Despite being a new entrant, Edelweiss Tokio Life insurance is cautious on expansion and opening branches, says Deepak Mittal, Managing Director and Chief Executive officer. Mittal feels that notwithstanding foreign direct investment coming in (pursuant to the Cabinet approval for a hike in FDI to 49%), there are early signs of growth coming back to the life insurance industry.
What impact do you see if foreign direct investment is raised to 49 per cent?
On a relative basis, it does not make much difference because we are anyway very well capitalised. As we started after the regulatory changes happened, we have been very measured in our expansion and opening branches. In the broader picture, the Bill was something that was promised for a long time, which had not happened. I think the signalling effect of it is very large. In addition, if you take foreign inflows (Rs 15,000 crore at the lower end and Rs 40,000 crore at the upper end) which include new entrants who enter India, it will be welcome to the Indian economy.
On ground, the sheer economic activity pick-up will lead to savings becoming more important. Also, the insurance laws are quite archaic and they in a sense pre-date the insurance sector opening up to private companies and formation of the insurance regulator. And often, the regulators hands are tied.
What is your take on the “full Indian management control” parameter that the Government is proposing in FDI?
I don’t think there is any clarity on that from an insurance perspective. Airlines have similar clauses which mean that we will have to justify it at the time of approval. I feel, to be fair, 49 per cent investment should give the foreign partner 49 per cent legal rights.
Why is the insurance industry not seeing inflows despite expectations of a long-term bull run?
If you look at the equity-led rally, technically mutual fund and Ulips should benefit from the rally. Ulip tends to be a much longer commitment product. There needs to be a lock-in for 5 years from investor point of view, so it does take longer to pick up. I think Ulip sales will pick up soon.
The Ulip sales in the industry have drastically come down in the industry. Do you feel there is a need for a change in the current structure of the product?
Insurance is a long-term contract and, therefore, there were penalties in place in case the contract was broken. The idea being that it should be like an exit load for a mutual fund so that the people who stay on don’t get loaded with the expenses. My personal view is that while insurance companies should not be surviving on surrender profits, it should also not mean that surrender charges should be very low. In a long-term policy that is not necessarily the right answer.
Banks have opposed the Finance Ministry’s directive asking them to act as insurance brokers as they feel there are too many operational issues. What are your views on this?
Banks should move to an open architecture system and conceptually there is a lot of agreement. Bank as a broker is tricky in my personal opinion because unlike mutual fund, insurance has a risk element to it whether it is a general insurance product or life insurance. As a broker, you become representative of the client. If something goes wrong with an insurance contract, and let us say the bank gets a Rs 100-crore claim from a life or a general insurance claim and the insurer denies the claim because it was not given the right information, there could be situations in which the broker becomes liable. So I feel we need to find a way other than brokers.
We are very bullish on the distribution channel but we don’t see much opportunity unless the law changes as most of the large banks have promoted or have stakes in insurance companies.
What are your focus areas?
While we are expanding, we are not focusing on just physical expansion of branches this year. Our focus is growing the overall distribution base. In three years, we have opened 58 branches. This year, we will try to ensure that these branches become truly productive. We are also looking at scaling up on our bancassurance partnerships.