industry.

How would you predict the future of insurance industry?

The future is very bright unless you put some serious road blocks.

Turning to non-life, it traditionally had very low penetration except in auto where it is perceived to be compulsory. Do you see non-life in personal line ever be a large part of the insurance business. Worldwide, non-life premiums in many countries are more than life. Do you ever see that happening in India? What will be the factors which will drive it?

According to me it will happen, slowly and steadily. It will happen by two important initiatives by the industry. Non-life industry will have to work like Life individual driven distribution network and it will have to create greater awareness about the boons and benefits of householders policy and other personal lines of business. When the income level increases, the capacity of the individuals to spend goes up and the personal acquisitions grow. When there is compulsion from the acquisition side with capacities from the surplus moneys and there is education, a pyramid will get erected, which will boost the business.

The corporate business has been seriously impacted because of de- tarriffing. The bulk business is becoming near non-profitable. Hence the option for the companies to survive and thrive is to market and mop up personal lines of business, which is quite profitable. House holder policy is profitable. Health can be managed very profitably. In health, individual health is profitable, though group health is not.

The general perception of consumer about the auto and health (the two most important personal lines), these have been structured in such a manner that it denies the claims on flimsy grounds. How can that be avoided?

Though there are structures, but people are trying to take undue benefit even within that. These are institutions of Ombudsman, Regulatory Authority, Board and then the Claim Review Committee to help the customers. So it is not that simple to deny Claims. But there is sometimes collusion amongst customers, surveyors, hospitals and even TPAs, which is unethical and harmful to all concerned.

Coming to the role of IRDA what are the challenges before IRDA?

IRDA has few fundamental challenges as industry is expanding very fast that too in multiple - dimensions, and to be able to keep track of that kind of development and manage efficaciously is a great challenge. IRDA has been in existence for about ten years which is short time for the regulator to mature. Hence, the Regulator is on the learning curve. Though, in global markets, regulators have been there for long but their experience can't be replicated entirely in the Indian market.

India is very large nation with young population, negligible social security, rising economy and most of the companies have global tie-ups with top 30 players of the world. They are here with deep pockets, long- term view and are aiming very large size of the cake. Therefore the development, which are taking place in Indian markets are faster and far greater than any other evolving markets. This makes scene quite challenging.

What radical changes you recommend for the industry?

I have nothing very radical to offer for the industry. All I would like to recommend the Managers of the industry is to promote products and practices that will help customers find solutions to their problems. The financial services industry, which includes insurance has necessarily to move from sellers of products to customers of solutions for the issues and problems that a customer faces and/or is going to face in times ahead. While doing so the industry Managers have also to insure value optimization.

What role does Online media can play in the insurance segment?

It may not take off immediately but, surely it will take off. However, in India, online media will grow at a faster pace as we have young population who are more techno savvy. Europe has more of ageing population and is less susceptible to technology. In India Internet is spreading at an amazing pace.

We already have full product basket, the need is only to bundle and unbundled that, concludes Mr. Bajpai.