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Following the change in the charge structure, Aviva Life Insurance India has dramatically changed its strategy. The focus is now on increasing productivity and maintaining a tight leash on quality. In an interview with ET, MD & CEO TR Ramachandran speaks of the changes that have taken place:

The life insurance industry in India appears to be going through a tumultuous phase, given the regulatory changes. How do you see it?

I think it will fundamentally redefine the industry. Two things are going on. On one hand, there is this whole move to increase public disclosures. This means that the media and analysts will have access to much more nuanced data rather than just first-year premium. This and the build-up to IPOs will see companies focus more on other parameters than just new business premium. On the other hand, there is the direction that products are taking.

We have to increase the share of protection in our portfolio. That will mean not just change in products but change in the way distributors are trained and incentives. I don't think traditional products are the answer, it is not about replacing one type of product with another.

Do you see sales being hit?

Fortunately, the first quarter of the year is the weakest part. The way the cycle happens is that products are launched in the first quarter, start selling around the second quarter and sales picking up after Diwali, Dusserah. But volumes could take a hit if some of the issues are not resolved soon.

Maintaining status quo on Ulips is all right for the time being because one of the unintended consequences of the change in charge structure was that a whole lot of new products were launched in January 2010. But sooner than later, the situation has to change.

Aviva India was seen to be badly hit after it lost its bancassurance partners. How has that changed your strategy?

That was a couple of years ago. We can't ignore our strengths in bancassurance. Globally, Aviva's model is the bancassurance model. But the nature of the beast in India is that it is a multi-distribution model. Therefore, we have done a lot of stuff on the agency side. But with 3.5 million agents already in the market, hiring the next one lakh agents will not make a difference. Also, having a large agency force has a great significance on how your costs ratchet up.

We are now trying to do version 2.0 of what the agency channel should look like. We are applying much more analytics to find out who our successful agents are and we found a few interesting things. For instance, in Karnataka and Tamil Nadu, people over 50 make better agents whereas in the Hindi heartland, females above 35 have a higher level of success. So rather than have a large number of agents, I am happier with 20,000 agents giving better productivity and being tightly monitored for quality. Our agents have come down from a peak level of 45,000 to around 22,000, but our sales have increased 40%. Last financial year saw our topline grow by 15% while expenses went down 30% and persistency improved.

Now there is pressure on margins because of the cap on charges, how do you plan to bring down costs?

If you keep all the expenses of an insurance company on one side and keep your people costs and distributor costs, the latter will be higher. There will be short-term pain for the industry but the cost of distribution will have to come down.

Do you see agency commission coming down?

It will depend on the new regulations. What the Life Insurance Council and Irda have been trying to convey to the public is that over the tenure of the policy, the charge structure is not high but the pain comes because of the front-loading of charges. I think the groundswell of charges is that because commission is front loaded, charges are front loaded and the customer who does not last out the tenure of the policy loses out.

Maybe, there is a case for spreading out over the life of the policy, but in order for that to happen, it is important that the insurance amendment bill goes through and Irda gets the power to change the rate of renewal commission.

How is Aviva doing internationally?

Last year, analysts were tracking capital conservation position of companies. The solvency surplus as per the EU Insurance Groups Directive rose to £4.4 billion. Aviva is in a strong position, having partially hived off its Delta Lloyd (a Dutch subsidiary) stake and sale of Australian business. The group is again looking to grow out.

Do you see any further capital infusion?

Our paid-up capital is Rs 1,880 crore. We are unlikely to need capital this year. If we do, it will be marginal. It will ultimately depend on how the charge structure changes.

Source:http://economictimes.indiatimes.com/