Rising inflation has become a major concern in all countries as it eats away at people’s disposable income. Vibha Padalkar, MD and CEO, HDFC Life, told Sandeep Singh that if inflation continues, it will also start to hurt demand for savings products. Stating that premiums should stabilize now, she also called on the regulator to allow life insurance companies to sell health claims as this will allow them to offer innovative solutions to customers. Edited excerpts:
How does inflation hurt industry and what is the impact of interest rates?
Inflation remains a big concern as it has a greater impact as it eats away at savings and reduces disposable income. As disposable income decreases, customers respond by opting for slightly less coverage or not covering all family members, etc. If you see the industry numbers, the impact is not significant at this time. While there has been some impact on duration, it’s not so much on savings. However, if inflation continues, it will also start to affect savings products.
As for the rise in interest rates, it is reasonably positive for us. Our transmission is faster and we can spend higher annuity rates. However, stock market volatility is a downside. I think among the other options for saving, insurance continues to do well. The quantum of saving itself decreases however.
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The industry has seen an increase in premiums. Do you see it stabilizing now?
Premiums have increased mainly for term policies and this increase is due to the pandemic. Even though there is a lot of talk around premium increases, I want to say that the increase in premiums over the last 10 years is less than inflation. Reinsurers have suffered huge losses due to the pandemic and if they increase the load, it is difficult not to increase it. I think it should stabilize now.
How have the Covid death claims been for you?
We settled claims amounting to over Rs 6,000 crore in FY22 but this has now subsided. We have settled almost 4 lakh of claims with gross claims of around Rs 6,000 crore and net claims of Rs 4,300 crore. As an industry, I would say that even though it was much higher, we paid so many claims without looking at the clause too much. I think money is important if it is timely. For almost all of our unanticipated claims (if the policy has completed 3 years) we have paid within 24 hours or 48 hours maximum.
Although these are savings plans, it took about 3 months for the term insurance policies as we need to check pre-existing etc. and physical checks must be carried out by a local investigator in the field.
Do life insurers get permission to sell sick pay?
We have asked the regulator to allow us to sell health allowances, but this has not yet been authorized. Our point is that health in the world is closer to life than to motor. However, for some reason general insurers in India sell health while life insurers are not allowed to sell it. It is not logical. Previously, we had the right to sell health, but it was taken away from us.
My limited remark is that life insurers have the most important touchpoints with their branches and network, but you don’t allow us to sell. I think the focus should be on insurance penetration and expansion.
So far, nothing has changed. We even asked the regulator to authorize us to distribute, if you do not authorize us to manufacture. Today, banks can distribute insurance, but life insurers cannot distribute health. It does not mean anything.
We submitted it almost 18 months ago and the regulator said they would review it. I keep hope.
When you say innovations are possible, if you are allowed to, what could they be?
Innovation cannot occur if a key element is missing. For example: When someone is young, they need more life insurance. Supposing a person pays Rs 60,000 as a premium, I would say until the age of 55 (closer to retirement) we would give him maximum life cover. Afterwards, as he would also have built up savings, we will reduce the life cover and increase the health cover. However, for the individual, the premium of Rs 60,000 will remain constant.
As of now, we are not allowed to bundle various products and sell to the customer unless we partner with a single insurer. But even that is not homogeneous.
What are the areas of growth for life insurance?
Growth will come with product innovation. Pension products are another big growth area. As a nation, pension funds as a percentage of GDP are less than 5% compared to over 100% in the developed world. Although it is increasing, it is not at the desired rate.
People need to understand that the risk of an individual running out of money is very real due to increased longevity.
How will the merger of HDFC Bank and HDFC limited benefit you?
It can only improve significantly. The way I see it is today HDFC Bank is my biggest distributor, but it’s not my parent company, so once that happens there will be a full alignment. HDFC Bank will become a financial conglomerate and not just a bank. It will have everything to do with all financial services products and will be the parent company of them all. They will be able to tell the client that they know them – if they have a mortgage but no insurance etc., so the advice will be better.
If customers consent to be served as one customer, they will be treated as one customer for all HDFC Group products.