Loan against unit-linked policy will prevent lapses: HDFC Life CEO (IANS Exclusive)

HDFC Life Insurance company is in touch with the regulator about allowing loan against policy for the unit-linked segment as well, Vibha Padalkar, Managing Director & Chief Executive Officer said in an interview with IANS. It will allow the customers to deal with any liquidity problems, which could help prevent surrenders or lapses, she added.

Padalkar added that the impact of the Covid outbreak has been seen across both new business and renewal collections, with customers wanting to conserve cash till clarity emerges. On the savings front, the overall demand is currently subdued.

“We expect business, especially the protection segment, to emerge stronger at the end of this pandemic. This might well be an inflection point especially for the protection business as customers would feel a greater need for such products in order to safeguard themselves,” Padalkar added.

“Against the backdrop of volatile equity markets we expect the demand for unit linked products to be low in the short term, with customers opting for more risk averse products like guaranteed and term products,” she said.

HDFC Life Insurance has been able to open more than 65% of branches in the country (especially in green zones) and witnessed customer footfalls and higher degree of customer engagement across channels in the months of April and May.

Adding that 2020 will be the year of digitisation, HDFC Life Insurance CEO said the sudden lockdown has exhibited the industry’s excessive dependence on manual, paper-bound processes and has made it imperative for it to move towards the online distribution model.

“Also with fear of layoffs, salary cuts etc. I anticipate the customer’s preference to shift to lower ticket size products, providing an opportunity to life insurers to introduce bite-sized /sachet products which can further help unlock the potential of our under-penetrated market,” she added.

Q: How are life insurance products doing at a time of pandemic? Whether Life Insurance demand has gone up year-on-year?

A: The impact of the outbreak has been seen across both new business and renewal collections, with customers wanting to conserve cash till clarity emerges. The industry de-grew by 45 per cent basis Individual WRP in the month of April, showcasing lower de-growth than expected. With increase in awareness levels we are seeing higher traction in the protection business. On the savings front, the overall demand is currently subdued, in line with the customer’s behaviour of conserving cash. We do anticipate latent demand to play out once the situation stabilizes.

Q: Are individuals seeking more protection? In terms of penetration will Covid-19 be an inflection point that the life industry would see?

A: We have seen an increase in demand for term insurance on a sequential as well as YoY basis, leading to higher proportion of protection compared to the same period last year. The higher proportion is also a result of lower preference to commit to savings products at this juncture. We expect business, especially the protection segment, to emerge stronger at the end of this pandemic.

This might well be an inflection point especially for the protection business as customers would feel a greater need for such products in order to safeguard themselves. A similar trend has been observed in the region in the past, during such pandemics, and hence we expect overall penetration levels to improve, post this event. However, we need to see how the financial services sector will be affected due to COVID-19- how savings patterns will change and what proportion comes into financial savings. We are hopeful, particularly on the protection,retirement and interest rate guaranteed product opportunities in the life insurance sector.

Q: Innovation in products made pre COVID-19 on Digital platforms. Are they doing better in the COVID world?

A: Our products even pre-COVID19 had been made for digital platforms and during the lockdown all our sales have been digitally done leading to minimal process disruption and hence it is not surprising that our online channel showed healthy growth in April.

Q: Given the volatility in markets, will the focus shift to guaranteed & term products and will there be a slowdown in unit linked insurance plans (ULIPs)?

A: Our overall distribution strategy has always been that of having a balanced portfolio, with a healthy mix of participating, non-participating, ULIPs and protection products. Against the backdrop of volatile equity markets we expect the demand for unit linked products to be low in the short term, with customers opting for more risk averse products like guaranteed and term products.

We continue to focus on the protection and annuity segments, with the view to address the mortality, morbidity, and longevity risks of our customers. We also expect our interest rate guaranteed and participating products to do well.

Q: Do you see surrenders rising, going forward?

A: Our persistency has been steady throughout FY20. However, in light of the evolving situation we are closely monitoring persistency and surrenders at the Company level, especially in some segments like unit linked. The regulator has been pro-active in giving an additional grace period for premium payments.

Life insurance policies provide the option for loan against policies. Currently this facility is only available for traditional products. We are in touch with the regulator about allowing loan against policy for the unit linked segment as well. Allowing the same will allow the customers to deal with any liquidity problems, which could help prevent surrenders or lapses.

Q: What is the impact of COVID-19 on HDFC LIFE?

A: As mentioned earlier, the sudden lockdown, the moratorium until 31st May and the changed consumer behaviour of wanting to hold on to cash has impacted our renewal collections and our new business and this has been an industry wide phenomenon. As soon as the lockdown had commenced we started making necessary changes to our operating model to ensure that the customers can perform all activities across the insurance value chain virtually (digitized sales and service). Our investments in digital assets, over the years, have paid off and we have been able to give our customers, agents and distributors a seamless experience due to our digital capabilities. This has not only enabled us to continue providing a seamless experience to the end customer from a new business and servicing perspective, but also puts us in a good position to address the demand, whenever it starts building up. Comparatively, we have fared better and hence our market share has grown.

We have been able to open more than 65% of branches in the country (especially in green zones) and have witnessed customer footfalls and higher degree of customer engagement across channels in the months of April and May.

Q: How do you see the landscape for the insurance sector changing in 2020?

A: In my view, the year 2020 will be the year of digitization and customer centricity for the insurance industry. The sudden lockdown has exhibited the industry’s excessive dependence on manual, paper-bound processes and has made it imperative for it to move towards the online distribution model. Digital is the way forward.

Even the consumer’s preference is changing and especially the younger generation which is more tech savvy prefers digital – short and simple journeys. However, considering that many customers may still be reluctant or may not be tech savvy to do online purchases, life insurers will need to handhold such customers and over-invest in evangelizing digital purchase journeys for insurance.

Customer centricity: Insurance traditionally has been a push product, where selling is done by reaching out to the customer. In such an ecosystem, insurers gave more consideration to intermediaries rather than the end customer. However, I believe the trend is rapidly changing. The customers are now demanding relevant products, transparency and a seamless experience while purchasing insurance.

They prefer short, simple journeys and hence insurers will have to keep customer experience at the core of their strategy.

Q: The rapidly changing consumer behaviour is reshaping the insurance industry. How is HDFC Life seeing this opportunity?

A: In the wake of COVID-19, while consumers are currently focusing on ready availability of cash to deal with exigencies, they have also realized that insurance is almost as essential as bread and butter, especially pure life insurance. I am optimistic that post this pandemic an insurance product will be reckoned as a ‘risk cover’ rather than a mere investment product propelling overall life insurance penetration in the country.

Also with fear of layoffs, salary cuts etc. I anticipate the customer’s preference to shift to lower ticket size products, providing an opportunity to life insurers to introduce bite-sized /sachet products which can further help unlock the potential of our under-penetrated market.

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