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Nath Balakrishnan

Tata AIG Life Insurance, the 74:26 joint venture between the Tata Group and AIG, has seen some brisk business in the just-ended financial year. Business Line caught up with Mr Joydeep Roy, Director (Alternate Channels), for his views on the company's performance and the venture's future plans.

Excerpts from the interview:

Could you update us on your performance in the just-concluded fiscal?

Business has been good; we have grown over 250 per cent compared to the previous year. Of the total premium income of Rs 250 crore, first-year premium income was Rs 180 crore; renewal premium accounted for the rest. The group has done new business of about Rs 56 crore in the last year.

Is it correct to presume that the corporate business would turn out to be more profitable than individual life business?

It depends. Life insurance, after all, is an experiential business. At the start of the policy, certain assumptions are made for actuarial purposes such as mortality and future interest charges for individual policies; for group policies it is only mortality charges. As time goes by, these assumptions get tempered by reality.

If reality turns out to be better than our assumptions, it enhances profitability and vice versa. Factors that might lead to an occasional bad year here and there are built in to the actuarial calculations. And actuarial strength is one of the big strengths of AIG worldwide.

A comparison of premiums across a few of your products — money-back and pure term to name two — vis-à-vis competition suggests that you are priced higher. What could explain the differential?

The product segments you have spoken about are also those in which we are strong. In the case of money-back plan, we give out a guarantee of 10 per cent of sum assured every three years and also offer a compounded reversionary bonuses.

This is an aggressive benefit that has to be supported by aggressive pricing. In the case of term plans, we do not think we are uncompetitive. For instance, our term plan with the return of premium option sells well in the semi-urban areas. Our pure term plan that addresses the non-smoking population is another plan that is priced competitively.

On one of your products, Nirvana, you offer a high guaranteed addition of 10 per cent. Do you think there is a future for such guaranteed addition products?

Of course, there is. In an uncertain future, human nature tends to look for some kind of guarantee.

For example, in the future, you might have a situation where even the life cover might not be guaranteed and that would depend on market forces. Would you like that as a customer? You might even settle for a lower guarantee with some sweeteners thrown in, but you would look for the guarantee.

Give us an idea of your bancassurance operations and the extent to what they contribute to your business.

We started off the bancassurance about a year ago and tied up with HSBC. We do business only with high net worth clients of HSBC. Relationship managers of HSBC sell our insurance products to their clients as part of a financial planning process. We have recently tied up with the Kolkata-based United Bank of India (UBI).

We have just commenced selling through them. The tie up with UBI is for only life insurance products; with OSCB, the arrangement is for both life and non-life products.

We also cover customers of Citibank's credit cards, home loans and personal loans. These are our four bancassurance initiatives. We expect this channel to contribute 12-13 per cent to our business in another year.

What is the current size of your agency force and what are your plans to scale it up?

Currently, we have an agency force size of about 18,000. We should get to a figure close to 30,000 by the end of November this year, which represents the financial year-end for AIG.

Could you give us a snapshot about how your rural operations have done?

We have done well in the rural market. Since the first year, we have been exceeding our targets. In the first year, the commitments was to sell five per cent of all policies sold in the rural market; against that we did about 11 per cent.

We have a strong rural base made up of corporate agents and non-governmental organisations. In the just-ended year we have done 14.3 per cent as against 12 per cent that was stipulated by the IRDA.

We do a lot of term plans with return of premium plans in this market, apart from the money back policy. We think it is not appropriate to sell complicated products in this market; we prefer to sell simple products, instead.

What would the percentage of premium contribution from the various geographies within the country?

The East is our largest business contributing about 35 per cent to our business; the rest of the contribution would be shared equally by the other three regions. Our franchise has developed well in the East. It also has to do with the fact that Tata is a household name in that region, because of Tata Steel and Tata Tea.

What, in your view, are the likely consolidation trends in the medium-to-long term in the industry?

When the IRDA opened the market up four-five years ago, they awarded licenses to those who have staying power. That's why you don't see 50 players coming in at the first go.

At the time of opening up the industry, there was a debate on what would it mean for the customer in the market and his perception of the new players after having been used to only one player.

Mindful of the fact that the collapse of any private insurer would be a big blow to the entire private insurance industry as a whole, IRDA gave out licenses only to those it believed had enormous staying power.

In my personal opinion, though mergers are a reality in any industry, I don't think one can predict whether it would happen in the next three to five years. My personal view is that it would depend on the overall health of the global companies and not on what happens in India.

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