Interview / Deepak Satwalekar

'Housing. Life insurance. It's a perfect fit'

On October 22, the Insurance Regulatory and Development Authority announced that three private insurance companies have been allowed to begin business, marking the end of decades-old public sector monopoly. A few days before that, IRDA chairman N Rangachary himself conveyed a piece of good news to Deepak Parekh and Deepak M Satwalekar, chairman and managing director, respectively, of HDFC. The HDFC Standard Life Insurance Company Limited, HDFC's joint venture with Scottish insurer Standard Life, is the only private corporate to get the licence in the life insurance sector.

"I couldn't believe it. We thought we would be one among several applicants whose proposals would be accepted," Satwalekar told rediff.com.

As its chief executive officer, the IIT-educated Satwalekar is to mastermind the joint venture's challenge to public sector behemoth LIC, something that the insurance industry is eagerly awaiting. Critics of liberalisation would also be subjecting his company to intense scrutiny, if only to pounce on any wrong move that can be used as a stick to beat their opponents with.

In this exclusive interview with Y Siva Sankar, Satwalekar takes stock of the changing contours of India's insurance industry, and explains what it would take the joint venture to succeed in the new environment.

The HDFC Standard Life Insurance Company is the first private sector corporate to get a certificate of registration for starting business in life insurance. How does it feel?

I'm absolutely delighted. Couldn't have felt better. Not only are we the first to get the certificate of registration (not licence), but we are the only ones. It's been delightful. It's not just an extra ounce of joy, it's 16 times that, it's an extra pound of joy. (Laughs).

Why do you think you got this distinction?

Our team has worked very hard on this thing. They have looked at what could possibly be asked. We have been given to understand that ours was the best proposal that was put up to IRDA.

I think we're beginning to make a practice of it because that's the feedback we've got from the Reserve Bank of India when we put in a proposal for a bank also.

I think we have given every possible detail that could have been asked for. When they needed any clarifications, we had the answers ready for them.

How did you go about this whole process of putting together your proposal?

We started much before they came out with the forms, whether it was R1 or R2. What we have done is basically put together a business proposal. And what would we need to put up to our board to convince them that this is what we should do.

Then it was just a matter of picking up a chapter from here and putting it into our R1 chapter or R2 chapter. The preparatory work which has gone in here, has been considerable in terms of doing the market surveys, the market research, the product development... all of these then just fell into the requirements of the forms.

Years before the sector was really opened up, several Indian companies formed alliances with foreign insurance firms. It was as if these companies saw the future. Did you have any inside information from governmental sources that the industry is being opened up?

(Raises his brows and stares into the eye, as if to express his displeasure at the 'stupid' question.) If we had inside information, it didn't work fast enough for us because we signed up four-and-a-half years back. Okay? (Smiles)

We had signed our joint venture agreement with Standard Life four-and-a-half years back because the feeling we had was, once the Malhotra Committee report was submitted, there would have been no reason for the government to delay opening up of the sector.

So we signed up with them and we've stayed signed. We've been working with them for these last four-and-a-half years, and it's hopefully coming to fruition now.

How was it working with Standard Life all these years?

Excellent. You couldn't have found better partners than them. We have really hit it off well.

For a partnership to work, your mindset, your value systems, people have to be similar. And that's what we found. And it's not just at the chief executive's level but down the line.

The first time I visited Standard Life, in two days I met 14 people. And you felt absolutely comfortable with all 14. They would talk to you and share things with you as though you are their own friend. I think that matters. The camaraderie which is there, the value system, these are the things which make the difference. Standard Life has been excellent to us.

There has been a great deal of resistance from public sector insurance employees to the opening up of the sector. One of their arguments was that foreign insurance companies are no better, that they are indeed worse as far as settling claims in fairness and helping people in disaster-struck places are concerned. It is dangerous to allow such companies to operate in India, they contended.

I don't know if the same companies are coming to India. Talking about why there is a need for private companies in this sector, I think it's more to do with the fact that we need to increase the savings rate in the economy.

If we want to grow at the rate which the prime minister is talking about (GDP growth), we need savings in the economy. We need longer term savings in the economy. And, if at all, all of the GDP growth has to take place, you need significant amount of investments in infrastructure which again requires long-term funds.

One of the few sectors which can give you long-term savings, is the insurance sector. As of now, because of the monopoly situation, there isn't a real need to go out and fully tap the market. And, therefore, the numbers are that about 22 per cent is the market penetration so far. Which means, a huge 78 per cent is untapped.

You can always say that 'Everybody will go for the same urban markets, as they are the easy ones.' That's if you adopt the strategy of picking the low hanging fruits. But we believe that the market is much deeper than the metropolitan areas and we do have strengths out there.

HDFC itself has nodes in about 2,400 towns. This is way beyond Level 2 or Level 3 series. That's where we see major potential for us and our products.

With public outcry against opening up of the sector for background, do you, as a private sector player, feel any additional pressure to perform better and maintain a pro-people image?

Yes, it will add pressure... we will have to perform better than what the existing company has been doing. In terms of service standards, I don't think we should be found wanting because HDFC has been known for its service standards. In terms of innovation, I hope we will not be found wanting because Standard Life is one of the most innovative companies in Europe for the last couple of years.

Talking of service, it can be at the point of the proposal or at the point of underwriting or at the time of the claim settlement. That's where we will make the difference.

I can't give you proof of why we will make the difference, the only thing I can say is, 'Look at the past record of HDFC. That should be the proof.'

But when you say, 'Will the private sector perform better than the public sector?', I think today we are in a much better position in the insurance industry because of the fact that we have got the regulatory environments right.

Look at the telecom sector. You opened up the telecom sector to private players and then you set up a regulatory body. Over here, you set the regulatory body in place who brought the regulations in, and then they are opening up the sector.

So you know the rules you have to play by. With all due respects, this regulator (N Rangachary) and his whole team have shown themselves to be much more open than any of the other regulators. They are willing to talk, discuss with industry and then come up with regulations which are meaningful and which can be implemented.

These are not regulations for the sake of regulations. These are regulations to protect the policy-holder, but not make it impossible to write policies. That's a great thing. Credit should go to IRDA for this.

You mean, N Rangachary is refreshingly different, open-minded, receptive to ideas and all that?

Just not that. Of course, he is receptive to ideas. I can't go and tell him exactly what to do. But I can tell him what we think can be done; he will then make his call, but it's not that he is going to come up saying, 'I know what is to be done. Don't tell me.'

He has been extremely receptive. You can talk to anyone. He is willing to listen to anyone.

Any particular memories?

The whole range of things. I mean, from the point of even training. They said, 'You would have to have four weeks' training (for employees, executives and agents).' I said, 'No. I've a brilliant guy with me. He is willing to work day and night. Why should he have to go for four weeks? Let's make it less.' So they said, 'Okay, knock the four weeks off.'

Now they have said it has to be 100 hours of training. My point is again, 'Why do you insist on 100 hours of training? Maybe I'm brilliant and can read it in 50 hours.' At the end of 100 hours of training, you are going to ensure that I have to pass a test. If I can pass the test, then this is not necessary.

I'm sure, if we were to meet again a year down the road, two years down the road, that this would have gone, only the test would matter. But, I think, in the initial period they just want to be safe so that the sector does not get a bad name. And I don't blame them.

Some of John Grisham's research-based novels capture in chilling detail the unethical practices of insurance companies abroad. Do you think the Indian consumer has to be that much more careful and vigilant now while taking insurance policies in the new liberalised environment?

Why it would not happen, I can't say. I'm sure such things can happen because, irrespective of caste, colour, country and creed, people are the same, whether it is the policy-holder or the issuer.

Whether we (HDFC-Standard Life) would do anything unethical in our behaviour with the customers, definitely not. That I can assure you. We will not do anything unethical.

Will the policy-holder behave unethically? I hope not. Because you must recognise, in this country, the medical system is extremely weak. Today, for example, in the UK, if you want to get a policy written up, the policy-holder's health record is available for anyone to see with the National Health Service. If you leave London and go off to Edinburgh, your health records will be transferred with you.

Today in India, we don't have that. And we have had instances in the past I believe where the medical records have not been of the highest ethical standards. Now, if those are things which are going to lead to delays in settlement of claims -- for example, you go and test yourself to find if you are a diabetic, so 'Oh God, I need to get a policy right now, I'll go and get the policy but I will go to some other doctor who will give me a clean chit' -- then, what do we do on that?

If it means it happens within a month or two months, of course there is going to be some sort of testing done. So I don't think you can't blame one side; you've to look at both sides.

John Grisham, I think, does exaggerate. He writes lovely novels but he has got to sell the books. So... (laughs).

Several insurance companies abroad, especially in Japan, have folded up, after declaring themselves as bankrupt, leaving their patrons in the lurch. Most of them have been accused of misappropriation, mismanagement, bad investments and fraud. What kind of precautions are you taking to ensure sound business practices?

The investment guidelines for private insurance companies, as would be applicable to even the public sector companies, are pretty stringent. They have laid down very clearly that up to 50 per cent of the control funds will have to be invested in government securities. Another 15 per cent will go into infrastructure. Another 20 per cent into what are called approved investments. And the balance 15 per cent into other than approved investments.

So the rules are laid down very clearly. When you talk of approved investments, they also have equities, debentures, fixed deposits, whatever. For each of them, they have prudential norms which have been laid down so that your debt-equity ratios, your ratings, your interest coverage ratios...all of those have been stipulated.

So I think if those are followed, then it will be an act of God if it goes bad.

The foreign partner's equity participation is limited to 26 per cent now. It is felt that in the WTO regime that entails a totally free financial services sector in member-countries, the foreign partner will be free to raise his stake. Do you foresee a scenario wherein Standard Life will raise its stake?

Absolutely not. We've signed a joint venture agreement on a 50:50 basis. We've said, 'We'll sign up as 50:50 partners or such other limits as may be prescribed by the regulations.' That's what we call them. Our intention is to have a 50:50 partnership; even if there is permission for them to go up to 100 per cent, we will stay at 50:50.

You are going to be the only private sector player in life insurance. How will you square up against an established, major corporation like LIC?

HDFC Bank stood up against the State Bank of India, and it has not done badly. See, I don't think we need to take away business from each other. The potential, the market is huge. This market has to grow very very rapidly.

If you look at the past... look at the financial sector. The financial sector has grown at about 30 to 40 per cent a year. If you look at fixed deposits in the banks, they have grown at 18, 19 or 20 per cent a year. In the insurance business, the premiums have grown at 15 to 18 per cent a year.

If that was projected to increase higher, and one way to look at it is, if you look at life insurance premium as a percentage of gross domestic savings, we are running to head about 6 per cent. The US is at 24 per cent, the UK is 41 per cent, Japan 31 per cent, and South Korea 32 per cent. If we assume that this 6 per cent goes up to 18 per cent by year 2010, we are talking of significant amount of policies being sold.

I think the CII has done some numbers to show that at this point in time, there are some 100 million policies outstanding, another 100 million policies will be written up, so that the outstanding will be 180 million. It's not in the realm of fanciful thinking. It's definitely possible.

Do you have any specific plans to distinguish yourself from LIC?

Execution. Implementation. Service. See, if you look at it, our strategy for product development is that we are customer-centric. What the customer wants, the customer will get. We have done a market survey of people who have got policies, people who have not taken policies, to figure out why they didn't, and people who have been selling policies.

And based on the feedback that we've got, we believe that it is existing savings-linked policies which will be in demand. Which will be endowment, and money-back type of things. Eighty-five per cent of LIC policies are of this type.

So we think that is where the market is today. Where will the market be tomorrow? I've no clue. And, therefore, what we will do on Day One is set up a market research department. It will be in the market all the time to figure out what the customer wants.

As we understand and as the customer begins to understand what products can be available... because today they have given us a feedback that they want this, because that's what they are used to, they don't know of anything else, therefore they have said, 'This.'

Once they can see other products happening, this whole education process will be expedited by the fact that there would be so many new companies coming in, each with different strategies and different products. And the market will expand very quickly.

We are ready. In the second phase, we will be ready to launch unit-linked investment products. So we will be ready, as and when we feel that the customer wants it, we will deliver it.

In other words, you wouldn't first create products and then try to find customers?

Never. We will want to know what the customer wants and that is what we will give him.

I don't think it is for me to decide sitting over here what the customer wants. The customer has to tell us what he wants. And our job is to give him service. We are in the service industry.

It is said you always like to be the big fish in a small pond. But here it seems you are the small fish in the big life insurance pond.

'The big fish in a small pond' -- the context was in terms of the companies that I joined. The first company that I'd joined after leaving IIT was a small company and not L&T. Then I joined HDFC. This insurance company will also be a small company just now compared to LIC. So what I'd said still holds good. I believe in that because that's where the excitement is.

What are your immediate business plans?

We are hoping to have a soft launch sometime in December. Thereafter, we'll have a national rollout in January 2001. We hope to have in the first year about 12 branches, increasing to 75 in five years' time, with presence across the country, including rural areas.

Have you done any research in rural areas?

Yes. That is again an advantage we have. HDFC has worked with 90 non-governmental organisations in rural areas. We have interactions with them to figure out the need and the demand for insurance products for these people. They have come up with what their requirements are. We are working on the products for them.

Couple of days back, I was talking to someone else, and I think they are waiting for us to launch our product because they say they have got a project for 30,000 houses for poor people.

At this point in time, all I would say is, this project is in one of the southern states. The NGO was wondering: would we be willing to look at covering these poor people with insurance?

Sure. It fits in. Housing. Life insurance. Perfect fit. Specially in rural areas. You never know when the guy dies, what happens? Who takes on the debt? If you got it covered with insurance, the family left behind has a house to stay in.

You say housing and life insurance make a perfect fit. You would be bringing your years' of experience as HDFC's MD to the new insurance company. Will this give your joint venture an added advantage?

I think this company will get a kickstart because we've got the HDFC name, not because I'm there. I'll contribute, yes. But I think it's the HDFC brand name is what is going to drive it. People trust it. Insurance is about trust. I don't think we are trying to build up an organisation where it is identified with a star or someone out there; it is a team effort, this is what this company is about.

Part II: 'LIC is the only real competitor we face'

Part III: 'We'll help NRIs to gift insurance policies to their kith and kin in India''

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