Retail Inflation – Z+ Insurance

If inflation is prolonged, then it’ll start impacting savings products too: MD & CEO, HDFC Life

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Rising inflation has emerged as a key concern all across as it eats into disposable incomes of individuals. Vibha Padalkar, MD and CEO, HDFC Life, told Sandeep Singh that if the inflation is prolonged then it will start hurting demand for savings products too. Stating that the premiums should stabilise now, she also called for the regulator to permit life insurance companies to sell health indemnity as that will allow them to offer innovative solutions to customers. Edited excerpts:

How is inflation hurting the industry and what is the impact of interest rates?

Inflation remains a big concern as it has a bigger impact since it eats into the savings and reduces the disposable income. As disposable incomes reduce, customers react by going for slightly smaller cover or by not covering everyone in the family, etc. If you see the industry numbers, the impact is not much as of now. While there has been some impact on term, it is not so much on savings. However, if inflation is prolonged then it will start impacting savings products too.

As for interest rates’ rise, it is reasonably positive for us. Our transmission is faster and we can pass higher annuity rates. However, the volatility in equity markets is a downside. I think that of the other options to save, insurance continues to do well. The saving quantum itself is, however, reducing.

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The industry has witnessed a rise in premium. Do you see it stabilising now?

The premiums have risen mainly for term policies and the rise has been because of pandemic. Even as there is a lot of talk around rise in premiums, I would like to state that the increase in premium over the last 10 years is less than inflation. Reinsurers have suffered huge losses because of pandemic and if they raise the charge, it is difficult not to raise it. I think, it should stabilise now.

How have Covid death claims been for you?

We have settled claims amounting to over Rs 6,000 crore in FY22 but it has now eased off. We settled close to about 4 lakh claims with gross claims of around Rs 6,000 crore and net claims of Rs 4,300 crore. As a sector I would say that even as it was significantly higher, we paid so many claims without looking too much into the clause I believe that money is important if it is timely. For almost all our non-early claims (if the policy has completed 3 years) we paid within 24 hours or max 48 hours.

While this was for saving schemes, it took around 3 months for term policies as we need to check pre-existing etc and physical checks are required to be done by local field investigator.

Are life insurers getting permission to sell health indemnity?

We have been demanding the regulator to allow us to sell health indemnity but it hasn’t been permitted yet. Our point is that worldwide health sits closer with life than with motor. However, for some reason, general insurers in India are selling health whereas life insurers are not allowed to sell it. That is not logical. We used to be allowed to sell health, but it has been taken away.

My limited point is that life insurers have the largest touch points with their branches and network, but you are not alllowing us to sell. I think the focus should be on penetration of insurance and expansion.

As of now, nothing has moved. We even asked the regulator to allow us to distribute, if you don’t allow us to manufacture. Today, banks can distribute insurance but life insurers can’t distribute health. It doesn’t make sense.

We submitted it almost 18 months ago and the regulator has said that they will look at it. I stay hopeful.

When you say innovations are possible, if you are allowed, what could they be?

Innovation can’t happen if one key piece is missing. For example: When someone is young, he needs more life insurance. Suppose a person is paying Rs 60,000 as premium, I would say that until the age of 55 (nearer to retirement) we would give him maximum of life cover. After that, since he would have built savings too, we will reduce the life cover and increase the health cover. However, for the individual, Rs 60,000 premium will stay constant.

As of now we are not allowed to club various products and sell to the customer, unless we tie up with one insurer. But even that is not seamless.

What are the growth areas for the life insurance?

Growth will come with product innovation. Retirement products are another big growth area. As a nation, pension funds as a per cent of GDP is less than 5 per cent while it is more than 100 per cent in the developed world. While it is increasing, it is not at the desired pace.
People need to understand that the risk of an individual running out of money is very real because of increasing longevity.

How will the merger of HDFC Bank and HDFC limited benefit you?

It can only get significantly better. The way I see it is that today HDFC Bank is my largest distributor, but it is not my parent, so once that happens, there will be full alignment. HDFC Bank will become a financial conglomerate and will not just be a bank. It will have everything to do with any financial service products and will be the parent company of all. They will be able to tell the customer that they know them— if they have a home loan but not insurance etc so the advisory will be better.

If customers give their consent that they would like to be serviced as a single customer, they will be treated as a single customer across all HDFC Group products.

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Ukraine Crisis Could Disrupt Economic Recovery, Say Experts

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India’s economic growth could be impacted by the Ukraine crisis, say experts

India is likely to rank among the emerging economies worst affected by the Russia-Ukraine crisis as a surge in global prices of commodities is set to upend spending plans and derail its pandemic recovery, analysts say.

If the conflict lasts, India, which imports close to 85 per cent of its oil needs, is likely to see its fiscal, trade and account deficits swelled by a surge in crude oil prices to their highest in more than a decade, which will also fuel inflation.

“The contagion from currently rising geopolitical tension is unlikely to remain limited to financial assets and warrants a change in our key macro forecasts for 2022-23,” said Abheek Barua, chief economist at HDFC Bank.

February’s budget was based on an average oil price of $75 to $80 a barrel for the fiscal year starting from April 1, but Brent briefly soared on Monday to nearly $140, its highest in over a decade.

A senior government official said if oil prices averaged $100 a barrel in the fiscal year to March 2023, that could shave 90 basis points off growth, taking it below 8 per cent, from a forecast range of 8 per cent to 8.5 per cent.

In such a scenario, inflation is seen rising by 100 basis points and the current account deficit could widen by 120 basis points to 2.3 per cent to 2.4 per cent of GDP.

DBS Bank says every increase of $10 a barrel in the price of oil lifts India’s consumer price index-based inflation by 20 to 25 basis points, widens the current account gap by 0.3 per cent of GDP, and poses a downside risk of 15 basis points to growth.

The oil price spike is also expected to pressure the government to lower fuel levies and reduce the burden on consumers. That in turn would dent revenues, narrowing the room for capital spending needed to boost growth.

Retail fuel prices could rise 10 per cent or more, starting from this week, as results flow in from elections in key states. To avoid voter backlash at the polls, state-run oil companies have not raised prices since November 4.

“Given the bunched-up increase in the offing, excise duty cuts might be undertaken, to ease pressure on purchasing power and incomes,” said Radhika Rao, an economist with DBS Bank.

But every rupee cut from fuel levies shrinks revenue for the government’s coffers by 130 billion rupees ($1.7 billion) a year. Economists say India could lose as much as 900 billion rupees in trying to lower pump prices.

And a recent battering of markets, which forced a rethink of plans for an $8-billion initial public offer (IPO) of state-run Life Insurance Corporation (LIC) by the end of March, is likely to further dent the government’s financial position.

RATINGS RISK

On the plus side, the government could turn a profit by selling some of its vast grain stockpiles following a rise in global wheat prices that could boost exports of the grain from India.

That could defray expenses on its vast annual purchases of grain at prices above global levels in the effort to support farm incomes.

But India’s fiscal deficit had widened to a record 9.3 per cent in the year that ended in March 2021, thanks to efforts to cushion the shock of the coronavirus pandemic and revive growth.

That meant the ratio of debt to GDP shot up to more than 90 per cent, for the worst among similarly-rated emerging markets.

Although India’s ratings have held steady, agencies have warned of long-term challenges and the need to cut the debt-to-GDP ratio to more sustainable levels.

Government officials said the fiscal deficit could slip by 20 to 30 basis points from a target of 6.9 per cent of GDP in the current fiscal year ending in March if LIC was not listed by then.

“The ratings agencies were not very happy with the fiscal consolidation path undertaken by us in the budget. Further deterioration could concern them,” said a second government official, who also spoke on condition of anonymity.

The government is reworking some key budget figures and the outcome of next year’s spending plans could look very different from the budget outlined last month, he added.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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