New surrender value norms may impact insurance for all by 2047 goal
India’s life insurance companies may have displayed resilience by responding quickly when new surrender value norms for the policies set in October 1 but the change will impact the industry’s ability, especially insurers focused on rural and middle income segment, to push insurance to those who need the cover the most, Shriram Life Insurance MD and CEO Casparus J.H. Kromhout said.
While the new norms were good from a customer value perspective, profitability of the insurers got impacted, especially of smaller organisations aspiring to grow fast. “It restricted the cost carrying capacity on products, the ability of the companies to reach out to lower segments with poorer persistency [levels],” he said during an interaction post the third quarter results of the Shriram Life Insurance.Consequent to the changes, which primarily mandated relatively higher payouts to customers opting to surrender policies ahead of the maturity, life insurers had to revise products and this meant a large number of mitigation measures to ensure “we come to the same level or remain at the same level of profitability post the regulations.”
Besides impacting ability of the players to reach out to the lower income customer segment, the new norms could also come in the way of the ambitious target of insurance for all by 2047 the country is pursuing, he said, pointing out Shriram Life Insurance has taken measures to mitigate and continues on growth path. “However, we needed to do lot of work to ensure that mitigations are in place,” he added.
For the December quarter the joint venture of Shriram Group and Africa’s Sanlam Group reported a 14% decline in net profit to ₹43 crore from ₹50 crore a year earlier. Sequentially, net profit was higher. The company had posted ₹23 crore in the September quarter. Total premium for the third quarter increased nearly 37% to ₹1,151 crore (₹841 crore). For the September quarter, it had reported ₹952 crore total premium.
On impact of special surrender value norms on the net profit, Mr.Kromhout said it was to some extent. “But mostly the impact is from our investment in building our capacity to reach out to more customers. We are not focused on continuously growing profits at the moment. Profitability is important, doing profitable business is very important to us. But investing profits into building scale is the current focus of the organisation, which means that you will see lower profits for some time, while the company will scale up,” he said.
“We are aggressively growing the organisation,” he said, adding Shriram Life Insurance aspires to break into top 10 insurers by premium in a couple of years, from 13th position now, while maintaining its focus on affordable life insurance and core customer segment. With around 30% of the business coming from the higher middle income market and middle income market, the company would continue to sharpen focus on other customer segments too. As part of the growth strategy, the insurer intends to deepen presence in existing markets — present in atleast 15 States – and bolster its technology backbone. On the targets set with regard to assets under management, he said the plan is to raise the AUM from existing ₹13,000 crore to ₹15,000 crore next fiscal.