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Aditya Birla Sun Life Insurance (ABSLI), which ended FY24 with around Rs 17,500 crore in gross written premiums (GWP), aims to double its business in the next three years. In a conversation with Narayanan V, MD & CEO Kamlesh Rao outlines the company’s growth strategy, distribution mix, and the impact of recent regulatory changes. In Q1, we achieved a 20% growth, slightly below the private industry’s growth of 26%. However, in Q2, our GWP growth surged to 44%, significantly outperforming the private sector. For H1 FY25, our GWP increased by 33%, surpassing the industry growth of 21% and the private life insurance sector’s 24%. ABSLI ended FY24 with Rs 17,260 crore in GWP. Our goal is to double our business in three years, requiring an annual growth rate of 25-26%. We have exceeded that target in the first six months of this year. Moving forward, we will focus on driving premium growth through a balanced mix of proprietary channels (agents and digital) and partnerships (bancassurance), while improving productivity and capacity. Proprietary and bancassurance channels contribute 38% and 62% of ABSLI’s business, respectively, with both showing strong performance in H1FY25. Proprietary business grew by 32%, while bancassurance grew by 34%. We currently have over 59,900 agents and 11 banking partners, including recent additions like IDFC First Bank, Bank of Maharashtra , and Axis Bank . Business from Axis Bank is expected to pick up in H2FY25, and the three new partners are projected to contribute 10-15% of our topline this fiscal. In addition, business from our largest partner, HDFC Bank , has grown 35% year-on-year. We have also made some significant investments including agency and direct business. That will also help the premium growth on the proprietary side of the business. The mention, perhaps, was to urge banks to focus on deposits. I can’t comment on what banks will do. Our strategy remains centred on increasing contributions from banks. Insurance penetration among savings account holders is still very low and we believe it can get better with time. Banks distribute a range of products—loans, mutual funds, insurance, and broking accounts—and insurance is an important part of their fee-based income. We believe there will continue to be space for insurance in their product mix. On the proprietary side, we once had over one lakh agents but reduced this to 50,000 by removing inactive agents. While we’ve grown back to 59,000 agents, the focus is now on improving activation rates rather than expanding headcount. We are in no hurry to get back to one lakh agents. Our distribution mix will stay in the same range or at the best become 45%-55% between proprietary and Banca. If a customer pays Rs 1 lakh annually for three years, the surrender value after three years has increased by 20-30% under the new guidelines. This is a positive change from a customer perspective. However, insurance is primarily a maturity product, not a surrender product. These changes do impact margins for insurers for two reasons: One, the surrender value for the first year, which didn’t exist earlier, now has a certain value. Secondly, surrender values for subsequent years (2, 3, and 4) are slightly higher than before, while values after five years remain similar to the old regime. We have addressed margin challenges in two ways. First, we introduced differentiated commission structures for distributors, including banks, agents, and brokers. For those with a large book and substantial renewal commissions, we pay commissions upfront but claw them back if the second-year premium isn’t received. This incentivises better persistence rates. For new distributors without an established book, we pay lower commissions initially, which increase as their business grows. Second, ABSLI’s products include loyalty benefits that accrue yearly. The more premiums a customer pays, the greater the accrued benefits, making maturity returns more attractive. For customers exiting in the second or third year, we have adjusted loyalty benefits to be lower initially but higher in subsequent years. By structuring distributor commissions to depend on second-year premiums and redesigning loyalty benefits, we are addressing margin pressures from the new surrender value regulations. The GST rate cut is primarily anticipated for health insurance , and in life insurance, it may apply to the protection segment. If implemented, it will slightly reduce costs for customers. However, our bigger concern today is the rising cost of protection products due to increased reinsurance rates. Over the last two years, premiums for protection policies have risen significantly. While reinsurance rates for short-term protection policies have returned to pre-COVID levels, rates for long-term policies (15, 20, or 30 years) remain high. This limits the growth of the protection business. Ultimately, GST is applied to the final premium value. The high reinsurance rates have already led to a decline in the protection business for many life insurers. A reduction in reinsurance rates, when it happens, will drive protection business growth more effectively than a GST rate cut alone. None
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