Tarun Chugh, Managing Director and Chief Executive Officer of Bajaj Allianz Life Insurance, says he would be happy if there’s a review of the government decision last year to withdraw tax sops for high-value policies. Chugh, whose company manages assets worth Rs 1.10 lakh crore, tells GEORGE MATHEW that 18% Goods and Services Tax (GST ) on insurance makes it costly for people to buy the product. Excerpts from an interview:
The industry has grown at an average of about 9% till February. The private sector has grown by about 12-13%. We have grown as a company by about 24% approximately — twice the private sector. The interesting thing is going to be this March as last March, if you remember, we had that big fire sale, as they call it, as the government removed the tax exemption on policies above Rs 5 lakh premium from April 1, 2023. We had a 41% growth in the month of March. So, it will be interesting to see how the sector grows in March this year. Normally our average premium is about Rs 73,000-74,000. Suddenly we got a lot of money above Rs 5 lakh last year. I won’t be surprised if companies are flat for the month of March or degrow in the month of March. But that was a one-off thing. You are not going to get that again.
How is the sector doing now? Do you expect the government to bring back tax sops on high-value policies?
After March, it slowed down but I think it’s still encouraging because despite all that (tax issue), it has been growing at 12-13%. And what we have seen is above Rs 5 lakh, our number of policies have come down. We would be happy if there is a review but I will be surprised if there is one.
What is your view on 18% GST on insurance? Do you think there should be a review of that rate?
They should. We keep on representing. But it has not been of much use till now. We are now waiting for the election to get over and we will again reach out to them. See, today it is 18% and in other markets like Singapore and Hong Kong, there is no GST or VAT on insurance. So anyway, it is a difficult product to buy. People don’t want to take insurance. On that also, whatever insurance they take, you are going to put an 18% tax which will make it costly for them. Ideally, they should reduce it to 12% or 5%.
What is your view on insurance reforms which the government was planning to introduce in the parliament? What is your view on this composite licence?
It has not yet been presented. I don’t know whether that will be in the Monsoon Session… probably. Maybe it will be in the Winter Session. On the composite licence, I am told it is part of that. If it comes, it will be useful in some ways. But basically, there are two sides to it. There will be newcomers who will come and do whatever. Maybe they might take a composite licence and they will be happy with it. Now we (Bajaj) already have a life company, we have general insurance. If we were to convert into a composite licence, it allows you to do a lot of lines of business — commercial lines, fire and motor. The only thing I will be interested in, maybe, is health. But I am not going to be interested in the other parts of that (general insurance) business.
If the government allows 100% FDI in insurance, what will be your response to it?
Good, it should be. There are some international companies who would possibly want to take 100%. But honestly, at this point in time, not many companies have the capability of investing today. If you look at what is happening in the globe, who is talking of increasing stakes anywhere in the financial services? Nobody is. It is only India which is hopeful because India is doing well. But if you are talking about Bajaj Allianz per se, there is a shareholder agreement by which they have their rights. So, we are not a listed company anyway. From that perspective, I don’t see any change happening.
Are you planning to list on the stock exchanges?
There is no need. For listing, ultimately equity has to be given to the public and for that somebody has to sell the equity or more equity has to come. We don’t require any money. We have the highest capital in the entire insurance sector — Rs 11,000 crore of capital. We can actually do with just about Rs 3,000 crore. The rest is excess capital. I don’t require to raise any capital. Neither Allianz wants to sell nor would Bajaj want to sell. And we don’t want fresh capital.
There is a view that investors have not understood the valuation of insurance companies
The way the valuation of a life insurance company happens globally is (based) on the concept called new business value (NBV), which is basically an assumption-based model of all the cash flows that are expected on the insurance policy. Then they aggregate it for the entire company, which is like you may have lakhs and lakhs of policies. And that NBV is what is reported. I joined the insurance sector in 2004. It took me four years with a lot of tutoring to really understand the balance sheet of a life insurance company.
Insurance Regulatory and Development Authority of India(IRDAI) now talks about Bima Sugam. When is it coming?
Bima Sugam is a marketplace. Bima Sugam is a huge change from where the sector is today. What it is talking about is one marketplace where you have the account aggregator, the demat account, all insurance providers, insurance companies, agents, brokers and banks in one place. Your income tax, e-KYC… all this will be in one place. It is a massive project. I think it was announced when it was conceptualised. But now we are seeing progress. Setting up a marketplace is like setting up an Amazon. But Amazon is a marketplace for all products. This is specially for life insurance.
There is no documentation required. All of this becomes automated and then you will be able to store your life insurance policy in a demat account. And nowhere in the globe does this happen. It is not easy because you have got so many stakeholders. In life and general segments, you’re talking about 60-65 companies and their systems have to get integrated with this. I think it will be up and running for a few segments for sure, but I think it will still take a little bit more time.
Do you expect premiums to increase in the next fiscal?
The premium usually tends to increase related to the economy. If it is 8% growth in the economy, then you can expect 1.5 times growth in the premium. If the economic growth is 6%, the growth of the entire premium is 9%. For the private sector, it is usually 2 times the GDP. If the real growth is only 6%, we’re growing at 12% (premium).
If the growth is 8%, hopefully, we should be 14%-16%. But there are other dynamics at play… the market dynamics, how stock markets are doing and are people saving or not saving?
How’s competition playing out in the sector?
When competition plays a role, the entire industry tends to grow. Competition from other financial services makes a big difference. If FD rates go up, then there’s lesser investment in life insurance. If your FD rates go up, you will rather put money in FD and not in Insurance. If the FD rates come down, then Insurance will be more. Then the next linkage is the stock market. If stock markets tend to go up, SIPs tend to take all the money, right? SIPs are now getting Rs 19,000 crore (last month). It used to be like Rs 4,000 crore three years back. All these dynamics play a role.
As you’re operating across the country, which region has the maximum penetration?
Penetration would be tough to say but the highest premium is in Maharashtra for all the companies because Maharashtra has a high GDP anyway. If I look at cities, Mumbai and Delhi have the maximum. I would say, almost 8-9% of the entire business. In Northeast, there are some states which are doing very well. Assam is doing well. Guwahati is a very big place for us and then Tripura is something we are seeing good. In Manipur, there’s a problem.
South India is doing well. So, today I have bank branch tie-ups for distributing my policy in Tamil Nadu. Even in Kerala we are hoping to announce a big tie-up but with all the Kerala banks we have a very strong relationship.
Are there any opportunities for takeovers in the insurance segment?
There are a few offers which are always there in the market but we are very choosy. And if you look at the market share now, the top 10 companies in the private sector have almost 88% of the private sector market share.
Tarun Chugh 
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