John Holden, Chief Executive Ofﬁcer of Canara HSBC Oriental Bank of Commerce Life Insurance Co Ltd., speaks with Geetha Krishnan from the Centre for Executive Education at the ISB, on the emerging trends and challenges in the insurance sector and the unique opportunities in the Indian market.
Can you tell us about your organisation?
Our organisation is a marriage of three large banks – Canara Bank, Oriental Bank of Commerce and HSBC, in a joint venture. The objective is to create insurance for approximately ﬁve crore customers of the three combined banks in India. The company was born in 2008. Four years down the road, we are at a transition point. We have transitioned from the start-up mode into the growth mode. We are now No.10 in the marketplace in terms of top line sales. In terms of the growth environment, we are No. 3. There are many interesting stories and complexities in the growth story, but fundamentally we are in a very strong position.
What is your outlook on the competition in this sector?
The top three players in terms of size are HDFC, ICICI Prudential and SBI Life Insurance, which shows the strength of the bancassurance model (in this model, an insurance company uses the bank’s sales channels to sell its products.) There are some exclusively agency companies and there are other bank insurance start-ups like ourselves. We are the only unapologetic exclusive bank assurer in the marketplace and we are pleased about that. Over the last two years, changes in the market have created many challenges for companies. There are companies that struggle because they grew too fast, others that have managed their sales but not their business and there are some that do not have a model, or at least, appear confused. We have to study the growth pictures of other companies, look at various models and decide which model we would like to adopt for the next 10 years. An insurance company CEO has to wrestle with many strategic challenges.
Are there other new models emerging in the market or will we continue to rely on the traditional approaches using the agency and bank insurance models?
There is nothing new in insurance. In terms of new models, there is an emerging model of e-commerce for online sales. Perhaps, this is the direction insurance is headed, although I cannot say that this would be the case in ﬁve or 50 years. Typically, online sales starts as a small, simple, one-year renewable contract. If you decide that you do not like it, you can exit quite easily. Policy (Life Policy), on the other hand, is a much more complex and long term affair. Once you have made a decision to buy, you are committed to it. As a result, people really want to look somebody in the eye and understand the product before they buy it. I think it would be a ver y slow process for long-term life products to come into the online space. Currently, agency is the biggest distribution model and channel in India, and certainly in Asia. However, its share is shrinking. As it shrinks, the share is taken up by bancassurance. Now there is another feature in play – the changing nature of agencies. Historically, agencies comprise many part-time agents. In the future, there will be more full-time, professionally-trained agents and fewer part-time agents. The third trend is the emergence of Independent Financial Advisors (IFAs) to ﬁll the space in the face-to-face market place left by the contraction of the agency business. It will be interesting to watch IFA emerge in India.
Geetha Krishnan (left) in conversation with John Holden (right)
You have seen UK and a few other countries through the lens of life insurance. How do you compare India with the other markets?
India is a very big market. Size is the challenge here.
I previously worked in South Korea where the major bank partner has 650 branches. Here it is 5,000. The size of the countr y and the logistics of moving people and information across that distance with the existing infrastructure is a challenge. We also see a tremendous opportunity in the relatively low penetration of insurance. At the same time, the market of the number of people who have the need for, and the means to buy insurance is growing ever y year. There is growth unlike anywhere else in the world. That is ver y exciting! The challenge is to reach that opportunity with the available infrastructure and recognise that India is not the same as other markets. You cannot apply the one-size-ﬁts-all approach here and you have to understand the Indian consumer ﬁrst.
India is being touted as a bottom-of-pyramid market from the product industry perspective. Are the products and insurance signiﬁcantly different in India from other markets?
The products in India are reasonably equivalent to the products we have in many other countries across the world. The problem is that none of those products are suitable for people at the bottom of the pyramid.
If I could make a generalisation, the problem is that insurance companies are taking conventional products and conventional approaches and trying to apply them to an unconventional situation, which is microinsurance. It does not ﬁt. We are using the wrong tool for the job and the fact that the products are good somewhere else does not mean that they are good enough for that segment.
What I have learned is that you cannot confuse micro with mass insurance.
If you look at the microinsurance market, the people at the bottom of the pyramid have two needs: health insurance and crop and livestock insurance, not an immediate need for life insurance. If somebody becomes ver y ill and presents a very large hospital bill, it is a serious problem because he will have to sell either livestock or land in order to generate the cash to pay the bills. It may take one or two generations to earn that asset back. Similarly, it is very serious if someone loses livestock or crops.
The micro sector faces more fundamental risks than the life or death of the main breadwinner. We are doing some interesting work to try and understand this scenario. It is important to note that there is the micro- micro market, the R 100 range, and there might be an interesting market emerging in the R 250-750 strata, where people have slightly more money and different needs. It is a mistake to take the wrong product to people who cannot afford to get it wrong. The consequence of wasting money on the wrong product is terrible to contemplate. It is our responsibility to get the product right and reduce the processing cost to as close to zero as possible. I think those who can “think differently” will emerge as winners.
It is important to note that there is the micro- micro market, the R 100 range, and there might be an interesting market emerging in the R 250-750 strata, where people have slightly more money and different needs.
What are the challenges for the industry in India in next few years?
First, the regulators are ver y active and will present many challenges that we must either adhere to or manage. Being nimble enough to negotiate those challenges as well as to anticipate them, position ourselves for them and embrace the change is going to be ver y important going for ward.
The second challenge is that there will be a change in distribution models. Some people are in denial about this and think that agencies are still the best option. Bancassurance used to be perceived as the weak option but it is now increasingly proving to be strong. Standards of compliance required by the regulator will become stricter. This is good for the consumer and will drive the trend from part-time to full-time agents because with part-time employees, their cost of compliance is not justiﬁed by the revenues they earn. On the other hand, when you invest in full-time employees and increase their levels of professionalism, they are more productive and can be a proﬁtable channel. Many people must rethink what they have learned and accepted as conventional wisdom.
What role can B-schools play in shaping the industry’s thought process?
The world is changing and India has seen a great deal of change over the last 20 years. People’s mind- sets will also change. Business may not necessarily take us where we want to be over the next 20 years. Therefore, simply following yesterday’s rules is not good enough. It will not deliver solutions. The people who can break the rules appropriately and ethically can help in innovation. The successful people will be those who can make sense of what is around them and recalibrate that and continue to do this each year. We have partnered with the ISB because we are equipping ourselves to emerge as winners. We need people who have the intellect and the courage to change the plan and recalibrate as the reality changes.