Interview / Deepak Satwalekar

'LIC is the only real competitor we face'

Part I: 'Housing finance. Life insurance. It's a perfect fit.'

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

Some people say LIC was doing quite well, that there was no real need for private life insurance companies. What is your understanding of the Indian market?

There were a certain shortcomings in the monopoly situation. LIC did not fully exploit the opportunities available. If you are running alone, if you are swimming in a pool alone, there is no incentive to be any faster, because you will always be first, no matter how slow you crawl.

It's only when the competition comes that you find these things happening. I think it's true for everyone. Look at HDFC. We were growing at rates of 25 to 30 per cent until the competition came on. Now, for the last three years, our retail business has been growing between 45 and 50 per cent a year.

People need competition. They need to pit themselves against someone else to show how good they are. Competition is good.

How receptive were India' bureaucrats and politicians when corporate executives like you began pressing the government to open up the insurance sector?

The bureaucracy, the regulator and others were receptive...it was like preaching to the converted. They knew about it.

Frankly, if you talk to the politicians also, they knew it had to be done. They just needed to find a way of doing it without they having to go back to their constituents and say that 'I've opened this up'. That's what needed to be done.

There is a large constituency of the existing player which was resisting the move. There is a large force of agents which was acting against the move. Then, of course, you had some of the political parties who believed that unionism and all that really matter.

You talk to any politician one-on-one in the last five years... they all agreed with it. But when they came to a public platform, some of them changed their views.

At an insurance conference, Murli Deora (of the Congress party; he was the chairman of Parliament's standing committee on finance to which the Insurance Bill was referred) was there. He stood up and said, 'I will go for 49 per cent (equity for the foreign partner). And I'll push it'. So it did help.

Should it have taken so long? Of course not. Do you mind it? Yes. We've lost six years of our lives. But if it is a process that you need to go through, fair enough.

There is a view that the opening up of the insurance industry does not have the mandate of people at large, that it was brought about in spite of people's opposition to it, that the government and private sector companies are in an unholy nexus.

(Frowns). I don't think so. If you look at any bill, sometimes I feel our opposition takes the word opposition seriously. They would promote a thing when in power. As soon as they become opposition, they oppose the same thing. They need to be told that when they are in the opposition, it does not mean that they need to oppose everything.

I don't think there was any hanky-panky.

I think opening up of the insurance industry indeed has the mandate of people at large. It did not have the mandate of a few people. Couple of hundred thousand people. Some 300,000 people (public sector insurance companies' employees) were holding the country to ransom. That's it.

People at large have seen the benefits of liberalisation. Did you ten years back think that you could buy a 21-inch colour television at nine thousand rupees? Did you ever think that? No way. Did you ever think that you could get a car better than the Ambassador or the Premier Padmini? No.

I think people have seen the benefits. People have seen the costs of consumer durables coming down, all led by competition.

Why did you choose the life insurance segment?

For manufacturing the product, we thought there was much greater synergy between housing finance and life insurance. One the one hand, if you look at it, housing finance is a very long-term product on the assets side. Life insurance is a long-term product on the liabilities side. So it makes a natural fit because we are planning to come out with more redemption products.

You check out a housing policy and you are given a life insurance policy and the redemption proceeds will settle the principal of the main amount. It did make sense for us to get into this business.

But we at HDFC will be distributing non-life products also. They could be of other companies. It could be from our own stable down the road. We might seek a licence or a certification for a second company for non-life products.

The objective at this point in time, the strategic plan for HDFC, is to be a distribution house for financial products; for every financial product you can think of.

You think finance, you think HDFC.

So you can walk into our office and open a savings account in HDFC Bank, open a demat account in HDFC Bank, trade on your shares with HDFC's Net services, take a mutual fund product from us, get a life insurance product, get a non-life product, get a housing loan, get an auto loan, whatever you want.... HDFC will seek to be a distribution powerhouse.

Long before the government decided to open up the insurance sector, some 19 Indian companies forged alliances. Do you think Indian market is big enough to accommodate so many players?

The market can sustain many more players. It's not an issue. What we need to look at is how the global market is performing.

There is consolidation taking place in the global market which will have its impact over here. Which, even before the market opened up over here, we have begun to see. Alliances which have been formed, needed to be restructured in India because there were global mergers out there.

Plus, you will find certain global companies deciding that they want to opt out of certain markets. So the alliances will break down here. That is going to happen here. Once you open up, then you are going to be buffeted by the winds of change elsewhere.

How many players do you think will survive in the long run?

Very easily you could get a dozen companies lasting.

IRDA has made Rs 1 billion in capital mandatory for entering this sector. Is this high or low?

To start off with Rs 1 billion is fine. It's not too high because if it was lower, then there is always the fear of getting in not-so-desirable companies. What they have tried to do is set the barriers to entry at Rs 1 billion. Which is the same thing they have set for the banks.

Beyond this, as you require more capital -- if you grow fast, you need capital even more because you have to maintain solvency margins -- that is something which IRDA is looking at when you make your application to them.

Looking at the solvency margin that you will maintain, and then looking at your ability to be able to pump in additional capital -- I think that is what might distinguish the long-term players vis-a-vis the short-term players. The need for huge capital.

Who do you think could be your competitors?

What we hope is that the only one bigger than us is LIC. There are not going to be any foreign companies. They are not allowed to sell policies in India. If others have foreign partners and see an advantage in this, well, we, too, have got a foreign partner.

The only competition I'd recognise really would be LIC because they have got a huge base already. So that's the one that I would want to chip away at. Frankly, you don't need to go after each other's clients, the customer base.

The market is so huge. I mean, if you've got a 22 per cent penetration, you got the country ahead of you. Straight.

Have you set yourself any year-wise targets?

Of course. We are very confident of meeting our targets. What are the targets? I may not be able to disclose to you at this point in time because this is going to be a rather competitive industry. But I think we have set ourselves ambitious targets.

We are really banking on the brand and our understanding of the retail customer, which I don't think the others have. That's a decided advantage we have. We also have an advantage in proving time and time again our ability to implement. Any of the companies coming in, it can't have strategies which are too different. You will not have products which are very different.

What will differentiate you will be your ability to implement your plan of action. I think we have that down to our teeth.

Do you think this move to open up the insurance industry is irreversible?

I think it is irreversible. Hundred per cent. In 1956, the insurance sector was nationalised. Then, the WTO did not exist. India was not a part of the global market. The markets in 1956 and the markets today are significantly different. I don't see anyway that they could go back to those years.

At this point, I think even they (the government) realise that they were trying to hold back as long as they could. But beyond a point, they really can't go back. No.

What plans do you have to keep your staff fully trained for the changing market?

For us, training, like technology, will be a differentiating factor. We believe that training is necessary, not just for the sales agents but for our people. Today, the way the rules are structured, if you were to pick up an LIC agent, you don't need to train, he can go out into the field and sell our products. And that's what they expected -- a few people who talked to us.

And we said, 'Whether you've a licence or not, you will have to undergo at least 30 hours of training with us. What you need to understand is what our products are, you need to understand what our value systems are, and we will then teach you how to sell the product.'

Selling a product does not mean going and telling a person that 'Boss, you've got a gap in your Section 88 (of the Income Tax Act) tax incentives, so you better fill this up and take it'. That's not it.

You need to be able to sell him why he needs this as a risk management tool. Therefore, we are saying that our agents -- we will call them consultants because the complexity of financial products is increasing significantly. We would like him to be an advisor on the financial planning for the customers.

It's a question of time before in India we will see the same thing as it happened in the UK where you get the independent financial advisors. These are the people who advise you on your entire financial planning, whether you should put your money away into insurance, whether it should be into mutual funds, what it should be in.

That's what we are going to be training our people to do. So training becomes very important for them. Out of a 100 hours, we are talking about 70 hours of technical training: what is insurance, what are the insurance products, what are the rules, regulations, so on. And 30 hours for understanding the company, and actually how do you sell. That is the skill that we will impart. This is for the agents.

As far as our employees are concerned, they go through this training, plus they will go through the managerial training. There will be management inputs. We will have the team of business development executives whose job will be to recruit, train, motivate and retain these agents.

Do you plan to offer any incentives like official rebates to your customers?

No. I think it's unethical. It's wrong for agents to do it. But if they do it, I don't think at this point in time we really have a way of catching them.

What we are trying to tell our consultants is that as you go forward, you will need to build up your own capability to attract your customers and retain them on other than these financial parameters.

They should be with you because you give them the best advice. And if you need to continue giving them the best advice, to be able to service them, you need to build up a set-up which can do that. For that you need the revenues that you get, not distribute it out; if you keep distributing a part of what your commission is, you will never be able to build up the system capability that you need. You won't be able to buy a computer, you won't be able to buy a digital assistant or whatever.

How are you ever going to service your customers to the level you need to? As competition increases, service standards have to be upped significantly. Why should I take a policy from you and why not from the next agent? Because both the agents offer the same product, it's the service that matters.

They need to enhance their own capability for delivering service. And for that, they will need to make investments. Else, they shouldn't be really getting into this business.

Don't miss the third and final part of this interview on November 7: "Public sector and private banks are seeking strategic tie-ups with us to distribute our products."

SEE ALSO:

'LIC will be more than a match for competitors'

Money

Interviews

Tell us what you think of this interview