Internet: The challenge is to take it to the rural population!
7^th Jan 2010

IRDA data for the year 2008 on claim repudiation shows that the claim repudiation percentage of LIC is just 3 or 4 percent whereas every other single insurer is in double digits. Tell us about your experiences in the other markets?

What differentiates LIC from other players is that other players have been around for only 10 years and books have not been updated when these claims have been made. LIC is a colossal Company which has by far the strongest business in rural areas, whereas private sector started by concentrating in Metros, so business started off differently. Value makes the business in concentrating segment, hence in this case, for the average data there has to be big books across many verticals. Private sector started of the business in these areas, and the initial flection which is rightly pointed out, you own a product over the company because various people have been declined elsewhere. As this is natural adverse selection, these people feel if they can get some cover over the same, with Company having some relaxed standards. There are many reasons for that as they may have initial flood of claims, re insurer has to possess books of colossal company.

 

So claim repudiation ratio of LIC is not comparable to other private players?

There can be many manifestations here. The difference is stark as you are splitting here by city, then you are splitting here by customer segment also. LIC has such a big business and no other company operated in that vast spectrum of business, so not clear where does the difference lie.

 

You are in the highly competitive space. How do you build the brand for better reach of customers? Will it be distribution driven only or brand driven as well?

It is going to be more competitive in times to come. Currently you have around 22 companies in the market catering to such a large population. In any part of the world you will find many more companies operating in, the reason for competition is that many companies are focused on the same segment. It’s not that every company can come and try tied agency model, as was the practice 10 years ago. But if you have to do something different, you have to be really strong and understand the customer well. We are happy to share space with many new entrants, and their job is to understand this really well.

India is in any company’s aspirations to grow beyond domestic presence. Ours is bancasssurance model, and our strength lies in the fact that if you are a close customer of Canara Bank, you will know that it is a company (Insurance) from Canara Bank. It does not matter to him whether we are called and known as a brand HSBC CANARA OBC. Thus we are not building the brand that way. The Canara customer has known us from generations; the Canara customer is assured when he sees a hexagon there. HSBC is a global financial services company, and if you have insurance policy from it, then you know that you will be looked after very well. This way you see that our need of branding is very different from other insurance companies.

Our effort is not to take branding elsewhere as customer has the same assurance of the bank he has been banking with since ages. As a bank customer he may not be aware that we sell insurance hence we want to integrate well to sell insurance to our customers. We are not targeting the open market; moreover our costs are much lower because we are relying on the relationships. Our three banks are relationship managed and we want to take the relationship forward.

In these times of economic turmoil, though India has come out largely unscathed, nonetheless there was bit of a slowdown. It was then that PSU Banks had a flood of money coming in and particularly in such times customers like the bank with long term security. Insurance has the longest term of any quality buy. Hence mutual trust and faith in each other is the key thing.

 

How about reaching out to On line media?

In the long term we want to be Online in a big way. Moreover customers are too busy to visit the branches. When a customer is done with by mentioning the cover and tenure, then it is important to be online. Being On line means being very straightforward and make customers understand what they get. I feel there is not much activity by the customers across the net. To make it a viable channel today, the need is to simplify the product. The banks are strengthening their Online proposition, Canara already has it and HSBC is doing it. The challenge is to service the vast network that we have which is big enough a cake to concentrate on.
We would concentrate on Internet which is growing and we see that as a very important media. It has worked very well for people who are tech savvy but the challenge is to take it to rural population.

 

Now the regulation says that customer should pay fee to the agent directly. In all competing products it is gone. When do we see that happening here?

At the heart of it, the economics has to stack up for the people to get involved. You have three key parties involved in the transactions, the insurer, the sales staff and the customer. In agency model, the agent has to earn enough to make the product viable. Considering the absolute number of cases, we have the industry’s highest today by margin and our productivity is also very high due to the way we sell and service. But individual has to make enough to make the product viable. It is much hard to make conversion happen, moreover you have to add value and there has to be a push for the financial deal to happen.
Mutual Funds are altogether different products considering the fact that their distribution capability is very small and susceptible to quick changes.

Insurance products are far more complex than mutual funds where Commissions are important and if it is abolished then it is not going to work. Regulator and Life council have gone back to the committee as it is to be realized that why a customer will pay to the agent?

 

You mean commissions for risk based products and no commissions for investment based products.

Why would you stop a customer if he wants insurance cover and investment as well? Insurance is very important and has been successful, by doing the penetration widely; overall the banks are less impacted by commission, especially when they are shareholders because they can get the money anyway. As they are tax worthy, it is better for banks, to get the money as dividend then to get as commissions, because dividend has tax credit attached to it. Like the processes, there are people who make sure that customers are well looked after. It is the long-term commitment that shows the flow path, there should be some good practices there.

 

In pension plans attention is on accumulations phase, annuities have very little competition. Why it is not receiving, any attention?

Pension is very important for any country. According to the global study done by HSBC, amongst all the countries surveyed, India turned out to be most well prepared for retirement. The reasons being, India has a very young population whereas rest of the world has ageing population.
So Indians have long time for retirement, and Indians like saving, but they do not know how much they will need at retirement. This is where they need advice, accordingly we are having workshops to explain that to the customers and we explain these things to them.

As the population is very young, there is yet not the beginning of market of annuities, because this is a very recent phenomenon.

About Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited

For Canara HSBC Life, the shareholding pattern of the Joint Venture is as follows - Canara Bank holds 51% equity, HSBC Insurance (Asia Pacific) Holdings Ltd 26% and Oriental Bank of Commerce 23%. The Venture has an initial paid up capital of INR 325 crores which will further increase in line with our expansion plans.
The Company commenced business 16th of June, 2008 after receiving requisite approvals from the Insurance Regulatory Development Authority (IRDA). Canara HSBC Life has access to 4100 bank branches all over India.