Insurance companies added only a few customers in the last one year and it was mainly renewal premium which drove collections ever since the eruption of the global economic crisis in September 2008, says SB Mathur, secretary-general, Life Insurance Council, a lobby group comprising 22 life insurers. New premium declined by Rs 6,000 crore last year but renewal premium increased by Rs 26,000 crore. In an interview, Mathur says the Council is opposing the imposition of a minimum alternate tax on companies and personal income tax on withdrawals by policyholder, as envisaged in the proposed Direct Taxes Code.

Excerpts:

How has the insurance industry coped with the crisis?

The sector is growing. New premium is also growing, driven mainly by LIC (Life Insurance Corporation). Though the private sector is not yet growing, the interest in the market has grown considerably. Enquiries and calls are increasing but not yet translating into sales. However, LIC has been growing significantly and we understand that from November onwards, things will improve even for the private sector in terms of new businesses. As far as renewal is concerned, the first quarter results show a good improvement both in terms of absolute renewal premium as well as in units. The growth for unit-linked policies is much faster, which shows that all allegations of churning or miss selling do not appear to be correct. There will be a few cases where an adequate matching of customers' needs and products is not seen but going by renewal premium and looking at the data of surrenders, we feel the quality of sales has reflected persistence and the growth in renewal is showing significant improvement.

Is renewal premium driving the sector, now that there are few new customers?

Last year it was renewal that drove growth since renewal premium increased by Rs 26,000 crore, while new premium fell by Rs 6,000 crore, so the industry's total premium increased by Rs 26,000 crore last year. Also, the trend continued it the first quarter of this year. We will come to know the current situation when the second quarter results come out in about a month's time. Individual interactions with the players show that there is now a growth in renewal premium.

What about profitability?

Profitability will start flowing because in the last three years companies have changed tracks. From top-line obsession they have shifted their focus to the bottomline. Look at the number of employees. Though a number of new players have come up, the number (of employees) has not gone up significantly, whereas, the figure grew very rapidly in the last few years. Similarly, the number of offices is growing but not very rapidly. In fact, some of the companies have reduced the number of agents, although they have also added new agents. This indicates that they are also rationalising the portfolios of the agents. Last year, three companies recorded profits: SBI Life, Kotak and Bajaj. This year, we will find a few more companies recording profits and this shows that the focus has shifted to profitability. Also, take a look at commissions, which have been criticised. When the sector was opened up, the total commission as a percentage of premium income was more than 12 percent. This figure came down to 6.5 percent last year. Competition and growth in volumes, with a minimal regulatory intervention, have driven this.

What, in your opinion, are the problems with the proposed Direct Taxes Code?

There are two basic issues—one is on the corporate side, which is MAT (minimum alternate tax) and this appears to be unrealistic. This is because once they say insurance is a pass-through business there should be no MAT on a policy holder fund. If at all, it should be on shareholders' funds and that too, by a smaller percentage. 2 percent (as proposed in the code) is very large. In an industry where investments are mandated by the regulator, a 2 percent charge is very high and unrealistic. Secondly there should be adequate clarity for carry-forward losses. The code says some protection is there but what about the existing carry forward of losses? From the investors' point of view, EET (Exempt-Exempt-Tax) is being imposed.

The Indian investor has intermittent needs for savings. It is not like other countries where one only saves for life after retirement. Here one has to provide for children's education, for their marriage, for houses and also for health and life after retirement. Thus, intermittent savings are needed. To say 20 years is the minimum period for savings to qualify for a rebate is not realistic. We have suggested that the time period should be a 10-year one. Secondly, we feel that inflation indexation benefit should be awarded. EET protection is given to mutual funds, wherein 70 percent of the funds are corporate funds - but long-term investors are put to tax even earnings, which is very unrealistic.

What about IPO norms for insurance companies?

The IRDA is working on it. The chairman has announced that they will be releasing the norms shortly and are considering a minimum of 5 years. When people want to go public, they have the confidence and they are retaining substantial stake. They should be given the freedom to take a market risk. If they are not strong enough and are beaten in the market, it should be left to individual companies.

Are there any proposals on allowing a bank to sell policies of more than one insurance company?

I can't say anything now. The IRDA has appointed a committee and the committee is to give its recommendations.

IRDA has reduced the Ulip charges, effective October 1. What do you think will be its likely impact?

There will be contraction on margins. There are three stakeholders—promoters, distributors and investors. The investor is protected; promoters will see how much the distributors' margin can be cut and how much they can absorb. The competition is already driving the margins lower. As I mentioned earlier, the capping will come in to effect just now but without any capping and any regulatory intervention, the commission as a percentage of premium income has almost halved in the last 8-9 years.