Shikha Sharma, CEO, ICICI Prudential Life Insurance, talks to V Jagannathan on what keeps her company at the top.

Chennai: Though industry rankings have changed amongst the private sector life insurers, the Mumbai-based ICICI Prudential Life Insurance Company Limited continues to hold on to its top rank ever since it started operations.

Says Shikha Sharma, chief executive officer, ICICI Prudential Life Insurance, "The company has grown at 148 per cent CAGR over the past three financial years. It has emerged as the only private life insurer to have crossed a number of milestones with amazing regularity, the most recent being the Rs6,000-crore figure of funds under management (FuM), making its asset base the largest amongst all private life insurers."

According to her, long-term funds account for the bulk of the investment of the FuM. "Though no new penetration figures are available for life insurance, it is evident that penetration is increasing as private life insurers spread their wings and focus on capturing both depth and breadth of different locations," Sharma says.

She also says that the rural segment offers significant scope for expanding the life insurance business. "We recently crossed the five-lakh policy mark for rural and social sector policies. This is a testament to the scalability of the rural operations we have built up."

In the half year April-Sept 2005, ICICI Prudential Life earned an annualised premium income of Rs668.2 crore. In the preceding financial year, the annualised premium was Rs1,256 crore. The company's new business achieved profit (NBAP) – also known as embedded value – in FY05 was Rs312 crore.

ICICI Prudential Life is the first life insurer in the country (including the Life Insurance Corporation of India) to declare the embedded value-the present value of future profits embedded in the policies sold. Amongst the private life insurers, ICICI Prudential Life has the highest equity base with Rs1,085 crore.

According to Sharma, ICICI Prudential Life pioneered the multi-channel distribution model, which encompasses bank tie-ups, corporate agents, brokers as well as advisors. Today the company has one of the widest distribution networks with 153 branches in 110 locations spread across the country. On service, the focus is to create a variety of touch points in order to enable customers to interact easily with the company.

"ICICI Prudential Life has also instituted a simplified claims process. Our average turnaround time for settling a claim is seven days from the date of receiving the complete documentation," she claims.

While she skirts the question as to the number of agents the company has and their churn ratio, industry sources aver that ICICI Prudential Life has the largest number of individual agents amongst the private life insurers and their attrition rate is also fairly high.

Initially selling traditional policies with guaranteed returns, ICICI Prudential Life changed tracks and got into the unit linked insurance policy (ULIP) bandwagon. "In the period April-September 2005, ULIPs – across all the need segments of child, retirement, savings, etc – contributed to 94 per cent of our premium income," Sharma says.

However, competitors have started to snap at its heels. The company slid down to second position in terms of new business procured in September, October and November 2005. Excerpts

Looking back at the last five years, how do you rate the performance of the life insurance industry in general and that of the private sector in particular?
Over the past five years, the life insurance industry has witnessed a sea change in terms of product offerings, service, risk management, fund options and others. Customers are now much more aware about life insurance and its benefits. What is more, in just a short period of time, life insurance has also become amongst the most exciting sectors to work in or partner with, demonstrating the immense job opportunity it has created.

In fact, today private sector insurance companies have increased their share in the total market to nearly 34 per cent, which is much higher than most industry estimates.

What in your view are the ups and downs of the industry after it was opened up?
Some of the positive developments have been the systematic way the sector has been regulated, ensuring a fair, level field for all the players. The section 80C limit under the Income Tax Act was also increased from Rs70,000 to Rs1 lakh, thereby increasing the limit for insurance premiums receiving tax benefits.

The imposition of a service tax has been a minor setback for the industry. Also, the cap of the pension limit at Rs10,000, and its recent merger into the 80C limit has been a downer for the industry.

ICICI Prudential Life has been the first private life insurer to cross several milestones and has won accolades along the way. Milestones include the 1-million policy mark, FuM of over Rs6,000 crore and most recently, the mark of 5-lakh rural and social policies.

Prospective policy holders seem to prefer the ULIPs of private insurers as they can exit in a shorter term. Your view.
It is possible that because private companies were the first to offer ULIPs in the form that is popular nowadays that we see many customers purchasing ULIPs from them. But ULIPs, like all life insurance policies, are long-term instruments and must be bought with that in mind. The customer will not benefit from a ULIP if he / she holds it for a short period of time. Secondly, private companies are strictly regulated and must follow the laid down capital and solvency requirements, which ensure that they are trustworthy over the long term.

Analysts say the high expense overrun and the declaration of bonus compel private insurers to bring in fresh capital at regular intervals.
Capital must be brought in to maintain the solvency margins prescribed by the regulator. As a company grows and writes more business, the capital base must increase to ensure that the solvency margin for each policy is met. The faster one grows, the greater the capital requirement.

Having said that, ICICI Prudential Life has amongst the lowest expense ratios in the industry. In FY05, its expense ratio was 17 per cent, down from 26 per cent in the previous year.

On the bancassurance side, what is the total market size and how do you plan to capture a sizeable share of this?
While there are no market statistics on the size of the bancassurance channel, its widely recognised that banks and life insurers can build a mutually beneficial relationship and offer their customers a great deal of value-add in the process. Banks give life insurance companies an opportunity to increase their distribution presence, and they also earn a fee income from the arrangement. In FY05, Rs226 crore of ICICI Prudential Life's premium income came through the bancassurance route – possibly the highest amongst private life insurers.

Currently we have seven bank partners – ICICI Bank, Federal Bank, South Indian Bank, Bank of India, Lord Krishna Bank, Goa State Co-operative Bank and Shamrao Vithal Co-op Bank. We work closely with these banks and are always exploring the possibility of partnering with other banks that would like to work with us, and share a common purpose of trying to build a strong customer proposition.

Which are the segments you expect growth, stagnation and deceleration of business over the next three years?
We believe that a retirement solution is a high-potential area and we have invested heavily in it. We have had a number of innovations in that area, with products like the ULIP retirement solutions three years ago, or more recently Golden Years.

Depending on tax regime, we would develop more products in this segment. We are also actively looking at the health insurance space.

Do you expect more new players coming in?
The Indian customer is value focused and hence the profit margins in India are lower than in other countries. Given this, there is space for not more than six to eight life insurance companies over the long-term. Sure, there will be some new entrants, and others will exit. However, each company will have to make considerable inroads and establish scale in order to make a considerable impact.

The entry of new players will result in poaching of agents – the foot soldiers for life insurers. How do you plan to prevent this?
We truly believe in the partnership approach and seek to partner with our advisors to ensure the long-term sustainability of their business, be it through offering them the finest product suite, training, technology and service support to build their business strongly and systematically. We also look at providing alternative career opportunities to them, depending on their potential, inclination and interests. Based on all these initiatives, we believe we offer our advisors a holistic proposition and the right minded partners will prefer to continue their relationship with us.