V Vaidyanathan, the new managing director and CEO of ICICI Prudential Life Insurance, is trying to get the private sector player overcome the temporary distractions and once again grab market share. At the same time, he tells Sidhartha, higher efficiency and cost control will be the buzzword in making the company profitable in the next two years. Excerpts:
Things looked bad on the economic front a year ago. How is it now?
A year ago people probably assumed that the global financial system may freeze. Such extreme pessimism reflected in the markets too. Now, it is clear that this is not happening. Now, healing is a matter of time, but heal it will. The $2 trillion the world has infused into the economies is a lot of money. For example, new home sales in the US are up 11 per cent over the last month. There may be concerns still, but it's not dire anymore.
But will the excess liquidity have some side effects?
Look, (it is) a fact that significant money has been printed and released into the system. That money pumped in has to go somewhere. Money will go in four places - subscribe to government paper, go to equities, chase existing assets like property or it could go into consumption through loans.
So what is the impact on us: The global money is coming to India in the form of foreign direct investment or foreign institutional investor because of growth prospects. Right now the issue is growth, we need to spur it. But more liquidity can mean inflation. As long as it is on estimated lines, it is not a problem. If it starts going off track, RBI may tighten (monetary) policies. At that time, it could have a sobering effect.
When the Sensex declined from 21,000 to 8,000, a portion of such a dip was because of the global crises, but a portion was also because of tight liquidity. Now that the local liquidity factor is addressed, we will play salsa with the global developments, but we'll beat global indices in performance.
So, what does all this mean for a financial service provider like ICICI Prudential Life?
It's positive, because consumption is kicking off again. You can see it in the growth of the auto numbers. Steel is picking up, so is cement. This will create GDP and wealth again. The most important factor is that the confidence has improved.
That itself is a big deal and has a spiral effect. With confidence you hire, it in turn spurs demand, which in turn spurs more production - it is a cycle and so it is a very positive thing. A portion will be because of the base effect. As in last year, the third quarter was probably low in confidence, economic activity and the markets. So commitments are hard to come by.
This is the key point. And this year, we are seeing the confidence come back and this will significantly jump in the third and fourth quarter. Markets are back in the 15000-16000 range, it's a barometer of confidence as much as it is of economic prospects.
If it is an industry issue, why is it that your market share has dipped most this year; you are down to 7 per cent of the market, even by the method of weighted premiums?
We are introducing new products, and charging up our system. We are back on our feet. We have seen a climb from 5.5 per cent in April to 6.9 per cent in May and 7.9 per cent in June. And, we expect to close this quarter even better.
But your volumes have dropped 50 per cent over the last year. Why is that so?
We may have had distractions, these are temporary. Do we acknowledge the dip in market share? Yes. Whether we will fix it? Yes. Maybe a quarter from now, we will lead the market growth again. A quarter here and there can always happen but the long term growth of the industry is most important, we will work on that.
And, how are you doing it?
We are noticing that somehow insurance is not top of mind in people's financial planning. Though it is more important than any other because first, you need to protect what you have, before you create more. It is a real need, but a latent need. Somehow people think that they have to focus on their today's problems, today's cash flows, today's everything. What about tomorrow?
So we are soon coming out with new campaigns such as '7K equals Future Okay'. We are telling customers to save Rs 7,000 per month for the next 15 or 20 years get a lumpsum at retirement, and get an annuity till death, and pay for kid's higher education and get a health cover of 20 years. It's tough to sink these things into the consumer, but the industry has to keep trying.
How does Irda's new regulation on the capping Ulip charges affect you?
All insurers will be affected and a large number of products will have to be reworked and re-filed. We have to meet the new norms in two ways, by cutting costs or commissions. With the regulator setting these things, the industry will get more credibility.
Is it true that you need Rs 300-400 crore of capital this year?
Yes, it would be require Rs 300-400 crore. But it depends on growth. Our capital position is very comfortable. We are one of the most invested companies in India. Our capital base is about Rs 4,800 crore and we are very bullish about the future.
So, is your IPO dependent on your growth?
Nothing is decided yet. A lot depends on the (Insurance) Bill and on the shareholders.
Life insurance industry has been posting losses for a long time...
This is a long-term business model. It is in the nature of this industry. This is a long-term and a very viable business.
But some people privately say they don't know how long this will go on, meaning they are not sure even of the long term.
The fixation for the next two-three years will be on efficiency. We are cutting our wasteful costs, and are redirecting the resources to areas of growth. We will improve customer proposition so that the top line keeps growing. We are targeting breakeven by 2011, or latest by 2012. We are wholly dedicated to this.
The date also ties up with the law on going public for life insurance companies.
No, we are not looking at it in that light. It's just that any business has to be profitable, and ours is no exception.
So how will that efficiency come?
We are certainly working on our business models, which includes distribution, customer proposition and margins. We will focus on the profitability of our business lines and branches. We will focus on our expense reduction very significantly, across the company.
Do the government and the regulator also need to help the industry improve efficiency levels?
The key thing will be the paper work that is required for insurance. Once the national ID project kicks off, that itself will be a big breakthrough for insurance. Or the bank account can be deemed as a KYC. These things can ease the process. (Besides that), giving a separate tax break for insurance will also go a long way. It is also good for the country because this is the only product with long-term savings and long-term investments that can be used for infrastructure.
Will you also have competition from the pension players?
Not at all. The New Pension Scheme is a very important scheme and it has to succeed. It is too large a market and we cannot talk of competition. We need long-term savings now.
