Indian life insurance sector is at cusp of a virtuous growth

The two tough years of pandemic era have reinstated the need for deeper penetration of insurance in the country as insurance is a single backstop solution for insulating the people against financial perils and extending the protection and financial security net. "We deem Indian life insurance sector is at the cusp of a virtuous growth cycle and is well poised to ride on the path of a multi-decade growth rebound era," says Niraj Kumar, chief investment officer at Future Generali India Life Insurance Company, in an exclusive interview with Bizz Buzz

The industry has witnessed multi-fold claims in FY22 compared to FY21, forcing most companies to have additional provisions. The reason for spike in claims can be primarily attributed to claims arising on account of Covid deaths. We have seen a significant uptick in claims in last two quarters/1HFY22, but in spite of the higher claim across all the insurance companies, the claim ratio has been well managed by industry

The next phase of Insurance industry growth is to be driven by robust economic growth and favourable demographic changes amid high and rising mortality protection gap and longevity (retirement) savings gap. India has one the probably the highest mortality protection gap among peer countries, which presents significant growth opportunities for the sector

Shed some lights on India's Life insurance outlook (growth wise)?

Life Insurance as a sector has indeed become quintessential for the economy in the aftermath of Covid and has gained more prominence since Covid-19. The two tough years of pandemic era has reinstated the need for deeper penetration of insurance in the country as insurance is a single backstop solution for insulating the people against financial perils and extending the protection and financial security net. We deem Indian life insurance sector is at the cusp of a virtuous growth cycle and is well poised to ride on the path of a multi-decade growth rebound era. The next phase of growth is to be driven by robust economic growth and favourable demographic changes amid high and rising mortality protection gap and Longevity (Retirement) savings gap. India has one the probably the highest mortality protection gap among peer countries, which presents significant growth opportunities for the sector. These structural growth drivers should ensure that the life insurance sector will continue to deliver around 15 per cent total premium CAGR in the ensuing decade. Besides the increase in FDI limit in the insurance sector to 74 per cent is indeed a strong catalyst for growth in the sector providing immediate backstop in terms of capital for growth and aiding the insurance penetration and financial inclusion in the economy.

Future Generali India Life Insurance outlook

While prima facie, the outbreak of Covid-19 has posed the insurance sector with many challenges, but on crystal gazing it has also provided the sector with myriad of opportunities and the prospects appear encouraging. Going forward, with economic recovery in sight, and Insurance being a long-term investment tool, we reckon both life and non-life Insurance will continue to show strong growth and deeper penetration in Indian markets and insurance company like ours will partake in this growth story. As a part of Future Generali India Life Insurance's endeavor to be a front runner in the Indian insurance space, the company shall strive to outpace the industry growth trends and will continue to build on its strong brand image in the ensuing years.

What has been the position of new premium income for the life insurance industry in the first half of the current financial year and in this quarter? In the next half, what's outlook?

While the new premium income (i.e., Annualized Premium Equivalent (APE)) was impacted in 1QFY22 due to second wave lockdown restrictions, the industry has bounced back in 2QFY22. So, overall in H1FY22 its APE has grown by 17 per cent YoY on a favourable base of -6 per cent in H1FY21. Besides, along with the impact of lockdown, the first half of FY22 also saw a cautious stance by insurance players with respect to selling of high-ticket protection policies owing to hassles of premedical testing. Going forward in the post lockdown era, with increasing awareness amongst people of having an insurance policy as a financial security, there remains a structural demand for insurance. Also, now with Covid cases having receded, the insurance companies are ramping up the sale of protection policies, which will further augur well for new premium growth in the second half.

What is the claim status and ratio of the industry?

The industry has witnessed multi-fold claims in FY22 compared to FY21, forcing most companies to have additional provisions. The reason for spike in claims can be primarily attributed to claims arising on account of Covid deaths. We have seen a significant uptick in claims in last two quarters/1HFY22, but in spite of the higher claim across all the insurance companies, the claim ratio has been well managed by industry. The numbers that we have seen is also high, fortunately, not in the highest bracket and have been well managed. We continue to ensure settlement TAT to be well within 30 days for large part of settled claims that we get. The claim ratio for the industry is likely to get better, as we gradually move out of the Covid era.

Can you shed some lights on Bond markets; the recent investment options on G-Secs with RBI Retail Direct Gilt?

The recent launch of the RBI's Retail Direct Scheme is indeed a step in the right direction aimed at widening the participation in G-Sec bond markets and improving the underlying demand for G-Secs. This scheme was mainly introduced to address the inherent challenges that existed in retail participation in gilts viz- low level of awareness, procedural issues and low liquidity in the secondary markets. With the opening of an additional investment avenue for retail investors, it would be beneficial for all stakeholders, as directing of savings towards G-Secs would bode well for the government and will also enable the retail investors to partake in a secure investment avenue that culminates into stable returns over long term. While investing in gilts under this platform is free of cost and direct, it does require the investor to participate in the primary auction with a non-competitive bid. Thus, investor education and awareness with respect to the days to bid, details of securities, procedures of trading and transacting in small lots along with inherent interest rate risk may be crucial, as lack of awareness may delay the initial retail offtake. Nonetheless with increasing awareness and education of investors and RBI and government's persistent resolve to improve the participation in G-Sec market, the scheme will surely reap fruits in the long run.

Given the fact that we are trading in unchartered territory, should investors consider rebalancing their portfolio? What is the ideal portfolio allocation? Tell us something about the investment strategy/ What is your mantra of long-term investment? Any principles or guidelines which you stick with when investing?

We believe that the decision for portfolio allocation should be determined and aligned with the long-term objectives of the investor. We strongly believe 'A Disciplined asset allocation' is the key success mantra for long term wealth creation. With the stellar outperformance of equity markets over other asset classes, the proportion of Equity exposure in the overall portfolio has gone up for most of the investors. Thus, rebalancing of the portfolio is an absolute necessity and Investors need to follow disciplined asset allocation strategy aligned with their longer-term goals and rebalance their portfolios at periodic intervals along with maintaining a diversified portfolio at any point in time. This would enable the investors to redeploy their money into Equity markets in corrections. We continue to remain extremely constructive on the Equity markets from longer term perspective & believe that investors should not get overwhelmed by the near-term volatility and should look to harness and partake in the long-term compounding power of the markets to achieve their goals.