The fourth largest life insurance company, ICICI Prudential Life Insurance, has undertaken significant efforts over the last four years to amplify its Value of New Business (VNB) and bolster its margins.

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Over this period, the life insurance giant managed to double its VNB from FY19 to FY22, achieving industry record margin levels. Notably, this growth in the Value of New Business for ICICI Prudential Life Insurance occurred despite flat to negative Annualized Premium Equivalent (APE).

Speaking exclusively to CNBC-TV18, Anup Bagchi, MD & CEO, ICICI Prudential Life Insurance said that that large outlining target for the next four years will be focus on 3 things- growth, growth and growth.

Bagchi took over as MD & CEO of ICICI Prudential Life Insurance in July 2023. In the last four months, the strategy at ICICI Prudential Life Insurance has changed from being focused on topline growth over Value of New Business. Bagchi added that growth for the company will be based on the kind of products which customers want.

When asked about his expectations on the APE growth, he said that he expects the company to reach industry average first by the fourth quarter of FY25 and then move one beyond that. Life insurance companies grew their FY23 APE by 18%, whereas private life insurance companies recorded a growth of 23% in their FY23 APE.

According to Bagchi, ICICI Prudential will look at balancing its growth plans on the golden tripod of customers, products and distribution.

For FY24, Bagchi said that after normalizing the strong demand which came for long-term savings policies in Q4FY24, most life insurance companies will post positive APE growth.

Discussing margins, Bagchi mentioned challenges in expanding beyond current levels. The VNB Margin for ICICI Prudential Life Insurance in Q2FY24 was 28%, down from 31.1% YoY. Bagchi attributed this correction largely to the government's decision to tax long-term savings policies over ₹5 lakh starting April 1, 2023. He stated that the fall in demand for these policies influenced other products like ULIPs and semi-guaranteed products, impacting margins. However, Bagchi indicated that margins for the company have largely corrected, with no foreseeable further downside.

Regarding growth segments, Bagchi highlighted the significance of protection and retirement planning products, such as the National Pension Scheme (NPS). Despite the recent taxation of long-term savings policies, Bagchi expressed confidence in the growth potential of the retail protection segment, expecting it to normalize to around 25-30%.

Another big concern for ICICI Prudential Life Insurance has been the falling contribution to APE coming or its parent-ICICI Bank. HDFC Bank’s distribution channel contributes between 65-70% to HDFC Life Insurance’s APE, Axis Bank’s distribution channel contributes upwards of 60% to Max Life Insurance’s APE but ICICI Bank’s distribution channel only contributes only 13% to ICICI Prudential Life Insurance APE. The contribution from ICICI Bank to ICICI Prudential Life Insurance stood at 20% a year ago.

This is largely because ICICI Bank wants to focus on its core banking operations and only sell insurance products which do not come anywhere close to functions of banking products.

When Bagchi was asked if he would want ICICI Bank to sell more of ICICI Prudential products he said that ICICI Bank is completely entitled to its call of not aggressively selling ICICI Prudential Life products. Bagchi also added that ICICI Prudential Life insurance wants to create a well-diversified distribution mix and not have any concentration risk as far as distribution channels are concerned. He said that it is a tough job to create a diversified distribution mix but once done it lays down the foundation of a solid company.

On the question of increasing costs where ICICI Bank is not contribution aggressively and new distribution channels are being built, Bagchi said that ICICI Prudential’s cost-to-WRP is not high at all and most competitive in the industry. According to Bagchi, Its strong share is Agency+Direct also helps the company bring significant cost efficiencies. Multi insurer is a channel where currently the expenses or cost lies and as diversification moves ahead, that cost would also come down.

According to Bachi, product mix will be driven by customer mix but from the company’s end protection and retirement will have a greater thrust. On the distribution mix, currently, 50% is direct+agency, 35% is other multi insurers and 15% is ICICI Bank. Bagchi said that direct channel will see a strong growth and multi insurance channel will see further diversification.

Speaking about increasing demand for protection products like term insurance and credit life products, Bagchi said that the time has come to have a separate tax exemption window for premiums paid towards protection insurance products. The Indian Government is incentivizing house ownership through tax exemption, also incentivizing health insurance and savings & investment but there is not incentivization currently for buying a term insurance policy.

First Published:Nov 21, 2023 1:15 PM IST