‘Irda’s new guidelines have slowed down business tremendously’

Kamalji Sahay, CEO, Star Union Dai-Ichi, speaks to DNA about how insurance will always remain a push product. He also states that their marketing activities have taken a huge hit due to the new Irda (Insurance Regulatory and Development Authority) regulations. The company has posted a 35% growth over last year, holding the 13th position, with a market share of 0.99% in the industry.

How has your company performed since inception?
Our company was launched on February 9, 2009 and we have completed two years of operations. During this period, we have seen very good growth. In the first seven weeks of the first year, we collected premiums worth `51 crore and in the entire second financial year we raked in Rs525 crore. This fiscal up to January 2011, we have already collected Rs471 crore, and we still have 2 months to achieve our target of collecting premiums worth Rs750 crore till March 2011. We had set a target of Rs1,000 crore up to March 2011, but the Irda’s new guidelines have slowed down the business production tremendously.

How has the response to your newly launched Reverse Mortgage Enabled Annuity (RMEA) product been?
We are the pioneers in this product. We are collecting roughly Rs1.5 crore per month and till date we have sold 48 policies. But the product movement is very slow, reason being our outlet was only through the Central Bank of India so far, but last month we signed an MOU (memorandum of understanding) with the Union Bank of India (UBI), which has instructed all its 2,900 branches to promote RMEA.

Any more innovative plans and products in the pipeline?
At present, we have no new products in the pipeline. But we are selling the newly introduced child benefit ULIP plan, which is designed as per the new IRDA guidelines effective from September 1, 2010. We will be selling our products on-line as well, but not before 2013.

Several insurance companies have been dropping premium rates. What is your way forward on this front?
Premium on term insurance has become a very competitive zone. Along with competitive premiums, there is also an improvement in mortality rates. Companies are trying to keep premium prices very low in order to attract young people to buy it. We have also launched a term product with a very low premium and I don’t think there is any further risk in reducing it. People who opt for term cover, are usually educated, young, and from well-to-do families. So, we have grounds to reduce the premium and keep it at low levels.

Are there any changes in the stakes held in the company?
Yes, earlier Bank of India (BOI) had 51% stake, which has now been reduced to 48%. The changes are made on account of the internal agreements the banks had agreed on. The percentage reduced from BOI has been transferred to UBI, whose stake now stands at 26%, with the Japanese company Dai-Ichi also holding an equal stake of 26%.

How much business do your channel partners bring in?
BOI and UBI have been contributing 51% and 45% till the end of January 2011. We do business through seven regional rural banks (RRB) also, and have signed an MOU with them to get a corporate agency. We are penetrating in the remotest villages through them. These RRBs also help in collecting premiums contributing close to 4% to our business. The two banks, together, have 1500 branches, which helps us cover almost half of India. The branches are mainly in Uttar Pradesh, Madhya Pradesh, Jharkhand, Maharashtra and Orissa.

What are your views on the open architecture system (banks allowed to sell policies of more than one insurance company)?
I do not think that is going to work, because it will increase the cost for companies, who will ultimately pass the cost to their customers. Due to this, there will be a lot of repetitive exercise for the banks. The biggest issue here is that a banker, who is busy with the banking business, gets very little time to understand insurance. If he gets time to understand insurance products of one company that is good enough for him. He will never be able to understand products of three or four companies together. This open architecture system will create more mess in the bancassurance channel.

Do you consider yourself a late entrant in the life insurance business? Any challenges you have faced due to this?
I do not feel we have entered late. Our only challenge is recruiting and retaining people. Employing people has also become very costly, because they move from one company to another expecting higher compensation. This is an area we are facing difficulty in, since selling insurance is a very difficult job. People fail, get frustrated and then drop out. Employees who are able to sustain, are fewer in number, hence, it is difficult to have good people.

Why is insurance literacy still nascent in India? Why does insurance still remain a push product?
Insurance is not a product that you feel the need for and would go to the market to buy it. Somebody has to motivate the need in your mind. It is more connected with your emotions, aspirations and how you feel about your family. Nobody gets time to think about these things. Somebody has to trigger your thoughts towards providing financial security to your family. Insurance is a product which needs elaboration.

How many employees and branches does Star Union Dai-Ichi have across India?
Currently, we have 1300 employees and 20 regional offices across the country. We also operate through other bank branches. A total of 7,800 branches sell our products. With the launch of our first agency channel in eastern India, we will be entering the agency channel this month itself. Under this model, we will recruit and train our agents, make them pass exams, which will help them in door-to-door selling of insurance. This channel is the largest selling channel and hence we introduced it. We will launch this on February 17 in Patna and by the end of this month in Guwahati as well.

How much capital will you infuse this year?
We will not be requiring any capital for another two years atleast, as we have been very cost efficient. Normally, in the first couple of years, companies spend more than 100% of the premium received, but in the last quarter our total operating expense ratio was only 24 - 25%, which is very low compared with others. In the September quarter, we have made a small profit too, in the traditional business.

What is your claims settlement ratio?
We settle upto 80% of the claims made by our customers. But by March-end we will improve this by at least a 5-6% more.