Union Budget 2021 announced the withdrawal of tax exemption benefits on the maturity benefits of unit-linked insurance plans (Ulips) if their annual premiums exceed Rs 2.5 lakh. However, this will not impact HDFC Life Insurance, the country’s second-largest private insurer (by total annualised premium equivalent or APE), said MD and CEO Vibha Padalkar.
In an interaction with Moneycontrol, Padalkar explained that this was primarily because the company does not sell big-ticket Ulip policies.
“For life insurers that sell a lot of Ulips, there would an impact from the Budget 2021 announcement. For us, there is no impact on the bottomline due to this. Even on the topline, since our sales force has the ability to switch quickly from one product to another,” she added.
Earlier, the maturity proceeds of Ulip policies were tax free irrespective of the premium paid. However, Budget 2021 has said that this tax exemption will be applicable only on the maturity proceeds of Ulips having an annual premium up to Rs 2.5 lakh.
For HDFC Life, Ulips constituted 23 percent of the Rs 4,661 crore individual APE in the first nine months of FY21. APE refers to 100 percent of regular premiums and 10 percent of single-premium policies.
On February 1, HDFC Life shares closed at Rs 699.05, above the previous closing of Rs 677.8 on January 29.
Insurance FDI limit hike proposal
A crucial proposal that was announced by Finance Minister Nirmala Sitharaman was the hike in the foreign direct investment (FDI) limit in the insurance sector from 49 percent to 74 percent. This FDI limit hike will be implemented after an amendment to the Insurance Act, 1938.
This proposal was announced by the government on the expectation that this would lead to capital inflows into the insurance sector.
However, HDFC Life’s Padalkar told Moneycontrol that it FDI inflows would happen primarily in mid-tier and smaller insurance companies.
“There are smaller and mid-sized companies that are perhaps starved of capital since they are still in their growth phase. In cases where Indian partners aren’t willing to put in more capital, foreign partners can step in and increase their stake. Larger companies like us are well capitalised and don’t require additional capital,” she added.
Exchange filings of HDFC Life show that as of December 31, 2020, HDFC held a 49.99 percent stake, while Standard Life (Mauritius) held an 8.89 percent stake under the promoter category in the life insurer. Foreign portfolio investors held a 24.85 percent stake, while the rest was held by individuals and financial institutions.
Overall, as an industry, Padalkar explained, FDI has only been 30 percent in the general sector and 35 percent in the life insurance sector.
“In the industry as a whole, FDI hasn’t touched 49 percent yet. The FDI limit hike announcement is welcome. This is because it is an invitation to global investors stating that India is open for business. The actual money (foreign funds) may start coming in the next four to five years,” she added.
Diversification of sales channels
HDFC Life Insurance posted a 5 percent year-on-year (YoY) increase in its December quarter (Q3) net profit at Rs 263.44 crore on improvements in nvestment income and premium collection.
Padalkar said that there has been holistic growth in both the topline and the bottomline. She added that death claims related to the coronavirus outbreak are also stable and there is no unreasonable spike anymore.
As of December 31, HDFC Life had settled 1,271 individual and 542 group claims related to coronavirus deaths. The Coronavirus-related claim amount is approximately Rs 90 crore. The company had set aside Rs 41 crore as Covid-19 reserves at the end of March 2020 and hasn’t dipped into this amount yet.
“Hopefully, the worst is behind us. Due to the rising awareness about protection amidst Covid-19, term plans are seeing good traction. Even as people start going back to working in physical offices, the realisation about life and its unpredictability has started trickling in again,” she added.
The life insurer recorded 17 percent YoY growth in the protection business (individual APE) to Rs 345 crore for the first nine months of FY21. The protection business includes term plans that pay insurance claims if the policyholder dies during the policy tenure.
Padalkar said what worked well for the company was the fact that HDFC Life wasn’t dependent on a single distribution ecosystem.
“Time and again there are changes in the macroeconomy, customer preference, taxation or regulatory structure. Since we have a diversified distribution network, this balance ensures that our eggs are in several baskets. That has been the core to our strategy,” she said.
HDFC Life has more than 250 traditional partners, including HDFC Bank, RBL Bank, Yes Bank, Bajaj Finance and Ujjivan Small Finance Bank. It also has more than 50 partnerships with health, telecom, mutual fund and fintech firms such as Apollo Health & Lifestyle, Axis Mutual Fund, Airtel and Paytm, among others.
Inorganic growth opportunities
Larger companies like us are well capitalised and don’t require additional capital – Vibha Padalkar
In 2016 Max Financial Services, Max Life and HDFC Life were to be part of a three-way merger. Here, Max Life would have merged with HDFC Life. But this was called off a year later due to regulatory hurdles.
But inorganic growth opportunities are not out of the picture for HDFC Life. Padalkar said that while the company has had 5-6 acquisition opportunities in the past, it would be cautious.
“We have the currency and appetite to do acquisitions but we need to see what we are buying. Can we grow organically by investing in ourselves instead of paying money and buying someone? Still, we may see something in a couple of years, post the pandemic,” she added.
Cost optimisation, branch restructuring
The life insurer is on a cost optimisation path by either reducing the size of its branches or shutting a few that overlap with others. HDFC Life had 391 branches as of December 31 compared to 412 at the beginning of FY21.
“We are looking at branches and seeing how many footfalls each of them get. Two branches are not required in the same vicinity. So, we may shut a few here and there,” she explained.
Further, HDFC Life is also looking at reducing the total area of branches for basic servicing of customers who do not have access to digital infrastructure.
“Say, for instance, if we have a 2,500 square feet branch; it could be reduced to 300 square feet so that it could do basic servicing,” she explained.
Physical to ‘phygital’
HDFC Life is now moving to a ‘Phygital’ model of working, which is a term referring to combination of physical and digital.
Customer-facing teams and sales team will be working from the branches and field since WFH (work-from-home) is not viable for these individuals, said Padalkar.
“Support teams can’t completely work from home because non-formal interaction is needed. But for them, we are saying that your seat won’t be permanent. It will be hot desking. So, if you come two days a week, then you will use that seat. On the other days, some other team will use those seats. That way we can reduce office costs and the reduce number of floors required,” she explained.
‘Hot desking’ is an HR trend globally, where workers do not have a permanent assigned seat in an office and take up whatever desk is available. This helps companies reduce office infrastructure and thereby reduce costs.
A similar focus will be on gig workers, she added. These could include women who have dropped out of the workforce due to maternity or other family commitments and cannot work full-time.
As of March 31, 2020, HDFC Life had 20,257 employees, of which 24 percent were women employees.
“We could start off with say 1 percent of gig workers and it could improve to 4-5 percen
t eventually. Since insurance is still a seasonal business, this model allows us to have flexibility without the high fixed costs,” she added.