Distribution mix could slightly change if there is some slowdown in insurance

(Highlighted paras can be removed for Print. Please retain those for online) Kolkata With the tightening of the monetary policy by the Reserve Bank of India and interest rates moving up, HDFC Life Insurance is clearly witnessing a preference towards non-participating products, says its Executive Director & Chief Business Officer Vineet Arora. In an interview with businessline, Arora says the life insurer’s distribution mix could slightly change going forward if there is some slowdown ion the broking side due to IRDAI’s proposed changes in distribution norms. HDFC Life Insurance’s overall Annualised Premium Equivalent (APE) for the first half of this financial year (H1 FY27) grew 11 per cent y-o-y, while Value of New Business (VNB) increased 12 per cent y-o-y for the period. What is the outlook for the second half? If you look at the first half of the year (H1FY27), the first quarter that we started off was much slower in terms of top line as compared to the second quarter. A lot of momentum picked up towards the second quarter. And this was largely because one of the large partners, which is the HDFC Bank channel, was very slow in the first quarter. There was a base effect, plus there was some momentum slowness in the in the business in that channel. That has now started to pick up. And, the way we are looking at the rest of the year now, we seem to be very confident that we will be in line with the industry growth, maybe slightly better. Our endeavour is always to deliver a VNB which is slightly better than the industry growth number. The product mix has actually improved quite a bit from what it was last year (FY26). We do see the next half (H21 FY27) to be a very good half in the year. After the Reserve Bank of India’s Monetary Policy Committee shifted its stance to “calibrated tightening” from “neutral”, what kind of product mix rebalancing are you planning between Participating (Par) and non-Par products? The product mix is driven by what the customer wants to buy. Customer preferences keep on changing as the macros keep on shifting. With this tightening and interest rates moving up, we are clearly seeing a preference towards non-Par products. Non-Par is basically the fixed income. The rates of non-Par today are very, very good. We would have last seen these rates maybe five years – seven years – back. So, bBecause of the environment and the macro-environment conditions, the rates have moved up, and now we are able to give those kinds of rates to the customer. So, the preference we are seeing is shifting towards non-Par. ULIPs still remain a reasonable portion of our business. It is very resilient. We are seeing people still wanting to invest in ULIPs. So, I think customer behaviour towards the ability to stay with downturn seems to be playing out, and ULPs is staying where it is. At the end of the Q2, for us, non-Par savings was 19 per cent, Par was 10 per cent, and Aannuity was 12 per cent of the overall Aannualised Ppremium Eequivalent (APE). ULIPs stood at 40 percent, whereas Protection was at 15 per cent. We do believe that non-Par contributions to the APE should increase further by a few more percentage points. On the proposed insurance distribution reforms, the management, during the Q2 FY27 earnings call, said due to the proposed reform, the agency channel would be the least impacted, while brokers would be the most impacted. What kind of measures do you need to take going forward? It is a consultation paper, and everybody has given feedback. Once the draft guideline comes in, I think that is the better time to start thinking of what strategy should be. The question is if it comes the way it has been put on paper and no change happens, then there would be a reduction in upfront income and total income also for distribution channels. Now, for channels, which depend only on insurance and whosetheir business model is only an insurance business model like brokers, it would become more difficult to manage. Their cost structure would have to get adjusted accordingly. Banks have a multi-layered revenue stream, hence their impact can be absorbed by one stream or the other. The impact would be lower at the agency channel, and the regulator also has created a slightly higher benchmark for IDPs (Insurance Distribution Persons), which is basically an agency. So their impact would be lower. For HDFC Life, proprietary channels (agency and direct channels) contribute around 25-26 per cent to APE, whereas the bancassurance channel’s contribution stands at around 60 per cent. The remaining would be between brokers and corporate agents. In the proposed distribution reforms, there haves been major cuts in commissions for almost all the products for the bancassurance channel compared to that of for the agency channel. How could the proposed reductions in commissions change the distribution mix for the company? We have been focused on our proprietary business for the last one-and-a-half years to two years, and it is growing a lot faster. Our growth in the proprietary channels is much larger, and that strategy will continue for the next few years. Based on the distribution reforms consultation paper, I can say that bancassurance would be the second impacted. But, I don’t think their (banks’ and NBFCs) business is going to be really impacted because insurance sales will still continue to be a mainstream business on the third-party side of the bancassurance. So, I think that will remain. Hence, the mix could slightly change if there is some slowdown ion the broking side. But otherwise, I don’t see the distribution mix really going too different from what it is today. The agency channel will grow faster than the bancassurance channel for our company. We have made investments in that line, and with that momentum coming in there will be a change in mix. But that change in the distribution mix is not because of the consultation paper. It is because of the strategy that we have been following for the last two years. Q1) HDFC Life Insurance’s overall Annualised Premium Equivalent (APE) for the first half of this financial year (H1FY27) grew 11 per cent y-o-y, while Value of New Business (VNB) increased 12 per cent y-o-y for the period. What is the outlook for the second half? A: If you look at first half of the year (H1FY27), the first quarter that we started off was much slower in terms of top line as compared to the second quarter. A lot of momentum picked up towards the second quarter. And this was largely because one of the large partners, which is the HDFC Bank channel, was very slow in the first quarter. There was a base effect, plus there was some momentum slowness in the in the business in that channel. That has now started to pick up. And, the way we are looking at the rest of the year now, we seem to be very confident that we will be in line with the industry growth, maybe slightly better. Our endeavour is always to deliver a VNB which is slightly better than the industry growth number. The product mix has actually improved quite a bit from what it was last year (FY26). We do see the next half (H1FY27) to be a very good half in the year. Q2) After the Reserve Bank of India’s Monetary Policy Committee shifted its stance to “calibrated tightening” from “neutral”, what kind of product mix rebalancing are you planning between Participating (Par) and non-Par products? The product mix is driven by what the customer wants to buy. Customer preferences keep on changing as the macros keep on shifting. With this tightening and interest rates moving up, we are clearly seeing a preference towards non-Par products. Non-Par is basically the fixed income. The rates of non-Par today are very very good. We would have last seen these rates maybe five years-seven years back. So, because of the environment and the macro environment conditions, the rates have moved up, and now we are able to give those kinds of rates to the customer. So, the preference we are seeing is shifting towards non-Par. ULIPs still remain a reasonable portion of our business. It is very resilient. We are seeing people still wanting to invest in ULIPs. So, I think customer behaviour towards the ability to stay with downturn seems to be playing out, and ULPs is staying where it is. At the end of the Q2, for us non-Par savings was 19 percent, Par was 10 per cent, and Annuity was 12 per cent of the overall Annualised Premium Equivalent (APE). ULIPs stood at 40 percent, whereas Protection was at 15 per cent. We do believe that non-Par contribution to the APE should increase further by a few more percentage points. Q3) On the proposed insurance distribution reforms, the management, during the Q2FY27 earnings call, said due to the proposed reform the agency channel would be least impacted, while brokers would be the most impacted. What kind of measures do you need to take going forward? A: It is a consultation paper, and everybody has given feedback. Once the draft guideline comes in, I think that is the better time to start thinking of what strategy should be. The question is if it comes the way it has been put on paper and no change happens, then there would be a reduction in upfront income and total income also for distribution channels. Now, for channels, which depend only on insurance and their business model is only an insurance business model like brokers, it would become more difficult to manage. Their cost structure would have to get adjusted accordingly. Banks have a multi-layered revenue stream, hence their impact can be absorbed by one stream or the other. The impact would be lower at the agency channel, and the regulator also has created a slightly higher benchmark for IDPs (Insurance Distribution Persons), which is basically an agency. So their impact would be lower. For HDFC Life, proprietary channels (agency and direct channels) contribute around 25-26 per cent to APE, whereas bancassurance channel’s contribution stands at around 60 per cent. The remaining would be between brokers and corporate agents. Q4) In the proposed distribution reforms, there has been major cuts in commissions for almost all the products for the bancassurance channel compared to that of for the agency channel. How could the proposed reductions in commissions change the distribution-mix for the company? A:We have been focused on our proprietary business for the last one-and-a-half years to two years and it is growing a lot faster. Our growth in the proprietary channels is much larger, and that strategy will continue for the next few years. Based on the distribution reforms consultation paper, l can say that bancassurance would be the second impacted. But, I don’t think their (banks and NBFCs) business is going to be really impacted because insurance sales will still continue to be a mainstream business on the third-party side of the bancassurance. So, I think that will remain. Hence the mix could slightly change if there is some slowdown in the broking side. But otherwise, I don’t see the distribution mix really going too different from what it is today. Agency channel will grow faster than the bancassurance channel for our company. We have made investments in that line, and with that momentum coming in there will be a change in mix. But that change in the distribution mix is not because of the consultation paper. It is because of the strategy that we have been following for the last two years. EoM HDFC Life Insurance’s overall Annualised Premium Equivalent (APE) for the first half of this financial year (H1 FY27) grew 11 per cent y-o-y, while Value of New Business (VNB) increased 12 per cent y-o-y for the period. What is the outlook for the second half? If you look at the first half of the year (H1FY27), the first quarter that we started off was much slower in terms of top line as compared to the second quarter. A lot of momentum picked up towards the second quarter. And this was largely because one of the large partners, which is the HDFC Bank channel, was very slow in the first quarter. There was a base effect, plus there was some momentum slowness in the in the business in that channel. That has now started to pick up. And, the way we are looking at the rest of the year now, we seem to be very confident that we will be in line with the industry growth, maybe slightly better. Our endeavour is always to deliver a VNB which is slightly better than the industry growth number. The product mix has actually improved quite a bit from what it was last year (FY26). We do see the next half (H21 FY27) to be a very good half in the year. After the Reserve Bank of India’s Monetary Policy Committee shifted its stance to “calibrated tightening” from “neutral”, what kind of product mix rebalancing are you planning between Participating (Par) and non-Par products? The product mix is driven by what the customer wants to buy. Customer preferences keep on changing as the macros keep on shifting. With this tightening and interest rates moving up, we are clearly seeing a preference towards non-Par products. Non-Par is basically the fixed income. The rates of non-Par today are very, very good. We would have last seen these rates maybe five years – seven years – back. So, bBecause of the environment and the macro-environment conditions, the rates have moved up, and now we are able to give those kinds of rates to the customer. So, the preference we are seeing is shifting towards non-Par. ULIPs still remain a reasonable portion of our business. It is very resilient. We are seeing people still wanting to invest in ULIPs. So, I think customer behaviour towards the ability to stay with downturn seems to be playing out, and ULPs is staying where it is. At the end of the Q2, for us, non-Par savings was 19 per cent, Par was 10 per cent, and Aannuity was 12 per cent of the overall Aannualised Ppremium Eequivalent (APE). ULIPs stood at 40 percent, whereas Protection was at 15 per cent. We do believe that non-Par contributions to the APE should increase further by a few more percentage points. On the proposed insurance distribution reforms, the management, during the Q2 FY27 earnings call, said due to the proposed reform, the agency channel would be the least impacted, while brokers would be the most impacted. What kind of measures do you need to take going forward? It is a consultation paper, and everybody has given feedback. Once the draft guideline comes in, I think that is the better time to start thinking of what strategy should be. The question is if it comes the way it has been put on paper and no change happens, then there would be a reduction in upfront income and total income also for distribution channels. Now, for channels, which depend only on insurance and whosetheir business model is only an insurance business model like brokers, it would become more difficult to manage. Their cost structure would have to get adjusted accordingly. Banks have a multi-layered revenue stream, hence their impact can be absorbed by one stream or the other. The impact would be lower at the agency channel, and the regulator also has created a slightly higher benchmark for IDPs (Insurance Distribution Persons), which is basically an agency. So their impact would be lower. For HDFC Life, proprietary channels (agency and direct channels) contribute around 25-26 per cent to APE, whereas the bancassurance channel’s contribution stands at around 60 per cent. The remaining would be between brokers and corporate agents. In the proposed distribution reforms, there haves been major cuts in commissions for almost all the products for the bancassurance channel compared to that of for the agency channel. How could the proposed reductions in commissions change the distribution mix for the company? We have been focused on our proprietary business for the last one-and-a-half years to two years, and it is growing a lot faster. Our growth in the proprietary channels is much larger, and that strategy will continue for the next few years. Based on the distribution reforms consultation paper, I can say that bancassurance would be the second impacted. But, I don’t think their (banks’ and NBFCs) business is going to be really impacted because insurance sales will still continue to be a mainstream business on the third-party side of the bancassurance. So, I think that will remain. Hence, the mix could slightly change if there is some slowdown ion the broking side. But otherwise, I don’t see the distribution mix really going too different from what it is today. The agency channel will grow faster than the bancassurance channel for our company. We have made investments in that line, and with that momentum coming in there will be a change in mix. But that change in the distribution mix is not because of the consultation paper. It is because of the strategy that we have been following for the last two years.