According to the June quarter financial results of HDFC Life, ICICI Prudential Life Insurance Company, Max life insurance and SBI Life indicate these four major listed life insurance players are focusing on protection products, which provides impetus to their profitability.
Life insurers’ profitability is measured in terms of value of new business (VNB) margin, which is VNB as a percentage of the present value of future premium. Protection products are seen as more profitable. The value of new business margin at HDFC Life and ICICI Life expanded 370 bps and 680 bps, respectively, over a year. While the metric for Max inched up 10 bps, the gains were restricted on account of high cost overrun due to sales seasonality and investment in the proprietary channel.
Except SBI Life, the other three, on a year-on-year basis, reported 300-710 bps expansion in the share of high-margin protection products, in terms of annualised premium equivalent or APE (see graph). APE is the measure of ascertaining business sales in the life insurance industry. SBI Life’s protection share, in terms of APE, is not truly comparable due to change in product structure. But, in terms of new business premium (NBP), its share of protection products moved up 454 bps over a year to 10.1 per cent.
The firms are likely to sustain focus on growing the proportion of protection products in overall sales. “We’ll continue to strive for pushing the protection business in each of our channels in an aggressive way,” HDFC Life’s management said after the June quarter results. The management believes growth opportunity in the protection space is very large.
“Lower penetration of protection products and highest margin would create upward thrust for such products,” says an analyst with a domestic brokerage. Protection products should grow 30-33 per cent annually, the analyst said. Such a trend would help improve margins, despite expectations of slower increase in APE.